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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
☑ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the fiscal year ended December 31, 2021
☐ 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
or
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.)
10865 Road to the Cure, Suite 150, San Diego, California 92121
(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
Trading Symbol(s)
CAPR
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 ☑ 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 ☑ 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. ☑ 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 ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an 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
☐
☑
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☑
☐
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 has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 USC. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).☐ Yes ☑ No
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of June 30, 2021 was approximately $115,331,070, based on the last
reported sale of the registrant’s common stock on The Nasdaq Capital Market on June 30, 2021 of $5.13 per share.
As of March 9, 2022, there were 24,298,406 shares of the registrant’s common stock, par value $0.001 per share, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-K incorporates information by reference from the definitive proxy statement for the registrant’s 2022 Annual Meeting of Stockholders.
Table of Contents
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
Reserved
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.
References to “Capricor” in this Annual Report on Form 10-K refer to our wholly owned subsidiary, Capricor, Inc., 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 ability to achieve product milestones and to receive milestone payments from
commercial partners; 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 or a designated
third party’s 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 preclinical 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 trials
and preclinical studies 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, and (8) our compliance with legal and regulatory
requirements as a public company. 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, 2021 are not
necessarily indicative of results that may be attained in the future.
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ITEM 1. BUSINESS
Company Overview
PART I
Capricor Therapeutics, Inc. is a clinical-stage biotechnology company focused on the development of
transformative cell and exosome-based therapeutics for the treatment and prevention of a broad spectrum of diseases.
Cell Therapy (CAP-1002) Program
CAP-1002 for the treatment of Duchenne Muscular Dystrophy (“DMD”)
Our core cell therapy technology, CAP-1002, is based on cardiosphere-derived cells (“CDCs”), which has been
shown in pre-clinical and clinical studies to exert potential immunomodulatory activity and is being investigated for its
potential to modify the immune system’s activity to encourage cellular regeneration. To date, we have completed two
promising clinical trials investigating CAP-1002 for DMD. Data from the first trial, a Phase I/II trial named HOPE-
Duchenne, suggested improvements in skeletal and cardiac endpoints. In HOPE-2, a Phase II clinical trial in the United
States, CAP-1002 was used to treat patients with late-stage DMD. The final data for our HOPE-2 trial indicated that we
met our primary efficacy endpoint of Mid-level PUL (version 1.2), our secondary endpoint of Full PUL (version 2.0) and
secondary cardiac endpoints of LV Ejection Fraction, LV End-Systolic Volume (indexed) and LV End-Diastolic Volume
(indexed). The full dataset has been submitted for publication and was presented at a late breaking session of the World
Muscle Society in September 2021. We have submitted our protocol for the Phase III HOPE-3 trial to the U.S. Food and
Drug Administration (the “FDA”). We are proceeding with the study and have initiated start-up activities. The size of the
Phase III trial is estimated to be approximately 70 patients. In January 2022, we entered into a Commercialization and
Distribution Agreement (the “NS Distribution Agreement”) with Nippon Shinyaku Co., Ltd., a Japanese pharmaceutical
company listed on the TYO (US subsidiary: NS Pharma, Inc.), for the exclusive commercialization and distribution of
CAP-1002 for DMD in the United States. Under the terms of this agreement, we expect to receive a $30.0 million upfront
payment from Nippon Shinyaku which we will use to fund the HOPE-3 clinical trial. We plan to begin treating patients in
the second quarter of 2022.
CAP-1002 for the treatment of COVID-19
In 2020, under an Expanded Access (or Compassionate Use) program, seven patients hospitalized with severe
COVID-19 (also referred to sometimes as SARS-CoV-2) symptoms, six of whom were ventilated, were treated with CAP-
1002. Four of the seven patients were fully discharged and three died between one- and two-months post-treatment.
Previously published data has shown that COVID-19 patients on ventilators experience higher mortality rates. While we
are unable to definitively ascertain whether CAP-1002 improved patient outcomes, by analyzing blood samples and other
tests, it was determined that CAP-1002 was associated with identifiable improvements in certain patients such as a
decrease in white blood cell count, a decrease in IL-6, a decrease in C-reactive protein, and/or reduced reliance on
supplemental oxygen. However, the efficacy of CAP-1002 in treating COVID-19 was not demonstrated due to the small
sample size, the fact that seven patients were contemporaneously on other experimental medications, and the lack of an
established control group, among other factors.
In November 2020, we initiated a clinical study called INSPIRE, of CAP-1002 in patients with severe COVID-19.
The INSPIRE trial is a Phase II, randomized, double-blind, placebo-controlled study that aimed to enroll approximately 60
patients from several trial sites in the United States. The study enrolled patients who have a diagnosis of SARS-CoV-2 and
require supplemental oxygen. Various outcome measures will be analyzed including, but not limited to, safety, cytokine
biomarkers, all-cause mortality, cardiac biomarkers and hospitalization length. In the fourth quarter of 2021, we announced
completion of enrollment whereby we randomized 63 patients for this study and we plan to have top-line data available by
the end of the first quarter of 2022. Following receipt of this Phase II data, we will determine if there is an appropriate path
forward and will discuss next steps for the program with FDA.
Exosomes Platform
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Exosome-Based Therapeutics and Vaccines
We are focused on developing a precision-engineered exosome platform technology that has the ability to deliver
defined sets of effector molecules which exert their effects through defined mechanisms of action. At this time, we are
developing therapeutics and vaccines for infectious diseases, monogenic diseases and other potential indications. This
program consists of exosome-based vaccines, engineered exosomes and exosomes derived from CDCs (CAP-2003), all of
which are in various stages of preclinical development. Our current focus is on the development of exosomes loaded with
nucleic acids or proteins, including mRNA, to treat a variety of diseases. mRNA medicines are not small molecules, like
traditional pharmaceutical drugs and they are not traditional biologics (such as recombinant proteins and monoclonal
antibodies), which were the origins of the biotech industry. Instead, mRNA medicines are sets of instructions, and these
instructions direct cells in the body to make all the proteins required for life as well as to prevent or fight disease.
Our platform builds on advances in fundamental RNA science, targeting technology and manufacturing, providing
us the opportunity to potentially build a broad pipeline of new therapeutic candidates. In 2021, we entered into an
Exclusive License Agreement (the “JHU Exosomes License Agreement”) with Johns Hopkins University (“JHU”) for its
co-owned interest in certain intellectual property rights related to exosome-mRNA vaccines and therapeutics. In
collaboration with researchers at JHU, we published data demonstrating exosome-mediated delivery of mRNAs with
enhanced expression and lower toxicity compared to lipid nanoparticles. Additionally, we showed functional enzyme
expression and real-time imaging of mRNA expression in live animals. Building on this platform, we have promising data
for enhanced targeting of exosomes. Our plan is to actively develop this platform for a broad spectrum of diseases.
Additionally, throughout 2020 and 2021 we have been engaged in the development of vaccine candidates targeting
the potential prevention of COVID-19. The first vaccine candidate is a multivalent exosome-mRNA vaccine designed to
elicit a protective, long-lasting immune response to SARS-CoV-2 by targeting multiple structural proteins of the virus. In
2021, we announced promising preclinical data from a study using our exosome-mRNA vaccine approach. We have also
been investigating an exosomal antigen vaccine which is a vesicle-based, nucleic acid-free formulation carrying multiple
structural proteins of SARS-CoV-2. Based on the current COVID-19 vaccine landscape and global circumstances, we have
decided to refrain from further development and the filing of an IND for our exosome-mRNA vaccine until we determine
that doing so would be advantageous. We plan to continue research investigating these vaccine candidates.
CDC-Derived Exosomes (CAP-2003)
CAP-2003 is the name of our exosomes product candidate which are derived from our CDCs. We have promising
preclinical data in several indications from studies done utilizing CAP-2003 in our labs as well as in collaboration with
other companies and academic institutions. In April 2020, we filed an IND with the FDA to investigate the use of CAP-
2003 in patients with DMD. The FDA has requested more information related to manufacturing for this product candidate
and we are evaluating the next steps for this program. We need to submit further information to FDA to support the
potential acceptance of this IND.
Additionally, in July 2018, we entered into a Cooperative Research and Development Agreement with the U.S.
Army Institute of Surgical Research (“USAISR”), pursuant to which we agreed to cooperate in research and development
on the evaluation of our CAP-2003 for the treatment of trauma related injuries and conditions. In 2021, in collaboration
with the USAIRSR, we published a manuscript demonstrating CAP-2003 as a potential antishock therapeutic, if delivered
early.
Aspects of our exosomes pipeline have been supported through collaborations and alliances. In 2020, we entered
into a Sponsored Research Agreement (the “SRA”) with JHU, pursuant to which researchers in the lab of Dr. Stephen
Gould have performed certain research activities in connection with our exosomes program and the further development of
the platform. Additional collaborations include the Department of Defense (“DoD”), the National Institutes of Health
(“NIH”) and Cedars-Sinai Medical Center (“CSMC”).
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Our Technologies
Cardiosphere-Derived Cells (CAP-1002)
Our core cell therapy technology is based on cardiosphere-derived cells (“CDCs”), a cardiac-derived cell therapy
that 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 over 200 human subjects across several clinical trials. CDCs have been shown to exert potent
immunomodulatory activity and to alter 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
(“DMD”) and investigating their effects on skeletal-muscular and cardiac function. Preclinical 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 preclinical experimental models of heart injury, CDCs have been shown to stimulate cell
proliferation and blood vessel growth and to inhibit programmed cell death and scar formation. Published data by CSMC,
which tested the effectiveness of CDCs in a mouse model of DMD, showed for the first time that the skeletal and cardiac
improvements 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 (“CSps”), which are self-adherent multicellular clusters derived from the
heart. 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 and peripheral venous access.
While CDCs 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 manufacturing methods are focused on producing therapeutic doses of CDCs to boost the
regenerative capacity of the heart and skeletal muscles, 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 a product candidate.
Exosomes
Extracellular vesicles, including exosomes and microvesicles, are nano-scale, membrane-enclosed vesicles which
are secreted by most cells and contain characteristic lipids, proteins and nucleic acids such as mRNA and microRNAs.
They can signal through the binding and activation of membrane receptors or through the delivery of their cargo into the
cytosol of target cells. Our preclinical data has shown that CDCs mediate most of their therapeutic activities through the
secretion of extracellular vesicles.
Exosomes act as messengers to regulate the functions of neighboring or distant cells and have been shown to
regulate functions such as cell survival, proliferation, inflammation and tissue regeneration. Furthermore, preclinical
research has shown that exogenously-administered exosomes can modify cellular activities, thereby supporting their
therapeutic potential. Their size, low or null immunogenicity and ability to communicate in native cellular language
potentially makes them an exciting new class of therapeutic agents with the potential to expand our ability to address
complex biological responses. Because exosomes are a cell-free substance, they can be stored, handled, reconstituted and
administered in similar fashion to common biopharmaceutical products such as antibodies.
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The following table summarizes our active product development programs:
Product
CAP-1002
Indication/Population
Development Stage
Duchenne Muscular Dystrophy*
HOPE-3
Phase III – initiation underway
HOPE-2
Phase II completed**
HOPE-Duchenne
Phase I/II completed***
INSPIRE
Phase II enrollment complete
Preclinical
SARS-CoV-2
Evaluating
Duchenne Muscular Dystrophy
IND submitted
CAP-1002
Engineered Exosomes (RNA,
protein and small molecule
delivery)
CDC-Exosomes (CAP-2003)
* The U.S. Food and Drug Administration, or 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 are currently conducting an OLE study of the HOPE-2 trial.
***We completed an Open Label Extension, or OLE, for the usual care only comparator arm of the HOPE-Duchenne trial.
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 and degeneration 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 product candidate, CAP-1002.
Phase II HOPE-2 Clinical Trial
HOPE-2 was a randomized, double-blind, placebo-controlled clinical trial which was conducted at multiple sites
located in the United States. We randomized 20 patients in our HOPE-2 clinical trial. Approximately 80% of the patients
were non-ambulant and all patients were on a stable regimen of steroids. Demographic and baseline characteristics were
similar between the two treatment groups. The clinical trial was designed to 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 who are on a stable regimen of systemic glucocorticoids.
While there are many clinical initiatives in DMD, HOPE-2 was 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 promising preliminary evidence on the
retention or slowing of the loss of upper limb function.
The primary efficacy endpoint of the HOPE-2 trial was 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 were measured through
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the Performance of the Upper Limb (“PUL”), test. In the HOPE-2 study, we have evaluated these through both the PUL 1.2
and 2.0 versions. Although the PUL 1.2 version for the mid-level was the primary endpoint established for the trial, we also
conducted an analysis using the PUL 2.0 version as the FDA suggested the use of the updated PUL 2.0 version as the
primary efficacy endpoint in support of a Biologics License Application (“BLA”). HOPE-2 assessed the mid-level
dimension of the PUL which evaluates one’s ability to use muscles extending from the elbow to the hand, which muscles
are essential for operating wheelchairs and performing other daily functions. In HOPE-2, additional secondary and
exploratory endpoints such as cardiac function, pulmonary function, quality of life and additional measures were included.
In July 2019, we reported interim top-line results from a pre-specified interim analysis of 6-month data from the
HOPE-2 trial, which showed promising results across several independent clinical measures.
In September 2021, we reported the final 12-month results from the HOPE-2 study. The final data showed
improvements in upper limb and cardiac function with p-values of less than p=0.05 in multiple measures. With the
exception of steroids, preservation of function in DMD is uncommon. The results of the placebo patients were consistent
with natural history, but in the treated group, most patients were stable or improved on these endpoints throughout the one-
year treatment period.
Additionally, the final data suggested global improvements in cardiac function as measured by ejection fraction
and indexed volumes (LVESV, LVEDV). These are surrogate measures of cardiac function and are considered significant
in terms of relevance to long term outcomes. Furthermore, the data showed a reduction in the biomarker CK-MB, an
enzyme that is only released when there is cardiac muscle cell damage. In normal human subjects, there is typically no CK-
MB measurable in the blood. It is well accepted that continuous muscle cell damage in DMD leads to pathologically high
enzyme levels associated with cardiac muscle cell loss. In HOPE-2, treatment with CAP-1002 was associated with a
reduction in CK-MB levels as compared to placebo. To our knowledge, this is the first clinical study in DMD that
correlates cardiac functional stabilization with a reduction of a biomarker of cell damage.
Study Results
12-Month Final Efficacy Data:
12-Month Difference in Change from Baseline†
Δ, CAP-1002 vs. Placebo
(n=8, n=12)
Skeletal-Muscle (Upper Limb Function)
Mid-level PUL (version 1.2)
Shoulder + Mid + Distal PUL (version 1.2)
Shoulder + Mid + Distal PUL (version 2.0)
Cardiac Function
LV Ejection Fraction %
LV End-Diastolic Volume, Indexed mL/m2
LV End-Systolic Volume, Indexed mL/m2
Creatine Kinase-MB (% of total CK)
2.6
3.2
1.8
4.0
-12.4‡
-4.2‡
-2.2‡
p-value
0.01
0.02
0.04
0.002
0.03
0.01
0.02
†Non-parametric mixed model repeated measures analysis with percentile ranked baseline, treatment, visit, visit-by-
treatment interaction, PUL entry-item score at stratification, and site as model effects. Percentile ranked change from
baseline converted back to original scale
‡Negative value favors CAP-1002
ITT (intent to treat) population shown
Additionally, we are conducting an open-label extension available to all patients who participated in the HOPE-2
study which includes those patients who received placebo.
Safety
CAP-1002 was generally safe and well tolerated throughout the study. With the exception of hypersensitivity
reactions which were mitigated with a common pre-medication regimen, no safety signals were identified in the HOPE-2
trial.
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Phase I/II HOPE-Duchenne Clinical Trial
We 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
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 (the “CIRM Award”) from the California Institute for Regenerative
Medicine (“CIRM”). In January 2019, this study was published in the online issue of Neurology, the medical journal of the
American Academy of Neurology.
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-
Duchenne 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). Additionally, we reported improvements in systolic thickening of the left
ventricular wall as well as reduction in scarring of the heart muscle among those treated with CAP-1002 decreased relative
to the control group.
CAP-1002 was generally safe and well-tolerated in the HOPE-Duchenne trial. There was no significant difference
in the incidences of treatment-emergent adverse events in either group. There were no early study discontinuations due to
adverse events.
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 in which the serious or life-threatening
manifestations primarily affect individuals aged from birth to 18 years and that affects fewer than 200,000 individuals 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. 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 RMAT, designation for CAP-1002 for the treatment of DMD. The FDA grants the RMAT designation to regenerative
medicine therapies intended to treat, modify, reverse, or cure a serious or life-threatening disease or 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 fast track or 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 DMD. To receive the RMAT designation, we submitted data from the HOPE-Duchenne Trial.
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CAP-1002 for the Treatment of SARS-CoV-2
Within the framework of SARS-CoV-2 pathogenesis, multiple pathways known to be CAP-1002 sensitive may
serve as therapeutic targets. These targets include pro-inflammatory pathways (TNF-α, interferon γ, IL-1, and IL-6) and
anti-inflammatory pathways (regulatory T cells and IL-10) that have been explored with CAP-1002 in preclinical models
of myocardial ischemia, myocarditis, heart failure, Duchenne muscular dystrophy and pulmonary hypertension. Given that
CAP-1002 polarizes macrophages to an anti-inflammatory (healing) immunomodulatory phenotype, CAP-1002 may
subsequently attenuate the cytokine storm associated with SARS-CoV-2. Furthermore, as CAP-1002 directly targets
cardiac dysfunction, CAP-1002 may potentially also be an important tool in the treatment of the cardiac complications of
SARS-CoV-2. We have completed enrollment in the INSPIRE Phase II clinical trial in patients with a diagnosis of SARS-
CoV-2. We plan to have top-line data available by the end of the first quarter of 2022.
CAP-1002 for the Treatment of Cardiac Conditions:
In previous years, we completed several trials investigating the use of CAP-1002 for the treatment of various
cardiac conditions, including heart failure (the DYNAMIC Trial) and post myocardial infarction (MI) with cardiac
dysfunction (the ALLSTAR trial). Because of our decision to focus our efforts on DMD, we have decided not to pursue
those indications at this time, nor do we have any plans to continue with the development of these programs. We expect no
further material expenses in connection with these programs.
CAP-1002 - Investigator Sponsored Clinical Trials:
Capricor provided CAP-1002 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, or the REGRESS trial.
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, or the ALPHA trial. In this trial, the
investigational product was infused into the venous system via catheter into the right atrium. CSMC informed us that the
enrollment of the REGRESS and ALPHA studies have been completed and as a result, we do not expect to receive any
further material revenues from these trials.
These programs represent our core technology and products.
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.
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, formulations, 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 patents, or patent applications, if issued and upon payment of patent maintenance fees,
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would expire as early as 2024 and as late as 2042. There are also limited opportunities to obtain extensions of patent terms
in certain countries.
Intellectual Property Rights for Capricor’s Technology - CAP-1002 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, or the University of Rome, JHU and CSMC. Capricor has
also entered into an exclusive license agreement for intellectual property rights related to exosomes with CSMC and JHU
as well as a non-exclusive license agreement with JHU related to the imaging-based serology technology for COVID-19. 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, or 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 Agreements
License Agreement for CDCs
Capricor and JHU entered into an Exclusive License Agreement, effective June 22, 2006, or 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
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 U.S. Food and Drug
Administration, or 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
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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 the Phase I study that was owed to JHU
pursuant to the terms of the JHU License Agreement. The Company recorded the $250,000 milestone payment for
successful completion of a Phase II study in accounts payable and accrued expenses as of December 31, 2021. Payment of
this milestone is expected to be made in the first quarter of 2022. The next milestone is triggered upon successful
completion of a full Phase III study for which a payment of $500,000 will be due.
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.
License Agreement for Serology Diagnostic
Capricor and JHU entered into a Nonexclusive License Agreement, or the JHU Serology License Agreement,
effective January 6, 2021, which provides for the grant of a non-exclusive, world-wide, non-royalty-bearing license by
JHU to Capricor to develop and commercialize licensed products under the licensed patent rights for COVID-19. The JHU
Serology License Agreement is due to expire July 2022 and at this time, Capricor does not intend to convert it to an
exclusive license or extend the JHU Serology License Agreement.
License Agreement for Exosome-based Vaccines and Therapeutics
Capricor and JHU entered into an Exclusive License Agreement, or the JHU Exosome License Agreement,
effective April 28, 2021 for its co-owned interest in certain intellectual property rights related to exosome-mRNA vaccines
and therapeutics. The JHU Exosome License Agreement provides for the grant of an exclusive, world-wide, royalty-
bearing license of JHU’s co-owned rights by JHU 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.
Pursuant to the JHU Exosome License Agreement, JHU was paid an upfront license fee of $10,000 and Capricor
has agreed to reimburse JHU for certain fees and costs incurred in connection with the prosecution of certain patent rights.
Additionally, Capricor is required to meet certain development milestones for which a milestone payment fee shall
be due and is obligated to pay low single-digit royalties on sales of royalty-bearing products as well as a double-digit
percentage of any non-royalty consideration received from any sublicenses, subject to certain exclusions. The above-
mentioned royalties are subject to reduction in the event Capricor becomes obligated to pay royalties on one or more third
party patents as a requirement to make or sell a licensed product. In addition, Capricor will, beginning with the third year
of the JHU Exosome License Agreement, be obligated to pay JHU a minimum annual royalty which is non-refundable but
will be credited against royalties incurred by Capricor for the year in which the minimum annual royalty becomes due.
The JHU Exosome License Agreement will, unless sooner terminated, continue in each country until the date of
expiration of the last to expire patent included within the patent rights in that country, or if no patents issue, then for 20
years. The JHU Exosome License Agreement may be terminated by Capricor upon 90 days’ written notice in its discretion
and with 60 days’ notice with respect to any particular patent or application or as to any particular licensed product. The
JHU Exosome License Agreement may also be terminated by either party if it fails to perform or otherwise breaches any of
its obligations and fails to cure such breach within a 60-day cure period commencing upon notice. A material breach by
Capricor may include (a) a delinquency with respect to payment or reporting; (b) the failure by Capricor to timely achieve
a specified milestone or otherwise failing to diligently develop, commercialize, and sell licensed products throughout the
term of the JHU Exosome License Agreement; (c) non-compliance with record keeping or audit obligations; (d) voluntary
bankruptcy or insolvency of Capricor; and (e) non-compliance with Capricor’s insurance obligations.
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Cedars-Sinai Medical Center License Agreements
License Agreement for CDCs
On January 4, 2010, Capricor entered into an Exclusive License Agreement with CSMC, or 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, or 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.
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, August 5, 2016, December 26, 2017, June 20, 2018, and July 27, 2021, Capricor and CSMC
entered into a number of amendments to the Amended CSMC License Agreement, pursuant to which the parties agreed to
add and delete certain patent applications from the list of scheduled patents, among other things. Capricor reimbursed
CSMC for certain attorneys’ fees and filing fees incurred in connection with the additional patent applications.
License Agreement for Exosomes
On May 5, 2014, Capricor entered into an Exclusive License Agreement with CSMC, or 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
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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.
On February 27, 2015, June 10, 2015, August 5, 2016, December 26, 2017, June 20, 2018, September 25, 2018,
August 19, 2020, August 28, 2020, and March 19, 2021, Capricor and CSMC entered into a number of amendments to the
Exosomes License Agreement. Collectively, these amendments added additional patent applications and patent families to
the Exosomes License Agreement, added certain defined product development milestone payments, modified certain
milestone deadlines, and added certain performance milestones with respect to product candidates covered by certain future
patent rights in order to maintain an exclusive license to those future patent rights; failure to meet those milestones would
cause CSMC to have the right to convert the license from exclusive to non-exclusive or co-exclusive, or to terminate the
license, subject to Capricor’s right to license such patent rights for internal research purposes on a non-exclusive basis.
These amendments also obligated Capricor to reimburse CSMC for certain attorneys’ fees and filing fees in connection
with the additional patent applications and patent families.
Sponsored Research Agreement with Johns Hopkins University
On April 1, 2020 we entered into a Sponsored Research Agreement, or the SRA, with JHU pursuant to which
researchers in the lab of Dr. Stephen Gould are performing certain research activities in connection with our exosomes
program. Pursuant to the SRA, we are funding certain research activities and have the right to negotiate for exclusive or
non-exclusive rights to intellectual property that may result from such research activities. Unless renewed, the SRA is
scheduled to expire on March 31, 2022.
Commercialization and Distribution Agreement with Nippon Shinyaku Co., Ltd.
On January 24, 2022, we entered into an Exclusive Commercialization and Distribution Agreement (the “NS
Distribution Agreement”) with Nippon Shinyaku Co., Ltd., a Japanese corporation (“Nippon Shinyaku”). Under the terms
of the NS Distribution Agreement, Capricor appointed Nippon Shinyaku as its exclusive distributor in the United States of
CAP-1002 for the treatment of DMD.
Under the terms of the NS Distribution Agreement, we will be responsible for the conduct of the HOPE-3 trial as
well as for the manufacturing of CAP-1002. Nippon Shinyaku will be responsible for the distribution of CAP-1002 in the
United States. We will sell commercial product to Nippon Shinyaku and in addition will receive a meaningful, double-digit
share of product revenue and additional development and sales-based milestone payments. We expect to receive an upfront
payment of $30.0 million with potential additional milestone payments of up to $705.0 million. Nippon Shinyaku has the
right to negotiate with us for distribution rights for CAP-1002 in additional territories under the NS Distribution
Agreement.
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Manufacturing
Capricor presently maintains a laboratory and research and manufacturing facilities in leased premises located at
CSMC pursuant to a Facilities Lease. In that portion of the leased premises where we manufacture CAP-1002 and may
manufacture our exosome products for potential clinical use, we believe that we follow, current good manufacturing
practices, to the extent that they are applicable to the stage of our clinical programs although our current facility does not
meet commercial cGMP standards. This manufacturing facility is licensed by the California Department of Public Health
Food and Drug Branch to manufacture drugs. Capricor manufactured CAP-1002 in this facility for our previous studies. At
this time, we intend to commence the HOPE-3 trial with product manufactured in our facility located at CSMC.
Our Facilities Lease has an expiration date of July 31, 2022. If we are unable to extend the term of our Facilities
Lease at CSMC, 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. For commercial scale production of CAP-1002 or exosomes, we would have to establish a
collaboration agreement with a third-party or build out our own manufacturing facility. At this time, we are evaluating
multiple options as we proceed through clinical development of our product candidates as well as the possible extension of
our current Facilities Lease.
Furthermore, we have initiated a technology transfer with Lonza Houston, Inc., a leading global contract
manufacturing organization to prepare for commercial or possibly for late-stage clinical manufacturing of CAP-1002. The
current activities with Lonza are focused on process development services for the manufacturing processes and related
other activities necessary for potential cGMP readiness.
Manufacturing Process for CAP-1002
The manufacturing process for CAP-1002 begins with material from an entire heart 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 participating in clinical trials. CAP-
1002 is cryo-preserved, enabling us to produce large lots that can be frozen and then administered to patients as needed.
Manufacturing Process for CDC-Exosomes (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 clinical
investigation, subject to regulatory approval. We believe that the allogeneic, acellular nature of exosomes would potentially
enable us to create a scalable cell-derived product.
Manufacturing Processes for Other Exosome Technologies
We have also made significant progress planning the next steps for the manufacturing process for our exosome
product candidates. We believe these developments will enable us to scale up our manufacturing capabilities and allow us
to manufacture enough material for early-stage clinical development. We are exploring the use of various cell sources to
generate our exosomes for preclinical and potential clinical use.
