Financial Performance and Position - The company has not yet achieved commercial sales of its drug candidates, but it applies ASU 606 for revenue recognition in distribution agreements[39]. - The company accounts for CIRM grant disbursements as long-term liabilities, recognizing them as a liability rather than income[42]. - The company has incurred substantial losses historically and is likely to sustain operating expenses without corresponding revenues for the foreseeable future[60]. - As of December 31, 2022, the fair value of Capricor's cash, cash equivalents, and marketable securities was approximately $41.4 million[933]. - The aggregate market value of Capricor's common stock held by non-affiliates as of June 30, 2022, was approximately $82.67 million, based on a stock price of $3.49 per share[82]. - Capricor has 25,255,154 shares of common stock issued and outstanding as of March 16, 2023[82]. Research and Development - The company has promising preclinical data for CAP-2003, with an IND filed with the FDA in 2020 for investigation in patients with DMD[70]. - The core cell therapy technology, based on cardiosphere-derived cells (CDCs), has been administered to over 200 human subjects across several clinical trials[71]. - The company is evaluating next steps for the CAP-2003 program following FDA requests for more information related to manufacturing[70]. Market Conditions and Risks - Recent global market and economic conditions have been unpredictable, potentially affecting the company's liquidity and financial condition[74]. - The merger with Nile Therapeutics resulted in an "ownership change," which may limit the company's ability to utilize net operating loss and tax credit carryforwards[52]. - Management's projections and forecasts are subject to inherent risks and may not reliably predict future results[79]. - The company’s operational projections reflect numerous assumptions that may prove inaccurate, leading to material differences between actual and projected results[79]. Investment and Financial Strategy - Capricor's investment portfolio primarily consists of money market funds and short-term U.S. treasuries, aimed at limiting credit exposure and preserving invested funds[934]. - The company does not hedge interest rate exposure and believes that a hypothetical 100 basis point change in interest rates would not significantly impact the fair value of its investment portfolio[935]. - Capricor's investment policy focuses on high credit quality securities to mitigate default risk[934]. - The company expects to issue additional stock awards and shares in the future, which may dilute the interests of existing security holders[47]. Collaborations and Partnerships - The company collaborates with several institutions, including Johns Hopkins University and the Department of Defense, to support its exosome platform program[69].

Capricor Therapeutics, Inc. (NASDAQ:CAPR) Q4 2022 Earnings Conference Call March 15, 2023 4:30 PM ET Company Participants AJ Bergmann - CFO Linda Marban - CEO Conference Call Participants Joseph Pantginis - H.C. Wainwright Michael Okunewitch - Maxim Group Aydin Huseynov - Ladenburg Brian Corday - BullBear Partners Operator Good afternoon, and welcome to Capricor Fourth Quarter and Full Year 2022 Financial Results and Corporate Update Call. At this time, all participants are in a listen-only mode. A brief qu ...

Financial Data and Key Metrics Changes - As of September 30, 2022, the company's cash, cash equivalents, and marketable securities totaled approximately $46.6 million, an increase from approximately $34.9 million on December 31, 2021 [26] - For the first nine months of 2022, net cash provided by operating activities was approximately $11.8 million, driven by a $30 million upfront payment from Nippon Shinyaku [27] - The net loss for the first nine months of 2022 was approximately $21.3 million, compared to a net loss of approximately $13.8 million for the same period in 2021 [27] Business Line Data and Key Metrics Changes - The CAP-1002 program for Duchenne muscular dystrophy (DMD) is a key focus, with three priorities: executing the HOPE-3 Phase III trial, engaging with the FDA, and securing commercial partnerships outside the U.S. [8][12] - Enrollment in the HOPE-3 trial is progressing, with 18 patients enrolled as of the call date, and the company aims to complete enrollment by the third quarter of 2023 [11] Market Data and Key Metrics Changes - The target patient population for CAP-1002 includes approximately 10,000 boys and young men in the U.S. with advanced DMD, representing about half of the DMD population [7] - The company is exploring additional partnership opportunities in Europe and Asia for CAP-1002, which could expedite approval and support the balance sheet [15] Company Strategy and Development Direction - The company is focused on maximizing the potential benefit of CAP-1002 and reaching patients globally in a timely manner [15] - The exosome platform technology is being developed as a novel drug delivery system with broad therapeutic