SECURITIES & EXCHANGE COMMISSION EDGAR FILING
CAPRICOR THERAPEUTICS, INC.
Form: 10-K
Date Filed: 2019-03-29
Corporate Issuer CIK: 1133869
© Copyright 2019, Issuer Direct Corporation. All Right Reserved. Distribution of this document is strictly prohibited, subject to the terms of use.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
þ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the fiscal year ended December 31 , 2018
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
(State or other jurisdiction of
incorporation or organization)
88-0363465
(I.R.S. Employer Identification No.)
8840 Wilshire Blvd., 2 nd Floor, Beverly Hills, California 90211
(Address of principal executive offices including zip code)
(310) 358-3200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, par value $0.001 per share
Name of Each Exchange on Which Registered
The Nasdaq Capital Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
¨ Yes þ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨ Yes þ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. þ Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes þ No ¨
Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-
K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of
the Exchange Act:
Large accelerated filer
Non-accelerated filer
¨
x
Accelerated filer
Smaller reporting company
Emerging growth company
¨
x
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
¨ Yes þ No
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of June 30, 2018 was $29,043,739, based on the last
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
reported sale of the registrant’s common stock on The Nasdaq Capital Market on June 29, 2018 of $1.34 per share.
As of March 28, 2019, there were 33,661,346 shares of the registrant’s common stock, par value $0.001 per share, issued and outstanding.
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TABLE OF CONTENTS
Part I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4
Part II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Part III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Part IV
Item 15.
Item 16.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
SIGNATURES
INDEX OF EXHIBITS FILED WITH THIS REPORT
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References to “the Company,” “Capricor Therapeutics,” “we,” “us” or “our” in this Annual Report on Form 10-K refer to Capricor Therapeutics, Inc., a
Delaware corporation, and its subsidiaries, unless the context indicates otherwise.
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, or the
Securities Act, and Section 21E of the Securities Exchange Act of 1934, or the Exchange Act. The forward-looking statements are only predictions and provide
our current expectations or forecasts of future events and financial performance and may be identified by the use of forward-looking terminology, including the
terms “believes,” “estimates,” “anticipates,” “expects,” “plans,” “potential,” “projects,” “intends,” “may,” “will” or “should” or, in each case, their negative, or other
variations or comparable terminology, though the absence of these words does not necessarily mean that a statement is not forward-looking. Forward-looking
statements include all matters that are not historical facts and include, without limitation, statements about the development of our drug candidates, including
when we expect to undertake, initiate and complete clinical trials of our product candidates; expectation of or dates for commencement of clinical trials,
investigational new drug filings, similar plans or projections; the regulatory approval of our drug candidates; our use of clinical research centers, third party
manufacturers and other contractors; our ability to find collaborative partners for research, development and commercialization of potential products; our ability to
manufacture products for clinical and commercial use; our ability to protect our patents and other intellectual property; our ability to market any of our products;
our projected operating losses; the impact of taxes on our business, including our ability to utilize net operating losses; our ability to utilize our ability to compete
against other companies and research institutions; the effect of potential strategic transactions on our business; acceptance of our products by doctors, patients
or payors and the availability of reimbursement for our product candidates; our ability to attract and retain key personnel; the volatility of our stock price; our ability
to continue as a going concern; and other risks and uncertainties detailed in the section of this Annual Report on Form 10-K entitled “Risk Factors”. These
statements are subject to risks and uncertainties that could cause actual results and events to differ materially from those expressed or implied by such forward-
looking statements. We caution the reader not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the
date of this Annual Report on Form 10-K.
We intend that all forward-looking statements be subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-
looking statements are subject to many risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied
by the forward-looking statements. Pharmaceutical and biotechnology companies have suffered significant setbacks in advanced clinical trials, even after
obtaining promising earlier trial results and pre-clinical studies. Data obtained from such clinical trials are susceptible to varying interpretations, which could
delay, limit or prevent regulatory approval. Readers are expressly advised to review and consider certain risk factors, which include risks associated with (1) our
ability to successfully conduct clinical and pre-clinical trials for our product candidates, (2) our ability to obtain required regulatory approvals to develop,
manufacture and market our product candidates, either on an accelerated basis or at all, (3) our ability to raise additional capital or to license our products on
favorable terms, (4) our ability to execute our development plan on time and on budget, (5) our ability to identify and obtain additional product candidates, (6) our
ability to raise enough capital to fund our operations, (7) our ability to protect our intellectual property rights, (8) our compliance with legal and regulatory
requirements as a public company, and (9) our ability to continue as a going concern. Although we believe that the assumptions underlying the forward-looking
statements contained in this Annual Report on Form 10-K are reasonable, any of the assumptions could be inaccurate, and therefore there can be no assurance
that such statements will be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such
information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives
and plans will be achieved. Furthermore, past performance in operations and share price is not necessarily indicative of future performance. Except to the extent
required by applicable laws or rules, we do not undertake to update any forward-looking statements or to announce publicly revisions to any of our forward-
looking statements, whether resulting from new information, future events or otherwise.
The following discussion should be read together with our consolidated financial statements and related consolidated notes contained in this Annual
Report on Form 10-K. Results for the year ended December 31, 2018 are not necessarily indicative of results that may be attained in the future.
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ITEM 1. BUSINESS
Overview
PART I
Capricor Therapeutics, Inc. is a clinical-stage biotechnology company focused on the discovery, development and commercialization of first-in-class
biological therapies for the treatment of diseases, with a focus on Duchenne muscular dystrophy, or DMD, and other rare disorders.
We were originally incorporated in Delaware in August 2005 under the name Nile Pharmaceuticals, Inc. and we changed our name to Nile Therapeutics,
Inc., or Nile, in January 2007. On November 20, 2013, pursuant to that certain Agreement and Plan of Merger and Reorganization dated as of July 7, 2013, as
amended by that certain First Amendment to Agreement and Plan of Merger and Reorganization dated as of September 27, 2013, or as amended, the Merger
Agreement, by and among Nile, Nile’s wholly-owned subsidiary, Bovet Merger Corp., a Delaware corporation, or Merger Sub, and Capricor, Inc., or Capricor,
Merger Sub merged with and into Capricor and Capricor became a wholly-owned subsidiary of Nile (referred to herein as the Merger). Immediately prior to the
effective time of the merger, and in connection therewith, Nile filed certain amendments to its certificate of incorporation which, among other things (i) effected a
1-for-50 reverse split of its common stock, (ii) changed its corporate name from “Nile Therapeutics, Inc.” to “Capricor Therapeutics, Inc.,” and (iii) effected a
reduction in the total number of authorized shares of common stock from 100,000,000 to 50,000,000, and a reduction in the total number of authorized shares of
preferred stock from 10,000,000 to 5,000,000.
Capricor, our wholly-owned subsidiary, was founded in 2005 as a Delaware corporation based on the innovative work of its founder, Eduardo Marbán,
M.D., Ph.D., and his collaborators. First located in Baltimore, Maryland, adjacent to The Johns Hopkins University, or JHU, where Dr. Marbán was chief of
cardiology, Capricor moved to Los Angeles, California in 2007 when Dr. Marbán became Director of the Heart Institute at Cedars-Sinai Medical Center, or
CSMC. Capricor’s laboratories and manufacturing facilities are located in space that Capricor leases from CSMC.
Our Strategy
Our strategy is to discover, develop and commercialize first-in-class biological therapies for the treatment of diseases. Our drug candidates in active
development consist of CAP-1002 (allogeneic cardiosphere-derived cells, or CDCs) and CAP-2003 (CDC extracellular vesicles, including exosomes).
We are currently developing CAP-1002 for the treatment of DMD. To date, we have completed the HOPE-Duchenne Phase I/II clinical trial in subjects
with DMD, the DYNAMIC trial, a Phase I clinical trial of CAP-1002 in subjects with advanced heart failure, and the ALLSTAR trial, a Phase I/II clinical trial of
CAP-1002 in subjects who have suffered a myocardial infarction, or MI, which is commonly known as a heart attack.
We are developing CAP-2003 for the treatment of inflammatory conditions. CAP-2003 is currently in pre-clinical development.
These programs represent our core technology and products.
Background on Duchenne Muscular Dystrophy
DMD is a rare form of muscular dystrophy which results in muscle degeneration and premature death. DMD affects approximately 1 in 3,600 male infants
worldwide, and it is estimated that approximately 15,000 to 20,000 boys and young men are living with the disease in the United States. DMD results from the
lack of functional dystrophin protein caused by a gene mutation. The lack of dystrophin, an important structural component of muscle cells, causes them to have
increased susceptibility to damage and to progressively die. Additionally, the absence of dystrophin in muscle cells leads to significant cell damage and
ultimately causes muscle cell death and fibrotic replacement. In DMD patients, heart muscle cells progressively die and are replaced with scar tissue. This
cardiomyopathy eventually leads to heart failure, which is currently the leading cause of death among those with DMD.
Patients with DMD experience progressive muscle weakness starting at an early age. Generally, a loss of ambulation occurs after the first decade of life
and eventually the patients suffer respiratory and cardiac failure. Their lifespan is abbreviated and averages less than three decades. The annual cost of care for
patients with DMD is very high and increases with disease progression. We therefore believe that DMD represents a significant market opportunity for our lead
product candidate.
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Our Technologies
Cardiosphere-Derived Cells
Our core therapeutic technology is based on the cardiosphere-derived cell, or CDC, a type of cardiac progenitor cell that composes a minor fraction of
the cardiac muscle cell population and was first identified in the academic laboratory of Capricor’s scientific founder, Dr. Eduardo Marbán. Since the initial
publication in 2007, CDCs have been the subject of over 100 peer-reviewed scientific publications and have been administered to approximately 150 human
subjects across several clinical trials. CDCs have been shown to exert potent immunomodulatory activity and alters the immune system’s activity to encourage
cellular regeneration. We have been developing allogeneic CDCs (CAP-1002) as a product candidate for the treatment of Duchenne muscular dystrophy and
investigating their effects on skeletal and cardiac function. Pre-clinical and clinical data support the therapeutic concept of administering CDCs as a means to
address conditions in which the heart or skeletal muscle has been damaged.
In a variety of experimental models of heart injury, CDCs have been shown to stimulate cell proliferation and blood vessel growth, to inhibit programmed
cell death and scar formation, and to attract native progenitor cells to the site of injury. Recently published data by Cedars-Sinai Medical Center, or CSMC, which
tested the effectiveness of CDCs in a mouse model of DMD, showed for the first time that the skeletal and cardiac improvements seen in Capricor’s HOPE-
Duchenne Phase I/II trial could be directly attributed to treatment with CDCs. The data also provide further evidence of the potential of CDCs to stimulate tissue
repair and regeneration by first reducing inflammation, which then enables new healthy muscle to form, as was shown in the mouse model of DMD.
CDCs are derived from cardiospheres, or CSps, which are self-assembling multicellular clusters which contain both primitive cells and committed
progenitors for the three major cell types present in the heart. The relatively large size of CSps makes them less suitable than CDCs for intracoronary or
intravenous route of administration. CDCs are sufficiently small that, within acceptable dose limits, they can be infused into a coronary artery or into the
peripheral vasculature. Capricor has performed clinical studies to establish the range of CDC dose levels that appear to be safe via intracoronary administration
or peripheral venous access. Additionally, in pre-clinical studies, it has been shown that intravenous administration of CDCs increases exercise capacity and
diaphragmatic function in an animal model of DMD.
While CSps and their respective CDCs may originate from either a deceased human donor (allogeneic source) or from heart tissue taken directly from
recipient patients themselves (autologous source), the methods for manufacturing CDCs from either source are similar.
Capricor’s proprietary methods are focused on producing therapeutic doses of CDCs to boost the regenerative capacity of the heart and skeletal muscle,
with the goal of improving cardiac and skeletal muscle function. Capricor has exclusively licensed intellectual property covering CDCs and CSps from three
academic institutions and is also pursuing its own intellectual property rights relating to CDCs as product candidates.
Cardiosphere-Derived Cell Exosomes
Extracellular vesicles, is an all-encompassing term for cell-derived vesicles, including exosomes and microvesicles, as well as the polynucleotides
contained therein. Exosomes are nano-sized, membrane-enclosed vesicles that are secreted by essentially all cells and contain bioactive molecules, including
proteins, RNAs and microRNAs. They act as messengers to regulate the functions of neighbouring cells, and pre-clinical research has shown that exogenously-
administered exosomes can direct or, in some cases, re-direct cellular activity, thereby supporting their therapeutic potential. Their size, ease of crossing cell
membranes, and ability to communicate in native cellular language makes them an exciting, emerging class of potential therapeutic agents. Exosomes are a cell-
free substance and may be stored, handled, reconstituted, and administered in similar fashion to common biopharmaceutical products such as antibodies.
Exosomes secreted by CDCs, or CDC exosomes, are capable of producing the effects observed with CDCs themselves, including anti-inflammatory,
pro-angiogenic, anti-apoptotic, and anti-fibrotic effects. In pre-clinical models of ischemic heart disease, CDC exosomes prompt myocardial regeneration as well
as various structural and functional improvements within the heart. These findings suggest that CDC exosomes may serve as a critical mediator of the actions of
CDCs, and support the concept of their development as a therapeutic agent. We are currently engaged in pre-clinical studies investigating the use of CDC
extracellular vesicles as a potential product candidate for the treatment of inflammatory conditions.
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Our Product Candidates
We currently have four drug candidates, two of which are in various stages of active development. Our current research and development efforts have
been focused on CAP-1002 and CAP-2003. In 2018 we commenced enrollment of patients in a clinical trial of CAP-1002 in patients with DMD called HOPE-2.
CAP-1002 was also the subject of three previous clinical trials conducted by us. Recently, we decided to end the long term follow-up which had been ongoing in
our previously completed trials. CAP-1002 is also currently being investigated in two additional trials sponsored by CSMC, which are the REGRESS trial
investigating heart failure with preserved ejection fraction and the ALPHA trial investigating pulmonary arterial hypertension. Although, we are not the sponsor of
these trials, we are providing the CAP-1002 investigational product for use in the trials. We are also evaluating CAP-2003 in pre-clinical studies for the treatment
of various indications. CAP-1001 (autologous CDCs) was the subject of the CSMC and JHU-sponsored Phase I CADUCEUS trial and is not in active
development. Both CAP-1002 and CAP-1001 are derived from cardiospheres, or CSps, and we do not plan to develop CSps as a therapeutic.
Active Product Candidates
The following table summarizes our active product development programs:
Product
CAP-1002
Indication/Population
Duchenne Muscular Dystrophy*
Post-Myocardial Infarction with Cardiac Dysfunction
Advanced Heart Failure
Commercial Rights
Capricor
Capricor
Capricor
Development Stage
HOPE-2
Phase II in process
HOPE-Duchenne
Phase I/II completed**
ALLSTAR
Phase I/II completed
DYNAMIC
Phase I completed
CAP-2003
Inflammatory conditions
Pre-clinical
Capricor
* FDA has granted Orphan Drug, Regenerative Medicine Advanced Therapies, or RMAT, and Rare Pediatric Disease designations to CAP-1002 for the
treatment of DMD.
**We have completed enrollment of an Open Label Extension, or HOPE-OLE, for the usual care only comparator arm of the HOPE-Duchenne Trial.
CAP-1002 for the Treatment of Duchenne Muscular Dystrophy:
Based on our understanding of the mechanism of action of CAP-1002 which has been seen in pre-clinical models of DMD, we believe that CAP-1002
has the potential to decrease inflammation and muscle degeneration while exerting positive effects on muscle regeneration, all of which may translate into
patients retaining muscle function for a longer period of time. Data supporting peripheral intravenous route of administration of CAP-1002 in the DMD setting has
been provided by pre-clinical mouse studies where CDCs, the active ingredient in CAP-1002, have been shown to increase exercise capacity and diaphragmatic
function.
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Phase II HOPE-2 Clinical Trial
HOPE-2 is a randomized, double-blind, placebo-controlled clinical trial which is being conducted at multiple sites located in the United States. Originally,
HOPE-2 was designed as an 84 patient clinical trial, but we are pursuing a sample size re-estimation that will likely lead to a significant reduction in the number
of DMD patients. To date, we have enrolled 20 patients in our HOPE-2 clinical trial. The clinical trial will evaluate the safety and efficacy of repeat, intravenous,
or IV, doses of CAP-1002, in boys and young men with evidence of skeletal muscle impairment regardless of ambulatory status and on a stable regimen of
systemic glucocorticoids. While there are many clinical initiatives in DMD, HOPE-2 is one of the very few to focus on non-ambulant patients. These boys and
young men are looking to maintain what function they have in their arms and hands, and Capricor’s previous study of a single intracoronary dose of CAP-1002
provided preliminary evidence of efficacy that CAP-1002 may be able to help DMD patients retain, or slow the loss of, upper limb function.
After a patient in the trial had a serious adverse event in the form of anaphylaxis, we put a voluntary hold on dosing in December 2018 to develop a plan
to manage potential allergic reactions. The investigation suggests that the patient may have been allergic to something contained in the investigational product,
including an excipient, or inactive ingredient, in the formulation. To reduce the risk of future events, we initiated a pre-medication strategy commonly used by
physicians to prevent and treat allergic reactions. After an approximate one month period, the FDA and the Data and Safety Monitoring Board (DSMB) granted
us permission to resume enrollment in the study.
In June 2017, we had a meeting with the FDA to discuss potential clinical endpoints that could be used for registration strategies for CAP-1002 in the
DMD indication. The minutes of the meeting indicated the FDA's willingness to accept Capricor's proposal to use the Performance of the Upper Limb, or PUL,
test as the basis for the primary efficacy endpoint for clinical studies in support of a Biologics License Application, or BLA. The PUL test is an outcomes
instrument that was specifically designed to assess upper limb function in ambulant and non-ambulant patients with DMD. In December 2018, we met again with
the FDA as part of the expedited review afforded under the RMAT designation. The FDA grants the RMAT designation to investigational regenerative medicine
therapies intended to treat a serious condition and for which preliminary clinical evidence indicates a potential to address unmet medical needs for that condition.
During the RMAT discussion, which was reflected in subsequent meeting minutes issued by the FDA, Capricor asked whether the FDA would agree if HOPE-2,
could serve as a registration study if HOPE-2 provides evidence that CAP-1002 is safe and effective in treating Duchenne muscular dystrophy. The FDA advised
Capricor to request an end of phase meeting after completion of the trial to determine whether HOPE-2 could serve as the registration study.
The FDA also reiterated its support for the use of the Performance of the Upper Limb (PUL) 2.0 mid-level test, or the PUL 2.0, which is described in
more detail below, as the primary efficacy endpoint for HOPE-2. In addition, the agency stated that the trial would need to provide evidence of clinically
meaningful changes in the PUL, as well as other evidence supportive of CAP-1002 efficacy for patients with advanced Duchenne muscular dystrophy, in order
to potentially serve as a registration trial.
The primary efficacy endpoint will be the relative change in patients’ abilities to perform manual tasks that relate to activities of daily living and are
important to their quality of life. These abilities will be measured through the PUL test, a validated test for skeletal muscle function in DMD. HOPE-2 will focus on
the mid-level dimension of the PUL 2.0 – or the ability to use muscles from the elbow to the fingers, which are essential for operating wheelchairs and performing
other daily functions. In HOPE-2, we may include additional secondary and exploratory endpoints such as cardiac function, pulmonary function testing, quality of
life and additional measures.
Currently, we are evaluating several options with respect to the HOPE-2 trial, which includes a reduction in the number of patients to 20, a reduction in
the dosing protocol for certain subjects as well as a data analysis to be conducted at the 6-month time-point as opposed to the originally designed 12-month
time-point for certain subjects. We anticipate the interim data will be available in early Q3 2019. Continuation of enrollment and completion of the study as
originally designed is dependent on the outcome of the interim analysis and our ability to secure additional funding.
While the trial was originally planned to be conducted at approximately 10-15 investigative sites in the U.S., we recently decided to terminate several
sites which had not yet recruited any patients. Other operational aspects of the trial are being assessed and potentially reduced in order to conserve resources
and meet the operational needs of the trial as they are re-defined.
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Phase I/II HOPE-Duchenne Clinical Trial
We have completed the randomized, controlled, multi-center Phase I/II HOPE-Duchenne clinical trial which was designed to evaluate the safety and
exploratory efficacy of CAP-1002 in patients with cardiomyopathy associated with Duchenne muscular dystrophy, or DMD. Twenty-five patients were
randomized in a 1:1 ratio to receive either CAP-1002 on top of usual care or usual care only. In patients receiving CAP-1002, 25 million cells were infused into
each of their three main coronary arteries for a total dose of 75 million cells. It was a one-time treatment, and the last patient was infused in September 2016.
Patients were observed over the course of 12 months. Efficacy was evaluated according to several exploratory outcome measures. This study was funded in
part through a grant award from the California Institute for Regenerative Medicine, or CIRM. In January 2019, this study was published in the online issue of
Neurology, the medical journal of the American Academy of Neurology.
We commenced the HOPE-Duchenne trial in February 2016 and completed enrollment in September 2016. In April 2017, we reported positive top-line
results from a pre-specified six-month interim analysis of this study, which showed that CAP-1002 was generally safe and well-tolerated over the initial six-month
follow-up period. The six-month results were presented at the 22nd Annual International Congress of the World Muscle Society in October 2017.
In exploratory efficacy analyses, observed changes from baseline to Month 6 significantly differed by treatment group for systolic thickening of the
inferior wall of the heart as measured by MRI (p=0.03). In a post-hoc analysis of function of the mid- and distal-level upper limb in which a responder was defined
as a patient who demonstrated a 10% improvement from baseline in score on the PUL test, CAP-1002 patients were more likely to be responders than patients
in usual care (p=0.045) at Week 6. In addition, numerical results in some other cardiac and skeletal muscle measures, including cardiac scar (p=0.09), were
consistent with a treatment effect although differences between treatment groups were not statistically significant. The observed clinical results appear to
generally corroborate a large body of pre-clinical data from studies in DMD animal models.
We reported our 12-month data from the Hope-Duchenne trial at a Late-Breaking Science session of the American Heart Association Scientific Sessions
2017. As shoulder function had already been lost in most of the HOPE participants, investigators used the combined mid-distal PUL subscales to assess
changes in skeletal muscle function and found significant improvement in those treated with CAP-1002 in a defined post-hoc analysis. Among the lower-
functioning patients, defined as patients with a baseline mid-distal PUL score < 55 out of 58, investigators reported sustained or improved motor function at 12
months in 8 of 9 (89%) patients treated with CAP-1002 as compared to none (0%) of the usual care participants (p=0.007).
To assess cardiac structure and function, investigators used magnetic resonance imaging, or MRI. They found significant improvements in systolic
thickening of the left ventricular wall among those patients treated with CAP-1002. Systolic wall thickening is the component of myocardial contraction ultimately
responsible for ejection of blood from the left ventricle. Preservation or enhancement of systolic wall thickening may potentially be the result of the reversal of
fibrosis.
In the inferior wall, they recorded a mean (SD) 31.2% (47.0%) increase in thickening six months after treatment and a mean 25.8% (46.7%) increase in
thickening 12 months after treatment. In comparison, the usual care group showed a mean 8.8% (27.7%) decrease at six months and a mean 1.6% (37.9%)
increase at 12 months in the systolic thickening of the inferior wall. The difference between the groups in absolute change from baseline to six months achieved
statistical significance (p=0.04) and trended in favor of CAP-1002 treatment group (p=0.09) from baseline to 12 months.
Investigators also found that scarring of the heart muscle among those treated with CAP-1002 decreased relative to the control group. Progressive
cardiac scarring eventually impairs the heart's pumping ability and is currently the leading cause of death in Duchenne muscular dystrophy. At the 12-month
follow-up, those treated with CAP-1002 had a mean (SD) 7.1% (10.3%) reduction in scar size, in contrast to a mean 4.8% (22.3%) increase in scar size in the
usual care group, a difference that achieved statistical significance using non-parametric analysis to account for outliers (p=0.03).
CAP-1002 was generally safe and well-tolerated in the HOPE-Duchenne trial. There was no significant difference in the incidence of treatment-
emergent adverse events in either group. There were no early study discontinuations due to adverse events.
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Additionally, in 2018 we conducted an open-label extension of the Hope-Duchenne trial, or HOPE-OLE, where 8 patients who were randomized into the
control group of the HOPE-Duchenne trial were given two doses of CAP-1002. We have completed enrollment and treatment of the patients in the HOPE-OLE
trial. In January 2019, we entered into an Amendment to the CIRM Notice of Award pursuant to which CIRM allowed us to use excess funds from our grant
award to fund, in part, certain activities associated with HOPE-OLE.
Regulatory Designations for CAP-1002 for the treatment of DMD
In April 2015, the FDA granted Orphan Drug Designation to CAP-1002 for the treatment of DMD. Orphan Drug Designation is granted by the FDA’s
Office of Orphan Drug Products to drugs intended to treat a rare disease or condition affecting fewer than 200,000 people in the United States or a disease or
condition that affects more than 200,000 people in the United States and for which there is no reasonable expectation that the cost of developing and making
available in the United States a drug for this type of disease or condition will be recovered from sales in the United States for that drug. This designation confers
special incentives to the drug developer, including tax credits on the clinical development costs and prescription drug user fee waivers and may allow for a
seven-year period of market exclusivity in the United States upon FDA approval.
In July 2017, the FDA granted Rare Pediatric Disease Designation to CAP-1002 for the treatment of DMD. The FDA defines a “rare pediatric disease” as
a serious or life-threatening disease affecting individuals primarily aged from birth to 18 years and that affects fewer than 200,000 individuals in the United
States. Under the FDA's Rare Pediatric Disease Priority Review Voucher program, upon the approval of a qualifying New Drug Application, or NDA, or BLA for
the treatment of a rare pediatric disease, the sponsor of such application would be eligible for a Rare Pediatric Disease Priority Review Voucher that can be used
to obtain priority review for a subsequent NDA or BLA. The Priority Review Voucher may be sold or transferred an unlimited number of times.
In February 2018, we were notified by the FDA Office of Tissues and Advanced Therapies, that we were granted the Regenerative Medicine Advanced
Therapy, or RMAT, designation for CAP-1002 for the treatment of DMD. The FDA grants the RMAT designation to regenerative medicine therapies intended to
treat a serious condition and for which preliminary clinical evidence indicates a potential to address unmet medical needs for that condition. The RMAT
designation makes therapies eligible for the same actions to expedite the development and review of a marketing application that are available to drugs that
receive breakthrough therapy designation – including increased meeting opportunities, early interactions to discuss any potential surrogate or intermediate
endpoints and the potential to support accelerated approval. CAP-1002 is one of the few therapies currently in development to help non-ambulant patients with
Duchenne muscular dystrophy. To receive the RMAT designation, we submitted data from the HOPE-Duchenne Trial.
CAP-1002 for the Treatment of Cardiac Conditions:
Phase I/II ALLSTAR Clinical Trial
The Phase I portion of the ALLSTAR trial was a 14-patient, open-label, dose-escalation study that was conducted to evaluate the clinical safety of CAP-
1002 in patients who had experienced a large heart attack and who had residual cardiac dysfunction. Each patient received a single infusion of CAP-1002 into
the coronary artery most closely associated with the location of their MI, at a dose level of either 12.5 million or 25 million cells. The primary safety endpoints
focused on the potential adverse effects of CAP-1002 delivery, including potential immunologic consequences of infusing cells that had originated from an
unrelated donor. Event rates observed for each of the four pre-specified safety endpoints (acute myocarditis possibly attributable to CAP-1002; death due to
ventricular tachycardia or ventricular fibrillation; sudden death; and major adverse cardiac events) were 0% over one and 12 months following CAP-1002
infusion.
This Phase I study was funded in large part by a grant received from the National Institutes of Health, or NIH.
Capricor began enrollment of the Phase II ALLSTAR study in the first quarter of 2014. This randomized, double-blind, placebo-controlled trial was
designed to determine if treatment with CAP-1002 can reduce scar size in patients who have suffered an MI and other endpoints. At the time of randomization,
patients were stratified into one of two cohorts according to the time since the occurrence of their MI (either 30 to 90 days after the MI, or greater than 90 days
up to one-year after the MI). Following infusion, patients were to be followed for periodic evaluations over the course of one year. Patients were randomized in a
2:1 ratio to receive an infusion of CAP-1002 (25 million cells) or placebo, respectively, into the coronary artery most closely associated with the region of their MI.
The trial was powered to detect a reduction in scar size, relative to placebo, as measured by MRI at the 12-month follow-up. In addition to evaluating CAP-1002
according to changes in scar size, ALLSTAR also evaluated CAP-1002 according to a variety of clinical and quality of life endpoints. The Phase II portion of the
ALLSTAR trial was funded in large part through the support of CIRM.
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In October 2016, we announced completion of enrollment of the Phase II portion of the ALLSTAR trial in which 142 subjects were randomized to the
active or control treatment groups in a 2:1 ratio, respectively, and of whom 134 received a single infusion of either CAP-1002 or placebo into the infarct-
associated coronary artery. Patients in the trial were enrolled at approximately 30 centers in the United States and in Canada.
In May 2017, we announced that a pre-specified administrative interim analysis performed on six-month follow-up data from the ALLSTAR trial
demonstrated a low probability (futility) of achieving a statistically-significant difference in the 12-month primary efficacy endpoint of percent change from
baseline infarct size as a percentage of left ventricular mass, measured by cardiac MRI. At six months, a near-statistically-significant (p=0.05) reduction of mean
end-diastolic volume, as well as a trend of reduction of mean end-systolic volume, were seen in the CAP-1002 treatment group. There was no notable difference
between treatment groups with respect to the change in ejection fraction. There were no safety signals in the CAP-1002 treatment cohort. Based on the results
of the interim analysis, we elected to forego further MRI analyses and transition all patients in ALLSTAR to long-term follow-up. At this time, all long-term follow-
up has been terminated and we expect to incur no further material expenses related to the ALLSTAR trial.
Phase I/II DYNAMIC Clinical Trial
The Phase I/II DYNAMIC trial, of which the Phase I portion has concluded, was designed to evaluate the safety and efficacy of CAP-1002 in the
treatment of patients with advanced heart failure resulting from dilated cardiomyopathy of either ischemic or non-ischemic origin. This condition is characterized
by chronic structural and functional abnormalities present throughout the heart’s contractile tissue. In the DYNAMIC trial, CAP-1002 was infused into all three
main coronary arteries to obtain broad exposure. Following infusion, patients were followed for one year. The trial was funded in part through a grant award from
the NIH.
We initiated the open-label, dose-escalating Phase I portion of the DYNAMIC trial in December 2014 at a single center, CSMC, and in April 2015,
completed enrollment with 14 patients with New York Heart Association, or NYHA, Class III heart failure. Each patient was administered CAP-1002 via a one-
time, triple coronary infusion at one of several evenly-divided dose levels (37.5 million, 50 million, 62.5 million, or 75 million cells total). Initial top-line six-month
results were presented at the American Heart Association’s Annual Scientific Sessions in November 2015. Multi-vessel intracoronary infusion of CAP-1002 in
subjects with dilated cardiomyopathy was shown to be safe in this study with no major adverse cardiac events reported at one month or at six months post-
infusion. Although this trial was intended as a safety study, the six-month data demonstrated encouraging and congruent preliminary efficacy signals in multiple
parameters, including ejection fraction, ventricular volumes, exercise capacity and subjective well-being.
In June 2016, Capricor reported positive 12-month data from the DYNAMIC study. For the 12 patients available for follow-up at one year, improvements
from baseline in key cardiac function and dimensional indices that had been observed at six months were directionally maintained. Importantly, the change in
median left ventricular ejection fraction from baseline to 12 months maintained its level of statistical significance that was shown at six months (p=0.02 at both
time points) and, on an absolute basis, continued to improve from six to 12 months. Of the five NYHA Class III subjects who received the highest dose of CAP-
1002 (75 million cells), two subjects improved by two Classes (to Class I) and three improved by one Class (to Class II) at six months. At 12 months, three of
these five subjects were assessed as Class I and two as Class II, demonstrating further improvement and indicating durability of the benefit of CAP-1002 on
heart failure status for as long as one year following administration. CAP-1002 infusion was well-tolerated in DYNAMIC. Two of the 14 patients, who were in the
lower two of the four dose cohorts, died from progressive heart failure approximately one and three months prior to study conclusion. Although we have
designed a Phase II study to evaluate CAP-1002 in the heart failure population, at this time, we have no plans to conduct the Phase II portion of the DYNAMIC
trial.
Investigator Sponsored Clinical Trials
Capricor has agreed to provide cells for investigational purposes in two clinical trials sponsored by CSMC. These cells were developed as part of the
Company’s past research and development efforts. The first trial is known as “Regression of Fibrosis and Reversal of Diastolic Dysfunction in HFpEF Patients
Treated with Allogeneic CDCs.” Dr. Eduardo Marbán is the named principal investigator under the study. The second trial is known as “Pulmonary Arterial
Hypertension treated with Cardiosphere-derived Allogeneic Stem Cells.” In both studies, Capricor is providing the necessary number of doses of cells and will
receive a negotiated amount of monetary compensation which is estimated to be approximately $2.1 million over several years.
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CAP-2003:
Extracellular vesicles (“EVs”), including exosomes and microvesicles are nano-scale, membrane-enclosed vesicles, that are secreted by cells and
contain characteristic lipids, proteins and RNA molecules, such as microRNAs. EVs act as messengers to regulate the functions of neighboring cells, and pre-
clinical research has shown that exogenously-administered exosomes can direct or, in some cases, re-direct cellular activity, supporting their therapeutic
potential agents or delivery vehicles. Their size, ease of crossing cell membranes, and ability to communicate in native cellular language makes them an exciting
class of potential therapeutic agents.
CAP-2003 is comprised of exosomes secreted by CDCs which are shown to mediate many of the effects that are observed with the CDCs, including anti-
inflammatory, pro-angiogenic, anti-apoptotic, and anti-fibrotic effects. We are currently conducting studies in pre-clinical models of various conditions to explore
the possible therapeutic benefits that CAP-2003 may possess. It is unknown at this time when an IND will be submitted for any particular indication. Additionally,
in pre-clinical studies, we are exploring the use of CAP-2003 as a potential vehicle for delivering therapies to targeted tissues in the human body.
In July 2018, Capricor, Inc. entered into a Cooperative Research and Development Agreement with the U.S. Army Institute of Surgical Research
pursuant to which the parties agreed to cooperate in research and development on the evaluation of CAP-2003 for the treatment of trauma related injuries and
conditions, which are now the third leading cause of death in the U.S. At this time, we are considering various strategic options with respect to this program.
Inactive or Discontinued Product Candidates
CAP-1001:
CAP-1001 consists of autologous CDCs. This product candidate was evaluated in the randomized, double-blind, placebo-controlled Phase I
CADUCEUS clinical trial in patients who had recently experienced an MI. The study was sponsored and conducted by CSMC in collaboration with JHU. At
present, there is no plan for another clinical trial for CAP-1001.
CSps:
CSps are a 3D micro-tissue from which CDCs are derived, and have shown significant healing effects in pre-clinical models of heart failure. While we
consider CSps an important asset, at present there is no plan to develop CSps as a therapeutic agent.
Natriuretic Peptides:
In February 2017, we elected to terminate our former natriuretic peptide development program, consisting of Cenderitide (CD-NP) and CU-NP, so as to
more efficiently focus our resources and efforts on our CAP-1002 and CAP-2003 programs.
Intellectual Property and Proprietary Know-How
Our goal is to obtain, maintain and enforce patent rights for our products, formulations, processes, methods of use and other proprietary technologies,
preserve our trade secrets, and operate without infringing on the proprietary rights of other parties, both in the United States and abroad. Our policy is to actively
seek to obtain, where appropriate, the broadest intellectual property protection possible for our current product candidates and any future product candidates,
proprietary information and proprietary technology through a combination of contractual arrangements and patents, both in the United States and abroad. Even
patent protection, however, may not always afford us with complete protection against competitors who seek to circumvent our patents. If we fail to adequately
protect or enforce our intellectual property rights or secure rights to patents of others, the value of our intellectual property rights would diminish. To this end, we
require all of our employees, consultants, advisors and other contractors to enter into confidentiality agreements that prohibit the disclosure and use of
confidential information and, where applicable, require disclosure and assignment to us of the ideas, developments, discoveries and inventions relevant to our
technologies and important to our business.
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The development of complex biotechnology products such as ours typically includes the early discovery of a technology platform – often in an academic
institution – followed by increasingly focused development around a product opportunity, including identification and definition of a specific product candidate and
development of scalable manufacturing processes, formulation, delivery and dosage regimens. As a result, biotechnology products are often protected by several
families of patent filings that are made at different times in the development cycle and cover different aspects of the product. Earlier filed broad patent
applications directed to the discovery of the platform technology thus usually expire ahead of patents covering later developments such as scalable
manufacturing processes and dosing regimens. Patent expirations on products may therefore span several years and vary from country to country based on the
scope of available coverage. Our issued patents would expire as early as 2024 and as late as 2033 upon payment of patent maintenance fees. There are also
limited opportunities to obtain extensions of patent terms in certain countries.
Capricor’s Technology - CAP-1002, CAP-1001, CSps and Exosomes
Capricor has entered into exclusive license agreements for intellectual property rights related to certain cardiac-derived cells with Università Degli Studi
Di Roma La Sapienza (the “University of Rome”), The Johns Hopkins University (“JHU”) and CSMC. In addition, Capricor has filed patent applications related to
the technology developed by its own scientists.
University of Rome License Agreement
Capricor and the University of Rome entered into a License Agreement, dated June 21, 2006 (the “Rome License Agreement”), which provides for the
grant of an exclusive, world-wide, royalty-bearing license by the University of Rome to Capricor (with the right to sublicense) to develop and commercialize
licensed products under the licensed patent rights in all fields. Capricor has a right of first negotiation, for a certain period of time, to obtain a license to any new
and separate patent applications owned by the University of Rome utilizing cardiac stem cells in cardiac care.
Pursuant to the Rome License Agreement, Capricor paid the University of Rome a license issue fee, is currently paying minimum annual royalties in the
amount of 20,000 Euros per year, and is obligated to pay a lower-end of a mid-range double-digit percentage on all royalties received as a result of sublicenses
granted, which are net of any royalties paid to third parties under a license agreement from such third party to Capricor. The minimum annual royalties are
creditable against future royalty payments.
The Rome License Agreement will, unless extended or sooner terminated, remain in effect until the later of the last claim of any patent or until any patent
application comprising licensed patent rights has expired or been abandoned. Under the terms of the Rome License Agreement, either party may terminate the
agreement should the other party become insolvent or file a petition in bankruptcy. Either party may terminate the agreement upon the other party’s material
breach, provided that the breaching party will have up to 90 days to cure its material breach. Capricor may also terminate for any reason upon 90 days’ written
notice to the University of Rome.
The Johns Hopkins University License Agreement
Capricor and JHU entered into an Exclusive License Agreement, effective June 22, 2006 (the “JHU License Agreement”), which provides for the grant of
an exclusive, world-wide, royalty-bearing license by JHU to Capricor (with the right to sublicense) to develop and commercialize licensed products and licensed
services under the licensed patent rights in all fields and a nonexclusive right to the know-how. In May 2009, the JHU License Agreement was amended to add
additional patent rights to the JHU License Agreement in consideration of a payment to JHU and reimbursement of patent costs. Capricor and JHU executed a
Second Amendment to the JHU License Agreement, effective as of December 20, 2013, pursuant to which, among other things, certain definitions were added
or amended, the timing of certain obligations was revised and other obligations of the parties were clarified. Under the JHU License Agreement, Capricor is
required to exercise commercially reasonable and diligent efforts to develop and commercialize licensed products covered by the licenses from JHU.
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Pursuant to the JHU License Agreement, JHU was paid an initial license fee and, thereafter, Capricor is required to pay minimum annual royalties on the
anniversary dates of the JHU License Agreement. The minimum annual royalties range from $5,000 on the first and second anniversary dates to $20,000 on the
tenth anniversary date and thereafter. The minimum annual royalties are creditable against a low single-digit running royalty on net sales of products and net
service revenues, which Capricor is also required to pay under the JHU License Agreement, which running royalty may be subject to further reduction in the
event that Capricor is required to pay royalties on any patent rights to third parties in order to make or sell a licensed product. In addition, Capricor is required to
pay a low double-digit percentage of the consideration received by it from sublicenses granted, and is required to pay JHU certain defined development
milestone payments upon the successful completion of certain phases of its clinical studies and upon receiving approval from the FDA. The development
milestones range from $100,000 upon successful completion of a full Phase I clinical study to $1,000,000 upon full FDA market approval and are fully creditable
against payments owed by Capricor to JHU on account of sublicense consideration attributable to milestone payments received from a sublicensee. The
maximum aggregate amount of milestone payments payable under the JHU License Agreement, as amended, is $1,850,000. In May 2015, Capricor paid the
development milestone related to Phase I that was owed to JHU pursuant to the terms of the JHU License Agreement.
The JHU License Agreement will, unless sooner terminated, continue in effect in each applicable country until the date of expiration of the last to expire
patent within the patent rights, or, if no patents are issued, then for twenty years from the effective date. Under the terms of the JHU License Agreement, either
party may terminate the agreement should the other party become insolvent or file a petition in bankruptcy, or fail to cure a material breach within 30 days after
notice. In addition, Capricor may terminate for any reason upon 60 days’ written notice.
Cedars-Sinai Medical Center License Agreements
License Agreement for CDCs
On January 4, 2010, Capricor entered into an Exclusive License Agreement with CSMC (the “Original CSMC License Agreement”) for certain intellectual
property related to its CDC technology. In 2013, the Original CSMC License Agreement was amended twice resulting in, among other things, a reduction in the
percentage of sublicense fees which would have been payable to CSMC. Effective December 30, 2013, Capricor entered into an Amended and Restated
Exclusive License Agreement with CSMC (the “Amended CSMC License Agreement”) which amended, restated, and superseded the Original CSMC License
Agreement, pursuant to which, among other things, certain definitions were added or amended, the timing of certain obligations was revised and other
obligations of the parties were clarified.
The Amended CSMC License Agreement provides for the grant of an exclusive, world-wide, royalty-bearing license by CSMC to Capricor (with the right
to sublicense) to conduct research using the patent rights and know-how and develop and commercialize products in the field using the patent rights and know-
how. In addition, Capricor has the exclusive right to negotiate for an exclusive license to any future rights arising from related work conducted by or under the
direction of Dr. Eduardo Marbán on behalf of CSMC. In the event the parties fail to agree upon the terms of an exclusive license for any future rights, Capricor
will have a non-exclusive license to such future rights, subject to royalty obligations.
Pursuant to the Original CSMC License Agreement, CSMC was paid a license fee and Capricor was obligated to reimburse CSMC for certain fees and
costs incurred in connection with the prosecution of certain patent rights. Additionally, Capricor is required to meet certain spending and development
milestones. The annual spending requirements ranged from $350,000 to $800,000 each year between 2010 and 2017 (with the exception of 2014, for which
there was no annual spending requirement).
Pursuant to the Amended CSMC License Agreement, Capricor remains obligated to pay low single-digit royalties on sales of royalty-bearing products as
well as a low double-digit percentage of the consideration received from any sublicenses or other grant of rights. The above-mentioned royalties are subject to
reduction in the event Capricor becomes obligated to obtain a license from a third party for patent rights in connection with the royalty-bearing product. In 2010,
Capricor discontinued its research under some of the patents.
The Amended CSMC License Agreement will, unless sooner terminated, continue in effect on a country by country basis until the last to expire of the
patents covering the patent rights or future patent rights. Under the terms of the Amended CSMC License Agreement, unless waived by CSMC, the agreement
shall automatically terminate: (i) if Capricor ceases, dissolves or winds up its business operations; (ii) in the event of the insolvency or bankruptcy of Capricor or
if Capricor makes an assignment for the benefit of its creditors; (iii) if performance by either party jeopardizes the licensure, accreditation or tax exempt status of
CSMC or the agreement is deemed illegal by a governmental body; (iv) within 30 days for non-payment of royalties; (v) after 90 days’ notice from CSMC if
Capricor fails to undertake commercially reasonable efforts to exploit the patent rights or future patent rights; (vi) if a material breach has not been cured within
90 days; or (vii) if Capricor challenges any of the CSMC patent rights. If Capricor fails to undertake commercially reasonable efforts to exploit the patent rights or
future patent rights, and fails to cure that breach after 90 days’ notice from CSMC, instead of terminating the license, CSMC has the option to convert any
exclusive license to Capricor to a non-exclusive or co-exclusive license. Capricor may terminate the agreement if CSMC fails to cure any material breach within
90 days after notice.
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On March 20, 2015, Capricor and CSMC entered into a First Amendment to the Amended CSMC License Agreement, pursuant to which the parties
agreed to delete certain patent applications from the list of scheduled patents which Capricor determined not to be material to the portfolio.
On August 5, 2016, Capricor and CSMC entered into a Second Amendment to the Amended CSMC License Agreement (the “Second License
Amendment”), pursuant to which the parties agreed to add certain patent applications to the schedule of patent rights set forth in the agreement. Under the
Second License Amendment, (i) the description of scheduled patent rights has been replaced by a revised schedule that includes six additional patent
applications; (ii) Capricor paid an upfront fee of $2,500; and (iii) Capricor reimbursed CSMC approximately $10,000 for attorneys’ fees and filing fees that were
incurred in connection with the additional patent applications.
On December 26, 2017, Capricor entered into a Third Amendment to the Amended CSMC License Agreement thereby amending the CDCs License
(the “Third License Amendment”). Under the Third License Amendment, (i) the description of scheduled patent rights has been replaced by a revised schedule
that includes seven additional patent applications; and (ii) Capricor is required to reimburse CSMC approximately $50,000 for attorneys’ fees and filing fees that
were incurred in connection with the additional patent rights.
On June 20, 2018, Capricor and CSMC entered into a Fourth Amendment to the Amended CSMC License Agreement (the “Fourth License
Amendment”). Under the Fourth License Amendment, the description of scheduled patent rights has been replaced by a revised schedule that includes two
additional patent applications.
License Agreement for Exosomes
On May 5, 2014, Capricor entered into an Exclusive License Agreement with CSMC (the “Exosomes License Agreement”), for certain intellectual
property rights related to exosomes technology. The Exosomes License Agreement provides for the grant of an exclusive, world-wide, royalty-bearing license by
CSMC to Capricor (with the right to sublicense) in order to conduct research using the patent rights and know-how and to develop and commercialize products in
the field using the patent rights and know-how. In addition, Capricor has the exclusive right to negotiate for an exclusive license to any future rights arising from
related work conducted by or under the direction of Dr. Eduardo Marbán on behalf of CSMC. In the event the parties fail to agree upon the terms of an exclusive
license, Capricor shall have a non-exclusive license to such future rights, subject to royalty obligations.
Pursuant to the Exosomes License Agreement, CSMC was paid a license fee and Capricor reimbursed CSMC for certain fees and costs incurred in
connection with the preparation and prosecution of certain patent applications. Additionally, Capricor is required to meet certain non-monetary development
milestones and is obligated to pay low single-digit royalties on sales of royalty-bearing products as well as a single-digit percentage of the consideration received
from any sublicenses or other grant of rights. The above-mentioned royalties are subject to reduction in the event Capricor becomes obligated to obtain a license
from a third party for patent rights in connection with the royalty bearing product.
The Exosomes License Agreement will, unless sooner terminated, continue in effect on a country by country basis until the last to expire of the patents
covering the patent rights or future patent rights. Under the terms of the Exosomes License Agreement, unless waived by CSMC, the agreement shall
automatically terminate: (i) if Capricor ceases, dissolves or winds up its business operations; (ii) in the event of the insolvency or bankruptcy of Capricor or if
Capricor makes an assignment for the benefit of its creditors; (iii) if performance by either party jeopardizes the licensure, accreditation or tax exempt status of
CSMC or the agreement is deemed illegal by a governmental body; (iv) within 30 days for non-payment of royalties; (v) after 90 days if Capricor fails to
undertake commercially reasonable efforts to exploit the patent rights or future patent rights; (vi) if a material breach has not been cured within 90 days; or (vii) if
Capricor challenges any of the CSMC patent rights. If Capricor fails to undertake commercially reasonable efforts to exploit the patent rights or future patent
rights, and fails to cure that breach after 90 days’ notice from CSMC, instead of terminating the license, CSMC has the option to convert any exclusive license to
Capricor to a non-exclusive or co-exclusive license. Capricor may terminate the agreement if CSMC fails to cure any material breach within 90 days after notice.
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On February 27, 2015, Capricor and CSMC entered into a First Amendment to Exosomes License Agreement (the “First Exosomes License
Amendment”). Under the First Exosomes License Amendment, (i) the description of scheduled patent rights has been replaced by a revised schedule that
includes four additional patent applications; (ii) Capricor was required to pay CSMC an upfront fee of $20,000; (iii) Capricor was required to reimburse CSMC
approximately $34,000 for attorneys’ fees and filing fees that were incurred in connection with the additional patent rights; and (iv) Capricor is required to pay
CSMC certain defined product development milestone payments upon reaching certain phases of its clinical studies and upon receiving approval for a product
from the FDA. The product development milestones range from $15,000 upon the dosing of the first patient in a Phase I clinical trial of a product to $75,000
upon receipt of FDA approval for a product. The maximum aggregate amount of milestone payments payable under the Exosomes License Agreement, as
amended, is $190,000.
On June 10, 2015, Capricor and CSMC entered into a Second Amendment to Exosomes License Agreement, thereby amending the Exosomes License
Agreement further to add an additional patent application to the Schedule of Patent Rights.
On August 5, 2016, Capricor and CSMC entered into a Third Amendment to the Exosomes License Agreement (the “Third Exosomes License
Amendment”), pursuant to which the parties agreed to add certain patent applications to the schedule of patent rights under the agreement. Under the Third
Exosomes License Amendment, (i) the description of scheduled patent rights has been replaced by a revised schedule that includes three additional patent
applications; (ii) Capricor paid CSMC an upfront fee of $2,500; and (iii) Capricor reimbursed CSMC approximately $16,000 for attorneys’ fees and filing fees that
were incurred in connection with the additional patent applications.
On December 26, 2017, Capricor and CSMC entered into a Fourth Amendment to Exosomes License Agreement, thereby amending the Exosomes
License (the “Fourth Exosomes License Amendment”). Under the Fourth Exosomes License Amendment, (i) the description of scheduled patent rights was
replaced by a revised schedule that includes seven additional patent applications; (ii) Capricor is required to reimburse CSMC approximately $50,000 for
attorneys’ fees and filing fees that were incurred in connection with the additional patent rights; and (iii) a schedule to the Exosomes License was modified to
extend the milestone deadline for filing an IND for at least one product to December 31, 2018.
On June 20, 2018, Capricor and CSMC entered into a Fifth Amendment to the Exosomes License Agreement (the “Fifth License Amendment”). Under
the Fifth License Amendment, (i) the description of scheduled patent rights has been replaced by a revised schedule that includes four additional patent
applications; and (ii) Capricor is required to reimburse CSMC approximately $27,000 for attorneys’ fees and filing fees that were incurred in connection with the
additional patent rights.
On September 25, 2018, Capricor and CSMC entered into a Sixth Amendment to the Exosomes License Agreement (the “Sixth License Amendment”).
Under the Sixth License Amendment, the milestone deadline for filing an IND for at least one product has been extended to December 31, 2019. If the Company
does not file an IND by December 31, 2019, or negotiate an additional extension of the milestone deadline, CSMC would have the option to convert the
exclusive license to a non-exclusive license or to a co-exclusive license or terminate the license under Title 35, Section 203 of the United States Code. Prior to
exercising such option, Capricor has the opportunity to cure the failure to file an IND for a period of 90 days after its receipt of written notice from CSMC of its
intent to exercise its option.
Collaboration Agreement with Janssen Biotech, Inc.