Research and Development
Capricor’s research and development program has been advanced in part through federal and state grants and loan
awards totaling approximately $28 million to date. Our ongoing research and development activities primarily concern
CDCs and 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.
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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. This competition is particularly intense for products involving
the treatment of diseases associated with COVID-19. 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 patients for clinical trials, qualified
personnel and parties for acquisitions, joint ventures, or other collaborations.
Government Regulation
The research, development, testing, manufacture, quality control, approval, labeling, packaging, storage,
recordkeeping, serialization and tracking, promotion, advertising, distribution and marketing, post-approval monitoring and
reporting, and export and import, 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 NDA
or a pending BLA, warning letters, product recalls, product seizures, total or partial suspension of production or
distribution, injunctions and/or criminal prosecution. We would also be facing additional regulations and requirements
from regulatory authorities in other countries outside the U.S. if we seek approval of our product candidates for sale or
distribution within such countries.
FDA Approval Process for Drugs and Biologics
Pharmaceutical products, including biological 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 for
receiving such approval is long, expensive and risky, and includes the following steps:
● preclinical 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;
● approval by an IRB at each clinical site before each trial may be initiated;
● 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, for a drug, or BLA, for a biological product;
● satisfactory completion of an FDA advisory committee review, if applicable;
● 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;
● FDA review and approval of the NDA or BLA prior to any commercial marketing or sale of the drug in the
United States; and
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● compliance with any post-approval requirements, including the potential requirement to implement a REMS,
and the potential requirement to conduct post-approval studies.
Sponsors submit NDAs in order to obtain marketing approval for drugs. Sponsors submit BLAs in order to obtain
marketing approval for biologics, which include, among other product classes, vaccines.
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, packaging, 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 preclinical testing, which include laboratory evaluation of product chemistry, formulation, toxicity
and carcinogenicity 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 a clinical trial can begin. In addition, the FDA or IRB may impose a clinical hold on ongoing clinical trials if,
among other things, it believes that a clinical trial either is not being conducted in accordance with FDA requirements or
presents an unacceptable and significant risk to clinical trial patients. If the FDA imposes a clinical hold, clinical trials can
only proceed under terms authorized by the FDA. If applicable, our preclinical 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:
● Phase I clinical trials typically are conducted in a small number of volunteers or patients to assess the early
tolerability and safety profile, the pattern of drug absorption, distribution and metabolism, the mechanism of
action in humans, and may include studies where investigational drugs are used as research to explore
biological phenomena or disease processes;
● 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
labeling of the drug.
A therapeutic product candidate being studied in clinical trials may be made available for treatment of individual
patients, intermediate-size patient populations, or for widespread treatment use under an expanded access protocol, under
certain circumstances. Pursuant to the 21st Century Cures Act (Cures Act), which was signed into law in December 2016,
the manufacturer of one or more investigational products for the diagnosis, monitoring, or treatment of one or more serious
diseases or conditions 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.
Additionally, on May 30, 2018, the Trickett Wendler, Frank Mongiello, Jordan McLinn, and Matthew Bellina
Right to Try Act of 2017 was signed into law. The law, among other things, provides a federal framework for certain
patients to access certain investigational new drug products that have completed a Phase 1 clinical trial and that are
undergoing investigation for FDA approval. Under certain circumstances, eligible patients can seek treatment without
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enrolling in clinical trials and without obtaining FDA authorization under an FDA expanded access program; however,
manufacturers are not obligated to provide investigational new drug products under the current federal right to try law.
The results of the preclinical 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. Within 60 days following submission of the application, the FDA reviews an
application submission to determine if it is substantially complete before the agency accepts it for filing. The FDA may
refuse to file any application that it deems incomplete or not properly reviewable at the time of submission and may request
additional information. In this event, the application must be resubmitted with the additional information. The resubmitted
application also is subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the
FDA begins an in-depth substantive review of the application. In responding to an NDA or BLA, the FDA may grant
marketing approval, or issue a Complete Response Letter, or CRL. 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 substantial additional
testing or information. 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.
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 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 candidate 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. Among the other
benefits of orphan drug designation are tax credits for certain research and an exemption from the NDA or BLA
application fee. 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 such
drug 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, for seven years, unless the sponsor of the subsequent application demonstrates clinical superiority, in the form
of a greater efficacy, greater safety, or a major contribution to patient care. Orphan drug exclusivity, however, could also
block the approval of one of our therapeutic candidates for seven years if a competitor obtains orphan drug designation and
FDA approval of the same therapeutic candidate for the same condition or disease as our orphan-designated drug. For
macromolecules, FDA considers a drug to be the same drug as an orphan-designated macromolecule if it contains the same
principal molecular structural features, but not necessarily all of the same structural features.
In addition, as the FDA has interpreted the Orphan Drug Act, even if a previously approved same drug does not
have unexpired orphan exclusivity, a demonstration of clinical superiority is required for a subsequent marketing
application for the same orphan-designated drug for the same disease or condition 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
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Reauthorization Act of 2017 to codify FDA’s longstanding interpretation. Section 527 of the FDCA now expressly
provides that if a sponsor of an orphan-designated drug that is otherwise the same as an already approved drug for the same
rare disease or condition is seeking orphan exclusivity, FDA shall require such sponsor to demonstrate that such drug is
clinically superior to any already approved or licensed drug that is the same drug in order to obtain orphan drug exclusivity.
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.
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 FDA may revoke the Fast Track designation if it
believes that the designation is no longer supported by data emerging in the clinical trial process.
Products may also be eligible for other types of FDA programs intended to expedite development and review,
such as Breakthrough Therapy designation, 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.
A product is eligible for priority review if it is intended to treat a serious condition and, if approved, it would
provide a significant improvement in safety or effectiveness. FDA intends to take action on a priority review marketing
application within 6 months of filing, compared to 10 months of filing for regular review submissions.
Additionally, a product may be eligible for accelerated approval if it is intended to treat a serious or life-
threatening disease or condition and would provide meaningful therapeutic benefit over existing treatments. Eligible
products may receive accelerated approval 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 a clinical endpoint
that can be measured earlier than irreversible morbidity or mortality and is reasonably likely to predict an effect on
irreversible morbidity, mortality, or other clinical benefit. As a condition of approval, the FDA may require that a sponsor
of a drug or biological product receiving accelerated approval diligently perform adequate and well-controlled post-
marketing clinical studies demonstrating clinical benefit. In addition, the FDA requires as a condition for accelerated
approval the submission 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 full 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
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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.
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. Congress has only authorized the rare pediatric disease priority review voucher
program until September 30, 2024. However, if a drug candidate receives RPD designation before September 30, 2024, it is
eligible to receive a voucher if it is approved before September 30, 2026.
FDA Emergency Use Authorization
Section 564 of the FDCA allows the FDA to authorize the shipment of drugs, biological products (including
vaccines), or medical devices that either lack required approval, licensure, or clearance (unapproved products), or are
approved but are to be used for unapproved ways to diagnose, treat, or prevent serious diseases or conditions in the event
of an emergency declaration by the HHS Secretary.
On February 4, 2020, HHS Secretary Alex M. Azar II declared a public health emergency for COVID-19, under
21 U.S.C. § 360bbb-3(b)(1), justifying the authorization of emergency use of IVDs for detection and/or diagnosis of
COVID-19. This determination was published in the Federal Register on February 7, 2020.
While this emergency declaration is effective, the FDA may authorize the use of an unapproved product or an
unapproved use of an approved product if it concludes that:
● an agent referred to in the emergency declaration could cause a serious or life-threatening disease or
condition;
● it is reasonable to believe that the authorized product may be effective in diagnosing, treating, or preventing
that disease or condition or a serious or life-threatening disease or condition caused by an approved product
or a product marketed under an EUA;
● the known and potential benefits of the authorized product, when used for that disease or condition, outweigh
known and potential risks, taking into consideration the material threat of agents identified in the emergency
declaration;
● there is no adequate, approved, and available alternative to the authorized product for diagnosing, preventing,
or treating the relevant disease or condition; or
● any other criteria prescribed by the FDA is satisfied.
Medical products that are granted an EUA are only permitted to commercialize their products under the terms and
conditions provided in the authorization. The FDCA authorizes FDA to impose such conditions on an EUA as may be
necessary to protect the public health. Consequently, postmarketing requirements will vary across EUAs. In addition, FDA
has, on occasion, waived requirements for drugs marketed under an EUA.
Generally, EUAs for unapproved products or unapproved uses of approved products require that manufacturers
distribute factsheets for healthcare providers, addressing significant known and potential benefits and risk, and the extent to
which benefits and risks are unknown, and the fact that FDA has authorized emergency use; and, distribution of factsheets
for recipients of the product, addressing significant known and potential benefits and risk, and the extent to which benefits
and risks are unknown, the option to accept or refuse the product, the consequences of refusing, available alternatives, and
the fact that FDA has authorized emergency use.
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Generally, EUAs for unapproved products and, per FDA’s discretion, EUAs for unapproved uses of approved
products, include requirements for adverse event monitoring and reporting, and other recordkeeping and reporting
requirements. Note, however, that approved products are already subject to equivalent requirements.
In addition, FDA may include various requirements in an EUA as a matter of discretion as deemed necessary to
protect the public health, including restrictions on which entities may distribute the product, and how to perform
distribution (including requiring that distribution be limited to government entities), restrictions on who may administer the
product, requirements for collection and analysis of safety and effectiveness data, waivers of cGMP, and restrictions
applicable to prescription drugs or restricted devices (including advertising and promotion restrictions).
The FDA may revoke an EUA where it is determined that the underlying health emergency no longer exists or
warrants such authorization, if the conditions for the issuance of the EUA are no longer met, or if other circumstances
make revocation appropriate to protect the public health or safety.
Post-Approval Requirements
FDA Requirements
Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation
by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling
and distribution, advertising and promotion with the product. After approval, most changes to the approved product, such
as adding new indications or other labeling claims, are subject to prior FDA review and approval. There also are
continuing, annual user fee requirements for any marketed products and the establishments at which such products are
manufactured, as well as new application fees for supplemental applications with clinical data.
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. In addition, drug manufacturers and other entities involved in the manufacture and distribution of
approved drugs are required to register their establishments with the FDA and state agencies and are subject to periodic
unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. Changes to the
manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA
regulations also require investigation and correction of any deviations from cGMP and impose reporting and
documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use.
Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control
to maintain cGMP compliance.
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. 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.
Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and
standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously
unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing
processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new
safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of
distribution or other restrictions under a REMS program. Other potential consequences include, among other things:
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● restrictions on the marketing or manufacturing of the product, including total or partial suspension of
production, complete withdrawal of the product from the market or product recalls;
● fines, warning letters or holds on post-approval clinical trials;
● refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or
revocation of product license approvals;
● product seizure or detention, or refusal to permit the import or export of products; or
● injunctions or the imposition of civil or criminal penalties.
The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the
market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved
labeling. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off label uses,
and a company that is found to have improperly promoted off label uses may be subject to significant liability.
In addition, the distribution of prescription drug products is subject to the Prescription Drug Marketing Act (the
PDMA) which regulates the distribution of drugs and drug samples at the federal level and sets minimum standards for the
registration and regulation of drug distributors by the states. Both the PDMA and state laws limit the distribution of
prescription drug product samples and impose requirements to ensure accountability in distribution.
Pricing, Coverage and Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of any of our products, if and when
approved. Sales of pharmaceutical products depend, in part, on the availability of sufficient coverage and adequate
reimbursement from third-party payors, which include government health programs, such as Medicare, Medicaid,
TRICARE, and the Veterans Administration, as well as commercial insurance, and managed healthcare organizations.
Prices at which we or our customers seek reimbursement for our therapeutic product candidates can be subject to
challenge, reduction, or denial by payors. 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 process for determining whether a payor will provide coverage for a product is typically separate from the
process for setting the reimbursement rate that the payor will pay for the product. A payor’s decision to provide coverage
for a product does not imply reimbursement will be available at a rate that covers our costs, including research,
development, manufacture, and sales and distribution costs. Additionally, in the United States there is no uniform policy
among payors for determining coverage or reimbursement. Many third-party payors often rely upon Medicare coverage
policy and payment limitations in setting their own coverage and reimbursement policies, but also have their own methods
and approval processes. Therefore, coverage and reimbursement for products can differ significantly from payor to payor.
One third-party payor’s decision to cover a particular medical product or service does not ensure that other payors will also
provide coverage for the medical product or service or will provide coverage at an adequate reimbursement rate. As a
result, the coverage determination process will require us to provide scientific and clinical support for the use of our
products to each payor separately and will likely be a time-consuming process. If coverage and adequate reimbursement
are not available, or are available only at limited levels, successful commercialization of, and obtaining a satisfactory
financial return on, any product we develop may not be possible.
Third-party payors are increasingly challenging the price and examining the medical necessity and cost-
effectiveness of medical products and services, in addition to their safety and efficacy. In order to obtain coverage and
reimbursement for any product that might be approved for marketing, we may need to conduct expensive studies in order
to demonstrate the medical necessity and cost-effectiveness of any products, which would be in addition to the costs
expended to obtain regulatory approvals. Third-party payors may not consider our product candidates to be medically
necessary or cost-effective compared to other available therapies, or payor negotiations may not enable us to maintain price
levels sufficient to realize an appropriate return on our investment in drug development. If these third-party payors do not
consider our products to be cost-effective compared to other therapies, they may not cover our products once approved as a
benefit under their plans or, if they do, the level of reimbursement may not be sufficient to allow us to sell
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our products on a profitable basis. Decreases in third-party reimbursement for our products once approved or a decision by
a third-party payor to not cover our products could reduce or eliminate utilization of our products and have an adverse
effect on our sales, results of operations, and financial condition.
Additionally, efforts to contain healthcare costs (including drug prices) has become a priority of federal and state
governments. 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 by generic products. There has also been heightened governmental scrutiny recently over the manner in which
drug manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and
proposed and enacted federal and state legislation 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. We anticipate additional state and federal healthcare reform measures will
be adopted in the future. These may include price controls and cost-containment measures, or more restrictive policies in
jurisdictions with existing controls and measures, any of which could limit the amounts that federal and state governments
will pay for healthcare products and services, and potentially could reduce demand for our products once approved, create
additional pricing pressures, or ultimately limit our net revenue and results.
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
Although we currently do not have any products on the market, our activities, including current and future
arrangements with investigators, healthcare professionals, consultants, third-party payors and customers, may be subject to
additional healthcare laws, regulations and enforcement by the federal government and by authorities in the states and
foreign jurisdictions in which we conduct our business. Such laws include, without limitation, state and federal anti-
kickback, fraud and abuse, false claims, privacy and security, price reporting, and physician sunshine laws. Some of our
pre-commercial activities also may be subject to some of these laws.
The federal Anti-Kickback Statute prohibits, among other things, any person or entity, including a prescription
drug manufacturer or a party acting on its behalf, 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. Several courts have interpreted
the statute’s intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce
referrals of federal healthcare covered business, the Anti-Kickback Statute has been violated. 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.
Violations of the federal Anti-Kickback Statute may result in civil monetary penalties up to $100,000 for each violation,
plus up to three times the remuneration involved. Civil penalties for such conduct can further be assessed under the federal
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False Claims Act. Violations can also result in criminal penalties, including criminal fines of up to $100,000 and
imprisonment of up to 10 years. Similarly, violations can result in exclusion from participation in federal and state
healthcare programs, including Medicare and Medicaid.
The federal civil False Claims Act, prohibits, among other things, any person or entity from knowingly presenting,
or causing to be presented, for payment to, or approval by, federal programs, including Medicare and Medicaid, claims for
items or services, including drugs, that are false or fraudulent or not provided as claimed. Persons and entities can be held
liable under these laws if they are deemed to “cause” the submission of false or fraudulent claims by, for example,
providing inaccurate billing or coding information to customers or promoting a product off-label. In addition, certain of our
future activities relating to the reporting of wholesaler or estimated retail prices for our products, the reporting of prices
used to calculate Medicaid rebate information, and other information affecting federal, state, and third-party reimbursement
for our products, and the sale and marketing of our products, are subject to scrutiny under this law. Penalties for federal
civil False Claims Act violations may include up to three times the actual damages sustained by the government, plus
mandatory civil penalties of between $11,803 and $23,607 for each separate false claim per false claim or statement for
penalties assessed after December 13, 2021 with respect to violations occurring after November 2, 2015 (and penalties of
between $5,500 and $11,000 per claim or statement with respect to violations occurring before that date). Other penalties
include the potential for exclusion from participation in federal healthcare programs. Additionally, although the federal
False Claims Act is a civil statute, False Claims Act violations may also implicate various federal criminal statutes.
There is also the federal criminal False Claims Act, which is similar to the federal civil False Claims Act and
imposes criminal liability on those that make or present a false, fictitious or fraudulent claim to the federal government.
The Federal Criminal Statute on False Statements Relating to Health Care Matters makes it a crime to knowingly and
willfully falsify, conceal, or cover up a material fact, make any materially false, fictitious, or fraudulent statements or
representations, or make or use any materially false writing or document knowing the same to contain any materially false,
fictitious, or fraudulent statement or entry in connection with the delivery of or payment for healthcare benefits, items, or
services.
The Federal Civil Monetary Penalties Law, or the CMPL, authorizes the imposition of substantial monetary
penalties against an entity, such as a pharmaceutical manufacturer, that engaged in activities including, among others (1)
knowingly presenting, or causing to be presented, a claim for services not provided as claimed or that is otherwise false or
fraudulent in any way; (2) arranging for or contracting with an individual or entity that is excluded from participation in
federal health care programs to provide items or services reimbursable by a federal health care program; (3) violations of
the federal Anti-Kickback Statute; or (4) failing to report and return a known overpayment.
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.
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.
Regulatory guidance and obligations continue to evolve. For example, on December 10, 2020, the Office for Civil Rights
issued a proposed rule aimed at reducing regulatory burdens that may exist in discouraging coordination of care, among
other changes. As HIPAA requirements evolve, we may be required to update our compliance strategies or modify our
business processes to comply.
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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 instance, the California Consumer Privacy Act
(CCPA) became effective on January 1, 2020, giving California residents expanded privacy rights, and requiring businesses
provide detailed information about their data practices. The CCPA provides for civil penalties for violations, as well as a
private right of action for data breaches that is expected to increase data breach litigation. Although there are limited
exemptions for PHI and certain clinical trial data, the CCPA’s implementation standards and enforcement practices may
increase our compliance costs and legal risks. Additionally, the California Privacy Rights Act (CPRA) was passed in
November 2020 and will amend the CCPA beginning in 2023. The CPRA will impose additional data protection
obligations on companies doing business in California, including additional consumer rights processes, limitations on data
uses, new audit requirements for higher risk data, and opt outs for certain uses of sensitive data. It will also create a new
California data protection agency authorized to issue substantive regulations and could result in increased privacy and
information security enforcement. Additional state laws are being proposed, and new obligations may continue to arise.
Additional compliance investment and potential business process changes may be required to respond to these rapidly
changing privacy law landscape. If we fail to comply with existing or new privacy laws and regulations, we could face
legal liability from regulatory actions or litigation, as well as reputational damage.
Additionally, the federal Physician Payments Sunshine Act, or the Sunshine Act, created under 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. Effective January 1, 2022, these reporting obligations extend to include transfer of value made
in the previous year to certain non-physician providers such as physician assistants, nurse practitioners, clinical nurse
specialists, anesthesiologist assistant, certified nurse anesthetists, and certified nurse-midwives. Failure to submit timely,
accurately and completely the required information for all payments, transfers of value and ownership or investment
interests may result in civil monetary penalties of up to an aggregate of $178,581 per year and up to an aggregate of
$1,190,546 per year for “knowing failures.” Covered manufacturers are required to submit reports on aggregate payment
data to the Secretary of the U.S. Department of Health and Human Services on an annual basis. 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. Many states have similar statutes or regulations to the above federal laws that may be broader in scope
and may apply regardless of payor. We may also be subject to state laws that require pharmaceutical companies to comply
with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by
the federal government, and/or state laws that require drug manufacturers to report information related to payments and
other transfers of value to physicians and other healthcare providers, drug pricing or marketing expenditures. These laws
may differ from each other in significant ways and may not have the same effect, further complicating compliance efforts.
Additionally, to the extent that we have business operations in foreign countries or sell any of our products in foreign
countries and jurisdictions, including Japan or the European Union, we may be subject to additional regulation.
Although we do not currently have any products on the market, once our product candidates or clinical trials are
covered by federal health care programs, we will be subject to additional healthcare statutory and regulatory requirements
and enforcement by the federal and state governments of the jurisdictions in which we conduct our business. Because we
intend to commercialize products that could be reimbursed under a federal healthcare program and other governmental
healthcare programs, we intend to develop a comprehensive compliance program that establishes internal controls to
facilitate adherence to the rules and program requirements to which we will or may become subject. Although the
development and implementation of compliance programs designed to establish internal control and facilitate compliance
can mitigate the risk of violating these laws, and the subsequent investigation, prosecution, and penalties assessed for
violations of these laws, the risks cannot be entirely eliminated.
If our operations are found to be in violation of any of such laws or any other governmental regulations that apply
to us, we may be subject, without limitation, to significant civil, criminal and administrative penalties, damages, fines,
individual imprisonment, disgorgement, exclusion from participation in federal and state healthcare programs, reputational
harm, diminished profits and future earnings, additional oversight and reporting obligations pursuant to a corporate
integrity agreement or similar agreement to resolve allegations of non-compliance with applicable laws and regulations,
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and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our
business and our financial results.
Additionally, we expect our products, if and when approved, 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, our products 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.
Healthcare Reform
In the United States and foreign jurisdictions, there have been, and we expect there will continue to be, a number
of legislative and regulatory changes to healthcare systems that could affect our future results of operations. There have
been, and we expect there will continue to be, a number of initiatives at the United States federal and state levels that seek
to promote changes in the healthcare system with the stated goals of reducing healthcare costs, improving quality of care,
and expanding access.
In the United States, the pharmaceutical industry has been a particular focus of healthcare reform efforts and has
been significantly affected by major legislative and regulatory initiatives, including the ACA, which has had, and is
expected to continue to have, a significant impact on the healthcare industry. This law was designed to expand access to
health insurance coverage for uninsured and underinsured individuals while at the same time containing overall healthcare
costs. With regard to pharmaceutical products, among other things, the ACA contains provisions that may potentially affect
the profitability of our products, including, for example, subjecting biologics potential competition by lower-cost
biosimilars, increased rebates for products sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed
care plans, mandatory discounts for certain products under Medicare Part D, expansion of entities eligible for discounts
under the Public Health Service’s pharmaceutical pricing program, and a significant annual fee on companies that
manufacture or import certain branded prescription drug products. Substantial new provisions affecting compliance have
also been enacted, which may affect our business practices with healthcare providers and entities. The framework of the
ACA and other healthcare reforms continues to evolve as a result of executive, legislative, regulatory, and administrative
developments; in addition, healthcare-related litigation and judicial proceedings contribute to regulatory uncertainty. While
Congress has not passed legislation to comprehensively repeal the ACA, the Tax Cuts and Jobs Act included a provision
that, effective January 1, 2019, changed to $0 the tax-based shared responsibility payment imposed by ACA on certain
individuals who fail to maintain qualifying health coverage for all or part of a year, which is commonly referred to as the
“individual mandate.”
There have been numerous historical challenges and amendments to certain aspects of the ACA. On June 17,
2021, the U.S. Supreme Court dismissed the most recent judicial challenge to the ACA brought by several states without
specifically ruling on the constitutionality of the ACA. Prior to the Supreme Court’s decision on January 28, 2021,
President Biden issued an executive order to initiate a special enrollment period for purposes of obtaining health insurance
coverage through the ACA marketplace, which remained open from February 15, 2021 through August 15, 2021. The
executive order also instructed certain governmental agencies to review and reconsider their existing policies and rules that
limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that
include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage
through Medicaid or the ACA. In addition, in March 2021, Congress enacted the American Rescue Plan Act of 2021,
which included among its provisions a temporary increase in premium tax credit assistance for individuals eligible to
receive qualified health plan premium subsidies for 2021 and 2022 and temporarily removed the 400% federal poverty
level limit that otherwise applies for purposes of eligibility to receive premium such tax credits. Legislation has been
proposed to extend the duration of certain health coverage provisions of the American Rescue Plan until 2025, but whether
Congress will enact such legislation remains uncertain. We cannot predict what effect the healthcare reform measures of
the Biden administration or other efforts, if any, to challenge, repeal, amend or replace the ACA would have on our
business.
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Other legislative changes have been proposed and adopted since the ACA was enacted. For example, the Budget
Control Act of 2011 included reductions to Medicare payments to providers of up to 2% per fiscal year, which went into
effect on April 1, 2013 and, due to subsequent legislation, will stay in effect into 2031 unless additional Congressional
action is taken. Pursuant to the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, as well as
subsequent legislation, these reductions have been suspended from May 1, 2020 through March 31, 2022 due to COVID-19
pandemic, with a subsequent phase-in period of a 1% reduction through June 30, 2022. Additionally, the American
Taxpayer Relief Act of 2012, among other things, further reduced Medicare payments to several providers and increased
the statute of limitations period for the government to recover overpayments to providers from three to five years. Further,
effective January 1, 2019, the Bipartisan Budget Act of 2018, among other things, further amended portions of the Social
Security Act implemented as part of the ACA to increase from 50% to 70% the point-of-sale discount off negotiated prices
of applicable brand drugs that pharmaceutical manufacturers participating in the Coverage Gap Discount Program must
provide to eligible Medicare Part D beneficiaries during the coverage gap phase of the Part D benefit, commonly referred
to as the “donut hole,” and to reduce standard beneficiary cost sharing in the coverage gap from 30% to 25% in most
Medicare Part D plans. In the future, there may be additional challenges and/or amendments to the ACA. It remains to be
seen precisely what any new legislation will provide, when or if it will be enacted, and what impact it may have on the
availability and cost of healthcare items and services, including drug products.
In addition, in recent years the pricing and costs of prescription pharmaceuticals has been the subject of
considerable discussion in the United States. A number of federal reports and inquiries have focused on these issues, and
various legislative and regulatory provisions have been proposed and enacted at the federal and state level that seek to,
among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer
patient programs, reduce the out-of-pocket cost of prescription drugs, and reform government program reimbursement
methodologies for drugs. Additionally, on December 21, 2020, Congress passed a $900 billion U.S. coronavirus relief and
government appropriations legislation, the Consolidated Appropriations Act of 2021, which contains several important new
drug price reporting and transparency measures that could result in additional transparency with respect to manufacturers’
prescription drug prices. Among other things, the Act includes provisions requiring Medicare Part D prescription drug
plan, or the PDP, sponsors and Medicare Advantage organizations, or MAOs, to implement tools to display Medicare
Part D prescription drug benefit information in real time and provisions requiring group and health insurance issuers
offering health insurance coverage to report information on certain pharmacy benefit and drug costs to the Secretaries of
HHS, Labor, and the Treasury.
Further, the Biden Administration and Congress have each indicated that it will continue to pursue new legislative
and administrative measures to control drug costs. For example, the American Rescue Plan Act of 2021 included among its
provisions a sunset of the ACA’s cap on pharmaceutical manufacturers’ rebate liability under the Medicaid Drug Rebate
Program. Under the ACA, manufacturers’ rebate liability was capped at 100% of the average manufacturer price for a
covered outpatient drug. Effective January 1, 2024, manufacturers’ Medicaid Drug Rebate Program rebate liability will no
longer be capped, potentially resulting in a manufacturer paying more in Medicaid Drug Rebate Program rebates than it
receives on the sale of certain covered outpatient drugs. Further, on July 9, 2021, President Biden issued an Executive
Order to promote competition in the U.S. economy that included several initiatives addressing prescription drugs. Among
other provisions, the Executive Order stated that the Biden administration will “support aggressive legislative reforms that
would lower prescription drug prices, including by allowing Medicare to negotiate drug prices, by imposing inflation caps,
and through other related reforms.” In response to the Executive Order, on September 9, 2021, HHS issued a
Comprehensive Plan for Addressing High Drug Prices that identified potential legislative policies and administrative tools
that Congress and the agency can pursue in order to make drug prices more affordable and equitable, improve and promote
competition throughout the prescription drug industry, and foster scientific innovation. We cannot predict what other
healthcare reforms will ultimately be implemented at the federal or state level or the effect of any future legislation or
regulation. Accordingly, we face uncertainties that might result from additional reforms.