applications, including a proprietary expression platform called StealthX [16][18] - The company is committed to financial discipline and believes its current organizational structure will support strong momentum entering 2023 [24] Management's Comments on Operating Environment and Future Outlook - Management is optimistic about the progress of the CAP-1002 program and the exosome platform, with a clear path forward for both initiatives [15][23] - The company is aware of the current financial market conditions and is focused on cash management while pursuing growth opportunities [32] Other Important Information - The construction of a GMP manufacturing facility in San Diego is nearing completion, which will support the early commercial launch of CAP-1002 [13] - The company has entered into a distribution and commercialization agreement with Nippon Shinyaku for CAP-1002 in the U.S., with milestone payments anticipated in 2023 [14] Q&A Session Summary Question: Concerns about financing and partnerships - Management emphasized judicious financial expenditures and the importance of enrollment progress in the HOPE-3 trial to maintain a strong cash position [30] Question: Details on the StealthX program - The exosome technology is designed to evade immune detection and deliver targeted messages to specific cell types, likened to a military strike [34] Question: Interim analysis expectations for HOPE-3 - The interim analysis will focus on sample size reestimation to ensure adequate enrollment for the trial [44] Question: Patient recruitment details - The trial includes patients with a performance of the upper limb score of 2 to 5, allowing for late-stage ambulatory patients [48] Question: Market opportunity for late-stage DMD drug - The company plans to treat younger patients in the future, with a robust revenue opportunity anticipated both in the U.S. and internationally [53] Question: Pricing strategy for CAP-1002 - The current pricing target is around $600,000, based on early payer discussions, but this will be evaluated as the company moves toward potential approval [62]

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 September 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 ...

[Special Note Regarding Forward-Looking Statements](index=4&type=section&id=SPECIAL%20NOTE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) This section outlines the nature and inherent risks of forward-looking statements in the Form 10-Q, covering liquidity, drug development, and financial performance [Forward-Looking Statements Overview](index=4&type=section&id=Forward-Looking%20Statements%20Overview) This section outlines the nature of forward-looking statements, highlighting their inherent risks and uncertainties across various operational and financial aspects - Forward-looking statements relate to future events or financial/operating performance, identifiable by words like 'may,' 'will,' 'expects,' 'plans,' 'anticipates,' 'believes,' 'estimates,' 'predicts,' or 'potential'[7](index=7&type=chunk) - Key areas of forward-looking statements include maintaining liquidity, funding operations, timing and completion of clinical trials, regulatory approvals, manufacturing capabilities, intellectual property protection, impact of COVID-19, ability to raise additional financing, and market acceptance of products[7](index=7&type=chunk) - The company cautions that actual results, events, or circumstances could **differ materially** from those described in forward-looking statements due to risks, uncertainties, and a competitive environment, and undertakes no obligation to update them unless required by law[9](index=9&type=chunk)[11](index=11&type=chunk)[12](index=12&type=chunk) [PART I. Financial Information](index=7&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations [Item 1. Financial Statements](index=7&type=section&id=Item%201.%20Financial%20Statements) This section presents Capricor Therapeutics' unaudited condensed consolidated financial statements, including balance sheets, statements of operations, equity, and cash flows, for the specified periods [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Balance sheets reveal increased total assets and liabilities, primarily due to deferred revenue from a new distribution agreement, enhancing liquidity | ASSETS (USD) | June 30, 2022 | December 31, 2021 | | :---------------------------------- | :------------ | :---------------- | | Cash and cash equivalents (USD) | $16,394,067 | $34,885,274 | | Marketable securities (USD) | $35,022,883 | — | | TOTAL CURRENT ASSETS (USD) | $52,623,799 | $36,436,961 | | TOTAL ASSETS (USD) | $58,065,574 | $41,330,323 | | LIABILITIES (USD) | | | | Deferred revenue, current (USD) | $15,745,576 | — | | Deferred revenue, net of current (USD)| $14,254,424 | — | | TOTAL CURRENT LIABILITIES (USD) | $19,547,219 | $4,133,391 | | TOTAL LONG-TERM LIABILITIES (USD) | $19,789,360 | $5,828,966 | | TOTAL LIABILITIES (USD) | $39,336,579 | $9,962,357 | | STOCKHOLDERS' EQUITY (USD) | | | | TOTAL STOCKHOLDERS' EQUITY (USD) | $18,728,995 | $31,367,966 | - Total assets increased by approximately **$16.7 million** from December 31, 2021, to June 30, 2022, primarily due to the addition of marketable securities and an increase in current assets[17](index=17&type=chunk) - Total liabilities significantly increased by approximately **$29.4 million**, largely driven by the recognition of **$30.0 million** in deferred revenue from a new distribution agreement[17](index=17&type=chunk) [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) The company reported increased net and comprehensive losses for Q2 and H1 2022, driven by higher operating expenses and zero revenue | Metric (USD) | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Revenue (USD) | $0 | $204,082 | $0 | $244,898 | | Research and development (USD) | $4,965,088 | $3,497,275 | $10,080,787 | $6,793,597 | | General and administrative (USD) | $2,356,666 | $1,789,974 | $5,072,501 | $3,695,556 | | TOTAL OPERATING EXPENSES (USD) | $7,321,754 | $5,287,249 | $15,153,288 | $10,489,153 | | LOSS FROM OPERATIONS (USD) | $(7,321,754) | $(5,083,167) | $(15,153,288) | $(10,244,255) | | NET LOSS (USD) | $(7,109,411) | $(4,748,266) | $(14,927,505) | $(9,900,189) | | COMPREHENSIVE INCOME (LOSS) (USD) | $(7,086,581) | $(4,748,266) | $(14,904,675) | $(9,900,189) | | Net loss per share, basic and diluted (USD)| $(0.29) | $(0.21) | $(0.61) | $(0.44) | - Revenue for both the three and six months ended June 30, 2022, was **$0**, a decrease from $204,082 and $244,898 in the respective periods of 2021[20](index=20&type=chunk) - Research and development expenses increased by approximately **$1.5 million (41.9%)** for the three months and **$3.3 million (48.4%)** for the six months ended June 30, 2022, compared to 2021[20](index=20&type=chunk) - Net loss increased by approximately **$2.36 million (49.9%)** for the three months and **$5.03 million (50.8%)** for the six months ended June 30, 2022, compared to 2021[20](index=20&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Stockholders' equity decreased to **$18.7 million** by June 30, 2022, primarily due to net losses, despite stock-based compensation | Metric (USD) | Balance at Dec 31, 2021 | Balance at June 30, 2022 | | :----------------------------------- | :---------------------- | :----------------------- | | Common Shares | 24,185,001 | 24,334,952 | | Stock Amount (USD) | $24,185 | $24,335 | | Additional Paid-In Capital (USD) | $139,404,060 | $141,669,614 | | Accumulated Other Comprehensive Income (USD)| — | $22,830 | | Accumulated Deficit (USD) | $(108,060,279) | $(122,987,784) | | TOTAL STOCKHOLDERS' EQUITY (USD) | $31,367,966 | $18,728,995 | - Stock-based compensation contributed **$2,223,233** to additional paid-in capital for the six months ended June 30, 2022[24](index=24&type=chunk) - Net loss for the six months ended June 30, 2022, was **$(14,927,505)**, increasing the accumulated deficit[20](index=20&type=chunk)[24](index=24&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=12&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow improved to a **$17.5 million** inflow due to a distribution agreement, but investing activities consumed **$36.0 million**, leading to a net cash decrease | Cash Flow Data (USD) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net loss (USD) | $(14,927,505) | $(9,900,189) | | Net cash provided by (used in) operating activities (USD)| $17,504,295 | $(7,843,813) | | Net cash used in investing activities (USD)| $(36,037,973) | $(359,371) | | Net cash provided by financing activities (USD)| $42,471 | $13,615,274 | | Net increase (decrease) in cash and cash equivalents (USD)| $(18,491,207) | $5,412,090 | | Cash and cash equivalents balance at end of period (USD)| $16,394,067 | $38,077,964 | - Operating activities generated **$17.5 million** in cash for the six months ended June 30, 2022, a significant improvement from a **$7.8 million** usage in the same period of 2021, primarily due to a **$30.0 million** upfront payment from Nippon Shinyaku[32](index=32&type=chunk)[204](index=204&type=chunk) - Investing activities used **$36.0 million**, largely for purchases of marketable securities (**$49.0 million**) and property/equipment, partially offset by proceeds from sales of marketable securities (**$14.0 million**)[32](index=32&type=chunk)[208](index=208&type=chunk) - Financing activities provided **$42,471**, a substantial decrease from **$13.6 million** in the prior year, mainly due to lower proceeds from stock issuance via ATM programs[32](index=32&type=chunk)[209](index=209&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes detail significant accounting policies, financial position, and operational activities, including a **$30.0 million** upfront payment and increased R&D expenses [1. Organization and Summary of Significant Accounting Policies](index=13&type=section&id=1.