On December 27, 2013, Capricor entered into a Collaboration Agreement and Exclusive License Option (the “Janssen Agreement”) with Janssen, a
wholly-owned subsidiary of Johnson & Johnson. Under the terms of the Janssen Agreement, Capricor and Janssen agreed to collaborate on the development of
Capricor’s cell therapy program for cardiovascular applications, including its lead product candidate, CAP-1002. Capricor and Janssen further agreed to
collaborate on the development of cell manufacturing in preparation for future clinical trials. Under the Janssen Agreement, Capricor was paid $12.5 million, and
Capricor agreed to contribute to the development of a chemistry, manufacturing and controls package. In addition, Janssen had the exclusive right to enter into
an exclusive license agreement pursuant to which Janssen would have received a worldwide, exclusive license to exploit CAP-1002 as well as certain CSps and
CDCs in the field of cardiology.
On June 30, 2017, Capricor was informed by Janssen that Janssen would not be exercising its exclusive option right to exploit CAP-1002 as well as
certain CSps and CDCs in the field of cardiology. Capricor has retained full rights to CAP-1002 in all indications as a result of this decision. Capricor also has an
irrevocable, fully paid-up non-exclusive license under patents controlled by Janssen utilized in the production of the clinical trial materials manufactured pursuant
to the CMC development plan between Capricor and Janssen and a non-exclusive perpetual license to publish, disclose and use the information of Janssen that
was utilized in the production of the clinical trial materials manufactured pursuant to the CMC development plan. On August 7, 2018, the Company entered into
an Exclusive License Agreement with Janssen pursuant to which Janssen granted Capricor an exclusive worldwide license to all rights to Janssen’s know-how
to exploit CDC-cells and CDC-product in the field as described in the previous Janssen Agreement.
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Company Technology – Cenderitide and CU-NP
The Company entered into an exclusive license agreement for intellectual property rights related to natriuretic peptides with the Mayo Foundation for
Medical Education and Research (“Mayo”), a Clinical Trial Funding Agreement with Medtronic, Inc. (“Medtronic”), and a Transfer Agreement with Medtronic, all of
which also include certain intellectual property licensing provisions. In February 2017, we elected to terminate our former natriuretic peptide development
program, consisting of Cenderitide (CD-NP) and CU-NP, so as to more efficiently focus our resources and efforts on our CAP-1002 and CAP-2003 programs.
Medtronic Clinical Trial Funding Agreement
In February 2011, the Company entered into a Clinical Trial Funding Agreement with Medtronic, related to the Company’s now discontinued Cenderitide
program. Pursuant to its terms, the agreement expired in February 2012. Although the Medtronic agreement expired, there are certain provisions that survive
the expiration of the agreement, including the obligation to pay royalties on products that might be covered by the agreement. The Company and Medtronic
subsequently entered into a Transfer Agreement, described below.
Medtronic Transfer Agreement
On October 8, 2014, the Company entered into a Transfer Agreement (the “Transfer Agreement”) with Medtronic to acquire patent rights relating to the
Company’s now discontinued natriuretic peptides program. Pursuant to the Transfer Agreement, Medtronic assigned to the Company all of its right, title and
interest in all natriuretic peptide patents and patent applications previously owned by Medtronic or co-owned by Medtronic and the Company (the “Natriuretic
Peptide Patents”).
In light of the Company’s decision to terminate its development program with respect to natriuretic peptides, the Company elected to cease prosecution
of all of the Natriuretic Peptide Patents and has offered to reassign to Medtronic rights to certain patent applications obtained through the Transfer Agreement.
Medtronic elected not to take a reassignment of the patent rights.
Manufacturing
Capricor presently maintains its laboratory, research and manufacturing facilities in leased premises located at CSMC, or the Facilities Lease. In that
portion of the leased premises where we manufacture CAP-1002 and plan to manufacture CAP-2003, we believe that we follow good manufacturing practices to
the extent that they are applicable to our clinical programs, but our premises are not approved as a current Good Manufacturing Practices, or cGMP, facility, for
the manufacture of commercial product. Capricor manufactured CAP-1002 in this facility for our previous studies we have continued to do so for our HOPE-2
clinical trial.
In addition to manufacturing CAP-1002 for its own clinical trials, Capricor has agreed to provide CAP-1002 for investigational purposes in two clinical
trials sponsored by CSMC. If we elect to not extend the term of our Facilities Lease, Capricor would have to secure alternative facilities in which to manufacture
its products, which would involve a significant monetary investment and would negatively impact the progress of our planned clinical trials and regulatory
approvals. In addition, we would have to establish a collaboration agreement with a third party or build out our own manufacturing facility for any commercial
scale manufacturing or a Phase III trial.
In November 2017, Capricor entered into a Master Services Agreement with WuXi AppTech, Inc., or WuXi, for the development, manufacturing and
testing of our CAP-1002 product candidate. The Agreement allowed us to begin our technology transfer process in anticipation of potential commercial scale
manufacturing and/or later stage clinical trials. We completed the initial stages of the technology transfer process and subsequently decided to terminate the
agreement to conserve resources.
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CAP-1002:
The manufacturing process for CAP-1002 begins with material from an entire heart received from a donor that was collected from an organ procurement
organization, or OPO. This tissue is then taken to the lab where the cells are isolated, expanded, and processed through a series of proprietary unit operations.
After expanding, processing, release testing and quality review, the CAP-1002 product becomes available for administration to patients. CAP-1002 is cryo-
preserved, enabling us to produce large lots that can be frozen and then administered to patients as needed.
CAP-2003:
The process for manufacturing CAP-2003 starts with the proprietary process of creating a cell bank from donor heart tissue through the expansion of
CDCs. Afterwards, exosomes are isolated from the expanded CDCs. After these exosomes are prepared, formulated, filled, tested, and validated, the exosomes
product becomes available for therapeutic use. We believe that the allogeneic, acellular nature of exosomes enables us to potentially create a scalable cell-
derived product.
Research and Development
Capricor’s research and development program has been advanced in part through federal and state grants and loan awards totaling over approximately
$28.0 million to date. Our ongoing research and development activities primarily concern CDCs and CDC exosomes, and are focused on the characterization of
their composition and actions, the evaluation of their therapeutic potential in selected disease settings, the development of next generation product candidates,
and the identification of new technologies and indications. Capricor spent approximately $12.1 million and $10.8 million on research and development activities
for the years ended December 31, 2018 and 2017, respectively.
Competition
We are engaged in fields that are characterized by extensive worldwide research and competition by pharmaceutical companies, medical device
companies, specialized biotechnology companies, hospitals, physicians and academic institutions, both in the United States and abroad. The pharmaceutical
industry is highly competitive, with a number of established, large pharmaceutical companies, as well as many smaller companies. Many of the organizations
competing with us have substantially greater financial resources, larger research and development staffs and facilities, longer drug development history in
obtaining regulatory approvals, and greater manufacturing and marketing capabilities than we do. There are many pharmaceutical companies, biotechnology
companies, public and private universities, government agencies, and research organizations actively engaged in research and development of products which
may target the same indications as our product candidates. We expect any future products and product candidates we develop to compete on the basis of,
among other things, product efficacy and safety, time to market, price, extent of adverse side effects, and convenience of treatment procedures. The
biotechnology and pharmaceutical industries are subject to rapid and significant technological change. The drugs that we are attempting to develop will have to
compete with existing and future therapies. Our future success will depend in part on our ability to maintain a competitive position with respect to evolving cell
therapy and exosome technologies. There can be no assurance that existing or future therapies developed by others will not render our potential products
obsolete or noncompetitive. In addition, companies pursuing different but related fields represent substantial competition. These organizations also compete with
us to attract qualified personnel and parties for acquisitions, joint ventures, or other collaborations.
Government Regulation
The research, development, testing, manufacture, labeling, promotion, advertising, distribution and marketing, among other things, of our product
candidates are extensively regulated by governmental authorities in the United States and other countries. In the United States, the FDA regulates drugs under
the Federal Food, Drug, and Cosmetic Act, or the FDCA, and its implementing regulations. Failure to comply with the applicable U.S. requirements may subject
us to administrative or judicial sanctions, such as the FDA’s refusal to approve a pending new drug application, or NDA, or a pending biologics license
application, or BLA, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions and/or criminal
prosecution.
Drug Approval Process
Pharmaceutical products such as ours may not be commercially marketed without prior approval from the FDA and comparable regulatory agencies in
other countries. In the United States, the process to receiving such approval is long, expensive and risky, and includes the following steps:
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pre-clinical laboratory tests, animal studies, and formulation studies;
submission to the FDA of an IND for human clinical testing, which must become effective before human clinical trials may begin;
adequate and well-controlled human clinical trials to establish the safety and efficacy of the drug for each indication;
submission to the FDA of an NDA or BLA;
satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug is produced to assess compliance with
cGMP;
a potential FDA audit of the preclinical and clinical trial sites that generated the data in support of the NDA or BLA;
the ability to obtain clearance or approval of companion diagnostic tests, if required, on a timely basis, or at all; and
FDA review and approval of the NDA or BLA.
Regulation by U.S. and foreign governmental authorities is a significant factor affecting our ability to commercialize any of our products, as well as the
timing of such commercialization and our ongoing research and development activities. The commercialization of drug products requires regulatory approval by
governmental agencies prior to commercialization. Various laws and regulations govern or influence the research and development, non-clinical and clinical
testing, manufacturing, processing, packing, validation, safety, labeling, storage, record keeping, registration, listing, distribution, advertising, sale, marketing and
post-marketing commitments of our products. The lengthy process of seeking these approvals, and the subsequent compliance with applicable laws and
regulations, require expending substantial resources.
The results of pre-clinical testing, which include laboratory evaluation of product chemistry and formulation, animal studies to assess the potential safety
and efficacy of the product and its formulations, details concerning the drug manufacturing process and its controls, and a proposed clinical trial protocol and
other information must be submitted to the FDA as part of an IND that must be reviewed and become effective before clinical testing can begin. The study
protocol and informed consent information for patients in clinical trials must also be submitted to an independent Institutional Review Board, or IRB, for approval
covering each institution at which the clinical trial will be conducted. Once a sponsor submits an IND, the sponsor must wait 30 calendar days before initiating
any clinical trials. If the FDA has comments or questions within this 30-day period, the issue(s) must be resolved to the satisfaction of the FDA before clinical
trials can begin. In addition, the FDA, an IRB or Capricor may impose a clinical hold on ongoing clinical trials due to safety concerns. If the FDA imposes a
clinical hold, clinical trials can only proceed under terms authorized by the FDA. Our pre-clinical and clinical studies must conform to the FDA’s Good Laboratory
Practice, or GLP, and Good Clinical Practice, or GCP, requirements, respectively, which are designed to ensure the quality and integrity of submitted data and
protect the rights and well-being of study patients. Information for certain clinical trials also must be publicly disclosed within certain time limits on the clinical trial
registry and results databank maintained by the NIH.
Typically, clinical testing involves a three-phase process; however, the phases may overlap or be combined:
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Phase I clinical trials typically are conducted in a small number of volunteers or patients to assess the early tolerability and safety profile, and the
pattern of drug absorption, distribution and metabolism;
Phase II clinical trials typically are conducted in a limited patient population with a specific disease in order to assess appropriate dosages and dose
regimens, expand evidence of the safety profile and evaluate preliminary efficacy; and
Phase III clinical trials typically are larger scale, multicenter, well-controlled trials conducted on patients with a specific disease to generate enough
data to statistically evaluate the efficacy and safety of the product, to establish the overall benefit-risk relationship of the drug and to provide
adequate information for the registration of the drug.
A therapeutic product candidate being studied in clinical trials may be made available for treatment of individual patients, in certain circumstances.
Pursuant to the 21st Century Cures Act (Cures Act), which was signed into law in December 2016, the manufacturer of an investigational product for a serious
disease or condition is required to make available, such as by posting on its website, its policy on evaluating and responding to requests for individual patient
access to such investigational product.
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The results of the pre-clinical and clinical testing, chemistry, manufacturing and control information, proposed labeling and other information are then
submitted to the FDA in the form of either an NDA or BLA for review and potential approval to begin commercial sales. In responding to an NDA or BLA, the
FDA may grant marketing approval, request additional information in a Complete Response Letter, or CRL, or deny the approval if it determines that the NDA or
BLA does not provide an adequate basis for approval. A CRL generally contains a statement of specific conditions that must be met in order to secure final
approval of an NDA or BLA and may require additional testing. If and when those conditions have been met to the FDA’s satisfaction, the FDA will typically issue
an approval letter, which authorizes commercial marketing of the product with specific prescribing information for specific indications, and sometimes with
specified post-marketing commitments and/or distribution and use restrictions imposed under a Risk Evaluation and Mitigation Strategy program. Any approval
required from the FDA might not be obtained on a timely basis, if at all.
Among the conditions for an NDA or BLA approval is the requirement that the manufacturing operations conform on an ongoing basis with cGMP. In
complying with cGMP, we must expend time, money and effort in the areas of training, production and quality control within our own organization and at our
contract manufacturing facilities. A successful inspection of the manufacturing facility by the FDA is usually a prerequisite for final approval of a pharmaceutical
product. Following approval of the NDA or BLA, we and our manufacturers will remain subject to periodic inspections by the FDA to assess compliance with
cGMP requirements and the conditions of approval. We will also face similar inspections coordinated by foreign regulatory authorities.
Disclosure of Clinical Trial Information
Sponsors of certain clinical trials of FDA-regulated products are required to register and disclose certain clinical trial information. Information related to
the product, patient population, phase of investigation, trial sites and investigators, and other aspects of the clinical trial are then made public as part of the
registration. Sponsors are also obligated to disclose the results of their clinical trials after completion. Disclosure of the results of these trials can be delayed in
certain circumstances for up to two years after the date of completion of the trial. Competitors may use this publicly available information to gain knowledge
regarding the progress of development programs.
Orphan Drugs
Under the Orphan Drug Act, the FDA may grant orphan drug designation to therapeutic candidates intended to treat a rare disease or condition, which is
generally a disease or condition that affects fewer than 200,000 individuals in the U.S. or more than 200,000 individuals in the U.S. and for which there is no
reasonable expectation that the cost of developing and making available in the U.S. a therapeutic candidate for this type of disease or condition will be recovered
from sales in the U.S. for that therapeutic candidate. Orphan drug designation must be requested before submitting a marketing application for the therapeutic for
that particular disease or condition. After the FDA grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use are disclosed
publicly by the FDA. Orphan drug designation does not convey any advantage in or shorten the duration of the regulatory review and approval process. The
FDA may revoke orphan drug designation, and if it does, it will publicize that the drug is no longer designated as an orphan drug.
If a therapeutic candidate with orphan drug designation subsequently receives the first FDA approval for the disease for which it has such designation,
the therapeutic candidate is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications to market the same
therapeutic candidate for the same indication, except in very limited circumstances, for seven years. Orphan drug exclusivity, however, could also block the
approval of one of our therapeutic candidates for seven years if a competitor obtains approval of the same therapeutic candidate as defined by the FDA or if our
therapeutic candidate is determined to be contained within the competitor’s therapeutic candidate for the same indication or disease.
In addition, as the FDA has interpreted the Orphan Drug Act, even if a previously approved same drug does not have unexpired orphan exclusivity, while
a demonstration of clinical superiority is not required for a subsequent orphan-designated drug to obtain marketing approval, a demonstration of clinical
superiority is required for the subsequent orphan-designated same drug to be awarded a 7-year period of orphan exclusivity upon marketing approval. In recent
years, there have been multiple legal challenges to this FDA interpretation, and in August 2017, Congress amended the orphan drug provisions of the FDCA
through enactment of the FDA Reauthorization Act of 2017 to codify FDA’s longstanding interpretation. Section 527 of the FDCA now expressly provides that if a
sponsor of a drug that is designated as an orphan drug and is otherwise the same as an already approved drug is seeking exclusive approval for the same rare
disease or condition as the already approved drug, FDA shall require such sponsor, as a condition of such exclusive approval, to demonstrate that such drug is
clinically superior to any already approved or licensed drug that is the same drug. Orphan drug exclusivity does not prevent the FDA from approving a different
drug for the same disease or condition, or the same drug for a different disease or condition.
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Expedited Development and Review Programs
The FDA has a Fast Track program that is intended to expedite or facilitate the process for reviewing new drugs and biological products that meet certain
criteria. Specifically, new drugs and biological products are eligible for Fast Track designation if they are intended to treat a serious or life-threatening condition
and demonstrate the potential to address unmet medical needs for the condition. Fast Track designation applies to the combination of the product and the
specific indication for which it is being studied. The sponsor of a new drug or biologic may request the FDA to designate the drug or biologic as a Fast Track
product at any time during the clinical development of the product. Unique to a Fast Track product, the FDA may consider for review sections of the marketing
application on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the
application, the FDA agrees to accept sections of the application and determines that the schedule is acceptable, and the sponsor pays any required user fees
upon submission of the first section of the application.
Any product submitted to the FDA for marketing, including under a Fast Track program, may be eligible for other types of FDA programs intended to
expedite development and review, such as priority review and accelerated approval. Under the Breakthrough Therapy program, products intended to treat a
serious or life-threatening disease or condition may be eligible for the benefits of the Fast Track program when preliminary clinical evidence demonstrates that
such product may have substantial improvement on one or more clinically significant endpoints over existing therapies. Additionally, FDA will seek to ensure the
sponsor of a breakthrough therapy product receives timely advice and interactive communications to help the sponsor design and conduct a development
program as efficiently as possible. Any product is eligible for priority review if it has the potential to provide safe and effective therapy where no satisfactory
alternative therapy exists or a significant improvement in the treatment, diagnosis or prevention of a disease compared to marketed products. The FDA will
attempt to direct additional resources to the evaluation of an application for a new drug or biological product designated for priority review in an effort to facilitate
the review. Additionally, a product may be eligible for accelerated approval. Drug or biological products studied for their safety and effectiveness in treating
serious or life-threatening illnesses and that provide meaningful therapeutic benefit over existing treatments may receive accelerated approval, which means that
they may be approved on the basis of adequate and well-controlled clinical studies establishing that the product has an effect on a surrogate endpoint that is
reasonably likely to predict a clinical benefit, or on the basis of an effect on a clinical endpoint other than survival or irreversible morbidity. As a condition of
approval, the FDA may require that a sponsor of a drug or biological product receiving accelerated approval perform adequate and well-controlled post-marketing
clinical studies. In addition, the FDA currently requires as a condition for accelerated approval the pre-approval of promotional materials, which could adversely
impact the timing of the commercial launch of the product. Fast Track designation, Breakthrough Therapy designation, priority review and accelerated approval
do not change the standards for approval but may expedite the development or approval process.
Regenerative Medicine Advanced Therapies (RMAT) Designation
The FDA has established a Regenerative Medicine Advanced Therapy (RMAT) designation as part of its implementation of the 21st Century Cures Act,
or Cures Act. The RMAT designation program is intended to fulfill the Cures Act requirement that the FDA facilitate an efficient development program for, and
expedite review of, any drug that meets the following criteria: (1) it qualifies as a RMAT, which is defined as a cell therapy, therapeutic tissue engineering
product, human cell and tissue product, or any combination product using such therapies or products, with limited exceptions; (2) it is intended to treat, modify,
reverse, or cure a serious or life-threatening disease or condition; and (3) preliminary clinical evidence indicates that the drug has the potential to address unmet
medical needs for such a disease or condition. Like breakthrough therapy designation, RMAT designation provides potential benefits that include more frequent
meetings with FDA to discuss the development plan for the product candidate, and eligibility for rolling review and priority review. Products granted RMAT
designation may also be eligible for accelerated approval on the basis of a surrogate or intermediate endpoint reasonably likely to predict long-term clinical
benefit, or reliance upon data obtained from a meaningful number of sites, including through expansion to additional sites. RMAT-designated products that
receive accelerated approval may, as appropriate, fulfill their post-approval requirements through the submission of clinical evidence, clinical studies, patient
registries, or other sources of real world evidence (such as electronic health records); through the collection of larger confirmatory data sets; or via post-approval
monitoring of all patients treated with such therapy prior to approval of the therapy.
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Rare Pediatric Disease Priority Review Voucher
The FDA generally defines a “rare pediatric disease” as a serious or life-threatening disease that affects fewer than 200,000 individuals in the U.S.
primarily under the age of 18 years old. Under the FDA's Rare Pediatric Disease Priority Review Voucher (PRV) program, upon the approval of an application for
a product for the treatment of a rare pediatric disease, the sponsor of such application is eligible for a Rare Pediatric Disease Priority Review Voucher. Currently,
the Priority Review Voucher can be used to obtain priority review for any subsequent application and may be sold or transferred an unlimited number of times.
Under the Cures Act, Congress extended the PRV program for rare pediatric diseases through 2020. A drug designated as a drug for a rare pediatric disease by
September 30, 2020, and approved by September 30, 2022, may receive a voucher.
Post -Approval Requirements
Oftentimes, even after a drug has been approved by the FDA for sale, the FDA may require that certain post-approval requirements be satisfied,
including the conduct of additional clinical studies. If such post-approval requirements are not satisfied, the FDA may withdraw its approval of the drug. In
addition, holders of an approved NDA or BLA are required to report certain adverse reactions to the FDA, comply with certain requirements concerning
advertising and promotional labeling for their products, and continue to have quality control and manufacturing procedures conform to cGMP after approval. The
FDA periodically inspects the sponsor’s records related to safety reporting and/or manufacturing facilities; this latter effort includes assessment of compliance
with cGMP. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP
compliance.
Pricing, Coverage and Reimbursement
Sales of pharmaceutical products depend, in part, on the extent to which the costs of products are covered and paid for by third-party payors, such as
government health programs, commercial insurance, and managed healthcare organizations. Third-party payors may limit coverage to specific products on an
approved list or formulary, which might not include all of the FDA-approved products for a particular indication. Also, third-party payors may refuse to include a
particular branded drug on their formularies or otherwise restrict patient access to a branded drug when a less costly generic equivalent or another alternative is
available. Third-party payors are increasingly challenging the prices charged for medical products and services. Additionally, the containment of healthcare costs
has become a priority of federal and state governments, and the prices of drugs have been a focus in this effort. The U.S. government, state legislatures and
foreign governments have shown significant interest in implementing cost-containment programs, including price controls, restrictions on reimbursement and
requirements for substitution of generic products. The current U.S. administration has indicated support for possible new measures to regulate drug pricing.
For example, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010,
collectively referred to as the ACA, enacted in March 2010, has had a significant impact on the health care industry by, for example, expanding coverage for the
uninsured and seeking to contain overall healthcare costs. With regard to pharmaceutical products, among other things, the ACA contains provisions that may
reduce the profitability of drug products such as expanding and increasing industry rebates for drugs covered under Medicaid programs and making changes to
the coverage requirements under the Medicare Part D program. Recently, the current U.S. administration and U.S. Congress have expressed a desire to modify,
repeal, or otherwise invalidate all, or certain provisions of, the ACA, which has contributed to the uncertainty of the ongoing implementation and impact of the
ACA and also underscores the potential for additional health care reform going forward. For example, the newly enacted federal income tax law includes a
provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain
qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” Congress may consider other legislation that would
alter other aspects of the ACA. There is still uncertainty with respect to the impact the current U.S. administration and the U.S. Congress may have, if any, and
any changes will likely take time to unfold.
Further other legislative changes have been proposed and adopted since the ACA was enacted. For example, in August 2011, President Obama signed
into law the Budget Control Act of 2011, which, among other things, created the Joint Select Committee on Deficit Reduction to recommend to Congress
proposals in spending reductions. The Joint Select Committee on Deficit Reduction did not achieve a targeted deficit reduction of at least $1.2 trillion for fiscal
years 2012 through 2021, triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions to Medicare
payments to providers of up to 2% per fiscal year, which went into effect beginning on April 1, 2013 and will stay in effect through 2027 unless additional
Congressional action is taken. In addition, on February 9, 2018, Congress passed the Bipartisan Budget Act that made a number of healthcare reforms. For
example, the law changes the discounts manufacturers are required to apply to their drugs under the Coverage Gap Discount Program from 50% to 70% of the
negotiated price starting in 2019. In addition, the law increases civil and criminal penalties for fraud and abuse laws, including, for example, criminal fines for
violations of the Anti-Kickback Statute increase from $25,000 to $100,000 and corresponding prison sentences also increase from no more than five years to no
more than ten years.
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There has also been heightened governmental scrutiny recently over the manner in which drug manufacturers set prices for their marketed products,
which have resulted in several Congressional inquiries and proposed bills designed to, among other things, bring more transparency to product pricing, review
the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products.
Individual states in the United States have also become increasingly aggressive in passing legislation and implementing regulations designed to control
pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and
marketing cost disclosure and transparency measures. For example, in September 2017, the California State Assembly approved SB17 which requires
pharmaceutical companies to notify health insurers and government health plans at least 60 days before any scheduled increases in the prices of their products
if they exceed 16% over a two-year period, and further requiring pharmaceutical companies to explain the reasons for such increase.
In addition, in some non-U.S. jurisdictions, the proposed pricing for a product candidate must be approved before it may be lawfully marketed. The
requirements governing drug pricing vary widely from country to country. For example, the EU provides options for its member states to restrict the range of
medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A
member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the
company placing the medicinal product on the market. There can be no assurance that any country that has price controls or reimbursement limitations for
pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our product candidates. Historically, product candidates
launched in the EU do not follow price structures of the U.S. and generally tend to have price structures that are significantly lower.
Other Healthcare Fraud and Abuse Laws
In the U.S., our activities are potentially subject to regulation by various federal, state and local authorities in addition to the FDA, including, but not
limited to, the Centers for Medicare and Medicaid Services, or CMS, other divisions of the U.S. Department of Health and Human Services (such as the Office of
Inspector General and the Health Resources and Service Administration), the U.S. Department of Justice, or the DOJ, and individual U.S. Attorney offices within
the DOJ, and state and local governments. For example, sales, marketing and scientific/educational grant programs may have to comply with the anti-fraud and
abuse provisions of the Social Security Act, the false claims laws, the privacy and security provisions of the Health Insurance Portability and Accountability Act,
or HIPAA, and similar state laws, each as amended, as applicable.
The federal Anti-Kickback Statute prohibits, among other things, any person or entity from knowingly and willfully offering, paying, soliciting or receiving
any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or in return for purchasing, leasing, ordering or arranging for the
purchase, lease or order of any item or service reimbursable, in whole or in part, under Medicare, Medicaid or other federal healthcare programs. The term
remuneration has been interpreted broadly to include anything of value. The Anti-Kickback Statute has been interpreted to apply to arrangements between
therapeutic product manufacturers on one hand and prescribers, purchasers, and formulary managers on the other. There are a number of statutory exceptions
and regulatory safe harbors protecting some common activities from prosecution. The exceptions and safe harbors are drawn narrowly and practices that involve
remuneration that may be alleged to be intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an
exception or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the
conduct per se illegal under the Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative
review of all of its facts and circumstances. Additionally, the intent standard under the Anti-Kickback Statute was amended by the ACA to a stricter standard such
that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. In addition,
the ACA codified case law that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent
claim for purposes of the federal False Claims Act, or FCA.
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The federal false claims and civil monetary penalty laws, including the FCA, which imposes significant penalties and can be enforced by private citizens
through civil qui tam actions, prohibit any person or entity from, among other things, knowingly presenting, or causing to be presented, a false or fraudulent claim
for payment to, or approval by, the federal healthcare programs, including Medicare and Medicaid, or knowingly making, using, or causing to be made or used a
false record or statement material to a false or fraudulent claim to the federal government. A claim includes “any request or demand” for money or property
presented to the U.S. government. For instance, historically, pharmaceutical and other healthcare companies have been prosecuted under these laws for
allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. Other companies have been
prosecuted for causing false claims to be submitted because of the companies’ marketing of the product for unapproved, off-label, and thus generally non-
reimbursable, uses.
HIPAA created additional federal criminal statutes that prohibit, among other things, knowingly and willfully executing, or attempting to execute, a scheme
to defraud or to obtain, by means of false or fraudulent pretenses, representations or promises, any money or property owned by, or under the control or custody
of, any healthcare benefit program, including private third-party payors, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and
willfully falsifying, concealing or covering up by trick, scheme or device, a material fact or making any materially false, fictitious or fraudulent statement in
connection with the delivery of or payment for healthcare benefits, items or services. Like the Anti-Kickback Statute, the ACA amended the intent standard for
certain healthcare fraud statutes under HIPAA such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it
in order to have committed a violation.
Many states have similar, and typically more prohibitive, fraud and abuse statutes or regulations that apply to items and services reimbursed under
Medicaid and other state programs, or, in several states, apply regardless of the payor. Additionally, to the extent that our product candidates may in the future
be sold in a foreign country, we may be subject to similar foreign laws.
We may be subject to data privacy and security regulations by both the federal government and the states in which we conduct our business. HIPAA, as
amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and its implementing regulations, imposes requirements
relating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA’s privacy and security
standards directly applicable to business associates, independent contractors, or agents of covered entities that receive or obtain protected health information in
connection with providing a service on behalf of a covered entity. HITECH also created four new tiers of civil monetary penalties, amended HIPAA to make civil
and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in
federal courts to enforce HIPAA and seek attorneys’ fees and costs associated with pursuing federal civil actions. In addition, many state laws govern the privacy
and security of health information in specified circumstances, many of which differ from each other in significant ways, are often not pre-empted by HIPAA, and
may have a more prohibitive effect than HIPAA, thus complicating compliance efforts. For example, the California Consumer Privacy Act of 2018, or CCPA,
which takes effect on January 1, 2020, gives California residents expanded rights to access and require deletion of their personal information, opt out of certain
personal information sharing, and receive detailed information about how their personal information is used. In addition, the CCPA authorizes private lawsuits to
recover statutory damages for certain data breaches. While it exempts some data regulated by HIPAA and certain clinical trials data, the CCPA may increase
our compliance costs and potential liability with respect to other personal information we collect about California residents.
We expect our product, after approval, may be eligible for coverage under Medicare, the federal health care program that provides health care benefits
to the aged and disabled, and covers outpatient services and supplies, including certain pharmaceutical products, that are medically necessary to treat a
beneficiary’s health condition. In addition, the product may be covered and reimbursed under other government programs, such as Medicaid and the 340B Drug
Pricing Program. The Medicaid Drug Rebate Program requires pharmaceutical manufacturers to enter into and have in effect a national rebate agreement with
the Secretary of the Department of Health and Human Services as a condition for states to receive federal matching funds for the manufacturer’s outpatient
drugs furnished to Medicaid patients. Under the 340B Drug Pricing Program, the manufacturer must extend discounts to entities that participate in the program.
As part of the requirements to participate in certain government programs, many pharmaceutical manufacturers must calculate and report certain price reporting
metrics to the government, such as average manufacturer price, or AMP, and best price. Penalties may apply in some cases when such metrics are not
submitted accurately and timely.
Additionally, the federal Physician Payments Sunshine Act, or the Sunshine Act, within the ACA, and its implementing regulations, require that certain
manufacturers of drugs, devices, biological and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance
Program (with certain exceptions) report annually to CMS information related to certain payments or other transfers of value made or distributed to physicians
and teaching hospitals, or to entities or individuals at the request of, or designated on behalf of, the physicians and teaching hospitals and to report annually
certain ownership and investment interests held by physicians and their immediate family members. Failure to report accurately could result in penalties. In
addition, many states also govern the reporting of payments or other transfers of value, many of which differ from each other in significant ways, are often not
pre-empted, and may have a more prohibitive effect than the Sunshine Act, thus further complicating compliance efforts.
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New Legislation and Regulations
From time to time, legislation is drafted, introduced and passed in Congress that could significantly change the statutory provisions governing the
testing, approval, manufacturing and marketing of products regulated by the FDA. In addition to new legislation, FDA regulations and policies are often revised or
interpreted by the agency in ways that may significantly affect our business and our products. It is impossible to predict whether further legislative changes will
be enacted or whether FDA regulations, guidance, policies or interpretations will be changed or what the effect of such changes, if any, may be.
Corporate Information
Our corporate headquarters are located at 8840 Wilshire Blvd., 2nd Floor, Beverly Hills, California 90211. Our telephone number is (310) 358-3200 and
our internet address is www.capricor.com. The information on, or accessible through, our website is not part of this Annual Report on Form 10-K. We have
included our website address in this Annual Report on Form 10-K solely as an inactive textual reference.
Employees
Currently, we have 18 full-time employees and four part-time employees. None of our employees are covered by a collective bargaining agreement. We
believe that our relations with our employees are satisfactory. We have also retained several consultants to perform various operational and administrative
functions. Certain officers of Capricor are also serving as officers of the Company.
Description of Property
We do not own any real property. Our principal offices are located at 8840 Wilshire Blvd., 2nd Floor, Beverly Hills, California 90211. Capricor leases
space for its corporate offices from The Bubble Real Estate Company, LLC pursuant to a lease that was originally effective for a two-year period beginning July
1, 2013 with an option to extend the lease for an additional twelve months. The lease was amended several times since it was originally executed, in each case
extending the term of the lease. On January 11, 2019, Capricor entered into a Fourth Lease Amendment with The Bubble Real Estate Company, LLC. Under
the terms of the Fourth Lease Amendment, the lease term extension commenced on January 1, 2019 and will end on December 31, 2019 with a base rent of
$25,867 per month.
The Facilities Lease which Capricor entered into with CSMC is for a term of three years commencing June 1, 2014 and replaced the month-to-month
lease that was previously in effect between CSMC and Capricor. On August 10, 2017, the Company and CSMC entered into the First Amendment to the
Facilities Lease effective August 1, 2017, or the First Amendment, pursuant to which the term of the Facilities Lease was extended for an additional 12-month
period, and the Company was granted an option to further extend the term for an additional 12-month period thereafter through July 31, 2019. Under the First
Amendment, the total monthly rent increased from approximately $19,350 to $19,756. In addition, pursuant to the First Amendment, the premises covered by the
Facilities Lease now also include the manufacturing facility currently being utilized by Capricor. In lieu of further increasing the monthly rental payment set forth
in the First Amendment, the Company has also agreed to provide doses of CAP-1002 for use in CSMC’s clinical trials for a negotiated amount of monetary
compensation. On September 7, 2018, Capricor entered into a Second Amendment to the CSMC Facilities Lease pursuant to which Capricor was granted two
consecutive 1-year options to extend the term of the Facilities Lease through July 31, 2021. We are planning to enter into a Third Amendment to the CSMC
Facilities Lease reducing the square footage of the leased premises, which would result in a rent reduction of approximately $4,000 per month. The premises
leased from CSMC are located at 8700 Beverly Blvd., Los Angeles, California 90048.
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ITEM 1A. RISK FACTORS
Investment in our common stock involves significant risk. You should carefully consider the information described in the following risk factors, together
with the other information appearing elsewhere in this Annual Report on Form 10-K, before making an investment decision regarding our common stock. If any of
the events or circumstances described in these risks actually occur, our business, financial condition, results of operations and future growth prospects would
likely be materially and adversely affected. In these circumstances, the market price of our common stock could decline, and you may lose all or a part of your
investment in our common stock. Moreover, the risks described below are not the only ones that we face.
Risks Related to Our Business
We need substantial additional funding before we can complete the development of our product candidates. If we are unable to obtain such
additional capital, we will be forced to delay, reduce or eliminate our product development and clinical programs and may not have the capital
required to otherwise operate our business.
Developing biopharmaceutical products, including conducting pre-clinical studies and clinical trials and establishing manufacturing capabilities, is
expensive. As of December 31, 2018, we had cash and cash resources, including marketable securities and restricted cash, totaling approximately $7.5 million.
We have not generated any revenues from the commercial sale of products. We will not be able to generate any product revenues until, and only if, we receive
approval to sell our drug candidates from the FDA or other regulatory authorities.
From inception, we have financed our operations through public and private sales of our equity and debt securities, grants from the National Institutes of
Health, or NIH, and the Department of Defense, or DoD, and a loan commitment and grant award from the California Institute for Regenerative Medicine, or
CIRM. In December 2013 we also entered into a collaboration agreement with Janssen Biotech, Inc., or Janssen, which provided funding for the development of
our cell manufacturing program, including CAP-1002. As we have not generated any revenue from commercial sales to date and we do not expect to generate
revenue for several years, if ever, we will need to raise substantial additional capital in order to fund our general corporate activities and to fund our research and
development, including our ongoing clinical trials and plans for new clinical trials and product development.
Recently, we implemented certain cost cutting measures including a reduction in the size of our workforce in order to conserve cash resources. Based
on our available cash resources, we do not have sufficient cash on hand to support current operations for at least the next twelve months from the date of filing
this Report on Form 10-K. Therefore, there is substantial doubt about the Company’s ability to continue as a going concern. Other than our cash on hand and the
funds expected to be received from our supplying product for clinical trials sponsored by CSMC and the DoD grant award which fund ongoing pre-clinical work,
we currently have no commitments or arrangements for any additional financing to fund the research and clinical development of CAP-1002 or CAP-2003.
We may seek to raise additional funds through various potential sources, such as equity and debt financings, or through strategic collaborations and
license agreements. We can give no assurances that we will be able to secure such additional sources of funds to support our operations or, if such funds are
available to us, that such additional financing will be sufficient to meet our needs. Moreover, to the extent that we raise additional funds by issuing equity
securities, our stockholders may experience additional significant dilution, and debt financing, if available, may involve restrictive covenants. To the extent that
we raise additional funds through collaboration and licensing arrangements, it may be necessary to relinquish some rights to our technologies or our product
candidates, or grant licenses on terms that may not be favorable to us.
Given our capital constraints, we need to prioritize spending on our clinical and pre-clinical programs. If we are unable to raise sufficient funds to support
our current and planned operations, we may elect to discontinue certain of our ongoing activities or programs. For example, we have suspended enrollment in
our HOPE-2 trial until we are able to secure additional funding. Our inability to raise additional funds could also prevent us from taking advantage of opportunities
to pursue promising new or existing programs in the future.
Our forecasts regarding our beliefs in the sufficiency of our financial resources to support our current and planned operations are forward-looking
statements and involve significant risks and uncertainties, and actual results could vary as a result of a number of factors, including the factors discussed
elsewhere in this “Risk Factors” section. We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital
resources sooner than we currently expect. Our future funding requirements will depend on many factors, including, but not limited to:
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the scope, rate of progress, cost and results of our research and development activities, especially our HOPE-2 clinical trial, the HOPE-OLE, and
our ongoing exosomes program;
the availability of funding from government programs including CIRM, the NIH, and DoD;
the costs of developing adequate manufacturing processes and facilities;
the costs associated with and timing of regulatory approval;
the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;
the costs and risks involved in conducting clinical trials and manufacturing operations internationally;
the effect of competing technological and market developments;
the terms and timing of any collaboration, licensing or other arrangements that we may establish;
the cost and timing of completion of clinical and commercial-scale outsourced manufacturing activities; and
the costs of establishing sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory approval.
We and our auditors have substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain further financing.
Our recurring losses from operations raise substantial doubt about our ability to continue as a going concern. As a result, our independent registered
public accounting firm included an explanatory paragraph in its report on our financial statements for the year ended December 31, 2018 with respect to this
uncertainty. Our 2018 financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets
or the amounts and classification of liabilities that may result from the outcome of this uncertainty. Our ability to continue as a going concern will require us to
obtain additional funding. If we are unable to raise capital when needed or on acceptable terms, we would be forced to delay, reduce or eliminate our research
and development programs, and our stockholders could lose all, or a significant portion, of their investment in us.
We have a history of net losses, and we expect losses to continue for the foreseeable future. In addition, a number of factors may cause our
operating results to fluctuate on a quarterly and annual basis, which may make it difficult to predict our future performance.
We have a history of net losses, expect to continue to incur substantial net losses for the foreseeable future, and may never achieve or maintain
profitability. Our operations to date have been primarily limited to organizing and staffing our company, developing our technology, and undertaking pre-clinical
studies and clinical trials of our product candidates. We have not yet obtained regulatory approval for any of our product candidates. Specifically, our financial
condition and operating results have varied significantly in the past and will continue to fluctuate from quarter-to-quarter and year-to-year in the future due to a
variety of factors, many of which are beyond our control. Factors relating to our business that may contribute to these fluctuations include the following factors:
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our need for substantial additional capital to fund our trials and development programs;
delays in the commencement, enrollment, and timing of clinical testing;
the success of our DMD program through all stages of clinical development;
the viability of CAP-1002 as a potential product candidate for the treatment of DMD and the success of all stages of its clinical development;
the viability of CAP-2003 as a potential product candidate and the success of all stages of its pre-clinical and clinical development;
any delays in regulatory review and approval of our product candidates in clinical development;
our ability to receive regulatory approval or commercialize our product candidates, within and outside the United States;
potential side effects of our current or future products and product candidates that could delay or prevent commercialization or cause an
approved treatment drug to be taken off the market;
regulatory difficulties relating to products that are in development or which may receive regulatory approval;
market acceptance of our product candidates;
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our ability to establish an effective sales and marketing infrastructure once our products are commercialized or to establish partnerships with
other companies who have greater sales and marketing capabilities;
our ability to establish or maintain collaborations, licensing or other arrangements;
our ability and third parties’ abilities to obtain and protect intellectual property rights;
competition from existing products or new products that may emerge;
guidelines and recommendations of therapies published by various organizations;
the ability of patients to obtain coverage of, or sufficient reimbursement for, our products;
our ability to maintain adequate insurance policies;
our ability to successfully manufacture our product candidates in sufficient quantities and on a timely basis to meet clinical trial and potential
commercial demand;
our dependency on third parties to formulate and manufacture our product candidates;
our ability to maintain our current manufacturing facility, including our ability to achieve and maintain current Good Manufacturing Practices, or
cGMP, certification, and to secure other facilities as determined to be necessary;
costs related to and outcomes of potential intellectual property litigation;
compliance with obligations under intellectual property licenses with third parties;
our ability to seek and obtain regulatory approvals for our product candidates;
our ability to implement additional internal systems and infrastructure;
our ability to adequately support future growth;
our ability to attract and retain key personnel to manage our business effectively; and
the ability of members of our senior management who have limited experience in managing a public company to manage our business and
operations.
The Company’s technology is not yet proven and each of our product candidates is in an early stage of development.
Each of the Company’s two active product candidates, CAP-1002 and CAP-2003, is in an early stage of development and requires extensive clinical
testing before it may be approved by the FDA, or another regulatory authority in a jurisdiction outside the United States, which could take several years to
complete, if ever. The effectiveness of the Company’s technology has not been definitively proven in completed human clinical trials or pre-clinical studies. The
Company’s failure to establish the efficacy of its technology would have a material adverse effect on the Company. We cannot predict with any certainty the
results of such clinical testing, including the results of our HOPE-2 and HOPE-OLE trials. Additionally, we cannot predict with any certainty if, or when, we might
commence any additional clinical trials of our product candidates, or whether our current trials will yield sufficient data to permit us to proceed with additional
clinical development and ultimately submit an application for regulatory approval of our product candidates in the United States or abroad, or whether such
applications will be accepted by the appropriate regulatory agencies. We are also unable to predict whether our pre-clinical studies of our exosomes product will
result in a viable clinical development program.
We may not be able to manage our growth .
Should we achieve our near-term milestones, of which no assurance can be given, our long-term viability will depend upon the expansion of our
operations and the effective management of our growth, which will place a significant strain on our management and on our administrative, operational and
financial resources, especially if we expand our business and operations internationally. To manage this growth, we may need to expand our facilities, augment
our operational, financial and management systems and hire and train additional qualified personnel. If we are unable to manage our growth effectively, our
business would be harmed.
Business disruptions such as natural disasters could seriously harm our future revenues and financial condition and increase our costs and
expenses.
Our corporate headquarters and manufacturing facilities are located in the greater Los Angeles, California area, a region known for seismic activity, as
well as being susceptible to drought and fires. A significant natural disaster, such as an earthquake, flood or fire, occurring at our headquarters or manufacturing
facilities, or at the facilities of any third-party manufacturer or vendor, could have a material adverse effect on our business, financial condition and results of
operations. In addition, terrorist acts or acts of war targeted at the United States, and specifically the Los Angeles, California region, could cause damage or
disruption to us, our employees, facilities, contractors and collaborators, which could have a material adverse effect on our business, financial condition and
results of operations.
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A breakdown or breach of our information technology systems could subject us to liability or interrupt the operation of our business.
We are increasingly dependent upon information technology systems and data, especially if we expand our clinical trials and therefore our databases of
patient information. Our computer systems are potentially vulnerable to breakdown, malicious intrusion and random attack. Likewise, data privacy or security
breaches by individuals authorized to access our information technology systems or others may pose a risk that sensitive data, including intellectual property,
trade secrets or personal information belonging to us, our patients, customers or other business partners, may be exposed to unauthorized persons or to the
public. Cyber-attacks are increasing in their frequency, sophistication and intensity. While we continue to build and improve our information systems and
infrastructure and believe we have taken appropriate security measures to minimize these risks to our data and information technology systems, there can be no
assurance that our efforts will prevent breakdowns or breaches in our systems that could adversely affect our business.
Our internal computer systems, or those used by our CROs or other contractors or consultants, may fail or suffer security breaches.
We utilize and rely on services of third parties to perform services in connection with our clinical trials, which services involve the collection, use, storage
and analysis of personal health information. While we receive assurances from these vendors that their services are compliant with the Health Insurance
Portability and Accountability Act, or HIPAA, and other applicable privacy laws, there can be no assurance that such third parties will comply with applicable laws
or regulations. Non-compliance by such vendors may result in liability for us which would have a material adverse effect on our business, financial conditions and
results of operations.
Despite the implementation of security measures, our internal computer systems and those of our current and future CROs and other contractors and
consultants are vulnerable to damage from computer viruses and unauthorized access. While we have not experienced any such material system failure or
security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development
programs and our business operations. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory
approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss
of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further
development and commercialization of our product candidates could be delayed.
Risks Related to Clinical and Commercialization Activities
Our product candidates will require substantial time and resources in order to be developed, and there is no guarantee that we will develop them
successfully.
We have not completed the development of any product candidates and may not have products to sell commercially for several years, if at all. Our
product candidates will require substantial additional research and development time and expense, as well as extensive clinical trials and perhaps additional pre-
clinical testing, prior to commercialization, which may never occur. There can be no assurance that product candidates will be developed successfully, perform in
the manner anticipated, or be commercially viable. For example, due to budgetary constraints, we have suspended enrollment in our HOPE-2 trial until we are
able to secure additional funding and have completed our planned interim analysis. We have also closed several sites that were originally part of the trial.
We may not be able to file INDs to commence additional clinical trials on the timelines we expect, and even if we are able to do so, the FDA may not
permit us to proceed.
We hope to file additional investigational new drug applications, or INDs, over the next several years. However, the timing of our filing of these INDs is
primarily dependent on receiving further data from our pre-clinical studies, and our timing of filing on all product candidates is subject to further research.
Additionally, our submission of INDs is contingent upon having sufficient financial resources to prepare and complete the application.
We cannot be sure that submission of an IND will result in the FDA allowing further clinical trials to begin, or that, once begun, issues will not arise that
result in the suspension or termination of such clinical trials. Any IND we submit could be denied by the FDA or the FDA could place any future investigation of
ours on clinical hold until we provide additional information, either before or after clinical trials are initiated. Additionally, even if such regulatory authorities agree
with the design and implementation of the clinical trials set forth in an IND or clinical trial application, we cannot guarantee that such regulatory authorities will
not change their requirements in the future. Unfavorable future trial results or other factors, such as insufficient capital to continue development of a product
candidate or program, could also cause us to voluntarily withdraw an effective IND.
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The Company has limited experience in conducting clinical trials, which are complex and subject to strict regulatory oversight.
The Company has limited human clinical trial experience with respect to its product candidates. The clinical testing process is governed by stringent
regulation and is highly complex, costly, time-consuming, and uncertain as to outcome, and pharmaceutical products and products used in the regeneration of
tissue may invite particularly close scrutiny and requirements from the FDA and other regulatory bodies. Our failure or the failure of our collaborators to conduct
human clinical trials successfully or our failure to capitalize on the results of human clinical trials for our product candidates would have a material adverse effect
on the Company. If our clinical trials of our product candidates or future product candidates do not sufficiently enroll or produce results necessary to support
regulatory approval in the United States or elsewhere, or if they show undesirable side effects, we will be unable to commercialize these product candidates.
To receive regulatory approval for the commercial sale of our product candidates, we must conduct adequate and well-controlled clinical trials to
demonstrate efficacy and safety in humans. Clinical failure can occur at any stage of the testing. Our clinical trials may produce negative or inconclusive results,
and we may decide, or regulators may require us, to conduct additional clinical and/or non-clinical testing. Further, the contemplated reduction in the number of
patients in the HOPE-2 trial may impact the statistical power of the trial and we can provide no assurances that such changes will produce data that is sufficient
for regulatory approval. In addition, the results of our clinical trials may show that our product candidates are ineffective or may cause undesirable side effects,
which could interrupt, delay or halt clinical trials, resulting in the denial of regulatory approval by the FDA and other regulatory authorities. In addition, negative,
delayed or inconclusive results may result in:
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the withdrawal of clinical trial participants;
the termination of clinical trial sites or entire trial programs;
costly litigation arising out of the trials;
substantial monetary awards to patients or other claimants;
impairment of our business reputation;
loss of revenues; and
the inability to commercialize our product candidates.
Delays in the commencement, enrollment, and completion of clinical testing could result in increased costs to us and delay or limit our ability to
obtain regulatory approval for our product candidates.
Delays in the commencement, enrollment or completion of clinical testing could significantly affect our product development costs. A clinical trial may be
suspended or terminated by the Company, the FDA, or other regulatory authorities due to a number of factors. The commencement and completion of clinical
trials require us to identify and maintain a sufficient number of trial sites, many of which may already be engaged in other clinical trial programs for the same
indication as our product candidates. We may be required to withdraw from a clinical trial as a result of changing standards of care, or we may become ineligible
to participate in clinical studies. We do not know whether planned clinical trials will begin on time or be completed on schedule, if at all. The commencement,
enrollment and completion of clinical trials can be delayed for a number of reasons, including, but not limited to, delays related to:
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findings in pre-clinical studies;
reaching agreements on acceptable terms with prospective clinical research organizations, or CROs, vendors and trial sites, the terms of which
can be subject to extensive negotiation and may vary significantly among different CROs, vendors and trial sites;
obtaining regulatory clearance to commence a clinical trial;
complying with conditions imposed by a regulatory authority regarding the scope or term of a clinical trial, or being required to conduct additional
trials before moving on to the next phase of trials;
obtaining institutional review board, or IRB, approval to conduct a clinical trial at numerous prospective sites;
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recruiting and enrolling patients to participate in clinical trials for a variety of reasons, including the size of the patient population, nature of trial
protocol, meeting the enrollment criteria for our studies, screening failures, the inability of the sites to conduct trial procedures properly, the
inability of the sites to devote their resources to the trial, the availability of approved effective treatments for the relevant disease and competition
from other clinical trial programs for similar indications;
retaining patients who have initiated their participation in a clinical trial but may be prone to withdraw due to the treatment protocol, lack of
efficacy, personal issues, or side effects from the therapy, or who are lost to further follow-up;
manufacturing sufficient quantities of a product candidate for use in clinical trials on a timely basis;
complying with design protocols of any applicable special protocol assessment we receive from the FDA;
severe or unexpected drug-related side effects experienced by patients in a clinical trial;
collecting, analyzing and reporting final data from the clinical trials;
breaches in quality of manufacturing runs that compromise all or some of the doses made; positive results in FDA-required viral testing;
karyotypic abnormalities in our cell product; or contamination in our manufacturing facilities, all of which events would necessitate disposal of all
cells made from that source;
availability of materials provided by third parties necessary to manufacture our product candidates;
availability of adequate amounts of acceptable tissue for preparation of master cell banks for our products;
requirements to conduct additional trials and studies, and increased expenses associated with the services of the Company’s CROs and other
third parties; and
meeting logistical requirements for the delivery of investigational product.