At the state level, legislatures are increasingly passing legislation and implementing regulations designed to
control biopharmaceutical and biologic product pricing, including price or patient reimbursement constraints, discounts,
restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases,
designed to encourage importation from other countries and bulk purchasing.
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
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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 were relocated to 10865 Road to the Cure, Suite 150, San Diego, California 92121.
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 48 full-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.
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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.
Summary Risk Factors
Our business is subject to a number of risks, including risks that may prevent us from achieving our business
objectives or may adversely affect our business, clinical and commercialization activities, the manufacturing of our product
candidates, intellectual property, third-party relationships, competition factors, product and environmental liability, and
common stock. These risks are discussed more fully below and include, but are not limited to, risks related to:
Risks Related to Our Business
● the COVID-19 pandemic, including its impact on our business and operations;
● substantial additional funding is needed to complete the development of our product candidates;
● the Company has incurred significant losses and may never be profitable;
● the occurrence of security breaches, improper access to or disclosure of our data or user data, and other cyber
incidents or undesirable cyber activity related to our, or our third party vendor’s systems and data;
● we may not have adequate personnel and may not be able to attract or retain personnel needed to develop our
products;
Risks Related to Clinical and Commercialization Activities
● our success depends upon the viability of our product candidates, all of which require regulatory approval to
commercialize and we cannot be certain any of them will receive regulatory approval to be commercialized;
● delays in 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;
● our exosome technologies are unproven in their ability to achieve sufficient biological activity or scale in
development to date;
● product candidates can fail to meet their efficacy endpoints at any time during the clinical development
process, which would likely make them ineligible for becoming commercial products;
● we may not be able to use our facilities to manufacture product for use in our Phase III trial of CAP-1002 for
DMD;
Risks Related to the Manufacturing of our Product Candidates
● the manufacturing of our product candidates is heavily reliant on supply chain requirements including the
availability of donor hearts and other raw materials that are critical for the manufacturing of our product
candidates;
● we may need to rely upon third party manufacturers for the expansion of our manufacturing capabilities for
later-stage clinical trials and for ultimate commercialization;
● we may not have adequate manufacturing facilities required for any scale-up of manufacturing which may be
required in the future;
● we may not be able to replicate our manufacturing processes;
● we may not be able to comply with cGMP regulations;
Risks Related to Our Intellectual Property
● our ability to obtain, maintain, protect, and enforce our intellectual property rights;
● potential challenges to the enforceability or scope of our intellectual property;
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● potential claims from third parties that we are infringing their patents or other intellectual property rights;
Risks Related to Our Relationships with Third Parties
● we depend on our relationships with our licensors and collaborators and there is no guarantee that such
relationships will continue;
● we will depend on the ability of Nippon Shinyaku to perform according to the terms of the NS Distribution
Agreement and all applicable laws, and to successfully commercialize our lead product CAP-1002 in DMD;
Risks Related to Competitive Factors
● our products will likely face intense competition;
● any of our product candidates for which we receive regulatory approval may not achieve broad market
acceptance, which could limit the revenue that we will generate from their sales, if any;
Risks Related to Product and Environmental Liability
● our products may expose us to potential product liability;
Risks Related to Our Common Stock
● we expect that our stock price will continue to fluctuate significantly; and
● we have never paid dividends and we do not anticipate paying dividends in the future.
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 preclinical studies and clinical trials and
establishing manufacturing capabilities, is expensive. As of December 31, 2021, we had cash and cash equivalents totaling
approximately $34.9 million. Additionally, under the terms of our Distribution Agreement with Nippon Shinyaku, we
expect to receive a $30.0 million upfront payment. 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 securities, grants
from the National Institutes of Health, or NIH, and the Department of Defense, or DoD, a loan commitment and grant
award from the California Institute for Regenerative Medicine, or CIRM and through various partnership agreements. 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.
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.
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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. The 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:
● the scope, rate of progress, cost and results of our research and development activities, especially our CAP-
1002 and exosomes programs;
● the next steps in the development of our Duchenne muscular dystrophy, or DMD, program, which includes a
Phase III clinical trial for our CAP-1002 product candidate for DMD;
● the availability of funding from government programs including the NIH, DoD, and CIRM, if applicable;
● 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 in the U.S. and
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 technology transfer for, and completion of, clinical and commercial-scale outsourced
manufacturing activities; and
● the costs of establishing sales, marketing and distribution capabilities, as applicable, for any product
candidates for which we may receive regulatory approval.
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 preclinical 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:
● our need for substantial additional capital to fund our trials and development programs;
● delays in the commencement, enrollment, and timing of clinical testing;
● the viability of CAP-1002 as a potential product candidate and its development through all stages of clinical
development;
● the viability of our exosome technologies as potential product candidates and the advancement of our
exosome technologies through all stages of its preclinical 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;
● market acceptance of our product candidates;
● our ability to establish an effective sales and marketing infrastructure once our products are commercialized,
as necessary or to establish partnerships with other companies who have greater sales and marketing
capabilities;
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● the ability of our distribution partner, Nippon Shinyaku, to successfully market and sell our CAP-1002
product if and to the extent it is approved;
● our ability to establish or maintain collaborations, licensing or other arrangements, including strategic
partnerships for CAP-1002 outside of DMD and our exosomes technologies;
● 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 product candidates;
● 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;
● our ability to build or secure new manufacturing facilities and achieve and maintain current Good
Manufacturing Practices, or cGMP, and obtain required certifications as necessary;
● costs related to and outcomes of potential intellectual property litigation;
● compliance with obligations under intellectual property licenses with third parties;
● our ability to implement additional internal systems and infrastructure;
● our ability to adequately support future growth;
● if our products are approved for commercial sale, the ability to secure reimbursement for our products;
● 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 still in clinical or preclinical
development.
The Company’s product candidates, CAP-1002 and our exosome technologies, are in development and each
requires further and, in some cases, 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 Company’s
failure to establish the efficacy of its technologies 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 planned Phase III trial of our CAP-1002
product candidate for DMD. Additionally, we cannot predict with any certainty if, or when, we might commence any
additional clinical trials of our product candidates, whether we will be able to secure additional partners, 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 preclinical
studies of our exosomes products will result in a viable clinical development program.
Our business depends entirely on the successful development and commercialization of our product candidates.
We currently have no products approved for sale and generate no revenues from sales of any products, and we may never
be able to develop a marketable product.
Our product candidates will require additional clinical development, evaluation of clinical, preclinical and
manufacturing activities, marketing approval in multiple jurisdictions, substantial investment and significant marketing
efforts before we generate any revenues from product sales. We are not permitted to market or promote our product
candidates before we receive marketing approval from the FDA and comparable foreign regulatory authorities, and we may
never receive such marketing approvals.
The success of our product candidates will depend on several factors, including the following:
● successful and timely completion of our clinical trials;
● initiation and successful patient enrollment and completion of additional clinical trials on a timely basis;
● the impact of COVID-19 on our operations, ability to conduct clinical trials and on the ability of our
regulators to review and approve or authorize our products;
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● our ability to demonstrate our products’ safety, tolerability and efficacy to the FDA or any comparable
foreign regulatory authority for emergency use authorization (EUA) or marketing approval;
● timely receipt of an EUA or marketing approval for our products;
● obtaining and maintaining patent protection, trade secret protection and regulatory exclusivity, both in the
United States and internationally;
● successfully defending and enforcing our rights in our intellectual property portfolio;
● avoiding and successfully defending against any claims that we have infringed, misappropriated or otherwise
violated any intellectual property of any third party;
● the performance of our current and future collaborators, if any;
● the extent of, and our ability to timely complete, any required post-marketing approval commitments
imposed by FDA or other applicable regulatory authorities;
● successfully developing a companion diagnostic test on a timely and cost effective basis, if required;
● establishment of supply arrangements with third-parties for raw materials and drug product supplies and
potential manufacturers who are able to manufacture clinical trial and commercial quantities of drug
substance and drug products and to develop, validate and maintain a commercially viable manufacturing
process that is compliant with current good manufacturing practices, or cGMP, at a scale sufficient to meet
anticipated demand and over time enable us to reduce our cost of manufacturing;
● establishment of scaled production arrangements with third-party manufacturers to obtain finished products
that are compliant with cGMP and appropriately packaged for sale;
● successful launch of commercial sales following any EUA or marketing approval;
● a continued acceptable safety profile following any EUA or marketing approval;
● commercial acceptance by patients, the medical community and third-party payors;
● the availability of coverage and adequate reimbursement and pricing by third-party payors and government
authorities;
● the availability, perceived advantages, relative cost, relative safety and relative efficacy of alternative and
competing treatments; and
● our ability to compete with other therapies.
We do not have complete control over many of these factors, including certain aspects of clinical development and
the regulatory submission process, potential threats to our intellectual property rights and the manufacturing, marketing,
distribution and sales efforts of any future collaborator. Accordingly, we cannot assure you that we will ever be able to
generate revenue through the sale of our products. If we are not successful in marketing or commercializing our products,
or are significantly delayed in doing so, our business will be materially harmed.
Business disruptions such as natural disasters, widespread infectious diseases or pandemics could seriously harm our
future revenues and financial condition and increase our costs and expenses.
Our corporate headquarters and our manufacturing and research facilities are located in San Diego and 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, outbreaks of viruses, infectious diseases or pandemics (including, for
example, the outbreak of the novel coronavirus (COVID-19)), terrorist acts or acts of war targeted at the United States, and
specifically in the 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.
The coronavirus outbreak could adversely impact our business.
An epidemic or pandemic disease outbreak, including COVID-19, could severely disrupt our operations or the
operations of third parties that we depend on, including any third-party contract manufacturer, our CROs, clinical data
management organizations, medical institutions and clinical investigators, and have a material adverse effect on our
business, results of operations, financial condition and prospects. In December 2019, it was first reported that there had
been an outbreak of COVID-19, in China. COVID-19 has since spread globally and while cases and hospitalization are
currently on the decline in the US, there can be no assurances they will not continue at the current rate or increase in the
future especially in light of the number of variants that are emerging across the world. Governments in the United States
and elsewhere have taken and are continuing to take measures to slow the spread of COVID-19.
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If COVID-19 continues to spread and further variants emerge, we may experience disruptions that could severely
impact our business, including:
● delays or difficulties in enrolling patients in our clinical trials and having patients complete their assessments
in accordance with the clinical protocol;
● restrictions preventing trial investigators, patients or other critical staff from traveling to our trial sites;
● diversion of healthcare resources to address COVID-19, which could limit the availability of medical
facilities for our clinical trials;
● forced closures, or reductions in operations, at our facilities or the facilities of third parties with whom we do
business;
● supply chain disruptions which could have a material adverse effect on the availability or cost of materials
for our product candidates; and
● disruptions to our workforce, or the workforces of third parties with whom we do business, caused by
sickness, travel restrictions or quarantines.
Additionally, disruptions at the at FDA, the EMA and other regulators, caused by global health concerns,
including the COVID-19 pandemic, including delays in inspections of clinical trial or manufacturing sites required as part
of the application review process, could result in delays of reviews and approvals of our product candidate or our proposed
clinical trials. For example, in response to the COVID-19 pandemic, on March 10, 2020, the FDA announced its intention
to postpone most inspections of foreign manufacturing facilities and products inspections of domestic manufacturing
facilities through April 2020. On March 18, 2020, the FDA announced its intention to temporarily postpone routine
surveillance inspections of domestic manufacturing facilities and provided guidance regarding the conduct of clinical trials.
On July 10, 2020, the FDA announced that it is working toward the goal of restarting on-site inspections it deems to be
“mission critical.” In May 2021, the FDA updated its guidance, first published in August 2020, clarifying how it intends to
conduct inspections during the COVID-19 pandemic, including how it plans to determine which inspections are “mission
critical.” Additionally, on April 14, 2021, the FDA issued a guidance document in which the FDA described its plans to
conduct voluntary remote interactive evaluations of certain drug manufacturing facilities and clinical research sites.
According to the guidance, the FDA intends to request such remote interactive evaluations in situations where an in-person
inspection would not be prioritized, deemed mission-critical, or where direct inspection is otherwise limited by travel
restrictions, but where the FDA determines that remote evaluation would still be appropriate. The FDA intends to use this
risk-based assessment system to identify the categories of regulatory activity that can occur within a given geographic area,
ranging from mission critical inspections to resumption of all regulatory activities. Regulatory authorities outside the
United States may adopt similar restrictions or other policy measures in response to the COVID-19 pandemic. It is unclear
how FDA’s and other health agencies’ policies and guidance will impact any inspections of our facilities, including our
clinical trial sites.
The global outbreak of COVID-19 continues to evolve and its ultimate impact on our business will depend on
future developments, which are highly uncertain and cannot be predicted. Any of the disruptions listed above, or other
disruptions caused by new developments associated with the COVID-19 outbreak or other outbreak could severely impact
our business.
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, as well as the information
technology systems and data of our third-party vendors, especially if we expand our clinical trials and therefore our
databases of patient information. Our or our third-party vendors’ 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, we intend to defend against and
respond to data security incidents, and there can be no assurance that our efforts will prevent breakdowns or breaches in
our systems, or adequately contain and mitigate risks from a data security incident, that could adversely affect our business.
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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 and cybersecurity laws, there can be no assurance that such third parties will comply with
applicable laws or regulations. Non-compliance by such vendors or weaknesses in their information security programs may
result in liability for us which would have a material adverse effect on our business, financial condition and results of
operations.
Despite the implementation of security measures, our internal computer systems and those of our current and
future clinical research organizations, or 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.
If we achieve our near-term product development milestones, we may not be able to manage any subsequent growth.
Should we achieve our near-term product development 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.
Risks Related to Clinical and Commercialization Activities
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 testing, which are
referred to as preclinical studies, as well as human testing, 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
preclinical 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.
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, if any, and,
therefore, corresponding product revenues, and will have a material and adverse impact on our business.
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As the results of earlier preclinical 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 preclinical studies and clinical trials are completed as planned, we cannot be certain that their results
will support the claims of our product candidates. Positive results in preclinical 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 preclinical testing.
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 trial which we may conduct will demonstrate adequate efficacy and safety to result in
regulatory approval to market our product candidates. 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 exosome technologies are based on a novel therapeutic approach which makes it difficult to predict the time and
cost of development and of subsequently obtaining regulatory approval, if at all.
Our exosome technologies involve a relatively new therapeutic approach which will face both clinical and
regulatory challenges. To date, no products based on exosomes have been approved in the United States or the European
Union. It is therefore difficult to accurately predict the developmental challenges we may face for our exosome
technologies as they proceed through preclinical studies and clinical trials. In addition, because we have only conducted
preclinical studies with our exosome technologies, we have not yet been able to assess their safety in humans, and there
may be short-term or long-term effects from treatment with our exosomes that we cannot predict at this time. Also, animal
models for the indications we may explore may not exist or may be difficult to obtain for our preclinical studies. As a result
of these factors, we are unable to predict the time and cost of development of the exosome technologies and we cannot
predict whether the application of the exosome technologies, or any similar or competitive exosome technologies, will
result in regulatory approval of any products. There can be no assurance that any development problems we experience in
the future related to our exosomes or any of our research programs will not cause significant delays or unanticipated costs,
or that such development problems can be solved. We may also decide to discontinue exosome development programs if
we believe that there is excessive competition in a disease target. Any of these factors may prevent us from completing our
preclinical studies or any clinical trials that we may initiate or commercializing any product candidates we may develop on
a timely or profitable basis, if at all.
The clinical trial requirements of the FDA, the European Medicines Agency, or EMA, and other regulatory
authorities and the criteria these regulators use to determine the safety and efficacy of a product candidate vary
substantially according to the type, complexity and intended use and market of the product candidate. As a result, the
regulatory approval process for our exosomes is uncertain and may be more expensive and take longer than the approval
process for other product candidates. It is difficult to determine how long it will take or how much it will cost to obtain
regulatory approvals for our exosomes in either the United States or the European Union or other regions of the world or
how long it will take to commercialize our product candidates, if at all. Delay or failure to obtain, or unexpected costs in
obtaining, the regulatory approval necessary to bring a potential product candidate to market could decrease our ability to
generate sufficient product revenue, and our business, financial condition, results of operations and prospects may be
adversely impacted.
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Negative developments in the field of exosomes could damage public perception of any product candidates that we
develop, which could adversely affect our ability to conduct our business or obtain regulatory approvals for such
product candidates.
Exosome-based therapeutics and vaccines are novel and unproven therapies which may not gain the acceptance of
the public, patients or the medical community. To date, efforts by others to leverage natural exosomes have generally
demonstrated an inability to generate exosomes with predictable biologically active properties or to manufacture exosomes
at suitable scale to treat more than a small number of patients. Our success will depend on our ability to demonstrate that
our exosome technologies can overcome these challenges.
Additionally, our success will depend upon physicians who specialize in the treatment of diseases targeted by our
exosomes prescribing treatments that involve the use of our product candidates in lieu of, or in addition to, existing
treatments with which they are more familiar and for which greater clinical data may be available. Adverse events in
clinical trials of our exosomes or in clinical trials of others developing similar products and the resulting publicity, as well
as any other adverse events in the field of exosome therapeutics, could result in a decrease in demand for any products that
we may develop. These events could also result in the suspension, discontinuation, or clinical hold of, or modification to,
our clinical trials. Any future negative developments in the field of exosomes and their use as therapies could also result in
greater governmental regulation, stricter labeling requirements and potential regulatory delays in the testing or approvals of
our exosomes or other potential future product candidates. Any increased scrutiny could delay or increase the costs of
obtaining marketing approval for our exosomes or any other product candidates which we may develop in the future.
Advancing product candidates based on our exosome platform as novel products creates significant challenges for
us, including:
● obtaining marketing approval, as obtaining an EUA or regulatory approval of such a product candidate from
the FDA or comparable foreign regulatory authorities has never been done before;
● educating medical personnel regarding the potential efficacy and safety benefits, as well as the challenges, of
incorporating our product candidates, if approved, into treatment regimens; and
● establishing the sales and marketing capabilities to gain market acceptance, if approved.
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, including
with respect to our exosome technologies in one or more indications. However, the timing of our filing of these INDs is
primarily dependent on receiving further data from our preclinical studies, having sufficient processes in place in
connection with the manufacturing of the exosomes and the availability of necessary funding for any potential clinical trial.
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 trial set forth in an IND or clinical trial application, we cannot
guarantee that such regulatory authorities will not change their requirements in the future. The FDA may also impose
clinical holds at any time before or during clinical trials due to unacceptable and significant risks to clinical trial subjects or
non-compliance with FDA requirements. 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.
The Company has limited experience in conducting late-stage clinical trials, which are complex and subject to strict
regulatory oversight.
The Company has limited late-stage 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
clinical trials successfully or our failure to capitalize on the results of clinical trials for our product candidates would have
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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
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. 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. Furthermore, negative, delayed
or inconclusive results may result in:
● 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;
● the requirement that additional trials be conducted;
● 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. The current pandemic has had an impact on the ability to conduct clinical trials due to inabilities to
enroll or even get subjects to complete the trials due to lockdowns, reluctance to travel, limitations set by trial sites and
other reasons. We cannot predict how long this will exist and while the hospitalization rates and number of cases seem to
be on the decline, there is no assurance that it will not revert to prior critical levels. 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 or may otherwise be
resource constrained. 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:
● findings in preclinical studies;
● reaching agreements on acceptable terms with prospective 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;
● 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;
● the impact of COVID-19 on patient screening and patient enrollment;
● developing and validating any companion diagnostic to be used in the trial, to the extent we are required to
do so;
● patients failing to comply with the clinical trial protocol or dropping out of a trial;
● clinical trial sites failing to comply with the clinical trial protocol or dropping out of a trial;
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● addressing any conflicts with new or existing laws or regulations;
● the need to add new clinical trial sites;
● 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;
● obtaining advice from regulatory authorities regarding the statistical analysis plan to be used to evaluate the
clinical trial data or other trial design issues;
● demonstrating the bioequivalence of products we manufacture to prior products manufactured by us;
● 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:
● 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.
We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent
our ability to receive marketing approval or commercialize our product candidates, including:
● we may receive feedback from regulatory authorities that requires us to modify the design of our clinical
trials;
● clinical trials of our product candidates may produce negative or inconclusive results, and we may decide, or
regulators may require us, to conduct additional clinical trials or abandon drug development programs;
● the number of patients required for clinical trials of our product candidates may be larger than we anticipate,
enrollment in these clinical trials may be slower than we anticipate or participants may drop out of these
clinical trials at a higher rate than we anticipate;
● our third-party contractors, including our CROs, may fail to comply with regulatory requirements or meet
their contractual obligations to us in a timely manner, or at all;
● we, our investigators, or any of the overseeing IRBs or ethics committees might decide to suspend or
terminate clinical trials of our product candidates for various reasons, including non-compliance with
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regulatory requirements, a finding that our product candidates have undesirable side effects or other
unexpected characteristics, or a finding that the participants are being exposed to unacceptable health risks;
● the cost of clinical trials of our product candidates may be greater than we anticipate;
● the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our
product candidates may be insufficient or inadequate;
● regulators may revise the requirements for approving our product candidates, or such requirements may not
be as we anticipate; and
● any future collaborators that conduct clinical trials may face any of the above issues, and may conduct
clinical trials in ways they view as advantageous to them but that are suboptimal for us.
If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that
we currently contemplate, if we are unable to successfully complete clinical trials of our product candidates or other
testing, if the results of these trials or tests are not positive or are insufficiently positive to support marketing approval, or if
there are safety concerns, we may:
● incur unplanned costs;
● be delayed in obtaining marketing approval for our product candidates or not obtain marketing approval at
all;
● obtain marketing approval in some countries and not in others;
● obtain marketing approval for indications or patient populations that are narrower or more limited in scope
than intended or desired;
● obtain marketing approval subject to significant use or distribution restrictions or with labeling that includes
significant safety warnings, including boxed warnings;
● be subject to additional post-marketing testing requirements; or
● have the drug removed from the market after obtaining marketing approval.
Our drug development costs will also increase if we experience delays in testing or marketing approvals. We do
not know whether clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at
all. Furthermore, we rely on third-party CROs and clinical trial sites to ensure the proper and timely conduct of our clinical
trials, and while we have agreements governing their committed activities, we have limited influence over their actual
performance. Significant clinical trial delays also could shorten any periods during which we may have the exclusive right
to commercialize our product candidates or allow our competitors to bring drugs to market before we do and impair our
ability to successfully commercialize our product candidates and may harm our business and results of operations.
The outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials,
interim results of a clinical trial do not necessarily predict final results, and the results of our clinical trials may not
satisfy the requirements of the FDA or comparable foreign regulatory authorities.
We currently have no products approved for sale and we cannot guarantee that we will ever have marketable
drugs. Clinical failure can occur at any stage of clinical development. Clinical trials may produce negative or inconclusive
results, and we or any future collaborators may decide, or regulators may require us, to conduct additional clinical trials or
preclinical studies. We will be required to demonstrate with substantial evidence through adequate and well-controlled
clinical trials that our product candidates are safe and effective for use in treating specific conditions in order to obtain
marketing approvals for their commercial sale. Success in preclinical studies and early-stage clinical trials does not mean
that future larger registration clinical trials will be successful because product candidates in later-stage clinical trials may
fail to demonstrate safety and efficacy to the satisfaction of the FDA and non-U.S. regulatory authorities despite having
progressed through preclinical studies and early-stage clinical trials. Product candidates that have shown promising results
in preclinical studies and early-stage clinical trials may still suffer significant setbacks in subsequent registration clinical
trials. Additionally, the outcome of preclinical studies and early-stage clinical trials may not be predictive of the success of
later-stage clinical trials.
From time to time, we may publish or report interim or preliminary data from our clinical trials, once initiated.
Interim or preliminary data from clinical trials that we may conduct may not be indicative of the final results of the trial
and are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues
and more patient data become available. Interim or preliminary data also remain subject to audit and verification
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procedures that may result in the final data being materially different from the interim or preliminary data. As a result,
interim or preliminary data should be viewed with caution until the final data are available.
In addition, the design of a clinical trial can determine whether its results will support approval of a drug and
flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. We have limited
experience in designing late-stage clinical trials and may be unable to design and conduct a clinical trial to support
marketing approval. Further, if our product candidates are found to be unsafe or lack efficacy, we will not be able to obtain
marketing approval for them and our business would be harmed. A number of companies in the pharmaceutical industry,
including those with greater resources and experience than us, have suffered significant setbacks in advanced clinical trials,
even after obtaining promising results in preclinical studies and earlier clinical trials.
In some instances, there can be significant variability in safety and efficacy results between different clinical trials
of the same product candidate due to numerous factors, including changes in trial protocols, differences in size and type of
the patient populations, differences in and adherence to the dosing regimen and other trial protocols and the rate of dropout
among clinical trial participants. We do not know whether any clinical trials we may conduct will demonstrate consistent or
adequate efficacy and safety sufficient to obtain marketing approval to market our product candidates.
In the event that an adverse safety issue, clinical hold or other adverse finding occurs in one or more of our
clinical trials, once initiated, such event could adversely affect our other clinical trials using the same product candidate.
Moreover, there is a relatively limited safety data set for product candidates using an exosome platform. An adverse safety
issue or other adverse finding in a clinical trial conducted by a third party with a product candidate similar to ours could
adversely affect our clinical trials.
Further, our product candidates may not be approved even if they achieve their primary endpoints in Phase 3
clinical trials or registration trials. The FDA or comparable foreign regulatory authorities may disagree with our trial design
and our interpretation of data from preclinical studies and clinical trials. In addition, any of these regulatory authorities may
change requirements for the approval of a product candidate even after reviewing and providing comments or advice on a
protocol for a pivotal clinical trial that has the potential to result in approval by the FDA or comparable foreign regulatory
authorities. In addition, any of these regulatory authorities may also approve a product candidate for fewer or more limited
indications than we request or may grant approval contingent on the performance of costly post-marketing clinical trials. In
addition, the FDA or other comparable foreign regulatory authorities may not approve the labeling claims that we believe
would be necessary or desirable for the successful commercialization of our product candidates.
Before obtaining marketing approval for the commercial sale of any product candidate for a target indication, we
must demonstrate with substantial evidence gathered in preclinical studies and adequate and well-controlled clinical trials,
and, with respect to approval in the United States, to the satisfaction of the FDA and elsewhere to the satisfaction of other
comparable foreign regulatory authorities, that the product candidate is safe and effective for use for that target indication.
There is no assurance that the FDA or other comparable foreign regulatory authorities will consider our future clinical trials
to be sufficient to serve as the basis for approval of one of our product candidates for any indication. The FDA and other
comparable foreign regulatory authorities retain broad discretion in evaluating the results of our clinical trials and in
determining whether the results demonstrate that a product candidate is safe and effective. If we are required to conduct
additional clinical trials of a product candidate than we expect prior to its approval, we will need substantial additional
funds and there is no assurance that the results of any such additional clinical trials will be sufficient for approval.