%20ORGANIZATION%20AND%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note describes Capricor Therapeutics' business and outlines significant accounting policies, covering liquidity, COVID-19 impact, revenue recognition, and R&D expenses - Capricor Therapeutics is a clinical-stage biotechnology company developing cell and exosome-based therapeutics for Duchenne muscular dystrophy (DMD) and other unmet medical needs[35](index=35&type=chunk) - Cash, cash equivalents, and marketable securities increased to approximately **$51.4 million** as of June 30, 2022, from **$34.9 million** at December 31, 2021, primarily due to a **$30.0 million** upfront payment from Nippon Shinyaku[40](index=40&type=chunk) - The company expects substantial future capital requirements for R&D, clinical trials, manufacturing, and commercialization, and will need additional financing, which may lead to dilution for existing stockholders[43](index=43&type=chunk)[45](index=45&type=chunk) - The COVID-19 pandemic continues to impact business operations, and the full extent of its future impact remains uncertain, affecting clinical trials, product development, and financing[46](index=46&type=chunk)[47](index=47&type=chunk)[48](index=48&type=chunk) - The company adopted ASU 2021-10, Government Assistance (Topic 832), in Q1 2022, which did not materially impact financial statements[78](index=78&type=chunk) [2. Note Payable](index=23&type=section&id=2.%20NOTE%20PAYABLE) This note details the **$318,160** PPP Loan received in 2020, which was forgiven in Q2 2021, resulting in a recognized gain - Capricor received a **$318,160** loan under the SBA Paycheck Protection Program in 2020[80](index=80&type=chunk) - The PPP Loan was forgiven in the second quarter of 2021, leading to a recognized gain of **$318,160**[80](index=80&type=chunk) [3. Stockholder's Equity](index=25&type=section&id=3.%20STOCKHOLDER'S%20EQUITY) This note details the company's ATM equity programs for common stock sales and the number of shares outstanding as of June 30, 2022 - The May 2020 ATM Program, with an aggregate offering price of up to **$40.0 million**, sold **6,027,852 shares** for gross proceeds of approximately **$37.1 million** before expiring on June 21, 2021[83](index=83&type=chunk) - The June 2021 ATM Program, with an aggregate offering price of up to **$75.0 million**, sold **1,267,475 shares** for gross proceeds of approximately **$7.5 million** through September 30, 2021. No shares were sold in Q4 2021 or Q1/Q2 2022 under this program[84](index=84&type=chunk) - As of June 30, 2022, the company had **24,334,952 shares** of common stock issued and outstanding[86](index=86&type=chunk) [4. Stock Awards, Warrants and Options](index=25&type=section&id=4.%20STOCK%20AWARDS%2C%20WARRANTS%20AND%20OPTIONS) This note details the company's warrant and stock option activity, including various equity incentive plans and recognized stock-based compensation expense | Warrants | Outstanding at Dec 31, 2021 | Outstanding at June 30, 2022 | | :----------------------- | :-------------------------- | :--------------------------- | | Number of Warrants | 105,782 | 105,782 | | Weighted Average Exercise Price (USD)| $1.37 | $1.37 | | Stock Options | Outstanding at Dec 31, 2021 | Outstanding at June 30, 2022 | | :----------------------------------- | :-------------------------- | :--------------------------- | | Number of Options | 3,793,824 | 6,036,421 | | Weighted Average Exercise Price (USD)| $2.68 | $2.98 | | Aggregate Intrinsic Value (USD) | $3,104,631 | $4,381,251 | | Stock-Based Compensation Expense (USD) | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :---------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | General and administrative (USD) | $910,638 | $625,141 | $1,768,221 | $1,258,261 | | Research and development (USD) | $247,266 | $87,158 | $455,012 | $207,000 | | Total (USD) | $1,157,904 | $712,299 | $2,223,233 | $1,465,261 | - As of June 30, 2022, **2,601,223 options** remain available for issuance under the respective stock option plans[96](index=96&type=chunk) - The total unrecognized fair value compensation cost related to non-vested stock options was approximately **$12.7 million** as of June 30, 2022, expected to be recognized over approximately **1.5 years**[102](index=102&type=chunk) [5. Concentrations](index=29&type=section&id=5.%20CONCENTRATIONS) This note highlights that **$51.1 million** of the company's deposits were uninsured as of June 30, 2022, though credit risk is deemed low - As of June 30, 2022, the company maintained approximately **$51.1 million** of uninsured deposits across its checking accounts at two financial institutions[104](index=104&type=chunk) - The company believes it is not exposed to any significant credit risk on its cash, cash equivalents, and marketable securities[104](index=104&type=chunk) [6. Government Grant Awards](index=31&type=section&id=6.%20GOVERNMENT%20GRANT%20AWARDS) This note details the **$3.4 million** CIRM Award for the HOPE-Duchenne trial, accounted for as a liability due to potential repayment - Capricor received a CIRM Award of approximately **$3.4 million** to fund its Phase I/II HOPE-Duchenne clinical trial for DMD[105](index=105&type=chunk) - The CIRM Award is classified as a liability because Capricor has the right to convert the grant into a loan, which would require repayment of some or all awarded amounts[106](index=106&type=chunk) - As of June 30, 2022, Capricor's liability balance for the CIRM Award was approximately **$3.4 million**[107](index=107&type=chunk) [7. Commitments and Contingencies](index=31&type=section&id=7.