If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, we or our
development partners, if any, may be delayed in obtaining, or may not be able to obtain or maintain, clinical or marketing approval for these product candidates.
We may not be able to obtain approval for indications that are as broad as intended, or we may be able to obtain approval only for indications that are entirely
different from those indications for which we sought approval.
Changes in regulatory requirements and guidance may occur, and we may need to amend clinical trial protocols to reflect these changes with
appropriate regulatory authorities. Amendments may require us to resubmit our clinical trial protocols to IRBs for re-examination, which may impact the costs,
timing, or successful completion of a clinical trial. If we experience delays in the completion of, or if we terminate, our clinical trials, the commercial prospects for
our product candidates will be harmed, and our ability to generate product revenues will be delayed or will not be realized. In addition, many of the factors that
cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of a product
candidate. Even if we are able to ultimately commercialize our product candidates, other therapies for the same or similar indications may have been introduced
to the market and already established a competitive advantage. Any delays in obtaining regulatory approvals may:
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delay commercialization of, and our ability to derive product revenues from, our product candidates;
impose costly procedures on us; or
diminish any competitive advantages that we may otherwise enjoy.
Our success depends upon the viability of our product candidates and we cannot be certain any of them will receive regulatory approval to be
commercialized.
We will need FDA approval to market and sell any of our product candidates in the United States and approvals from FDA-equivalent regulatory
authorities in foreign jurisdictions to commercialize our product candidates in those jurisdictions. In order to obtain FDA approval of any of our product
candidates, we must submit to the FDA a new drug application, or NDA, or a biologics license application, or BLA, demonstrating that the product candidate is
safe for humans and effective for its intended use. This demonstration requires significant research and animal tests, which are referred to as pre-clinical studies,
as well as human tests, which are referred to as clinical trials. Satisfaction of the FDA’s regulatory requirements typically takes many years, depends upon the
type, complexity, and novelty of the product candidate, and requires substantial resources for research, development, testing and manufacturing. We cannot
predict whether our research and clinical approaches will result in drugs that the FDA considers safe for humans and effective for indicated uses. The FDA has
substantial discretion in the drug approval process and may require us to conduct additional pre-clinical and clinical testing or to perform post-marketing studies.
The approval process may also be delayed by changes in government regulation, future legislation, administrative action or changes in FDA policy that occur
prior to or during our regulatory review.
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Even if we comply with all FDA requests, the FDA may ultimately reject one or more of our NDAs or BLAs, as applicable. We cannot be sure that we will
ever obtain regulatory clearance for our product candidates. Failure to obtain FDA approval of any of our product candidates will reduce our number of potentially
salable products and, therefore, corresponding product revenues, and will have a material and adverse impact on our business.
As the results of earlier pre-clinical studies or clinical trials are not necessarily predictive of future results, any product candidate we advance into
clinical trials may not have favorable results in later clinical trials or receive regulatory approval.
Even if our pre-clinical studies and clinical trials are completed as planned, including our HOPE-2 and HOPE-OLE clinical trials, we cannot be certain
that their results will support the claims of our product candidates. Positive results in pre-clinical testing and early clinical trials do not ensure that results from
later clinical trials will also be positive, and we cannot be sure that the results of later clinical trials will replicate the results of prior clinical trials and pre-clinical
testing. A number of companies in the pharmaceutical industry, including those with greater resources and experience, have suffered significant setbacks in
Phase II or Phase III clinical trials, even after seeing promising results in earlier clinical trials.
Our clinical trial process may fail to demonstrate that our product candidates are safe for humans and effective for indicated uses. This failure would
cause us to abandon a product candidate and may delay development of other product candidates. Any delay in, or termination of, our clinical trials will delay or
cause us to refrain from the filing of our NDAs and/or BLAs with the FDA and, ultimately, our ability to commercialize our product candidates and generate
product revenues. In addition, our clinical trials to date involve small patient populations. Because of the small sample size, the results of these clinical trials may
not be indicative of future results.
Despite the results reported in earlier clinical trials for our product candidates, we do not know whether any Phase II, Phase III or other clinical trials we
may conduct will demonstrate adequate efficacy and safety to result in regulatory approval to market our product candidates.
The FDA has granted orphan drug status and a Regenerative Medicine Advanced Therapy (RMAT) designation to CAP-1002 for the treatment of DMD,
but we may be unable to maintain or receive the benefits associated with orphan drug status, including market exclusivity, or an RMAT designation.
Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biologic intended to treat a rare disease or condition or for which there
is no reasonable expectation that the cost of developing and making available in the United States a drug or biologic for a disease or condition will be recovered
from sales in the United States for that drug or biologic. If a biological product that has orphan drug designation subsequently receives the first FDA approval for
the disease for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other
applications, including a full Biologics License Application, or BLA, to market the same biologic for the same indication for seven years, except in limited
circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity.
We have received orphan drug status for CAP-1002 for the treatment of DMD, but exclusive marketing rights in the United States may be limited if we
seek approval for an indication broader than the orphan designated indication and may be lost if the FDA later determines that the request for designation was
materially defective or if we are unable to assure the availability of sufficient quantities of the product to meet the needs of patients with the rare disease or
condition. Even though we have obtained orphan drug designation for CAP-1002 for a select indication, we may be unable to seek or obtain orphan drug
designation for our future product candidates and we may not be the first to obtain marketing approval for any particular orphan indication.
We have also obtained an RMAT designation for CAP-1002 for the treatment of DMD. The RMAT designation program is intended to fulfill the Cures Act
requirement that the FDA facilitate an efficient development program for, and expedite review of, any drug that meets the following criteria: (1) it qualifies as a
RMAT, which is defined as a cell therapy, therapeutic tissue engineering product, human cell and tissue product, or any combination product using such
therapies or products, with limited exceptions; (2) it is intended to treat, modify, reverse, or cure a serious or life-threatening disease or condition; and (3)
preliminary clinical evidence indicates that the drug has the potential to address unmet medical needs for such a disease or condition. Like breakthrough therapy
designation, RMAT designation provides potential benefits that include more frequent meetings with FDA to discuss the development plan for the product
candidate, and eligibility for rolling review and priority review. Products granted RMAT designation may also be eligible for accelerated approval on the basis of a
surrogate or intermediate endpoint reasonably likely to predict long-term clinical benefit, or reliance upon data obtained from a meaningful number of sites,
including through expansion to additional sites. RMAT designation does not change the standards for product approval, and there is no assurance that such
designation will result in expedited review or approval or that the approved indication will not be narrower than the indication covered by the RMAT designation.
Additionally, RMAT designation can be revoked if the criteria for eligibility cease to be met as clinical data emerges.
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Even if we were to obtain approval for CAP-1002 with the rare pediatric disease designation, the Rare Pediatric Disease Priority Review Voucher
Program may no longer be in effect at the time of such approval.
CAP-1002 has received rare pediatric disease designation from the FDA for the treatment of DMD. The FDA generally defines a "rare pediatric disease"
as a serious or life-threatening disease that affects fewer than 200,000 individuals in the U.S. primarily under the age of 18 years old. Under the FDA's Rare
Pediatric Disease Priority Review Voucher program, upon the approval of a NDA or BLA for the treatment of a rare pediatric disease, the sponsor of such
application would be eligible for a Rare Pediatric Disease Priority Review Voucher that can be used to obtain priority review for a subsequent NDA or BLA. The
Priority Review Voucher may be sold or transferred an unlimited number of times. Congress has extended the Priority Review Voucher Program until
September 30, 2020. This program has been subject to criticism, including by the FDA, and it is possible that even if we obtain approval for CAP-1002 and
qualify for such a Priority Review Voucher, the program may no longer be in effect at the time of approval.
Certain of our product candidates may require companion diagnostics in certain indications. Failure to successfully develop, validate and obtain
regulatory clearance or approval for such tests could harm our product development strategy or prevent us from realizing the full commercial
potential of our product candidates.
Certain of our product candidates may require companion diagnostics to identify appropriate patients for those product candidates in certain indications.
Companion diagnostics are subject to regulation by the FDA and comparable foreign regulatory authorities as a medical device and may require separate
regulatory authorization prior to commercialization. We may rely on third parties for the design, development, testing and manufacturing of these companion
diagnostics, the application for and receipt of any required regulatory authorization, and the commercial supply of these companion diagnostics. If these parties
are unable to successfully develop companion diagnostics for these product candidates, or experience delays in doing so, the development of our product
candidates may be adversely affected and we may not be able to obtain marketing authorization for these product candidates. Furthermore, our ability to market
and sell, as well as the commercial success, of any of our product candidates that require a companion diagnostic will be tied to, and dependent upon, the
receipt of required regulatory authorization and the continued ability of such third parties to make the companion diagnostic commercially available on
reasonable terms in the relevant geographies. Any failure to develop, validate, obtain and maintain marketing authorization for a companion diagnostic and
supply such companion diagnostic will harm our business, results of operations and financial condition.
Providing product for use in third party trials poses risks to our product candidates.
In addition to manufacturing CAP-1002 for its own clinical trials, Capricor has agreed to provide CAP-1002 for investigational purposes in two clinical
trials sponsored by CSMC. The first trial is known as “Regression of Fibrosis and Reversal of Diastolic Dysfunction in HFpEF Patients Treated with Allogeneic
CDCs.” The second trial is known as “Pulmonary Arterial Hypertension treated with Cardiosphere-derived Allogeneic Stem Cells.” In both studies, Capricor is
providing the necessary number of doses and will receive a negotiated amount of monetary compensation therefor.
Providing product for clinical trials sponsored by third parties poses significant risks for the Company as we will not have control over the conduct of the
trial even though we have used our reasonable best efforts to ensure that the investigative sites are contractually bound to follow the protocol and other
procedures established by Capricor. Additionally, even though the investigative sites have experience in conducting clinical trials, any adverse event that may
occur during the trial may have a negative impact on our efforts to obtain regulatory approval for our product. There are no assurances that the clinical trial sites
will perform the studies in accordance with the protocol, the manuals provided by Capricor or the sponsor’s instructions, or otherwise act in accordance with
applicable law. There is no assurance that if research injuries are sustained, any insurance carrier will compensate Capricor for any liabilities or other losses
sustained by Capricor arising out of these injuries.
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Our products face a risk of failure due to adverse immunological reactions.
A potential risk of an allogeneic therapy such as that being tested by the Company with CAP-1002 is that patients might develop an immune response to
the cells being infused. Such an immune response may induce adverse clinical effects which would impact the safety and efficacy of the Company’s products
and the success of our trials. Additionally, if research subjects have pre-existing antibodies or other immune sensitization to our cells, our cells and the therapy
could potentially be rendered ineffective which could have a negative impact on the regulatory pathway for our product as well as the viability for other potential
indications. After a patient in the HOPE-2 trial had a serious adverse event in the form of anaphylaxis, we put a voluntary hold on dosing in December 2018 to
develop a plan to manage potential allergic reactions. The investigation suggests that the patient may have been allergic to something contained in the
investigational product, including an excipient, or inactive ingredient, in the formulation. To reduce the risk of future events, we initiated a pre-medication strategy
commonly used by physicians to prevent and treat allergic reactions. We cannot provide any assurances that this will not happen again in the HOPE-2 trial or
any future studies. If these or other reactions continue to occur, it could have a material adverse impact on our ability to receive approval of our product
candidates, and could result in substantial delays, increased costs and potentially termination of the trial.
Our business faces significant government regulation, and there is no guarantee that our product candidates will receive regulatory approval.
Our research and development activities, pre-clinical studies, anticipated human clinical trials, and anticipated manufacturing and marketing of our
potential products are subject to extensive regulation by the FDA and other regulatory authorities in the United States, as well as by regulatory authorities in
other countries. In the United States, our product candidates are subject to regulation as biological products or as combination biological products/medical
devices under the Federal Food, Drug and Cosmetic Act, the Public Health Service Act and other statutes, and as further provided in the Code of Federal
Regulations. Different regulatory requirements may apply to our products depending on how they are categorized by the FDA under these laws. These
regulations can be subject to substantial and significant interpretation, addition, amendment or revision by the FDA and by the legislative process. The FDA may
determine that we will need to undertake clinical trials beyond those currently planned. Furthermore, the FDA may determine that results of clinical trials do not
support approval for the product. Similar determinations may be encountered in foreign countries. The FDA will continue to monitor products in the market after
approval, if any, and may determine to withdraw its approval or otherwise seriously affect the marketing efforts for any such product. The same possibilities exist
for trials to be conducted outside of the United States that are subject to regulations established by local authorities and local law. Any such determinations
would delay or deny the introduction of our product candidates to the market and have a material adverse effect on our business, financial condition, and results
of operations.
Drug manufacturers are subject to ongoing periodic unannounced inspection by the FDA, the Drug Enforcement Agency, other federal agencies and
corresponding state agencies to ensure strict compliance with good manufacturing practices, and other government regulations and corresponding foreign
standards. We do not have control over third-party manufacturers’ compliance with these regulations and standards, nor can we guarantee that we will maintain
compliance with such regulations in regards to our own manufacturing processes. Other risks include:
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regulatory authorities may require the addition of labeling statements, specific warnings, a contraindication, or field alerts to physicians and
pharmacies;
regulatory authorities may withdraw their approval of the IND or the product or require us to take our approved products off the market;
we may be required to change the way the product is manufactured or administered, and we may be required to conduct additional clinical trials
or change the labeling of our products;
we may have limitations on how we promote our products; and
we may be subject to litigation or product liability claims.
Even if our product candidates receive regulatory approval, we may still face future development and regulatory difficulties.
In order to market and commercialize any product candidate outside of the United States, we must establish and comply with numerous and varying
regulatory requirements of other countries regarding manufacturing, safety and efficacy. Approval procedures vary among countries and can involve additional
product testing and additional administrative review periods. The time required to obtain approval in other countries might differ from that required to obtain FDA
approval. The regulatory approval process in other countries may include all of the risks detailed above regarding FDA approval in the United States as well as
other risks. Regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one
country may have a negative effect on the regulatory approval process in others. Failure to obtain regulatory approval in other countries, or any delay or setback
in obtaining such approval, could have the same adverse effects detailed above regarding FDA approval in the United States. Such effects include the risks that
our product candidates may not be approved for all indications requested, which could limit the uses of our product candidates and have an adverse effect on
product sales and potential royalties, and that such approval may be subject to limitations on the indicated uses for which the product may be marketed or
require costly, post-marketing follow-up studies.
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There are additional risks involved in conducting clinical trials internationally.
If we decide to expand one or more of our clinical trials to investigative sites in Europe or other countries outside of the United States, we will have
additional regulatory requirements that we will have to meet in connection with our manufacturing, distribution, use of data and other matters. For example, if we
decide to conduct our trials in Europe, we will have to either move our manufacturing facility to a facility located in Europe, enter into an agreement with a
European manufacturer to manufacture our product candidates for us or enter into an agreement with a domestic manufacturer who maintains an acceptable
cGMP facility. Any of those options would involve a significant monetary investment, would involve increased risk and may impact the progress of our clinical
trials and regulatory approvals.
To the extent we conduct business in the European Union, or EU, we will also have to comply with the EU General Data Protection Regulation, or the
GDPR, which was officially adopted in April 2016 and went into effect in May 2018. The GDPR introduces new data protection requirements in the EU, as well
as substantial fines for breaches of data protection rules. The GDPR enhances data protection obligations for processors and controllers of personal data,
including, for example, expanded disclosures about how personal information is to be used, limitations on retention of information, mandatory data breach
notification requirements and onerous new obligations on services providers. Non-compliance with the GDPR may result in monetary penalties of up to €20
million or 4% of worldwide revenue, whichever is higher. The GDPR and other changes in laws or regulations associated with the enhanced protection of certain
types of personal data, such as healthcare data or other sensitive information, could greatly increase our cost of providing our products and services or even
prevent us from offering certain services in jurisdictions in which we operate.
Additionally, the U.S. Foreign Corrupt Practices Act, or FCPA, prohibits U.S. corporations and their representatives from offering, promising, authorizing
or making payments to any foreign government official, government staff member, political party or political candidate in an attempt to obtain or retain business
abroad. The scope of the FCPA includes interactions with certain healthcare professionals in many countries. Other countries have enacted similar anti-
corruption laws and/or regulations. As we expand our business outside of the United States, ensuring compliance with the FCPA and the laws of other countries
will involve additional monetary and time commitments on behalf of the Company.
Even if our product candidates receive regulatory approval, we may still face future development and regulatory difficulties.
Even if U.S. regulatory approval is obtained, the FDA may still impose significant restrictions on a product’s indicated uses or marketing or impose
ongoing requirements for potentially costly post-approval studies. If any of our products were granted accelerated approval, the FDA could require post-
marketing confirmatory trials to verify and describe the anticipated effect on irreversible morbidity or mortality or other clinical benefit. FDA may withdraw
approval of a drug or indication approved under the accelerated approval pathway if any of the following were to occur: a trial required to verify the predicted
clinical benefit of the product fails to verify such benefit; other evidence demonstrates that the product is not shown to be safe or effective under the conditions
of use; the applicant fails to conduct any required post-approval trial of the drug with due diligence; or the applicant disseminates false or misleading promotional
materials relating to the product. In addition, the FDA currently requires as a condition for accelerated approval the pre-approval of promotional materials, which
could adversely impact the timing of the commercial launch of the product.
Given the number of recent high-profile adverse safety events with certain drug products, the FDA may require, as a condition of approval, costly risk
management programs, which may include safety surveillance, restricted distribution and use, patient education, enhanced labeling, special packaging or
labeling, expedited reporting of certain adverse events, pre-approval of promotional materials, and restrictions on direct-to-consumer advertising. Furthermore,
heightened Congressional scrutiny on the adequacy of the FDA’s drug approval process and the FDA’s efforts to assure the safety of marketed drugs have
resulted in the proposal of new legislation addressing drug safety issues. If enacted, any new legislation could result in delays or increased costs during the
period of product development, clinical trials, and regulatory review and approval, as well as increased costs to assure compliance with any new post-approval
regulatory requirements. Any of these restrictions or requirements could force us to conduct costly studies or increase the time for us to become profitable. For
example, any labeling approved for any of our product candidates may include a restriction on the term of its use, or it may not include one or more of our
intended indications.
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Our product candidates will also be subject to ongoing FDA requirements for the labeling, packaging, storage, advertising, promotion, record-keeping,
and submission of safety and other post-market information on the drug. New issues may arise during a product lifecycle that did not exist, or were unknown, at
the time of product approval, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured.
Since approved products, manufacturers, and manufacturers’ facilities are subject to continuous review and periodic inspections, these new issues post-approval
may result in voluntary actions by Capricor or may result in a regulatory agency imposing restrictions on that product or us, including requiring withdrawal of the
product from the market or for use in a clinical study. If our product candidates fail to comply with applicable regulatory requirements, such as good
manufacturing practices, a regulatory agency may:
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issue warning letters;
require us to enter into a consent decree, which can include imposition of various fines, reimbursements for inspection costs, required due dates
for specific actions, and penalties for noncompliance;
impose other civil or criminal penalties;
suspend regulatory approval;
suspend any ongoing clinical trials;
refuse to approve pending applications or supplements to approved applications filed by us;
impose restrictions on operations, including costly new manufacturing requirements; or
seize or detain products or require a product recall.
If we or current or future collaborators, manufacturers, or service providers fail to comply with healthcare laws and regulations, we or they could be
subject to enforcement actions and substantial penalties, which could affect our ability to develop, market and sell our products and may harm our
reputation.
Although we do not currently have any products on the market, if our therapeutic candidates or clinical trials become covered by federal health care
programs, we will be subject to additional healthcare statutory and regulatory requirements and enforcement by the federal, state and foreign governments of the
jurisdictions in which we conduct our business. Healthcare providers, physicians and third-party payors play a primary role in the recommendation and
prescription of any therapeutic candidates for which we obtain marketing approval. Our future arrangements with third party payors and customers may expose
us to broadly applicable fraud and abuse, transparency, and other healthcare laws and regulations that may constrain the business or financial arrangements
and relationships through which we market, sell and distribute our therapeutic candidates for which we obtain marketing approval. Restrictions under applicable
federal and state healthcare laws and regulations include, but are not limited to, the following:
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the U.S. federal Anti-Kickback Statute, which prohibits, among other things, persons from soliciting, receiving, offering or providing remuneration,
directly or indirectly, to induce either the referral of an individual for a healthcare item or service, or the purchasing or ordering of an item or
service, for which payment may be made, in whole or in part, under a federal healthcare program such as Medicare or Medicaid;
federal civil and criminal false claims laws and civil monetary penalty laws, such as the U.S. federal FCA, which imposes criminal and civil
penalties, including through civil whistleblower or qui tam actions, against, individuals or entities for knowingly presenting or causing to be
presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal
an obligation to pay money to the federal government. In addition, the government may assert that a claim including items and services resulting
from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the FCA;
HIPAA includes a fraud and abuse provision referred to as the HIPAA All-Payor Fraud Law, which imposes criminal and civil liability for executing
a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up a material fact or making
any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the federal Anti-
Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have
committed a violation;
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HIPAA, as amended by HITECH, and its implementing regulations, which impose obligations on certain covered entity healthcare providers,
health plans, and healthcare clearinghouses as well as their business associates that perform certain services involving the use or disclosure of
individually identifiable health information, including mandatory contractual terms, with respect to safeguarding, the privacy, security, and
transmission of individually identifiable health information, and require notification to affected individuals and regulatory authorities of certain
breaches of security of individually identifiable health information;
federal and state consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially
harm consumers;
the federal Physician Payment Sunshine Act and the implementing regulations, also referred to as “Open Payments,” issued under the ACA,
which require that manufacturers of pharmaceutical and biological drugs reimbursable under Medicare, Medicaid, and Children’s Health
Insurance Programs report to the Department of Health and Human Services all consulting fees, travel reimbursements, research grants, and
other payments, transfers of value or gifts made to physicians and teaching hospitals with limited exceptions; and
analogous state laws and regulations, such as, state anti-kickback and false claims laws potentially applicable to sales or marketing
arrangements and claims involving healthcare items or services reimbursed by nongovernmental third party payors, including private insurers;
and some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the
relevant compliance guidance promulgated by the federal government in addition to requiring drug manufacturers to report information related to
payments to physicians and other healthcare providers or marketing expenditures, and state laws governing the privacy and security of health
information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus
complicating compliance efforts.
The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially in
light of the lack of applicable precedent and regulations. Federal and state enforcement bodies have recently increased their scrutiny of interactions between
healthcare companies and healthcare providers, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare
industry. Responding to investigations can be time-and resource-consuming and can divert management’s attention from the business. Any such investigation or
settlement could increase our costs or otherwise have an adverse effect on our business.
Ensuring that our business arrangements with third-parties comply with applicable healthcare laws and regulations could involve substantial costs. If our
operations are found to be in violation of any such requirements, we may be subject to penalties, including civil or criminal penalties, monetary damages, the
curtailment or restructuring of our operations, or exclusion from participation in government contracting, healthcare reimbursement or other government
programs, including Medicare and Medicaid, any of which could adversely affect our financial results. Although effective compliance programs can mitigate the
risk of investigation and prosecution for violations of these laws, these risks cannot be entirely eliminated. Any action against us for an alleged or suspected
violation could cause us to incur significant legal expenses and could divert our management’s attention from the operation of our business, even if our defense
is successful. In addition, achieving and sustaining compliance with applicable laws and regulations may be costly to us in terms of money, time and resources.
Any drugs we develop may become subject to unfavorable pricing regulations, third party coverage and reimbursement practices or healthcare
reform initiatives, thereby harming our business.
The regulations that govern marketing approvals, pricing, coverage and reimbursement for new drugs vary widely from country to country. Some
countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or product
licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial
approval is granted. Although we intend to monitor these regulations, our programs are currently in earlier stages of development and we will not be able to
assess the impact of price regulations for a number of years. As a result, we might obtain regulatory approval for a product in a particular country, but then be
subject to price regulations that delay our commercial launch of the product and negatively impact the revenues we are able to generate from the sale of the
product in that country.
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Our ability to commercialize any products successfully also will depend in part on the extent to which coverage and reimbursement for these products
and related treatments will be available from government health administration authorities, private health insurers and other organizations. However, there may
be significant delays in obtaining coverage for newly-approved drugs. Moreover, eligibility for coverage does not necessarily signify that a drug will be
reimbursed in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution costs. Also, interim payments for
new drugs, if applicable, may be insufficient to cover our costs and may not be made permanent. Thus, even if we succeed in bringing one or more products to
the market, these products may not be considered medically necessary or cost-effective, and the amount reimbursed for any products may be insufficient to
allow us to sell our products on a competitive basis. Because our programs are in earlier stages of development, we are unable at this time to determine their
cost effectiveness, or the likely level or method of reimbursement. In addition, obtaining coverage and reimbursement approval of a product from a government or
other third-party payor is a time-consuming and costly process that could require us to provide to each payor supporting scientific, clinical and cost-effectiveness
data for the use of our product on a payor-by-payor basis, with no assurance that coverage and adequate reimbursement will be obtained. A payor’s decision to
provide coverage for a product does not imply that an adequate reimbursement rate will be approved. Further, one payor’s determination to provide coverage for
a product does not assure that other payors will also provide coverage for the product. Adequate third-party reimbursement may not be available to enable us to
maintain price levels sufficient to realize an appropriate return on our investment in product development. If reimbursement is not available or is available only at
limited levels, we may not be able to successfully commercialize any product candidate that we successfully develop.
Increasingly, the third-party payors who reimburse patients or healthcare providers, such as government and private insurance plans, are seeking
greater upfront discounts, additional rebates and other concessions to reduce the prices for pharmaceutical products. If the price we are able to charge for any
products we develop, or the reimbursement provided for such products, is inadequate in light of our development and other costs, our return on investment could
be adversely affected.
We currently expect that certain drugs we develop may need to be administered under the supervision of a physician on an outpatient basis. Under
currently applicable U.S. law, certain drugs that are not usually self-administered (including injectable drugs) may be eligible for coverage under Medicare
through Medicare Part B. Specifically, Medicare Part B coverage may be available for eligible beneficiaries when the following, among other requirements have
been satisfied:
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the product is reasonable and necessary for the diagnosis or treatment of the illness or injury for which the product is administered according to
accepted standards of medical practice;
the product is typically furnished incident to a physician's services;
the indication for which the product will be used is included or approved for inclusion in certain Medicare-designated pharmaceutical compendia
(when used for an off-label use); and
the product has been approved by the FDA.
Average prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any
future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the U.S. Reimbursement rates
under Medicare Part B would depend in part on whether the newly approved product would be eligible for a unique billing code. Self-administered, outpatient
drugs are typically reimbursed under Medicare Part D, and drugs that are administered in an inpatient hospital setting are typically reimbursed under Medicare
Part A under a bundled payment. It is difficult for us to predict how Medicare coverage and reimbursement policies will be applied to our products in the future
and coverage and reimbursement under different federal healthcare programs are not always consistent. Medicare reimbursement rates may also reflect
budgetary constraints placed on the Medicare program.
Third party payors often rely upon Medicare coverage policies and payment limitations in setting their own reimbursement rates. These coverage
policies and limitations may rely, in part, on compendia listings for approved therapeutics. Our inability to promptly obtain relevant compendia listings, coverage,
and adequate reimbursement from both government-funded and private payors for new drugs that we develop and for which we obtain regulatory approval could
have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our financial condition.
We expect that these and other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and lower
reimbursement, and in additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or
other government-funded programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or
other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our drugs, once marketing approval is
obtained.
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We believe that the efforts of governments and third-party payors to contain or reduce the cost of healthcare and legislative and regulatory proposals to
broaden the availability of healthcare will continue to affect the business and financial condition of pharmaceutical and biopharmaceutical companies. A number
of legislative and regulatory changes in the healthcare system in the U.S. and other major healthcare markets have been proposed, and such efforts have
expanded substantially in recent years. These developments could, directly or indirectly, affect our ability to sell our products, if approved, at a favorable price.
For example, in the U.S., in 2010, the U.S. Congress passed the ACA, a sweeping law intended to broaden access to health insurance, reduce or constrain the
growth of health spending, enhance remedies against fraud and abuse, add new transparency requirements for the healthcare and health insurance industries,
impose new taxes and fees on the healthcare industry and impose additional policy reforms. Among the provisions of the ACA addressing coverage and
reimbursement of pharmaceutical products, of importance to our potential therapeutic candidates are the following:
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increases to pharmaceutical manufacturer rebate liability under the Medicaid Drug Rebate Program due to an increase in the minimum basic
Medicaid rebate on most branded prescription drugs and the application of Medicaid rebate liability to drugs used in risk-based Medicaid
managed care plans;
the expansion of the 340B Drug Pricing Program to require discounts for “covered outpatient drugs” sold to certain children’s hospitals, critical
access hospitals, freestanding cancer hospitals, rural referral centers, and sole community hospitals;
requirements imposed on pharmaceutical companies are required to offer discounts on brand-name drugs to patients who fall within the
Medicare Part D coverage gap, commonly referred to as the “Donut Hole”;
requirements imposed on pharmaceutical companies to pay an annual non-tax-deductible fee to the federal government based on each
company’s market share of prior year total sales of branded drugs to certain federal healthcare programs, such as Medicare, Medicaid,
Department of Veterans Affairs and Department of Defense; and
for products classified as biologics, marketing approval for a follow-on biologic product may not become effective until 12 years after the date on
which the reference innovator biologic product was first licensed by the FDA, with a possible six-month extension for pediatric products. After
this exclusivity ends, it may be possible for biosimilar manufacturers to enter the market, which is likely to reduce the pricing for the innovator
product and could affect our profitability if our products are classified as biologics.
Recently, the current U.S. administration and U.S. Congress have expressed a desire to modify, repeal, or otherwise invalidate all or certain provisions
of the ACA, which contributes to the uncertainty of the ongoing implementation and impact of the ACA and also underscores the potential for additional health
care reform going forward. For example, a recently enacted federal income tax law effective January 1, 2019 repealed what is commonly referred to as the
“individual mandate,” a tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage.
Separately, pursuant to the health reform legislation and related initiatives, the Centers for Medicare and Medicaid Services, or CMS, is working with
various healthcare providers to develop, refine, and implement Accountable Care Organizations, or ACOs, and other innovative models of care for Medicare and
Medicaid beneficiaries, including the Bundled Payments for Care Improvement Initiative, the Comprehensive Primary Care Initiative, the Duals Demonstration,
and other models. The continued development and expansion of ACOs and other innovative models of care will have an uncertain impact on any future
reimbursement we may receive for approved therapeutics administered by these organizations.
The healthcare industry is heavily regulated in the U.S. at the federal, state, and local levels, and our failure to comply with applicable requirements
may subject us to penalties and negatively affect our financial condition.
As a biotechnology company, our operations, clinical trial activities and interactions with healthcare providers may be subject to extensive regulation in
the U.S., particularly if we receive FDA approval for any of our products in the future. For example, if we receive FDA approval for a product for which
reimbursement is available under a federal healthcare program (e.g., Medicare, Medicaid), it would be subject to a variety of federal laws and regulations,
including those that prohibit the filing of false or improper claims for payment by federal healthcare programs (e.g., the federal FCA), prohibit unlawful
inducements for the referral of business reimbursable by federal healthcare programs (e.g., the federal Anti-Kickback Statute), and require disclosure of certain
payments or other transfers of value made to U.S.-licensed physicians and teaching hospitals or other entities subject to the Open Payments regulations. We are
not able to predict how third parties will interpret these laws and apply applicable governmental guidance and may challenge our practices and activities under
one or more of these laws. If our past or present operations are found to be in violation of any of these laws, we could be subject to civil and criminal penalties,
which could hurt our business, our operations and financial condition.
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The federal Anti-Kickback Statute prohibits, among other things, any person or entity, from knowingly and willfully offering, paying, soliciting or receiving
any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or in return for purchasing, leasing, ordering or arranging for the
purchase, lease or order of any item or service reimbursable under Medicare, Medicaid or other federal healthcare programs. The term remuneration has been
interpreted broadly to include anything of value. The Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers
on one hand and prescribers, purchasers, and formulary managers on the other. There are a number of statutory exceptions and regulatory safe harbors
protecting some common activities from prosecution. The exceptions and safe harbors are drawn narrowly and practices that involve remuneration that may be
alleged to be intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exception or safe harbor.
Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the
Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all of its facts and
circumstances. Our practices may not in all cases meet all of the criteria for protection under a statutory exception or regulatory safe harbor.
Additionally, the intent standard under the Anti-Kickback Statute was amended by the ACA, to a stricter standard such that a person or entity no longer
needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. In addition, the ACA codified case law that a
claim including items or services resulting from a violation of the federal Anti- Kickback Statute constitutes a false or fraudulent claim for purposes of the federal
FCA.
The civil monetary penalties statute imposes penalties against any person or entity that, among other things, is determined to have presented or caused
to be presented a claim to a federal healthcare program that the person knows or should know is for an item or service that was not provided as claimed or is
false or fraudulent.
Federal false claims and false statement laws, including the federal FCA, prohibit, among other things, any person or entity from knowingly presenting,
or causing to be presented, a false or fraudulent claim for payment to, or approval by, the federal healthcare programs, including Medicare and Medicaid, or
knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government. A claim
includes “any request or demand” for money or property presented to the U.S. government. For instance, historically, pharmaceutical and other healthcare
companies have been prosecuted under these laws for allegedly providing free product to customers with the expectation that the customers would bill federal
programs for the product. Other companies have been prosecuted for causing false claims to be submitted because of the companies’ marketing of the product
for unapproved, off-label, and thus generally non-reimbursable, uses.
HIPAA prohibits, among other offenses, knowingly and willfully executing a scheme to defraud any health care benefit program, including private payors,
or falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or
payment for items or services under a health care benefit program. To the extent that we act as a business associate to a healthcare provider engaging in
electronic transactions, we may also be subject to the privacy and security provisions of HIPAA, as amended by HITECH, which restricts the use and disclosure
of patient-identifiable health information, mandates the adoption of standards relating to the privacy and security of patient-identifiable health information, and
requires the reporting of certain security breaches to healthcare provider customers with respect to such information. Additionally, many states have enacted
similar laws that may impose more stringent requirements on entities like ours. Failure to comply with applicable laws and regulations could result in substantial
penalties and adversely affect our financial condition and results of operations.
Many states also have similar fraud and abuse statutes or regulations that apply to items and services reimbursed under Medicaid and other state
programs, or, in several states, apply regardless of the payor. Additionally, to the extent that our product is sold in a foreign country, we may be subject to similar
foreign laws.
Our products, once approved, may be eligible for coverage under Medicare and Medicaid, among other government healthcare programs. Accordingly,
we may be subject to a number of obligations based on their participation in these programs, such as a requirement to calculate and report certain price reporting
metrics to the government, such as average sales price (ASP) and best price. Penalties may apply in some cases when such metrics are not submitted
accurately and timely. Further, these prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private
payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United
States. It is difficult to predict how Medicare coverage and reimbursement policies will be applied to our products in the future and coverage and reimbursement
under different federal healthcare programs are not always consistent. Medicare reimbursement rates may also reflect budgetary constraints placed on the
Medicare program.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
In order to distribute products commercially, we must comply with state laws that require the registration of manufacturers and wholesale distributors of
drug and biological products in a state, including, in certain states, manufacturers and distributors who ship products into the state even if such manufacturers or
distributors have no place of business within the state. Some states also impose requirements on manufacturers and distributors to establish the pedigree of
product in the chain of distribution, including some states that require manufacturers and others to adopt new technology capable of tracking and tracing product
as it moves through the distribution chain. Several states have enacted legislation requiring pharmaceutical and biotechnology companies to establish marketing
compliance programs, file periodic reports with the state, make periodic public disclosures on sales, marketing, pricing, clinical trials and other activities, and/or
register their sales representatives, as well as to prohibit pharmacies and other healthcare entities from providing certain physician prescribing data to
pharmaceutical and biotechnology companies for use in sales and marketing, and to prohibit certain other sales and marketing practices. All of our activities are
potentially subject to federal and state consumer protection and unfair competition laws.
If our operations are found to be in violation of any of the federal and state healthcare laws described above or any other governmental regulations that
apply to us, we may be subject to penalties, including without limitation, civil, criminal and/or administrative penalties, damages, fines, disgorgement, exclusion
from participation in government programs, such as Medicare and Medicaid, injunctions, private “qui tam” actions brought by individual whistleblowers in the
name of the government, or refusal to allow us to enter into government contracts, contractual damages, reputational harm, administrative burdens, diminished
profits and future earnings, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our
results of operations.
Our risk mitigation measures cannot guarantee that we effectively manage all operational risks and that we are in compliance with all potentially
applicable U.S. federal and state regulations and all potentially applicable foreign regulations and/or other requirements.
The development, manufacturing, distribution, pricing, sale, marketing and reimbursement of our product candidates, together with our general
operations, are subject to extensive federal and state regulation in the United States and may be subject to extensive regulation in foreign countries. In addition,
our business is complex, involves significant operational risks and includes the use of third parties to conduct business. While we intend to implement numerous
risk mitigation measures to comply with such regulations in this complex operating environment, we cannot guarantee that we will be able to effectively mitigate
all operational risks. We cannot guarantee that we, our employees, our consultants, our contractors or other third parties are or will be in compliance with all
potentially applicable U.S. federal and state regulations and/or laws, and all potentially applicable foreign regulations and/or laws. If we fail to adequately
mitigate our operational risks or if we or our agents fail to comply with any of those regulations or laws, a range of actions could result, including, but not limited
to, the termination of clinical trials, the failure to approve a product candidate, restrictions on our products or manufacturing processes, withdrawal of our
products from the market, significant fines, exclusion from government healthcare programs or other sanctions or litigation. Such occurrences could have a
material and adverse effect on our business and results of operations.
Our employees and consultants may engage in misconduct or other improper activities, including noncompliance with regulatory standards and
requirements.
We are exposed to the risk of employee or consultant fraud or other misconduct. Misconduct by our employees or consultants could include intentional
failures to comply with FDA regulations, provide accurate information to the FDA, comply with manufacturing standards, comply with federal and state healthcare
fraud and abuse laws and regulations, report financial information or data accurately or disclose unauthorized activities to us. Employee and consultant
misconduct could involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to
our reputation. It is not always possible to identify and deter such misconduct, and the precautions we take to detect and prevent this activity may not be effective
in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to
be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our
rights, those actions could have a material adverse effect on our business, financial condition and results of operations, and result in the imposition of significant
fines or other sanctions against us.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Our ability to obtain reimbursement or funding from the federal government may be impacted by possible reductions in federal spending.
U.S. federal government agencies currently face potentially significant spending reductions. The Bipartisan Budget Act of 2015 extended sequestration
for Medicare through fiscal year 2027.
The U.S. federal budget remains in flux, which could, among other things, cut Medicare payments to providers. The Medicare program is frequently
mentioned as a target for spending cuts. The full impact on our business of any future cuts in Medicare or other programs is uncertain. In addition, we cannot
predict any impact President Trump's administration and the U.S. Congress may have on the federal budget. Following the most recent federal elections,
Congress has again focused on reducing the cost of drugs and other medical treatments. If federal spending is reduced, anticipated budgetary shortfalls may
also impact the ability of relevant agencies, such as the FDA or the National Institutes of Health, to continue to function at current levels. Amounts allocated to
federal grants and contracts may be reduced or eliminated. These reductions may also impact the ability of relevant agencies to timely review and approve drug
research and development, manufacturing, and marketing activities, which may delay our ability to develop, market and sell any products we may develop.
We have limited manufacturing capability and may not be able to maintain our manufacturing licenses.
Risks Related to the Manufacturing of our Product Candidates
We presently maintain our laboratories, research and manufacturing facilities in leased premises at CSMC in Los Angeles, California. In that portion of
the leased premises where we manufacture CAP-1002 and plan to manufacture CAP-2003, we believe that we follow good manufacturing practices, but it is not
a cGMP approved facility. Capricor manufactured CAP-1002 in this facility for tour previous clinical studies as well as our HOPE-2 clinical trial and HOPE-OLE
trials. In addition to manufacturing CAP-1002 for its own clinical trials, Capricor has agreed to provide CAP-1002 for investigational purposes in two clinical trials
sponsored by CSMC.
Our plans to use this facility for future trials could change if we decide to expand any of our clinical trials to include international sites, such as in Europe
or if we fail to meet the specifications necessary to produce our product in a qualified manner. Currently, we also intend to utilize our premises at CSMC to
develop and manufacture CAP-2003. Currently, our Facilities Lease is scheduled to expire on July 31, 2019. However, on September 7, 2018 we entered into
the Second Amendment to the Facilities Lease with CSMC pursuant to which we were given two consecutive 1-year options enabling us to extend the term of
our Facilities Lease to July 31, 2021. There can be no assurance that the Facilities Lease will be continued beyond July 31, 2021. If the Facilities Lease with
CSMC is terminated or expires, we would have to secure alternative facilities in which to operate our research and development activities and/or manufacture
our products, which would involve a significant monetary investment and would negatively impact the progress of our clinical trials and regulatory approvals. In
addition, we will have to establish a collaboration agreement with a third party or build out our own manufacturing facility for any commercial scale manufacturing
or a Phase III trial.
In November 2017, Capricor entered into a Master Services Agreement with WuXi AppTech, Inc., or WuXi, for the potential development, manufacturing
and testing of our CAP-1002 product candidate. The Agreement allowed us to begin our technology transfer process in anticipation of potential commercial scale
and/or later stage clinical trials. We completed the initial stages of the technology transfer process and subsequently decided to terminate the agreement to
conserve resources. Concurrently, Capricor is internally developing additional process development improvements in anticipation of commercial scale and/or
later stage clinical trials which may affect the timing of our technology transfer.
We are required to obtain and maintain certain licenses in connection with our manufacturing facilities and activities. We have been issued a
Manufacturing License and a Tissue Bank License from the State of California. There is no guarantee that any licenses issued to us will not be revoked or
forfeited by operation of law or otherwise. If we were denied any required license or if any of our licenses were to be revoked or forfeited, we would suffer
significant harm. Additionally, if a serious adverse event in any of our clinical trials were to occur during the period in which any required license was not in place,
we could be exposed to additional liability if it were determined that the event was due to our fault and we had not secured the required license. Other states
may impose additional licensing requirements upon us which, until obtained, would limit our ability to conduct our trials in such states.
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We obtain the donor hearts from which our CDCs are manufactured from organ procurement organizations, or OPOs. There is no guarantee that the
OPOs which currently provide donor hearts to us will be able to continue to supply us with donor hearts in the future or, in that case, that an alternative OPO will
be available to us. If those OPOs or an alternative OPO is not able or willing to supply us with donor hearts, we would be unable to produce our CDCs or
exosomes and the development of our lead product candidates would be significantly impaired and possibly terminated. Additionally, OPOs are subject to
regulations of various government agencies. There is no guarantee that laws and regulations pursuant to which our OPOs provide donor hearts will not change,
making it more difficult or even impossible for the OPOs to continue to supply us with the hearts we need to produce our product.
We have no prior experience in manufacturing products for large clinical trials or commercial use.
Our manufacturing experience has been limited to manufacturing CAP-1002 for the ALLSTAR, DYNAMIC and HOPE-Duchenne clinical trials, the
ongoing CSMC trials and our current HOPE-2 and HOPE-OLE clinical trials. Our experience in the manufacturing of exosomes is even more limited. We have no
prior history or experience in manufacturing our allogeneic product or any other product for any other clinical use and no experience manufacturing any product
for large clinical trials or commercial use. Our product candidates have not previously been tested in any large trials to show safety or efficacy, nor are they
available for commercial use. We face risks of manufacturing failures and risks of making products that are not proven to be safe or effective.
We are subject to a number of manufacturing risks, any of which could substantially increase our costs and limit supply of our product candidates.
The process of manufacturing our product candidates is complex, highly regulated, and subject to several risks. For example, the process of
manufacturing our product candidates is extremely susceptible to product loss due to contamination, equipment failure or improper installation or operation of
equipment, or vendor or operator error. Even minor deviations from normal manufacturing processes for any of our product candidates could result in reduced
production yields, product defects, and other supply disruptions. If microbial, viral, or other contaminations are discovered in our product candidates or in the
manufacturing facilities in which our product candidates are made, such manufacturing facilities may need to be closed for an extended period of time to
investigate and remedy the contamination. In addition, the manufacturing facilities in which our product candidates are made could be adversely affected by
equipment failures, labor shortages, natural disasters, power failures and numerous other factors.
If we continue with the development of CAP-1002, we may need to rely exclusively on third parties to formulate and manufacture this product
candidate and provide us with the devices and other products necessary to administer such a product.
We have not established our own manufacturing facilities sufficient for the production of CAP-1002 for a Phase III trial or for commercial purposes. Also,
our resources and expertise to formulate or manufacture this product candidate are limited. If we were to conduct such a trial or reach the commercialization
stage, we may have to engage one or more manufacturers to manufacture, supply, store, and distribute drug supplies for such purposes. If CAP-1002 receives
FDA approval, we may need to rely on one or more third-party contractors to manufacture supplies of this drug candidate which may cause delays to our ability
to sell commercially. Our current and anticipated future reliance on a limited number of third-party manufacturers exposes us to the following risks:
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We may be unable to identify manufacturers needed to manufacture our product candidates on acceptable terms or at all, because the
number of potential manufacturers is limited, and subsequent to approval of an NDA or BLA, the FDA must approve any replacement
contractor. This approval would require new testing and compliance inspections. In addition, a new manufacturer may have to be educated in,
or develop substantially equivalent processes for, production of our products or the devices after receipt of FDA approval, if any.
Our third-party manufacturers might be unable to formulate and manufacture our drugs in the volume and of the quality required to meet our
clinical and commercial needs, if any.
Our third-party manufacturers might be unable to manufacture or supply us with sufficient quantities of acceptable materials necessary for
the development or use of our product candidates.
Our future contract manufacturers may not perform as agreed or may not remain in the contract manufacturing business for the time required
to supply our clinical trials or to successfully produce, store, and distribute our products or the materials needed to manufacture or utilize our
product candidates.
Drug manufacturers are subject to ongoing periodic unannounced inspection by the FDA, the Drug Enforcement Agency, and corresponding
state agencies to ensure strict compliance with good manufacturing practices and other government regulations and corresponding foreign
standards. We do not have control over third-party manufacturers’ compliance with these regulations and standards.
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Each of these risks could delay our clinical trials, the approval, if any, of our product candidates by the FDA, or the commercialization of our product
candidates, or result in higher costs or deprive us of potential product revenues.
The third parties we use in the manufacturing process for our product candidates may fail to comply with cGMP regulations.
If we decide to transfer the manufacturing of our product candidates for future clinical trials or for commercial supply, our contract manufacturers will be
required to produce our drug products in compliance with cGMP. These contract manufacturers are subject to periodic unannounced inspections by the FDA and
corresponding state and foreign authorities to ensure strict compliance with cGMP and other applicable government regulations and corresponding foreign
requirements. We do not have control over a third-party manufacturer’s compliance with these regulations and requirements. In addition, changes in cGMP
could negatively impact the ability of our contract manufacturers to complete the manufacturing process of our product candidates in a compliant manner on the
schedule we require for clinical trials or for potential commercial use. The failure to achieve and maintain high quality compliance, including failure to detect or
control anticipated or unanticipated manufacturing errors, could result in patient injury or death or product recalls. Any difficulties or delays in our contractors’
manufacturing and supply of product candidates, or any failure of our contractors to maintain compliance with the applicable regulations and requirements could
increase our costs, make us postpone or cancel clinical trials, prevent or delay regulatory approvals by the FDA and corresponding state and foreign authorities,
prevent the import and/or export of our products, cause us to lose revenue, result in the termination of the development of a product candidate, or have our
product candidates recalled or withdrawn from use.
We may face uncertainty and difficulty in obtaining and enforcing our patents and other proprietary rights.
Risks Related to Our Intellectual Property
Our success will depend in large part on our ability to obtain, maintain, and defend patents on our product candidates, obtain licenses to use third-party
technologies, protect our trade secrets and operate without infringing the proprietary rights of others. Legal standards regarding the scope of claims and validity
of biotechnology patents are uncertain and evolving. There can be no assurance that our pending, in-licensed or owned patent applications will be approved, or
that challenges will not be instituted against the validity or enforceability of any patent licensed-in or owned by us. Additionally, we have entered into various
confidentiality agreements with employees and third parties. There is no assurance that such agreements will be honored by such parties or enforced in whole or
part by the courts. The cost of litigation to uphold the validity and prevent infringement of a patent is substantial. Furthermore, there can be no assurance that
others will not independently develop substantially equivalent technologies not covered by patents to which we have rights or obtain access to our know-how. In
addition, the laws of certain countries may not adequately protect our intellectual property. Our competitors may possess or obtain patents on products or
processes that are necessary or useful to the development, use, or manufacture of our product candidates.
There can also be no assurance that our proposed technology will not infringe upon patents or proprietary rights owned by others, with the result that
others may bring infringement claims against us and require us to license such proprietary rights, which may not be available on commercially reasonable terms,
if at all. Any such litigation, if instituted, could have a material adverse effect, potentially including monetary penalties, diversion of management resources, and
injunction against continued manufacture, use, or sale of certain products or processes.
Some of our technology has resulted, and will result, from research funded by agencies of the U.S. government and the State of California. As a result of
such funding, the U.S. government and the State of California have certain rights in the technology developed with the funding. These rights include a non-
exclusive, non-transferable, irrevocable, paid-up, worldwide license to practice or have practiced for or on behalf of the government such inventions. In addition,
in certain circumstances, the government has the right to “march in” and require us to grant third parties licenses to such technology, such as if we fail to take
effective steps to achieve practical application of such inventions.
The licenses by which we have obtained some of our intellectual property are subject to the rights of the funding agencies. We also rely upon non-
patented proprietary know-how and trade secrets. There can be no assurance that we can adequately protect our rights in such non-patented proprietary know-
how and trade secrets, or that others will not independently develop substantially equivalent proprietary information or techniques or gain access to our
proprietary know-how and trade secrets. Any of the foregoing events could have a material adverse effect on us. In addition, if any of our trade secrets, know-
how or other proprietary information were to be disclosed, or misappropriated, the value of our trade secrets, know-how and other proprietary rights would be
significantly impaired and our business and competitive position would suffer.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
In September 2011, the Leahy-Smith America Invents Act, (the AIA), was signed into law. The AIA includes a number of significant changes to U.S.
patent law. These include provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. In particular, under the AIA,
the United States transitioned in March 2013 to a first-inventor-to-filesystem i. Third parties are allowed to submit prior art before the issuance of a patent by the
U.S. Patent and Trademark Office, or (the USPTO), and may become involved in opposition, derivation, post-grant review, inter partes review, or interference
proceedings challenging our patent rights or the patent rights of our licensors. An adverse determination in any such submission, proceeding or litigation could
reduce the scope of, or invalidate, our or our licensors’ patent rights, which could adversely affect our competitive position.
The USPTO has developed new and untested regulations and procedures to govern the full implementation of the AIA, and many of the substantive
changes to patent law associated with the AIA, and in particular, the first-inventor-to-file provisions, became effective in March 2013. The AIA has also
introduced procedures that may make it easier for third parties to challenge issued patents, as well as to intervene in the prosecution of patent applications.
Finally, the AIA contains new statutory provisions that still require the USPTO to issue new regulations for their implementation, and it may take the courts years
to interpret the provisions of the new statute. Accordingly, it is not clear what, if any, impact the AIA will have on the operation of our business. The AIA and its
implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued
patents and those licensed to us.
It is difficult and costly to protect our proprietary rights, and we may not be able to ensure their protection. If we fail to protect or enforce our
intellectual property rights adequately or secure rights to patents of others, the value of our intellectual property rights would diminish.
Our commercial viability will depend in part on obtaining and maintaining patent protection and trade secret protection of our product candidates, and the
methods used to manufacture them, as well as successfully defending these patents against third-party challenges. Our ability to stop third parties from making,
using, selling, offering to sell, or importing our products is dependent upon the extent to which we have rights under valid and enforceable patents or trade
secrets that cover these activities.