The regulatory pathway for COVID-19 therapeutics and vaccines is continually evolving, and may result in unexpected
or unforeseen challenges.
The speed at which all parties are acting to create and test many therapeutics and vaccines for COVID-19 is
atypical, and evolving or changing plans or priorities within the FDA or the regulatory authorities in other jurisdictions,
including changes based on new knowledge of COVID-19 and how the disease affects the human body, and new variants
of the virus, may significantly affect the regulatory timeline for further authorizations or approvals. We cannot anticipate or
predict with certainty the timelines or regulatory processes that may be required for the development of our COVID-19
therapeutic or potential vaccines that may be developed to fight against variants of the SARS-CoV-2 virus. We may also
decide to discontinue exosome development programs if we believe that there is excessive competition in a disease target.
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We may not be able to obtain Emergency Use Authorization (EUA) for CAP-1002 for the treatment of hospitalized
patients with COVID-19, or any other therapies or vaccines for COVID-19, and, even if we do, absent supplemental
BLA approval for that indication, such EUA would be revoked when the COVID-19 emergency terminates.
Section 564 of the FDCA allows the FDA to authorize the shipment of drugs, biological products, or medical
devices that either lack required approval, licensure, or clearance (unapproved products), or are approved but are to be used
for unapproved ways to diagnose, treat, or prevent serious diseases or conditions in the event of an emergency declaration
by the HHS Secretary.
On February 4, 2020, then-HHS Secretary Alex M. Azar II declared a public health emergency for COVID-19,
under 21 U.S.C. § 360bbb-3(b)(1), justifying the authorization of emergency use of unapproved therapeutic products, or
unapproved uses of approved or cleared therapeutic products, to treat COVID-19. This determination was published in the
Federal Register on February 7, 2020.
While this emergency declaration is effective, the FDA may authorize the use of an unapproved product or an
unapproved use of an approved product if it concludes that:
● an agent referred to in the emergency declaration could cause a serious or life-threatening disease or
condition;
● it is reasonable to believe that the authorized product may be effective in diagnosing, treating, or preventing
that disease or condition or a serious or life-threatening disease or condition caused by an approved product
or a product marketed under an EUA;
● the known and potential benefits of the authorized product, when used for that disease or condition, outweigh
known and potential risks, taking into consideration the material threat of agents identified in the emergency
declaration;
● there is no adequate, approved, and available alternative to the authorized product for diagnosing, preventing,
or treating the relevant disease or condition;
● any other criteria prescribed by the FDA is satisfied.
Medical products that are granted an EUA are only permitted to commercialize their products under the terms and
conditions provided in the authorization. The FDCA authorizes FDA to impose such conditions on an EUA as may be
necessary to protect the public health. Consequently, postmarketing requirements will vary across EUAs. In addition, FDA
has, on occasion, waived requirements for drugs marketed under an EUA.
Generally, EUAs for unapproved products or unapproved uses of approved products require that manufacturers
distribute factsheets for healthcare providers, addressing significant known and potential benefits and risk, and the extent to
which benefits and risks are unknown, and the fact that FDA has authorized emergency use; and, distribution of factsheets
for recipients of the product, addressing significant known and potential benefits and risk, and the extent to which benefits
and risks are unknown, the option to accept or refuse the product, the consequences of refusing, available alternatives and
the fact that FDA has authorized emergency use.
Generally, EUAs for unapproved products and, per FDA’s discretion, EUAs for unapproved uses of approved
products, include requirements for adverse event monitoring and reporting, and other recordkeeping and reporting
requirements. Note, however, that approved products are already subject to equivalent requirements.
In addition, the FDA may include various requirements in an EUA as a matter of discretion as deemed necessary
to protect the public health, including restrictions on which entities may distribute the product, and how to perform
distribution (including requiring that distribution be limited to government entities), restrictions on who may administer the
product, requirements for collection and analysis of safety and effectiveness data, waivers of cGMP, and restrictions
applicable to prescription drugs or restricted devices (including advertising and promotion restrictions).
The FDA may revoke an EUA when it is determined that the underlying health emergency no longer exists or
warrants such authorization, if the conditions for the issuance of the EUA are no longer met, or if other circumstances
make revocation appropriate to protect the public health or safety. We cannot predict how long, if ever, an EUA would
remain in place.
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We cannot predict with certainty whether we will be able to collect data that can support an application for EUA
for CAP-1002 or any other COVID-19 therapies or vaccines we may develop. Even if we do submit an application, we
cannot predict whether FDA will grant an EUA for CAP-1002 or any other COVID-19 therapies or vaccines we may
develop based on the study data. We also cannot predict how long, if ever, an EUA would remain in place.
We may not be successful in our efforts to identify or discover additional potential product candidates.
Our research programs may initially show promise in identifying potential product candidates, yet fail to yield
product candidates for clinical development for a number of reasons, including:
● the research methodology used may not be successful in identifying potential product candidates;
● potential product candidates may, on further study, be shown to have harmful side effects or other
characteristics that indicate that they are unlikely to be drugs that will receive marketing approval and/or
achieve market acceptance; and
● potential product candidates may not be safe or effective in treating their targeted diseases.
Research programs to identify new product candidates require substantial technical, financial and human
resources. If we are unable to identify suitable compounds for preclinical and clinical development, our business would be
harmed.
Negative perception of the efficacy, safety, or tolerability of any investigational medicines that we develop, or of other
products similar to products we are developing, such as mRNA medicines or vaccines, could adversely affect our ability
to conduct our business, advance our investigational medicines, or obtain regulatory approvals.
A limited number of mRNA medicines have been granted EUA or have been approved to date by the FDA or any
other regulatory agency. Adverse events in clinical trials of our investigational medicines or in clinical trials of others
developing similar products, including other mRNA COVID-19 vaccines, and the resulting publicity, as well as any other
adverse events in the field of mRNA medicine, or other products that are perceived to be similar to mRNA medicines, such
as those related to gene therapy or gene editing, could result in a decrease in the perceived benefit of one or more of our
programs, increased regulatory scrutiny, decreased confidence by patients and clinical trial collaborators in our
investigational medicines, and less demand for any product that we may develop. If and when they are used in clinical
trials, our developmental candidates and investigational medicines could result in a greater quantity of reportable adverse
events, including suspected unexpected serious adverse reactions, other reportable negative clinical outcomes,
manufacturing reportable events or material clinical events that could lead to clinical delay or hold by the FDA or
applicable regulatory authority or other clinical delays, any of which could negatively impact the perception of one or more
of our programs, as well as our business as a whole. In addition, responses by U.S., state, or foreign governments to
negative public perception may result in new legislation or regulations that could limit our ability to develop any
investigational medicines or commercialize any approved products, obtain or maintain regulatory approval, or otherwise
achieve profitability. More restrictive statutory regimes, government regulations, or negative public opinion would have an
adverse effect on our business, financial condition, results of operations, and prospects and may delay or impair the
development of our investigational medicines and commercialization of any approved products or demand for any products
we may develop.
If any of our product candidates receives marketing approval or an EUA and we, or others, later discover that the drug
is less effective than previously believed or causes undesirable side effects that were not previously identified, our ability,
or that of any future collaborators, to market the drug could be compromised.
Clinical trials of our product candidates must be conducted in carefully defined subsets of patients who have
agreed to enter into clinical trials. Consequently, it is possible that our clinical trials, or those of any future collaborator,
may indicate an apparent positive effect of a product candidate that is greater than the actual positive effect, if any, or
alternatively fail to identify undesirable side effects. If one or more of our product candidates receives marketing approval
and we, or others, discover that the drug is less effective than previously believed or causes undesirable side effects that
were not previously identified, a number of potentially significant negative consequences could result, including:
● regulatory authorities may withdraw their approval of the drug or seize the drug;
● we, or any future collaborators, may be required to recall the drug, change the way the drug is administered
or conduct additional clinical trials;
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● additional restrictions may be imposed on the marketing of, or the manufacturing processes for, the particular
drug;
● we may be subject to fines, injunctions or the imposition of civil or criminal penalties;
● regulatory authorities may require the addition of labeling statements, such as a “black box” warning or a
contraindication;
● we, or any future collaborators, may be required to create a Medication Guide outlining the risks of the
previously unidentified side effects for distribution to patients;
● we, or any future collaborators, could be sued and held liable for harm caused to patients;
● the drug may become less competitive in the marketplace; and
● our reputation may suffer.
Any of these events could have a material and adverse effect on our operations and business and could adversely
impact our stock price.
Even if any of our product candidates receive marketing approval, they may fail to achieve the degree of market
acceptance by physicians, patients, healthcare payors and others in the medical community necessary for commercial
success.
If any of our product candidates receive marketing approval, they may nonetheless fail to gain sufficient market
acceptance by physicians, patients, healthcare payors and others in the medical community. If our product candidates do
not achieve an adequate level of acceptance, we may not generate significant revenues from sales of drugs and we may not
become profitable. The degree of market acceptance of our product candidates, if approved for commercial sale, will
depend on a number of factors, including:
● the efficacy and safety of the product;
● the potential advantages of the product compared to alternative therapies;
● the prevalence and severity of any side effects;
● whether the product is designated under physician and other provider treatment guidelines as a first-, second-
or third-line therapy;
● our ability, or the ability of any future collaborators, to offer the product for sale at competitive prices;
● the product’s convenience and ease of administration for patients and healthcare practitioners compared to
alternative treatments;
● the willingness of the target patient population to try, and of physicians to prescribe, the product;
● limitations or warnings, including distribution or use restrictions and safety information contained in the
product’s approved labeling;
● the strength of sales, marketing and distribution support;
● the performance of our exclusive distributor for our lead product candidate, CAP-1002;
● changes in the standard of care for the targeted indications for the product; and
● the availability of coverage by, and the amount of reimbursement from, government payors, managed care
plans and other third-party payors.
We face substantial competition, which may result in others discovering, developing or commercializing products before
or more successfully than we do.
The pharmaceutical and biotechnology industries are highly competitive and characterized by rapidly advancing
technologies, evolving understanding of disease etiology and a strong emphasis on proprietary drugs. We face competition
with respect to any product candidates that we may seek to discover and develop or commercialize in the future, from
major pharmaceutical, specialty pharmaceutical and biotechnology companies. Potential competitors also include academic
institutions and governmental agencies and public and private research institutions.
Many of the companies that we compete or may compete against in the future have significantly greater financial
resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials,
obtaining regulatory approvals and marketing approved drugs than we do. Small or early-stage companies may also prove
to be significant competitors, particularly through collaborative arrangements with large and established companies. These
competitors also compete with us in recruiting and retaining qualified scientific and management personnel and
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establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary
to, or that may be necessary for, our programs.
Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize drugs
that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any
drugs that we may develop. Our competitors also may obtain FDA or other comparable foreign regulatory approval for
their drugs more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong
market position before we are able to enter the market. The key competitive factors affecting the success of all of our
product candidates, if approved, are likely to be their efficacy, safety, convenience, price, the effectiveness of companion
diagnostics in guiding the use of related therapeutics, the level of generic competition and the availability of reimbursement
from government and other third-party payors.
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. Even though we have received
orphan drug designation (ODD) as described above, we may not be the first to obtain marketing approval for the orphan-
designated indication due to the uncertainties associated with developing pharmaceutical products. For any product
candidate for which we have been or will be granted ODD in a particular indication, it is possible that another company
also holding ODD for the same product candidate will receive marketing approval for the same indication before we do. If
that were to happen, our applications for that indication may not be approved until the competing company’s period of
exclusivity expires.
In addition, our exclusive marketing rights in the United States, if obtained, 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 may be able to
rely 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 for the treatment of DMD 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 define 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, as long
as the sponsor making the transfer has not yet submitted the application. Also, although Priority Review Vouchers may be
sold or transferred to third parties, there is no guaranty that we will be able to realize any value if we were to sell a Priority
Review Voucher. The FDA may also revoke any priority review voucher if the rare pediatric disease drug for which the
voucher was awarded is not marketed in the U.S. within one year following the date of approval.
Congress has only authorized the rare pediatric disease priority review voucher program until September 30, 2024.
However, if a drug candidate receives RPD designation before September 30, 2024, it is eligible to receive a voucher if it is
approved before September 30, 2026. 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.
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 provided 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
provided doses of CAP-1002 and received a negotiated amount of monetary compensation in exchange for doing so.
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 commercially reasonable 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. We have been informed by CSMC that both of these trials have ceased enrollment
and that the trials have been concluded. Notwithstanding their cessation, there is a risk that injuries could result from the
use of the product or other claims may arise.
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 possibly 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 any future studies. If these or other reactions continue to occur, it could have a
material adverse impact on the effectiveness of the product, our ability to receive approval of our product candidates, and
could result in substantial delays, increased costs and potentially termination of the trial.
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Our business faces significant government regulation, and there is no guarantee that our product candidates will
receive regulatory approval.
Our research and development activities, preclinical studies, clinical trials, and 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:
● 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 will be required to manufacture on our own behalf or retain the services of a commercial manufacturer to
develop product suitable for commercial sale in compliance with cGMP requirements;
● we may have limitations on how we or our distributor promote our products; and
● we may be subject to litigation or product liability claims.
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, Asia, 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 may have to 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, enter into an agreement with a domestic manufacturer who
maintains an acceptable cGMP facility or maintain a facility that meets European specifications. Any of those options
would involve a significant monetary investment, time delays, and 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, or receive information about EU residents, 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 protections 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
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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 FDA 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.
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 trial. If our product candidates fail to comply with applicable regulatory requirements, such as good
manufacturing practices, a regulatory agency may:
● issue warning or untitled 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.
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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.
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:
● 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. The term remuneration has been broadly interpreted to include anything of value. The Patient
Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of
2010, or collectively the Affordable Care Act, or the ACA, among other things, amended the intent
requirement of the federal Anti-Kickback Statute to clarify that a person or entity need not have actual
knowledge of this statute or specific intent to violate it. The Anti-Kickback Statute applies to arrangements
between pharmaceutical manufacturers on the one hand and individuals, such as healthcare providers and
prescribers, patients, purchasers, pharmacy benefit managers, group purchasing organizations, third-party
payors, wholesalers and distributors on the other hand, including, for example, consulting/speaking
arrangements, discount and rebate offers, certain pricing arrangements, grants, charitable contributions, and
patient support offerings, among others. Although 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. Practices that involve remuneration that may be alleged to be intended to induce prescribing,
purchases or recommendations may be subject to scrutiny if they do not qualify for an exception or safe
harbor. Violations of the federal Anti-Kickback Statute may result in significant civil monetary penalties for
each violation, plus up to three times the remuneration involved. Civil penalties for such conduct can further
be assessed under the federal False Claims Act. Violations can also result in criminal penalties, including
criminal fines and imprisonment. Similarly, violations can result in exclusion from participation in
government healthcare programs, including Medicare and Medicaid;
● the federal False Claims Act imposes 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, knowingly making, using or causing to be made
or used, a false record or statement material to a false or fraudulent claim, or knowingly making or causing to
be made, 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 or services resulting from
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a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the
False Claims Act. When an entity is determined to have violated the federal civil False Claims Act, the
government may impose significant civil fines and penalties for each false claim, plus treble damages, and
exclude the entity from participation in Medicare, Medicaid and other federal healthcare programs. As a
result of a modification made by the Fraud Enforcement and Recovery Act of 2009, a claim includes “any
request or demand” for money or property presented to the U.S. government. In addition, manufacturers can
be held liable under the federal False Claims Act even when they do not submit claims directly to
government payors if they are deemed to “cause” the submission of false or fraudulent claims;
● the Federal Criminal Statute on False Statements Relating to Health Care Matters makes it a crime to
knowingly and willfully falsify, conceal, or cover up a material fact, make any materially false, fictitious, or
fraudulent statements or representations, or make or use any materially false writing or document knowing
the same to contain any materially false, fictitious, or fraudulent statement or entry in connection with the
delivery of or payment for healthcare benefits, items, or services;
● the Federal Civil Monetary Penalties Law authorizes the imposition of substantial civil monetary penalties
against an entity, such as a pharmaceutical manufacturer, that engages in activities including, among others
(1) knowingly presenting, or causing to be presented, a claim for services not provided as claimed or that is
otherwise false or fraudulent in any way; (2) arranging for or contracting with an individual or entity that is
excluded from participation in federal health care programs to provide items or services reimbursable by a
federal health care program; (3) violations of the federal Anti-Kickback Statute; or (4) failing to report and
return a known overpayment;
● the Health Insurance Portability and Accountability Act, or 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;
● HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or
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;
● the FDCA, which prohibits the adulteration and misbranding of drugs, including therapeutic biological
products;
● federal and state consumer protection and unfair competition laws, which broadly regulate marketplace
activities and activities that potentially harm consumers;
● the federal Physician Payments Sunshine Act, which requires certain manufacturers of drugs, devices,
biologics, and medical supplies for which payment is available under Medicare, Medicaid or the Children’s
Health Insurance Program (with certain exceptions) to report annually to the government information related
to payments or other “transfers of value” made to, at the request of, or on behalf of “covered recipients,”
which include physicians, certain other healthcare providers, and teaching hospitals, and requires applicable
manufacturers and group purchasing organizations to report annually to the government ownership and
investment interests held by physicians and their immediate family members; 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
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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.
Efforts to ensure that our current and future 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 significant penalties, including the imposition of civil, criminal or administrative
penalties, monetary fines, damages, disgorgement, individual imprisonment, 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. If our operations are
found to be in violation of any of these or any other health regulatory laws that may apply to us, we may be subject to
significant penalties, including the imposition of significant civil, criminal and administrative penalties, damages, monetary
fines, disgorgement, individual imprisonment, possible exclusion from participation in Medicare, Medicaid and other
federal healthcare programs or similar programs in other countries or jurisdictions, contractual damages, reputational harm,
diminished profits and future earnings, additional reporting requirements and oversight if we become subject to a corporate
integrity agreement or similar agreement and curtailment or restructuring of our operations, any of which could adversely
impact our ability to operate our business and our results of operations.
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, even the
mere issuance of a subpoena or the fact of an investigation alone, regardless of the merit, could result in negative publicity,
a drop in our share price, or other harm to our business, financial condition and results of operations. Defending against
any such actions 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 future business prospects.
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.
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 early stages of development, we are unable at this time to determine
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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:
● 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.
There have been, and continue to be, several legislative and regulatory changes and proposed changes regarding
the healthcare system that could prevent or delay marketing approval of product candidates, restrict or regulate post
approval activities and affect our ability to profitably sell any product candidates for which we obtain marketing approval.
Among policy makers and payors in the United States there is significant interest in promoting changes in healthcare
systems with the stated goals of containing healthcare costs, improving quality and/or expanding access and the
pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative
initiatives. 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
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healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our drugs,
once marketing approval is obtained.
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.
The ACA substantially changed the way healthcare is financed by both the government and private insurers, and
significantly impacts the U.S. pharmaceutical industry. The ACA, among other things: (1) introduced a new average
manufacturer price definition for drugs and biologics that are inhaled, infused, instilled, implanted or injected and not
generally dispensed through retail community pharmacies; (2) increased the minimum Medicaid rebates owed by
manufacturers under the Medicaid Drug Rebate Program, or MDRP; (3) established a branded prescription drug fee that
pharmaceutical manufacturers of branded prescription drugs must pay to the federal government; (4) expanded the list of
covered entities eligible to participate in the 340B drug pricing program by adding new entities to the program;
(5) established a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer point-
of-sale discounts (which through subsequent legislative amendments, was increased to 70% from 50% starting in 2019) off
negotiated prices of applicable branded drugs to eligible beneficiaries during their coverage gap period, as a condition for
the manufacturer’s outpatient drugs to be covered under Medicare Part D; (6) extended manufacturers’ MDRP rebate
liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations; (7) expanded
eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional
individuals, including individuals with income at or below 133% of the federal poverty level, thereby potentially increasing
manufacturers’ Medicaid rebate liabilities; (8) created a licensure framework for follow-on biologic products; and
(9) established a Center for Medicare and Medicaid Innovation at the Centers for Medicare and Medicaid Services to test
innovative payment and service delivery models to improve patient care and lower costs.
The framework of the ACA and other healthcare reforms continues to evolve as a result of executive, legislative,
regulatory, and administrative developments; in addition, healthcare-related litigation and judicial proceedings contribute to
regulatory uncertainty. While Congress has not passed legislation to comprehensively repeal the ACA, the Tax Cuts and
Jobs Act of 2017, included a provision that, effective January 1, 2019, changed to $0 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, which is commonly referred to as the “individual mandate.”
Other legislative changes have been proposed and adopted since the ACA was enacted. These changes include
aggregate reductions to Medicare payments to providers of 2% per fiscal year pursuant to the Budget Control Act of 2011
and subsequent laws, which began in 2013 and will remain in effect through 2030, with the exception of a temporary
suspension from May 1, 2020 through March 31, 2021 enacted as part of the Coronavirus Aid, Relief, and Economic
Security, or the CARES Act, unless additional Congressional action is taken. Additionally, the American Taxpayer Relief
Act of 2012, among other things, further reduced Medicare payments to several types of providers, including hospitals,
imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover
overpayments to providers from three to five years. New laws may result in additional reductions in Medicare and other
healthcare funding, which may materially adversely affect customer demand and affordability for our products and,
accordingly, the results of our financial operations.
In addition, effective January 1, 2019, the Bipartisan Budget Act of 2018, among other things, further amended
portions of the Social Security Act implemented as part of the ACA to increase from 50% to 70% the point-of-sale
discount that pharmaceutical manufacturers participating in the Coverage Gap Discount Program must provide to eligible
Medicare Part D beneficiaries during the coverage gap phase of the Part D benefit, commonly referred to as the “donut
hole,” and to reduce standard beneficiary cost sharing in the coverage gap from 30% to 25% in most Medicare Part D
plans. In the future, there may be additional challenges and/or amendments to the ACA. It remains to be seen precisely
what any new legislation will provide, when or if it will be enacted, and what impact it will have on the availability and
cost of healthcare items and services, including drug products.
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In addition, in recent years the pricing and costs of prescription pharmaceuticals has been the subject of
considerable discussion in the United States. A number of federal reports and inquiries have focused on these issues, and
various legislative and regulatory provisions have been proposed and enacted at the federal and state level that seek to
bring more transparency to product pricing, reduce the cost of prescription drugs under Medicare, review the relationship
between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for
drug products. On December 21, 2020, Congress passed a $900 billion U.S. coronavirus relief and government
appropriations legislation, or the Act, which contains several important new drug price reporting and transparency
measures that could result in additional transparency with respect to manufacturers’ prescription drug prices. Among other
things, the Act includes provisions requiring Medicare Part D prescription drug plan, or PDP, sponsors and Medicare
Advantage organizations, or MAOs, to implement tools to display Medicare Part D prescription drug benefit information in
real time and provisions requiring group and health insurance issuers offering health insurance coverage to report
information on certain pharmacy benefit and drug costs to the Secretaries of HHS, Labor, and the Treasury. 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.
Further, the Biden Administration and Congress may pursue additional and potentially significant changes to the
current healthcare laws, regulations, and related guidance. The Biden Administration issued a memorandum on January 20,
2021 (President Biden’s inauguration day) that, like similar memoranda issued by prior incoming Administrations, directed
federal agencies to take steps to halt, delay, or conduct further review of certain regulatory actions taken by the Trump
Administration, such as those that had not taken effect by inauguration day. The Biden Administration’s review is ongoing
and we cannot predict which regulatory actions it may or may not affect. We also cannot predict what other healthcare
reforms will ultimately be implemented at the federal or state level or the effect of any future legislation or regulation and,
accordingly, face uncertainties that might result from additional reforms.
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. Any of these 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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Our ability to obtain reimbursement or funding for our programs from the federal government may be impacted by
possible reductions in federal spending.
U.S. federal government agencies currently face potentially significant spending reductions. For example, as a
result of the Budge Control Act of 2011, the Bipartisan Budget Act, or BBA, and the CARES Act, an annual 2% reduction
to Medicare payments took effect on April 1, 2013, and has been extended through 2030 (though the reduction was
temporarily suspended from May 1, 2020 through March 31, 2021 in connection with COVID-19 relief related legislation).
The U.S. federal budget remains in flux, however, which could, among other things, result in a cut to Medicare payments to
providers and otherwise affect federal spending on clinical and preclinical research and development. 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 which the actions of President Biden’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.
Vaccines carry unique risks and uncertainties, which could have a negative impact on future results of operations.
We are planning to potentially develop vaccine candidates using our exosome technologies. The successful
development, testing, manufacturing and commercialization of vaccines is a long, complex, expensive and uncertain
process. There are unique risks and uncertainties associated with vaccines, including:
● There may be limited access to, and supply of, normal and diseased tissue samples, cell lines, media
pathogens, bacteria, viral strains, synthesized nucleic acids, including mRNA and other biological materials.
In addition, government regulations in multiple jurisdictions, such as the United States and the EU, could
result in restricted access to, or the transport or use of, such materials. If the Company in unable to access
sufficient sources of such materials, or if tighter restrictions are imposed on the use of such materials, the
Company may not be able to conduct research or product development activities as planned and may incur
additional costs.
● The development, manufacturing and marketing of vaccines are subject to regulation by the FDA, the EMA
and other regulatory bodies that are often more complex and extensive than the regulations applicable to
other pharmaceutical products. For example, in the United States, a BLA, including both preclinical and
clinical trial data and extensive data regarding the manufacturing procedures, is required for human vaccine
candidates, and FDA approval is generally required for the release of each manufactured commercial lot.
● Vaccines are frequently costly to manufacture because production ingredients are inactive biological
materials derived from virus, animals, or plants and most biologics and vaccines cannot be made
synthetically. In particular, keeping up with the demand for vaccines may be difficult due to the complexity
of producing vaccines.
Risks Related to the Manufacturing of our Product Candidates
We have limited manufacturing capability and may not be able to maintain our manufacturing licenses.
Our primary research facility is located in San Diego, California. We also maintain a portion of 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 may manufacture our exosome technologies, we believe that we follow
good manufacturing practices sufficient for an investigational stage product. Capricor manufactured CAP-1002 in this
facility for our previous clinical studies as well as our HOPE-2 clinical trial.
As we initiate a Phase III study for DMD, we are unsure at this time if the FDA will allow us to produce doses in
our current facility or whether the FDA will require us to use a cGMP facility. If we are required to use a cGMP facility to
produce product for a Phase III study, it may result in delays and significant expenses which would have a negative impact
on our business and product development. In addition, FDA may disagree with our position that the drug used in our prior
clinical studies is sufficiently comparable to the drug to be used in the forthcoming Phase III study. This could
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result in us being required to conduct further comparability testing and may result in us being required to conduct
additional clinical trials before we are able to submit a BLA for approval. Additional testing or clinical trial requirements
could lead us not to pursue an application for approval. Conducting a clinical trial may prove too difficult or too expensive,
and the process of designing a clinical trial, enrolling enough patients, and completing treatment and data collection under
the protocol could take a significant amount of time, effort, and resources. Even if we do complete the clinical trial, the
study may not meet its prespecified endpoints, and even if it does, FDA may still disagree with our determination that the
trial is sufficient to support submission and approval of a marketing application.
In 2020, we initiated a technology transfer with Lonza Houston, Inc., a leading global contract manufacturing
organization to prepare for commercial or possibly late-stage clinical manufacturing of CAP-1002. Process development
has been the focus of the work done by Lonza to date. We are evaluating whether it would be in our best interests to have
Lonza move forward to complete the technology transfer process or whether we should manufacture our CAP-1002
product candidate in a cGMP facility leased by us.