%20COMMITMENTS%20AND%20CONTINGENCIES) This note outlines the company's commitments and contingencies, including operating leases, legal matters, funding agreements, and employee severance packages - Short-term operating lease expenses to unrelated parties were **$17,394** (Q2 2022) and **$39,219** (Q2 2021), and to related parties were **$32,120** (Q2 2022) and **$47,415** (Q2 2021)[112](index=112&type=chunk) - The company entered into a long-term operating lease for **9,396 sq ft** of office/laboratory space in San Diego, with an estimated ROU asset and liability of approximately **$2.7 million** as of October 1, 2021[113](index=113&type=chunk) Lease Liabilities Maturities (USD) | Lease Liabilities Maturities (USD) | Amount (USD) | | :------------------------------------ | :----- | | 2022 (remainder of the year) | $321,677 | | 2023 | $656,678 | | 2024 | $674,931 | | 2025 | $693,732 | | 2026 | $562,627 | | Total minimum lease payments | $2,909,645 | | Less: imputed interest | $(171,296) | | Total operating lease liabilities | $2,738,349 | - Long-term operating lease costs recognized under ASC 842 were **$158,084** for the three months and **$316,168** for the six months ended June 30, 2022[118](index=118&type=chunk) - The company is not a party to any material legal proceedings and has approved severance packages for specific employees, though no liability has been recorded as of June 30, 2022[119](index=119&type=chunk)[123](index=123&type=chunk) [8. License and Distribution Agreements](index=36&type=section&id=8.%20LICENSE%20AND%20DISTRIBUTION%20AGREEMENTS) This note details Capricor's license and distribution agreements, including a significant **$30.0 million** upfront payment from Nippon Shinyaku for CAP-1002 commercialization - Capricor holds exclusive license agreements for intellectual property rights related to cardiac-derived cells (CDCs) with the University of Rome, JHU, and CSMC, and for exosomes with CSMC and JHU[125](index=125&type=chunk) - Under the JHU License Agreement for CDCs, Capricor paid a **$250,000** development milestone in March 2022 related to a Phase 2 study, with a next milestone of **$500,000** due upon successful completion of a full Phase 3 study[131](index=131&type=chunk) - In January 2022, Capricor entered into an Exclusive Commercialization and Distribution Agreement with Nippon Shinyaku for CAP-1002 for DMD in the US, receiving a **$30.0 million** upfront payment[155](index=155&type=chunk)[156](index=156&type=chunk) - The Nippon Shinyaku agreement includes potential additional sales and development milestone payments of up to **$705.0 million**[156](index=156&type=chunk) - The **$30.0 million** upfront payment is allocated to the HOPE-3, Phase 3 clinical study, with revenue to be recognized using a proportional performance method based on patient visit status, resulting in **$15.7 million** current and **$14.3 million** long-term deferred revenue as of June 30, 2022[158](index=158&type=chunk) [9. Related Party Transactions](index=42&type=section&id=9.%20RELATED%20PARTY%20TRANSACTIONS) This note details transactions with related parties, including CSMC and Dr. Eduardo Marbán, covering leases, consulting, R&D, and clinical trial costs - Capricor has lease agreements with CSMC, which also serves as an investigative site for clinical trials. Dr. Eduardo Marbán, a co-founder and stockholder, is the Director of the Cedars-Sinai Smidt Heart Institute[159](index=159&type=chunk) - Accounts payable and accrued expenses to related parties decreased from **$599,388** at December 31, 2021, to **$94,135** at June 30, 2022, with CSMC accounting for the majority[163](index=163&type=chunk) - Payments to CSMC for R&D, clinical trial costs, license/patent fees, and facilities rent totaled approximately **$714,500** for the six months ended June 30, 2022, compared to **$238,800** in 2021[163](index=163&type=chunk) - The company provided CAP-1002 for two CSMC-sponsored clinical trials (REGRESS and ALPHA), receiving approximately **$1.7 million** in monetary compensation, with **$245,000** recognized as revenue in 2021 and none in 2022[164](index=164&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=45&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Capricor's financial condition, discussing operating losses, R&D expenses, and the impact of a new distribution agreement on liquidity [Company Overview](index=45&type=section&id=Company%20Overview) Capricor Therapeutics, a clinical-stage biotech, focuses on DMD and exosome therapies, reporting net losses of **$7.1 million** and **$14.9 million** for Q2 and H1 2022 - Capricor Therapeutics is a clinical-stage biotechnology company focused on developing transformative cell and exosome-based