We have licensed certain patent and other intellectual property rights that cover cardiospheres (CSps), and cardiosphere-derived cells (CDCs), (including
our CAP-1002 and CAP-1001 product candidates) from Università Degli Studi Di Roma La Sapienza, or the University of Rome, The Johns Hopkins University,
or JHU, and CSMC. We have also licensed certain patent and other intellectual property rights from CSMC that cover extracellular vesicles (EVs), such as
exosomes derived from CDCs (CDC-XO), including our CAP-2003 product candidate. Under the license agreements with the University of Rome and JHU,
those institutions prosecute and maintain their patents and patent applications in collaboration with us. We rely on these institutions to file, prosecute, and
maintain patent applications, and otherwise protect the intellectual property to which we have a license, and we have not had and do not have primary control
over these activities for certain of these patents or patent applications and other intellectual property rights. We cannot be certain that such activities by these
institutions have been or will be conducted in compliance with applicable laws and regulations, or will result in valid and enforceable patents and other
intellectual property rights. Under our Amended and Restated Exclusive License Agreement with CSMC and our Exclusive License Agreement with CSMC, as
the same have been amended, we have assumed, in coordination with CSMC, financial responsibility for the prosecution and maintenance of all patents and
patent applications. Our enforcement of certain of these licensed patents or defense of any claims asserting the invalidity of these patents would also be subject
to the cooperation of the University of Rome, JHU and CSMC.
In October 2014, we entered into a Transfer Agreement with Medtronic, Inc., or Medtronic, pursuant to which we received an assignment of patent rights
that were owned or co-owned by Medtronic relating to natriuretic peptides. Under the Transfer Agreement, we had responsibility for the prosecution and
maintenance of such patents and patent applications at our expense. We cannot be certain that the activities conducted by Medtronic prior to our acquisition of
these patents and patent rights were conducted in compliance with applicable law and regulations, or will result in valid and enforceable patents. In early 2017,
we decided to terminate our development program with respect to natriuretic peptides and to cease prosecution of all of the natriuretic peptide patents and patent
applications assigned to the Company and have offered to reassign to Medtronic rights to certain patent applications obtained through the Transfer Agreement.
Medtronic has elected not to accept a reassignment of those patent rights. As we are no longer funding the maintenance of these patents, they will eventually
terminate.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The patent positions of pharmaceutical and biopharmaceutical companies can be highly uncertain and involve complex legal and factual questions for
which important legal principles remain unresolved. No consistent laws regarding the breadth of claims allowed in biopharmaceutical patents has emerged to
date in the United States. The biopharmaceutical patent situation outside the United States is even more uncertain. Changes in either the patent laws or in
interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property. Accordingly, we cannot predict the
breadth of claims that may be allowed or enforced in the patents we own or to which we have a license for third-party patents. Further, if any of our patents are
determined by legal authority to be invalid and/or unenforceable, it could impact our ability to commercialize or license our technology.
The degree of future protection for our proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect
our rights or permit us to gain or keep our competitive advantage. For example:
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others may be able to make products that are similar to our product candidates but that are not covered by the claims of any of our patents;
we might not have been the first to make the inventions covered by any issued patents or patent applications we may have (or third parties from
whom we license intellectual property may have);
we might not have been the first to file patent applications for these inventions;
it is possible that any pending patent applications we may have will not result in issued patents;
any issued patents may not provide us with any competitive advantages, or may be held invalid or unenforceable as a result of legal challenges
by third parties;
we may not develop additional proprietary technologies that are patentable or protectable under trade secrets law; and
the patents of others may have an adverse effect on our business.
We also may rely on trade secrets to protect our technology, especially where we do not believe patent protection is appropriate or obtainable. However,
trade secrets are difficult to protect. Although we use reasonable efforts to protect our trade secrets, our employees, consultants, contractors, outside scientific
collaborators, and other advisors may unintentionally or willfully disclose our information to competitors. In addition, courts outside the United States are
sometimes less willing to protect trade secrets. Moreover, our competitors may independently develop equivalent knowledge, methods, and know-how.
If any of our trade secrets, know-how or other proprietary information is improperly disclosed, the value of our trade secrets, know-how and other
proprietary rights would be significantly impaired and our business and competitive position would suffer.
Our viability also depends upon the skills, knowledge and experience of our scientific and technical personnel, our consultants and advisors, as well as
our licensors and contractors. To help protect our proprietary know-how and our inventions for which patents may be unobtainable or difficult to obtain, we rely on
trade secret protection and confidentiality agreements. To this end, we require all of our employees, consultants, advisors and contractors to enter into
agreements which prohibit unauthorized disclosure and use of confidential information and, where applicable, require disclosure and assignment to us of the
ideas, developments, discoveries and inventions important to our business. These agreements are often limited in duration and may not provide adequate
protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure or the lawful development by
others of such information. In addition, enforcing a claim that a third party illegally obtained and is using any of our trade secrets is expensive and time
consuming, and the outcome is unpredictable. If any of our trade secrets, know-how or other proprietary information is improperly disclosed, the value of our
trade secrets, know-how and other proprietary rights would be significantly impaired and our business and competitive position would suffer.
We may incur substantial costs as a result of litigation or other adversarial proceedings relating to patent and other intellectual property rights and
we may be unable to protect our rights to, or use of, our technology.
If we choose to go to court to stop a third party from using the inventions covered by our patents, that individual or company has the right to ask the court
to rule that such patents are invalid and/or should not be enforced against that third party. These lawsuits are expensive and would consume time and other
resources, even if we were successful in discontinuing the infringement of our patents. In addition, there is a risk that the court will determine that these patents
are not valid and that we do not have the right to stop the other party from using the inventions. There is also the risk that, even if the validity of these patents is
upheld, the court will refuse to stop the other party on the ground that such other party’s activities do not infringe these patents. In addition, the U.S. Supreme
Court has modified certain legal tests so as to make it harder to obtain patents from the USPTO, and to defend issued patents against invalidity challenges. As a
consequence, issued patents may be found to contain invalid claims according to the revised legal standards. Some of our own or in-licensed patents may be
subject to challenge and subsequent invalidation in a variety of post-grant proceedings, before the Patent Trial and Appeal Board (the PTAB) of the USPTO or in
litigation under the revised legal standards, which make it more difficult to defend the validity of claims in already issued patents.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Furthermore, a third party may claim that we or our manufacturing or commercialization partners are using inventions covered by the third party’s patent
rights and may go to court to stop us from engaging in our normal operations and activities, including making or selling our product candidates. These lawsuits
are costly and could affect the results of our operations and divert the attention of managerial and technical personnel. There is a risk that a court could determine
that we or our commercialization partners are infringing the third party’s patents and order us or our partners to stop the activities covered by the patents. In
addition, there is a risk that a court could order us or our partners to pay the other party damages for having violated the other party’s patents. We have agreed
to indemnify certain of our commercial partners against certain patent infringement claims brought by third parties. The biotechnology industry has produced a
proliferation of patents, and it is not always clear to industry participants, including us, which patents cover various types of products, manufacturing processes or
methods of use. The coverage of patents is subject to claim construction by the courts, which is not always predictable or reasonable. If we are sued for patent
infringement, we would need to demonstrate that our products, manufacturing processes or methods of use either do not infringe the patent claims of the
relevant patent and/or that the patent claims are invalid, and we may not be able to do this. Proving invalidity, in particular, is difficult since it requires a proof by
clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents.
As some patent applications in the United States may be maintained in secrecy until the patents are issued, because patent applications in the United
States and many foreign jurisdictions are typically not published until eighteen months after filing, and because publications in the scientific literature often lag
behind actual discoveries, we cannot be certain that others have not filed patent applications for technology covered by our issued patents or our pending
applications, or that we were the first to invent the technology. Our competitors may have filed, and may in the future file, patent applications covering technology
similar to ours. Any such patent applications may have priority over our patent applications or patents, which could further require us to obtain rights to issued
patents covering such technologies. If another party has filed a United States patent application on inventions similar to ours, we may have to participate in an
interference proceeding declared by the USPTO to determine priority of invention in the United States. The costs of these proceedings could be substantial, and
it is possible that such efforts would be unsuccessful if, unbeknownst to us, the other party had independently arrived at the same or similar invention prior to our
own invention, resulting in a loss of our U.S. patent position with respect to such inventions.
Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially
greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation or inter partes review proceedings could have a
material adverse effect on our ability to raise the funds necessary to continue our operations.
Some jurisdictions in which we operate have enacted legislation which allows members of the public to access information under statutes similar to the
U.S. Freedom of Information Act. Even though we believe our information would be excluded from the scope of such statutes, there are no assurances that we
can protect our confidential information from being disclosed under the provisions of such laws. If any confidential or proprietary information is released to the
public, such disclosures may negatively impact our ability to protect our intellectual property rights.
We may be subject to claims that we or our employees, consultants or independent contractors have wrongfully used or disclosed confidential
information of third parties.
We have received confidential and proprietary information from third parties. In addition, we employ individuals who were previously employed at other
biotechnology or pharmaceutical companies. We may be subject to claims that we or our employees, consultants or independent contractors have inadvertently
or otherwise improperly used, misappropriated or disclosed confidential information of these third parties or our employees’ former employers. Litigation may be
necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial cost and be a
distraction to our management and employees.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
We depend on intellectual property licensed from third parties and termination of any of these licenses could result in the loss of significant rights,
which would harm our business.
We are dependent on patents, trade secrets, know-how and proprietary technology, both our own and that licensed from others. We have several license
agreements, including with the University of Rome, JHU and CSMC. These licenses may be terminated upon certain conditions, including in some cases, if we
fail to meet certain minimum funding or spending requirements, fail to take certain developmental actions, fail to pay certain minimum royalties, or fail to maintain
the licensed intellectual property. Any termination of these licenses could result in the loss of significant rights and could harm our ability to commercialize our
product candidates. Disputes may also arise between us and our licensors regarding intellectual property subject to a license agreement, including: the scope of
rights granted under the license agreement and other contract interpretation-related issues; whether and the extent to which our technology and processes
infringe on intellectual property of the licensor that is not subject to the licensing agreement; our right to sublicense patent and other rights to third parties under
collaborative development relationships; our diligence obligations with respect to the use of the licensed technology in relation to our development and
commercialization of our product candidates, and what activities satisfy those diligence obligations; and the ownership of inventions and know-how resulting from
the joint creation or use of intellectual property by our licensors and us and our partners.
If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable
terms, we may be unable to successfully develop and commercialize the affected product candidates. If we or our licensors fail to adequately protect this
intellectual property, our ability to commercialize products could suffer.
Risks Related to Our Relationships with Third Parties
We are largely dependent on our relationships with our licensors and collaborators and there is no guarantee that such relationships will be
maintained or continued.
We have entered into certain license agreements for certain intellectual property rights which are essential to enable us to develop and commercialize
our products. Agreements have been entered into with the University of Rome, JHU and CSMC, which is also a shareholder of ours. Each of those agreements
provides for an exclusive license to certain patents and other intellectual property and requires the payment of fees, milestone payments and/or royalties to the
institutions that will reduce our net revenues, if and to the extent that we have future revenues. Each of those agreements also contains additional obligations that
we are required to satisfy. There is no guarantee that we will be able to satisfy all of our obligations under our license agreements to each of the institutions and
that such license agreements will not be terminated. Each of the institutions receives funding from independent sources such as the NIH and other private not-
for-profit sources and are investigating scientific and clinical questions of interest to their own principal investigators as well as the scientific and clinical
communities at large. These investigators (including Capricor, Inc.’s founder, Dr. Eduardo Marbán, who is the Director of the Smidt Heart Institute at CSMC) are
under no obligation to conduct, continue, or conclude either current or future studies utilizing our cell therapy or exosomes technology, and they are not
compelled to license any further technologies or intellectual property rights to us, except as may be stated in the applicable licensing agreements between those
institutions and us. Changes in these collaborators’ research interests or their funding sources away from our technology would have a material adverse effect on
us. We are substantially dependent on our relationships with these institutions from which we license the rights to our technologies and know-how. If
requirements under our license agreements are not met, including meeting defined milestones, we could suffer significant harm, including losing rights to our
product candidates.
In addition, we are responsible for the cost of filing and prosecuting certain patent applications and maintaining certain issued patents licensed to us. If
we do not meet our obligations under our license agreements in a timely manner, we could lose the rights to our proprietary technology.
Finally, we may be required to obtain licenses to patents or other proprietary rights of third parties in connection with the development and use of our
product candidates and technologies. Licenses required under any such patents or proprietary rights might not be made available on terms acceptable to us, if at
all.
We have received government grants and a loan award which impose certain conditions on our operations.
Commencing in 2009, we received several grants from the NIH and DoD to fund various projects. Some of these awards remain subject to annual and
quarterly reporting requirements. If we fail to meet these requirements, the NIH or DoD could cease further funding.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
On February 5, 2013, we entered into the CIRM Loan Agreement, pursuant to which CIRM agreed to disburse approximately $19.8 million to us over a
period of approximately three and one-half years to support Phase II of our ALLSTAR clinical trial. Under the CIRM Loan Agreement, we were required to repay
the CIRM loan with interest at maturity. So long as we were not in default, the Loan Agreement had provisions allowing for forgiveness of the debt after the end
of the project period, if we elected to abandon the project under certain circumstances. On November 17, 2017, we gave notice to CIRM that we were electing to
abandon the CIRM-funded project pursuant to the Loan Agreement and on December 11, 2017, Capricor and CIRM entered into Amendment No. 3 to the CIRM
Notice of Loan Award whereby the total loan balance under the CIRM Loan Agreement was forgiven by CIRM thereby terminating Capricor’s and the Company’s
obligation to repay the loan balance. The Company classified the forgiveness of the loan payable, consisting of principal and accrued interest, of approximately
$15.7 million as “other income” in our Consolidated Statement of Operations and Comprehensive Income (Loss). The decision to terminate the Loan Award and
forgive the loan balance was due to the abandonment of the ALLSTAR project at the end of the project period in accordance with Section 4.10 of the Loan
Agreement and Article VII, Section I of the CIRM Loan Administration Policy.
Additionally, on June 16, 2016, Capricor entered into the CIRM Award with CIRM in the amount of approximately $3.4 million to fund, in part, the HOPE-
Duchenne trial. Pursuant to terms of the CIRM Award, the disbursements were tied to the achievement of specified operational milestones. If CIRM determines,
in its sole discretion, that Capricor has not complied with the terms and conditions of the CIRM Award, CIRM may suspend or permanently cease disbursements
or pursue other remedies as allowed by law. In addition, the terms of the CIRM Award include a co-funding requirement pursuant to which Capricor is required to
spend approximately $2.3 million of its own capital to fund the CIRM funded research project. If Capricor fails to satisfy its co-funding requirement, the amount of
the CIRM Award may be proportionately reduced. The CIRM Award is further subject to the conditions and requirements set forth in the CIRM Grants
Administration Policy for Clinical Stage Projects. Such requirements include, without limitation, the filing of quarterly and annual reports with CIRM, the sharing of
intellectual property pursuant to Title 17, California Code of Regulations (CCR) Sections 100600-100612, and the sharing with the State of California of a fraction
of licensing revenue received from a CIRM funded research project and net commercial revenue from a commercialized product which resulted from the CIRM
funded research as set forth in Title 17, CCR Section 100608. The maximum royalty on net commercial revenue that Capricor may be required to pay to CIRM is
equal to nine times the total amount awarded and paid to Capricor.
If we enter into strategic partnerships, we may be required to relinquish important rights to and control over the development of our product
candidates or otherwise be subject to terms unfavorable to us.
If we do not establish strategic partnerships, we will have to undertake development and commercialization efforts with respect to our product candidates
on our own, which would be costly and adversely impact our ability to commercialize any future products or product candidates. If we enter into any strategic
partnerships with pharmaceutical, biotechnology or other life science companies, we will be subject to a number of risks, including:
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we may not be able to control the amount and timing of resources that our strategic partners devote to the development or
commercialization of product candidates;
strategic partners may delay clinical trials, provide insufficient funding, terminate a clinical trial or abandon a product candidate, repeat or
conduct new clinical trials or require a new version of a product candidate for clinical testing;
strategic partners may not pursue further development and commercialization of products resulting from the strategic partnering
arrangement or may elect to discontinue research and development programs;
strategic partners may not commit adequate resources to the marketing and distribution of any future products, limiting our potential
revenues from these products;
disputes may arise between us and our strategic partners that result in the delay or termination of the research, development or
commercialization of our product candidates or that result in costly litigation or arbitration that diverts management’s attention and consumes
resources;
strategic partners may experience financial difficulties;
strategic partners may not properly maintain or defend our intellectual property rights or may use our proprietary information in a manner that
could jeopardize or invalidate our proprietary information or expose us to potential litigation;
business combinations or significant changes in a strategic partner’s business strategy may also adversely affect a strategic partner’s
willingness or ability to complete its obligations under any arrangement; and
strategic partners could independently move forward with a competing product candidate developed either independently or in collaboration
with others, including our competitors.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
We rely and will rely on third parties to conduct our clinical trials. If these third parties do not successfully carry out their contractual duties or meet
expected deadlines, we may not be able to obtain regulatory approval of or commercialize our product candidates.
We depend and will depend upon independent investigators and collaborators, such as universities, medical institutions, CROs, vendors and strategic
partners to conduct our pre-clinical and clinical trials under agreements with us. We negotiate budgets and contracts with CROs, vendors and study sites which
may result in delays to our development timelines and increased costs. We rely heavily on these third parties over the course of our clinical trials, and we control
only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with applicable protocol,
legal, regulatory and scientific standards, and our reliance on third parties does not relieve us of our regulatory responsibilities. We and these third parties are
required to comply with current good clinical practices, or cGCPs, which are regulations and guidelines enforced by the FDA and comparable foreign regulatory
authorities for product candidates in clinical development. Regulatory authorities enforce these cGCPs through periodic inspections of trial sponsors, principal
investigators and trial sites. If we or any of these third parties fail to comply with applicable cGCP regulations, the clinical data generated in our clinical trials may
be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our
marketing applications. We cannot assure that, upon inspection, such regulatory authorities will determine that any of our clinical trials comply with the cGCP
regulations. In addition, any Phase III clinical trials which we may conduct must be conducted with biologic product produced under cGMP and may require a
large number of test patients. Biologic products for commercial purposes must also be produced under cGMP. Our failure or any failure by these third parties to
comply with these regulations or to recruit a sufficient number of patients may require us to repeat clinical trials, which would delay the regulatory approval
process. Moreover, our business may be implicated if any of these third parties violates federal or state fraud and abuse or false claims laws and regulations or
healthcare privacy and security laws and regulations.
Any third parties conducting our clinical trials are not and will not be our employees and, except for remedies available to us under our agreements with
such third parties, which in some instances may be limited, we cannot control whether or not they devote sufficient time and resources to our ongoing pre-
clinical, clinical and nonclinical programs. These third parties may also have relationships with other commercial entities, including our competitors, for whom
they may also be conducting clinical studies or other drug development activities, which could affect their performance on our behalf. If these third parties do not
successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical
data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our clinical trials may be
extended, delayed or terminated and we may not be able to complete development of, obtain regulatory approval of or successfully commercialize our product
candidates. As a result, our financial results and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability
to generate revenue could be delayed. Switching or adding third parties to conduct our clinical trials involves substantial cost and requires extensive
management time and focus. In addition, there is a natural transition period when a new third party commences work. As a result, delays occur, which can
materially impact our ability to meet our desired clinical development timelines.
Our products will likely face intense competition.
Risks Related to Competitive Factors
The Company is engaged in fields that are characterized by extensive worldwide research and competition by pharmaceutical companies, medical
device companies, specialized biotechnology companies, hospitals, physicians and academic institutions, both in the United States and abroad. We will
experience intense competition with respect to our existing and future product candidates. The pharmaceutical industry is highly competitive, with a number of
established, large pharmaceutical companies, as well as many smaller companies. Many of these organizations competing with us have substantially greater
financial resources, larger research and development staffs and facilities, greater clinical trial experience, longer drug development history in obtaining regulatory
approvals, and greater manufacturing, distribution, sales and marketing capabilities than we do. There are many pharmaceutical companies, biotechnology
companies, public and private universities, government agencies, and research organizations actively engaged in research and development of products which
may target the same indications as our product candidates. We expect any future products and product candidates that we develop to compete on the basis of,
among other things, product efficacy and safety, time to market, price, extent of adverse side effects, and convenience of treatment procedures. One or more of
our competitors may develop products based upon the principles underlying our proprietary technologies earlier than we do, obtain approvals for such products
from the FDA more rapidly than we do, or develop alternative products or therapies that are safer, more effective and/or more cost effective than any product
developed by us. Our competitors may obtain regulatory approval of their products more rapidly than we are able to or may obtain patent protection or other
intellectual property rights that limit our ability to develop or commercialize our product candidates. Our competitors may also develop drugs that are more
effective, useful, and less costly than ours, and may also be more successful than us in manufacturing and marketing their products.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Our future success will depend in part on our ability to maintain a competitive position with respect to evolving therapies as well as other novel
technologies. Existing or future therapies developed by others may render our potential products obsolete or noncompetitive. The drugs that we are attempting
to develop will have to compete with existing therapies. In addition, companies pursuing different but related fields represent substantial competition. These
organizations also compete with us to attract qualified personnel and parties for acquisitions, joint ventures, or other collaborations.
If we are unable to retain and recruit qualified scientists and advisors, or if any of our key executives, key employees or key consultants discontinues
his or her employment or consulting relationship with us, it may delay our development efforts or otherwise harm our business. In addition, several
of our employees and consultants render services on a part-time basis to other entities which may result in the creation of intellectual property
rights in favor of those entities.
Because of the specialized nature of our technology, we are dependent upon existing key personnel and on our ability to attract and retain qualified
executive officers and scientific personnel for research, clinical studies, and development activities conducted or sponsored by us. There is intense competition
for qualified personnel in our fields of research and development, and there can be no assurance that we will be able to continue to attract additional qualified
personnel necessary for the development and commercialization of our product candidates or retain our current personnel. Dr. Frank Litvack, our Executive
Chairman, is only a part-time consultant to the Company and provides services to other non-competing enterprises.
We have experienced employee turnover from time to time, including involving some of our key employees. The loss of any of our current key employees
or key consultants could impede the achievement of our research and development objectives. Furthermore, recruiting and retaining qualified scientific personnel
to perform research and development work in the future is critical to the Company’s success, both to enable the Company to grow, and to allow the Company to
replace any employees or consultants whose relationships with the Company have been terminated. The market for employees with experience in the cell
therapy industry is especially competitive, and we may not be able to recruit employees needed to develop and manufacture our products, or be able to retain
the employees whom we do recruit. In early 2019, in an effort to reduce costs and preserve our capital, we reduced our workforce by 21 employees, most of
whom were engaged in manufacturing and product development.
There is a close working relationship between the academic lab at CSMC and our research and development team where employees and consultants of
both entities contribute time and services to the research being performed by the other. As a result, it is unclear whether intellectual property developed out of
these services for CSMC would be owned by CSMC or by the Company, although if owned by CSMC, the Company may have rights to that intellectual property
under the terms of its license agreements with CSMC.
The Company may be unable to attract and retain personnel on acceptable terms given the competition among biotechnology, biopharmaceutical, and
health care companies, universities, and non-profit research institutions for experienced scientists. Certain of the Company’s officers, directors, scientific
advisors, and/or consultants or certain of the officers, directors, scientific advisors, and/or consultants hereafter appointed may from time to time serve as
officers, directors, scientific advisors, and/or consultants of other biopharmaceutical or biotechnology companies. The Company currently does not maintain “key
man” insurance policies on any of its officers or employees. All of the Company’s employees will be employed “at will” and, therefore, each employee may leave
the employment of the Company at any time. If we are unable to retain our existing employees, including qualified scientific personnel, and attract additional
qualified candidates, the Company’s business and results of operations could be adversely affected.
If we do not establish strategic partnerships, we will have to undertake development and commercialization efforts on our own, which would be
costly and delay our ability to commercialize any future products or product candidates.
An element of our business strategy includes potentially partnering with pharmaceutical, biotechnology and other companies to obtain assistance for the
development and potential commercialization of our product candidates, including the cash and other resources we need for such development and potential
commercialization. We may not be able to negotiate strategic partnerships on acceptable terms, or at all. If we are unable to negotiate strategic partnerships for
our product candidates, we may be forced to curtail the development of a particular candidate, reduce, delay or terminate its development program, delay its
potential commercialization, reduce the scope of our sales or marketing activities or undertake development or commercialization activities at our own expense.
In addition, we will bear all risk related to the development of that product candidate. If we elect to increase our expenditures to fund development or
commercialization activities on our own, we will need to obtain substantial additional capital, which may not be available to us on acceptable terms, or at all. If we
do not secure sufficient funds, we will not be able to complete our trials or bring our product candidates to market and generate product revenue.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
We have no experience selling, marketing, or distributing products and no current internal capability to do so.
The Company currently has no sales, marketing, or distribution capabilities. We do not anticipate having resources in the foreseeable future to allocate
to the sales and marketing of our proposed products. Our future success depends, in part, on our ability to enter into and maintain sales and marketing
collaborative relationships, or on our ability to build sales and marketing capabilities internally. If we enter into a sales and marketing collaborative relationship,
then we will be dependent upon the collaborator’s strategic interest in the products under development, and such collaborator’s ability to successfully market and
sell any such products. If any of our product candidates are cleared for commercialization, we intend to pursue collaborative arrangements regarding the sales
and marketing of our products, however, there can be no assurance that we will be able to establish or maintain such collaborative arrangements, or if able to
do so, that such collaborators will have effective sales forces. To the extent that we decide not to, or are unable to, enter into collaborative arrangements with
respect to the sales and marketing of our proposed products, significant capital expenditures, management resources, and time will be required to establish and
develop an in-house marketing and sales force with sufficient technical expertise. There can also be no assurance that we will be able to establish or maintain
relationships with third-party collaborators or develop in-house sales and distribution capabilities. To the extent that we depend on third parties for marketing and
distribution, any revenues we receive will depend upon the efforts of such third parties, and there can be no assurance that such efforts will be successful.
If any of our product candidates for which we receive regulatory approval do not achieve broad market acceptance, the revenues that we generate
from their sales, if any, will be limited.
The commercial viability of our product candidates for which we may obtain marketing approval from the FDA or other regulatory authorities will depend
upon their acceptance among physicians, the medical community, and patients, and coverage and reimbursement of them by third-party payors, including
government payors. The degree of market acceptance of any of our approved products will depend on a number of factors, including:
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limitations or warnings contained in a product’s FDA-approved labeling;
changes in the standard of care for the targeted indications for any of our product candidates, which could reduce the marketing impact of any
claims that we could make following FDA approval;
limitations inherent in the approved indication for any of our product candidates compared to more commonly understood or addressed
conditions;
lower demonstrated clinical safety and efficacy compared to other products;
prevalence and severity of adverse effects;
ineffective marketing and distribution efforts;
lack of availability of reimbursement from managed care plans and other third-party payors;
lack of cost-effectiveness;
timing of market introduction and perceived effectiveness of competitive products;
availability of alternative therapies at similar costs; and
potential product liability claims.
Our ability to effectively promote and sell our product candidates in the marketplace will also depend on pricing, including our ability to manufacture a
product at a competitive price. We will also need to demonstrate acceptable evidence of safety and efficacy and may need to demonstrate relative convenience
and ease of administration. Market acceptance could be further limited depending on the prevalence and severity of any expected or unexpected adverse side
effects associated with our product candidates. If our product candidates are approved but do not achieve an adequate level of acceptance by physicians, health
care payors, and patients, we may not generate sufficient revenue from these products, and we may not become or remain profitable. In addition, our efforts to
educate the medical community and third-party payors on the benefits of our product candidates may require significant resources and may never be successful.
If our approved drugs fail to achieve market acceptance, we will not be able to generate significant revenue, if any.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Our ability to generate product revenues will be diminished if our drugs sell for inadequate prices or patients are unable to obtain adequate levels of
reimbursement.
Our ability to generate significant sales of our products, if approved, depends on the availability of adequate coverage and reimbursement from third-
party payors. Healthcare providers that purchase medicine or medical products for treatment of their patients generally rely on third-party payors to reimburse all
or part of the costs and fees associated with the products. Adequate coverage and reimbursement from governmental payors, such as Medicare and Medicaid,
and commercial payors is critical to new product acceptance. Patients are unlikely to use our products if they do not receive reimbursement adequate to cover
the cost of our products. Orphan drugs in particular have received recent negative publicity for the perceived high prices charged for them by their
manufacturers, and as a result other orphan drug developers such as us may be negatively impacted by such publicity and any U.S. or other government
regulatory response.
In addition, the market for our future products will depend significantly on access to third-party payors’ drug formularies, or lists of medications for which
third-party payors provide coverage and reimbursement. Industry competition to be included in such formularies results in downward pricing pressures on
pharmaceutical companies.
All third-party payors, whether governmental or commercial, whether inside the United States or outside, are developing increasingly sophisticated
methods of controlling healthcare costs. In addition, in the United States, no uniform policy of coverage and reimbursement for medical technology exists among
all these payors. Therefore, coverage of and reimbursement for medical products can differ significantly from payor to payor.
Further, we believe that future coverage and reimbursement may be subject to increased restrictions both in the United States and in international
markets. Third-party coverage and reimbursement for our products may not be available or adequate in either the United States or international markets, limiting
our ability to sell our products on a profitable basis.
Significant uncertainty exists as to the reimbursement status of newly approved healthcare products. Healthcare payors, including Medicare, are
challenging the prices charged for medical products and services. Government and other healthcare payors increasingly attempt to contain healthcare costs by
limiting both coverage and the level of reimbursement for drugs. Even if our product candidates are approved by the FDA, insurance coverage may not be
available, and reimbursement levels may be inadequate, to cover our drugs. If government and other healthcare payors do not provide adequate coverage and
reimbursement levels for any of our products, once approved, market acceptance of our products could be reduced.
There have been public announcements by members of the U.S. Congress, President Trump and his administration regarding their plans to repeal and
replace the Patient Protection and Affordable Care Act as well as to make changes to Medicare and Medicaid. While we cannot predict the timing or impact of
any specific changes to applicable laws, the U.S. government has shown significant interest in pursuing healthcare reform and reducing healthcare costs. Any
government-adopted reform measures could decrease the amount of reimbursement available from governmental and other third-party payors for our products.
Risks Related to Product and Environmental Liability
Our products may expose us to potential product liability, and there is no guarantee that we will be able to obtain and maintain adequate insurance to
cover these liabilities.
The testing, marketing, and sale of human cell therapeutics, pharmaceuticals, and services entail an inherent risk of adverse effects or medical
complications to patients and, as a result, product liability claims may be asserted against us. A future product liability claim or product recall could have a
material adverse effect on the Company. There can be no assurance that product liability insurance will be available to us in the future on acceptable terms, if at
all, or that coverage will be adequate to protect us against product liability claims. In the event of a successful claim against the Company, insufficient or lack of
insurance or indemnification rights could result in liability to us, which could have a material adverse effect on the Company and its future viability. The use of our
product candidates in clinical trials and the sale of any products for which we obtain marketing approval, if at all, expose the Company to the risk of product
liability claims. Product liability claims might be brought against the Company by consumers, health care providers or others using, administering or selling our
products. If we cannot successfully defend ourselves against these claims, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability
claims may result in:
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withdrawal of clinical trial participants;
termination of clinical trial sites or entire trial programs;
costs of related litigation;
substantial monetary awards to patients or other claimants;
decreased demand for our product candidates;
impairment of our business reputation;
loss of revenues; and
the inability to commercialize our product candidates.
The Company has obtained clinical trial insurance coverage for its clinical trials. However, such insurance coverage may not reimburse the Company or
the levels of coverage may not be sufficient to reimburse it for expenses or losses it may suffer or for its indemnification obligations. Moreover, insurance
coverage is becoming increasingly expensive, and, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient
amounts to protect the Company against losses due to liability. We intend to expand our insurance coverage to include the sale of commercial products if we
obtain marketing approval for our product candidates in development, but we may be unable to obtain commercially reasonable product liability insurance for
any products approved for marketing. On occasion, large judgments have been awarded in class action lawsuits based on drugs that had unanticipated side
effects. A successful product liability claim or series of claims brought against the Company could have a material adverse effect on us and, if judgments exceed
our insurance coverage, could significantly decrease our cash position and adversely affect our business.
Our business involves risk associated with handling hazardous and other dangerous materials.
Our research and development activities involve the controlled use of hazardous materials, chemicals, human blood and tissue, animal blood and blood
products, animal tissue, biological waste, and various radioactive compounds. The risk of accidental contamination or injury from these materials cannot be
completely eliminated. The failure to comply with current or future regulations could result in the imposition of substantial fines against the Company, suspension
of production, alteration of our manufacturing processes, or cessation of operations.
Our business depends on compliance with ever-changing environmental laws.
We cannot accurately predict the outcome or timing of future expenditures that may be required to comply with comprehensive federal, state and local
environmental laws and regulations. We must comply with environmental laws that govern, among other things, all emissions, waste water discharge and solid
and hazardous waste disposal, and the remediation of contamination associated with generation, handling and disposal activities. To date, the Company has not
incurred significant costs and is not aware of any significant liabilities associated with its compliance with federal, state and local environmental laws and
regulations. However, both federal and state environmental laws have changed in recent years and the Company may become subject to stricter environmental
standards in the future and may face large capital expenditures to comply with environmental laws. We have limited capital and we are uncertain whether we will
be able to pay for significantly large capital expenditures that may be required to comply with new laws. Also, future developments, administrative actions or
liabilities relating to environmental matters may have a material adverse effect on our financial condition or results of operations.
Risks Related to Our Common Stock
We expect that our stock price will fluctuate significantly, and you may not be able to resell your shares at or above your investment price.
The stock market, particularly in recent years, has experienced significant volatility, particularly with respect to pharmaceutical, biotechnology and other
life sciences company stocks. Our operating results may fluctuate from period to period for a number of reasons, and as a result, our stock price may be subject
to significant fluctuations. Factors that could cause volatility in the market price of our common stock include, but are not limited to:
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our financial condition, including our need for additional capital, as well as the terms of that additional capital;
results from, delays in, or discontinuation of, any of the clinical trials for our drug candidates, including delays resulting from slower than
expected or suspended patient enrollment or discontinuations resulting from a failure to meet pre-defined clinical endpoints;
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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announcements concerning clinical trials;
failure or delays in entering drug candidates into clinical trials;
failure or discontinuation of any of our research or development programs;
developments in establishing new strategic alliances or with existing alliances;
market conditions in the pharmaceutical, biotechnology and other healthcare related sectors;
actual or anticipated fluctuations in our quarterly financial and operating results;
developments or disputes concerning our intellectual property or other proprietary rights;
introduction of technological innovations or new commercial products by us or our competitors;
issues in manufacturing our drug candidates or drugs;
issues with the supply or manufacturing of any devices or materials needed to manufacture or utilize our drug candidates;
FDA or other U.S. or foreign regulatory actions affecting us or our industry;
the risks and costs of increased operations, including clinical and manufacturing operations, on an international basis;
market acceptance of our drugs, when they enter the market;
third-party healthcare coverage and reimbursement policies;
litigation or public concern about the safety of our drug candidates or drugs or the operations of the Company;
issuance of new or revised securities analysts’ reports or recommendations;
additions or departures of key personnel;
potential delisting of our stock from the Nasdaq Stock Market; or
volatility in the stock prices of other companies in our industry.
We have never paid dividends and we do not anticipate paying dividends in the future.
We have never paid dividends on our capital stock and do not anticipate paying any dividends for the foreseeable future. We anticipate that the
Company will retain its earnings, if any, for future growth. Investors seeking cash dividends should not invest in the Company’s common stock for that purpose.
There may be issuances of shares of blank check preferred stock in the future.
Our certificate of incorporation authorizes the issuance of up to 5,000,000 shares of preferred stock, none of which are currently issued or currently
outstanding. If issued, our Board of Directors will have the authority to fix and determine the relative rights and preferences of preferred shares, as well as the
authority to issue such shares, without further stockholder approval. As a result, our Board of Directors could authorize the issuance of a series of preferred stock
that is senior to our common stock that would grant to holders preferred rights to our assets upon liquidation, the right to receive dividends, additional registration
rights, anti-dilution protection, and the right to the redemption of such shares, together with other rights, none of which will be afforded holders of our common
stock.
Market and economic conditions may adversely affect our industry, business and ability to obtain financing.
Recent global market and economic conditions have been unpredictable and challenging. These conditions and any adverse impact on the financial
markets may adversely affect our liquidity and financial condition, including our ability to access the capital markets to meet our liquidity needs.
If securities analysts do not publish research or reports about our business or if they publish negative evaluations of our stock, the price of our stock
could decline.
The trading market for our common stock will rely in part on the research and reports that industry or financial analysts publish about us or our business.
If no or few analysts maintain coverage of us, the trading price of our stock could decrease. If one or more of the analysts covering our business downgrade their
evaluations of our stock, the price of our stock could also decline. If one or more of these analysts cease to cover our stock altogether, we could lose visibility in
the market for our stock, which in turn could cause our stock price to decline.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The operational and other projections and forecasts that we may make from time to time are subject to inherent risks.
The projections and forecasts that our management may provide from time to time (including, but not limited to, those relating to timing, progress and
anticipated results of clinical development, regulatory processes, clinical trial timelines and any anticipated benefits of our product candidates) reflect numerous
assumptions made by management, including assumptions with respect to our specific as well as general business, economic, market and financial conditions
and other matters, all of which are difficult to predict and many of which are beyond our control. Accordingly, there is a risk that the assumptions made in
preparing the projections, or the projections themselves, will prove inaccurate. There will be differences between actual and projected results, and actual results
may be materially different from those contained in the projections. The inclusion of the projections in (or incorporated by reference in) this prospectus should
not be regarded as an indication that we or our management or representatives considered or consider the projections to be a reliable prediction of future
events, and the projections should not be relied upon as such. Additionally, final data may differ significantly from preliminary reported data.
Our certificate of incorporation and by-laws contain provisions that may discourage, delay or prevent a change in our management team that
stockholders may consider favorable.
Our certificate of incorporation, our bylaws and Delaware law contain provisions that may have the effect of preserving our current management, such
as:
·
·
·
authorizing the issuance of “blank check” preferred stock without any need for action by stockholders;
eliminating the ability of stockholders to call special meetings of stockholders; and
establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on by
stockholders at stockholder meetings.
These provisions could make it more difficult for our stockholders to affect our corporate policies or make changes in our Board of Directors and for a
third party to acquire us, even if doing so would benefit our stockholders.
Ownership of the Company’s common stock is highly concentrated, which may prevent you and other stockholders from influencing significant
corporate decisions and may result in conflicts of interest that could cause the Company’s stock price to decline.
As of December 31, 2018, our executive officers, directors and holders of five percent or more of our outstanding common stock, together with their
respective affiliates, owned over 35% of our outstanding common stock. The interests of these stockholders may not be the same as, or may even conflict with
the interests of our other stockholders. These stockholders, acting individually or as a group, will have substantial influence over the outcome of a corporate
action of the Company requiring stockholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of the
Company’s assets or any other significant corporate transaction. These stockholders may also exert influence in delaying or preventing a change in control of
the Company, even if such change in control would benefit the other stockholders of the Company. In addition, the significant concentration of stock ownership
may adversely affect the market value of the Company’s common stock due to investors’ perception that conflicts of interest may exist or arise.
A significant number of shares of our common stock are issuable pursuant to outstanding stock awards, and we expect to issue additional stock
awards and shares of common stock in the future. Exercise of these awards and sales of shares will dilute the interests of existing security holders
and may depress the price of our common stock.
As of December 31, 2018, there were approximately 31.4 million shares of common stock outstanding and outstanding awards to purchase
approximately 7.0 million shares of common stock under various incentive stock plans of the Company. Additionally, as of December 31, 2018, there were
approximately 0.6 million shares of common stock available for future issuance under various incentive plans. We may issue additional common stock and
warrants from time to time to finance our operations. We may also issue additional shares to fund potential acquisitions or in connection with additional stock
options or other equity awards granted to our employees, officers, directors and consultants under our various incentive plans. The issuance of additional shares
of common stock or warrants to purchase common stock and the perception that such issuances may occur or exercise of outstanding warrants or options may
have a dilutive impact on other stockholders and could have a material negative effect on the market price of our common stock.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The Company’s ability to utilize Nile’s net operating loss and tax credit carryforwards in the future is subject to substantial limitations and may be
further limited as a result of the merger with Capricor.
Federal and state income tax laws impose restrictions on the utilization of net operating loss, or NOL, and tax credit carryforwards in the event that an
“ownership change” occurs for tax purposes, as defined by Section 382 of the Internal Revenue Code of 1986, as amended, or the Code. In general, an
ownership change occurs when shareholders owning 5% or more of a “loss corporation” (a corporation entitled to use NOL or other loss carryforwards) have
increased their aggregate ownership of stock in such corporation by more than 50 percentage points during any three-year period. If an “ownership change”
occurs, Section 382 of the Code imposes an annual limitation on the amount of post-ownership change taxable income that may be offset with pre-ownership
change NOLs of the loss corporation experiencing the ownership change. The annual limitation is calculated by multiplying the loss corporation’s value
immediately before the ownership change by the greater of the long-term tax-exempt rate determined by the IRS in the month of the ownership change or the
two preceding months. This annual limitation may be adjusted to reflect any unused annual limitation for prior years and certain recognized built-in gains and
losses for the year. Section 383 of the Code also imposes a limitation on the amount of tax liability in any post-ownership change year that can be reduced by
the loss corporation’s pre-ownership change tax credit carryforwards.
The merger between Nile Therapeutics, Inc., or Nile, and Capricor resulted in an “ownership change” of Nile. In addition, previous or current changes in
the Company’s stock ownership may have triggered or, in the future, may trigger an “ownership change,” some of which may be outside our control. Accordingly,
the Company’s ability to utilize Nile’s NOL and tax credit carryforwards may be substantially limited. These limitations could, in turn, result in increased future tax
payments for the Company, which could have a material adverse effect on the business, financial condition, or results of operations of the Company.
The requirements of being a public company may strain our resources and divert management’s attention.
As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and other
applicable securities rules and regulations, and are subject to the listing requirements of The Nasdaq Stock Market LLC, or Nasdaq. Compliance with these rules
and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our
systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and
operating results and maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required,
improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management
oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could harm our business and operating
results. Although we have hired employees in order to comply with these requirements, we may need to hire more employees in the future, which will increase
our costs and expenses.
If our minimum bid price stays below $1.00 per share, our common stock may be subject to delisting from the Nasdaq Capital Market.
On December 26, 2018, we received a notice from Nasdaq indicating that we have not been in compliance with the minimum bid requirement set forth in
Nasdaq Rule 5550(a)(2) for a period of 30 consecution business days, due to the closing bid price for shares of our common stock remaining below $1.00 from
November 8, 2018 through December 24, 2018. In accordance with Nasdaq Rule 5810(c)(3)(A), we have been provided a compliance period of 180 calendar
days from the date of the Notice, or until June 24, 2019, to regain compliance with the minimum closing bid price requirement. We can achieve compliance with
the minimum closing bid price requirement if, during the compliance period, the minimum closing bid price per share of our common stock is at least $1.00 for a
minimum of ten consecutive business days. We anticipate that our common stock will continue to be listed and traded on The Nasdaq Capital Market during the
compliance period(s). We previously received notices of listing deficiencies on June 27, 2017 and June 29, 2017, and were able to resolve the deficiencies, but
there is no assurance that we would be able to resolve this listing deficiency. To the extent that we are unable to resolve this listing deficiency, there is a risk that
our common stock may be delisted from The Nasdaq Capital Market and would then likely trade only on the over-the-counter market, or the OTC. If our common
stock were to trade on the OTC, selling our common stock could be more difficult because smaller quantities of shares would likely be bought and sold,
transactions could be delayed, and it may be difficult to attract security analysts’ coverage. In addition, in the event our common stock is delisted, broker-dealers
transacting in our common stock would be subject to certain additional regulatory burdens, which may discourage them from effecting transactions in our
common stock, thus further limiting the liquidity of our common stock and potentially resulting in lower prices and larger spreads in the bid and ask prices for our
common stock.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could have a material
adverse effect on our business and stock price.
The Sarbanes-Oxley Act of 2002, as amended, or Sarbanes-Oxley, as well as rules implemented by the Securities and Exchange Commission, Nasdaq
and any market on which the Company’s shares may be listed in the future, impose various requirements on public companies, including those related to
corporate governance practices. The Company’s management and other personnel will need to devote a substantial amount of time to these requirements.
Moreover, these rules and regulations will increase the Company’s legal and financial compliance costs and will make some activities more time consuming and
costly.
Section 404 of Sarbanes-Oxley, or Section 404, requires that we establish and maintain an adequate internal control structure and procedures for
financial reporting. Our annual reports on Form 10-K must contain an assessment by management of the effectiveness of our internal control over financial
reporting and must include disclosure of any material weaknesses in internal control over financial reporting that we have identified. The requirements of Section
404 are ongoing and also apply to future years. We expect that our internal control over financial reporting will continue to evolve as our business develops.
Although we are committed to continue to improve our internal control processes and we will continue to diligently and vigorously review our internal control over
financial reporting in order to ensure compliance with Section 404 requirements, any control system, regardless of how well designed, operated and evaluated,
can provide only reasonable, not absolute, assurance that its objectives will be met. Therefore, we cannot be certain that in the future material weaknesses or
significant deficiencies will not exist or otherwise be discovered. If material weaknesses or other significant deficiencies occur, these weaknesses or deficiencies
could result in misstatements of our results of operations, restatements of our consolidated financial statements, a decline in our stock price, or other material
adverse effects on our business, reputation, results of operations, financial condition or liquidity.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
We do not own any real property. Our principal offices are located at 8840 Wilshire Blvd., 2nd Floor, Beverly Hills, California 90211. Capricor leases
space for its corporate offices from The Bubble Real Estate Company, LLC pursuant to a lease that was originally effective for a two-year period beginning July
1, 2013 with an option to extend the lease for an additional twelve months. The lease has been amended several times since it was originally executed, in each
case extending the term of the lease. On January 11, 2019, Capricor entered into a Fourth Lease Amendment with The Bubble Real Estate Company, LLC.
Under the terms of the Fourth Lease Amendment, the lease term extension commenced on January 1, 2019 and will end on December 31, 2019 with a base
rent of $25,867 per month.
The Facilities Lease which Capricor entered into with CSMC is for a term of three years commencing June 1, 2014 and replaced the month-to-month
lease that was previously in effect between CSMC and Capricor. On August 10, 2017, the Company and CSMC entered into the First Amendment to the
Facilities Lease effective August 1, 2017, or the First Amendment, pursuant to which the term of the Facilities Lease was extended for an additional 12-month
period, and the Company was granted an option to further extend the term for an additional 12-month period thereafter through July 31, 2019. Under the First
Amendment, the total monthly rent increased from approximately $19,350 to $19,756. In addition, pursuant to the First Amendment, the premises covered by the
Facilities Lease now also include the manufacturing facility currently being utilized by Capricor. In lieu of further increasing the monthly rental payment set forth
in the First Amendment, the Company has also agreed to provide doses of CAP-1002 for use in CSMC’s clinical trials for a negotiated amount of monetary
compensation. On September 7, 2018, Capricor entered into a Second Amendment to the CSMC Facilities Lease pursuant to which Capricor was granted two
consecutive 1-year options to extend the term of the Facilities Lease through July 31, 2021. We are planning to enter into a Third Amendment to the CSMC
Facilities Lease reducing the square footage of the leased premises, which would result in a rent reduction of approximately $4,000 per month. The premises
leased from CSMC are located at 8700 Beverly Blvd., Los Angeles, California 90048.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
ITEM 3.
LEGAL PROCEEDINGS
We are not involved in any material pending legal proceedings and are not aware of any material threatened legal proceedings against us.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
Market for Common Stock
Our common stock is traded on the Nasdaq Capital Market under the symbol “CAPR”. The following table lists the high and low closing sales prices of
our common stock as quoted, in U.S. dollars, by Nasdaq, during each quarter within the last two completed fiscal years. The quotations reflect inter-dealer
prices, without retail markup, markdown or commission, and may not represent actual transactions. Consequently, the information provided below may not be
indicative of our common stock price under different conditions.
Year ended December 31, 2017
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year ended December 31, 2018
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Holders
$
$
High
Low
3.40 $
3.29
3.03
3.45
2.09 $
1.58
1.49
1.08
2.18
0.63
0.67
1.46
1.28
1.26
1.02
0.32
According to the records of our transfer agent, American Stock Transfer & Trust Company, as of March 28, 2019, we had 122 holders of record of
common stock, not including holders who held in “street name.”
Dividends
We have never declared or paid a dividend on our common stock and do not anticipate paying any cash dividends in the foreseeable future. The ability
of our Board of Directors to declare a dividend is subject to limits imposed by Delaware corporate law.
Securities Authorized for Issuance Under Equity Compensation Plans
The information required by this item is set forth in the section entitled “Securities Authorized for Issuance Under Equity Compensation Plans” in Part III,
Item 12 of this Annual Report on Form 10-K.
Performance Graph
We are a smaller reporting company, as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide a
performance graph.
Recent Sales of Unregistered Securities
On December 31, 2018, we granted 24,996 shares of our common stock, par value $0.001 per share, or Common Stock, to a consulting firm as
consideration for consulting services provided to us by the consulting firm. The shares of our Common Stock granted to the consulting firm were issued in
reliance on the exemption from registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended. The consulting firm represented to the
Company that it was acquiring the Common Stock solely for investment and not with a view to the distribution thereof or with any intention of distributing or
reselling any of the Common Stock.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Issuer Purchases of Equity Securities
None.
ITEM 6.
SELECTED FINANCIAL DATA
We are a smaller reporting company, as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide the
information required under this item.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction with the audited consolidated financial
statements and the audited consolidated notes to those statements included elsewhere in this Annual Report on Form 10-K. This discussion includes forward-
looking statements that involve risks and uncertainties. As a result of many factors, our actual results may differ materially from those anticipated in these
forward-looking statements.
Overview
Our mission is to develop first-in-class biological therapies for the treatment of diseases, with a focus on Duchenne muscular dystrophy, or DMD, and
other rare disorders. Our executive offices are located at 8840 Wilshire Blvd., 2nd Floor, Beverly Hills, California 90211. Our telephone number is (310) 358-3200
and our Internet address is www.capricor.com.
Consummation of the Merger
We were originally incorporated in Delaware in August 2005 under the name Nile Pharmaceuticals, Inc. and we changed our name to Nile Therapeutics,
Inc., or Nile, in January 2007. On November 20, 2013, pursuant to that certain Agreement and Plan of Merger and Reorganization dated as of July 7, 2013, as
amended by that certain First Amendment to Agreement and Plan of Merger and Reorganization dated as of September 27, 2013, or as amended, the Merger
Agreement, by and among Nile, Nile’s wholly-owned subsidiary, Bovet Merger Corp., a Delaware corporation, or Merger Sub, and Capricor, Inc., or Capricor,
Merger Sub merged with and into Capricor and Capricor became a wholly-owned subsidiary of Nile (referred to herein as the Merger). Immediately prior to the
effective time of the merger, and in connection therewith, Nile filed certain amendments to its certificate of incorporation which, among other things (i) effected a
1-for-50 reverse split of its common stock, (ii) changed its corporate name from “Nile Therapeutics, Inc.” to “Capricor Therapeutics, Inc.,” and (iii) effected a
reduction in the total number of authorized shares of common stock from 100,000,000 to 50,000,000, and a reduction in the total number of authorized shares of
preferred stock from 10,000,000 to 5,000,000.