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 our exosomes
technologies. Currently, our CSMC Facilities Lease is scheduled to expire on July 31, 2022. There can be no assurance that
the Facilities Lease for the manufacturing space will be continued beyond July 31, 2022. If the Facilities Lease with CSMC
is terminated or expires, we would have to secure alternative facilities in which to manufacture our products, which would
involve a significant monetary investment and would negatively impact the progress of our clinical trials and regulatory
approvals. At this time, we are actively considering new or expanded facilities for development and manufacturing
activities and the possible extension of our current Facilities Lease.
We may be required to obtain and maintain certain licenses in connection with our manufacturing facilities and
activities. There is no guarantee that any licenses issued to us will not expire, be revoked, 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.
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, late-stage clinical trials or commercial use.
To date, our manufacturing experience has been limited to manufacturing CAP-1002 for clinical use in multiple
clinical trials. Our experience in the manufacturing of exosomes is limited to producing product for preclinical use. We
have no prior history or experience in manufacturing our allogeneic product for large scale, late-stage (Phase III) clinical
trials or for 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
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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 supply chain issues,
equipment failures, labor shortages, natural disasters, power failures and numerous other factors.
If we continue with the development of CAP-1002 or our exosome technologies, we may need to rely exclusively on third
parties to formulate and manufacture these product candidates and provide us with the devices and other products
necessary to administer such a product.
At this time, we have not established our own manufacturing facilities sufficient for the production of CAP-1002
or our exosome technologies for commercial purposes. Our resources and expertise to formulate or manufacture this
product candidate on a large or commercial scale basis are limited. Additionally, if the field of RNA and other nucleic acid
medicines continues to expand, we may encounter increasing competition for these supplies, materials and services.
Demand for third-party manufacturing or testing facilities may grow at a faster rate than their existing capacity, which
could disrupt our ability to find and retain third-party manufacturers capable of producing sufficient quantities of such raw
materials, components, parts, and consumables required to manufacture our exosome-based RNA products. If CAP-1002 or
any of our exosome technologies receives FDA approval, we may need to rely on one or more third-party contractors to
manufacture supplies of these drug products which may cause delays in 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:
● 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. FDA may also exercise oversight over manufacturing facilities for products authorized
under an EUA.
● Our third-party manufacturers may not be able 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 may not be able 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.
● Our contract manufacturers may elect to terminate our agreements with them.
● 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.
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
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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.
The process of manufacturing our products is complex and we may encounter difficulties in production, particularly
with respect to process development or scaling-up of our manufacturing capabilities.
We will be required to produce additional doses of CAP-1002 in order to conduct our Phase III clinical trial. The
process of manufacturing our products is complex, highly regulated and subject to multiple risks. The complex processes
associated with the manufacture of our product candidates expose us to various manufacturing challenges and risks, which
may include delays in manufacturing adequate supply of our product candidates, limits on our ability to increase
manufacturing capacity, and the potential for product failure and product variation that may interfere with preclinical and
clinical trials, along with additional costs. We also may make changes to our manufacturing process at various points
during development, and even after commercialization, for various reasons, such as controlling costs, achieving scale,
decreasing processing time, increasing manufacturing success rate, or other reasons. Such changes carry the risk that they
will not achieve their intended objectives, and any of these changes could cause our product candidates to perform
differently and affect the results of current or future clinical trials, or the performance of the product, once commercialized.
In some circumstances, changes in the manufacturing process may require us to perform ex vivo comparability studies and
to collect additional data from patients prior to undertaking more advanced clinical trials. For instance, changes in our
process during the course of clinical development may require us to show the comparability of the product used in earlier
clinical trials or at earlier portions of a trial to the product used in later clinical trials or later portions of the trial. We may
also make further changes to our manufacturing process before or after commercialization, and such changes may require
us to show the comparability of the resulting product to the product used in the clinical trials using earlier processes. We
may be required to collect additional clinical data from any modified process prior to obtaining marketing approval for the
product candidate produced with such modified process. If clinical data are not ultimately comparable to that seen in the
earlier trials in terms of safety or efficacy, we may be required to make further changes to our process and/or undertake
additional clinical testing, either of which could significantly delay the clinical development or commercialization of the
associated product candidate.
Although we continue to build on our experience in manufacturing our products, we have no experience, as a
company, manufacturing product candidates for commercial supply. We may never be successful in manufacturing product
candidates in sufficient quantities or with sufficient quality for commercial use. Our manufacturing capabilities could be
affected by cost-overruns, unexpected delays, equipment failures, labor shortages, operator error, natural disasters,
unavailability of qualified personnel, difficulties with logistics and shipping, problems regarding yields or stability of
product, contamination or other quality control issues, power failures, and numerous other factors that could prevent us
from realizing the intended benefits of our manufacturing strategy and have a material adverse effect on our business.
Furthermore, compliance with cGMP requirements and other quality issues may arise during our internal efforts to
scale-up manufacturing, and with our current or any future CMOs. If contaminants are discovered in our supply of our
product candidates or in our manufacturing facilities or those of our CMOs, such manufacturing facilities may need to be
closed for an extended period of time to investigate and remedy the contamination. We cannot assure you that any stability
failures or other issues relating to the manufacture of our product candidates will not occur in the future. Additionally, we
and our CMOs may experience manufacturing difficulties due to resource constraints or as a result of labor disputes or
unstable political environments. If we or our CMOs were to encounter any of these difficulties, our ability to provide our
product candidate to patients in clinical trials, or to provide product for treatment of patients once approved, would be
jeopardized.
Risks Related to Our Intellectual Property
We may face uncertainty and difficulty in obtaining and enforcing our patents and other proprietary rights.
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 Company-owned patent applications
will be approved, or that challenges will not be instituted against the validity or enforceability of any patent licensed-in or
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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/or 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(s) such inventions. In addition, the
government(s) has the right to “march in” and require us to grant third parties licenses to such technology, in certain
circumstances, 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.
In September 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The
Leahy-Smith Act 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 Leahy-Smith Act, the
United States transitioned in March 2013 to a “first to file” system in which the first inventor to file a patent application
will be entitled to the patent. Third parties are allowed to submit prior art before the issuance of a patent by the U.S. Patent
and Trademark Office, or USPTO, and may become involved in derivation, post-grant review, or inter partes review,
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.
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 product candidate) 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 and JHU that cover extracellular vesicles, such as exosomes and
microvesicles. 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
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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 certain patents and patent applications thereunder. Our enforcement
of certain of these licensed patents or defense of any claims asserting the invalidity and/or unenforceability of these patents
would also be subject to the cooperation of the University of Rome, JHU, and/or CSMC.
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 that are in-
licensed. Further, if any of our owned or in-licensed patents are determined by legal authority to be invalid 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:
● 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 advantage, 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.
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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 our rights to 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.
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 licenses to these issued patents covering such technologies.
For patent applications filed before the Leahy-Smith Act, 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.
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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
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.
independent contractors have
inadvertently or otherwise
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 will depend on our exclusive distributor, Nippon Shinyaku, for the commercial sale of our lead product CAP-1002 in
DMD in the United States if we receive regulatory approval.
We believe that a substantial portion of our revenue for the foreseeable future will depend on milestones and other
payments received from our distributor, Nippon Shinyaku. Nippon Shinyaku has exclusive distribution rights for CAP-
1002 in the United States for a significant period of time, with only limited rights of either party to terminate the NS
Distribution Agreement.
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. 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 or 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) and Dr. Stephen Gould (Johns Hopkins University) are under no obligation to conduct,
continue, or conclude either current or future studies utilizing our cell therapy or exosomes technology, and they
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are not compelled to license any further technologies or intellectual property rights to us except as may be stated in the
applicable licensing agreements or research 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. Further,
the failure of any third-party licensor to comply with its licensing obligations under its respective agreement with us 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 the proprietary technology.
Finally, we may be required to obtain licenses to patents or other proprietary rights of third parties (including and
other than the University of Rome, JHU and CSMC) 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 and require us to allocate expenses to the applicable
project.
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 our exosomes. Under the
terms of the award, disbursements were made to Capricor, subject to annual and quarterly reporting requirements. The
Company utilized approximately $2.3 million under the terms of the award. We completed all close-out documentation
associated with this award.
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, disbursements were tied to the achievement of specified
operational milestones. 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.
We are actively looking into potential additional strategic partnerships for our product candidates, particularly for
CAP-1002 in territories outside the United States and our exosomes product candidates. If we do not establish strategic
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partnerships, we potentially 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:
● 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.
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 preclinical and clinical trials under agreements with us.
We negotiate budgets and contracts with CROs, vendors and trial 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. 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 preclinical, 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,
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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.
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 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.
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 and exosome industries 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.
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There has been 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 can sometimes be 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.
We have also developed a close working relationship between the academic lab of Dr. Stephen Gould at Johns
Hopkins University 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 can sometimes be unclear whether intellectual
property developed out of these services would be owned by JHU or by the Company, although if owned by JHU, the
Company may have rights to that intellectual property under the terms of its license and research agreements with JHU.
Unless extended, the SRA with JHU is scheduled to expire on March 31, 2022.
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. In January 2022, we entered into the NS Distribution Agreement with
Nippon Shinyaku for the exclusive commercialization and distribution rights in the United States of CAP-1002 for DMD.
We continue to evaluate potential partners for this program in other territories, subject to any rights of Nippon Shinyaku
under the NS Distribution Agreement.
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. As we entered into the NS Distribution Agreement with Nippon Shinyaku, we will
depend upon Nippon Shinyaku’s strategic interest in our CAP-1002 product candidate, and Nippon Shinyaku’s ability to
successfully market and sell any such products, if and when approved. If any of our other product candidates are cleared
for commercialization, we intend to pursue collaborative arrangements regarding the sales and marketing of such 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, such as our partnership with
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Nippon Shinyaku, 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:
● 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.
Our development of a potential vaccine for COVID-19 or other indications is at an early stage and is subject to
significant risks.
Our development of a vaccine is in early stages, and we may be unable to produce a vaccine that successfully
treats a particular virus in a timely manner, if at all. Even if we were able to successfully develop and obtain regulatory
approval for a vaccine, if the outbreak is effectively contained or the risk of coronavirus infection is diminished or
eliminated before we can successfully develop and manufacture our vaccine, we may not be able to generate product
revenues from the vaccine. Additionally, a number of pharmaceutical companies have already obtained regulatory approval
for COVID-19 vaccines, and other companies with significantly more resources than us are developing COVID-19
vaccines. Even if we were able to successfully develop and obtain regulatory approval for a COVID-19 vaccine, vaccines
produced by these other companies may be superior to our vaccine. Even if a vaccine that we develop is not inferior to
other available vaccines, it could be difficult to obtain market acceptance. We are committing financial resources and
personnel to the development of a COVID-19 vaccine which may cause delays in or otherwise negatively impact our other
development programs, despite uncertainties surrounding the longevity and extent of coronavirus as a global health
concern. Our business could be negatively impacted by our allocation of significant resources to a global health threat that
is unpredictable and could rapidly dissipate or against which our vaccine, if developed, may not be partially or fully
effective, or for which better vaccine options may be available.
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Even if our product candidates are approved, 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 or our collaborators’ 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 the United States, no uniform policy of coverage and reimbursement for products exists among third-party
payors. Many third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own
coverage and reimbursement policies, but also have their own methods and approval processes to decide which drugs they
will pay for and establish reimbursement levels. Coverage decisions may depend upon clinical and economic standards that
disfavor new drug products when more established or lower cost therapeutic alternatives are already available or
subsequently become available. If any of our product candidates fail to demonstrate attractive efficacy profiles, they may
not qualify for coverage and reimbursement. However, decisions regarding the extent of coverage and amount of
reimbursement to be provided for any product candidates that we develop through approval will be made on a plan-by-plan
basis. One payor’s determination to provide coverage for a product does not assure that other payors will also provide
coverage and adequate reimbursement for the product. As a result, the coverage determination process will require us to
provide scientific and clinical support for the use of our products to each payor separately and will likely be a time-
consuming process. Each plan determines whether or not it will provide coverage for a drug, what amount it will pay for
the drug, the applicable formulary tier, and whether to require step therapy or other utilization management controls. Such
decisions can strongly influence the adoption of a drug by patients and physicians. Patients who are prescribed treatments
for their conditions and treating healthcare providers generally rely on third-party payors to reimburse all or part of the
associated healthcare costs. Patients may be unlikely to use and prescribers unlikely to prescribe our products unless
adequate coverage is provided and reimbursement is available.
Additionally, a third-party payor’s decision to provide coverage for a drug does not imply that an adequate
reimbursement rate will be approved. The process for determining whether a third-party payor will provide coverage for a
product may be separate from the process for setting the price of a product or for establishing the reimbursement rate that
such a payor will pay for the product. Third-party payors, such as government or private healthcare insurers, carefully
review and increasingly question the coverage of, and challenge the prices charged for, drug products. A primary trend in
the U.S. healthcare industry and elsewhere is cost containment. Government authorities and third-party payors have
attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly,
third-party payors are requiring that pharmaceutical companies provide them with predetermined discounts from list prices
and are challenging the prices charged for products. We may also be required to conduct expensive pharmacoeconomic
studies to justify the coverage and the amount of reimbursement for particular medications. We cannot be sure that
coverage and reimbursement will be available for any product that we commercialize and, if reimbursement is available,
what the level of reimbursement will be. Inadequate coverage or reimbursement may impact the demand for, or the price
of, any product for which we obtain marketing approval. If coverage and adequate reimbursement are not available, or are
available only to limited levels, we may not be able to successfully commercialize any product candidates that we develop.
Further, there have been a number of legislative and regulatory proposals to change the healthcare system that
could affect our ability to sell any future drugs profitably. 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 by generic products. We anticipate additional state and federal healthcare
reform measures will be adopted in the future. These may include price controls and cost-containment measures, or more
restrictive policies in jurisdictions with existing controls and measures, any of which could limit the amounts that federal
and state governments will pay for healthcare products and services, and potentially could reduce demand for our products
once approved, create additional pricing pressures, or ultimately limit our net revenue and results. There can be no
assurance that any of our product candidates, if approved, will be considered medically reasonable and necessary, that they
will be considered cost-effective by third-party payors, that coverage or an adequate level of reimbursement will be
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available, or that reimbursement policies and practices in the United States and in foreign countries where our products are
sold will not harm our ability to sell our product candidates profitably, if they are approved for sale.
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:
● 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.
In addition, our clinical trial agreements and most agreements with third-party vendors contain indemnification
obligations requiring us to indemnify them from any losses and claims that may be brought in connection with their
provision of services, testing, manufacture or other activities in connection with the use of our products.
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.
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Our business depends on compliance with ever-changing environmental and human health and safety 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, as well as laws and regulations designed to
protect employees and others who handle hazardous materials. 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.
We expect that our stock price will continue to fluctuate significantly.
Risks Related to Our Common Stock
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:
● our financial condition, including our need for additional capital, as well as the impact of any terms imposed
on our business and operations by the providers of 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;
● announcements concerning clinical trials and regulatory developments;
● failure or delays in entering drug candidates into clinical trials;
● failure or discontinuation of any of our research or development programs;
● developments in establishing and maintaining new strategic alliances or with existing alliances or
collaborators;
● failure to meet milestone requirements under distribution agreements, including the NS Distribution
agreement with Nippon Shinyaku;
● failure to satisfy licensing obligations, including our ability to meet milestone requirements under our license
agreements;
● 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.
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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.
We may issue shares of blank check preferred stock without stockholder approval 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.
The operational and other projections and forecasts that we may make from time to time are subject to inherent risks,
many of which are beyond our control.
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.
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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.
A significant number of shares of our common stock are issuable pursuant to outstanding stock awards and warrants,
and we expect to issue additional stock awards and shares of common stock in the future. Exercise of these awards and
warrants, 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, 2021, there were approximately 24.2 million shares of common stock outstanding and
approximately 0.1 million common warrants outstanding, as well as outstanding awards to purchase approximately 3.8
million shares of common stock under various incentive stock plans of the Company. Additionally, as of December 31,
2021, there were approximately 3.9 million shares of common stock available for future issuance under various incentive
plans. We may issue additional common stock, warrants and other convertible securities 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, warrants or other convertible securities 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.
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 further be 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 stockholders
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 is required. In addition, these rules and regulations make it more difficult and more expensive for us to obtain
director and officer liability insurance. 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.
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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.
You may experience future dilution as a result of future equity offerings.
In order to raise additional capital, we may in the future offer additional shares of our common stock or other
securities convertible into or exchangeable for our common stock at prices that may not be the same as the price per share
paid by any investor. We may sell shares or other securities in any other offering at a price per share that is less than the
price per share paid by any investor, and investors purchasing shares or other securities in the future could have rights
superior to you. The price per share at which we sell additional shares of our common stock, or securities convertible or
exchangeable into common stock, in future transactions may be higher or lower than the price per share paid by any
investor.
If our business plans are not successful, our stockholders may lose their entire investment in us.
We have historically incurred substantial losses to fund our business operations including our research and
development activities. We will, in all likelihood, sustain operating expenses without corresponding revenues for the
foreseeable future. This may result in our incurring net operating losses that will increase continuously until we are able to
obtain regulatory approval for, and commercialize, our product candidates, the occurrence of which cannot be assured. If
our business plans are not successful, our stockholders may lose their entire investment in us.
We may be at risk of securities class action litigation or litigation initiated by individual stockholders.
We may be at risk of securities class action litigation or litigation initiated by individual stockholders. This risk is
especially relevant due to our dependence on positive clinical trial outcomes and regulatory approvals. In the past,
biotechnology and pharmaceutical companies have experienced significant stock price volatility, particularly when
associated with binary events such as clinical trials and product approvals. If we face such litigation, it could result in
substantial costs and a diversion of management’s attention and resources, which could harm our business and result in a
decline in the market price of our common stock.
In the event we fail to satisfy any of the listing requirements of The NASDAQ Capital Market, our common stock may
be delisted, which could affect our market price and liquidity.
Our common stock is listed on The NASDAQ Capital Market. For continued listing on The NASDAQ Capital
Market, we will be required to comply with the continued listing requirements, including the minimum market
capitalization standard, the minimum stockholders’ equity requirement, the corporate governance requirements and the
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minimum closing bid price requirement, maintaining Board diversity among other requirements. In the event that we fail to
satisfy any of the listing requirements of The NASDAQ Capital Market, our common stock may be delisted. If our
securities are delisted from trading on The NASDAQ Stock Market, however, and we are not able to list our securities on
another exchange or to have them quoted on The NASDAQ Stock Market, our securities could be quoted on the OTC
Markets or on the “pink sheets.” As a result, we could face significant adverse consequences including:
● a limited availability of market quotations for our securities;
● a determination that our common stock is a “penny stock,” which would require brokers trading in our
common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in
the secondary trading market for our securities;
● a limited amount of news and analyst coverage; and
● a decreased ability to issue additional securities (including pursuant to short-form registration statements on
Form S-3) or obtain additional financing in the future.
If we fail to comply with California laws governing the diversity of corporate boards of directors, we could be fined by
the California Secretary of State.
In September 2018, California Governor Jerry Brown signed into law Senate Bill 826, or SB 826, which generally
requires public companies with principal executive offices in California to have a minimum number of females on the
company's board of directors. As of December 31, 2019, each public company with principal executive offices in
California was required to have at least one female on its board of directors. By December 31, 2021, each public company
would be required to have at least two females on its board of directors if the company has at least five directors, and at
least three females on its board of directors if the company has at least six directors. Our Board is comprised of seven
directors, two of whom are female and therefore, the Company is not in compliance with this requirement.
Additionally, on September 30, 2020, California Governor Gavin Newsom signed into law Assembly Bill 979, or
AB 979, which generally requires public companies with principal executive offices in California to include specified
numbers of directors from "underrepresented communities." A director from an "underrepresented community" means a
director who self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native
Hawaiian, Alaska Native, gay, lesbian, bisexual or transgender. By December 31, 2021, each public company with
principal executive offices in California is required to have at least one director from an underrepresented community. By
December 31, 2022, a public company with more than four but fewer than nine directors will be required to have a
minimum of two directors from underrepresented communities, and a public company with nine or more directors will
need to have a minimum of three directors from underrepresented communities. Currently, the Company is in compliance
with the diversity requirement of AB 979.
Our board of directors includes two female directors, and one director from an “underrepresented community.” If
we do not add at least one additional female director and at least one director from an “underrepresented community” to
our board of directors prior to December 31, 2022, we would be out of compliance with SB 826 or AB 979, respectively.
An initial violation of either law can result in a fine from the California Secretary of State in the amount of $100,000, with
each subsequent violation resulting in a fine of $300,000. At this time, there is litigation challenging the enforceability of
these bills and it is therefore uncertain whether any fines will be imposed.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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ITEM 2. PROPERTIES
We do not own any real property. Our primary operations are conducted at the leased facilities summarized in the
below table. We believe our facilities are adequate and suitable for our current needs and that we will be able to obtain new
or additional leased space in the future when necessary.
Location of Property
10865 Road to the Cure,
Suite 150, San Diego, CA
10865 Road to the Cure,
Room 7, San Diego, CA
8840 Wilshire Blvd., 2nd
Floor, Beverly Hills, CA
8700 Beverly Blvd., Los
Angeles, CA
Lease Expiration Date
October 15, 2026
Purpose
Laboratory and office space
Other Information
Corporate headquarters
October 31, 2022
Laboratory space
Laboratory space
Month-to-Month,
terminable on 90-day notice
July 31, 2022
Office space
Office space
Laboratory and office space
Primarily laboratory space
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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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 for the periods indicated.
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, 2020
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year ended December 31, 2021
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Holders
High
Low
$
$
$
$
2.02
8.50
9.81
5.23
7.93
5.72
5.23
4.16
0.94
1.00
4.08
3.70
3.63
3.16
3.80
2.89
According to the records of our transfer agent, American Stock Transfer & Trust Company, as of March 9, 2022,
we had 136 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 our Definitive Proxy Statement for our 2022 Annual Meeting of Stockholders, to be filed
with the SEC within 120 days after the end of the fiscal year ended December 31, 2021, and is incorporated herein by
reference.
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
Not applicable.
Issuer Purchases of Equity Securities
None.
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ITEM 6. RESERVED
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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.
Company Overview
Capricor Therapeutics, Inc. is a clinical-stage biotechnology company focused on the development of
transformative cell and exosome-based therapeutics for the treatment and prevention of a broad spectrum of diseases and
disorders.
Since our inception, we have devoted substantial resources to developing CAP-1002 and our other product
candidates including our exosomes platform, developing our manufacturing processes, staffing our company and providing
general and administrative support for these operations. We do not have any products approved for sale. Our ability to
eventually generate any product revenue sufficient to achieve profitability will depend on the successful development,
approval and eventual commercialization of CAP-1002 and our other product candidates. If successfully developed and
approved, we intend to commercialize CAP-1002 in the United States with our partner, Nippon Shinyaku, and may enter
into additional licensing agreements or strategic collaborations in other markets. If we generate product sales or enter into
licensing agreements or strategic collaborations, or further distribution relationships, we expect that any revenue we
generate will fluctuate from quarter-to-quarter and year-to-year as a result of the timing and amount of any product sales,
license fees, milestone payments and other payments. If we fail to complete the development of our product candidates in a
timely manner, our ability to generate future revenue, and our results of operations and financial position, would be
materially adversely affected.
A summary description of our key product candidates, is as follows:
● CAP-1002 for the treatment of DMD (Phase III): Our core cell therapy technology, CAP-1002, is based on
cardiosphere-derived cells, or CDCs, which have been shown in pre-clinical and clinical studies to exert
potential immunomodulatory activity and is being investigated for its potential to modify the immune
system’s activity to encourage cellular regeneration. To date, we have completed two promising clinical
trials, investigating CAP-1002 for DMD. We are initiating HOPE-3, a Phase III pivotal study for the potential
approval of CAP-1002 in the United States in this indication.
● CAP-1002 for the treatment of cytokine storm associated with COVID-19 (Phase II): In the fourth quarter of
2021, we announced completion of enrollment of our INSPIRE, Phase II trial and plan to have top-line data
available by the end of the first quarter of 2022. Following receipt of this data, we will discuss next steps for
the program with FDA and evaluate an appropriate path forward.
● Exosome-Based Therapeutics and Vaccines (Preclinical): We are focused on developing a precision-
engineered exosome platform technology that has the ability to deliver defined sets of effector molecules
which exert their effects through defined mechanisms of action. At this time, we are developing therapeutics
and vaccines for infectious diseases, monogenic diseases and other potential indications. Our platform builds
on advances in fundamental RNA science, targeting technology and manufacturing, providing us the
opportunity to potentially build a broad pipeline of new therapeutic candidates.
Due to our significant research and development expenditures, and general administrative costs associated with
our operations, we have generated substantial operating losses in each period since our inception. Our net losses were
$20.0 million and $13.7 million, for the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021,
we had an accumulated deficit of $108.1 million. We expect to incur significant expenses and operating losses for the
foreseeable future.
During the year ended December 31, 2021, we sold 3,566,349 shares pursuant to a sales agreement by and
between us and H.C. Wainwright & Co. LLC, or Wainwright, resulting in net proceeds of $20.2 million.
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In January 2022 we entered into a Commercialization and Distribution Agreement with Nippon Shinyaku for the
exclusive commercialization and distribution of CAP-1002 for DMD in the US. Under the terms of the NS Distribution
Agreement, we will be responsible for the conduct of the HOPE-3 trial as well as for the manufacturing of CAP-1002.
Nippon Shinyaku will be responsible for the distribution of CAP-1002 in the United States. We will sell commercial
product to Nippon Shinyaku and in addition will receive a meaningful, double-digit share of product revenue and
additional development and sales-based milestone payments. We expect to receive an upfront payment of $30.0 million
with potential additional milestone payments of up to $705.0 million.
We recently moved our corporate and research headquarters to San Diego, California. In order to attract scientific
talent and grow efficiently, this relocation allows us to continue this growth as our programs continue to develop.
As we seek to develop and commercialize CAP-1002 or any other product candidates including those related to
our exosomes program, we anticipate that our expenses will increase significantly and that we will need substantial
additional funding to support our continuing operations. Until such time when we can generate significant revenue from
product sales, if ever, we expect to finance our operations through a combination of public or private equity financings,
debt financings or other sources, which may include licensing agreements or strategic collaborations or other distribution
agreements. We may be unable to raise additional funds or enter into such agreements or arrangements when needed on
favorable terms, if at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to
significantly delay, scale back or discontinue the development or commercialization of CAP-1002 or our other product
candidates.
The COVID-19 pandemic has presented a substantial public health and economic challenge around the world. Our
business operations and financial condition and results have been impacted to varying degrees, and we expect the impact
will continue in future quarters.
We are continuing to assess and plan our development for the ongoing and potential impact of the COVID-19
pandemic on our business, operations and financial condition and results. Despite careful tracking and planning, however,
we are unable to accurately predict the extent of the impact of the pandemic on our business, results of operations and
financial condition due to the uncertainty of future developments involving the pandemic and its impact on our employees
and operations. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of
operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately
predicted, including new information that may emerge concerning COVID-19, the actions taken to contain it or treat its
impact and the economic impact on local, regional, national and international markets. For additional information on the
various risks posed by the COVID-19 pandemic, refer to Part I, Item 1A. Risk Factors of this Annual Report on Form 10-
K.
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 and our exosome
technologies. As we proceed with the clinical development of CAP-1002, and as we further develop our exosome
technologies, 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 our products and our clinical programs. Our
recent major sources of working capital have been primarily proceeds from private and public equity sales of securities.
While we pursue our preclinical and clinical programs, we continue to explore potential partnerships for the development
of one or more of our product candidates in the US and in other territories across the world.