therapeutics for Duchenne muscular dystrophy (DMD) and other diseases[168](index=168&type=chunk) - The company reported net losses of **$7.1 million** for the three months and **$14.9 million** for the six months ended June 30, 2022, with an accumulated deficit of approximately **$123.0 million**[175](index=175&type=chunk) - CAP-1002 for DMD is in a Phase 3 clinical study (HOPE-3), with enrollment expected to complete by Q3 2023 and topline data by Q3 2024. Positive one-year results from the HOPE-2 OLE study were announced in June 2022[170](index=170&type=chunk)[179](index=179&type=chunk) - An Exclusive Commercialization and Distribution Agreement with Nippon Shinyaku for CAP-1002 in the US was signed in January 2022, including a **$30.0 million** upfront payment and potential additional milestones up to **$705.0 million**[177](index=177&type=chunk) - Cash, cash equivalents, and marketable securities of approximately **$51.4 million** as of June 30, 2022, are estimated to fund operations into **Q2 2024**[176](index=176&type=chunk) [Financial Operations Overview](index=49&type=section&id=Financial%20Operations%20Overview) The company relies on equity financings, grants, and collaboration payments, incurring significant R&D and G&A expenses, including non-cash stock-based compensation - The company has no commercial product sales to date and does not expect to generate product revenue until regulatory approval, which is several years away, if ever[184](index=184&type=chunk) - Major sources of working capital include proceeds from public equity sales and the upfront payment from the NS Distribution Agreement with Nippon Shinyaku[184](index=184&type=chunk) - Research and development (R&D) expenses primarily consist of salaries, clinical trial costs, manufacturing costs, and intellectual property prosecution, expensed as incurred[185](index=185&type=chunk) - General and administrative (G&A) expenses include salaries for executive and administrative personnel, professional fees, and corporate expenses[186](index=186&type=chunk) - Non-cash stock-based compensation expense is recognized for stock options and warrants, impacting both G&A and R&D expenses[187](index=187&type=chunk) [Results of Operations](index=51&type=section&id=Results%20of%20Operations) The company reported zero miscellaneous income for Q2 and H1 2022, while other income was **$0.2 million** from ERC, and operating expenses significantly increased | Revenue (USD) | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :----------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Miscellaneous Income (USD)| $0 | $0.2 million | $0 | $0.2 million | | Other Income (USD) | $0.2 million | $0 | $0.2 million | $0 | | Operating Expenses (USD) | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | General and Administrative (USD) | $2.4 million | $1.8 million | $5.1 million | $3.7 million | | Research and Development (USD) | $5.0 million | $3.5 million | $10.1 million | $6.8 million | - The increase in G&A expenses for Q2 2022 was primarily due to a **$0.3 million** increase in stock-based compensation and **$0.3 million** in salaries, legal, and other general expenses[191](index=191&type=chunk) - The increase in R&D expenses for Q2 2022 was driven by a **$1.0 million** increase in product candidate R&D, **$0.5 million** in CAP-1002 clinical development, and **$0.2 million** in stock-based compensation[193](index=193&type=chunk) - For the first half of 2022, R&D expenses increased by **$3.3 million**, mainly due to a **$2.0 million** increase in the exosomes program and **$0.9 million** in CAP-1002 clinical development[194](index=194&type=chunk) [Products Under Active Development](index=51&type=section&id=Products%20Under%20Active%20Development) Capricor is developing CAP-1002 for DMD (Phase 3) with **$9.0-$11.0 million** expected spend in 2022, and an exosome platform with **$5.0-$6.0 million** anticipated spend - Expected expenditures for the CAP-1002 DMD program in 2022 are approximately **$9.0 million to $11.0 million**, covering clinical, regulatory, and manufacturing expenses, including scale-up for potential commercial manufacturing[195](index=195&type=chunk)[196](index=196&type=chunk) - The exosome platform is in early-stage development, with an expected spend of approximately **$5.0 million to $6.0 million** in 2022 for personnel, preclinical studies, and manufacturing, focusing on expanding the engineered exosomes platform[200](index=200&type=chunk) - The duration and cost of clinical development programs are highly uncertain and depend on factors such as trial results, patient recruitment, manufacturing costs, regulatory approvals, and potential delays from the COVID-19 pandemic[201](index=201&type=chunk) [Liquidity and Capital Resources](index=53&type=section&id=Liquidity%20and%20Capital%20Resources) Capricor's liquidity improved to **$51.4 million** by June 30, 2022, driven by a **$30.0 million** upfront payment, despite **$36.0 million** consumed by investing activities | Liquidity and Capital Resources (thousands USD) | June 