Capricor, our wholly-owned subsidiary, was founded in 2005 as a Delaware corporation based on the innovative work of its founder, Eduardo Marbán,
M.D., Ph.D., and his collaborators. First located in Baltimore, Maryland, adjacent to The Johns Hopkins University, or JHU, where Dr. Marbán was chief of
cardiology, Capricor moved to Los Angeles, California in 2007 when Dr. Marbán became Director of the Heart Institute at Cedars-Sinai Medical Center, or
CSMC. Capricor’s laboratories and manufacturing facilities are located in space that Capricor leases from CSMC.
Drug Candidates
Our Product Candidates
We currently have four drug candidates, two of which are in various stages of active development. Our current research and development efforts have
been focused on CAP-1002 and CAP-2003. In 2018 we commenced enrollment of patients in a clinical trial of CAP-1002 in patients with DMD called HOPE-2.
CAP-1002 was also the subject of three previous clinical trials conducted by us. Recently, we decided to end the long term follow-up which had been ongoing in
our previously completed trials. CAP-1002 is also currently being investigated in two additional trials sponsored by CSMC, which are the REGRESS trial
investigating heart failure with preserved ejection fraction and the ALPHA trial investigating pulmonary arterial hypertension. Although, we are not the sponsor of
these trials, we are providing the CAP-1002 investigational product for use in the trials. We are also evaluating CAP-2003 in pre-clinical studies for the treatment
of various indications. CAP-1001 (autologous CDCs) was the subject of the CSMC and JHU-sponsored Phase I CADUCEUS trial and is not in active
development. Both CAP-1002 and CAP-1001 are derived from cardiospheres, or CSps, and we do not plan to develop CSps as a therapeutic.
CAP-1002 for the Treatment of Duchenne Muscular Dystrophy:
Based on our understanding of the mechanism of action of CAP-1002 which has been seen in pre-clinical models of DMD, we believe that CAP-1002
has the potential to decrease inflammation and muscle degeneration while exerting positive effects on muscle regeneration, all of which may translate into
patients retaining muscle function for a longer period of time. Data supporting peripheral intravenous route of administration of CAP-1002 in the DMD setting has
been provided by pre-clinical mouse studies where CDCs, the active ingredient in CAP-1002, have been shown to increase exercise capacity and diaphragmatic
function.
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Phase II HOPE-2 Clinical Trial
HOPE-2 is a randomized, double-blind, placebo-controlled clinical trial which is being conducted at multiple sites located in the United States. Originally,
HOPE-2 was designed as an 84 patient clinical trial, but we are pursuing a sample size re-estimation that will likely lead to a significant reduction in the number
of DMD patients. To date, we have enrolled 20 patients in our HOPE-2 clinical trial. The clinical trial will evaluate the safety and efficacy of repeat, intravenous,
or IV, doses of CAP-1002, in boys and young men with evidence of skeletal muscle impairment regardless of ambulatory status and on a stable regimen of
systemic glucocorticoids. While there are many clinical initiatives in DMD, HOPE-2 is one of the very few to focus on non-ambulant patients. These boys and
young men are looking to maintain what function they have in their arms and hands, and Capricor’s previous study of a single intracoronary dose of CAP-1002
provided preliminary evidence of efficacy that CAP-1002 may be able to help DMD patients retain, or slow the loss of, upper limb function.
After a patient in the trial had a serious adverse event in the form of anaphylaxis, we put a voluntary hold on dosing in December 2018 to develop a plan
to manage potential allergic reactions. The investigation suggests that the patient may have been allergic to something contained in the investigational product,
including an excipient, or inactive ingredient, in the formulation. To reduce the risk of future events, we initiated a pre-medication strategy commonly used by
physicians to prevent and treat allergic reactions. After an approximate one month period, the FDA and the Data and Safety Monitoring Board (DSMB) granted
us permission to resume enrollment in the study.
In June 2017, we had a meeting with the FDA to discuss potential clinical endpoints that could be used for registration strategies for CAP-1002 in the
DMD indication. The minutes of the meeting indicated the FDA's willingness to accept Capricor's proposal to use the Performance of the Upper Limb, or PUL,
test as the basis for the primary efficacy endpoint for clinical studies in support of a Biologics License Application, or BLA. The PUL test is an outcomes
instrument that was specifically designed to assess upper limb function in ambulant and non-ambulant patients with DMD. In December 2018, we met again with
the FDA as part of the expedited review afforded under the RMAT designation. The FDA grants the RMAT designation to investigational regenerative medicine
therapies intended to treat a serious condition and for which preliminary clinical evidence indicates a potential to address unmet medical needs for that condition.
During the RMAT discussion, which was reflected in subsequent meeting minutes issued by the FDA, Capricor asked whether the FDA would agree if HOPE-2,
could serve as a registration study if HOPE-2 provides evidence that CAP-1002 is safe and effective in treating Duchenne muscular dystrophy. The FDA advised
Capricor to request an end of phase meeting after completion of the trial to determine whether HOPE-2 could serve as the registration study.
The FDA also reiterated its support for the use of the Performance of the Upper Limb (PUL) 2.0 mid-level test, or the PUL 2.0, which is described in
more detail below, as the primary efficacy endpoint for HOPE-2. In addition, the agency stated that the trial would need to provide evidence of clinically
meaningful changes in the PUL, as well as other evidence supportive of CAP-1002 efficacy for patients with advanced Duchenne muscular dystrophy, in order
to potentially serve as a registration trial.
The primary efficacy endpoint will be the relative change in patients’ abilities to perform manual tasks that relate to activities of daily living and are
important to their quality of life. These abilities will be measured through the PUL test, a validated test for skeletal muscle function in DMD. HOPE-2 will focus on
the mid-level dimension of the PUL 2.0 – or the ability to use muscles from the elbow to the fingers, which are essential for operating wheelchairs and performing
other daily functions. In HOPE-2, we may include additional secondary and exploratory endpoints such as cardiac function, pulmonary function testing, quality of
life and additional measures.
Currently, we are evaluating several options with respect to the HOPE-2 trial, which includes a reduction in the number of patients to 20, a reduction in
the dosing protocol for certain subjects as well as a data analysis to be conducted at the 6-month time-point as opposed to the originally designed 12-month
time-point for certain subjects. We anticipate the interim data will be available in early Q3 2019. Continuation of enrollment and completion of the study as
originally designed is dependent on the outcome of the interim analysis and our ability to secure additional funding.
While the trial was originally planned to be conducted at approximately 10-15 investigative sites in the U.S., we recently decided to terminate several
sites which had not yet recruited any patients. Other operational aspects of the trial are being assessed and potentially reduced in order to conserve resources
and meet the operational needs of the trial as they are re-defined.
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Phase I/II HOPE-Duchenne Clinical Trial
We have completed the randomized, controlled, multi-center Phase I/II HOPE-Duchenne clinical trial which was designed to evaluate the safety and
exploratory efficacy of CAP-1002 in patients with cardiomyopathy associated with Duchenne muscular dystrophy, or DMD. Twenty-five patients were
randomized in a 1:1 ratio to receive either CAP-1002 on top of usual care or usual care only. In patients receiving CAP-1002, 25 million cells were infused into
each of their three main coronary arteries for a total dose of 75 million cells. It was a one-time treatment, and the last patient was infused in September 2016.
Patients were observed over the course of 12 months. Efficacy was evaluated according to several exploratory outcome measures. This study was funded in
part through a grant award from the California Institute for Regenerative Medicine, or CIRM. In January 2019, this study was published in the online issue of
Neurology, the medical journal of the American Academy of Neurology.
We commenced the HOPE-Duchenne trial in February 2016 and completed enrollment in September 2016. In April 2017, we reported positive top-line
results from a pre-specified six-month interim analysis of this study, which showed that CAP-1002 was generally safe and well-tolerated over the initial six-month
follow-up period. The six-month results were presented at the 22nd Annual International Congress of the World Muscle Society in October 2017.
In exploratory efficacy analyses, observed changes from baseline to Month 6 significantly differed by treatment group for systolic thickening of the
inferior wall of the heart as measured by MRI (p=0.03). In a post-hoc analysis of function of the mid- and distal-level upper limb in which a responder was defined
as a patient who demonstrated a 10% improvement from baseline in score on the PUL test, CAP-1002 patients were more likely to be responders than patients
in usual care (p=0.045) at Week 6. In addition, numerical results in some other cardiac and skeletal muscle measures, including cardiac scar (p=0.09), were
consistent with a treatment effect although differences between treatment groups were not statistically significant. The observed clinical results appear to
generally corroborate a large body of pre-clinical data from studies in DMD animal models.
We reported our 12-month data from the Hope-Duchenne trial at a Late-Breaking Science session of the American Heart Association Scientific Sessions
2017. As shoulder function had already been lost in most of the HOPE participants, investigators used the combined mid-distal PUL subscales to assess
changes in skeletal muscle function and found significant improvement in those treated with CAP-1002 in a defined post-hoc analysis. Among the lower-
functioning patients, defined as patients with a baseline mid-distal PUL score < 55 out of 58, investigators reported sustained or improved motor function at 12
months in 8 of 9 (89%) patients treated with CAP-1002 as compared to none (0%) of the usual care participants (p=0.007).
To assess cardiac structure and function, investigators used magnetic resonance imaging, or MRI. They found significant improvements in systolic
thickening of the left ventricular wall among those patients treated with CAP-1002. Systolic wall thickening is the component of myocardial contraction ultimately
responsible for ejection of blood from the left ventricle. Preservation or enhancement of systolic wall thickening may potentially be the result of the reversal of
fibrosis.
In the inferior wall, they recorded a mean (SD) 31.2% (47.0%) increase in thickening six months after treatment and a mean 25.8% (46.7%) increase in
thickening 12 months after treatment. In comparison, the usual care group showed a mean 8.8% (27.7%) decrease at six months and a mean 1.6% (37.9%)
increase at 12 months in the systolic thickening of the inferior wall. The difference between the groups in absolute change from baseline to six months achieved
statistical significance (p=0.04) and trended in favor of CAP-1002 treatment group (p=0.09) from baseline to 12 months.
Investigators also found that scarring of the heart muscle among those treated with CAP-1002 decreased relative to the control group. Progressive
cardiac scarring eventually impairs the heart's pumping ability and is currently the leading cause of death in Duchenne muscular dystrophy. At the 12-month
follow-up, those treated with CAP-1002 had a mean (SD) 7.1% (10.3%) reduction in scar size, in contrast to a mean 4.8% (22.3%) increase in scar size in the
usual care group, a difference that achieved statistical significance using non-parametric analysis to account for outliers (p=0.03).
CAP-1002 was generally safe and well-tolerated in the HOPE-Duchenne trial. There was no significant difference in the incidence of treatment-
emergent adverse events in either group. There were no early study discontinuations due to adverse events.
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Additionally, in 2018 we conducted an open-label extension of the Hope-Duchenne trial, or HOPE-OLE, where 8 patients who were randomized into the
control group of the HOPE-Duchenne trial were given two doses of CAP-1002. We have completed enrollment and treatment of the patients in the HOPE-OLE
trial. In January 2019, we entered into an Amendment to the CIRM Notice of Award pursuant to which CIRM allowed us to use excess funds from our grant
award to fund, in part, certain activities associated with HOPE-OLE.
Regulatory Designations for CAP-1002 for the treatment of DMD
In April 2015, the FDA granted Orphan Drug Designation to CAP-1002 for the treatment of DMD. Orphan Drug Designation is granted by the FDA’s
Office of Orphan Drug Products to drugs intended to treat a rare disease or condition affecting fewer than 200,000 people in the United States or a disease or
condition that affects more than 200,000 people in the United States and for which there is no reasonable expectation that the cost of developing and making
available in the United States a drug for this type of disease or condition will be recovered from sales in the United States for that drug. This designation confers
special incentives to the drug developer, including tax credits on the clinical development costs and prescription drug user fee waivers and may allow for a
seven-year period of market exclusivity in the United States upon FDA approval.
In July 2017, the FDA granted Rare Pediatric Disease Designation to CAP-1002 for the treatment of DMD. The FDA defines a “rare pediatric disease” as
a serious or life-threatening disease affecting individuals primarily aged from birth to 18 years and that affects fewer than 200,000 individuals in the United
States. Under the FDA's Rare Pediatric Disease Priority Review Voucher program, upon the approval of a qualifying New Drug Application, or NDA, or BLA for
the treatment of a rare pediatric disease, the sponsor of such application would be eligible for a Rare Pediatric Disease Priority Review Voucher that can be used
to obtain priority review for a subsequent NDA or BLA. The Priority Review Voucher may be sold or transferred an unlimited number of times.
In February 2018, we were notified by the FDA Office of Tissues and Advanced Therapies, that we were granted the Regenerative Medicine Advanced
Therapy, or RMAT, designation for CAP-1002 for the treatment of DMD. The FDA grants the RMAT designation to regenerative medicine therapies intended to
treat a serious condition and for which preliminary clinical evidence indicates a potential to address unmet medical needs for that condition. The RMAT
designation makes therapies eligible for the same actions to expedite the development and review of a marketing application that are available to drugs that
receive breakthrough therapy designation – including increased meeting opportunities, early interactions to discuss any potential surrogate or intermediate
endpoints and the potential to support accelerated approval. CAP-1002 is one of the few therapies currently in development to help non-ambulant patients with
Duchenne muscular dystrophy. To receive the RMAT designation, we submitted data from the HOPE-Duchenne Trial.
CAP-1002 for the Treatment of Cardiac Conditions:
The Phase I portion of the ALLSTAR trial was a 14-patient, open-label, dose-escalation study that was conducted to evaluate the clinical safety of CAP-
1002 in patients who had experienced a large heart attack and who had residual cardiac dysfunction. Each patient received a single infusion of CAP-1002 into
the coronary artery most closely associated with the location of their MI, at a dose level of either 12.5 million or 25 million cells. The primary safety endpoints
focused on the potential adverse effects of CAP-1002 delivery, including potential immunologic consequences of infusing cells that had originated from an
unrelated donor. Event rates observed for each of the four pre-specified safety endpoints (acute myocarditis possibly attributable to CAP-1002; death due to
ventricular tachycardia or ventricular fibrillation; sudden death; and major adverse cardiac events) were 0% over one and 12 months following CAP-1002
infusion.
This Phase I study was funded in large part by a grant received from the National Institutes of Health, or NIH.
Capricor began enrollment of the Phase II ALLSTAR study in the first quarter of 2014. This randomized, double-blind, placebo-controlled trial was
designed to determine if treatment with CAP-1002 can reduce scar size in patients who have suffered an MI and other endpoints. At the time of randomization,
patients were stratified into one of two cohorts according to the time since the occurrence of their MI (either 30 to 90 days after the MI, or greater than 90 days
up to one-year after the MI). Following infusion, patients were to be followed for periodic evaluations over the course of one year. Patients were randomized in a
2:1 ratio to receive an infusion of CAP-1002 (25 million cells) or placebo, respectively, into the coronary artery most closely associated with the region of their MI.
The trial was powered to detect a reduction in scar size, relative to placebo, as measured by MRI at the 12-month follow-up. In addition to evaluating CAP-1002
according to changes in scar size, ALLSTAR also evaluated CAP-1002 according to a variety of clinical and quality of life endpoints. The Phase II portion of the
ALLSTAR trial was funded in large part through the support of CIRM.
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In October 2016, we announced completion of enrollment of the Phase II portion of the ALLSTAR trial in which 142 subjects were randomized to the
active or control treatment groups in a 2:1 ratio, respectively, and of whom 134 received a single infusion of either CAP-1002 or placebo into the infarct-
associated coronary artery. Patients in the trial were enrolled at approximately 30 centers in the United States and in Canada.
In May 2017, we announced that a pre-specified administrative interim analysis performed on six-month follow-up data from the ALLSTAR trial
demonstrated a low probability (futility) of achieving a statistically-significant difference in the 12-month primary efficacy endpoint of percent change from
baseline infarct size as a percentage of left ventricular mass, measured by cardiac MRI. At six months, a near-statistically-significant (p=0.05) reduction of mean
end-diastolic volume, as well as a trend of reduction of mean end-systolic volume, were seen in the CAP-1002 treatment group. There was no notable difference
between treatment groups with respect to the change in ejection fraction. There were no safety signals in the CAP-1002 treatment cohort. Based on the results
of the interim analysis, we elected to forego further MRI analyses and transition all patients in ALLSTAR to long-term follow-up. At this time, all long-term follow-
up has been terminated and we expect to incur no further material expenses related to the ALLSTAR trial.
Phase I/II DYNAMIC Clinical Trial
The Phase I/II DYNAMIC trial, of which the Phase I portion has concluded, was designed to evaluate the safety and efficacy of CAP-1002 in the
treatment of patients with advanced heart failure resulting from dilated cardiomyopathy of either ischemic or non-ischemic origin. This condition is characterized
by chronic structural and functional abnormalities present throughout the heart’s contractile tissue. In the DYNAMIC trial, CAP-1002 was infused into all three
main coronary arteries to obtain broad exposure. Following infusion, patients were followed for one year. The trial was funded in part through a grant award from
the NIH.
We initiated the open-label, dose-escalating Phase I portion of the DYNAMIC trial in December 2014 at a single center, CSMC, and in April 2015,
completed enrollment with 14 patients with New York Heart Association, or NYHA, Class III heart failure. Each patient was administered CAP-1002 via a one-
time, triple coronary infusion at one of several evenly-divided dose levels (37.5 million, 50 million, 62.5 million, or 75 million cells total). Initial top-line six-month
results were presented at the American Heart Association’s Annual Scientific Sessions in November 2015. Multi-vessel intracoronary infusion of CAP-1002 in
subjects with dilated cardiomyopathy was shown to be safe in this study with no major adverse cardiac events reported at one month or at six months post-
infusion. Although this trial was intended as a safety study, the six-month data demonstrated encouraging and congruent preliminary efficacy signals in multiple
parameters, including ejection fraction, ventricular volumes, exercise capacity and subjective well-being.
In June 2016, Capricor reported positive 12-month data from the DYNAMIC study. For the 12 patients available for follow-up at one year, improvements
from baseline in key cardiac function and dimensional indices that had been observed at six months were directionally maintained. Importantly, the change in
median left ventricular ejection fraction from baseline to 12 months maintained its level of statistical significance that was shown at six months (p=0.02 at both
time points) and, on an absolute basis, continued to improve from six to 12 months. Of the five NYHA Class III subjects who received the highest dose of CAP-
1002 (75 million cells), two subjects improved by two Classes (to Class I) and three improved by one Class (to Class II) at six months. At 12 months, three of
these five subjects were assessed as Class I and two as Class II, demonstrating further improvement and indicating durability of the benefit of CAP-1002 on
heart failure status for as long as one year following administration. CAP-1002 infusion was well-tolerated in DYNAMIC. Two of the 14 patients, who were in the
lower two of the four dose cohorts, died from progressive heart failure approximately one and three months prior to study conclusion. Although we have
designed a Phase II study to evaluate CAP-1002 in the heart failure population, at this time, we have no plans to conduct the Phase II portion of the DYNAMIC
trial.
Investigator Sponsored Clinical Trials
Capricor has agreed to provide cells for investigational purposes in two clinical trials sponsored by CSMC. These cells were developed as part of the
Company’s past research and development efforts. The first trial is known as “Regression of Fibrosis and Reversal of Diastolic Dysfunction in HFpEF Patients
Treated with Allogeneic CDCs.” Dr. Eduardo Marbán is the named principal investigator under the study. The second trial is known as “Pulmonary Arterial
Hypertension treated with Cardiosphere-derived Allogeneic Stem Cells.” In both studies, Capricor is providing the necessary number of doses of cells and will
receive a negotiated amount of monetary compensation which is estimated to be approximately $2.1 million over several years.
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CAP-2003:
Extracellular vesicles (“EVs”), including exosomes and microvesicles are nano-scale, membrane-enclosed vesicles, that are secreted by cells and
contain characteristic lipids, proteins and RNA molecules, such as microRNAs. EVs act as messengers to regulate the functions of neighboring cells, and pre-
clinical research has shown that exogenously-administered exosomes can direct or, in some cases, re-direct cellular activity, supporting their therapeutic
potential agents or delivery vehicles. Their size, ease of crossing cell membranes, and ability to communicate in native cellular language makes them an exciting
class of potential therapeutic agents.
CAP-2003 is comprised of exosomes secreted by CDCs which are shown to mediate many of the effects that are observed with the CDCs, including anti-
inflammatory, pro-angiogenic, anti-apoptotic, and anti-fibrotic effects. We are currently conducting studies in pre-clinical models of various conditions to explore
the possible therapeutic benefits that CAP-2003 may possess. It is unknown at this time when an IND will be submitted for any particular indication. Additionally,
in pre-clinical studies, we are exploring the use of CAP-2003 as a potential vehicle for delivering therapies to targeted tissues in the human body.
In July 2018, Capricor, Inc. entered into a Cooperative Research and Development Agreement with the U.S. Army Institute of Surgical Research
pursuant to which the parties agreed to cooperate in research and development on the evaluation of CAP-2003 for the treatment of trauma related injuries and
conditions, which are now the third leading cause of death in the U.S. At this time, we are considering various strategic options with respect to this program.
Inactive or Discontinued Product Candidates
CAP-1001:
CAP-1001 consists of autologous CDCs. This product candidate was evaluated in the randomized, double-blind, placebo-controlled Phase I
CADUCEUS clinical trial in patients who had recently experienced an MI. The study was sponsored and conducted by CSMC in collaboration with JHU. At
present, there is no plan for another clinical trial for CAP-1001.
CSps:
CSps are a 3D micro-tissue from which CDCs are derived, and have shown significant healing effects in pre-clinical models of heart failure. While we
consider CSps an important asset, at present there is no plan to develop CSps as a therapeutic agent.
Natriuretic Peptides:
In February 2017, we elected to terminate our former natriuretic peptide development program, consisting of Cenderitide (CD-NP) and CU-NP, so as to
more efficiently focus our resources and efforts on our CAP-1002 and CAP-2003 programs.
Financial Operations Overview
We have no commercial product sales to date and will not have the ability to generate any commercial product revenue until after we have received
approval from the FDA or equivalent foreign regulatory bodies to begin selling our pharmaceutical product candidates. Developing pharmaceutical products is a
lengthy and very expensive process. Even if we obtain the capital necessary to continue the development of our product candidates, whether through a strategic
transaction or otherwise, we do not expect to complete the development of a product candidate for several years, if ever. To date, most of our development
expenses have related to our product candidates, consisting of CAP-1002, CAP-2003 and our former product candidate, Cenderitide. As we proceed with the
clinical development of CAP-1002, and as we further develop CAP-2003 and other additional products, our expenses will further increase. Accordingly, our
success depends not only on the safety and efficacy of our product candidates, but also on our ability to finance the development of the products and our clinical
programs. Our major sources of working capital to date have been proceeds from private and public equity sales, grants received from the NIH and the
Department of Defense, or DoD, a payment from Janssen and a loan and grant award from CIRM.
Research and development, or R&D, expenses consist primarily of salaries and related personnel costs, supplies, clinical trial costs, patient treatment
costs, rent for laboratories and manufacturing facilities, consulting fees, costs of personnel and supplies for manufacturing, costs of service providers for pre-
clinical, clinical and manufacturing, and certain legal expenses resulting from intellectual property prosecution, stock compensation expense and other expenses
relating to the design, development, testing and enhancement of our product candidates. Except for certain capitalized intangible assets, R&D costs are
expensed as incurred.
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General and administrative, or G&A, expenses consist primarily of salaries and related expenses for executive, finance and other administrative
personnel, stock compensation expense, accounting, legal and other professional fees, consulting expenses, rent for corporate offices, business insurance and
other corporate expenses.
Our results have included non-cash compensation expense due to the issuance of stock options and warrants, as applicable. We expense the fair value
of stock options and warrants over their vesting period as applicable. When more precise pricing data is unavailable, we determine the fair value of stock options
using the Black-Scholes option-pricing model. The terms and vesting schedules for share-based awards vary by type of grant and the employment status of the
grantee. Generally, the awards vest based upon time-based or performance-based conditions. Performance-based conditions generally include the attainment of
goals related to our financial performance and product development. Stock-based compensation expense is included in the consolidated statements of
operations under G&A or R&D expenses, as applicable. We expect to record additional non-cash compensation expense in the future, which may be significant.
Results of Operations for the fiscal years ended December 31, 2018 and 2017
Revenue
Collaboration Income. As a result of the Janssen Agreement, collaboration income for the years ended December 31, 2018 and 2017 was zero and
approximately $1.4 million, respectively. On June 30, 2017, Capricor was informed by Janssen that Janssen would not be exercising its exclusive license option
under the Janssen Agreement. Additionally, there are no further activities ongoing in connection with the Collaboration with Janssen and all revenue was
recognized as of June 30, 2017.
Grant Income. Grant income for the years ended December 31, 2018 and 2017 was approximately $1.0 million and $1.1 million, respectively. The
decrease in grant income of approximately $0.1 million in 2018 as compared to 2017 is primarily due to the timing of grant activities. The pre-clinical phase of
the NIH grant award came to completion during the third quarter of 2018.
Miscellaneous Income. Miscellaneous income for the years ended December 31, 2018 and 2017 was approximately $0.7 million and $0.2 million,
respectively. The miscellaneous income was related to providing cells for investigational purposes for clinical trials sponsored by CSMC, which began in the third
quarter of 2017.
Operating Expenses
General and Administrative Expenses . G&A expenses for the years ended December 31, 2018 and 2017 were approximately $4.9 million and $4.8
million, respectively. The increase of approximately $0.1 million in G&A expenses in the year ended December 31, 2018 compared to the year ended December
31, 2017 is primarily attributable to investor relations expenses.
Research and Development Expenses . R&D expenses for the years ended December 31, 2018 and 2017 were approximately $12.1 million and $10.8
million, respectively. The increase of approximately $1.3 million for the year ended December 31, 2018 as compared to the year ended December 31, 2017 is
primarily due to the timing of clinical development activities of CAP-1002 (HOPE-Duchenne, HOPE-2 and HOPE-OLE clinical trials). These activities resulted in
an increase of approximately $3.3 million. Furthermore, for the year ended December 31, 2018, there was a decrease of approximately $1.3 million related to
reduced clinical development expenses in connection with the ALLSTAR clinical trial. Additionally, there was a decrease of approximately $0.8 million in
research and development expenses related to CAP-1002 and CAP-2003 for the year ended December 31, 2018 as compared to the same period in 2017.
Other Expenses
Interest Expense. Interest expense for the years ended December 31, 2018 and 2017 was zero and $398,807, respectively. The decrease in interest
expense in 2018 as compared to 2017 is due to the forgiveness of the CIRM Loan Award in December 2017.
Forgiveness of Loan Payable. Forgiveness of loan payable, a non-cash income, was approximately $15.7 million for the year ended December 31,
2017. Forgiveness of loan payable included $14,405,857 in principal and $1,248,276 in accrued interest. No forgiveness of loan payable was recorded for the
year ended December 31, 2018.
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Products Under Active Development
CAP-1002 – The development of CAP-1002 is in its developmental stages. We expect to spend approximately $3.0 million to $5.0 million during 2019
on the clinical development of CAP-1002, which expenses are primarily related to our HOPE-2 clinical trial. These figures are largely dependent on whether or
not we reinitiate enrollment in the HOPE-2 trial. That determination will depend on the results of our planned interim analysis and our ability to secure additional
funding.
CAP-2003 – We expect to spend approximately $0.5 million to $1.5 million during 2019 on pre-clinical and other research expenses related to the CAP-
2003 program, a portion of which will be offset by our grant award from the DoD. Capricor is currently engaged in pre-clinical testing of CAP-2003 to explore its
therapeutic potential, including studies that could potentially enable an IND. We have received a grant from the DoD for up to approximately $2.4 million to be
used towards the development of a scalable, commercially-ready process to manufacture CAP-2003. As of December 31, 2018, the Company has
approximately $0.7 million available under this grant award, pursuant to the terms of the award.
Products Not Under Active Development
CAP-1001 – In 2011, CSMC, in collaboration with JHU, completed the Phase I CADUCEUS trial. This study enrolled 25 patients who had suffered a
heart attack within a mean of 65 days. Seventeen patients received CAP-1001 and eight received standard of care. Twelve months after the study had
completed, no measurable adverse effects occurred in the 17 patients who were treated with CAP-1001. 16 of the 17 treated patients showed a mean reduction
of approximately 45% in scar mass and an increase in viable heart muscle one-year post heart attack. The eight patients in the control group had no significant
change in scar size. At present, there is no plan for a clinical trial of CAP-1001.
CSps – CSps are at the pre-clinical stage of development. At present, there is no plan for a clinical trial of CSps.
Cenderitide – We acquired the rights to Cenderitide in 2006. In February 2017, we terminated the Amended and Restated Technology License
Agreement with the Mayo Foundation for Medical Education and Research to more efficiently focus our resources and efforts on our CAP-1002 and CAP-2003
programs. We do not expect any further expenses with respect to this product candidate.
Our expenditures on current and future clinical development programs, particularly our CAP-1002 and CAP-2003 programs cannot be predicted with any
significant degree of certainty as they are dependent on the results of our current trials and our ability to secure additional funding. Further, we cannot predict
with any significant degree of certainty the amount of time which will be required to complete our clinical trials, the costs of completing research and development
projects or whether, when and to what extent we will generate revenues from the commercialization and sale of any of our product candidates. The duration and
cost of clinical trials may vary significantly over the life of a project as a result of unanticipated events arising during manufacturing and clinical development and
as a result of a variety of other factors, including:
·
·
·
·
·
·
·
the number of trials and studies in a clinical program;
the number of patients who participate in the trials;
the number of sites included in the trials;
the rates of patient recruitment and enrollment;
the duration of patient treatment and follow-up;
the costs of manufacturing our product candidates; and
the costs, requirements and timing of, and the ability to secure, regulatory approvals.
Liquidity and Capital Resources for the fiscal years ended December 31, 2018 and 2017
The following table summarizes our liquidity and capital resources as of and for each of our last two fiscal years, and our net increase (decrease) in cash
and cash equivalents as of and for each of our last two fiscal years and is intended to supplement the more detailed discussion that follows. The amounts stated
in the tables below are expressed in thousands.
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Liquidity and capital resources
Cash and cash equivalents
Working capital
Stockholders’ equity (deficit)
Cash flow data
Cash provided by (used in):
Operating activities
Investing activities
Financing activities
Net increase (decrease) in cash and cash equivalents
December 31, 2018 December 31, 2017
6,140
$
14,042
$
11,227
$
4,259 $
7,216 $
4,616 $
Years ended December 31,
2018
2017
$
$
(13,862) $
4,672
6,853
(2,337) $
(14,231)
4,982
11,580
2,331
Our total cash and cash equivalents, not including restricted cash, as of December 31, 2018 was approximately $4.3 million compared to approximately
$6.1 million as of December 31, 2017. The decrease in cash and cash equivalents from December 31, 2017 as compared to December 31, 2018 is due to a loss
from operations of approximately $15.3 million incurred during 2018. Total marketable securities, consisting primarily of U.S. treasuries, were approximately $3.0
million as of December 31, 2018, as compared to approximately $8.0 million as of December 31, 2017. As of December 31, 2018, we had approximately $4.6
million in total liabilities. As of December 31, 2018, we had approximately $7.2 million in net working capital. We had a net loss of approximately $15.2 million for
the year ended December 31, 2018.
Cash used in operating activities was approximately $13.9 million and $14.2 million for the years ended December 31, 2018 and 2017, respectively. The
difference of approximately $0.3 million in cash from operating activities is primarily due to a decrease of approximately $1.4 million from a change in accounts
payable and accrued liabilities and an increase of approximately $1.4 million in the change in deferred revenue for the year ended December 31, 2018 as
compared to the same period in 2017. Furthermore, there was an increase of $17.6 million in net loss for the year ended December 31, 2018 as compared to
the same period in 2017 primarily due to forgiveness of loan payable in the amount of approximately $15.7 million. To the extent we obtain sufficient capital
and/or long-term debt funding and are able to continue developing our product candidates, including as we expand our technology portfolio, engage in further
research and development activities, and, in particular, conduct pre-clinical studies and clinical trials, we expect to continue incurring substantial losses, which
will generate negative net cash flows from operating activities.
We had cash flow provided by investing activities of approximately $4.7 million and $5.0 million for the years ended December 31, 2018 and 2017,
respectively. The decrease in cash provided by investing activities for the year ended December 31, 2018 as compared to the same period of 2017 is primarily
due to the net effect from purchases, sales, and maturities of marketable securities as well as additional equipment purchases.
We had cash flow provided by financing activities of approximately $6.9 million and $11.6 million for the years ended December 31, 2018 and 2017,
respectively. The decrease in cash provided by financing activities for the year ended December 31, 2018 as compared to the same period of 2017 is primarily
due to the net proceeds from the sale of common stock. During 2017 we received net proceeds of approximately $11.1 million compared to approximately $6.7
million over the same period of 2018. Furthermore, we received $0.5 million in loan proceeds under our CIRM Loan Agreement in 2017 compared to no
proceeds received in 2018.
From inception through December 31, 2018, we financed our operations primarily through private and public sales of our equity securities, NIH and DoD
grants, a payment from Janssen, a CIRM loan and a CIRM grant award. Our recurring losses from operations raise substantial doubt about our ability to continue
as a going concern. As we have not generated any revenue from the commercial sale of our products to date, and we do not expect to generate revenue for
several years, if ever, we will need to raise substantial additional capital in order to fund our immediate general corporate activities and, thereafter, to fund our
research and development, including our long-term plans for clinical trials and new product development. We expect that if we are unable to raise additional
capital, our current cash on hand will not be able to fund operations for a period of 12 months or more. We may seek to raise additional funds through various
potential sources, such as equity and debt financings, or through strategic collaborations and license agreements. We can give no assurances that we will be
able to secure such additional sources of funds to support our operations, complete our clinical trials or if such funds become available to us, that such additional
financing will be sufficient to meet our needs. Moreover, to the extent that we raise additional funds by issuing equity securities, our stockholders may experience
significant dilution, and debt financing, if available, may involve restrictive covenants. To the extent that we raise additional funds through collaboration and
licensing arrangements, it may be necessary to relinquish some rights to our technologies or our product candidates or grant licenses on terms that may not be
favorable to us.
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Our estimates regarding the sufficiency of our financial resources are based on assumptions that may prove to be wrong. We may need to obtain
additional funds sooner than planned or in greater amounts than we currently anticipate. The actual amount of funds we will need to operate is subject to many
factors, some of which are beyond our control. These factors include the following:
·
·
·
·
·
·
·
·
the progress of our research activities;
the number and scope of our research programs;
the progress and success of our pre-clinical and clinical development activities;
the progress of the development efforts of parties with whom we have entered into research and development agreements;
the costs of manufacturing our product candidates;
our ability to maintain current research and development programs and to establish new research and development and licensing arrangements;
the costs involved in prosecuting and enforcing patent claims and other intellectual property rights; and
the costs and timing of regulatory approvals.
Financing Activities by the Company
October 2017 Common Stock Sales Agreement. On October 19, 2017, the Company entered into a Common Stock Sales Agreement, or the October
Sales Agreement, with Wainwright under which we may, from time to time, issue and sell shares of our common stock through Wainwright as sales agent in an
at-the-market offering under a prospectus supplement for aggregate sales proceeds of up to $14.0 million, or the October 2017 ATM Program. The common
stock will be distributed at the market prices prevailing at the time of sale. The October Sales Agreement provides that Wainwright will be entitled to
compensation for its services at a commission rate of 3.0% of the gross sales price per share of common stock sold. Any shares issued pursuant to the October
2017 ATM Program will be issued pursuant to our shelf registration statement on Form S-3 (File No. 333-207149), which was initially filed with the SEC on
September 28, 2015 and declared effective by the SEC on October 26, 2015 (the “2015 S-3”). A prospectus supplement relating to the October 2017 ATM
Program was filed with the SEC on October 19, 2017. On October 24, 2018, we filed a shelf registration statement on Form S-3 (File No. 333-227955) (the
“2018 S-3”) with the SEC pursuant to Rule 415(a)(6) under the Securities Act of 1933, as amended. Accordingly, we may continue to issue and sell certain
securities under the 2015 S-3, including pursuant to the October 2017 ATM Program, until the earlier of (i) the effective date of the 2018 S-3 and (ii) one hundred
eighty days after the third anniversary of the initial effective date of the 2015 S-3.
As of March 28, 2019, the Company has sold an aggregate of 7,986,741 common shares under the October 2017 ATM Program at an average price of
approximately $1.40 per common share for net proceeds of approximately $10.8 million.
May 2017 Financing. On May 5, 2017, the Company entered into subscription agreements with certain accredited investors, or the 2017 Investors,
pursuant to which the Company agreed to issue and sell to the investors, in a private placement, or the 2017 Private Placement, an aggregate of 1,196,291
shares of its common stock, par value $0.001 per share, at a price per share of $3.10 for an aggregate purchase price of approximately $3.7 million.
In connection with the Private Placement, the Company also entered into a Registration Rights Agreement with the Investors. Pursuant to the terms of
the Registration Rights Agreement, the Company was obligated (i) to prepare and file with the SEC a registration statement to register for resale the shares
issued in the Private Placement, and (ii) to use its reasonable best efforts to cause the registration statement to be declared effective by the SEC as soon as
practicable, in each case subject to certain deadlines. The Company would have been required to pay to each Investor liquidated damages equal to 1.0% of the
aggregate purchase price paid by such Investor pursuant to the Subscription Agreements for the shares per month (up to a cap of 10.0%) if it had not met
certain obligations with respect to the registration of the shares, subject to certain conditions. Pursuant to its obligations under the Registration Rights
Agreement, the Company registered for resale the shares issued in the Private Placement pursuant to a registration statement on Form S-3 (File No. 333-
219188), which was filed with the SEC on July 7, 2017 and declared effective on July 17, 2017.
March 2017 Common Stock Sales Agreement. On March 31, 2017, the Company entered into a Common Stock Sales Agreement, or the March
Sales Agreement, with Wainwright under which we could, from time to time, issue and sell shares of our common stock through Wainwright as sales agent in an
at-the-market offering under a prospectus supplement for aggregate sales proceeds of up to $5.0 million, or the March 2017 ATM Program. The common stock
was distributed at the market prices prevailing at the time of sale. The March Sales Agreement provided that Wainwright would be entitled to compensation for
its services at a commission rate of 3.0% of the gross sales price per share of common stock sold. All shares issued pursuant to the March 2017 ATM Program
were issued pursuant to the 2015 S-3. A prospectus supplement relating to the March 2017 ATM Program was filed with the SEC on April 3, 2017.
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The Company sold an aggregate of 2,589,078 common shares under the March 2017 ATM Program at an average price of approximately $1.93 per
common share for gross proceeds of approximately $5.0 million. The March 2017 ATM Program became fully utilized in October 2017.
Financing Activities by Capricor, Inc.
CIRM Loan Agreement
Pursuant to the terms of the CIRM Loan Agreement, CIRM agreed to disburse $19,782,136 to Capricor over a period of approximately three and one-
half years to support Phase II of Capricor’s ALLSTAR clinical trial. Under this award, we received approximately $14.4 million in principal. So long as we were
not in default, the Loan Agreement had provisions allowing for forgiveness of the debt after the end of the project period, if we elected to abandon the project
under certain circumstances.
On November 17, 2017, we gave notice to CIRM that we were electing to abandon the CIRM-funded project pursuant to the Loan Agreement. On
December 11, 2017, Capricor and CIRM entered into Amendment No. 3 to the CIRM Notice of Loan Award whereby the total loan balance under the CIRM Loan
Agreement was forgiven by CIRM thereby terminating Capricor and the Company’s obligation to repay the loan balance. The Company classified the
forgiveness of the loan payable, consisting of principal and accrued interest, of approximately $15.7 million as “other income” in our Consolidated Statement of
Operations and Comprehensive Income (Loss) for the period ending December 31, 2017. The decision to terminate the Loan Award and forgive the loan
balance was due to the abandonment of the ALLSTAR project at the end of the project period in accordance with Section 4.10 of the Loan Agreement and
Article VII, Section I of the CIRM Loan Administration Policy.
CIRM Grant Award
On June 16, 2016, Capricor entered into the CIRM Award with CIRM in the amount of approximately $3.4 million to fund, in part, Capricor’s Phase I/II
HOPE-Duchenne clinical trial investigating CAP-1002 for the treatment of Duchenne muscular dystrophy-associated cardiomyopathy. Pursuant to terms of the
CIRM Award, the disbursements were tied to the achievement of specified operational milestones. If CIRM determines, in its sole discretion, that Capricor has
not complied with the terms and conditions of the CIRM Award, CIRM may suspend or permanently cease disbursements or pursue other remedies as allowed
by law. In addition, the terms of the CIRM Award include a co-funding requirement pursuant to which Capricor is required to spend approximately $2.3 million of
its own capital to fund the CIRM funded research project. If Capricor fails to satisfy its co-funding requirement, the amount of the CIRM Award may be
proportionately reduced. The CIRM Award is further subject to the conditions and requirements set forth in the CIRM Grants Administration Policy for Clinical
Stage Projects. Such requirements include, without limitation, the filing of quarterly and annual reports with CIRM, the sharing of intellectual property pursuant to
Title 17, California Code of Regulations (CCR) Sections 100600-100612, and the sharing with the State of California of a fraction of licensing revenue received
from a CIRM funded research project and net commercial revenue from a commercialized product which resulted from the CIRM funded research as set forth in
Title 17, CCR Section 100608. The maximum royalty on net commercial revenue that Capricor may be required to pay to CIRM is equal to nine times the total
amount awarded and paid to Capricor.
After completing the CIRM funded research project and after the award period end date, estimated to be in 2019, Capricor has the right to convert the
CIRM Award into a loan, the terms of which will be determined based on various factors, including the stage of the research and development of the program at
the time the election is made. On June 20, 2016, Capricor entered into a Loan Election Agreement with CIRM whereby, among other things, CIRM and Capricor
agreed that if Capricor elects to convert the grant into a loan, the term of the loan would be five years from the date of execution of the applicable loan
agreement; provided that the term of the loan will not exceed ten years from the date on which the CIRM Award was granted. Beginning on the date of the loan,
the loan shall bear interest on the unpaid principal balance, plus the interest that has accrued prior to the election point according to the terms set forth in CIRM’s
Loan Policy (the “New Loan Balance”), at a per annum rate equal to the LIBOR rate for a three-month deposit in U.S. dollars, as published by the Wall Street
Journal on the loan date, plus one percent. Interest shall be compounded annually on the outstanding New Loan Balance commencing with the loan date and
the interest shall be payable, together with the New Loan Balance, upon the due date of the loan. If Capricor elects to convert the CIRM Award into a loan,
certain requirements of the CIRM Award will no longer be applicable, including the revenue sharing requirements. Capricor has not yet made its decision as to
whether it will elect to convert the CIRM Award into a loan. Since Capricor may be required to repay some or all of the amounts awarded by CIRM, the
Company accounts for this award as a liability rather than income.
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In 2016, Capricor received $3.1 million under the terms of the CIRM Award. In September 2017, the Company completed the second operational
milestone tied to the last patient completing one year of follow-up, for which approximately $0.3 million was received by Capricor in November 2017. As of
December 31, 2018, the Company’s liability balance for the CIRM Award was $3.4 million, of which approximately $0.3 million is recorded as restricted cash,
due to the fact that Capricor is required to expend approved project costs in order to use these funds.
On August 8, 2017, we entered into an Amendment to the CIRM Notice of Award pursuant to which CIRM approved the Company’s request to use the
remaining estimated project funds of the CIRM Award for technology transfer activities in support of the manufacture of CAP-1002 to a designated contract
manufacturing organization, or CMO, which will help enable Capricor to offer access to CAP-1002 to patients from the control arm of the HOPE-Duchenne trial
via an open-label extension protocol. On September 7, 2018, we entered into an Amendment to the CIRM Notice of Award pursuant to which CIRM added an
additional operational milestone which would be satisfied by completion of certain activities related to technology transfer. On January 23, 2019, we entered into
an Amendment to the CIRM Notice of Award pursuant to which CIRM added an additional operational milestone which would be satisfied by completion of
certain activities related to the HOPE-OLE clinical trial.
NIH Grant Award (HLHS)
In September 2016, Capricor was approved for a grant from the NIH to study CAP-2003 for HLHS. Under the terms of the NIH grant, disbursements will
be made to Capricor in an amount up to approximately $4.2 million, subject to annual and quarterly reporting requirements as well as completion of the study
objectives. As of December 31, 2018, approximately $0.7 million has been incurred under the terms of the NIH grant award. At this time, we are in the process
of closing out this grant award, subject to completing customary close-out documentation with no additional expenses expected to be incurred.
U.S. Department of Defense Grant Award
In September 2016, Capricor was approved for a grant award from the DoD in the amount of approximately $2.4 million to be used toward developing a
scalable, commercially-ready process to manufacture CAP-2003. Under the terms of the award, disbursements will be made to Capricor over a period of
approximately three years, subject to annual and quarterly reporting requirements. As of December 31, 2018, approximately $1.7 million has been incurred
under the terms of the award.
Contractual Obligations and Commitments
We are a smaller reporting company, as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide the
information required under this item.
Off-Balance Sheet Arrangements
There were no off-balance sheet arrangements as described by Item 303(a)(4) of Regulation S-K as of December 31, 2018.
Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with generally accepted accounting principles. The preparation of these financial statements
requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. We evaluate
our estimates and assumptions on an ongoing basis, including research and development and clinical trial accruals, and stock-based compensation estimates.
Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results
could differ from these estimates. We believe the following critical accounting policies reflect the more significant judgments and estimates used in the
preparation of our financial statements and accompanying notes.
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Revenue Recognition
For contracts completed as of December 31, 2017, revenue was recognized in accordance with ASC 605 and other standards which have been
superseded for subsequent fiscal years. The Company applied ASU 606 using the modified retrospective approach for all contracts in process as of January 1,
2018.
Grant Income
The determination as to when income is earned is dependent on the language in each specific grant. Generally, we recognize grant income in the period
in which the expense is incurred for those expenses that are deemed reimbursable under the terms of the grant. Grant income is due upon submission of
reimbursement request. The transaction price varies for grant income based on the expenses incurred under the awards.
Miscellaneous Income
Revenue is recognized in connection with the delivery of doses which were developed as part of our past R&D efforts. Income is recorded when the
Company has satisfied the obligations as identified in the contracts with the customer. Miscellaneous income is due upon billing. Miscellaneous income is based
on contracts with fixed transaction prices.
Income from Collaborative Agreement
Revenue from nonrefundable, up-front license or technology access payments under license and collaborative arrangements that are not dependent on
any future performance by us is recognized when such amounts are earned. If we have continuing obligations to perform under the arrangement, such fees are
recognized over the estimated period of the continuing performance obligation.
During 2017, the Company accounted for multiple element arrangements, such as license and development agreements in which a customer may
purchase several deliverables, in accordance with FASB ASC Subtopic 605-25, Multiple Element Arrangements. For new or materially amended multiple
element arrangements, the Company identified the deliverables at the inception of the arrangement and each deliverable within a multiple deliverable revenue
arrangement was accounted for as a separate unit of accounting if both of the following criteria are met: (1) the delivered item or items have value to the
customer on a standalone basis and (2) for an arrangement that includes a general right of return relative to the delivered item(s), delivery or performance of the
undelivered item(s) is considered probable and substantially in the Company’s control. The Company allocated revenue to each non-contingent element based
on the relative selling price of each element. When applying the relative selling price method, the Company determined the selling price for each deliverable
using vendor-specific objective evidence, or VSOE, of selling price, if it exists, or third-party evidence, or TPE, of selling price, if it exists. If neither VSOE nor
TPE of selling price exist for a deliverable, then the Company uses the best estimated selling price for that deliverable. Revenue allocated to each element was
then recognized based on when the basic four revenue recognition criteria were met for each element.
We determined the deliverables under the Janssen Agreement did not meet the criteria to be considered separate accounting units for the purposes of
revenue recognition. As a result, we recognized revenue from non-refundable, upfront fees ratably over the term of our performance under the agreement. The
upfront payments received, pending recognition as revenue, were recorded as deferred revenue and were classified as a short-term or long-term liability on the
condensed consolidated balance sheets and amortized over the estimated period of performance. We periodically reviewed the estimated performance period
of our contract based on the progress of our project. As of June 30, 2017, the full amount of income had been recognized under the Janssen Agreement.
CIRM Grant Award
Capricor accounts for the disbursements under its CIRM Award as long-term liabilities. Capricor recognizes the CIRM grant disbursements as a liability
as the principal is disbursed rather than recognizing the full amount of the grant award. After completing the CIRM funded research project and after the award
period end date, Capricor has the right to convert the CIRM Award into a loan, the terms of which will be determined based on various factors, including the
stage of the research and the stage of development at the time the election is made. Since Capricor may be required to repay some or all of the amounts
awarded by CIRM, the Company accounts for this award as a liability rather than income.
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Research and Development Expenses and Accruals
R&D expenses consist primarily of salaries and related personnel costs, supplies, clinical trial costs, patient treatment costs, rent for laboratories and
manufacturing facilities, consulting fees, costs of personnel and supplies for manufacturing, costs of service providers for pre-clinical, clinical and manufacturing,
and certain legal expenses resulting from intellectual property prosecution, stock compensation expense and other expenses relating to the design,
development, testing and enhancement of our product candidates. Except for certain capitalized intangible assets, R&D costs are expensed as incurred.
Our cost accruals for clinical trials and other R&D activities are based on estimates of the services received and efforts expended pursuant to contracts
with numerous clinical trial centers and contract research organizations, or CROs, clinical study sites, laboratories, consultants or other clinical trial vendors that
perform activities in connection with a trial. Related contracts vary significantly in length and may be for a fixed amount, a variable amount based on actual costs
incurred, capped at a certain limit, or for a combination of fixed, variable and capped amounts. Activity levels are monitored through close communication with
the CROs and other clinical trial vendors, including detailed invoice and task completion review, analysis of expenses against budgeted amounts, analysis of
work performed against approved contract budgets and payment schedules, and recognition of any changes in scope of the services to be performed. Certain
CRO and significant clinical trial vendors provide an estimate of costs incurred but not invoiced at the end of each quarter for each individual trial. These
estimates are reviewed and discussed with the CRO or vendor as necessary, and are included in R&D expenses for the related period. For clinical study sites
which are paid periodically on a per-subject basis to the institutions performing the clinical study, we accrue an estimated amount based on subject screening
and enrollment in each quarter. All estimates may differ significantly from the actual amount subsequently invoiced, which may occur several months after the
related services were performed.
In the normal course of business, we contract with third parties to perform various R&D activities in the on-going development of our product candidates.
The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. Payments under the
contracts depend on factors such as the achievement of certain events, the successful enrollment of patients, and the completion of portions of the clinical trial or
similar conditions. The objective of the accrual policy is to match the recording of expenses in the financial statements to the actual services received and efforts
expended. As such, expense accruals related to clinical trials and other R&D activities are recognized based on our estimates of the degree of completion of the
event or events specified in the applicable contract.
No adjustments for material changes in estimates have been recognized in any period presented.
Stock-Based Compensation
Our results include non-cash compensation expense as a result of the issuance of stock, stock options and warrants, as applicable. We have issued
stock options to employees, directors and consultants under our three stock option plans: (i) the 2006 Stock Option Plan, (ii) the 2012 Restated Equity Incentive
Plan (which superseded the 2006 Stock Option Plan), and (iii) the 2012 Non-Employee Director Stock Option Plan.
We expense the fair value of stock-based compensation over the vesting period. When more precise pricing data is unavailable, we determine the fair
value of stock options using the Black-Scholes option-pricing model. This valuation model requires us to make assumptions and judgments about the variables
used in the calculation. These variables and assumptions include the weighted-average period of time that the options granted are expected to be outstanding,
the volatility of our common stock, the risk-free interest rate and the estimated rate of forfeitures of unvested stock options.