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 preclinical, 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, 2021 and 2020
Revenue
Grant Income. Grant income for the years ended December 31, 2021 and 2020 was zero and approximately $0.2
million, respectively. The decrease in grant income of approximately $0.2 million in 2021 as compared to 2020 is due to
the timing of grant activities. The DoD grant award came to completion during the third quarter of 2020.
Miscellaneous Income. Miscellaneous income for the years ended December 31, 2021 and 2020 was
approximately $0.2 million and $0.1 million, respectively. The miscellaneous income was related to providing CAP-1002
for investigational purposes for clinical trials sponsored by CSMC. The clinical trials sponsored by CSMC experienced
delays caused by the COVID-19 pandemic in 2020.
Operating Expenses
General and Administrative Expenses. G&A expenses for the years ended December 31, 2021 and 2020 were
approximately $7.6 million and $5.5 million, respectively. The increase of approximately $2.1 million in G&A expenses in
the year ended December 31, 2021 compared to the year ended December 31, 2020 is attributable to an approximately $0.9
million increase in stock-based compensation expense, an approximately $0.5 million increase in salaries and recruiting
related expenses, an approximately $0.4 million increase in other general corporate expenses, and an approximately $0.4
million increase in insurance costs.
Research and Development Expenses. R&D expenses for the years ended December 31, 2021 and 2020 were
approximately $13.6 million and $8.5 million, respectively. The increase of approximately $5.1 million for the year ended
December 31, 2021 as compared to the year ended December 31, 2020 is due to an approximate $2.5 million increase in
research and development expenses primarily related to our exosomes program and an increase of approximately $2.3
million in technology transfer and manufacturing related activities of CAP-1002. Furthermore, there was a net increase of
approximately $0.1 million due to clinical development activities of CAP-1002 (DMD and COVID-19 clinical trials).
Lastly, there was an increase of approximately $0.2 million in stock-based compensation expenses allocable to R&D for
the year ended December 31, 2021 as compared to December 31, 2020.
Other Income
Other Income. Other income for the years ended December 31, 2021 and 2020 was approximately $0.5 million
and zero, respectively. Other income for 2021 was related to the Employer Retention Credit under the CARES Act.
Investment Income. Investment income for the years ended December 31, 2021 and 2020 was $57,460 and
$32,943, respectively. The increase in investment income in 2021 as compared to 2020 is due to increased interest rates and
the higher principal balance in our savings and money market fund accounts.
Products Under Active Development
CAP-1002 for the treatment of DMD – We are initiating a Phase III pivotal study for DMD for which we expect to
spend approximately $10.0 million to $14.0 million in 2022. The expenses for our DMD program will include costs for
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clinical, regulatory and manufacturing-related expenses, including expenses related to the scale-up for commercial scale
manufacturing. We expect to receive a $30.0 million upfront payment under the terms of our NS Distribution Agreement
with Nippon Shinyaku which will support these endeavors.
CAP-1002 for the treatment of COVID-19 – Following the receipt of our INSPIRE data, we will discuss the
program with FDA and evaluate an appropriate path forward. At this time, it is difficult to estimate our future expenses
until our development becomes more clear.
Exosome-Based Therapeutics and Vaccines – Our exosome platform is in early-stage development. We expect to
spend approximately $5.0 million to $7.0 million during 2022 on development expenses related to our exosomes program,
which includes preclinical and manufacturing related expenses for these technologies. Our expenses for this program are
primarily focused on the expansion of our engineered exosomes platform.
Our expenditures on current and future clinical development programs, particularly our CAP-1002 and exosomes
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 and additional strategic partners. 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;
● the costs, requirements and timing of, and the ability to secure, regulatory approvals; and
● additional delays caused by the COVID-19 pandemic.
Liquidity and Capital Resources for the fiscal years ended December 31, 2021 and 2020
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.
Liquidity and capital resources
Cash and cash equivalents
Working capital
Stockholders’ equity
Cash flow data
Cash provided by (used in):
Operating activities
Investing activities
Financing activities
Net increase in cash and cash equivalents
December 31, 2021 December 31, 2020
32,666
30,706
28,200
34,885
32,304
31,368
$
$
$
$
$
$
Years ended December 31,
2021
2020
$
$
(16,809) $
(1,196)
20,225
2,220 $
(10,055)
5,439
33,382
28,766
Our total cash and cash equivalents as of December 31, 2021 was approximately $34.9 million compared to
approximately $32.7 million as of December 31, 2020. The increase in cash and cash equivalents from December 31, 2021
as compared to December 31, 2020 was primarily due to net financing activities of approximately $20.2 million which
were partially offset by the net loss of approximately $20.0 million in 2021. As of December 31, 2021, we had
approximately $10.0 million in total liabilities, of which approximately $2.9 million related to lease liabilities in
connection with our operating lease right-of-use assets. As of December 31, 2021, we had approximately $32.3 million in
net working capital. We had a net loss of approximately $20.0 million for the year ended December 31, 2021.
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Cash used in operating activities was approximately $16.8 million and $10.1 million for the years ended
December 31, 2021 and 2020, respectively. The difference of approximately $6.7 million in cash from operating activities
is primarily due to an increase of approximately $6.4 million in net loss for the year ended December 31, 2021 as
compared to the same period in 2020. Furthermore, there was a change of approximately $1.0 million in stock-based
compensation expense, a net change of approximately $0.8 million in accounts payable and accrued expenses, which
includes related party accounts payable and accrued expenses, and a change of approximately $0.5 million in receivables
for the year ended December 31, 2021 as compared to the same period in 2020. To the extent we obtain sufficient capital
and/or long-term debt funding and are able to continue developing our product candidates, including if we expand our
technology portfolio, engage in further research and development activities, and, in particular, conduct preclinical 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 (used in) investing activities of approximately $(1.2) million and $5.4 million for
the years ended December 31, 2021 and 2020, respectively. The decrease in cash flow by investing activities for the year
ended December 31, 2021 as compared to the same period of 2020 is primarily due to the net effect from purchases, sales,
and maturities of marketable securities as well as purchases of property and equipment.
We had cash flow provided by financing activities of approximately $20.2 million and $33.4 million for the years
ended December 31, 2021 and 2020, respectively. The decrease in cash provided by financing activities for the year ended
December 31, 2021 as compared to the same period of 2020 is primarily due to the net proceeds from the sale of common
stock. During 2021 we received net proceeds from the sale of stock options, warrants, and equities of approximately $20.2
million compared to approximately $33.1 million over the same period of 2020. Furthermore, we received $0.3 million
under the SBA Paycheck Protection Program of the CARES Act in 2020.
From inception through December 31, 2021, we financed our operations primarily through private and public
sales of our equity securities, NIH and DoD grants, a payment from a former collaboration partner, a CIRM loan and a
CIRM grant award. 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 to fund our research
and development, including our long-term plans for clinical trials and new product development. We may seek to raise
additional funds through various potential sources, such as equity and debt financings, government grants, 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.
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. At
this time, we believe our cash resources are sufficient to fund our operations for at least the next twelve months. 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 preclinical 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, and the progress of efforts with parties with whom we
may enter into commercial manufacturing agreements;
● our ability to maintain current research and development programs and to establish new research and
development and licensing arrangements;
● additional costs associated with maintaining licenses and insurance;
● the costs involved in prosecuting and enforcing patent claims and other intellectual property rights; and
● the costs and timing of regulatory approvals.
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As a result of the spread of the COVID-19 coronavirus, uncertainties have arisen that could potentially impact
enrollment of clinical trials, deliverables related to contract performance, payments from trial sponsors, workforce stability,
supply chain disruptions or delays, timing of grant disbursements as well as other potential business operations. While the
disruption is currently expected to be temporary, there is considerable uncertainty around its expected duration. In addition
to potential impact on grant disbursements, there may be risks to the Company’s ability to obtain financing from other
sources, due to the impact of the coronavirus. There could be other financial impacts on our business of the coronavirus,
the specifics of which are unknown at this time.
Financing Activities by the Company
Commercialization and Distribution Agreement with Nippon Shinyaku
In January 2022, Capricor entered into an Exclusive Commercialization and Distribution Agreement (the “NS
Distribution Agreement”) with Nippon Shinyaku. Under the terms of the NS Distribution Agreement, Capricor appointed
Nippon Shinyaku as its exclusive distributor for the United States of CAP-1002, the Company’s lead product candidate, for
the treatment of DMD.
Under the terms of the NS Distribution Agreement, Capricor will be responsible for the conduct of HOPE-3 as
well as the manufacturing of CAP-1002. Nippon Shinyaku will be responsible for the distribution of CAP-1002 in the
United States. Capricor will sell commercial product to Nippon Shinyaku and in addition will receive a meaningful,
double-digit share of product revenue and additional development and sales-based milestone payments. We expect to
receive an upfront payment of $30.0 million with potential additional sales and development milestone payments of up to
$705.0 million.
June 2021 ATM Program. On June 21, 2021, the Company initiated an at-the-market offering under a prospectus
supplement for aggregate sales proceeds of up to $75.0 million, or the June 2021 ATM Program, with the common stock to
be distributed at the market prices prevailing at the time of sale. The June 2021 ATM Program was established under a
Common Stock Sales Agreement, or the Sales Agreement, with H.C. Wainwright & Co. LLC, or Wainwright, under which
we may, from time to time, issue and sell shares of our common stock through Wainwright as sales agent. The 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. All shares issued pursuant to the June 2021 ATM Program were issued
pursuant to our shelf registration statement on Form S-3 (File No. 333-254363), which was initially filed with the
Securities and Exchange Commission, or the SEC, on March 16, 2021, amended on June 15, 2021 and declared effective
by the SEC on June 16, 2021. From June 21, 2021 through December 31, 2021, the Company sold an aggregate of
1,267,475 shares of common stock under the June 2021 ATM Program at an average price of approximately $5.89 per
share for gross proceeds of approximately $7.5 million. Approximately $67.5 million of common stock may still be sold
pursuant to the June 2021 ATM Program. The Company paid cash commissions on the gross proceeds, plus reimbursement
of expenses to Wainwright, as well as legal and accounting fees in the aggregate amount of approximately $0.3 million.
May 2020 ATM Program. On May 4, 2020, the Company initiated an at-the-market offering under a prospectus
supplement for aggregate sales proceeds of up to $40.0 million, or the May 2020 ATM Program, with the common stock to
be distributed at the market prices prevailing at the time of sale. The May 2020 ATM Program was established under the
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. The July 2019 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. All
shares issued pursuant to the May 2020 ATM Program were issued pursuant to our shelf registration statement on Form S-3
(File No. 333-227955), which was initially filed with the SEC on October 24, 2018, amended on July 17, 2019 and
declared effective by the SEC on July 18, 2019. Since May 4, 2020 and through June 21, 2021, the Company sold an
aggregate of 6,027,852 shares of common stock under the May 2020 ATM Program at an average price of approximately
$6.15 per share for gross proceeds of approximately $37.1 million. The Company paid cash commissions on the gross
proceeds, plus reimbursement of expenses of Wainwright, as well as legal and accounting fees in the aggregate amount of
approximately $1.2 million. As of June 21, 2021, the May 2020 ATM Program expired and was replaced with the June
2021 ATM Program.
March 2020 Warrant Inducement. On March 25, 2020, the Company entered into a letter agreement, or the
Exercise Agreement, with a holder, or the Exercising Holder, or then outstanding warrants to purchase shares of Common
Stock, or the Prior Warrants. Pursuant to the Exercise Agreement, in connection with the exercise by the Exercising Holder
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of the remaining 4,000,000 Prior Warrants held by the Exercising Holder which had not been previously exercised, the
Company agreed to issue 4,000,000 additional warrants, or the New Warrants, to purchase Common Stock. The Prior
Warrants had a per share exercise price of $1.10, and pursuant to the Exercise Agreement, the Exercising Holder agreed to
pay $1.225 per share to cover both the exercise price of the Prior Warrants and a $0.125 per share purchase price for the
New Warrants. The New Warrants had an exercise price of $1.27 per share.
The New Warrants and the shares of Common Stock issuable upon the exercise of the New Warrants were not
registered under the Securities Act of 1933, as amended, or the Securities Act, and were offered pursuant to the exemption
provided in Section 4(a)(2) under the Securities Act or Rule 506(b) promulgated thereunder. The New Warrants were
exercisable immediately upon issuance, and had a term of exercise of 5 1/2 years.
The Company received aggregate gross proceeds of approximately $4.9 million from the exercise of the Prior
Warrants by the Exercising Holder. These gross proceeds were reduced by fees due and payable to the placement agent for
the transactions pursuant to the Exercise Agreement and New Warrants in the amount of $343,000, and further reduced by
reimbursements to the placement agent for legal fees and other expenses. In addition, certain employees of the placement
agent received new warrants, or the Placement Agent Warrants, for shares of Common Stock equal to 5.0% of the New
Warrants issued, or 200,000 shares. These Placement Agent Warrants are exercisable immediately and have a term of
exercise of 5 years. The holders of each of the New Warrants and of the Placement Agent Warrants had the option to make
a cashless exercise of such warrant if no resale registration statement covering the shares of the Company’s Common Stock
underlying such warrant is effective after six months. On May 7, 2020, the Company filed a resale registration statement on
Form S-3 for the shares underlying the New Warrants and Placement Agent Warrants, and that resale registration statement
was declared effective by the SEC on May 19, 2020. As of December 31, 2021, 65,000 Placement Agent Warrants and no
New Warrants remained outstanding.
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. In addition, the terms of the CIRM Award included a co-
funding requirement pursuant to which Capricor was required to spend approximately $2.3 million of its own capital to
fund the CIRM funded research project. 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 at any time after the award period end date (but no later
than the ten-year anniversary of the date of the award), 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 could be up to five years from the date of execution of the applicable loan agreement; provided that the maturity
date of the loan will not surpass the ten-year anniversary of the grant date of the CIRM Award. 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, or 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. If we elect to do so, Capricor would be required to repay some or all of the amounts awarded by CIRM, therefore the
Company accounts for this award as a liability rather than income.
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In June 2019, Capricor completed all milestones associated with the CIRM Award and expended all funds
received. In the third quarter of 2019, Capricor completed all final close-out documentation associated with this award. As
of December 31, 2021, Capricor’s liability balance for the CIRM Award was approximately $3.4 million.
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, commercial-ready process to manufacture CAP-2003,
Capricor’s exosome product candidate. Under the terms of the award, disbursements were made to Capricor over a period
of approximately four years, subject to annual and quarterly reporting requirements. The Company utilized approximately
$2.3 million under the terms of the award. No revenue was recognized in 2021 in relation to this award. In the third quarter
of 2021, Capricor completed all final close-out documentation associated with this award.
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.
Leases
ASC 842, as adopted in the first quarter of 2019, requires lessees to recognize most leases on the balance sheet
with a corresponding right-to-use asset, or ROU asset. ROU assets represent the Company’s right to use an underlying
asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the
lease. The assets and lease liabilities are recognized at the lease commencement date based on the estimated present value
of fixed lease payments over the lease term. ROU assets are evaluated for impairment using the long-lived assets
impairment guidance.
Leases will be classified as financing or operating, which will drive the expense recognition pattern. The
Company elects to exclude short-term leases if and when the Company has them.
The Company leases office and laboratory space, all of which are operating leases. Most leases include the option
to renew and the exercise of the renewal options is at the Company’s sole discretion. Options to renew a lease are not
included in the Company’s assessment unless there is reasonable certainty that the Company will renew. In addition, the
Company’s lease agreements generally do not contain any residual value guarantees or restrictive covenants.
The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes
its incremental borrowing rate, which reflects the fixed rate at which the Company could borrow on a collateralized basis
the amount of the lease payments in the same currency, for a similar term, in a similar economic environment.
For real estate leases, the Company has elected the practical expedient under ASC 842 to account for the lease and
non-lease components together for existing classes of underlying assets and allocates the contract consideration to the lease
component only. This practical expedient is not elected for manufacturing facilities and equipment embedded in product
supply arrangements.
Revenue Recognition
The Company applies ASU 606, Revenue from Contracts with Customers, for all contracts.
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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.
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. In June, 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 could be up to five years from the date of execution of the applicable loan
agreement; provided that the maturity date of the loan will not surpass the ten-year anniversary of the grant date of the
CIRM Award. 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.
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 preclinical, 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
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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 five stock option
plans: (i) the 2006 Stock Option Plan, (ii) the 2012 Restated Equity Incentive Plan (which superseded the 2006 Stock
Option Plan), (iii) the 2012 Non-Employee Director Stock Option Plan, (iv) the 2020 Equity Incentive Plan, and (v) the
2021 Equity Incentive 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, and the risk-free interest rate. We account for forfeitures upon occurrence.
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. 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 Loss. We expect to record additional non-cash compensation expense in the
future, which may be significant.
Clinical Trial Expense
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued
expenses. Our clinical trial accrual process is designed to account for expenses resulting from our obligations under
contracts with vendors, consultants, and CROs and clinical site agreements in connection with conducting clinical trials.
The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in
payment flows that do not match the periods over which materials or services are provided to us under such contracts. Our
objective is to reflect the appropriate clinical trial expenses in our consolidated financial statements by matching the
appropriate expenses with the period in which services are provided and efforts are expended. We account for these
expenses according to the progress of the trial as measured by patient progression and the timing of various aspects of the
trial. We determine accrual estimates through financial models that take into account discussion with applicable personnel
and outside service providers as to the progress or state of completion of trials, or the services completed. During the
course of a clinical trial, we adjust our clinical expense recognition if actual results differ from our estimates. We make
estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on the facts
and circumstances known to us at that time. Our clinical trial accrual and prepaid assets are dependent, in part, upon the
receipt of timely and accurate reporting from CROs and other third-party vendors. Although we do not expect our
estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services
performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts
that are too high or too low for any particular period.
Recently Issued or Newly Adopted Accounting Pronouncements
In October 2019, the FASB issued ASU 2019-12, which affects general principles within Topic 740, Income
Taxes. The amendments of ASU 2019-12 are meant to simplify and reduce the cost of accounting for income taxes. For
public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those
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fiscal years, beginning after December 15, 2020. The Company adopted ASU 2019-12 in the first quarter of 2021. The
adoption of this update did not have a material impact on the Company’s financial statements and footnote disclosures.
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832), which requires business
entities to disclose information about transactions with a government that are accounted for by applying a grant or
contribution model by analogy. For transactions within scope, the new standard requires the disclosure of information
about the nature of the transaction, including significant terms and conditions, as well as the amounts and specific financial
statement line items affected by the transaction. The new guidance is effective for annual reporting periods beginning after
December 15, 2021. The Company does not expect that the adoption of this standard will have an impact on its
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.
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, 2021, the fair value of our cash and cash equivalents was approximately $34.9
million. Additionally, as of December 31, 2021, Capricor’s investment portfolio was classified as cash and cash
equivalents, which consisted primarily of money market funds and bank money market, which included short term U.S.
treasuries, bank savings and checking accounts.
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 (PCAOB ID 468)
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Loss
Consolidated Statements of Stockholders’ Equity
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. and Subsidiary
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, 2021 and 2020, and the related consolidated statements of operations and comprehensive
loss, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2021, 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,
2021 and 2020, and the consolidated results of its operations and its cash flows for each of the years in the two-year period
ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
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.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated
or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the
financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that
there are no critical audit matters.
/s/ Rose, Snyder & Jacobs LLP
Rose, Snyder & Jacobs LLP
We have served as the Company’s auditor since 2011.
Encino, California
March 11, 2022
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CURRENT ASSETS
Cash and cash equivalents
Receivables
Prepaid expenses and other current assets
TOTAL CURRENT ASSETS
PROPERTY AND EQUIPMENT, net
OTHER ASSETS
CAPRICOR THERAPEUTICS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2021 AND 2020
ASSETS
December 31, 2021 December 31, 2020
$
$
34,885,274
391,750
1,159,937
32,665,874
—
1,011,209
36,436,961
33,677,083
1,795,696
850,847
Intangible assets, net of accumulated amortization of $259,682 and $257,517, respectively
Lease right-of-use assets, net
Other assets
—
2,821,944
275,722
2,165
—
88,701
TOTAL ASSETS
$
41,330,323
$
34,618,796
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses
Accounts payable and accrued expenses, related party
Note payable, current
Lease liabilities, current
TOTAL CURRENT LIABILITIES
LONG-TERM LIABILITIES
Note payable, net of current
CIRM liability
Lease liabilities, net of current
TOTAL LONG-TERM LIABILITIES
TOTAL LIABILITIES
$
$
3,116,371
599,388
—
417,632
2,715,621
8,972
246,689
—
4,133,391
2,971,282
—
3,376,259
2,452,707
71,471
3,376,259
-
5,828,966
3,447,730
9,962,357
6,419,012
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, 24,185,001 and 20,577,123
shares issued and outstanding, respectively
Additional paid-in capital
Accumulated deficit
TOTAL STOCKHOLDERS’ EQUITY
—
—
24,185
139,404,060
(108,060,279)
20,577
116,216,966
(88,037,759)
31,367,966
28,199,784
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
41,330,323
$
34,618,796
See accompanying notes to the audited consolidated financial statements.
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CAPRICOR THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
REVENUE
Revenue
TOTAL REVENUE
OPERATING EXPENSES
Research and development
General and administrative
TOTAL OPERATING EXPENSES
LOSS FROM OPERATIONS
OTHER INCOME (EXPENSE)
Other income
Investment income
Forgiveness of debt
Loss on disposal of fixed assets
TOTAL OTHER INCOME (EXPENSE)
Years ended December 31,
2020
2021
$
244,898
$
310,250
244,898
310,250
13,571,045
7,612,295
8,457,000
5,543,221
21,183,340
14,000,221
(20,938,442)
(13,689,971)
548,207
57,460
318,160
(7,905)
915,922
—
32,943
—
—
32,943
NET LOSS
(20,022,520)
(13,657,028)
OTHER COMPREHENSIVE INCOME (LOSS)
Net unrealized gain on marketable securities
COMPREHENSIVE LOSS
Net loss per share, basic and diluted
Weighted average number of shares, basic and diluted
—
757
$ (20,022,520)
$ (13,656,271)
$
(0.87)
$
(0.88)
23,089,323
15,571,056
See accompanying notes to the audited consolidated financial statements.
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CAPRICOR THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE PERIOD FROM DECEMBER 31, 2019 THROUGH DECEMBER 31, 2021
COMMON STOCK
SHARES AMOUNT
ADDITIONAL PAID- COMPREHENSIVE ACCUMULATED STOCKHOLDERS'
IN CAPITAL
INCOME (LOSS)
DEFICIT
EQUITY
OTHER
TOTAL
Balance at
December 31, 2019
Issuance of
common stock, net
of fees
Exercise of pre-
funded common
stock warrants
Exercise of
common warrants
Issuance of shares
in abeyance
Stock-based
compensation
Stock options
exercised
Unrealized gain on
marketable
securities
5,227,398
$
5,227
$
81,215,647
$
(757) $
(74,380,731) $
6,839,386
4,173,478
4,174
27,338,895
—
—
27,343,069
3,158,304
3,158
—
—
—
3,158
4,417,219
4,417
5,680,943
—
—
5,685,360
3,555,500
3,556
(3,556)
—
—
—
—
—
1,952,679
—
—
1,952,679
45,224
—
45
—
32,358
—
—
32,403
—
—
757
—
757
—
(13,657,028)
(13,657,028)
Net loss
—
—
Balance at
December 31, 2020
Issuance of
common stock, net
of fees
Exercise of
common warrants
Stock-based
compensation
Stock options
exercised
20,577,123
$ 20,577
$
116,216,966
$
— $
(88,037,759) $
28,199,784
3,566,349
3,566
20,170,882
—
—
20,174,448
20,391
20
22,410
—
—
22,430
—
—
2,965,692
—
—
2,965,692
21,138
22
28,110
—
—
28,132
Net loss
—
—
—
—
(20,022,520) $
(20,022,520)
Balance at
December 31, 2021
24,185,001
$ 24,185
$
139,404,060
$
— $
(108,060,279) $
31,367,966
See accompanying notes to the audited consolidated financial statements.
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CAPRICOR THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Loss on disposal of fixed assets
Depreciation and amortization
Stock-based compensation
Forgiveness of debt
Non-cash lease expense
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
Operating lease liabilities
Net cash used in operating activities
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 (used in) investing activities
Cash flows from financing activities:
Net proceeds from sale of common stock
Proceeds from note payable
Proceeds from exercise of stock awards
Net cash provided by financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents balance at beginning of period
Years ended December 31,
2020
2021
$ (20,022,520)
$ (13,657,028)
7,905
245,697
2,965,692
(318,160)
129,726
(391,750)
(148,728)
(187,021)
—
143,890
1,952,679
—
—
87,968
(439,827)
30,907
400,750
590,416
(81,331)
(16,809,324)
1,839,944
(13,343)
—
(10,054,810)
—
—
(1,196,286)
(1,196,286)
(6,130,193)
12,117,000
(547,601)
5,439,206
20,174,448
—
50,562
20,225,010
27,343,069
318,160
5,720,921
33,382,150
2,219,400
28,766,546
32,665,874
3,899,328
Cash and cash equivalents balance at end of period
$
34,885,274
$
32,665,874
Supplemental disclosures of cash flow information:
Interest paid in cash
Income taxes paid in cash
$
$
— $
— $
—
—
See accompanying notes to the audited consolidated financial statements.
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CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
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” or “we”), is a biotechnology company focused on the development of transformative cell and exosome-based
therapeutics for the treatment and prevention of a broad spectrum of diseases. 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, has multiple active drug and vaccine candidates in various stages of 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.
Reclassification
Certain reclassification of prior period amounts has been made to conform to the current year presentation.
Liquidity
The Company has historically financed its research and development activities as well as operational expenses
from equity financings, government grants, a payment from a former collaboration partner, a loan award and a grant from
the California Institute for Regenerative Medicine (“CIRM”).
Cash and cash equivalents as of December 31, 2021 were approximately $34.9 million, compared to
approximately $32.7 million as of December 31, 2020. The Company has entered into a Common Stock Sales Agreement
with H.C. Wainwright & Co. LLC (“Wainwright”) to create at-the-market equity programs under which the Company from
time to time offered and sold shares of its common stock, par value $0.001 per share (see Note 3 – “Stockholders’
Equity”).
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 research and development activities, clinical trials and preclinical 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.
The Company’s options for raising additional capital 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, potential partnering opportunities, and from government grants.
The Company will require substantial additional capital to fund its operations, in particular if it elects to expand
its clinical programs as contemplated by its current business plan. 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. 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, curtail or terminate all or portions
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CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
of its clinical trial programs. To the extent the Company issues additional equity securities, its existing stockholders would
experience substantial dilution.
Business Uncertainty Related to the Coronavirus
The COVID-19 pandemic has presented a substantial public health and economic challenge around the world. Our
business operations and financial condition and results have been impacted to varying degrees, and we expect the impact
will continue in future quarters.
We are continuing to assess and plan our development for the ongoing and potential impact of the COVID-19
pandemic on our business, operations and financial condition and results. Despite careful tracking and planning, however,
we are unable to accurately predict the extent of the impact of the pandemic on our business, results of operations and
financial condition due to the uncertainty of future developments involving the pandemic and its impact on our employees
and operations. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of
operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately
predicted, including new information that may emerge concerning COVID-19, the actions taken to contain it or treat its
impact and the economic impact on local, regional, national and international markets.
In addition, there may be risks to the Company’s ability to obtain financing from other sources due to the impact
of the coronavirus. There could be other financial impacts on our business due to the coronavirus, the specifics of which
are unknown at this time.