30, 2022 | December 31, 2021 | | :------------------------------------------------- | :------------ | :---------------- | | Cash, cash equivalents and marketable securities (thousands USD)| $51,417 | $34,885 | | Working capital (thousands USD) | $33,077 | $32,304 | | Stockholders' equity (thousands USD) | $18,729 | $31,368 | | Cash Flow Data (thousands USD) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Operating activities (thousands USD) | $17,504 | $(7,844) | | Investing activities (thousands USD) | $(36,038) | $(359) | | Financing activities (thousands USD) | $43 | $13,615 | | Net increase (decrease) in cash and cash equivalents (thousands USD)| $(18,491) | $5,412 | | Cash and cash equivalents balance at end of period (thousands USD)| $16,394 | $38,078 | - The increase in cash, cash equivalents, and marketable securities to **$51.4 million** was primarily driven by the **$30.0 million** upfront payment from Nippon Shinyaku[203](index=203&type=chunk) - Cash used in investing activities increased significantly to **$36.0 million**, mainly due to net purchases of marketable securities and investments in property and equipment for the San Diego laboratory space[208](index=208&type=chunk) - The company believes its cash resources are sufficient to fund operations for at least the next twelve months but will require substantial additional capital for long-term R&D and clinical programs[210](index=210&type=chunk)[211](index=211&type=chunk) [Financing Activities by the Company](index=57&type=section&id=Financing%20Activities%20by%20the%20Company) Capricor's financing includes a **$30.0 million** upfront payment from Nippon Shinyaku, capital raised through ATM equity programs, and the CIRM Grant Award - In January 2022, Capricor received a **$30.0 million** upfront payment from Nippon Shinyaku as part of an exclusive commercialization and distribution agreement for CAP-1002 for DMD in the US, with potential additional milestones up to **$705.0 million**[214](index=214&type=chunk)[215](index=215&type=chunk) - Under the June 2021 ATM Program (up to **$75.0 million**), the company sold **1,267,475 shares** for approximately **$7.5 million** through September 30, 2021. No shares were sold in Q4 2021 or Q1/Q2 2022, but **11,281 shares** were sold for **$54,300** after June 30, 2022[216](index=216&type=chunk)[217](index=217&type=chunk) - The May 2020 ATM Program (up to **$40.0 million**) sold **6,027,852 shares** for approximately **$37.1 million** before expiring on June 21, 2021[218](index=218&type=chunk)[220](index=220&type=chunk) - The CIRM Award of approximately **$3.4 million**, which funded the HOPE-Duchenne clinical trial, is accounted for as a liability due to Capricor's right to convert it into a loan requiring repayment[221](index=221&type=chunk)[222](index=222&type=chunk)[223](index=223&type=chunk) [Off-Balance Sheet Arrangements](index=59&type=section&id=Off-Balance%20Sheet%20Arrangements) The company reported no off-balance sheet arrangements during the periods presented, nor does it currently have any, as defined by SEC rules - Capricor Therapeutics did not have any off-balance sheet arrangements during the periods presented and currently has none[224](index=224&type=chunk) [Critical Accounting Policies and Estimates](index=59&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section outlines critical accounting policies and estimates requiring significant judgment, including leases, revenue recognition, CIRM Grant, R&D accruals, and stock-based compensation - The company's critical accounting policies involve significant estimates and assumptions, particularly for research and development and clinical trial accruals, and stock-based compensation[225](index=225&type=chunk)[227](index=227&type=chunk) - Leases are recognized on the balance sheet with a right-to-use (ROU) asset and lease liabilities, classified as operating leases, with the incremental borrowing rate used for present value calculations[228](index=228&type=chunk)[231](index=231&type=chunk) - Revenue from contracts with customers (ASU 606) is recognized over time as performance obligations are satisfied, with upfront payments and potential milestones contributing to the transaction price[233](index=233&type=chunk)[234](index=234&type=chunk) - The CIRM Grant Award is accounted for as a long-term liability because the company has the right to convert it into a loan, requiring potential repayment[238](index=238&type=chunk) - R&D expenses and clinical trial accruals are based on estimates of services received and efforts expended, with adjustments made if actual results differ from estimates[239](index=239&type=chunk)[240](index=240&type=chunk)[241](index=241&type=chunk) - Stock-based compensation expense is recognized over the vesting period, with fair value estimated using the Black-Scholes option-pricing model, requiring assumptions about volatility, expected term, and risk-free interest rates[246](index=246&type=chunk)[247](index=247&type=chunk) [Recently Issued or Newly Adopted Accounting