Stock options or other equity instruments to non-employees (including consultants) issued as consideration for goods or services received by us are
accounted for based on the fair value of the equity instruments issued. The fair value of stock options is determined using the Black-Scholes option-pricing
model. Historically, the Company periodically re-measured the fair value for non-qualified option grants recording an expense over the applicable vesting
periods. However, in the third quarter of 2018, the Company early adopted ASU 2018-07. The Company calculates the fair value for non-qualified options as of
the date of grant and expenses over the applicable vesting periods.
The terms and vesting schedules for share-based awards vary by type of grant and the employment status of the grantee. Generally, the awards vest
based upon time-based or performance-based conditions. Performance-based conditions generally include the attainment of goals related to our financial and
development performance. Stock-based compensation expense is included in general and administrative expense or research and development expense, as
applicable, in the Statements of Operations and Comprehensive Income (Loss). We expect to record additional non-cash compensation expense in the future,
which may be significant.
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Long-Term Debt
Capricor historically accounted for the loan proceeds under its CIRM Loan Agreement as long-term liabilities. On November 17, 2017, we gave notice to
CIRM that we were electing to abandon the CIRM-funded project pursuant to the Loan Agreement and on December 11, 2017, Capricor and CIRM entered into
Amendment No. 3 to the CIRM Notice of Loan Award whereby the total loan balance under the CIRM Loan Agreement was forgiven by CIRM thereby
terminating Capricor and the Company’s obligation to repay the loan balance. The Company has classified the forgiveness of the loan payable consisting of
principal and accrued interest of approximately $15.7 million as “other income” in our Consolidated Statement of Operations and Comprehensive Income (Loss)
for the period ending December 31, 2017.
Restricted Cash
We had two awards with CIRM designated for specific use, the CIRM Loan Agreement in connection with the ALLSTAR Phase II clinical trial and the
CIRM Award related to the HOPE Phase I/II clinical trial. Restricted cash represents funds received under these awards which are to be allocated to the
research costs as incurred. Generally, a reduction of restricted cash occurs when we deem certain costs are attributable to the respective award.
Recently Issued or Newly Adopted Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”).
ASU 2014-09 amended the existing accounting standards for revenue recognition. ASU 2014-09 establishes principles for recognizing revenue based on the
value of transferred goods or services as they occur in the contract. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and
uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from
costs incurred to obtain or fulfill a contract. The Company adopted ASU 2014-09 and all subsequent updates related to this topic in the first quarter of 2018 using
the modified retrospective approach. The adoption of this ASU was applied to only those contracts that were not completed upon the initial application. The
adoption of this update did not have a material impact on the Company’s financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”), which supersedes existing guidance on accounting for leases
in Leases (Topic 840) and issued additional clarification throughout 2018. Under the new guidance, a lessee should recognize assets and liabilities that arise
from its leases and disclose qualitative and quantitative information about its leasing arrangements. The Company expects to elect the optional transition method
to apply the standard as of January 1, 2019 the effective date and therefore, it will not apply the standard to comparative periods. The Company will not apply
the recognition requirements to short-term leases and will recognize those lease payments in the Consolidated Statements of Operations on a straight-line basis
over the lease term. The Company also expects to elect the available package of practical expedients in transition which would allow it to not re-assess whether
existing or expired arrangements contain a lease, the lease classification of existing or expired leases, or whether previous initial direct costs would qualify for
capitalization under the new lease standard. The Company continues to finalize the impact of the ASU on its processes, disclosures, and internal controls over
financial reporting. Based on the procedures performed to date, the Company does not expect to record any cumulative-effect impact through retained earnings
on the adoption date.
In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment
Accounting, which simplifies several aspects of the accounting for nonemployee share-based payment transactions resulting from expanding the scope of Topic
718 to include share-based payment transactions for acquiring goods and services from nonemployees. The Company early adopted ASU 2018-07 and all
subsequent updates related to this topic on a prospective basis effective July 1, 2018. The adoption of this update did not have a material impact on the
Company’s financial statements.
In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): clarifying the interaction between Topic 808 and Topic 606.
The amendments in the update clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under
Topic 606 when the collaborative arrangement participant is a customer in the context of a unit of account; adds unit-of-account guidance in Topic 808 to align
with the guidance in Topic 606 when an entity is assessing whether the collaborative arrangement or a party of the arrangement is within the scope of Topic 606;
requires that in a transaction with a collaborative arrangement participant that is not directly related to sales to third parties, presenting the transaction together
with revenue recognized under Topic 606 is precluded if the collaborative arrangement participant is not a customer. The amendments for this update are
effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently
evaluating the impact of the new guidance on our consolidated financial statements.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public
Accountants, and the SEC, did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial
statement presentation or disclosures.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Sensitivity
Our exposure to market risk for changes in interest rates relates primarily to our marketable securities and cash and cash equivalents. As of December
31, 2018, the fair value of our cash, cash equivalents, including restricted cash, and marketable securities was approximately $7.5 million. Additionally, as of
December 31, 2018, Capricor’s portfolio was classified as cash, cash equivalents and marketable securities, which consisted primarily of money market funds
and bank money market, which included short term U.S. treasuries, bank savings and checking accounts. Capricor did not have any investments with significant
exposure to the subprime mortgage market issues.
The goal of our investment policy is to place our investments with highly rated credit issuers and limit the amount of credit exposure. We seek to improve
the safety and likelihood of preservation of our invested funds by limiting default risk and market risk. Our investments may be exposed to market risk due to
fluctuation in interest rates, which may affect our interest income and the fair market value of our investments, if any. We will manage this exposure by
performing ongoing evaluations of our investments. Due to the short-term maturities, if any, of our investments to date, their carrying value has always
approximated their fair value. Our policy is to mitigate default risk by investing in high credit quality securities, and we currently do not hedge interest rate
exposure. Due to our policy of making investments in U.S. treasury securities with primarily short-term maturities, we believe that the fair value of our investment
portfolio would not be significantly impacted by a hypothetical 100 basis point increase or decrease in interest rates.
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ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CAPRICOR THERAPEUTICS, INC.
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Income (Loss)
Consolidated Statements of Stockholders’ Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Capricor Therapeutics, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Capricor Therapeutics, Inc. and Subsidiary (the Company) as of December 31, 2018 and
2017, and the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity (deficit), and cash flows for each of the years
in the two-year period ended December 31, 2018, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the
consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2018 and 2017,
and the consolidated results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2018, in conformity with
accounting principles generally accepted in the United States of America.
Explanatory Paragraph – Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1
to the consolidated financial statements, the Company has incurred recurring losses from operations and negative cash flows from operations, resulting in an
accumulated deficit of approximately $66.7 million as of December 31, 2018. These conditions raise substantial doubt about the Company’s ability to continue as
a going concern. Management's plans with regard to these matters are also described in Note 1. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of
internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud,
and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures
in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Rose, Snyder & Jacobs LLP
Rose, Snyder & Jacobs LLP
We have served as the Company’s auditor since 2011.
Encino, California
March 28, 2019
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CAPRICOR THERAPEUTICS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2018 AND 2017
ASSETS
December 31, 2018 December 31, 2017
$
4,259,266 $
2,997,150
285,831
204,868
724,184
6,140,135
7,984,800
742,002
344,575
501,164
8,471,299
15,712,676
574,206
372,096
CURRENT ASSETS
Cash and cash equivalents
Marketable securities
Restricted cash
Grant receivable
Prepaid expenses and other current assets
TOTAL CURRENT ASSETS
PROPERTY AND EQUIPMENT, net
OTHER ASSETS
Intangible assets, net of accumulated amortization of $209,910 and $166,634, respectively
Other assets
49,772
151,788
93,048
95,969
TOTAL ASSETS
$
9,247,065 $
16,273,789
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses
Accounts payable and accrued expenses, related party
TOTAL CURRENT LIABILITIES
LONG-TERM LIABILITIES
CIRM liability
TOTAL LONG-TERM LIABILITIES
TOTAL LIABILITIES
COMMITMENTS AND CONTINGENCIES (NOTE 7)
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value, 5,000,000 shares authorized, none issued and outstanding
Common stock, $0.001 par value, 50,000,000 shares authorized, 31,387,729 and 26,270,491 shares issued
and outstanding, respectively
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
TOTAL STOCKHOLDERS' EQUITY
$
1,148,853 $
106,366
1,496,251
174,424
1,255,219
1,670,675
3,376,259
3,376,259
3,376,259
3,376,259
4,631,478
5,046,934
-
-
31,388
71,310,720
12,393
(66,738,914)
26,271
62,736,783
11,620
(51,547,819)
4,615,587
11,226,855
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
9,247,065 $
16,273,789
See accompanying notes to the audited consolidated financial statements.
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CAPRICOR THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
REVENUE
Revenue
TOTAL REVENUE
OPERATING EXPENSES
Research and development
General and administrative
TOTAL OPERATING EXPENSES
LOSS FROM OPERATIONS
OTHER INCOME (EXPENSE)
Investment income
Interest expense
Forgiveness of loan payable
TOTAL OTHER INCOME (EXPENSE)
NET INCOME (LOSS)
OTHER COMPREHENSIVE INCOME (LOSS)
Net unrealized gain on marketable securities
COMPREHENSIVE INCOME (LOSS)
Net income (loss) per share - basic
Weighted average number of shares - basic
Net income (loss) per share - diluted
Weighted average number of shares - diluted
See accompanying notes to the audited consolidated financial statements.
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Years ended December 31,
2018
2017
$
1,671,356 $
2,666,340
1,671,356
2,666,340
12,066,800
4,931,642
10,766,095
4,762,642
16,998,442
15,528,737
(15,327,086)
(12,862,397)
135,991
-
-
38,494
(398,807)
15,654,133
135,991
15,293,820
(15,191,095)
2,431,423
773
8,096
$
(15,190,322) $
2,439,519
$
$
(0.52) $
29,410,973
(0.52) $
29,410,973
0.10
23,193,278
0.09
26,788,076
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CAPRICOR THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE PERIOD FROM DECEMBER 31, 2016 THROUGH DECEMBER 31, 2018
COMMON STOCK
SHARES
AMOUNT
ADDITIONAL PAID-
IN CAPITAL
OTHER
COMPREHENSIVE
INCOME
ACCUMULATED
DEFICIT
TOTAL
STOCKHOLDERS'
EQUITY (DEFICIT)
Balance at December 31, 2016
21,399,019
$
21,399
$
49,951,165
$
3,524
$
(53,979,242) $
(4,003,154)
Issuance of common stock, net of fees
4,811,472
4,812
11,068,340
Stock-based compensation
Unrealized gain on marketable securities
Stock options exercised
Net income
-
-
60,000
-
-
-
60
-
1,710,698
-
6,580
-
-
-
8,096
-
-
-
-
-
-
11,073,152
1,710,698
8,096
6,640
2,431,423
$
2,431,423
Balance at December 31, 2017
26,270,491
$
26,271
$
62,736,783
$
11,620
$
(51,547,819) $
11,226,855
Issuance of common stock, net of fees
4,687,021
4,687
6,709,637
Stock-based compensation
Unrealized gain on marketable securities
Stock options exercised
Net loss
54,162
-
376,055
-
54
-
376
-
1,725,536
-
138,764
-
-
-
773
-
-
-
-
-
-
6,714,324
1,725,590
773
139,140
(15,191,095)
(15,191,095)
Balance at December 31, 2018
31,387,729
$
31,388
$
71,310,720
$
12,393
$
(66,738,914) $
4,615,587
See accompanying notes to the audited consolidated financial statements.
81
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CAPRICOR THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization
Stock-based compensation
Forgiveness of loan payable
Change in assets - (increase) decrease:
Receivables
Prepaid expenses and other current assets
Other assets
Change in liabilities - increase (decrease):
Accounts payable and accrued expenses
Accounts payable and accrued expenses, related party
Accrued interest
CIRM liability
Deferred revenue
Years ended December 31,
2018
2017
$
(15,191,095) $
2,431,423
157,652
1,725,590
-
144,174
1,710,698
(15,654,133)
139,707
(223,020)
(55,819)
(347,398)
(68,058)
-
-
-
(121,240)
(158,272)
(34,543)
(1,542,073)
(314,793)
398,807
276,259
(1,367,186)
NET CASH USED IN OPERATING ACTIVITIES
(13,862,441)
(14,230,879)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities
Proceeds from sales and maturities of marketable securities
Purchases of property and equipment
NET CASH PROVIDED BY INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of common stock
Proceeds from loan payable
Proceeds from stock options
NET CASH PROVIDED BY FINANCING ACTIVITIES
(18,011,577)
23,000,000
(316,486)
(18,986,194)
24,000,000
(32,185)
4,671,937
4,981,621
6,714,324
-
139,140
11,073,152
500,000
6,640
6,853,464
11,579,792
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
(2,337,040)
2,330,534
Cash, cash equivalents, and restricted cash balance at beginning of period
6,882,137
4,551,603
Cash, cash equivalents, and restricted cash balance at end of period
$
4,545,097 $
6,882,137
SUPPLEMENTAL DISCLOSURES:
Interest paid in cash
Income taxes paid in cash
$
$
- $
- $
-
-
See accompanying notes to the audited consolidated financial statements.
82
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CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Capricor Therapeutics, Inc., a Delaware corporation (referred to herein as “Capricor Therapeutics” or the “Company”), is a clinical-stage biotechnology
company focused on the discovery, development and commercialization of innovative cell and exosome-based therapies for the treatment of diseases, with a
focus on Duchenne muscular dystrophy (“DMD”), and other rare disorders. Capricor, Inc. (“Capricor”), a wholly-owned subsidiary of Capricor Therapeutics, was
founded in 2005 as a Delaware corporation based on the innovative work of its founder, Eduardo Marbán, M.D., Ph.D. After completion of a merger between
Capricor and a subsidiary of Nile Therapeutics, Inc., a Delaware corporation (“Nile”), on November 20, 2013, Capricor became a wholly-owned subsidiary of Nile
and Nile formally changed its name to Capricor Therapeutics, Inc. Capricor Therapeutics, together with its subsidiary, Capricor, have four drug candidates, two
of which are in various stages of active development.
Basis of Consolidation
Our consolidated financial statements include the accounts of the Company and our wholly-owned subsidiary. All intercompany transactions have been
eliminated in consolidation.
Liquidity
The Company has historically financed its research and development activities as well as operational expenses from equity financings, government
grants, a payment from Janssen Biotech, Inc. (“Janssen”) pursuant to a Collaboration Agreement with Janssen and a loan award and a grant from the California
Institute for Regenerative Medicine (“CIRM”).
Cash, cash equivalents and marketable securities as of December 31, 2018 were approximately $7.3 million, compared to approximately $14.1 million as
of December 31, 2017. On October 19, 2017, the Company entered into a Common Stock Sales Agreement (the “October Sales Agreement”) with Wainwright to
create an at-the-market equity program under which the Company from time to time may offer and sell shares of its common stock, par value $0.001 per share,
having an aggregate offering price of up to $14.0 million (the “October 2017 ATM Program”) through Wainwright, as sales agent. As of March 28, 2019, the
Company has sold an aggregate of 7,986,741 common shares under the October 2017 ATM Program at an average price of approximately $1.40 per common
share for net proceeds of approximately $10.8 million (see Note 3 – “Stockholders’ Equity” and Note 10 – “Subsequent Events”). Furthermore, as of March 28,
2019, the Company has approximately $2.8 million available for future issuance under the October 2017 ATM Program until it expires in accordance with its
terms. The Company will not be able to issue and sell any additional shares under the October 2017 ATM Program following expiration of the Company’s shelf
registration statement on Form S-3 (File No. 333-207149), which was initially filed with the U.S. Securities and Exchange Commission (“SEC”) on September
28, 2015 and declared effective by the SEC on October 26, 2015 (the “2015 S-3”). Unless the 2015 S-3 is earlier terminated, the last day that we will be able to
issue and sell additional shares under the 2015 S-3 is April 23, 2019.
The Company has been awarded various grant and loan awards, which fund, in part, various pre-clinical and clinical activities (see Note 2 – “Loan
Payable” and Note 6 – “Government Grant Awards”). As of December 31, 2018, the Company has approximately $0.7 million available under these grants and
awards for disbursement, pursuant to the terms of each of the respective awards.
The Company’s principal uses of cash are for research and development expenses, general and administrative expenses, capital expenditures and other
working capital requirements.
The Company’s future expenditures and capital requirements may be substantial and will depend on many factors, including, but not limited to, the
following:
·
·
·
·
·
the timing and costs associated with its clinical trials and pre-clinical studies;
the timing and costs associated with the manufacturing of its product candidates;
the timing and costs associated with commercialization of its product candidates;
the number and scope of its research programs; and
the costs involved in prosecuting and enforcing patent claims and other intellectual property rights.
83
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CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Based on the Company’s current estimates and largely dependent on our decision with respect to our HOPE-2 clinical trial, the Company believes it has
sufficient cash to fund operations into the fourth quarter of 2019. In the first quarter of 2019, Capricor made certain operational adjustments to further reduce
expenses by slowing down certain R&D efforts, decreasing headcount, and implementing further budget restrictions in order to preserve cash resources further.
Based on the Company’s available cash resources, the Company does not have sufficient cash on hand to support current operations for at least the next twelve
months from the date of filing this Report on Form 10-K. Therefore, there is substantial doubt about the Company’s ability to continue as a going concern.
The Company’s plan to address its financial position may include potentially seeking additional financing primarily from, but not limited to, the sale and
issuance of equity or debt securities, the licensing or sale of its technology and other assets, and from government grants. The accompanying consolidated
financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary
course of business. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.
The Company will require substantial additional capital to fund operations. The Company cannot provide assurances that financing will be available
when and as needed or that, if available, financing will be available on favorable or acceptable terms or at all. If the Company is unable to obtain additional
financing when and if required, it would have a material adverse effect on the Company’s business and results of operations. The Company would likely need to
delay, or curtail or terminate portions of its clinical trial programs. To the extent the Company issues additional equity securities, its existing stockholders could
experience substantial dilution.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
consolidated financial statements. Estimates also affect the reported amounts of revenues and expenses during the reporting period. The most sensitive
estimates relate to the recoverability and fair value of intangible assets and the assumptions used to estimate stock-based compensation expense. Management
uses its historical records and knowledge of its business in making these estimates. Accordingly, actual results may differ from these estimates.
Cash, Cash Equivalents, and Restricted Cash
The Company considers all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets that total the
same such amounts shown in the statement of cash flows.
Cash and cash equivalents
Restricted cash
Total cash, cash equivalents, and restricted cash shown in the statements of cash flows
December 31, December 31,
2018
4,259,266 $
285,831
4,545,097 $
2017
6,140,135
742,002
6,882,137
$
$
For the years ended December 31, 2018 and 2017, the Company had two awards with CIRM designated for specific use, a Loan Agreement with CIRM
(the “CIRM Loan Agreement”) entered into on February 5, 2013 (see Note 2 – “Loan Payable”) in connection with the ALLSTAR Phase II clinical trial and the
CIRM Award (see Note 6 – “Government Grant Awards”) related to the HOPE Phase I/II clinical trial. Restricted cash represents funds received under these
awards which are to be allocated to the research costs as incurred. Generally, a reduction of restricted cash occurs when the Company deems certain costs are
attributable to the respective award. The restricted cash balance was approximately $0.3 million and $0.7 million as of December 31, 2018 and December 31,
2017, respectively, and is entirely related to the CIRM Award.
84
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CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Marketable Securities
The Company determines the appropriate classification of its marketable securities at the time of purchase and reevaluates such designation at each
balance sheet date. All of the Company’s marketable securities are considered as available-for-sale and carried at estimated fair values. Realized gains and
losses on the sale of debt and equity securities are determined using the specific identification method. Unrealized gains and losses on available-for-sale
securities are excluded from net income (loss) and reported in accumulated other comprehensive income (loss) as a separate component of stockholders’ equity.
Property and Equipment
Property and equipment are stated at cost. Repairs and maintenance costs are expensed in the period incurred. Depreciation is computed using the
straight-line method over the related estimated useful life of the asset, which such estimated useful lives range from five to seven years. Leasehold
improvements are depreciated on a straight-line basis over the shorter of the useful life of the asset or the lease term. Depreciation was $114,376 and $94,968
for the years ended December 31, 2018 and 2017, respectively.
Property and equipment consisted of the following at December 31:
Furniture and fixtures
Laboratory equipment
Leasehold improvements
Less accumulated depreciation
Property and equipment, net
Intangible Assets
2018
2017
$
$
46,709 $
936,480
47,043
1,030,232
(456,026)
574,206 $
46,709
619,994
47,043
713,746
(341,650)
372,096
Amounts attributable to intellectual property consist primarily of the costs associated with the acquisition of certain technologies, patents, pending
patents and related intangible assets with respect to research and development activities. Certain intellectual property assets are stated at cost and are
amortized on a straight-line basis over the respective estimated useful lives of the assets ranging from five to fifteen years. Total amortization expense was
$43,276 and $49,206 for the years ended December 31, 2018 and 2017, respectively. A summary of future amortization expense as of December 31, 2018 is as
follows:
Years ended
2019
2020
2021
Amortization Expense
43,277
4,330
2,165
The Company reviews goodwill and intangible assets at least annually for possible impairment. Goodwill and intangible assets are reviewed for possible
impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its
carrying value. No impairment was recorded for the years ended December 31, 2018 and 2017.
85
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Long-Lived Assets
The Company accounts for the impairment and disposition of long-lived assets in accordance with guidance issued by the FASB. Long-lived assets to
be held and used are reviewed for events or changes in circumstances that indicate that their carrying value may not be recoverable, or annually. No impairment
related to long-lived assets was recorded for the years ended December 31, 2018 and 2017.
Revenue Recognition
For contracts completed as of December 31, 2017, revenue was recognized in accordance with ASC 605 and other superseded standards. The
company applied ASU 606 using the modified retrospective approach for all contracts in process as of January 1, 2018.
Government Research Grants
Generally, government research grants that provide funding for research and development activities are recognized as income when the related
expenses are incurred, as applicable. Because the terms of the CIRM Award granted in connection with the HOPE trial allow Capricor to elect to convert the
grant into a loan after the end of the project period, the CIRM Award is being classified as a liability rather than income (see Note 6 - “Government Grant
Awards”). Grant income is due upon submission of reimbursement request. The transaction price varies for grant income based on the expenses incurred under
the awards.
Income from Collaborative Agreement
Revenue from nonrefundable, up-front license or technology access payments under license and collaborative arrangements that are not dependent on
any future performance by the Company is recognized when such amounts are earned. If the Company has continuing obligations to perform under the
arrangement, such fees are recognized over the estimated period of the continuing performance obligation.
During 2017, the Company accounted for multiple element arrangements, such as license and development agreements in which a customer may
purchase several deliverables, in accordance with FASB ASC Subtopic 605-25, Multiple Element Arrangements. For new or materially amended multiple
element arrangements, the Company identified the deliverables at the inception of the arrangement and each deliverable within a multiple deliverable revenue
arrangement was accounted for as a separate unit of accounting if both of the following criteria are met: (1) the delivered item or items have value to the
customer on a standalone basis and (2) for an arrangement that includes a general right of return relative to the delivered item(s), delivery or performance of the
undelivered item(s) is considered probable and substantially in the Company’s control. The Company allocated revenue to each non-contingent element based
on the relative selling price of each element. When applying the relative selling price method, the Company determined the selling price for each deliverable
using vendor-specific objective evidence (“VSOE”) of selling price, if it exists, or third-party evidence (“TPE”) of selling price, if it exists. If neither VSOE nor TPE
of selling price exist for a deliverable, then the Company uses the best estimated selling price for that deliverable. Revenue allocated to each element was then
recognized based on when the basic four revenue recognition criteria were met for each element.
The Company determined that the deliverables under its Collaboration Agreement with Janssen (see Note 8 – “License Agreements”) did not meet the
criteria to be considered separate accounting units for the purposes of revenue recognition. As a result, the Company recognized revenue from non-refundable,
upfront fees ratably over the term of its performance under the agreement with Janssen. The upfront payments received, pending recognition as revenue, were
recorded as deferred revenue and were classified as a short-term or long-term liability on the condensed consolidated balance sheets of the Company and
amortized over the estimated period of performance. The Company periodically reviewed the estimated performance period of its contract based on the
estimated progress of its project. As of June 30, 2017, the full amount of income has been recognized under the Janssen Agreement and the Janssen
Agreement terminated.
86
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CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Miscellaneous Income
Revenue is recognized in connection with the delivery of doses which were developed as part of our past R&D efforts. Income is recorded when the
Company has satisfied the obligations as identified in the contracts with the customer (see Note 9 – “Related Party Transactions”). Miscellaneous income is due
upon billing. Miscellaneous income is based on contracts with fixed transaction prices.
Income Taxes
Income taxes are recognized for the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets are recognized for
the future tax consequences of transactions that have been recognized in the Company's financial statements or tax returns. A valuation allowance is provided
when it is more likely than not that some portion or the entire deferred tax asset will not be realized.
The Company uses guidance issued by the FASB that clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial
statements and prescribes a recognition threshold of more likely than not and a measurement process for financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return. In making this assessment, a company must determine whether it is more likely than not that a tax
position will be sustained upon examination, based solely on the technical merits of the position, and must assume that the tax position will be examined by
taxing authorities.
As of December 31, 2018, the Company had federal net operating loss carryforwards of approximately $89.4 million, available to reduce future taxable
income, of which $76.1 million will begin to expire in 2026. The 2018 net operating loss generated of $13.3 million will carryforward indefinitely, but may be
subject to an 80% limitation upon utilization. As of December 31, 2018, the Company had state net operating loss carryforwards of approximately $84.6 million,
available to reduce future taxable income, which will begin to expire in 2028. Utilization of these net operating losses could be limited under Section 382 of the
Internal Revenue Code of 1986, as amended (the “Code”), and similar state laws based on ownership changes and the value of the Company’s stock.
Additionally, currently, the Company has approximately $1.4 million of federal research and development credits and approximately $2.3 million of federal orphan
drug credits, available to offset future taxable income. These federal research and development and orphan drug credits begin to expire in 2027 and 2035,
respectively.
Under Section 382 of the Code, the Company’s ability to utilize NOL carryforwards or other tax attributes, such as federal tax credits, in any taxable year
may be limited if the Company has experienced an “ownership change.” Generally, a Section 382 ownership change occurs if one or more stockholders or
groups of stockholders who owns at least 5% of a corporation’s stock increases its ownership by more than 50 percentage points over its lowest ownership
percentage within a specified testing period. Similar rules may apply under state tax laws. We have experienced an ownership change that we believe under
Section 382 of the Code will result in limitation in our ability to utilize net operating losses and credits. In addition, the Company may experience future ownership
changes as a result of future offerings or other changes in ownership of its stock. As a result, the amount of the NOLs and tax credit carryforward presented in
the financial statement could be limited and may expire unutilized. The Company’s net operating loss carryforwards are subject to Internal Revenue Service
(“IRS”) examination until they are fully utilized and such tax years are closed.
The Company’s policy is to include interest and penalties related to unrecognized tax benefits in income tax expense. The Company incurred no interest
or penalties for the years ended December 31, 2018 and 2017. The Company files income tax returns with the IRS and the California Franchise Tax Board.
Loan Payable
The Company accounted for the funds advanced under the CIRM Loan Agreement as a loan payable as the eventual repayment of the loan proceeds or
forgiveness of the loan was contingent upon certain milestones being met and other conditions (see Note 2 – “Loan Payable”). On November 17, 2017, the
Company gave notice to CIRM that it was electing to abandon the CIRM-funded project pursuant to the Loan Agreement and on December 11, 2017, Capricor
and CIRM entered into Amendment No. 3 to the CIRM Notice of Loan Award whereby the total loan balance under the CIRM Loan Agreement has been forgiven
by CIRM thereby terminating Capricor and the Company’s obligation to repay the loan balance.
87
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CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Rent
Rent expense for the Company’s leases, which generally have escalating rental amounts over the term of the lease, is recorded on a straight-line basis
over the lease term. The difference between the rent expense and rent paid has been recorded as deferred rent in the consolidated balance sheet under
accounts payable and accrued expenses. Rent is amortized on a straight-line basis over the term of the applicable lease, without consideration of renewal
options.
Research and Development
Costs relating to the design and development of new products are expensed as research and development as incurred in accordance with FASB ASC
730-10, Research and Development . Research and development costs amounted to approximately $12.1 million and $10.8 million for the years ended
December 31, 2018 and 2017, respectively.
Comprehensive Income (Loss)
Comprehensive income (loss) generally represents all changes in stockholders’ equity during the period except those resulting from investments by, or
distributions to, stockholders. The Company’s comprehensive income (loss) was approximately $(15.2) million and $2.4 million for the years ended December
31, 2018 and 2017, respectively. The Company’s other comprehensive income (loss) is related to a net unrealized gain (loss) on marketable securities. For the
years ended December 31, 2018 and 2017, the Company’s other comprehensive gain was $773 and $8,096, respectively.
Stock-Based Compensation
The Company accounts for stock-based employee compensation arrangements in accordance with guidance issued by the FASB, which requires the
measurement and recognition of compensation expense for all share-based payment awards made to employees, consultants, and directors based on estimated
fair values.
The Company estimates the fair value of stock-based compensation awards on the date of grant using an option-pricing model. The value of the portion
of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company’s statements of operations. The
Company estimates the fair value of stock-based compensation awards using the Black-Scholes model. This model requires the Company to estimate the
expected volatility and value of its common stock and the expected term of the stock options, all of which are highly complex and subjective variables. The
variables take into consideration, among other things, actual and projected stock option exercise behavior. For employees and directors, the expected life was
calculated based on the simplified method as described by the SEC Staff Accounting Bulletin No. 110, Share-Based Payment. For other service providers, the
expected life was calculated using the contractual term of the award. The Company's estimate of expected volatility was based on the historical stock price of
the Company. The Company has selected a risk-free rate based on the implied yield available on U.S. Treasury securities with a maturity equivalent to the
expected term of the options.
88
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CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Earnings (Loss) per Share
The Company reports earnings per share in accordance with FSAB ASC 260-10, Earnings per Share. Basic earnings (loss) per share is computed by
dividing income (loss) available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings
(loss) per share is computed similarly to basic earnings (loss) per share except that the denominator is increased to include the number of additional common
shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The components of
basic and diluted earnings (loss) per share for the years ended December 31, 2018 and 2017 were as follows:
Numerator
Net income (loss)
Denominator
December 31, 2018 December 31, 2017
$
(15,191,095) $
2,431,423
Weighted-average number of common shares outstanding
Dilutive effect of stock options
29,410,973
-
23,193,278
3,594,798
Common stock and common stock equivalents used for diluted earnings
(loss) per share
29,410,973
26,788,076
Fair Value Measurements
Assets and liabilities recorded at fair value in the balance sheet are categorized based upon the level of judgment associated with the inputs used to
measure their fair value. The categories are as follows:
Level Input:
Level I
Level II
Level III
Input Definition:
Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.
Inputs, other than quoted prices included in Level I, that are observable for the asset or liability through corroboration
with market data at the measurement date.
Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset
or liability at the measurement date.
The following tables summarize the fair value measurements by level for assets and liabilities measured at fair value on a recurring basis:
Marketable Securities
Marketable Securities
December 31, 2018
Level I
Level II
Level III
$
2,997,150 $
- $
Total
2,997,150
- $
December 31, 2017
Level I
Level II
Level III
$
7,984,800 $
- $
Total
7,984,800
- $
Carrying amounts reported in the balance sheet of cash and cash equivalents, grants receivable, accounts payable and accrued expenses approximate
fair value due to their relatively short maturity. The carrying amounts of the Company’s marketable securities are based on market quotations from national
exchanges at the balance sheet date. Interest and dividend income are recognized separately on the income statement based on classifications provided by the
brokerage firm holding the investments. The fair value of borrowings is not considered to be significantly different from its carrying amount because the stated
rates for such debt reflect current market rates and conditions.
89
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CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”).
ASU 2014-09 amended the existing accounting standards for revenue recognition. ASU 2014-09 establishes principles for recognizing revenue based on the
value of transferred goods or services as they occur in the contract. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and
uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from
costs incurred to obtain or fulfill a contract. The Company adopted ASU 2014-09 and all subsequent updates related to this topic in the first quarter of 2018 using
the modified retrospective approach. The adoption of this ASU was applied to only those contracts that were not completed upon the initial application. The
adoption of this update did not have a material impact on the Company’s financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”), which supersedes existing guidance on accounting for leases
in Leases (Topic 840) and issued additional clarification throughout 2018. Under the new guidance, a lessee should recognize assets and liabilities that arise
from its leases and disclose qualitative and quantitative information about its leasing arrangements. The Company expects to elect the optional transition method
to apply the standard as of January 1, 2019 the effective date and therefore, it will not apply the standard to comparative periods. The Company will not apply
the recognition requirements to short-term leases and will recognize those lease payments in the Consolidated Statements of Operations on a straight-line basis
over the lease term. The Company also expects to elect the available package of practical expedients in transition which would allow it to not re-assess whether
existing or expired arrangements contain a lease, the lease classification of existing or expired leases, or whether previous initial direct costs would qualify for
capitalization under the new lease standard. The Company continues to finalize the impact of the ASU on its processes, disclosures, and internal controls over
financial reporting. Based on the procedures performed to date, the Company does not expect to record any cumulative-effect impact through retained earnings
on the adoption date.
In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment
Accounting, which simplifies several aspects of the accounting for nonemployee share-based payment transactions resulting from expanding the scope of Topic
718 to include share-based payment transactions for acquiring goods and services from nonemployees. The Company early adopted ASU 2018-07 and all
subsequent updates related to this topic on a prospective basis effective July 1, 2018. The adoption of this update did not have a material impact on the
Company’s financial statements.
In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): clarifying the interaction between Topic 808 and Topic 606.
The amendments in the update clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under
Topic 606 when the collaborative arrangement participant is a customer in the context of a unit of account; adds unit-of-account guidance in Topic 808 to align
with the guidance in Topic 606 when an entity is assessing whether the collaborative arrangement or a party of the arrangement is within the scope of Topic 606;
requires that in a transaction with a collaborative arrangement participant that is not directly related to sales to third parties, presenting the transaction together
with revenue recognized under Topic 606 is precluded if the collaborative arrangement participant is not a customer. The amendments for this update are
effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently
evaluating the impact of the new guidance on our consolidated financial statements.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public
Accountants, and the SEC, did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial
statement presentation or disclosures.
2. LOAN PAYABLE
On February 5, 2013, the Company entered into the CIRM Loan Agreement, pursuant to which CIRM agreed to disburse approximately $19.8 million to
the Company over a period of approximately three and one-half years to support Phase II of our ALLSTAR clinical trial. Under the CIRM Loan Agreement, the
Company was required to repay the CIRM loan with interest at maturity. So long as the Company was not in default, the Loan Agreement had provisions
allowing for forgiveness of the debt after the end of the project period, if the Company elected to abandon the project under certain circumstances.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017
2. LOAN PAYABLE (Continued)
On November 17, 2017, the Company gave notice to CIRM that it was electing to abandon the CIRM-funded project pursuant to the Loan Agreement.
On December 11, 2017, Capricor and CIRM entered into Amendment No. 3 to the CIRM Notice of Loan Award whereby the total loan balance consisting of
principal and accrued interest under the CIRM Loan Agreement has been forgiven by CIRM thereby terminating Capricor and the Company’s obligation to repay
the loan balance. The Company has classified the forgiveness of the loan payable consisting of principal and accrued interest of approximately $15.7 million as
“other income” in our Consolidated Statement of Operations and Comprehensive Income (Loss) for the period ending December 31, 2017. The decision to
terminate the Loan Award and forgive the loan balance was due to the abandonment of the ALLSTAR project at the end of the project period in accordance with
Section 4.10 of the Loan Agreement and Article VII, Section I of the CIRM Loan Administration Policy.
For the years ended December 31, 2018 and 2017, interest expense under the CIRM loan was zero and $398,807, respectively.
3. STOCKHOLDER’S EQUITY
March 2017 Common Stock Sales Agreement
On March 31, 2017, the Company entered into a Sales Agreement with Wainwright, under which the Company from time to time, issued and sold
shares of its common stock through Wainwright as sales agent in an at-the-market offering under a prospectus supplement for aggregate sales proceeds of $5.0
million (the “March 2017 ATM Program”). The common stock was distributed at the market prices prevailing at the time of sale. The Company sold an aggregate
of 2,589,078 common shares under the March 2017 ATM Program at an average price of approximately $1.93 per common share for gross proceeds of
approximately $5.0 million. The Company paid 3.0% cash commission on the gross proceeds, plus reimbursement of expenses of the placement agent and
legal fees in the aggregate amount of approximately $0.2 million. The March 2017 ATM Program became fully utilized in October 2017.
May 2017 Financing
On May 5, 2017, the Company entered into Subscription Agreements with certain accredited investors (the “Investors”), pursuant to which the Company
agreed to issue and sell to the investors, in a private placement (the “Private Placement”), an aggregate of 1,196,291 shares of its common stock, par value
$0.001 per share, at a price per share of $3.10 for an aggregate purchase price of approximately $3.7 million. This placement included participation from some
of the Company’s directors.
In connection with the Private Placement, the Company also entered into a Registration Rights Agreement with the Investors. Pursuant to the terms of
the Registration Rights Agreement, the Company was obligated (i) to prepare and file with the SEC a registration statement to register for resale the shares
issued in the Private Placement, and (ii) to use its reasonable best efforts to cause the registration statement to be declared effective by the SEC as soon as
practicable, in each case subject to certain deadlines. The Company would have been required to pay to each Investor liquidated damages equal to 1.0% of the
aggregate purchase price paid by such Investor pursuant to the Subscription Agreements for the shares per month (up to a cap of 10.0%) if it had not met
certain obligations with respect to the registration of the shares, subject to certain conditions. Pursuant to its obligations under the Registration Rights
Agreement, the Company registered for resale the shares issued in the Private Placement pursuant to a registration statement on Form S-3 (File No. 333-
219188), which was filed with the SEC on July 7, 2017 and declared effective on July 17, 2017.
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CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017
3. STOCKHOLDER’S EQUITY (Continued)
October 2017 Common Stock Sales Agreement
On October 19, 2017, the Company entered into the October Sales Agreement with Wainwright, establishing the October 2017 ATM Program. The
common stock sold in the October 2017 ATM Program will be distributed at the market prices prevailing at the time of sale. The October Sales Agreement
provides that Wainwright will be entitled to compensation for its services at a commission rate of 3.0% of the gross sales price per share of common stock sold
plus reimbursement of certain expenses. During 2018, the Company sold an aggregate of 4,687,021 shares under the October 2017 ATM Program at an
average price of approximately $1.48 per common share for net proceeds of approximately $6.7 million. From the inception of the October 2017 ATM Program
through March 28, 2019, the Company sold an aggregate of 7,986,741 shares under the October 2017 ATM Program at an average price of approximately
$1.40 per common share for net proceeds of approximately $10.8 million (see Note 10 – “Subsequent Events”). The Company paid 3.0% cash commission on
the gross proceeds, plus reimbursement of expenses of the placement agent and legal fees in the aggregate amount of approximately $0.3 million.
Outstanding Shares
At December 31, 2018, the Company had 31,387,729 shares of common stock issued and outstanding.
4. STOCK AWARDS, WARRANTS AND OPTIONS
Warrants
The following table summarizes all warrant activity for the years ended December 31, 2018 and 2017:
Outstanding at January 1, 2017
Expired
Outstanding at December 31, 2017
Expired
Outstanding at December 31, 2018
Warrants
Weighted Average
Exercise Price
4.01
2.27
4.01
2.27
4.50
1,081,903 $
(187)
1,081,716 $
(235,643)
846,073 $
The following table summarizes all outstanding warrants to purchase shares of the Company’s common stock:
Grant Date
December 31,
2018
December 31,
2017
Exercise Price
per Share
Expiration
Date
Warrants Outstanding
11/20/2013
3/16/2016
-
846,073
846,073
235,643 $
846,073 $
1,081,716
2.27 11/20/2018
3/16/2019
4.50
Restricted Stock
In December 2017, the Company entered into an agreement with a consulting firm pursuant to which the Company agreed to grant 12,500 shares of
restricted stock, which fully vested in February 2018 upon completion of services. In June 2018, the Company granted the consulting firm an additional 16,666
shares of restricted stock which was fully vested. Furthermore, in June 2018, the Company agreed that at the end of December 2018, Capricor will issue 4,166
shares of restricted stock for each full month during which services were performed from and after June 2018. The 54,162 shares of restricted stock issued by
the Company during 2018 was valued at $56,497. The fair value of the restricted stock was determined using the Company’s closing stock price on the
respective grant dates.
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CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017
4. STOCK AWARDS, WARRANTS AND OPTIONS (Continued)
Stock Options
The Company’s Board of Directors (the “Board”) has approved three stock option plans: (i) the 2006 Stock Option Plan, (ii) the 2012 Restated Equity
Incentive Plan (which superseded the 2006 Stock Option Plan) (the “2012 Plan”), and (iii) the 2012 Non-Employee Director Stock Option Plan (the “2012 Non-
Employee Director Plan”).
At the time the merger between Capricor and Nile became effective, 4,149,710 shares of common stock were reserved under the 2012 Plan for the
issuance of stock options, stock appreciation rights, restricted stock awards and performance unit/share awards to employees, consultants and other service
providers. Included in the 2012 Plan are the shares of common stock that were originally reserved under the 2006 Stock Option Plan. Under the 2012 Plan, each
stock option granted will be designated in the award agreement as either an incentive stock option or a nonstatutory stock option. Notwithstanding such
designation, however, to the extent that the aggregate fair market value of the shares with respect to which incentive stock options are exercisable for the first
time by the participant during any calendar year (under all plans of the Company and any parent or subsidiary) exceeds $100,000, such options will be treated
as nonstatutory stock options.
On June 2, 2016 at the Company’s annual stockholder meeting, the stockholders approved a proposal to amend the 2012 Plan, to, among other things,
increase the number of shares of common stock of the Company that may be issued under the 2012 Plan to equal the sum of 4,149,710 plus 2% of the
outstanding shares of common stock as of December 31, 2015, with the number of shares that may be issued under the 2012 Plan automatically increasing
thereafter on January 1 of each year, commencing with January 1, 2017, by 2% of the outstanding shares of common stock as of the last day of the immediately
preceding fiscal year (rounded down to the nearest whole share). Additionally, in connection with the proposed increase in the total number of shares of
common stock that may be issued under the 2012 Plan, the Company increased the number of shares of common stock that may be issued pursuant to options
that are intended to qualify as incentive stock options from 4,149,710 shares to 4,474,809 shares. The Third Amendment to the 2012 Plan provided that an
additional 325,099 shares be added to the 2012 Plan for the fiscal year 2016. In addition, for the fiscal years beginning on January 1, 2019 and 2018, the
amount of shares that were added was equal to 627,754 and 525,409 shares, respectively.
At the time the merger between Capricor and Nile became effective, 2,697,311 shares of common stock were reserved under the 2012 Non-Employee
Director Plan for the issuance of stock options to members of the Board who are not employees of the Company.
Each of the Company’s stock option plans are administered by the Board, or a committee appointed by the Board, which determines the recipients and
types of awards to be granted, as well as the number of shares subject to the awards, the exercise price and the vesting schedule. Currently, stock options are
granted with an exercise price equal to the closing price of the Company’s common stock on the date of grant, and generally vest over a period of one to four
years. The term of stock options granted under each of the plans cannot exceed ten years.
The estimated weighted average fair value of the options granted during 2018 and 2017 were approximately $1.31 and $1.83 per share, respectively.
The Company estimates the fair value of each option award using the Black-Scholes option-pricing model. The Company used the following
assumptions to estimate the fair value of stock options issued in the years ended December 31, 2018 and 2017:
Expected volatility
Expected term
Dividend yield
Risk-free interest rates
December 31, 2018
December 31, 2017
137% - 145 %
5-6 years
0%
2.3% - 3.0%
78% - 278%
5-10 years
0%
2.0% - 2.3%
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017
4. STOCK AWARDS, WARRANTS AND OPTIONS (Continued)
Employee and non-employee stock-based compensation expense for the years ended December 31, 2018 and 2017 was as follows:
General and administrative
Research and development
Total
2018
2017
$ 1,158,904 $ 1,194,065
516,633
$ 1,669,093 $ 1,710,698
510,189
The Company does not recognize an income tax benefit as the Company believes that an actual income tax benefit may not be realized. For non-
qualified stock options, the loss creates a timing difference, resulting in a deferred tax asset, which is fully reserved by a valuation allowance.
Common stock, stock options or other equity instruments issued to non-employees (including consultants) as consideration for goods or services
received by the Company are accounted for based on the fair value of the equity instruments issued. The fair value of stock options is determined using the
Black-Scholes option-pricing model. Historically, the Company periodically re-measured the fair value for non-qualified option grants recording an expense over
the applicable vesting periods. However, in the third quarter of 2018, the Company early adopted ASU 2018-07. The Company calculates the fair value for non-
qualified options as of the date of grant and expenses over the applicable vesting periods. We account for estimated forfeitures at the date of grant.
The following table summarizes information about stock options outstanding and exercisable at December 31, 2018:
Range of Ex. Prices
$0.19 - $0.37
$1.05 - $3.58
$4.34 - $5.78
Range of Ex. Prices
$0.19 - $0.37
$1.05 - $3.58
$4.34 - $5.78
Options Outstanding
Options Outstanding
Weighted Average
Term (yrs.)
Weighted Average
Exercise Price
0.36
2.23
5.27
3.38 $
7.52
5.15
Weighted Average
Exercise Price
0.36
2.60
5.28
3.38 $
6.36
5.10
3,971,612
2,009,013
1,032,515
7,013,140
3,971,612
1,082,078
974,131
6,027,821
Options Exercisable
Options Exercisable
Weighted Average
Term (yrs.)
As of December 31, 2018, the total unrecognized fair value compensation cost related to non-vested stock options was approximately $1.4 million,
which is expected to be recognized over a weighted average period of approximately 1.3 years.
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CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017
4. STOCK AWARDS, WARRANTS AND OPTIONS (Continued)
The following is a schedule summarizing employee and non-employee stock option activity for the years ended December 31, 2018 and 2017:
Number of
Options
Weighted Average
Aggregate
Intrinsic Value
Outstanding at January 1, 2017
Granted
Exercised
Expired/Cancelled
Outstanding at December 31, 2017
Granted
Exercised
Expired/Cancelled
Outstanding at December 31, 2018
Exercisable at December 31, 2018
6,608,382 $
620,131
(62,244)
(292,366)
6,873,903 $
994,678
(376,055)
(479,386)
7,013,140 $
6,027,821 $
Exercise Price
1.62
2.59
0.16
3.88
1.62
1.42
0.37
2.28
1.62 $
1.56 $
207,239
207,239
The aggregate intrinsic value represents the difference between the exercise price of the options and the estimated fair value of the Company’s
common stock for each of the respective periods.
The aggregate intrinsic value of options exercised was $521,678 and $117,849 for the years ended December 31, 2018 and 2017, respectively.
5. CONCENTRATIONS
Cash Concentration
The Company has historically maintained checking accounts at two financial institutions. These accounts are each insured by the Federal Deposit
Insurance Corporation for up to $250,000. Historically, the Company has not experienced any significant losses in such accounts and believes it is not exposed
to any significant credit risk on cash, cash equivalents and marketable securities. As of December 31, 2018, the Company maintained approximately $7.4 million
of uninsured deposits.
6. GOVERNMENT GRANT AWARDS
CIRM Grant Award (HOPE)
On June 16, 2016, Capricor entered into the CIRM Award with CIRM in the amount of approximately $3.4 million to fund, in part, Capricor’s Phase I/II
HOPE-Duchenne clinical trial investigating CAP-1002 for the treatment of Duchenne muscular dystrophy-associated cardiomyopathy. Pursuant to terms of the
CIRM Award, the disbursements were tied to the achievement of specified operational milestones. If CIRM determines, in its sole discretion, that Capricor has
not complied with the terms and conditions of the CIRM Award, CIRM may suspend or permanently cease disbursements or pursue other remedies as allowed
by law. In addition, the terms of the CIRM Award include a co-funding requirement pursuant to which Capricor is required to spend approximately $2.3 million of
its own capital to fund the CIRM funded research project. If Capricor fails to satisfy its co-funding requirement, the amount of the CIRM Award may be
proportionately reduced. The CIRM Award is further subject to the conditions and requirements set forth in the CIRM Grants Administration Policy for Clinical
Stage Projects. Such requirements include, without limitation, the filing of quarterly and annual reports with CIRM, the sharing of intellectual property pursuant to
Title 17, California Code of Regulations (CCR) Sections 100600-100612, and the sharing with the State of California of a fraction of licensing revenue received
from a CIRM funded research project and net commercial revenue from a commercialized product which resulted from the CIRM funded research as set forth in
Title 17, CCR Section 100608. The maximum royalty on net commercial revenue that Capricor may be required to pay to CIRM is equal to nine times the total
amount awarded and paid to Capricor.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017
6. GOVERNMENT GRANT AWARDS (Continued)
After completing the CIRM funded research project and after the award period end date, estimated to be in 2019, Capricor has the right to convert the
CIRM Award into a loan, the terms of which will be determined based on various factors, including the stage of the research and development of the program at
the time the election is made. On June 20, 2016, Capricor entered into a Loan Election Agreement with CIRM whereby, among other things, CIRM and Capricor
agreed that if Capricor elects to convert the grant into a loan, the term of the loan would be five years from the date of execution of the applicable loan
agreement; provided that the term of the loan will not exceed ten years from the date on which the CIRM Award was granted. Beginning on the date of the loan,
the loan shall bear interest on the unpaid principal balance, plus the interest that has accrued prior to the election point according to the terms set forth in CIRM’s
Loan Policy (the “New Loan Balance”), at a per annum rate equal to the LIBOR rate for a three-month deposit in U.S. dollars, as published by the Wall Street
Journal on the loan date, plus one percent. Interest shall be compounded annually on the outstanding New Loan Balance commencing with the loan date and
the interest shall be payable, together with the New Loan Balance, upon the due date of the loan. If Capricor elects to convert the CIRM Award into a loan,
certain requirements of the CIRM Award will no longer be applicable, including the revenue sharing requirements. Capricor has not yet made its decision as to
whether it will elect to convert the CIRM Award into a loan. Since Capricor may be required to repay some or all of the amounts awarded by CIRM, the
Company accounts for this award as a liability rather than income.
In 2016, Capricor received $3.1 million under the terms of the CIRM Award. In September 2017, the Company completed the second operational
milestone tied to the last patient completing one year of follow-up, for which approximately $0.3 million was received by Capricor in November 2017. As of
December 31, 2018, the Company’s liability balance for the CIRM Award was $3.4 million, of which approximately $0.3 million is recorded as restricted cash,
due to the fact that Capricor is required to expend approved project costs in order to use these funds.
On August 8, 2017, we entered into an Amendment to the CIRM Notice of Award pursuant to which CIRM approved the Company’s request to use the
remaining estimated project funds of the CIRM Award for technology transfer activities in support of the manufacture of CAP-1002 to a designated contract
manufacturing organization (“CMO”) which will help enable Capricor to offer access to CAP-1002 to patients from the control arm of the HOPE-Duchenne trial
via an open-label extension protocol. On September 7, 2018, we entered into an Amendment to the CIRM Notice of Award pursuant to which CIRM added an
additional operational milestone which would be satisfied by completion of certain activities related to technology transfer. On January 23, 2019, we entered into
an Amendment to the CIRM Notice of Award pursuant to which CIRM added an additional operational milestone which would be satisfied by completion of
certain activities related to the HOPE-OLE clinical trial.