In light of uncertainties due to COVID-19 and its economic and other impacts and to uncertainties around the
timing and availability of grant disbursements, the loss of revenue from the delays of the REGRESS and ALPHA trials as
well as any potential equity and debt financings, the Company applied for a loan under the Small Business Administration
(the “SBA”) Paycheck Protection Program of the Coronavirus Aid, Relief and Economic Security Act of 2020 (the
“CARES Act”). On April 29, 2020, the Company was approved and received a loan of $318,160 (the “Loan”) under the
SBA Paycheck Protection Program of the CARES Act (see Note 2 – “Note Payable”).
The Employee Retention Credit (“ERC”), a credit against certain payroll taxes allowed to an eligible employer for
qualifying wages, was established by the CARES Act. The Company recorded $548,207 in ERC as other income for the
year ended December 31, 2021, of which $356,997 is recorded as a receivable as of December 31, 2021. The Company
may submit for additional credits under the CARES Act in the future, as applicable.
Use of Estimates
The preparation of financial statements in conformity with 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 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 and Cash Equivalents
The Company considers all highly liquid investments with a maturity of less than 30 days at the date of purchase
to be cash equivalents.
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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
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 $243,532 and $139,560 for the years ended
December 31, 2021 and 2020, respectively.
Property and equipment, net consisted of the following:
Furniture and fixtures
Laboratory equipment
Leasehold improvements
Less accumulated depreciation
Property and equipment, net
Intangible Assets
December 31, December 31,
2021
$
43,123
2,475,543
33,742
2,552,408
(756,712)
$ 1,795,696
2020
$
48,676
1,473,708
47,043
1,569,427
(718,580)
850,847
$
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 amortized on a straight-line basis over the respective
estimated useful lives of the assets ranging from five to fifteen years. Other intellectual property is expensed as incurred.
Total amortization expense was $2,165 and $4,330 for the years ended December 31, 2021 and 2020, respectively. All
capitalized intellectual property was fully amortized as of September 30, 2021.
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, 2021 and 2020.
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, 2021 and 2020.
Leases
ASC Topic 842, “Leases” (“ASC 842”), as adopted in the first quarter of 2019, requires lessees to recognize most
leases on the balance sheet with a corresponding right-to-use asset (“ROU asset”). ROU assets represent the Company’s
right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease
payments arising from the lease. The assets and lease liabilities are recognized at the lease commencement date based on
the estimated present value of fixed lease payments over the lease term. ROU assets are evaluated for impairment using the
long-lived assets impairment guidance.
Leases will be classified as financing or operating, which will drive the expense recognition pattern. The
Company elects to exclude short-term leases if and when the Company has them.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
The Company leases office and laboratory space, all of which are operating leases (see Note 7 - “Commitments
and Contingencies”). Most leases include the option to renew and the exercise of the renewal options is at the Company’s
sole discretion. Options to renew a lease are not included in the Company’s assessment unless there is reasonable certainty
that the Company will renew. In addition, the Company’s lease agreements generally do not contain any residual value
guarantees or restrictive covenants.
The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes
its incremental borrowing rate, which reflects the fixed rate at which the Company could borrow on a collateralized basis
the amount of the lease payments in the same currency, for a similar term, in a similar economic environment.
For real estate leases, the Company has elected the practical expedient under ASC 842 to account for the lease and
non-lease components together for existing classes of underlying assets and allocates the contract consideration to the lease
component only. This practical expedient is not elected for manufacturing facilities and equipment embedded in product
supply arrangements.
Revenue Recognition
The company applies ASU 606, Revenue from Contracts with Customers, for all contracts.
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 grant award from
CIRM (the “CIRM Award”) 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 a 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
(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, 2021, the Company had federal net operating loss carryforwards of approximately $124.3
million, available to reduce future taxable income, of which $76.1 million will begin to expire in 2027. The post December
31, 2017 net operating losses generated of $48.2 million will carryforward indefinitely, but may be subject to an 80%
limitation upon utilization. As of December 31, 2021, the Company had state net operating loss carryforwards of
approximately $121.1 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
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CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
“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 $3.4 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, 2021 and 2020. The Company
files income tax returns with the IRS and the California Franchise Tax Board.
Research and Development
Costs relating to the design and development of new products are expensed as research and development as
incurred in accordance with Financial Accounting Standards Board (“FASB”) ASC 730-10, Research and Development.
Research and development costs amounted to approximately $13.6 million and $8.5 million for the years ended December
31, 2021 and 2020, 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 loss was
approximately $20.0 million and $13.7 million for the years ended December 31, 2021 and 2020, 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, 2021 and 2020, the Company’s other comprehensive income was zero and $757,
respectively.
Clinical Trial Expense
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued
expenses. Our clinical trial accrual process is designed to account for expenses resulting from our obligations under
contracts with vendors, consultants, and contract research organizations (“CROs”), and clinical site agreements in
connection with conducting clinical trials. The financial terms of these contracts are subject to negotiations, which vary
from contract to contract and may result in payment flows that do not match the periods over which materials or services
are provided to us under such contracts. Our objective is to reflect the appropriate clinical trial expenses in our consolidated
financial statements by matching the appropriate expenses with the period in which services are provided and efforts are
expended. We account for these expenses according to the progress of the trial as measured by patient progression and the
timing of various aspects of the trial. We determine accrual estimates through financial models that take into account
discussion with applicable personnel and outside service providers as to the progress or state of completion of trials, or the
services completed. During the course of a clinical trial, we adjust our clinical expense recognition if actual results differ
from our estimates. We make estimates of our accrued expenses as of each balance sheet date in our consolidated financial
statements based on the facts and circumstances known to us at that time. Our clinical trial accrual and prepaid assets are
dependent, in part, upon the receipt of timely and accurate reporting from CROs and other third-party vendors. Although
we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
and timing of services performed relative to the actual status and timing of services performed may vary and may result in
us reporting amounts that are too high or too low for any particular period.
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 and comprehensive loss. 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.
Basic and Diluted Loss per Share
The Company reports earnings per share in accordance with FASB ASC 260-10, Earnings per Share. Basic
earnings (loss) per share is computed by dividing income (loss) available to common stockholders by the weighted-average
number of shares of common stock 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 shares of
common stock that would have been outstanding if the potential shares of common stock had been issued and if the
additional shares of common stock were dilutive. The components of basic and diluted earnings (loss) per share were as
follows:
Numerator
Net loss
Denominator
December 31, 2021 December 31, 2020
$ (20,022,520) $
(13,657,028)
Weighted-average number of shares of common stock outstanding
Dilutive effect of stock options
23,089,323
—
15,571,056
—
Common stock and common stock equivalents used for diluted loss per share
23,089,323
15,571,056
For the years ended December 31, 2021 and 2020, warrants and options to purchase 3,899,606 and 2,488,046
shares of common stock, respectively, have been excluded from the computation of potentially dilutive securities.
Potentially dilutive common shares, which primarily consist of stock options issued to employees, consultants, and
directors as well as warrants issued, have been excluded from the diluted loss per share calculation because their effect is
anti-dilutive. Because the impact of these items is anti-dilutive during periods of net loss, there was no difference between
basic and diluted loss per share for the years ended December 31, 2021 and 2020.
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Fair Value Measurements
CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
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.
Carrying amounts reported in the balance sheet of cash and cash equivalents, receivables, 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.
Recent Accounting Pronouncements
In October 2019, the FASB issued ASU 2019-12, which affects general principles within Topic 740, Income
Taxes. The amendments of ASU 2019-12 are meant to simplify and reduce the cost of accounting for income taxes. For
public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2020. The Company adopted ASU 2019-12 in the first quarter of 2021. The adoption
of this update did not have a material impact on the Company’s financial statements and footnote disclosures.
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832), which requires business
entities to disclose information about transactions with a government that are accounted for by applying a grant or
contribution model by analogy. For transactions within scope, the new standard requires the disclosure of information
about the nature of the transaction, including significant terms and conditions, as well as the amounts and specific financial
statement line items affected by the transaction. The new guidance is effective for annual reporting periods beginning after
December 15, 2021. The Company does not expect that the adoption of this standard will have an impact on its
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. NOTE PAYABLE
Paycheck Protection Program Loan
In the second quarter of 2020, Capricor applied to City National Bank ("CNB") under the SBA Paycheck
Protection Program of the CARES Act for the Loan in the amount of $318,160. The Loan was approved and Capricor
received the Loan proceeds, which were used for covered payroll costs in accordance with the relevant terms and
conditions of the CARES Act.
The Loan, which took the form of a promissory note issued by Capricor (the "Promissory Note"), had a two-year
term, was set to mature on April 29, 2022, and was to bear interest at a rate of 1.0% per annum. Monthly principal and
interest payments, less the amount of any potential forgiveness, were to commence 10 months after the end of the covered
period for the borrower's loan forgiveness (either 8 or 24 weeks). Loan payments were to be deferred for borrowers who
apply for loan forgiveness until SBA remits the borrower's loan forgiveness amount to the lender. Capricor did not provide
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
any collateral or guarantees for the Loan, nor did Capricor pay any facility charge to obtain the Loan. The Promissory Note
provided for customary events of default, including, among others, those relating to failure to make payment, bankruptcy,
breaches of representations and material adverse events. Capricor had the right to prepay the principal of the Loan at any
time without incurring any prepayment charges.
The Company submitted a loan forgiveness application to CNB in the first quarter of 2021. The Company was
notified in April 2021 by the SBA that the Loan was forgiven. The Company recognized a gain on forgiveness of the full
amount in 2021.
3. STOCKHOLDERS’ EQUITY
ATM Programs and Other Offerings
The Company has established multiple “at-the-market” (“ATM”), programs pursuant to a Common Stock Sales
Agreement with Wainwright by which Wainwright sold and may continue to sell our common stock at the market prices
prevailing at the time of sale. Wainwright is 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. These programs are referred to
below as the “May 2020 ATM Program” and the “June 2021 ATM Program” based on when each program was initiated. In
addition, the Company completed a warrant inducement offer in March 2020.
May 2020 ATM Program
On May 4, 2020, the Company initiated the May 2020 ATM Program. The Company filed the May 2020 ATM
with an aggregate offering price of up to $40.0 million. From May 4, 2020 through June 21, 2021, the Company sold an
aggregate of 6,027,852 shares of common stock under the May 2020 ATM Program at an average price of approximately
$6.15 per share for gross proceeds of approximately $37.1 million. The Company paid cash commissions on the gross
proceeds, plus reimbursement of expenses to Wainwright, as well as legal and accounting fees in the aggregate amount of
approximately $1.2 million. As of June 21, 2021, the May 2020 ATM Program expired and was replaced with the June
2021 ATM Program described below.
June 2021 ATM Program
On June 21, 2021, the Company initiated the June 2021 ATM Program. The Company filed the June 2021 ATM
with an aggregate offering price of up to $75.0 million. From June 21, 2021 through December 31, 2021, the Company
sold an aggregate of 1,267,475 shares of common stock under the June 2021 ATM Program at an average price of
approximately $5.89 per share for gross proceeds of approximately $7.5 million. The Company paid cash commissions on
the gross proceeds, plus reimbursement of expenses to Wainwright, as well as legal and accounting fees in the aggregate
amount of approximately $0.3 million.
March 2020 Warrant Inducement
On March 25, 2020, the Company entered into a letter agreement (the “Exercise Agreement”) with a holder (the
“Exercising Holder”) of then outstanding warrants to purchase Common Stock (the “Prior Warrants”). Pursuant to the
Exercise Agreement, in connection with the exercise by the Exercising Holder of the remaining 4,000,000 Prior Warrants
held by the Exercising Holder which had not been previously exercised, the Company agreed to issue 4,000,000 additional
warrants (the “New Warrants”) to purchase Common Stock. The Prior Warrants had a per share exercise price of $1.10, and
pursuant to the Exercise Agreement, the Exercising Holder agreed to pay $1.225 per share to cover both the exercise price
of the Prior Warrants and a $0.125 per share purchase price for the New Warrants. The New Warrants have an exercise
price of $1.27 per share. A total of 724,500 shares were issued to the Exercising Holder, with the remaining 3,275,500
shares being held in abeyance until such time as it would not result in the Exercising Holder exceeding its beneficial
ownership limitation of 4.99% of the Company’s outstanding common stock. In the second quarter of 2020, the Company
issued all shares that were being held in abeyance.
The New Warrants and the shares of Common Stock issuable upon the exercise of the New Warrants were not
registered under the Securities Act of 1933, as amended (the “Securities Act”), and were offered pursuant to the exemption
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
provided in Section 4(a)(2) under the Securities Act or Rule 506(b) promulgated thereunder. The New Warrants were
exercisable immediately upon issuance, and have a term of exercise of 5 1/2 years.
The exercise of Prior Warrants by the Exercising Holder generated gross proceeds of approximately $4.9 million.
Fees paid in conjunction with the Exercise Agreement, which included placement agent commissions, legal costs, and
other offering expenses, amounted to approximately $0.4 million. In connection with the Exercise Agreement, certain
employees of the placement agent were issued new warrants (the “Placement Agent Warrants”) to purchase an aggregate of
200,000 shares of common stock. The Placement Agent Warrants have an exercise price of $1.5313 per share and expire in
March 2025. The holders of each of the New Warrants and of the Placement Agent Warrants had the option to make a
cashless exercise of such warrant if no resale registration statement covering the shares of the Company’s Common Stock
underlying such warrant is effective after six months. On May 7, 2020, the Company filed a resale registration statement on
Form S-3 for the shares underlying the New Warrants and Placement Agent Warrants, and that resale registration statement
was declared effective by the SEC on May 19, 2020. As of December 31, 2021, 65,000 Placement Agent Warrants and no
New Warrants remained outstanding.
Outstanding Shares
At December 31, 2021, the Company had 24,185,001 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, 2021 and 2020:
Outstanding at January 1, 2020
Granted
Exercised
Outstanding at December 31, 2020
Exercised
Outstanding at December 31, 2021
Warrants
Exercise Price
Weighted Average
7,501,696
4,200,000
(11,575,523)
126,173
(20,391)
105,782
$
$
$
0.65
1.28
0.87
1.32
1.10
1.37
The following table summarizes all outstanding warrants to purchase shares of the Company’s common stock:
Warrants Outstanding
Type
Grant Date
December 31, December 31, Exercise Price
2020
per Share
2021
Expiration
Date
Common Warrants
Common Warrants
12/19/2019
3/27/2020
40,782
65,000
105,782
61,173
65,000
126,173
$
$
1.10
1.5313
12/19/2024
3/27/2025
Stock Options
The Company’s Board of Directors (the “Board”) has approved five 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”),
(iii) the 2012 Non-Employee Director Stock Option Plan (the “2012 Non-Employee Director Plan”), (iv) the 2020 Equity
Incentive Plan (the “2020 Plan”), and (v) the 2021 Equity Incentive Plan (the “2021 Plan”).
In September 2012, the Board approved the 2012 Non-Employee Director Plan, which authorized 269,731 shares
of common stock, reserved for issuance of non-qualified options to members of the Board who are not employees of the
Company.
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CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
In November 2012, the Board approved the 2012 Plan, which superseded the 2006 Stock Option Plan. Under the
2012 Plan, the Company may grant stock options, stock appreciation rights, restricted stock awards, and performance/unit
share awards to employees, consultants and other service providers. Pursuant to the 2012 Plan, inclusive of annual
evergreen provisions and amendments, the Company is authorized to issue 710,142 shares of common stock under the
2012 Plan.
In June 2020, the Company’s stockholders approved the 2020 Equity Incentive Plan (the “2020 Plan”), which
authorized 2,500,000 shares of common stock to be issued and allows for the grant of stock options as well as other forms
of equity-based compensation. Pursuant to the “evergreen” provision, on January 1, 2021, 823,084 shares were added
under the 2020 Plan. Upon approval of the 2021 Plan on June 11, 2021, no new shares have been or will be added to the
share reserve under the 2020 Plan pursuant to its “evergreen” provisions.
In June 2021, the Company’s stockholders approved the 2021 Plan, which authorized 3,500,000 shares of
common stock reserved under the 2021 Plan for the issuance of stock awards. The number of shares available for issuance
under the 2021 Plan shall be automatically increased on January 1 of each year, commencing with January 1, 2022, by an
amount equal to 5% of the outstanding shares of Common Stock as of the last day of the immediately preceding fiscal year.
On January 1, 2022, 1,209,250 shares were added under the 2021 Plan.
As of December 31, 2021, 3,869,682 options remain available for future issuance under the respective stock
option plans.
Each of the Company’s stock option plans are administered by the Board, or the compensation committee of 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. 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. 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 2021 and 2020 were approximately $3.45
and $3.93 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, 2021 and 2020:
Expected volatility
Expected term
Dividend yield
Risk-free interest rates
December 31, 2021 December 31, 2020
104% - 124 %
5 - 6 years
123% - 124 %
6 years
0 %
0.5 - 1.1 %
0 %
0.4 - 1.5 %
Employee and non-employee stock-based compensation expense was as follows:
General and administrative
Research and development
Total
2021
2020
$
$
2,566,883
398,809
2,965,692
$
$
1,705,477
247,202
1,952,679
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CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
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. 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 forfeitures upon occurrence.
On February 12, 2020, the board of directors of the Company approved a program under which outstanding
options and other awards granted under the 2012 Plan and the 2012 Director Plan to employees, officers and directors and
designated service providers of the Company were repriced to their then current fair market value. There were 662,968
outstanding options which were repriced to $1.39 per share, which was the market price of our common stock on the date
of the approval of the repricing. The effect of the modification generated a total incremental cost of approximately
$178,000, of which approximately $171,000 was recognized in the first quarter of 2020 stock-based compensation expense
with the remainder to be expensed over the remaining unvested period terms.
The following table summarizes information about stock options outstanding and exercisable at December 31,
2021:
Range of Ex. Prices
$1.18 - $1.39
$2.54 - $3.74
$4.37 - $6.30
Range of Ex. Prices
$1.18 - $1.39
$2.54 - $3.74
$4.37 - $6.30
Options Outstanding
Options Outstanding
Term (yrs.)
Exercise Price
Weighted Average Weighted Average
2,006,916
1,291,158
495,750
3,793,824
6.50
8.95
9.18
$
$
$
$
1.39
3.73
5.22
2.68
Options Exercisable
Weighted Average Weighted Average
Options Exercisable
Term (yrs.)
1,250,375
310,007
65,673
1,626,055
5.54
8.74
8.39
Exercise Price
1.38
3.70
5.79
2.00
$
$
$
$
As of December 31, 2021, the total unrecognized fair value compensation cost related to non-vested stock options
was approximately $7.7 million, which is expected to be recognized over a weighted average period of approximately
1.4 years.
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CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
The following is a schedule summarizing employee and non-employee stock option activity for the years ended
December 31, 2021 and 2020:
Number of Weighted Average
Aggregate
Options
Exercise Price
Outstanding at January 1, 2020
Granted
Exercised
Expired/Cancelled
Outstanding at December 31, 2020
Granted
Exercised
Expired/Cancelled
Outstanding at December 31, 2021
Exercisable at December 31, 2021
754,913
1,878,058
(63,774)
(207,324)
2,361,873
1,636,324
(21,338)
(183,035)
3,793,824
1,626,055
$
$
$
$
Intrinsic Value
—
329,035
12.63 $
2.14
3.19 $
5.73
1.89 $ 4,236,737
3.95
1.39 $
3.84
2.68
2.00
$ 3,104,631
$ 1,938,298
51,044
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.
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, 2021, the Company maintained approximately $34.4 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. In addition, the terms of the CIRM Award included a co-
funding requirement pursuant to which Capricor was required to spend approximately $2.3 million of its own capital to
fund the CIRM funded research project. 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 at any time after the award period end date (but no later
than the ten-year anniversary of the date of the award), 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 could be up to five years from the date of execution of the applicable loan agreement; provided that the maturity
date of the loan will not surpass the ten-year anniversary of the grant date of the CIRM Award. 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
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CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
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. If we elect to do so, Capricor would be required to repay some or all of the amounts awarded by CIRM;
therefore, the Company accounts for this award as a liability rather than income.
In June 2019, Capricor completed all milestones associated with the CIRM Award and expended all funds
received. In the third quarter of 2019, Capricor completed all final close-out documentation associated with this award. As
of December 31, 2021, Capricor’s liability balance for the CIRM Award was approximately $3.4 million.
U.S. Department of Defense Grant Award
In September 2016, Capricor was approved for a grant award from the United States Department of Defense in the
amount of approximately $2.4 million to be used toward developing a scalable, commercial-ready process to manufacture
CAP-2003, Capricor’s exosomes product candidate. Under the terms of the award, disbursements were made to Capricor
over a period of approximately four years, subject to annual and quarterly reporting requirements. The Company utilized
approximately $2.3 million under the terms of the award. No revenue was recognized in 2021 in relation to this award. In
the third quarter of 2021, Capricor completed all final close-out documentation associated with this award.
7. COMMITMENTS AND CONTINGENCIES
Short-Term Operating Leases
Capricor leases space for its corporate offices from The Bubble Real Estate Company, LLC (“Bubble Real
Estate”) 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. Capricor subsequently entered into several amendments extending the
term of the lease and modifying its terms. Effective January 1, 2021, we entered into a month-to-month lease amendment
with the Bubble Real Estate. The monthly lease payment was $13,073. In November 2021, Capricor entered into an
amendment to the lease pursuant to which the square footage of the premises was reduced with a monthly lease payment of
$5,548 per month commencing November 1, 2021. The lease is terminable by either party upon 90 days' written notice to
the other party.
Capricor leases facilities from Cedars-Sinai Medical Center (“CSMC”), a related party (see Note 9 – “Related
Party Transactions”), pursuant to a lease (the “Facilities Lease”) that was originally effective for a three-year period
beginning June 1, 2014. Capricor has subsequently entered into several amendments extending the term of the lease and
modifying its terms. In July 2021, Capricor exercised its option to extend the term of the Facilities Lease for an additional
12-month period through July 31, 2022 with a monthly lease payment of $10,707.
Expenses incurred under the short-term operating leases to unrelated parties for the years ended December 31,
2021 and 2020 were $141,923 and $194,748, respectively. Expenses incurred under short-term operating leases to related
parties for the years ended December 31, 2021 and 2020 were $164,168 and $189,660, respectively.
Long-Term Operating Leases
On July 16, 2021, the Company entered into a lease agreement with Altman Investment Co, LLC (“Altman”) for
9,396 square feet of office and laboratory space located at 10865 Road to the Cure, Suite 150, in San Diego, California.
Under the terms of the lease, the base rent will be approximately $0.6 million per year, which rent is subject to a 3.0%
annual rent increase during the initial lease term, plus certain operating expenses and taxes. This lease term commenced on
October 1, 2021 and will expire on October 15, 2026. The lease contains an option for Capricor to renew for an additional
term of five years. The Company estimates the aggregate ROU asset and liability to be approximately $2.7 million relating
to this lease as of the commencement date of October 1, 2021.
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CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
Effective November 1, 2021, the Company entered into a vivarium agreement with Explora BioLabs, Inc.
(“Explora”) for vivarium space and services. Under the terms of the agreement, the base rent will be $4,021 per month for
an exclusive large vivarium room. The lease term is for one-year and will automatically renew for additional successive
one-year renewal terms unless either party provides the other party with 60-day written notice prior to the end of the then-
current term. For ASC 842 purposes, we applied a lease term of five years.
The long-term real estate operating leases are included in “lease right-of-use assets, net” on the Company’s
balance sheet and represents the Company’s right-to-use the underlying assets for the lease term. The Company’s
obligation to make lease payments are included in “lease liabilities, current” and “lease liabilities, net of current” on the
Company’s balance sheet.
The table below excludes short-term operating leases. The following table summarizes maturities of lease
liabilities and the reconciliation of lease liabilities as of December 31, 2021:
2022
2023
2024
2025
2026
Total minimum lease payments
Less: imputed interest
Total operating lease liabilities
Included in the consolidated balance sheet:
Current portion of lease liabilities
Lease liabilities, net of current
Total operating lease liabilities
Other Information:
Weighted average remaining lease term
Weighted average discount rate
$
$
$
$
492,380
656,678
674,931
693,732
562,627
3,080,348
(210,009)
2,870,339
417,632
2,452,707
2,870,339
4.79 years
2.75%
Long-term operating lease costs recognized under ASC 842 for the year ended December 31, 2021 was $129,726.
Long-term operating lease payments for the year ended December 31, 2021 was $81,331. The Company had no long-term
leases pursuant to ASC 842 in 2020.
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.
Accounts Payable
During the normal course of business, disputes with vendors may arise. If a vendor disputed payment is probable
and able to be estimated, we will record an estimated liability.
Other Funding Commitments
The Company is a party to various agreements, principally relating to licensed technology, that require future
payments relating to milestones that may be met in subsequent periods or royalties on future sales of specific products (see
Note 8 - "License Agreements").
Additionally, the Company is a party to various agreements with contract research organizations and contract
manufacturers that generally provide for termination upon notice, with the exact amounts owed in the event of termination
to be based on the timing of termination and the terms of the agreement.
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Employee Severances
CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
The Board of Directors approved severance packages for specific full-time employees based on their length of
service and position ranging up to six months of their base salaries, in the event of termination of their employment, subject
to certain conditions. No liability has been recorded as of December 31, 2021.
8. LICENSE AGREEMENTS
Intellectual Property Rights for Capricor’s Technology - CAP-1002 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”), Johns Hopkins University
(“JHU”) and CSMC. Capricor has also entered into an exclusive license agreement for intellectual property rights related to
exosomes with CSMC and JHU as well as a non-exclusive license agreement with JHU related to the imaging-based
serology technology for COVID-19. 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 Agreements
License Agreement for CDCs
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
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CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
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 U.S. Food and Drug
Administration (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 the Phase I study that was owed to JHU
pursuant to the terms of the JHU License Agreement. The Company recorded the $250,000 milestone payment for
successful completion of a Phase II study in accounts payable and accrued expenses as of December 31, 2021. Payment of
this milestone is expected to be made in the first quarter of 2022. The next milestone is triggered upon successful
completion of a full Phase III study for which a payment of $500,000 will be due.
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.
License Agreement for Serology Diagnostic
Capricor and JHU entered into a Nonexclusive License Agreement (the “JHU Serology License Agreement”),
effective January 6, 2021, which provides for the grant of a non-exclusive, world-wide, non-royalty-bearing license by
JHU to Capricor to develop and commercialize licensed products under the licensed patent rights for COVID-19. The JHU
Serology License Agreement is due to expire July 2022 and at this time, Capricor does not intend to convert it to an
exclusive license or extend the JHU Serology License Agreement.
License Agreement for Exosome-based Vaccines and Therapeutics
Capricor and JHU entered into an Exclusive License Agreement (the “JHU Exosome License Agreement”)
effective April 28, 2021 for its co-owned interest in certain intellectual property rights related to exosome-mRNA vaccines
and therapeutics. The JHU Exosome License Agreement provides for the grant of an exclusive, world-wide, royalty-
bearing license of JHU’s co-owned rights by JHU 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.
Pursuant to the JHU Exosome License Agreement, JHU was paid an upfront license fee of $10,000 and Capricor
has agreed to reimburse JHU for certain fees and costs incurred in connection with the prosecution of certain patent rights.
Additionally, Capricor is required to meet certain development milestones for which a milestone payment fee shall
be due and is obligated to pay low single-digit royalties on sales of royalty-bearing products as well as a double-digit
percentage of any non-royalty consideration received from any sublicenses, subject to certain exclusions. The above-
mentioned royalties are subject to reduction in the event Capricor becomes obligated to pay royalties on one or more third
party patents as a requirement to make or sell a licensed product. In addition, Capricor will, beginning with the third year
of the JHU Exosome License Agreement, be obligated to pay JHU a minimum annual royalty which is non-refundable but
will be credited against royalties incurred by Capricor for the year in which the minimum annual royalty becomes due.