Pronouncements](index=65&type=section&id=Recently%20Issued%20or%20Newly%20Adopted%20Accounting%20Pronouncements) The company adopted ASU 2021-10 in Q1 2022, requiring government assistance disclosures, which had no material impact on financial statements - The company adopted ASU 2021-10, Government Assistance (Topic 832), in Q1 2022, which mandates disclosures for transactions with government entities[250](index=250&type=chunk) - The adoption of ASU 2021-10 did not have a material impact on the company's financial statements and footnote disclosures[250](index=250&type=chunk) - Other recent accounting pronouncements are not believed to have a material impact on the company's financial statement presentation or disclosures[251](index=251&type=chunk)[252](index=252&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=67&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses the company's market risk exposure, primarily from interest rate fluctuations on its **$51.4 million** marketable securities and cash - The company's market risk exposure primarily stems from changes in interest rates affecting its marketable securities and cash and cash equivalents, which totaled approximately **$51.4 million** as of June 30, 2022[254](index=254&type=chunk) - The investment policy prioritizes placing investments with highly rated credit issuers and limiting credit exposure, primarily investing in short-term U.S. treasury securities, money market funds, and bank accounts[255](index=255&type=chunk) - Due to the short-term maturities of its investments, a hypothetical **100 basis point** increase or decrease in interest rates is not expected to significantly impact the fair value of the investment portfolio[255](index=255&type=chunk) [Item 4. Controls and Procedures](index=67&type=section&id=Item%204.%20Controls%20and%20Procedures) The company's disclosure controls and procedures were effective as of June 30, 2022, with no material changes in internal control over financial reporting - The company's disclosure controls and procedures were evaluated and concluded to be effective at the reasonable assurance level as of June 30, 2022[257](index=257&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2022[258](index=258&type=chunk) [PART II. Other Information](index=67&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section presents other information, including legal proceedings, risk factors, equity sales, defaults, mine safety disclosures, and exhibits [Item 1. Legal Proceedings](index=67&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently involved in any material pending legal proceedings - The company is not involved in any material pending legal proceedings[260](index=260&type=chunk) [Item 1A. Risk Factors](index=67&type=section&id=Item%201A.%20Risk%20Factors) No material changes have occurred in the company's risk factors since those disclosed in the Annual Report on Form 10-K for 2021 - No material changes have occurred in the company's risk factors since those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2021[261](index=261&type=chunk)[263](index=263&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=69&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This item is not applicable for the reporting period - This item is not applicable[265](index=265&type=chunk) [Item 3. Defaults Upon Senior Securities](index=69&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is not applicable for the reporting period - This item is not applicable[267](index=267&type=chunk) [Item 4. Mine Safety Disclosures](index=69&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable for the reporting period - This item is not applicable[269](index=269&type=chunk) [Item 5. Other Information](index=69&type=section&id=Item%205.%20Other%20Information) No other information is reported under this item - No other information is reported under this item[271](index=271&type=chunk) [Item 6. Exhibits](index=70&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of the Form 10-Q, including corporate documents, officer certifications, and iXBRL financial information - Exhibits include various corporate documents such as merger agreements (2.1, 2.2, 2.3), certificates of incorporation (3.1, 3.2, 3.3), and amended bylaws (3.4)[273](index=273&type=chunk) - Certifications of the Principal Executive Officer (31.1, 32.1) and Principal Financial Officer (31.2, 32.2) are filed herewith[273](index=273&type=chunk) - Financial information from the Quarterly Report, including condensed consolidated financial statements, is provided in Inline eXtensible Business Reporting Language (iXBRL) as Exhibit 101[273](index=273&type=chunk) [Signatures](index=72&type=section&id=Signatures) The report is duly signed on behalf of Capricor Therapeutics, Inc. by its CEO, Linda Marbán, Ph.D., and CFO, Anthony J. Bergmann, on August 11, 2022 - The report was signed by Linda Marbán, Ph.D., Chief Executive Officer, and Anthony J. Bergmann, Chief Financial Officer, on August 11, 2022[279](index=279&type=chunk)

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 ...