NIH Grant Award (HLHS)
In September 2016, Capricor was approved for a grant from the NIH to study CAP-2003 (cardiosphere-derived cell exosomes) for hypoplastic left heart
syndrome (HLHS). Under the terms of the NIH grant, disbursements will be made to Capricor in an amount up to approximately $4.2 million, subject to annual
and quarterly reporting requirements as well as completion of the study objectives. As of December 31, 2018, approximately $0.7 million has been incurred
under the terms of the NIH grant award. At this time, we are in the process of closing out this grant award, subject to completing customary close-out
documentation with no additional expenses expected to be incurred.
U.S. Department of Defense Grant Award
In September 2016, Capricor was approved for a grant award from the Department of Defense in the amount of approximately $2.4 million to be used
toward developing a scalable, commercially-ready process to manufacture CAP-2003. Under the terms of the award, disbursements will be made to Capricor
over a period of approximately three years, subject to annual and quarterly reporting requirements. As of December 31, 2018, approximately $1.7 million has
been incurred under the terms of the award.
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CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017
7. COMMITMENTS AND CONTINGENCIES
Leases
Capricor leases space for its corporate offices pursuant to a lease that was originally effective for a two-year period beginning July 1, 2013 with an
option to extend the lease for an additional twelve months. On May 25, 2016, Capricor entered into a Third Amendment to Lease (the “Third Lease
Amendment”) with The Bubble Real Estate Company, LLC. Under the terms of the Third Lease Amendment, the lease term extension commenced on July 1,
2016 and was to end on December 31, 2018. The base rent increased to $22,995 per month for the first twelve months of the term, commencing July 1, 2016,
increased to $23,915 per month for the second twelve months of the term, commencing July 1, 2017, and, thereafter, increased to $24,872 per month for the
remainder of the lease term, commencing July 1, 2018. On January 11, 2019, Capricor entered into a Fourth Amendment to Lease (the “Fourth Lease
Amendment”) with The Bubble Real Estate Company, LLC (see Note 10 – “Subsequent Events”).
The Facilities Lease which Capricor entered into with CSMC is for a term of three years commencing June 1, 2014 and replaced the month-to-month
lease that was previously in effect between CSMC and Capricor. The monthly lease payment under the Facilities Lease was $15,461 per month for the first six
months of the term and increased to $19,350 per month for the remainder of the term. The amount of rent expense is subject to annual adjustments according to
increases in the Consumer Price Index. The Facilities Lease expired on May 31, 2017 and transitioned to a month-to-month tenancy. On August 10, 2017, the
Company and CSMC entered into the First Amendment to the Facilities Lease effective August 1, 2017 (the “First Amendment”) pursuant to which the term of
the Facilities Lease was extended for an additional 12-month period, and the Company was granted an option to further extend the term for an additional 12-
month period thereafter through July 31, 2019. Under the First Amendment, the total monthly rent increased from $19,350 to $19,756. In addition, pursuant to
the First Amendment, the premises covered by the Facilities Lease now also include the manufacturing facility currently being utilized by Capricor. In lieu of
further increasing the monthly rental payment set forth in the First Amendment, the Company has also agreed to provide doses of CAP-1002 for use in CSMC’s
clinical trials for a negotiated amount of monetary compensation. On July 19, 2018, the Company exercised its option to extend the term of the Facilities Lease
with CSMC for an additional 12-month period through July 31, 2019. The monthly lease payment for the extended term will remain at $19,756. On September 7,
2018, Capricor entered into a Second Amendment to the CSMC Facilities Lease pursuant to which Capricor was granted two consecutive 1-year options to
extend the term of the Facilities Lease through July 31, 2021. We are planning to enter into a Third Amendment to the CSMC Facilities Lease reducing the
square footage of the leased premises, which would result in a rent reduction of approximately $4,000 per month.
In addition, the Company entered into a month-to-month lease agreement with University Center Lane Tenant, LLC, pursuant to which the Company
leased office space located in San Diego, California. The lease commenced March 1, 2018 and the rental payment was $4,190 per month. Subsequent to
December 31, 2018, the Company terminated the lease which ended on February 28, 2019.
Unless renewed, each of the leases described above will not be in effect for fiscal year 2020. Included within the table below, future minimum rental
payments to related parties totaled approximately $138,292. A summary of future minimum rental payments required under operating leases as of December 31,
2018 is as follows:
Years ended
2019
Operating Leases
$
138,292
Expenses incurred under operating leases to unrelated parties for the years ended December 31, 2018 and 2017 were approximately $332,640 and
$284,861, respectively. Expenses incurred under operating leases to related parties for each of the years ended December 31, 2018 and 2017 were
approximately $237,072 and $230,989, respectively.
Legal Contingencies
The Company is not a party to any material legal proceedings at this time. From time to time, the Company may become involved in various legal
proceedings that arise in the ordinary course of its business or otherwise.
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CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017
8. LICENSE AGREEMENTS
Capricor’s Technology - CAP-1002, CAP-1001, CSps and Exosomes
Capricor has entered into exclusive license agreements for intellectual property rights related to certain cardiac-derived cells with Università Degli Studi
Di Roma La Sapienza (the “University of Rome”), The Johns Hopkins University (“JHU”) and CSMC. In addition, Capricor has filed patent applications related to
the technology developed by its own scientists.
University of Rome License Agreement
Capricor and the University of Rome entered into a License Agreement, dated June 21, 2006 (the “Rome License Agreement”), which provides for the
grant of an exclusive, world-wide, royalty-bearing license by the University of Rome to Capricor (with the right to sublicense) to develop and commercialize
licensed products under the licensed patent rights in all fields. Capricor has a right of first negotiation, for a certain period of time, to obtain a license to any new
and separate patent applications owned by the University of Rome utilizing cardiac stem cells in cardiac care.
Pursuant to the Rome License Agreement, Capricor paid the University of Rome a license issue fee, is currently paying minimum annual royalties in the
amount of 20,000 Euros per year, and is obligated to pay a lower-end of a mid-range double-digit percentage on all royalties received as a result of sublicenses
granted, which are net of any royalties paid to third parties under a license agreement from such third party to Capricor. The minimum annual royalties are
creditable against future royalty payments.
The Rome License Agreement will, unless extended or sooner terminated, remain in effect until the later of the last claim of any patent or until any patent
application comprising licensed patent rights has expired or been abandoned. Under the terms of the Rome License Agreement, either party may terminate the
agreement should the other party become insolvent or file a petition in bankruptcy. Either party may terminate the agreement upon the other party’s material
breach, provided that the breaching party will have up to 90 days to cure its material breach. Capricor may also terminate for any reason upon 90 days’ written
notice to the University of Rome.
The Johns Hopkins University License Agreement
Capricor and JHU entered into an Exclusive License Agreement, effective June 22, 2006 (the “JHU License Agreement”), which provides for the grant of
an exclusive, world-wide, royalty-bearing license by JHU to Capricor (with the right to sublicense) to develop and commercialize licensed products and licensed
services under the licensed patent rights in all fields and a nonexclusive right to the know-how. In May 2009, the JHU License Agreement was amended to add
additional patent rights to the JHU License Agreement in consideration of a payment to JHU and reimbursement of patent costs. Capricor and JHU executed a
Second Amendment to the JHU License Agreement, effective as of December 20, 2013, pursuant to which, among other things, certain definitions were added
or amended, the timing of certain obligations was revised and other obligations of the parties were clarified. Under the JHU License Agreement, Capricor is
required to exercise commercially reasonable and diligent efforts to develop and commercialize licensed products covered by the licenses from JHU.
Pursuant to the JHU License Agreement, JHU was paid an initial license fee and, thereafter, Capricor is required to pay minimum annual royalties on the
anniversary dates of the JHU License Agreement. The minimum annual royalties range from $5,000 on the first and second anniversary dates to $20,000 on the
tenth anniversary date and thereafter. The minimum annual royalties are creditable against a low single-digit running royalty on net sales of products and net
service revenues, which Capricor is also required to pay under the JHU License Agreement, which running royalty may be subject to further reduction in the
event that Capricor is required to pay royalties on any patent rights to third parties in order to make or sell a licensed product. In addition, Capricor is required to
pay a low double-digit percentage of the consideration received by it from sublicenses granted, and is required to pay JHU certain defined development
milestone payments upon the successful completion of certain phases of its clinical studies and upon receiving approval from the FDA. The development
milestones range from $100,000 upon successful completion of a full Phase I clinical study to $1,000,000 upon full FDA market approval and are fully creditable
against payments owed by Capricor to JHU on account of sublicense consideration attributable to milestone payments received from a sublicensee. The
maximum aggregate amount of milestone payments payable under the JHU License Agreement, as amended, is $1,850,000. In May 2015, Capricor paid the
development milestone related to Phase I that was owed to JHU pursuant to the terms of the JHU License Agreement.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017
8. LICENSE AGREEMENTS (Continued)
The JHU License Agreement will, unless sooner terminated, continue in effect in each applicable country until the date of expiration of the last to expire
patent within the patent rights, or, if no patents are issued, then for twenty years from the effective date. Under the terms of the JHU License Agreement, either
party may terminate the agreement should the other party become insolvent or file a petition in bankruptcy, or fail to cure a material breach within 30 days after
notice. In addition, Capricor may terminate for any reason upon 60 days’ written notice.
Cedars-Sinai Medical Center License Agreements
License Agreement for CDCs
On January 4, 2010, Capricor entered into an Exclusive License Agreement with CSMC (the “Original CSMC License Agreement”) for certain intellectual
property related to its CDC technology. In 2013, the Original CSMC License Agreement was amended twice resulting in, among other things, a reduction in the
percentage of sublicense fees which would have been payable to CSMC. Effective December 30, 2013, Capricor entered into an Amended and Restated
Exclusive License Agreement with CSMC (the “Amended CSMC License Agreement”) which amended, restated, and superseded the Original CSMC License
Agreement, pursuant to which, among other things, certain definitions were added or amended, the timing of certain obligations was revised and other
obligations of the parties were clarified.
The Amended CSMC License Agreement provides for the grant of an exclusive, world-wide, royalty-bearing license by CSMC to Capricor (with the right
to sublicense) to conduct research using the patent rights and know-how and develop and commercialize products in the field using the patent rights and know-
how. In addition, Capricor has the exclusive right to negotiate for an exclusive license to any future rights arising from related work conducted by or under the
direction of Dr. Eduardo Marbán on behalf of CSMC. In the event the parties fail to agree upon the terms of an exclusive license for any future rights, Capricor
will have a non-exclusive license to such future rights, subject to royalty obligations.
Pursuant to the Original CSMC License Agreement, CSMC was paid a license fee and Capricor was obligated to reimburse CSMC for certain fees and
costs incurred in connection with the prosecution of certain patent rights. Additionally, Capricor is required to meet certain spending and development
milestones. The annual spending requirements ranged from $350,000 to $800,000 each year between 2010 and 2017 (with the exception of 2014, for which
there was no annual spending requirement).
Pursuant to the Amended CSMC License Agreement, Capricor remains obligated to pay low single-digit royalties on sales of royalty-bearing products as
well as a low double-digit percentage of the consideration received from any sublicenses or other grant of rights. The above-mentioned royalties are subject to
reduction in the event Capricor becomes obligated to obtain a license from a third party for patent rights in connection with the royalty-bearing product. In 2010,
Capricor discontinued its research under some of the patents.
The Amended CSMC License Agreement will, unless sooner terminated, continue in effect on a country by country basis until the last to expire of the
patents covering the patent rights or future patent rights. Under the terms of the Amended CSMC License Agreement, unless waived by CSMC, the agreement
shall automatically terminate: (i) if Capricor ceases, dissolves or winds up its business operations; (ii) in the event of the insolvency or bankruptcy of Capricor or
if Capricor makes an assignment for the benefit of its creditors; (iii) if performance by either party jeopardizes the licensure, accreditation or tax exempt status of
CSMC or the agreement is deemed illegal by a governmental body; (iv) within 30 days for non-payment of royalties; (v) after 90 days’ notice from CSMC if
Capricor fails to undertake commercially reasonable efforts to exploit the patent rights or future patent rights; (vi) if a material breach has not been cured within
90 days; or (vii) if Capricor challenges any of the CSMC patent rights. If Capricor fails to undertake commercially reasonable efforts to exploit the patent rights or
future patent rights, and fails to cure that breach after 90 days’ notice from CSMC, instead of terminating the license, CSMC has the option to convert any
exclusive license to Capricor to a non-exclusive or co-exclusive license. Capricor may terminate the agreement if CSMC fails to cure any material breach within
90 days after notice.
On March 20, 2015, Capricor and CSMC entered into a First Amendment to the Amended CSMC License Agreement, pursuant to which the parties
agreed to delete certain patent applications from the list of scheduled patents which Capricor determined not to be material to the portfolio.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017
8. LICENSE AGREEMENTS (Continued)
On August 5, 2016, Capricor and CSMC entered into a Second Amendment to the Amended CSMC License Agreement (the “Second License
Amendment”), pursuant to which the parties agreed to add certain patent applications to the schedule of patent rights set forth in the agreement. Under the
Second License Amendment, (i) the description of scheduled patent rights has been replaced by a revised schedule that includes six additional patent
applications; (ii) Capricor paid an upfront fee of $2,500; and (iii) Capricor reimbursed CSMC approximately $10,000 for attorneys’ fees and filing fees that were
incurred in connection with the additional patent applications.
On December 26, 2017, Capricor entered into a Third Amendment to the Amended CSMC License Agreement thereby amending the CDCs License
(the “Third License Amendment”). Under the Third License Amendment, (i) the description of scheduled patent rights has been replaced by a revised schedule
that includes seven additional patent applications; and (ii) Capricor is required to reimburse CSMC approximately $50,000 for attorneys’ fees and filing fees that
were incurred in connection with the additional patent rights.
On June 20, 2018, Capricor and CSMC entered into a Fourth Amendment to the Amended CSMC License Agreement (the “Fourth License
Amendment”). Under the Fourth License Amendment, the description of scheduled patent rights has been replaced by a revised schedule that includes two
additional patent applications.
License Agreement for Exosomes
On May 5, 2014, Capricor entered into an Exclusive License Agreement with CSMC (the “Exosomes License Agreement”), for certain intellectual
property rights related to exosomes technology. The Exosomes License Agreement provides for the grant of an exclusive, world-wide, royalty-bearing license by
CSMC to Capricor (with the right to sublicense) in order to conduct research using the patent rights and know-how and to develop and commercialize products in
the field using the patent rights and know-how. In addition, Capricor has the exclusive right to negotiate for an exclusive license to any future rights arising from
related work conducted by or under the direction of Dr. Eduardo Marbán on behalf of CSMC. In the event the parties fail to agree upon the terms of an exclusive
license, Capricor shall have a non-exclusive license to such future rights, subject to royalty obligations.
Pursuant to the Exosomes License Agreement, CSMC was paid a license fee and Capricor reimbursed CSMC for certain fees and costs incurred in
connection with the preparation and prosecution of certain patent applications. Additionally, Capricor is required to meet certain non-monetary development
milestones and is obligated to pay low single-digit royalties on sales of royalty-bearing products as well as a single-digit percentage of the consideration received
from any sublicenses or other grant of rights. The above-mentioned royalties are subject to reduction in the event Capricor becomes obligated to obtain a license
from a third party for patent rights in connection with the royalty bearing product.
The Exosomes License Agreement will, unless sooner terminated, continue in effect on a country by country basis until the last to expire of the patents
covering the patent rights or future patent rights. Under the terms of the Exosomes License Agreement, unless waived by CSMC, the agreement shall
automatically terminate: (i) if Capricor ceases, dissolves or winds up its business operations; (ii) in the event of the insolvency or bankruptcy of Capricor or if
Capricor makes an assignment for the benefit of its creditors; (iii) if performance by either party jeopardizes the licensure, accreditation or tax exempt status of
CSMC or the agreement is deemed illegal by a governmental body; (iv) within 30 days for non-payment of royalties; (v) after 90 days if Capricor fails to
undertake commercially reasonable efforts to exploit the patent rights or future patent rights; (vi) if a material breach has not been cured within 90 days; or (vii) if
Capricor challenges any of the CSMC patent rights. If Capricor fails to undertake commercially reasonable efforts to exploit the patent rights or future patent
rights, and fails to cure that breach after 90 days’ notice from CSMC, instead of terminating the license, CSMC has the option to convert any exclusive license to
Capricor to a non-exclusive or co-exclusive license. Capricor may terminate the agreement if CSMC fails to cure any material breach within 90 days after notice.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017
8. LICENSE AGREEMENTS (Continued)
On February 27, 2015, Capricor and CSMC entered into a First Amendment to Exosomes License Agreement (the “First Exosomes License
Amendment”). Under the First Exosomes License Amendment, (i) the description of scheduled patent rights has been replaced by a revised schedule that
includes four additional patent applications; (ii) Capricor was required to pay CSMC an upfront fee of $20,000; (iii) Capricor was required to reimburse CSMC
approximately $34,000 for attorneys’ fees and filing fees that were incurred in connection with the additional patent rights; and (iv) Capricor is required to pay
CSMC certain defined product development milestone payments upon reaching certain phases of its clinical studies and upon receiving approval for a product
from the FDA. The product development milestones range from $15,000 upon the dosing of the first patient in a Phase I clinical trial of a product to $75,000
upon receipt of FDA approval for a product. The maximum aggregate amount of milestone payments payable under the Exosomes License Agreement, as
amended, is $190,000.
On June 10, 2015, Capricor and CSMC entered into a Second Amendment to Exosomes License Agreement, thereby amending the Exosomes License
Agreement further to add an additional patent application to the Schedule of Patent Rights.
On August 5, 2016, Capricor and CSMC entered into a Third Amendment to the Exosomes License Agreement (the “Third Exosomes License
Amendment”), pursuant to which the parties agreed to add certain patent applications to the schedule of patent rights under the agreement. Under the Third
Exosomes License Amendment, (i) the description of scheduled patent rights has been replaced by a revised schedule that includes three additional patent
applications; (ii) Capricor paid CSMC an upfront fee of $2,500; and (iii) Capricor reimbursed CSMC approximately $16,000 for attorneys’ fees and filing fees that
were incurred in connection with the additional patent applications.
On December 26, 2017, Capricor and CSMC entered into a Fourth Amendment to Exosomes License Agreement, thereby amending the Exosomes
License (the “Fourth Exosomes License Amendment”). Under the Fourth Exosomes License Amendment, (i) the description of scheduled patent rights was
replaced by a revised schedule that includes seven additional patent applications; (ii) Capricor is required to reimburse CSMC approximately $50,000 for
attorneys’ fees and filing fees that were incurred in connection with the additional patent rights; and (iii) a schedule to the Exosomes License was modified to
extend the milestone deadline for filing an IND for at least one product to December 31, 2018.
On June 20, 2018, Capricor and CSMC entered into a Fifth Amendment to the Exosomes License Agreement (the “Fifth License Amendment”). Under
the Fifth License Amendment, (i) the description of scheduled patent rights has been replaced by a revised schedule that includes four additional patent
applications; and (ii) Capricor is required to reimburse CSMC approximately $27,000 for attorneys’ fees and filing fees that were incurred in connection with the
additional patent rights.
On September 25, 2018, Capricor and CSMC entered into a Sixth Amendment to the Exosomes License Agreement (the “Sixth License Amendment”).
Under the Sixth License Amendment, the milestone deadline for filing an IND for at least one product has been extended to December 31, 2019. If the Company
does not file an IND by December 31, 2019, or negotiate an additional extension of the milestone deadline, CSMC would have the option to convert the
exclusive license to a non-exclusive license or to a co-exclusive license or terminate the license under Title 35, Section 203 of the United States Code. Prior to
exercising such option, Capricor has the opportunity to cure the failure to file an IND for a period of 90 days after its receipt of written notice from CSMC of its
intent to exercise its option.
Collaboration Agreement with Janssen Biotech, Inc.
On December 27, 2013, Capricor entered into a Collaboration Agreement and Exclusive License Option (the “Janssen Agreement”) with Janssen, a
wholly-owned subsidiary of Johnson & Johnson. Under the terms of the Janssen Agreement, Capricor and Janssen agreed to collaborate on the development of
Capricor’s cell therapy program for cardiovascular applications, including its lead product candidate, CAP-1002. Capricor and Janssen further agreed to
collaborate on the development of cell manufacturing in preparation for future clinical trials. Under the Janssen Agreement, Capricor was paid $12.5 million, and
Capricor agreed to contribute to the development of a chemistry, manufacturing and controls package. In addition, Janssen had the exclusive right to enter into
an exclusive license agreement pursuant to which Janssen would have received a worldwide, exclusive license to exploit CAP-1002 as well as certain CSps and
CDCs in the field of cardiology.
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CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017
8. LICENSE AGREEMENTS (Continued)
On June 30, 2017, Capricor was informed by Janssen that Janssen would not be exercising its exclusive option right to exploit CAP-1002 as well as
certain CSps and CDCs in the field of cardiology. Capricor has retained full rights to CAP-1002 in all indications as a result of this decision. Capricor also has an
irrevocable, fully paid-up non-exclusive license under patents controlled by Janssen utilized in the production of the clinical trial materials manufactured pursuant
to the CMC development plan between Capricor and Janssen and a non-exclusive perpetual license to publish, disclose and use the information of Janssen that
was utilized in the production of the clinical trial materials manufactured pursuant to the CMC development plan. On August 7, 2018, the Company entered into
an Exclusive License Agreement with Janssen pursuant to which Janssen granted Capricor an exclusive worldwide license to all rights to Janssen’s know-how
to exploit CDC-cells and CDC-product in the field as described in the previous Janssen Agreement.
Company’s Technology - Cenderitide and CU-NP
The Company entered into an exclusive license agreement for intellectual property rights related to natriuretic peptides with the Mayo Foundation for
Medical Education and Research (“Mayo”), a Clinical Trial Funding Agreement with Medtronic, Inc. (“Medtronic”), and a Transfer Agreement with Medtronic, all of
which also include certain intellectual property licensing provisions. In February 2017, we elected to terminate our former natriuretic peptide development
program, consisting of Cenderitide (CD-NP) and CU-NP, so as to more efficiently focus our resources and efforts on our CAP-1002 and CAP-2003 programs.
Medtronic Clinical Trial Funding Agreement
In February 2011, the Company entered into a Clinical Trial Funding Agreement with Medtronic, related to the Company’s now discontinued Cenderitide
program. Pursuant to its terms, the agreement expired in February 2012. Although the Medtronic agreement expired, there are certain provisions that survive
the expiration of the agreement, including the obligation to pay royalties on products that might be covered by the agreement. The Company and Medtronic
subsequently entered into a Transfer Agreement, described below.
Medtronic Transfer Agreement
On October 8, 2014, the Company entered into a Transfer Agreement (the “Transfer Agreement”) with Medtronic to acquire patent rights relating to the
Company’s now discontinued natriuretic peptides program. Pursuant to the Transfer Agreement, Medtronic assigned to the Company all of its right, title and
interest in all natriuretic peptide patents and patent applications previously owned by Medtronic or co-owned by Medtronic and the Company (the “Natriuretic
Peptide Patents”).
In light of the Company’s decision to terminate its development program with respect to natriuretic peptides, the Company elected to cease prosecution
of all of the Natriuretic Peptide Patents and has offered to reassign to Medtronic rights to certain patent applications obtained through the Transfer Agreement.
Medtronic elected not to take a reassignment of the patent rights.
9. RELATED PARTY TRANSACTIONS
Lease and Sub-Lease Agreement
As noted above, Capricor is a party to lease agreements with CSMC, which holds more than 10% of the outstanding capital stock of Capricor
Therapeutics (see Note 7 – “Commitments and Contingencies”), and CSMC has served as an investigative site in Capricor’s clinical trials. Additionally, Dr.
Eduardo Marbán, who holds approximately 10% of the outstanding capital stock of Capricor Therapeutics and participates as an observer at the Company’s
meetings of the Board of Directors, is the Director of the Cedars-Sinai Smidt Heart Institute, a co-founder of Capricor and the Chairman of the Company’s
Scientific Advisory Board.
On April 1, 2013, Capricor entered into a sublease with Reprise Technologies, LLC, a limited liability company which is wholly owned by Dr. Frank
Litvack, the Company’s Executive Chairman and member of its Board of Directors, for $2,500 per month. The sublease is on a month-to-month basis. For both
the years ended December 31, 2018 and 2017, Capricor recognized $30,000 in sublease income from the related party. Sublease income is recorded as a
reduction to general and administrative expenses.
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CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017
9. RELATED PARTY TRANSACTIONS (Continued)
Consulting Agreements
Effective January 1, 2013, Frank Litvack, the Company’s Executive Chairman and a member of its Board of Directors, entered into an oral Consulting
Agreement with Capricor whereby Capricor agreed to pay Dr. Litvack fees of $10,000 per month for consulting services. On March 24, 2014, Capricor entered
into a written Consulting Agreement with Dr. Litvack memorializing the $10,000 per month compensation arrangement described above. The agreement is
terminable upon 30 days’ notice. Additionally, beginning in 2016, Capricor retained the services of Lit Digital Media, LLC whose sole member is Harry Litvack,
the son of Frank Litvack. Lit Digital Media provides services to the Company related to social media and public relations, and the Company pays Lit Digital Media
approximately $1,500 per month for such services. On January 31, 2019, we terminated the services of Lit Digital Media.
Payables to Related Party
At December 31, 2018 and 2017, the Company had accounts payable and accrued expenses to related parties totaling $106,366 and $174,424,
respectively. CSMC accounts for $100,191 and $160,566 of the total accounts payable and accrued expenses to related parties as of December 31, 2018 and
2017, respectively. CSMC expenses relate to research and development and clinical trial costs. During the years ended December 31, 2018 and 2017, the
Company paid CSMC approximately $400,000 and $900,000, respectively, for such costs.
Related Party Clinical Trials
Capricor has agreed to provide cells for investigational purposes in two clinical trials sponsored by CSMC. These cells were developed as part of the
Company’s past research and development efforts. The first trial is known as “Regression of Fibrosis and Reversal of Diastolic Dysfunction in HFpEF Patients
Treated with Allogeneic CDCs.” Dr. Eduardo Marbán is the named principal investigator under the study. The second trial is known as “Pulmonary Arterial
Hypertension treated with Cardiosphere-derived Allogeneic Stem Cells.” In both studies, Capricor will provide the necessary number of doses of cells and will
receive a negotiated amount of monetary compensation which is estimated to be approximately $2.1 million over several years. For the years ended December
31, 2018 and 2017, the Company recognized approximately $700,000 and $184,000, respectively, as revenue. As of December 31, 2018, and 2017,
approximately $269,000 and $122,500, respectively, is outstanding and recorded in prepaid expenses and other current assets.
Related Party Agreement
On May 10, 2018, Capricor and TrialTech Medical, Inc., a corporation in which Dr. Frank Litvack, our Executive Chairman and a director, is a co-founder,
shareholder and chairman, entered into an agreement whereby TrialTech Medical, Inc. would provide clinical trial services to Capricor for its HOPE-2 clinical
trial. In December 2018, we ceased the use of these services. Total costs incurred under the agreement were approximately $42,600.
10. SUBSEQUENT EVENTS
Corporate Offices Lease Amendment
On January 11, 2019, Capricor entered into a Fourth Lease Amendment with The Bubble Real Estate Company, LLC. Under the terms of the Fourth
Lease Amendment, the lease term extension commenced on January 1, 2019 and will end on December 31, 2019 with a base rent of $25,867 per month. We
have agreed to deliver to the landlord an unconditional, irrevocable, transferrable letter of credit in the amount of $232,803 to cover payments of rent for the
remainder of the lease term.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017
10. SUBSEQUENT EVENTS (Continued)
October 2017 Common Stock Sales Agreement
Subsequent to December 31, 2018 and through March 28, 2019, the Company has sold an aggregate of 2,273,617 common shares under the October
2017 ATM Program at an average price of approximately $0.66 per common share for gross proceeds of approximately $1.4 million. The Company paid 3.0%
cash commission on the gross proceeds, plus reimbursement of expenses of the placement agent in the aggregate amount of approximately $45,000.
Workforce Reduction and Reduction in Salary
During January 2019, to reduce expenses and better align resources and personnel on the Company’s core lead programs, we reduced our staff by 21
full-time employees. Additionally, the board of directors approved a reduction to the annual base salary for Dr. Linda Marbán, Chief Executive Officer from
$232,909 to $150,000 per year, with the reduction being effective February 1, 2019.
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ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We have adopted and maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports
under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules
and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management
recognizes that controls and procedures, no matter how well designed and operated, cannot provide absolute assurance of achieving the desired control
objectives.
As required by Rule 13a-15(b), under the Securities Exchange Act of 1934, as amended, we carried out an evaluation, under the supervision and with
the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial
Officer concluded that as of December 31, 2018, our disclosure controls and procedures were effective at the reasonable assurance level.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) and 15d-
15(f) of the Securities Exchange Act of 1934, as amended. Our internal control over financial reporting is a process designed to provide reasonable assurance to
our management and Board of Directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles and includes policies and procedures that: (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are
being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements, errors or fraud. Also, projections of
any evaluations of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2018 based on the framework set forth by the
Committee of Sponsoring Organizations of the Treadway Commissions in Internal Control-Integrated Framework. Based on that assessment, management has
concluded that our internal control over financial reporting was effective as of December 31, 2018.
This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permit smaller reporting
companies to provide only management’s report in this Annual Report on Form 10-K.
Changes in Internal Controls over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange
Act of 1934, as amended) during the fiscal year ended December 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
ITEM 9B.
OTHER INFORMATION
None.
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ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Directors and Executive Officers
PART III
The following table lists our executive officers and directors and their respective ages and positions as of the date of this report:
Name
Linda Marbán, Ph.D.
Anthony Bergmann, M.B.A.
Karen G. Krasney, J.D.
Frank Litvack, M.D.
Joshua Kazam
Earl M. (Duke) Collier, Jr.
David B. Musket
Louis Manzo
George W. Dunbar, Jr.
Age
55
33
66
63
42
71
61
81
72
Positions Held
President, Chief Executive Officer and Director
Chief Financial Officer
Executive Vice President, and General Counsel
Executive Chairman and Director
Director
Director
Director
Director
Director
Linda Marbán, Ph.D. Dr. Marbán is currently serving as our Chief Executive Officer, and has served in that capacity and on the Board since November
2013. As co-founder of Capricor, Inc., our wholly-owned subsidiary, Dr. Marbán has been with Capricor, Inc. since 2005 and became its Chief Executive Officer
in 2010. She combines her background in research with her business experience to lead the Company and create a path to commercialization for its novel
therapies. Dr. Marbán was the lead negotiator in procuring the license agreements that are the foundation of the Company’s intellectual property portfolio. Under
her direction as Chief Executive Officer, the Company has secured over $30.0 million in non-dilutive grant awards which have funded our research and
development programs and a loan award which funded Capricor, Inc.’s ALLSTAR clinical trial. Dr. Marbán’s deep knowledge of the cardiac space, in particular,
allows her to provide unique direction for the Company’s development and growth. From 2003 to 2009, Dr. Marbán was with Excigen, Inc., a biotechnology start-
up company, where she was responsible for business development, operations, pre-clinical research, and supervising the development of gene therapy products
in a joint development agreement with Genzyme Corp. While at Excigen, she also negotiated a joint development and sublicense agreement with Medtronic
Corp. utilizing Excigen’s technology and supervised the building of a lab in which the work was to be performed. Dr. Marbán began her career in academic
science, first at the Cleveland Clinic Foundation working on the biophysical properties of cardiac muscle. That work continued when she moved to a postdoctoral
fellowship at Johns Hopkins University (“JHU”). While at JHU, she advanced to the rank of Research Assistant Professor in the Department of Pediatrics,
continuing her work on the mechanism of contractile dysfunction in heart failure. Her tenure at JHU ran from 2000 to 2003. Dr. Marbán earned a Ph.D. from
Case Western Reserve University in cardiac physiology.
Frank Litvack, M.D., FACC. Dr. Litvack is currently serving as our Executive Chairman, and has served in that capacity and on the Board since November
2013. Dr. Litvack is a native of Canada. He completed medical school and residency at McGill University in Montreal and a Cardiovascular Fellowship at Cedars-
Sinai Medical Center in Los Angeles, where he subsequently became co-director of the Cardiovascular Intervention Center and Professor of Medicine at UCLA.
There he led a prominent clinical and research program known for its excellence in innovation, care and leadership in Translational Medicine. Dr. Litvack was
board-certified in Internal Medicine, Cardiovascular Diseases and Interventional Cardiology. He has published more than one hundred research articles and
chapters and is the recipient of several awards, including an American Heart Association Young Investigator Award, the Leon Goldman Medical Excellence
Award for contributions to the field of biomedical optics and the United States Space Technology and Space Foundation Hall of Fame for pioneering work with
the excimer laser. Dr. Litvack left full time practice and academics in 2000 to concentrate on entrepreneurial activities. Dr. Litvack has founded and operated
several healthcare ventures, both as chairman and/or chief executive officer, including Progressive Angioplasty Systems Inc., a medical device company that
was acquired by United States Surgical Corp. in 1998; Savacor, Inc., a medical device company that was acquired by St. Jude Medical in 2005; Conor
Medsystems, Inc., a publicly traded medical device company that was acquired by Johnson & Johnson in 2007. He presently sits on the boards of several early-
stage healthcare companies including V-Wave Medical Ltd. and Recor Medical, Inc., both medical device companies. Dr. Litvack was a former director of publicly
traded Nile from 2009-2012. Dr. Litvack joined the board of directors of Capricor, Inc. as Executive Chairman in 2012. Dr. Litvack is the co-founder and chairman
of TrialTech Medical, Inc., a clinical trial services company. Dr. Litvack is currently a General Partner in Pura Vida Investment, LLC, a healthcare hedge fund, and
is serving as a Director on the board of Cardiovascular Research Foundation, a non-profit research and education entity.
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Joshua A. Kazam. Mr. Kazam has been a member of the Board since August 2005. Mr. Kazam is a co-founder and Partner of Two River, where he has
served as partner since its inception in 2004. He has also served as an officer and director of Riverbank Capital Securities, Inc., a FINRA member broker dealer,
since October 2005. Prior to founding Two River, he served as Managing Director of a life science focused venture capital firm. Mr. Kazam is a co-founder,
officer and director of Allogene Therapeutics Inc. He is a co-founder and partner of Vida Ventures. Mr. Kazam was also a co-founder and director of Kite Pharma
where he served on the board until its acquisition by Gilead (GILD) in 2017. Mr. Kazam also serves as a director of several privately held companies including
Second Science and Hubble Contacts. Mr. Kazam is a Member of the Wharton School’s Undergraduate Executive Board and serves on the Board of Directors of
the Desert Flower Foundation. Mr. Kazam received his B.S. in Economics from the Wharton School of the University of Pennsylvania.
Earl M. (Duke) Collier, Jr. Mr. Collier has been a member of the Board since November 2013. He joined the Capricor, Inc. board of directors in 2011 and
is a member of the Company’s Audit Committee and Chairman of the Nominating and Corporate Governance Committee. From 2010-2014, he served as the
Chief Executive Officer of 480 Biomedical, a medical device company developing products used in the treatment of peripheral artery disease, and the executive
chairman of Arsenal Medical, Inc., a medical device company. Mr. Collier was formerly Executive Vice President at Genzyme Corporation, a biotechnology
company acquired by Sanofi for $20.1 billion in 2011. Mr. Collier also served as President of Vitas Healthcare, a hospice provider, as a partner at the
Washington, DC-based law firm of Hogan and Hartson and as Deputy Administrator of the Health Care Finance Administration (now CMS) in the U.S.
Department of Health & Human Services. He is Chairman of the Board of Trustees of the Newton-Wellesley Hospital, serves on the board of Partners
HealthCare System and as Chair of the Innovation Advisory Board of Partners HealthCare. Additionally, he is a member of the board of the Boston Athenaeum.
Previously, Mr. Collier served as a director of publicly-traded Decode Genetics Inc. (DGI Resolution, Inc.), a biopharmaceutical company and GenSight, a gene
therapy company in Paris that trades on the French Euronext exchange. He currently serves on the board of directors of Tesaro, Inc., a publicly-traded
biopharmaceutical company. Mr. Collier earned a Bachelor of Arts degree at Yale University and received a law degree from the University of Virginia Law
School.
David B. Musket. Mr. Musket has been a member of the Board since November 2013. He joined the Capricor, Inc. board of directors in 2012 and is
Chairman of the Company’s Audit and Compensation Committees. Mr. Musket has vast experience in strategic finance and has been following developments in
the pharmaceutical and medical device industries for over 30 years. Mr. Musket began his investment career as an equities research analyst at Goldman Sachs
& Co. following the pharmaceutical industry. From 1991 through 2016 he served as President of Musket Research Associates, a registered broker/dealer
focused exclusively on venture banking transactions for emerging healthcare companies. In 1996 he co-founded ProMed Management, a healthcare-focused
investment management company which he continues to run today. He has served on the boards of several private and public companies throughout his career.
From 1999 to 2007, Mr. Musket served on the board of directors of publicly-traded Conor MedSystems, Inc., a medical device company sold to Johnson &
Johnson in 2007 for $1.4 billion. Mr. Musket holds a Bachelor of Arts degree in Biology and Psychology from Boston College.
Louis Manzo. Mr. Manzo has been a member of the Board since November 2013. He was one of the initial investors in Capricor, Inc. and joined the
Capricor, Inc. board of directors in 2006. Mr. Manzo is also a member of the Company’s Compensation Committee and Nominating and Corporate Governance
Committee. Mr. Manzo has been a prominent mid-Atlantic entrepreneur for over three decades and has extensive experience in the area of finance. Mr. Manzo
received his Bachelor of Science degree from the University of Notre Dame and his M.B.A. from Harvard Business School. He served in the armed forces as an
officer in the United States Navy. After completing his M.B.A. at Harvard, Mr. Manzo joined, and in a few years became General Partner of, Baker, Watts & Co., a
New York Stock Exchange Member Firm. His experience there included being Director of Equity Research and, later, the Head of Corporate Finance. During the
1980’s, Mr. Manzo started his own private investment firm, LVM Venture Partners. Beginning in 1989, Mr. Manzo became part of the founders group which
helped a Johns Hopkins cardiologist fund his launching of a research center for preventive cardiology. Mr. Manzo remained as an advisor during the center’s
formative years. His continued interest in preventive research included a major investment to research the use of protein modeling for early disease detection.
Since 2002, he has been following and supporting research into the use of adult stem cells in the repair of spinal cord and heart damage. The list of private
company boards, senior advisory roles, and charities that Mr. Manzo has been involved with over the years are numerous and varied, including: the Johns
Hopkins Preventive Cardiology Center, a hospital center; Greater Baltimore Medical Center, a hospital; Goodwill Industries of Maryland, a non-profit organization;
E.I.L. Instruments, Inc., an instrument company; and University of Notre Dame, Advisory Council for Graduate Studies and Research.
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George W. Dunbar, Jr. Mr. Dunbar has been a member of the Board since November 2013. He joined the Capricor, Inc. board of directors in 2012 and is
a member of the Company’s Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee. He is Managing Partner of
The Dunbar Group, LLC, and provides advisory services to healthcare and life science investors and companies who recognize they need short term or interim
industry expertise as they grow in order to be capital efficient. Mr. Dunbar has extensive healthcare and life sciences operating experience and has served as a
director or chief executive officer with private and public life science companies in Diagnostics, Specialty Pharma, Cell Therapy, and Biologics, two as chief
executive officer, where he led initial public offerings. He recently served as chief executive officer of ISTO Technologies and ISTO Biologics, two private
orthobiologics companies. Prior to ISTO, Mr. Dunbar served as a Venture Partner with Arboretum Ventures, a leading healthcare venture capital firm. Mr. Dunbar
is currently a board member of Progenitor Life Sciences, a private next generation immunotherapy development company and is Executive Chairman with Avery
Therapeutics, a privately held tissue engineering platform technology company developing treatments for degenerative and incurable diseases. He has served as
a board member for the following companies: IntelliCyt, a provider of high throughput screening and analytic tools, KFx Medical, an orthopedic medical device
company (as chair), and CerviLenz, Inc., a women’s health medical device company (as executive chair). He was a past director and executive chair of Accuri
Cytometers (now Becton Dickinson & Co.), a cell analysis and flow cytometer company. Mr. Dunbar attended Auburn University where he graduated with a
Bachelor of Science degree in Electrical Engineering and later received his M.B.A. He currently serves on the Harbert College of Business M.B.A. Advisory
Board and is an advisor to Vanderbilt University’s Center for Technology Transfer and Commercialization.
Anthony Bergmann, M.B.A. Mr. Bergmann has served as our Chief Financial Officer since January 2018. Mr. Bergmann joined Capricor, Inc. in 2011 and
served as its Director of Finance until November 2013. After the merger between Capricor, Inc. and a subsidiary of Nile Therapeutics, Inc., he became the
Company’s Vice President of Finance. He also serves as the Company’s corporate treasurer. Prior to joining Capricor, Inc., Mr. Bergmann had experience in
accounting, finance and operations management of companies ranging in size from start-ups to mid-size companies. Most recently he was with the business
management firm, Gettleson, Witzer and O’Connor, in Beverly Hills, California, where he focused on accounting and finance for several production studios
generating motion picture releases and worldwide revenue that exceeded $1 billion. The firm’s clients included foundations, trusts, and independent actors,
writers, producers and directors across the entertainment industry. While at the firm, he focused on budgeting, tax forecasting and asset management. Earlier in
his career, Mr. Bergmann served in financial positions in various industries. Mr. Bergmann assisted with Capricor, Inc.’s Series A-3 $6.0 million Preferred Stock
offering, helped structure the Company’s successful $19.8 million budget proposal to the California Institute for Regenerative Medicine and coordinated the
Company’s reverse merger and financings yielding over $40.0 million, to date. He has experience in developing corporate and financial strategy alternatives and
executing on strategic plans. Mr. Bergmann manages the Company’s finance, accounting and human resource functions. Mr. Bergmann graduated from
Providence College with a Bachelor of Science degree in Management, and a minor in Finance. He has an M.B.A. from the University of Southern California’s
Marshall School of Business. He is actively involved in various venture capital and entrepreneurial associations throughout the Los Angeles area.
Karen G. Krasney, J.D. Ms. Krasney has served as our Executive Vice President, Secretary and General Counsel since November 2013. Ms. Krasney
has been providing legal services to Capricor, Inc. since 2011 and in 2012 joined Capricor, Inc. as its Executive Vice President and General Counsel. Ms.
Krasney’s career spans over 40 years serving as general counsel for numerous corporations and private companies engaged in a wide variety of industries. Her
extensive background and vast experience has been focused on domestic and international corporate and business law, as well as litigation. Ms. Krasney has
been involved in the medical technology arena since the mid 1990’s, representing several medical technology companies developing products for the treatment
of cardiovascular disease. Commencing in 2002, Ms. Krasney served as legal counsel of Biosensors International Group Ltd., a multinational medical device
company that develops, manufactures and sells medical devices for cardiology applications. In 2006, she accepted the position of General Counsel and
Executive Vice President of Biosensors and served in that capacity until 2010. During her tenure at Biosensors, among other things, Ms. Krasney headed the
legal team that facilitated the company’s successful initial public offering in Singapore and was responsible for negotiating and documenting all agreements for
the company worldwide, including licensing agreements with major medical device companies and agreements required for the company’s international clinical
trials. Ms. Krasney also serves as a director on the board of Cardiovascular Research Foundation, a non-profit research and education entity. Ms. Krasney
received her Bachelor of Arts degree from the University of California, Los Angeles and her Juris Doctorate from the University of Southern California.
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Experience, Qualifications, Attributes and Skills of Directors
We look to our directors to lead us through our continued growth as an early-stage public biopharmaceutical company. Our directors bring their
leadership experience from a variety of life science and other companies and professional backgrounds which we require to continue to grow and bring value to
our stockholders. Dr. Frank Litvack, our Executive Chairman, has a wealth of business building experience and medical expertise that ensures that our activities
are anchored in sound scientific research and solid business planning and practices. As an accomplished veteran of the healthcare industry who has
orchestrated the founding, development, financing and sale of several medical technology companies, we believe that Dr. Litvack provides invaluable knowledge
and leadership to the Company. Dr. Linda Marbán brings a wealth of knowledge in research and development, especially for the treatment of cardiovascular
disease. She has over a decade of experience in early stage life sciences companies, as well as business development expertise. Mr. Musket and Mr. Kazam
have venture capital and investment banking backgrounds and offers expertise in financing and growing early-stage biopharmaceutical companies. Each of
Messrs. Collier, Dunbar, Kazam, Manzo and Musket have significant experience with early stage private and public companies and bring depth of knowledge in
building stockholder value, growing a company from inception and navigating significant corporate transactions and the public company process. Additionally,
Mr. Dunbar and Mr. Collier have extensive experience in the pharmaceutical industry, allowing them to contribute their significant operational experience.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s directors and officers and persons who own more than ten
percent of a registered class of the Company’s equity securities to file reports of ownership and reports of changes in the ownership with the SEC. Such persons
are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file. Based solely on its review of the copies of the forms
submitted to it during the last fiscal year, the Company believes that, during the last fiscal year, all such reports were timely filed.
Code of Business Conduct and Ethics
The Board has adopted a Code of Business Conduct and Ethics (the “ Code”) that applies to all directors, officers, employees, consultants, contractors
and agents, wherever they are located and whether they work for us on a full- or part-time basis. The Code was designed to help such directors, employees and
other agents to resolve ethical issues encountered in the business environment. The Code covers topics such as conflicts of interest, compliance with laws,
confidentiality of Company information, encouraging the reporting of any violations of the Code, fair dealing and protection and use of Company assets.
A copy of the Code, as adopted by the Board, is available at the Corporate Governance page of our website at www.capricor.com. Please note that
information contained on our website is not incorporated by reference in, or considered to be a part of, this proxy statement. We may post amendments to or
waivers of the provisions of the Code, if any, made with respect to any directors and employees on that website.
Audit Committee
The current members of our Audit Committee are Mr. David Musket (Chair), Mr. George Dunbar and Mr. Earl Collier. The Board has determined that all
members of the Audit Committee are “independent” within the meaning of the applicable listing standard of the Nasdaq Stock Market. The Board has determined
that Mr. Musket qualifies as an “audit committee financial expert,” as defined by the applicable rules of the SEC. The Audit Committee of the Board is a
separately-designated standing audit committee established by the Board in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). The Audit Committee has adopted a written charter that is available on the Corporate Governance section of our website at
www.capricor.com.
Risk Assessment of Compensation Programs
We do not believe that our compensation programs create risks that are reasonably likely to have a material adverse effect on our Company. We believe
that the combination of different types of compensation as well as the overall amount of compensation, together with our internal controls and oversight by our
Board of Directors, mitigates potential risks.
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ITEM 11.
EXECUTIVE COMPENSATION.
The following summary compensation table reflects cash and non-cash compensation for the 2018 and 2017 fiscal years awarded to or earned by (i) our
principal executive officer for the fiscal year ended December 31, 2018; and (ii) the two most highly-compensated individuals, other than our principal executive
officer, that served as an executive officer at the end of the fiscal year ended December 31, 2018 and who received in excess of $100,000 in total compensation
during such fiscal year. We refer to these individuals as our “named executive officers”.
Summary Compensation Table
Name and
Principal Position
Linda Marbán, Ph.D.
Chief Executive Officer
Year
Salary ($)
Bonus ($)
Awards($)(1)
Option
All Other
Compensation ($)
Total ($)
2017 $
2018 $
232,909
232,909
Karen Krasney, J.D.
Executive Vice President & General Counsel
2017 $
2018 $
262,500
300,000
Deborah Ascheim, M.D. (3)
Former Chief Medical Officer
Anthony Bergmann
Chief Financial Officer
2017 $
2018 $
255,000
244,451
2017 $
2018 $
154,500
200,000
– $
– $
– $
– $
– $
– $
– $
– $
369,200
144,562
46,150 $
50,890 $
92,300 $
119,446 $
64,610 $
72,700 $
–
–
$
$
602,109
377,471
1,000(2) $
1,000(2) $
309,650
351,890
1,000(2) $
1,000(2) $
348,300
364,897
1,000(2) $
1,000(2) $
220,110
273,700
(1) Amounts reflect the grant date fair value of awards granted under the Company’s 2012 Restated Equity Incentive Plan, computed pursuant to Financial
Accounting Standards Board’s Accounting Standards Codification 718 “Compensation – Stock Compensation.” Assumptions used in the calculation of
these amounts are included in Note 4 – “Stock Awards, Warrants and Options,” of the Notes to Consolidated Financial Statements included in this
Annual Report on Form 10-K. See the “Outstanding Equity Awards at Fiscal Year-End” table above for information regarding all option awards
outstanding as of December 31, 2018.
(2) Represents premiums contributed by the Company for the employee’s Health Reimbursement Flexible Spending account.
(3) Dr. Deborah Ascheim resigned effective October 31, 2018.
Employment Agreements and Post-Termination Benefits
Linda Marbán, Ph.D. — President and Chief Executive Officer
Dr. Linda Marbán’s employment as our Chief Executive Officer is subject to the terms of that certain employment agreement dated September 1, 2010,
by and between Capricor, Inc. and Dr. Marbán. In accordance with the agreement, Dr. Marbán is required to devote three-fourths of her time to the position of
Chief Executive Officer and was initially entitled to an annual salary of $150,000. Effective February 2013, her annual base salary was increased to $232,909.
Effective January 1, 2018, her annual base salary was increased to $275,000 but in lieu of receiving a cash increase, Dr. Marbán elected to receive a 10-year
option to purchase 33,512 shares in which will vest 1/12 on the first day of each month, commencing February 1, 2018, with the last month vesting on December
31, 2018. Furthermore, effective February 1, 2019, Dr. Marban reduced her annual salary to $150,000 per year. Notwithstanding the vesting schedule, early
exercise of options is permissible pursuant to Dr. Marbán’s option agreements under The 2012 Plan. Dr. Marbán’s employment is at will and she has also signed
an employee invention assignment, non-disclosure, non-solicitation, and non-competition agreement. In the event the employment agreement is terminated
during the term other than for cause, death or disability, she would be entitled to receive a severance payment equal to three months’ salary then in effect. In
addition, if upon the hiring of a new Chief Executive Officer, the Company does not employ Dr. Marbán at a level of at least a Vice President, she could resign
from her employment for good reason and in that case she would be entitled to receive a severance payment equal to three months’ salary and the vesting of her
then unvested options would be accelerated by six months. Furthermore, on March 15, 2019 the Board approved a severance package for Dr. Marbán pursuant
to which, subject to certain conditions, she may be entitled to receive a severance payment equal to six months of her base salary.
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Karen Krasney, J.D. — Executive Vice President, General Counsel
Karen Krasney’s employment as our Executive Vice President and General Counsel commenced March 1, 2012. Effective January 1, 2018, Ms.
Krasney’s annual base salary is $300,000. In addition, Ms. Krasney has signed an at-will employment, confidential information, and invention assignment
agreement, and an arbitration agreement. Furthermore, on March 15, 2019 the Board approved a severance package for Ms. Krasney pursuant to which, subject
to certain conditions, she may be entitled to receive a severance payment equal to six months of her base salary.
Anthony Bergmann, MBA. — Chief Financial Officer
Anthony Bergmann employment as our Chief Financial Officer commenced in May 2011. Effective January 1, 2018, Mr. Bergmann’s annual base salary
is $200,000. In addition, Mr. Bergmann has signed an at-will employment, confidential information, and invention assignment agreement, and an arbitration
agreement. Furthermore, on March 15, 2019 the Board approved a severance package for Mr. Bergmann pursuant to which, subject to certain conditions, he
may be entitled to receive a severance payment equal to six months of his base salary.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information concerning unexercised stock options held by the named executive officers at December 31, 2018:
Name
Linda Marbán, Ph.D.
Karen Krasney, J.D.
Anthony Bergmann
Deborah Ascheim, M.D.
Number of
Securities
Underlying
Unexercised
Options
Exercisable
414,971
414,971
234,375
95,833
48,748
189,320
28,125
31,250
11,979
8,020
16,598
21,785
23,438
18,750
16,770
11,458
102,916
22,916
7,291
6,768
4,166
Number of
Securities
Underlying
Unexercised
Options
Equity Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unexercisable
—
—
15,625
104,167
51,252
Unearned Options
—
—
—
—
—
—
1,875
18,750
13,021
26,980
—
—
1,562
11,250
18,230
38,542
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Option
Exercise
Price ($)
0.37
0.30
5.78
2.55
1.57
0.37
5.78
3.12
2.55
1.57
0.37
0.30
5.78
3.12
2.55
1.57
4.34
2.55
1.57
1.57
1.24
Option
Expiration Date
09/01/2020 (1)
05/14/2023 (2)(18)
03/03/2025 (3)(18)
01/03/2027 (4)(18)
01/02/2028 (5)(18)
11/13/2022 (6)(18)
03/03/2025 (7)(18)
06/02/2026 (8)(18)
01/03/2027 (9)(18)
01/02/2028 (10)(18)
07/27/2022 (11)
10/23/2023 (12)(18)
03/03/2025 (13)(18)
06/02/2026 (14)(18)
01/03/2017 (15)(18)
01/02/2028 (16)(18)
01/30/2019 (17)(18)
01/30/2019 (17)(18)
01/30/2019 (17)(18)
01/30/2019 (17)(18)
01/30/2019 (17)(18)
(1) Vesting schedule is as follows: 25% of the shares of common stock subject to this option vested immediately. 20% of the remaining shares of common
stock subject to this option vested on each of September 1, 2011, September 1, 2012, September 1, 2013, September 1, 2014 and September 1, 2015.
This option became fully vested on September 1, 2015.
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(2) Vesting schedule is as follows: The shares of common stock subject to this option vest 25% per year over 4 years commencing June 1, 2014. This option
became fully vested on June 1, 2017.
(3) Vesting schedule is as follows: The shares of common stock subject to this option vest 1/48th per month commencing April 1, 2015.
(4) Vesting schedule is as follows: The shares of common stock subject to this option vest 1/48th per month commencing February 1, 2017.
(5) Vesting schedule is as follows: 33,512 of the shares of common stock subject to this option vest 1/12th per month commencing February 1, 2018 with
the last 1/12th vest on December 31, 2018. 66,488 of the shares of common stock subject to this option vest 1/48th per month commencing on February
1, 2018.
(6) Vesting schedule is as follows: 25% of the shares of common stock subject to this option vested immediately, with the remainder vesting over 36 months
commencing December 1, 2012. This option became fully vested on December 1, 2015.
(7) Vesting schedule is as follows: The shares of common stock subject to this option vest 1/48th per month commencing April 1, 2015.
(8) Vesting schedule is as follows: The shares of common stock subject to this option vest 1/48th per month commencing July 1, 2016.
(9) Vesting schedule is as follows: The shares of common stock subject to this option vest 1/48th per month commencing February 1, 2017.
(10)Vesting schedule is as follows: The shares of common stock subject to this option vest 1/48th per month commencing February 1, 2018.
(11)Vesting schedule is as follows: 25% of the shares of common stock subject to this option vested immediately, with the remainder vesting over 36 months
commencing December 1, 2012. This option became fully vested on December 1, 2015.
(12)Vesting schedule is as follows: The shares of common stock subject to this option vest 25% per year over 4 years commencing June 1, 2014. This option
became fully vested on June 1, 2017.
(13)Vesting schedule is as follows: The shares of common stock subject to this option vest 1/48th per month commencing April 1, 2015.
(14)Vesting schedule is as follows: The shares of common stock subject to this option vest 1/48th per month commencing July 1, 2016.
(15)Vesting schedule is as follows: The shares of common stock subject to this option vest 1/48th per month commencing February 1, 2017.
(16)Vesting schedule is as follows: The shares of common stock subject to this option vest 1/48th per month commencing February 1, 2018.
(17)Dr. Deborah Ascheim’s last day of employment with Capricor was October 31, 2018. Pursuant to the Stock Option Agreement, all further vesting ceased
upon her resignation and a 90-day exercise window commenced.
(18)The options issued under the 2012 Restated Equity Incentive Plan are subject to early exercise. If the option holder elects to take advantage of the early
exercise feature and purchase shares prior to the vesting of such shares, the shares will be deemed restricted stock and will be subject to a repurchase
option in favor of the Company if the option holder’s service to the Company terminates prior to vesting.
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Compensation of Directors
The following table sets forth the compensation received by our directors for their service in fiscal year 2018. Dr. Marbán is not listed below since she is
an employee of the Company and receives no additional compensation for serving on our Board or its committees.
Name
Frank Litvack, M.D.
George Dunbar
Louis Manzo
Earl Collier
David Musket
Joshua Kazam
Fees Earned or
Paid in Cash
Option Awards
(1) (2)
All Other
Compensation
Total
— $
— $
— $
— $
— $
— $
86,615 $
40,275
36,702
43,847
54,565
25,985
120,000(3) $
$
—
$
—
$
—
$
—
$
—
206,615
40,275
36,702
43,847
54,565
25,985
(1) Amounts reflect the grant date fair value of awards granted under the 2012 Restated Equity Incentive Plan, computed pursuant to Financial Accounting
Standards Board’s Accounting Standards Codification 718 “Compensation – Stock Compensation”. Assumptions used in the calculation of these
amounts are included in Note 4 – “Stock Awards, Warrants and Options”, of the Notes to the Consolidated Financial Statements included in this Annual
Report on Form 10-K.
(2) Options granted for the following number of shares were outstanding as of December 31, 2018: Dr. Litvack – 2,267,565 shares; Mr. Dunbar – 260,130
shares; Mr. Manzo – 470,115 shares; Mr. Collier – 259,505 shares; Mr. Musket – 336,588 shares; and Mr. Kazam – 140,221 shares.
(3) Pursuant to the terms of a Consulting Agreement, dated March 24, 2014, Capricor, Inc. paid to Dr. Litvack $10,000 per month, for an aggregate of
$120,000 during the year ended December 31, 2018, as consideration.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table sets forth certain information known to us regarding the beneficial ownership of our common stock as of March 28, 2019 by:
•
•
•
•
each of our directors;
each named executive officer as defined and named in this proxy statement;
all of our directors and executive officers as a group; and
each person known by us to beneficially own more than five percent of our common stock (based on information supplied in Schedules 13D and 13G
filed with the SEC).
Except as indicated by footnote, and subject to applicable community property laws, each person identified in the table possesses sole voting and
dispositive power with respect to all capital stock shown to be held by that person. The address of each named executive officer and director, unless indicated
otherwise, is c/o Capricor Therapeutics, Inc., 8840 Wilshire Blvd., 2nd Floor, Beverly Hills, California 90211.
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Name of Beneficial Owner
Named Executive Officers and Directors:
Frank Litvack, M.D. (2)
George Dunbar(3)
Louis Manzo(4)
Earl Collier(5)
David Musket(6)
Joshua Kazam(7)
Anthony Bergmann (8)
Linda Marbán, Ph.D.(9)
Karen Krasney, J.D.(10)
Deborah Ascheim, M.D.
Directors and executive officers as a group (9 individuals)
5% Stockholders:
Dr. Eduardo Marbán(11)
c/o Capricor Therapeutics, Inc.
8840 Wilshire Blvd., 2 nd Floor
Beverly Hills, CA 90211
Edward A. St. John(12)
2560 Lord Baltimore Drive
Baltimore, MD 21244
Cedars-Sinai Medical Center(13)
8700 Beverly Blvd.
West Hollywood, CA 90048
*Represents less than 1%.
Shares of Common Stock
Beneficially Owned(1)
Percentage of Common Stock
Beneficially Owned(1)
2,244,231
249,563
1,256,835
248,938
421,983
164,538
124,370
1,460,991
293,183
-
6,464,632
3,108,354
2,777,378
4,049,959
6.3
*
3.7
*
1.2
*
*
4.2
*
-
16.6
9.2
8.3
12.0
(1) We have based percentage ownership of our common stock on 33,661,346 shares of our common stock outstanding as of March 28, 2019. Beneficial
ownership is determined in accordance with Rule 13d-3 under the Exchange Act, and includes any shares as to which the security holder has sole or shared
voting power or dispositive power, and also any shares which the security holder has the right to acquire within 60 days of March 28, 2019, whether through
the exercise or conversion of any stock option, convertible security, warrant or other right. The indication herein that shares are beneficially owned is not an
admission on the part of the security holder that he, she or it is a direct or indirect beneficial owner of those shares.
(2) Includes 2,244,231 shares issuable upon the exercise of stock options that are exercisable or will become exercisable within 60 days of March 28, 2019. The
shares issuable upon the exercise of stock options issued to Dr. Litvack are subject to early exercise under the Capricor Therapeutics, Inc. 2012 Restated
Equity Incentive Plan and the Capricor Therapeutics, Inc. 2012 Non-Employee Director Stock Option Plan. As of March 28, 2019, Dr. Litvack has not
indicated his intent to exercise early. If the option holder elects to take advantage of the early exercise feature and purchase shares prior to the vesting of
such shares, the shares will be deemed restricted stock and will be subject to a repurchase option in favor of the Company if the option holder’s service to
the Company terminates prior to vesting.
(3) Includes 249,563 shares issuable upon the exercise of stock options that are exercisable or will become exercisable within 60 days of March 28, 2019. The
shares issuable upon the exercise of stock options issued to Mr. Dunbar are subject to early exercise under the Capricor Therapeutics, Inc. 2012 Non-
Employee Director Stock Option Plan and the Capricor Therapeutics, Inc. 2012 Restated Equity Incentive Plan. As of March 28, 2019, Mr. Dunbar has not
indicated his intent to exercise early. If the option holder elects to take advantage of the early exercise feature and purchase shares prior to the vesting of
such shares, the shares will be deemed restricted stock and will be subject to a repurchase option in favor of the Company if the option holder’s service to
the Company terminates prior to vesting.
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(4) Includes (i) 638,155 shares held by Coniston Corporation, an entity of which Louis Manzo holds all voting shares and 1% of the non-voting shares and of
which 99% of the non-voting shares are held by several irrevocable trusts established for the benefit of Mr. Manzo’s children. Mr. Manzo holds all voting
power with respect to the shares of Coniston Corporation; (ii) 159,132 shares held directly by Mr. Manzo; and (iii) 459,548 shares issuable upon the exercise
of stock options held directly by Mr. Manzo that are exercisable or will become exercisable within 60 days of March 28, 2019. Certain shares issuable upon
the exercise of stock options issued to Mr. Manzo are subject to early exercise under the Capricor Therapeutics, Inc. 2012 Non-Employee Director Stock
Option Plan and the Capricor Therapeutics, Inc. 2012 Restated Equity Incentive Plan. As of March 28, 2019, Mr. Manzo has not indicated his intent to
exercise early. If the option holder elects to take advantage of the early exercise feature and purchase shares prior to the vesting of such shares, the shares
will be deemed restricted stock and will be subject to a repurchase option in favor of the Company if the option holder’s service to the Company terminates
prior to vesting.
(5) Includes 248,938 shares issuable upon the exercise of stock options which are exercisable or will become exercisable within 60 days of March 28, 2019.
The shares issuable upon the exercise of stock options issued to Mr. Collier are subject to early exercise under the Capricor Therapeutics, Inc. 2012 Non-
Employee Director Stock Option Plan and the Capricor Therapeutics, Inc. 2012 Restated Equity Incentive Plan. As of March 28, 2019, Mr. Collier has not
indicated his intent to exercise early. If the option holder elects to take advantage of the early exercise feature and purchase shares prior to the vesting of
such shares, the shares will be deemed restricted stock and will be subject to a repurchase option in favor of the Company if the option holder’s service to
the Company terminates prior to vesting.
(6) Includes (i) 70,962 shares held by SEP FBO David B. Musket, Pershing LLC as Custodian; (ii) 25,000 held by David B. Musket; and (iii) 326,021 shares
issuable upon the exercise of stock options held directly by David B. Musket, which are exercisable or will become exercisable within 60 days of March 28,
2019. The shares issuable upon the exercise of stock options issued to Mr. Musket are subject to early exercise under the Capricor Therapeutics, Inc. 2012
Non-Employee Director Stock Option Plan and the Capricor Therapeutics, Inc. 2012 Restated Equity Incentive Plan. As of March 28, 2019, Mr. Musket has
not indicated his intent to exercise early. If the option holder elects to take advantage of the early exercise feature and purchase shares prior to the vesting
of such shares, the shares will be deemed restricted stock and will be subject to a repurchase option in favor of the Company if the option holder’s service to
the Company terminates prior to vesting.
(7) Includes (i) 19,298 shares held directly by Joshua Kazam; (ii) 12,276 shares held by the Kazam Family Trust, of which Mr. Kazam’s spouse is the trustee
and his children are beneficiaries; (iii) 3,310 shares held by Mr. Kazam’s spouse as custodian for the benefit of their minor children, to which Mr. Kazam
disclaims beneficial ownership except to the extent of his pecuniary interest therein; and (iv) 129,654 shares issuable upon the exercise of stock options that
are exercisable or will become exercisable within 60 days of March 28, 2019. The shares issuable upon the exercise of stock options issued to Mr. Kazam
are subject to early exercise under the Capricor Therapeutics, Inc. 2012 Restated Equity Incentive Plan. As of March 28, 2019, Mr. Kazam has not indicated
his intent to exercise early. If the option holder elects to take advantage of the early exercise feature and purchase shares prior to the vesting of such
shares, the shares will be deemed restricted stock and will be subject to a repurchase option in favor of the Company if the option holder’s service to the
Company terminates prior to vesting.
(8) Includes (i) 2,030 shares held by Mr. Bergmann and (ii) 122,340 shares issuable upon the exercise of stock options held directly by Mr. Bergmann that are
exercisable or will become exercisable within 60 days of March 28, 2019. The shares issuable upon the exercise of stock options issued to Mr. Bergmann
are subject to early exercise under the Capricor Therapeutics, Inc. 2012 Restated Equity Incentive Plan. As of March 28, 2019, Mr. Bergmann has not
indicated her intent to exercise early. If the option holder elects to take advantage of the early exercise feature and purchase shares prior to the vesting of
such shares, the shares will be deemed restricted stock and will be subject to a repurchase option in favor of the Company if the option holder’s service to
the Company terminates prior to vesting.
(9) Includes (i) 199,509 shares held by Dr. Linda Marbán; (ii) 9,200 shares held by Linda and Eduardo Marbán as joint tenants with rights of survivorship; and
(iii) 1,252,282 shares issuable upon the exercise of stock options held directly by Dr. Linda Marbán which are exercisable or will become exercisable within
60 days of March 28, 2019. Certain shares issuable upon the exercise of stock options issued to Dr. Linda Marbán are subject to early exercise under the
Capricor Therapeutics, Inc. 2012 Restated Equity Incentive Plan. As of March 28, 2019, Dr. Linda Marbán has not indicated her intent to exercise early. If
the option holder elects to take advantage of the early exercise feature and purchase shares prior to the vesting of such shares, the shares will be deemed
restricted stock and will be subject to a repurchase option in favor of the Company if the option holder’s service to the Company terminates prior to vesting.
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(10)Includes (i) 11,156 shares held by Ms. Krasney and (ii) 282,027 shares issuable upon the exercise of stock options held directly by Ms. Krasney that are
exercisable or will become exercisable within 60 days of March 28, 2019. The shares issuable upon the exercise of stock options issued to Ms. Krasney are
subject to early exercise under the Capricor Therapeutics, Inc. 2012 Restated Equity Incentive Plan. As of March 28, 2019, Ms. Krasney has not indicated
her intent to exercise early. If the option holder elects to take advantage of the early exercise feature and purchase shares prior to the vesting of such
shares, the shares will be deemed restricted stock and will be subject to a repurchase option in favor of the Company if the option holder’s service to the
Company terminates prior to vesting.
(11)Includes (i) 3,099,154 shares held by Dr. Eduardo Marbán and (ii) 9,200 shares held by Linda and Eduardo Marbán as joint tenants with rights of
survivorship.
(12)
Includes (i) 1,556,141 shares held by MD BTI, LLC (the “ MD BTI, LLC Shares”), (ii) 324,196 shares held by MD BTI, Inc. (the “ MD BTI, Inc. Shares”); and
(iii) 897,041 shares held directly by Edward A. St. John, LLC (the “Edward A. St. John, LLC Shares ”). Edward A. St. John, LLC, a Delaware limited liability
company, is the company manager (the “Company Manager”) of MD BTI, LLC. Edward A. St. John, an individual, is the general manager of Company
Manager. As the company manager of MD BTI, LLC, Company Manager is deemed to be the beneficial owner of the MD BTI, LLC Shares and is therefore
deemed to have shared voting and dispositive power over the MD BTI, LLC Shares. Mr. St. John is the sole member and general manager of Company
Manager and is therefore deemed to be the beneficial owner of the MD BTI, LLC Shares, the Edward A. St. John, LLC Shares. Additionally, Mr. St. John is
the president of MD BTI, Inc. and is therefore deemed to be the beneficial owner of the MD BTI, Inc. Shares. As a result of the foregoing, Mr. St. John has
the sole power to vote or direct the vote of 897,041 shares; has the shared power to vote or direct the vote of 1,880,337 shares; has the sole power to
dispose or direct the disposition of 897,041 shares; and has the shared power to dispose or direct the disposition of 1,880,337 shares.
(13)
Includes (i) 4,049,959 shares held by Cedars-Sinai Medical Center. Thomas M. Priselac, the President and Chief Executive Officer of Cedars-Sinai Medical
Center, and Edward M. Prunchunas, the Senior Vice President and Chief Financial Officer of Cedars-Sinai Medical Center, are deemed to share voting and
dispositive power with respect to the shares held by Cedars-Sinai Medical Center. The Company is a party to two Exclusive License Agreements and a
lease agreement with Cedars-Sinai Medical Center. See the section of this annual report entitled “Certain Relationships and Related Party Transactions”.
Securities Authorized for Issuance Under Equity Compensation Plans
We have two equity-incentive plans that have been approved by stockholders: (i) the 2006 Stock Option Plan; and (ii) the 2012 Restated Equity
Incentive Plan. The Company also maintains the 2012 Non-Employee Director Stock Option Plan, which has not been approved by stockholders.
The following table sets forth additional information with respect to the shares of common stock that may be issued upon the exercise of options and
other rights under our existing equity compensation plans and arrangements in effect as of December 31, 2018. The information includes the number of shares
covered by, and the weighted average exercise price of, outstanding options, warrants, and rights, and the number of shares remaining available for future grant,
excluding the shares to be issued upon exercise of outstanding options, warrants, and rights.
Equity Compensation Plan Information
Plan Category
Equity compensation plans approved by security holders:
The 2006 Stock Option Plan
The 2012 Restated Equity Incentive Plan
Equity compensation plans not approved by security holders:
2012 Non-Employee Director Stock Option Plan(1)
Total
Number of
securities to
be issued
upon exercise
of outstanding
options,
warrants and
rights
(A)
Weighted-average
exercise price of
outstanding
options, warrants
and rights
(B)
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column
(A)(C)
708,560 $
3,528,076 $
2,637,267 $
6,873,903 $
0.41
2.81
0.37
1.62
-
501,181
60,044
561,225
(1) Following the consummation of the merger between Nile Therapeutics, Inc. and Capricor, Inc., 2,697,311 shares of common stock were reserved under the
2012 Non-Employee Director Plan for the issuance of stock options to members of the Board who are not employees of the Company.
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ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Cedars-Sinai Medical Center
CDCs License
On January 9, 2014, Capricor, Inc. executed an Amended and Restated Exclusive License Agreement with CSMC (the “ CDCs License”) for certain
intellectual property rights. The CDCs License provides for the grant of an exclusive, world-wide, royalty-bearing license by CSMC to Capricor, Inc. (with the right
to sublicense) to conduct research using the patent rights and know-how and develop and commercialize products in the field using the patents rights and know-
how. In addition, Capricor, Inc. has the exclusive right to negotiate for an exclusive license to any future rights arising from work conducted by or under the
direction of Dr. Eduardo Marbán, a greater than 10% holder of our outstanding common stock, on behalf of CSMC. In the event the parties fail to agree upon the
terms of an exclusive license, Capricor, Inc. will have a non-exclusive license to such future rights, subject to royalty obligations. Pursuant to the CDCs License,
Capricor, Inc. is obligated to pay royalties on sales of royalty-bearing products as well as a percentage of the consideration received from any sublicenses or
other grant of rights.
On March 20, 2015, Capricor, Inc. and CSMC entered into a First Amendment to the CDCs License, pursuant to which the parties agreed to delete
certain patent applications from the list of scheduled patent rights which Capricor, Inc. determined not to be material to the portfolio.
On August 5, 2016, Capricor, Inc. and CSMC entered into a Second Amendment to the CDCs License, pursuant to which the parties agreed to add
certain patent families to the list of scheduled patent rights set forth in the agreement.
On December 26, 2017, Capricor, Inc. and CSMC entered into a Third Amendment to the CDCs License. Under the Third License Amendment, (i) the
description of scheduled patent rights has been replaced by a revised schedule that includes seven additional patent applications; and (ii) Capricor, Inc. is
required to reimburse CSMC approximately $50,000 for attorneys’ fees and filing fees that were incurred in connection with the additional patent rights.
On June 20, 2018, Capricor and CSMC entered into a Fourth Amendment to the Amended CSMC License Agreement. Under the Fourth License
Amendment, the description of scheduled patent rights has been replaced by a revised schedule that includes two additional patent applications.
Exosomes License
On May 5, 2014, Capricor, Inc. entered into an Exclusive License Agreement with CSMC (the “ Exosomes License”), for certain intellectual property
rights related to exosomes technology. Pursuant to the Exosomes License, Capricor, Inc. is required to meet certain non-monetary development milestones and
is obligated to pay low single-digit royalties on sales of royalty-bearing products as well as a single-digit percentage of the consideration received from any
sublicenses or other grant of rights.
On February 27, 2015, Capricor, Inc. and CSMC entered into a First Amendment to the Exosomes License, pursuant to which the description of
scheduled patent rights has been replaced by a revised schedule that includes four additional patent applications and Capricor, Inc. is required to pay CSMC
certain defined product development milestone payments upon reaching certain phases of its clinical studies and upon receiving product approval from the FDA.
On June 10, 2015, Capricor, Inc. and CSMC entered into a Second Amendment to the Exosomes License, pursuant to which the parties agreed to add
an additional patent application to the list of scheduled of patent rights.
On August 5, 2016, Capricor, Inc. and CSMC entered into a Third Amendment to the Exosomes License, pursuant to which the parties agreed to add
certain patent families to the list of schedule of patent rights.
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On December 26, 2017, Capricor, Inc. and CSMC entered into a Fourth Amendment to the Exosomes License. Under the Fourth Exosomes License
Amendment, (i) the description of scheduled patent rights was replaced by a revised schedule that includes seven additional patent applications; (ii) Capricor, Inc.
is required to reimburse CSMC approximately $50,000 for attorneys’ fees and filing fees that were incurred in connection with the additional patent rights; and (iii)
a schedule to the Exosomes License was modified to extend the milestone deadline for filing an IND for at least one product to December 31, 2018.
On June 20, 2018, Capricor and CSMC entered into a Fifth Amendment to the Exosomes License Agreement (the “Fifth License Amendment”). Under
the Fifth License Amendment, (i) the description of scheduled patent rights has been replaced by a revised schedule that includes four additional patent
applications; and (ii) Capricor is required to reimburse CSMC approximately $27,000 for attorneys’ fees and filing fees that were incurred in connection with the
additional patent rights.
On September 25, 2018, Capricor and CSMC entered into a Sixth Amendment to the Exosomes License Agreement (the “Sixth License Amendment”).
Under the Sixth License Amendment, the milestone deadline for filing an IND for at least one product has been extended to December 31, 2019. If the Company
does not file an IND by December 31, 2019, or negotiate an additional extension of the milestone deadline, CSMC would have the option to convert the
exclusive license to a non-exclusive license or to a co-exclusive license or terminate the license under Title 35, Section 203 of the United States Code. Prior to
exercising such option, Capricor has the opportunity to cure the failure to file for a period of 90 days after its receipt of written notice from CSMC of its intent to
exercise its option.
Facilities Lease
Capricor, Inc. presently maintains its laboratory, research and manufacturing facilities in leased premises located at CSMC, or the Facilities Lease. The
Facilities Lease which Capricor entered into with CSMC is for a term of three years commencing June 1, 2014 and replaced the month-to-month lease that was
previously in effect between CSMC and Capricor. On August 10, 2017, the Company and CSMC entered into the First Amendment to the Facilities Lease
effective August 1, 2017, or the First Amendment, pursuant to which the term of the Facilities Lease was extended for an additional 12-month period, and the
Company was granted an option to further extend the term for an additional 12-month period thereafter through July 31, 2019. Under the First Amendment, the
total monthly rent increased from approximately $19,350 to $19,756. In addition, pursuant to the First Amendment, the premises covered by the Facilities Lease
now also include the manufacturing facility currently being utilized by Capricor. In lieu of further increasing the monthly rental payment set forth in the First
Amendment, the Company has also agreed to provide doses of CAP-1002 for use in CSMC’s clinical trials for a negotiated amount of monetary compensation.
On September 7, 2018, Capricor entered into a Second Amendment to the CSMC Facilities Lease pursuant to which Capricor was granted two consecutive 1-
year options to extend the term of the Facilities Lease through July 31, 2021. We are planning to enter into a Third Amendment to the CSMC Facilities Lease
reducing the square footage of the leased premises, which would result in a rent reduction of approximately $4,000 per month. The premises leased from CSMC
are located at 8700 Beverly Blvd., Los Angeles, California 90048.
Provision of Cells for CSMC Trials
Capricor, Inc. is providing cells for investigational purposes in two clinical trials sponsored by CSMC. These cells were developed as part of the
Company’s past research and development efforts. The first trial is known as “Regression of Fibrosis and Reversal of Diastolic Dysfunction in HFpEF Patients
Treated with Allogeneic CDCs.” Dr. Eduardo Marbán is the named principal investigator under the study. The second trial is known as “Pulmonary Arterial
Hypertension treated with Cardiosphere-derived Allogeneic Stem Cells.” In both studies, Capricor, Inc. will provide the necessary number of doses of cells and
will receive a negotiated amount of monetary compensation which is estimated to be approximately $2.1 million over several years.
Dr. Frank Litvack
On May 10, 2018, Capricor and TrialTech Medical, Inc., a corporation in which Dr. Frank Litvack, our Executive Chairman and a director, is a co-founder,
shareholder and chairman, entered into an agreement whereby TrialTech Medical, Inc. would provide clinical trial services to Capricor for its HOPE-2 clinical
trial. In December 2018, we ceased the use of these services. Total costs incurred under the agreement were approximately $42,600.
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Employment Agreements
Information regarding our executive employment agreements for certain officers is located under the caption, “Employment Agreements and Post-
Termination Benefits” above.
Director and Officer Indemnification Agreements
In addition to the indemnification provisions contained in our certificate of incorporation and bylaws, we generally enter into separate indemnification
agreements with our directors and executive officers. These agreements require us, among other things, to indemnify the director or executive officer against
specified expenses and liabilities, such as attorneys’ fees, judgments, fines and settlements, paid by the individual in connection with any action, suit or
proceeding arising out of the individual’s status or service as our director or executive officer, other than liabilities arising from willful misconduct or conduct that
is knowingly fraudulent or deliberately dishonest, and to advance expenses incurred by the individual in connection with any proceeding against the individual
with respect to which the individual may be entitled to indemnification by us. We also intend to enter into these agreements with our future directors and
executive officers.
Policies and Procedures for Related Party Transactions
Although we have adopted a Code of Business Conduct and Ethics, we rely on the Board to review related party transactions on an ongoing basis to
prevent conflicts of interest. The Board reviews a transaction in light of the affiliations of the director, officer or employee and the affiliations of such person’s
immediate family. Transactions are presented to the Board for approval before they are entered into or, if this is not possible, for ratification after the transaction
has occurred. If the Board finds that a conflict of interest exists, then it will determine the appropriate remedial action, if any. The Board approves or ratifies a
transaction if it determines that the transaction is consistent with the best interests of the Company.
Independence of the Board of Directors
Pursuant to the independence rules of The Nasdaq Stock Market LLC (“Nasdaq”), a majority of the members of a listed company’s board of directors
must qualify as “independent,” as affirmatively determined by the board of directors. The Board consults with our counsel to ensure that the Board’s
determinations are consistent with relevant securities and other laws and regulations regarding the definition of “independent,” including those set forth in
pertinent listing standards of Nasdaq, as in effect from time to time.
Consistent with these considerations, after review of all relevant identified transactions or relationships between each director, or any of his or her family
members, and us, our senior management and our independent auditors, the Board has affirmatively determined that the following five directors are independent
directors within the meaning of the applicable Nasdaq listing standards: Mr. Earl Collier, Jr., Mr. Joshua Kazam, Mr. David Musket, Mr. Louis Manzo and Mr.
George Dunbar. In making this determination, the Board found that none of these directors had a material or other disqualifying relationship with us. In addition to
transactions required to be disclosed under SEC rules, the Board considered certain other relationships in making its independence determinations, and
determined in each case that such other relationships did not impair the director’s ability to exercise independent judgment on our behalf.
Dr. Linda Marbán, our President and Chief Executive Officer, is not an independent director by virtue of her employment with the Company. As of April
25, 2018, the Board has determined that Dr. Frank Litvack, is no longer an independent director by virtue of a related party relationship with the Company.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES.
In connection with the audit of the 2018 financial statements, we entered into an engagement agreement with Rose, Snyder & Jacobs LLP which sets
forth the terms by which Rose, Snyder & Jacobs LLP would perform audit services for us.
The following is a summary of the approximate fees billed to us by Rose, Snyder & Jacobs LLP, our independent registered public accounting firm, for
professional services rendered for the fiscal years ended December 31, 2018 and 2017 which includes Capricor, Inc. and Capricor Therapeutics, Inc.:
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Service Category
Audit Fees
Audit-Related Fees
Tax Fees
All Other Fees
Total Fees
Fiscal Year Ended
December 31,
2018
2017
$
$
97,000 $
10,000
9,750
750
117,500 $
91,250
28,500
11,450
—
131,200
In the above table, in accordance with the SEC’s definitions and rules, “audit fees” are fees for professional services for the audit and review of our
annual financial statements, as well as the audit and review of our financial statements included in our registration statements filed under the Securities Act and
issuance of consents and for services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements except
those not required by statute or regulation; “audit-related fees” are fees for assurance and related services that were reasonably related to the performance of the
audit or review of our financial statements, including attestation services that are not required by statute or regulation, due diligence and services related to
acquisitions; “tax fees” are fees for tax compliance, tax advice and tax planning; and “all other fees” are fees for any services not included in the first three
categories.
Pre-Approval Policies and Procedures.
Pursuant to our Audit Committee Charter, before the independent registered public accounting firm is engaged by the Company or its subsidiaries to
render audit or non-audit services, the Audit Committee pre-approves the engagement. Audit Committee pre-approval of audit and non-audit services is not
required if the engagement for the services is entered into pursuant to pre-approval policies and procedures established by the Audit Committee regarding the
Company’s engagement of the independent registered public accounting firm, provided the policies and procedures are detailed as to the particular service, the
Audit Committee is informed of each service provided and such policies and procedures do not include delegation of the Audit Committee’s responsibilities under
the Exchange Act to the Company’s management. The Audit Committee may delegate to one or more designated members of the Audit Committee the authority
to grant pre-approvals, provided such approvals are presented to the full Audit Committee at a subsequent meeting. If the Audit Committee elects to establish
pre-approval policies and procedures regarding non-audit services, the Audit Committee must be informed of each non-audit service provided by the
independent registered public accounting firm. Audit Committee pre-approval of non-audit services (other than review and attest services) also is not required if
such services fall within available exceptions established by the SEC. None of the services provided by our independent registered public accounting firm for
fiscal 2018 or 2017 were obtained in reliance on the waiver of the pre-approval requirement afforded in SEC regulations.
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ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(a)(1) Financial Statements
The financial statements required by this item are included in a separate section of this Annual Report on Form 10-K beginning on page 77.
(a)(2) Financial Statement Schedules
Financial Statement Schedules have been omitted because they are either not applicable or the required information is included in the consolidated financial
statements or notes thereto listed in (a)(1) above.
(a)(3) Exhibits
The following exhibits are filed herewith or incorporated herein by reference:
2.1
2.2
2.3
3.1
3.2
3.3
4.1
10.1
10.2
10.3
10.4
10.5
Agreement and Plan of Merger, dated as of August 15, 2007, by and among SMI Products, Inc., Nile Merger Sub, Inc. and Nile Therapeutics,
Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed with the Commission on August 17, 2007).
Agreement and Plan of Merger and Reorganization, dated as of July 7, 2013, by and among Nile Therapeutics, Inc., Bovet Merger Corp. and
Capricor, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed with the Commission on July 9,
2013).
First Amendment to Agreement and Plan of Merger and Reorganization, dated as of September 27, 2013, by and between Nile Therapeutics,
Inc., Bovet Merger Corp. and Capricor, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed with
the Commission on October 3, 2013).
Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with
the Commission on February 9, 2007).
Certificate of Amendment of Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current
Report on Form 8-K, filed with the Commission on November 26, 2013).
Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed with the Commission on
February 9, 2007).
Form of Warrant, issued by the Company to the Investors on March 16, 2016 (incorporated by reference to Exhibit 4.2 to the Company’s
Amendment No. 1 to Current Report on Form 8-K/A, filed with the Commission on March 16, 2016).
Employment Agreement by and between Capricor, Inc. and Linda Marbán, dated September 1, 2010 (incorporated by reference to Exhibit 10.7 to
the Company’s Annual Report on Form 10-K, filed with the Commission on March 31, 2014). †
Consulting Agreement between Capricor, Inc. and Frank Litvack, dated March 24, 2014 (incorporated by reference to Exhibit 10.9 to the
Company’s Annual Report on Form 10-K, filed with the Commission on March 31, 2014). †
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K, filed with the
Commission on March 31, 2014). †
Capricor, Inc. 2006 Stock Option Plan (incorporated by reference to Exhibit 4.4 to the Company’s Registration Statement on Form S-8, filed with
the Commission on March 4, 2014). †
Capricor, Inc. 2012 Restated Equity Incentive Plan (incorporated by reference to Exhibit 4.5 to the Company’s Registration Statement on Form
S-8, filed with the Commission on March 4, 2014). †
121
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
Capricor, Inc. 2012 Non-Employee Director Stock Option Plan (incorporated by reference to Exhibit 4.6 to the Company’s Registration
Statement on Form S-8, filed with the Commission on March 4, 2014). †
First Amendment to Capricor, Inc. 2006 Stock Option Plan (incorporated by reference to Exhibit 4.11 to the Company’s Registration Statement
on Form S-8, filed with the Commission on March 4, 2014). †
First Amendment to Capricor, Inc. 2012 Restated Equity Incentive Plan (incorporated by reference to Exhibit 4.12 to the Company’s Registration
Statement on Form S-8, filed with the Commission on March 4, 2014). †
First Amendment to Capricor, Inc. 2012 Non-Employee Director Stock Option Plan (incorporated by reference to Exhibit 4.13 to the Company’s
Registration Statement on Form S-8, filed with the Commission on March 4, 2014). †
Form of Incentive Stock Option Agreement for the Capricor, Inc. 2006 Stock Option Plan (incorporated by reference to Exhibit 4.7 to the
Company’s Registration Statement on Form S-8, filed with the Commission on March 4, 2014). †
Form of Non-Qualified Stock Option Agreement for the Capricor, Inc. 2006 Stock Option Plan (incorporated by reference to Exhibit 4.8 to the
Company’s Registration Statement on Form S-8, filed with the Commission on March 4, 2014). †
Form of Stock Option Agreement for the Capricor, Inc. 2012 Restated Equity Incentive Plan (incorporated by reference to Exhibit 4.9 to the
Company’s Registration Statement on Form S-8, filed with the Commission on March 4, 2014). †
Form of Stock Option Agreement for the Capricor, Inc. 2012 Non-Employee Director Stock Option Plan (incorporated by reference to Exhibit 4.10
to the Company’s Registration Statement on Form S-8, filed with the Commission on March 4, 2014). †
Exclusive License Agreement, dated June 21, 2006, between Capricor, Inc. and the Universita Degli Studi Di Roma “La Sapienza” (incorporated
by reference to Exhibit 10.31 to the Company’s Annual Report on Form 10-K, filed with the Commission on March 31, 2014). +
Exclusive License Agreement, dated June 22, 2006, between Capricor, Inc. and the Johns Hopkins University(incorporated by reference to
Exhibit 10.32 to the Company’s Annual Report on Form 10-K, filed with the Commission on March 31, 2014) . +
First Amendment to the Exclusive License Agreement, dated May 13, 2009, between Capricor, Inc. and the Johns Hopkins University
(incorporated by reference to Exhibit 10.33 to the Company’s Annual Report on Form 10-K, filed with the Commission on March 31, 2014). +
Second Amendment to the Exclusive License Agreement, dated December 20, 2013, between Capricor, Inc. and the Johns Hopkins University
(incorporated by reference to Exhibit 10.34 to the Company’s Annual Report on Form 10-K, filed with the Commission on March 31, 2014). +
Amended and Restated Exclusive License Agreement, dated December 30, 2013, between Capricor, Inc. and Cedars-Sinai Medical Center
(incorporated by reference to Exhibit 10.36 to the Company’s Annual Report on Form 10-K, filed with the Commission on March 31, 2014) . +
Loan Agreement, dated February 1, 2013, between Capricor, Inc. and the California Institute for Regenerative Medicine (incorporated by
reference to Exhibit 10.38 to the Company’s Annual Report on Form 10-K, filed with the Commission on March 31, 2014) . +
Notice of Loan Award, dated February 1, 2013, between Capricor, Inc. and the California Institute for Regenerative Medicine (incorporated by
reference to Exhibit 10.39 to the Company’s Annual Report on Form 10-K, filed with the Commission on March 31, 2014) . +
122
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
Lease Agreement, dated March 29, 2012, between Capricor, Inc. and The Bubble Real Estate Company, LLC (incorporated by reference to
Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q, filed with the Commission on August 14, 2015).
First Amendment to the Lease Agreement, dated June 13, 2013, between Capricor, Inc. and The Bubble Real Estate Company, LLC
(incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q, filed with the Commission on August 14, 2015). +
Sublease Agreement, dated May 1, 2012, between Capricor, Inc. and Frank Litvack (incorporated by reference to Exhibit 10.43 to the
Company’s Annual Report on Form 10-K, filed with the Commission on March 31, 2014).
Sublease Agreement, dated April 1, 2013, between Capricor, Inc. and Reprise Technologies, LLC (incorporated by reference to Exhibit 10.44 to
the Company’s Annual Report on Form 10-K, filed with the Commission on March 31, 2014).
Exclusive License Agreement, dated May 5, 2014 between Capricor, Inc. and Cedars-Sinai Medical Center (incorporated by reference to Exhibit
10.46 to the Company’s Amendment No. 1 to Registration Statement on Form S-1, filed with the Commission on May 23, 2014). +
Facilities Lease, dated June 1, 2014, between Capricor, Inc. and Cedars-Sinai Medical Center (incorporated by reference to Exhibit 10.1 to the
Company’s Quarterly Report on Form 10-Q, filed with the Commission on May 15, 2014).
Share Purchase Agreement, dated as of January 9, 2015, by and among Capricor Therapeutics, Inc. and the Investors (incorporated by
reference to Exhibit 10.1 to the Company’s Amendment No. 1 to Current Report on Form 8-K/A, filed with the Commission on January 22,
2015).
Registration Rights Agreement, dated as of January 9, 2015, by and among Capricor Therapeutics, Inc. and the Investors (incorporated by
reference to Exhibit 10.2 to the Company’s Amendment No. 1 to Current Report on Form 8-K/A, filed with the Commission on January 22,
2015).
Share Purchase Agreement, dated as of February 3, 2015, by and among Capricor Therapeutics, Inc. and the Investors (incorporated by
reference to Exhibit 10.1 to the Company’s Amendment No. 1 to Current Report on Form 8-K/A, filed with the Commission on February 6, 2015).
Registration Rights Agreement, dated as of February 3, 2015, by and among Capricor Therapeutics, Inc. and the Investors (incorporated by
reference to Exhibit 10.2 to the Company’s Amendment No. 1 to Current Report on Form 8-K/A, filed with the Commission on February 6, 2015).
Amendment dated February 2, 2015 to Share Purchase Agreement dated as of January 9, 2015, by and among Capricor Therapeutics, Inc. and
the purchaser signatories thereto (incorporated by reference to Exhibit 10.3 to the Company’s Amendment No. 1 to Current Report on Form 8-
K/A, filed with the Commission on February 6, 2015).
First Amendment to Exclusive License Agreement, dated as of February 27, 2015, by and between Capricor, Inc. and Cedars-Sinai Medical
Center (incorporated by reference to Exhibit 10.54 to the Company’s Registration Statement on Form S-1, filed with the Commission on March
6, 2015). +
Second Amendment to Lease Agreement, dated March 3, 2015, by and between Capricor, Inc. and The Bubble Real Estate Company, LLC
(incorporated by reference to Exhibit 10.55 to the Company’s Registration Statement on Form S-1, filed with the Commission on March 6, 2015).
Second Amendment to Exclusive License Agreement, dated as of June 10, 2015, by and between Capricor, Inc. and Cedars-Sinai Medical
Center (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed with the Commission on August 14,
2015). +
Joinder Agreement, dated as of September 30, 2015, by and among the Company, Capricor, Inc. and the California Institute For Regenerative
Medicine (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed with the Commission on November
13, 2015).
123
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
10.36
10.37
10.38
10.39
10.40
10.41
10.42
10.43
10.44
10.45
10.46
10.47
10.48
10.49
10.50
Employment Agreement, dated as of August 3, 2015, by and between Capricor, Inc. and Deborah Ascheim, M.D. (incorporated by reference to
Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q, filed with the Commission on November 13, 2015). †
Registration Rights Agreement, dated as of March 14, 2016, by and among the Company and the Investors (incorporated by reference to Exhibit
4.1 to the Company’s Amendment No. 1 to Current Report on Form 8-K/A, filed with the Commission on March 16, 2016).
Subscription Agreement, dated as of March 14, 2016, by and among the Company and the Investors (incorporated by reference to Exhibit 10.1
to the Company’s Amendment No. 1 to Current Report on Form 8-K/A, filed with the Commission on March 16, 2016).
Amendment to Notice of Loan Award, dated as of May 12, 2016 by and between Capricor, Inc. and the California Institute for Regenerative
Medicine (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed with the Commission on August 15,
2016). +
Third Amendment to Lease, dated as of May 25, 2016, by and between Capricor, Inc. and The Bubble Real Estate Company, LLC (incorporated
by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q, filed with the Commission on August 15, 2016).
Notice of Award, dated as of June 16, 2016, by and between Capricor, Inc. and the California Institute for Regenerative Medicine (incorporated
by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q, filed with the Commission on August 15, 2016). +
Loan Election Agreement, dated as of June 16, 2016, by and between Capricor, Inc. and the California Institute for Regenerative Medicine
(incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q, filed with the Commission on August 15, 2016).
Underwriting Agreement, dated as of September 16, 2016, by and among Capricor Therapeutics, Inc., Roth Capital Partners, LLC and National
Securities Corporation (incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K, filed with the Commission on
September 16, 2016).
Subscription Agreement, dated as of September 16, 2016, by and between Capricor Therapeutics, Inc. and Cedars-Sinai Medical Center
(incorporated by reference to Exhibit 1.2 to the Company’s Current Report on Form 8-K, filed with the Commission on September 16, 2016).
Second Amendment to Amended and Restated Exclusive License Agreement, dated as of August 5, 2016, by and between Capricor, Inc. and
Cedars-Sinai Medical Center (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed with the
Commission on November 14, 2016). +
Third Amendment to Exclusive License Agreement, dated as of August 5, 2016, by and between Capricor, Inc. and Cedars-Sinai Medical Center
(incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q, filed with the Commission on November 14, 2016).
+
Second Amendment to Capricor Therapeutics, Inc. 2012 Restated Equity Plan (incorporated by reference to Exhibit 4.14 to the Company’s
Registration Statement on Form S-8, filed with the Commission on January 11, 2017). †
Third Amendment to Capricor Therapeutics, Inc. 2012 Restated Equity Plan (incorporated by reference to Exhibit 4.15 to the Company’s
Registration Statement on Form S-8, filed with the Commission on January 11, 2017). †
Common Stock Sales Agreement, dated as of March 31, 2017, by and between Capricor Therapeutics, Inc. and H.C. Wainwright & Co. LLC
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on March 31, 2017).
Form of Subscription Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Amendment No. 1 to Current Report on Form 8-
K/A, filed with the Commission on May 9, 2017).
124
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
10.51
10.52
10.53
10.54
10.55
10.56
10.57
10.58
10.59
10.60
21.1
23.1
24.1
31.1
31.2
32.1
32.2
101
Registration Rights Agreement, dated as of May 5, 2017, by and among Capricor Therapeutics, Inc. and the Investors party thereto (incorporated
by reference to Exhibit 10.2 to the Company’s Amendment No. 1 to Current Report on Form 8-K/A, filed with the Commission on May 9, 2017).
Amendment No. 2 to Notice of Loan Award, dated as of June 7, 2017 (incorporated by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K, filed with the Commission on June 13, 2017).
Common Stock Sales Agreement, dated as of October 19, 2017, by and between Capricor Therapeutics, Inc. and H.C. Wainwright & Co. LLC
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on October 19, 2017).
Common Stock Sales Agreement, dated as of March 31, 2017, by and between Capricor Therapeutics, Inc. and H.C. Wainwright & Co. LLC
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on March 31, 2017).
Amendment No. 1 to Notice of Award, dated as of August 8, 2017 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report
on Form 10-Q, filed with the Commission on November 11, 2017).
First Amendment to Facilities Lease, dated as of August 1, 2017, by and between Capricor, Inc. and Cedars-Sinai Medical Center (incorporated
by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q, filed with the Commission on November 11, 2017).
Fourth Amendment to Exclusive License Agreement, dated as of December 26, 2017, by and between Capricor, Inc. and Cedars-Sinai Medical
Center (incorporated by reference to Exhibit 10.58 to the Company’s Annual Report on Form 10-K, filed with the Commission on March 22,
2018). +
Third Amendment to Exclusive License Agreement, dated as of December 26, 2017, by and between Capricor, Inc. and Cedars-Sinai Medical
Center (incorporated by reference to Exhibit 10.59 to the Company’s Annual Report on Form 10-K, filed with the Commission on March 22,
2018). +
Fourth Amendment to Amended and Restated Exclusive License Agreement, dated as of June 20, 2018, by and between Capricor, Inc. and
Cedars-Sinai Medical Center (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed with the
Commission on August 13, 2018). +
Fifth Amendment to Exclusive License Agreement, dated as of June 20, 2018, by and between Capricor, Inc. and Cedars-Sinai Medical Center
(incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q, filed with the Commission on August 13, 2018). +
List of Subsidiaries.*
Consent of Rose Snyder & Jacobs, LLP.*
Power of Attorney (included on signature page hereof).*
Certification of Principal Executive Officer.*
Certification of Principal Financial Officer.*
Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
The following financial information formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets as of
December 31, 2018 and 2017, (ii) Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December
31, 2018 and 2017, (iii) Consolidated Statement of Stockholders’ Equity (Deficit) for the period from December 31, 2016 through December 31,
2018, (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2018 and 2017, and (v) Notes to Consolidated Financial
Statements.*
125
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
* Filed herewith.
† Indicates management contract or compensatory plan or arrangement.
+ The Company has requested and/or received confidential treatment with respect to certain portions of this exhibit. Omitted portions have been filed separately
with the SEC.
ITEM 16.
FORM 10-K SUMMARY
None.
126
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on March 28, 2019.
SIGNATURES
CAPRICOR THERAPEUTICS, INC.
By:
/s/ Linda Marbán, Ph.D.
Linda Marbán, Ph.D.
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and directors of Capricor Therapeutics, Inc., hereby severally constitute Linda
Marbán, Ph.D. and Anthony J. Bergmann and each of them singly, our true and lawful attorneys with full power to them, and each of them singly, to sign for us
and in our names in the capacities indicated below, any and all amendments to said Annual Report on Form 10-K, and generally to do all such things in our
names and in our capacities as officers and directors to enable Capricor Therapeutics, Inc. to comply with the provisions of the Securities Exchange Act of 1934,
and all requirements of the U.S. Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said
attorneys, or any of them, to any and all amendments hereto.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
Signature
Title
/s/ Linda Marbán, Ph.D.
Linda Marbán, Ph.D.
/s/ Anthony J. Bergmann
Anthony J. Bergmann
/s/ Frank Litvack, M.D.
Frank Litvack, M.D.
/s/ Joshua A. Kazam
Joshua A. Kazam
/s/ Earl M. Collier
Earl M. Collier
/s/ Louis V. Manzo
Louis V. Manzo
/s/ George W. Dunbar
George W. Dunbar
/s/ David B. Musket
David B. Musket
Chief Executive Officer and Director
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial and Accounting Officer)
Executive Chairman
Director
Director
Director
Director
Director
127
Date
March 28, 2019
March 28, 2019
March 28, 2019
March 28, 2019
March 28, 2019
March 28, 2019
March 28, 2019
March 28, 2019
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
LEGAL NAME
Capricor, Inc.
SUBSIDIARIES OF THE REGISTRANT
JURISDICTION OF ORGANIZATION
Delaware
Exhibit 21.1
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23.1
To the Board of Directors and Stockholders of Capricor Therapeutics, Inc.
Los Angeles, California
We consent to the incorporation by reference in the Registration Statements of Capricor Therapeutics, Inc. on Form S-8 (File Nos. 333-152283, 333-175727,
333-194317, and 333-215510) and Form S-3 (File Nos. 333-161339, 333-165167, 333- 207149, 333-212017, 333-219188, and 333-227955) of our report dated
March 28, 2019, relating to the consolidated financial statements, appearing in this Annual Report on Form 10-K. Our report relating to the consolidated financial
statements contains an explanatory paragraph regarding the Company's ability to continue as a going concern.
/s/ Rose, Snyder & Jacobs LLP
Rose, Snyder & Jacobs LLP
Encino, California
March 28, 2019
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Linda Marbán, Ph.D., certify that:
1. I have reviewed this Annual Report on Form 10-K of Capricor Therapeutics, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting.
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.
Date: March 28, 2019
/s/ Linda Marbán, Ph.D.
Name: Linda Marbán, Ph.D.
Title: Chief Executive Officer and Principal Executive Officer
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Anthony J. Bergmann, certify that:
1. I have reviewed this Annual Report on Form 10-K of Capricor Therapeutics, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting.
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.
Date: March 28, 2019
/s/ Anthony J. Bergmann
Name: Anthony J. Bergmann
Title: Chief Financial Officer and Principal Financial Officer
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
Pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Linda Marbán, Ph.D., the Principal Executive Officer
of Capricor Therapeutics, Inc. (the “Company”), hereby certifies, to her knowledge, that:
(1) the Annual Report on Form 10-K of the Company for the period ended December 31, 2018 (the “ Report”) fully complies with the requirements of
Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the
period covered by the Report.
Date: March 28, 2019
/s/ Linda Marbán, Ph.D.
Name: Linda Marbán, Ph.D.
Title: Chief Executive Officer and Principal Executive Officer
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
Pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Anthony J. Bergmann, the Principal Financial
Officer of Capricor Therapeutics, Inc. (the “Company”), hereby certifies, to his knowledge, that:
(1) the Annual Report on Form 10-K of the Company for the period ended December 31, 2018 (the “ Report”) fully complies with the requirements of
Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the
period covered by the Report.
Date: March 28, 2019
/s/ Anthony J. Bergmann
Name: Anthony J. Bergmann
Title: Chief Financial Officer and Principal Financial Officer
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.