The JHU Exosome License Agreement will, unless sooner terminated, continue in each country until the date of
expiration of the last to expire patent included within the patent rights in that country, or if no patents issue, then for 20
years. The JHU Exosome License Agreement may be terminated by Capricor upon 90 days’ written notice in its discretion
and with 60 days’ notice with respect to any particular patent or application or as to any particular licensed product. The
JHU Exosome License Agreement may also be terminated by either party if it fails to perform or otherwise breaches any
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
of its obligations and fails to cure such breach within a 60-day cure period commencing upon notice. A material breach by
Capricor may include (a) a delinquency with respect to payment or reporting; (b) the failure by Capricor to timely achieve
a specified milestone or otherwise failing to diligently develop, commercialize, and sell licensed products throughout the
term of the JHU Exosome License Agreement; (c) non-compliance with record keeping or audit obligations; (d) voluntary
bankruptcy or insolvency of Capricor; and (e) non-compliance with Capricor’s insurance obligations.
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.
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, August 5, 2016, December 26, 2017, June 20, 2018, and July 27, 2021, Capricor and CSMC
entered into a number of amendments to the Amended CSMC License Agreement, pursuant to which the parties agreed to
add and delete certain patent applications from the list of scheduled patents, among other things. Capricor reimbursed
CSMC for certain attorneys’ fees and filing fees incurred in connection with the additional patent applications.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
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.
On February 27, 2015, June 10, 2015, August 5, 2016, December 26, 2017, June 20, 2018, September 25, 2018,
August 19, 2020, August 28, 2020, and March 19, 2021, Capricor and CSMC entered into a number of amendments to the
Exosomes License Agreement. Collectively, these amendments added additional patent applications and patent families to
the Exosomes License Agreement, added certain defined product development milestone payments, modified certain
milestone deadlines, and added certain performance milestones with respect to product candidates covered by certain future
patent rights in order to maintain an exclusive license to those future patent rights; failure to meet those milestones would
cause CSMC to have the right to convert the license from exclusive to non-exclusive or co-exclusive, or to terminate the
license, subject to Capricor’s right to license such patent rights for internal research purposes on a non-exclusive basis.
These amendments also obligated Capricor to reimburse CSMC for certain attorneys’ fees and filing fees in connection
with the additional patent applications and patent families.
Sponsored Research Agreement with Johns Hopkins University
On April 1, 2020 we entered into a Sponsored Research Agreement (the “SRA”), with JHU pursuant to which
researchers in the lab of Dr. Stephen Gould are performing certain research activities in connection with our exosomes
program. Pursuant to the SRA, we are funding certain research activities and have the right to negotiate for exclusive or
non-exclusive rights to intellectual property that may result from such research activities. Unless renewed, the SRA is
scheduled to expire on March 31, 2022.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
9. RELATED PARTY TRANSACTIONS
Lease and Sub-Lease Agreement
As noted above, Capricor is a party to lease agreements with CSMC (see Note 7 – “Commitments and
Contingencies”), and CSMC has served as an investigative site in Capricor’s clinical trials. Additionally, Dr. Eduardo
Marbán, who is a stockholder of Capricor Therapeutics and has participated from time to time as an observer at the
Company’s meetings of the Board of Directors, is the Director of the Cedars-Sinai Smidt Heart Institute, and co-founder of
Capricor.
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 was on a month-to-month basis and was terminated effective September 1, 2020. For
the years ended December 31, 2021 and 2020, Capricor recognized zero and $20,000, respectively, in sublease income
from the related party. Sublease income is recorded as a reduction to general and administrative expenses.
Consulting Agreements
In 2013, Capricor entered into a Consulting Agreement with Dr. Frank Litvack, the Company’s Executive
Chairman and a member of its Board of Directors, whereby Capricor agreed to pay Dr. Litvack $10,000 per month for
consulting services. The agreement is terminable upon 30 days’ notice.
In July 2020, Capricor entered into an Advisory Services Agreement with Dr. Eduardo Marbán whereby he was
granted an option to purchase 50,000 shares of the Company's common stock. In January 2022, Dr. Eduardo Marbán was
granted an additional option grant to purchase 50,000 shares of the Company’s common stock.
Payables to Related Party
As of December 31, 2021 and 2020, the Company had accounts payable and accrued expenses to related parties
totaling $599,388 and $8,972, respectively. CSMC accounts for $589,388 and $8,972 of the total accounts payable and
accrued expenses to related parties as of December 31, 2021 and 31, 2020, respectively. CSMC expenses relate to clinical
trial costs, research and development costs, license and patent fees, and facilities rent. During the years ended December
31, 2021 and 2020, the Company paid CSMC approximately $341,000 and $307,000, respectively, for such costs.
Related Party Clinical Trials
Capricor provided CAP-1002 for investigational purposes in two clinical trials sponsored by CSMC. This product
was 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”, or REGRESS. 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” or ALPHA. In both studies, Capricor provided the
necessary number of doses of cells and received a total of approximately $1.7 million of monetary compensation. For
the years ended December 31, 2021 and 2020, the Company recognized approximately $245,000 and $120,000,
respectively, as revenue. As of December 31, 2021 and 2020, approximately zero and $56,000, respectively, is outstanding
and recorded in prepaid expenses and other current assets. CSMC informed us that the enrollment of the REGRESS and
ALPHA studies have been completed and as a result, we do not expect to receive any further material revenues from these
trials.
10. SUBSEQUENT EVENTS
Commercialization and Distribution Agreement
On January 24, 2022, Capricor entered into an Exclusive Commercialization and Distribution Agreement (the “NS
Distribution Agreement”) with Nippon Shinyaku, Co., Ltd., a Japanese corporation, (“Nippon Shinyaku”). Under the
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CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
terms of the NS Distribution Agreement, Capricor appointed Nippon Shinyaku as its exclusive distributor for the United
States of CAP-1002, the Company’s lead product candidate, for the treatment of DMD.
Under the terms of the NS Distribution Agreement, Capricor will be responsible for the conduct of HOPE-3 as
well as the manufacturing of CAP-1002. Nippon Shinyaku will be responsible for the distribution of CAP-1002 in the
United States. Capricor will sell commercial product to Nippon Shinyaku and in addition will receive a meaningful,
double-digit share of product revenue and additional development and sales-based milestone payments. Capricor expects to
receive an upfront payment of $30.0 million with potential additional sales and development milestone payments of up to
$705.0 million.
Stock Option Grants
In January 2022, the Company granted a total of 1,769,370 stock options to its employees, certain non-employee
consultants, and directors.
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ITEM 9.
FINANCIAL DISCLOSURE
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
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 disclosures. 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, 2021, 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, 2021
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, 2021.
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.
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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, 2021 that
have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.
OTHER INFORMATION
None.
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The information required by this item will be set forth in the sections entitled “Information Regarding the Board
of Directors and Corporate Governance,” “Information Regarding Executive Officers” and “Section 16(a) Beneficial
Ownership Reporting Compliance” in our Definitive Proxy Statement for our 2022 Annual Meeting of Stockholders, or our
2022 Proxy Statement, to be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2021,
and is incorporated herein by reference.
ITEM 11.
EXECUTIVE COMPENSATION.
The information required by this item will be set forth in the section entitled “2021 Executive Compensation” and
“Compensation of Directors” in our 2022 Proxy Statement and is incorporated herein by reference.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The information required by this item will be set forth in the sections entitled “Securities Authorized for Issuance
Under Equity Compensation Plans” and “Security Ownership of Certain Beneficial Owners and Management” in our 2021
Proxy Statement and is incorporated herein by reference.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
The information required by this item will be set forth in the sections entitled “Certain Relationships and Related
Party Transactions” and “Information Regarding the Board of Directors and Corporate Governance” in our 2021 Proxy
Statement and is incorporated herein by reference.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information required by this item will be set forth in the section entitled “Principal Accountant Fees and
Services” in our 2021 Proxy Statement and is incorporated herein by reference.
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements
PART IV
The financial statements required by this item are included in a separate section of this Annual Report on
Form 10-K beginning on page 89.
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(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:
3.1
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 SEC on February 9, 2007).
3.2
3.3
3.4
3.5
4.1
4.2
4.3
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
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 SEC on November 26, 2013).
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 SEC on June 4, 2019).
Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-
K, filed with the SEC on February 9, 2007).
Certificate of Amendment of the Bylaws 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 August 25, 2020).
Description of the Company’s Common Stock, par value $0.001 per share.*
Form of Common Warrant (incorporated by reference to Exhibit 4.4 to the Company’s Amendment No. 1 to
Registration Statement on Form S-1/A, filed with the Commission on December 13, 2019).
Form of Common Stock Purchase Warrant #2 (incorporated by reference to Exhibit 4.2 to the Company’s
Quarterly Report on Form 10-Q, filed with the Commission on May 15, 2020).
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). †
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). †
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10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
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). +
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). +
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).
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10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
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).
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).
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). †
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).
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). +
119
Table of Contents
10.40
10.41
10.42
10.43
10.44
10.45
10.46
10.47
10.48
10.49
10.50
10.51
10.52
10.53
10.54
10.55
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). +
Restated and Amended Employment Agreement by and among Capricor Therapeutics, Inc., Capricor, Inc. and
Linda Marbán, dated June 5, 2019 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report
on Form 10-Q, filed with the Commission on August 8, 2019).†
Employment Agreement by and among Capricor Therapeutics, Inc., Capricor, Inc. and Anthony J. Bergmann,
dated May 14, 2019 (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-
Q, filed with the Commission on August 8, 2019).†
Employment Agreement by and among Capricor Therapeutics, Inc., Capricor, Inc. and Karen G. Krasney, dated
May 14, 2019 (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q,
filed with the Commission on August 8, 2019).†
Common Stock Sales Agreement, dated July 22, 2019, 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 July 22, 2019).
Letter Agreement dated March 25, 2020 (incorporated by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K, filed with the Commission on March 26, 2020).
Capricor Therapeutics, Inc. 2020 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 June 17, 2020). †
Form of Stock Option Agreement for Capricor Therapeutics, Inc. 2020 Equity Incentive Plan (incorporated by
reference to Exhibit 4.10 to the Company’s Registration Statement on Form S-8, filed with the Commission on
June 17, 2020). †
Seventh Amendment to Exclusive License Agreement, dated as of August 20, 2020, 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 11, 2020).+
Exclusive License Agreement, dated as of April 28, 2021, by and between Capricor, Inc. and Johns Hopkins
University (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed
with the Commission on August 13, 2021).+
Capricor Therapeutics, Inc. 2021 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the
Company’s Quarterly Report on Form 10-Q, filed with the Commission on August 13, 2021). †
Form of Stock Option Agreement for Capricor Therapeutics, Inc. 2021 Equity Incentive Plan (incorporated by
reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q, filed with the Commission on
August 13, 2021). †
Standard Industrial/Commercial Multi-Tenant Lease, dated as of July 16, 2021, by and between Capricor
Therapeutics, Inc. and Altman Investment Company, LLC.* +
Commercialization and Distribution Agreement, dated as of January 25, 2022, by and among Capricor
Therapeutics, Inc., Capricor, Inc. and Nippon Shinyaku Co. Ltd. *+
21.1
List of Subsidiaries. *
120
Table of Contents
23.1
24.1
31.1
31.2
32.1
32.2
101
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 from Capricor Therapeutics, Inc.’s Annual Report on Form 10-K for the
year ended December 31, 2021 formatted in Inline eXtensible Business Reporting Language (iXBRL):
(i) Consolidated Balance Sheets as of December 31, 2021 and 2020, (ii) Consolidated Statements of Operations
and Comprehensive Loss for the years ended December 31, 2021 and 2020, (iii) Consolidated Statement of
Stockholders’ Equity for the period from December 31, 2019 through December 31, 2021, (iv) Consolidated
Statements of Cash Flows for the years ended December 31, 2021 and 2020, and (v) Notes to Consolidated
Financial Statements.
104
Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101).
* Filed herewith.
† Indicates management contract or compensatory plan or arrangement.
+ Portions of the exhibit have been excluded because it is both not material and is the type of information that the registrant
treats as private or confidential.
ITEM 16.
FORM 10-K SUMMARY
None.
121
Table of Contents
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 11, 2022.
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.
Chief Executive Officer and Director
(Principal Executive Officer)
Date
March 11, 2022
/s/ Anthony J. Bergmann
Anthony J. Bergmann
/s/ Frank Litvack, M.D.
Frank Litvack, M.D.
/s/ Earl M. Collier
Earl M. Collier
/s/ Louis V. Manzo
Louis V. Manzo
/s/ George W. Dunbar
George W. Dunbar
/s/ Karimah Es Sabar
Karimah Es Sabar
/s/ David B. Musket
David B. Musket
Chief Financial Officer
March 11, 2022
(Principal Financial and Accounting Officer)
Executive Chairman and Director
March 11, 2022
March 11, 2022
March 11, 2022
March 11, 2022
March 11, 2022
March 11, 2022
Director
Director
Director
Director
Director
122
DESCRIPTION OF REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934
Exhibit 4.1
The authorized capital stock of Capricor Therapeutics, Inc. consists of 55,000,000 shares, consisting of 50,000,000 shares of
common stock, $0.001 par value per share (the “common stock”) and 5,000,000 shares of preferred stock, $0.001 par value per share (the
“preferred stock”). We have one class of securities registered under Section 12 of the Securities Exchange Act of 1934, our common
stock, which is listed on the Nasdaq Capital Market under the symbol “CAPR.” For purposes of this exhibit, unless the context otherwise
requires, the words “we,” “our,” “us” and “the company” refer to Capricor Therapeutics, Inc., a Delaware corporation.
General
DESCRIPTION OF COMMON STOCK
The following summary sets forth some of the general terms of our common stock. Because this is a summary, it does not
contain all of the information that may be important to you. For a more detailed description of our common stock, you should read our
certificate of incorporation, as amended, and our bylaws, each of which is an exhibit to our Annual Report on Form 10-K to which this
summary is also an exhibit, and the applicable provisions of the General Corporation Law of the State of Delaware (the “DGCL”).
Voting Rights
Holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the
stockholders, and do not have cumulative voting rights in the election of directors.
Dividend Rights
Subject to rights that may be applicable to any outstanding shares of preferred stock and the requirements, if any, with respect to
the setting aside of sums as sinking funds or redemption or purchase accounts for the benefit of the holders of preferred stock, the holders
of our common stock are entitled to receive dividends, if any, as may be declared from time to time by our board of directors out of assets
legally available for dividend payments. Any such dividends shall be divided among the holders of our common stock on a pro rata basis.
Liquidation Rights
In the event of any liquidation of the Company, the holders of our common stock will be entitled to share ratably in the assets
that are remaining after payment or provision for payment of all of our debts and obligations and after liquidation payments to holders of
outstanding shares of preferred stock are made, if any.
No Preemptive or Similar Rights
The holders of our common stock have no preferences or rights of conversion, exchange, pre-emption or other subscription
rights, and our common stock is not subject to any sinking fund provisions.
Fully Paid and Nonassessable
All outstanding shares of our common stock are fully paid and nonassessable.
Preferred Stock
Our board of directors has been authorized to designate and issue up to an aggregate of 5,000,000 shares of preferred stock in
one or more series without action by the stockholders. Our board of directors can fix the rights, preferences and privileges of the shares
of each series and any of its qualifications, limitations or restrictions. Our board of directors may authorize the issuance of preferred
stock with voting or conversion rights that could adversely
affect the voting power or other rights of the holders of common stock. The issuance of preferred stock, while providing flexibility in
connection with possible future financings and acquisitions and other corporate purposes could, under certain circumstances, have the
effect of delaying or preventing a change in control of our company and might harm the market price of our common stock. As of
December 31, 2021, there were no shares of preferred stock issued and outstanding.
Anti-Takeover Effects of Certain Provisions of the DGCL and Our Certificate of Incorporation and Bylaws
The provisions of the DGCL, our certificate of incorporation, as amended, and our bylaws may be deemed to have an anti-
takeover effect and may delay, deter or prevent a tender offer or takeover attempt that a stockholder might consider to be in its best
interests, including attempts that might result in a premium being paid over the market price for the shares held by stockholders. These
provisions are intended to enhance the likelihood of continuity and stability in the composition of our board of directors and in the
policies formulated by the board of directors and to discourage certain types of transactions that may involve an actual or threatened
change of control. These provisions, summarized below, are designed to reduce our vulnerability to an unsolicited acquisition proposal
and are intended to discourage certain tactics that may be used in proxy fights. Such provisions may also have the effect of preventing
changes in our management.
Section 203 of the DGCL
As a Delaware corporation, we are subject to Section 203 of the DGCL. In general, Section 203 prohibits a publicly held
Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the
date of the transaction in which the person became an interested stockholder, unless the business combination is, or the transaction in
which the person became an interested stockholder was, approved in a prescribed manner or another prescribed exception applies. For
purposes of Section 203, a “business combination” is defined broadly to include, among other things, a merger, asset or stock sale or
other transaction resulting in a financial benefit to the interested stockholder. Subject to certain exceptions, an “interested stockholder” is
a person who, together with affiliates and associates, owns (or, within three years prior, did own) 15% or more of the corporation’s voting
stock.
Issuance of Additional Shares
Our board of directors has authority, without further action by the stockholders, to issue up to 5,000,000 shares of preferred
stock, in one or more series, and to designate the rights, preferences, privileges and restrictions of each series. The issuance of preferred
stock could have the effect of delaying or preventing a change in control of the Company without further action by the stockholders.
In addition, our board of directors has authority to issue the authorized but unissued shares of our common stock, without
further action by the stockholders, subject to any applicable stock exchange rules. Under certain circumstances, we could use the
additional shares to create voting impediments or to frustrate persons seeking to effect a takeover or otherwise gain control by, for
example, issuing those shares in private placement transactions to purchasers who are likely to side with our board of directors in
opposing a hostile takeover bid.
Special Meetings of Stockholders
Our bylaws provide that special meetings of stockholders may be called by the Chairman of the Board, the President or our
board of directors. A special meeting shall be called by the President or Secretary upon one or more written demands (which must state
the purpose or purposes therefor) signed and dated by the holders of shares representing not less than 10% of all votes entitled to be cast
on any issue(s) that may be properly proposed to be considered at the special meeting. These provisions may delay or impede the ability
of a stockholder or group of stockholders to force consideration of a proposal or stockholders holding a majority of our outstanding
capital stock to take a certain desired action.
Advance Notice Provisions for Stockholder Proposals
Our bylaws provide that the nomination of persons to stand for election to the board of directors at any annual or special
meeting of stockholders may be made by the holders of our common stock only if written notice of such stockholder’s intent to make
such nomination has been given to the Secretary of the Company not later than 30 days prior to the meeting.
Furthermore, our bylaws require that any stockholder who gives notice of any stockholder proposal shall deliver therewith the
text of the proposal to be presented and a brief written statement of the reasons why such stockholder favors the proposal and setting
forth such stockholder’s name and address, the number and class of all shares of each class of stock of the Company beneficially owned
by such stockholder and any financial interest of such stockholder in the proposal (other than as a stockholder).
The foregoing provisions may preclude our stockholders from bringing matters or from making nominations for directors at our
annual meeting of stockholders if the proposals are not in compliance with the required procedures. Additionally, the requisite procedures
may deter a potential acquirer from conducting a solicitation of proxies to elect its own nominees to our board of directors or otherwise
attempting to gain control of the Company.
Filling of Vacancies on the Board of Directors
Our bylaws provide that a vacancy on our board of directors caused by the removal of a director or by an increase in the
authorized number of directors between annual meetings may be filled only by a majority of the remaining directors. In addition, the
number of directors constituting our board of directors may only be set from time to time by resolution of our board of directors. These
provisions would prevent a stockholder from increasing the size of our board of directors and then gaining control of our board of
directors by filling any resulting vacancies with its own nominees; thereby making it more difficult to change the composition of our
board of directors.
Amendment of Bylaws
Our board of directors is expressly authorized to adopt, amend or repeal our bylaws.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is American Stock Transfer & Trust Company, LLC. Its address is 6201
15th Avenue, Brooklyn, New York 11219, and its telephone number is 800-937-5449.
*Portions of the exhibit have been excluded because it is both not material and is the type
of information that the registrant treats as private or confidential.
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE NET
1.
Basic Provisions ("Basic Provisions").
Exhibit 10.54
1.1
Parties. This Lease ("Lease"), dated for reference purposes only July 16, 2021, is
made by and between Altman Investment Company, LLC ("Lessor") and Capricor
Therapeutics, Inc. ("Lessee"), (collectively the "Parties", or individually a "Party").
1.2(a) Premises: That certain real property, including all improvements therein or to be
provided by Lessor under the terms of this Lease, commonly known as (street address,
unit/suite, city, state, zip): 10865 Road to the Cure, San Diego, CA 92121 ("Premises").
The Premises are located in the County of San Diego, and are generally described as
(describe briefly the nature of the Premises and the "Project"): 9,396 RSF. In addition to
Lessee's rights to use and occupy the Premises as hereinafter specified, Lessee shall
have non-exclusive rights to any utility raceways of the building containing the Premises
("Building") and to the Common Areas (as defined in Paragraph 2.7 below), but shall not
have any rights to the roof, or exterior walls of the Building or to any other buildings in the
Project. The Premises, the Building, the Common Areas, the land upon which they are
located, along with all other buildings and improvements thereon, are herein collectively
referred to as the "Project." (See also Paragraph 2)
1.2(b) Parking: 20 unreserved vehicle parking spaces, of which 6 parking spaces will be
available in the garage. (See also Paragraph 2.6)
Term: 5years and 0 months ("Original Term") commencing October 1, 2021
1.3
("Commencement Date") and ending September 30, 2026 ("Expiration Date"). (See also
Paragraph 3) Lessee shall have the option to extend the term of this Lease for five (5)
years [***].
Early Possession: If the Premises are available Lessee may have nonexclusive
1.4
possession of the Premises commencing fifteen (15) days prior to the Commencement
Date ("Early Possession Date"). (See also Paragraphs 3.2 and 3.3) In the event the
current tenant has not vacated the Premises by September 15, 2021, the Commencement
Date shall be moved to that date which is the 16th day after the date when the Premises
become available to Lessee.
Base Rent: $48,859.00 per month ("Base Rent"), payable on the 1st day of each
1.5
month commencing October 1, 2021 (unless the Commencement Date is moved forward
due to Lessor's inability to deliver possession by such date). (See also Paragraph 4 and
Addendum Paragraph 1)
⌧ If this box is checked, there are provisions in this Lease for the Base Rent to be adjusted. See
Addendum Paragraph 1.
1.6
Lessee's Share of Common Area Operating Expenses: 18.83 percent (18.83 %)
("Lessee's Share"). In the event that the size of the Premises and/or the Project are
modified during the term of this Lease, Lessor shall recalculate Lessee's Share to reflect
such modification. Lessee's share shall not be increased due to the vacancy of any portion
of the Project.
1.7
Base Rent and Other Monies Paid Upon Execution:
Base Rent: $48,859.00 for the period October 1, 2021 - October 31, 2021
(a)
(See Addendum Paragraph 1) unless the Commencement Date is moved forward
and in such case, the Base Rent to be paid upon execution shall be applied to the
first month of the Lease term.
Common Area Operating Expenses: The current estimate for the period
(b)
1st month is [***] (See Addendum Paragraph 1).
(c)
(d)
(e)
Security Deposit: [***] ("Security Deposit"). (See also Paragraph 5)
Other: ______ for _______
Total Due Upon Execution of this Lease: [***].
1.8
1.9
Agreed Use: Office and Life Science research. (See also Paragraph 6)
Insuring Party. Lessor is the "Insuring Party". (See also Paragraph 8)
1.10 Real Estate Brokers. (See also Paragraphs 15 and 25)
Representation: Each Party acknowledges
receiving a Disclosure
(a)
Regarding Real Estate Agency Relationship, confirms and consents to the
following agency relationships in this Lease with the following real estate brokers
("Broker(s)") and/or their agents ("Agent(s)"):
Lessor's Brokerage Firm Cushman & Wakefield License No. 01329963 Is the
broker of (check one): ⌧ the Lessor; or ☐ both the Lessee and Lessor (dual agent).
Lessor's Agent Brian Starck License No. 01504078 is (check one): ⌧ the Lessor's
Agent (salesperson or broker associate); or ☐ both the Lessee's Agent and the Lessor's
Agent (dual agent).
Lessee's Brokerage Firm CBRE License No. 00409987 Is the broker of (check
one):
⌧ the Lessee; or ☐ both the Lessee and Lessor (dual agent).
Lessee's Agent Ryan Egli License No. 01445615 is (check one): ⌧ the Lessee's
Agent (salesperson or broker associate); or ☐ both the Lessee's Agent and the Lessor's
Agent (dual agent).
(b)
Payment to Brokers. Upon execution and delivery of this Lease by both
Parties, Lessor shall pay to the Brokers the brokerage fee agreed to in a separate
written agreement (or if there is no such agreement, the sum of ____ or _____% of
the total Base Rent) for the brokerage services rendered by the Brokers.
1.11 Guarantor. The obligations of the Lessee under this Lease are to be guaranteed
by N/A ("Guarantor"). (See also Paragraph 37)
1.12 Attachments. Attached hereto are the following, all of which constitute a part of this
Lease:
⌧ an Addendum consisting of Paragraphs 1 through 7;
⌧ a site plan depicting the Premises;
☐ a site plan depicting the Project;
☐ a current set of the Rules and Regulations for the Project;
☐ a current set of the Rules and Regulations adopted by the owners' association;
⌧ a Work Letter;
☐ other (specify): _______.
2.
Premises.
2.1
Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor,
the Premises, for the term, at the rental, and upon all of the terms, covenants and
conditions set forth in this Lease. While the approximate square footage of the Premises
may have been used in the marketing of the Premises for purposes of comparison, the
Base Rent stated herein is NOT tied to square footage and is not subject to adjustment
should the actual size be determined to be different. NOTE: Lessee is advised to verify
the actual size prior to executing this Lease.
2.2
Condition. Lessor shall deliver that portion of the Premises contained within the
Building ("Unit") to Lessee broom clean and free of debris on the Commencement Date or
the Early Possession Date, whichever first occurs ("Start Date"), and, so long as the
required service contracts described in Paragraph 7.1(b) below are obtained by Lessee
and in effect within thirty days following the Start Date, warrants that the existing electrical,
plumbing, fire sprinkler, lighting, heating, ventilating and air conditioning systems
("HVAC"), loading doors, sump pumps, if any, and all other such elements in the Unit,
other than those constructed by Lessee, shall be in good operating condition on said date,
that the structural elements of the roof, including the roof membrane, bearing walls and
foundation of the Unit shall be free of material defects, and that the Unit does not contain
hazardous levels of any mold or fungi defined as toxic under applicable state or federal
law. If a non-compliance with such warranty exists as of the Start Date, or if one of such
systems or elements should malfunction or fail within the appropriate warranty period,
Lessor shall, as Lessor's sole obligation with respect to such matter, except as otherwise
provided in this Lease, promptly after receipt of written notice from Lessee setting forth
with specificity the nature and extent of such non-compliance, malfunction or failure, rectify
same at Lessor's expense. The warranty periods shall be as follows: (i) 6 months as to the
HVAC systems, and (ii) 6 months as to the remaining systems and other elements of the
Unit. If Lessee does not give Lessor the required notice within the appropriate warranty
period, correction of any such non-compliance, malfunction or failure shall be the
obligation of Lessee at Lessee's sole cost and expense (except for the repairs to the fire
sprinkler systems, roof, roof membrane, foundations, and/or bearing walls - see Paragraph
7). Lessor also warrants, that unless otherwise specified in writing, Lessor is unaware of (i)
any recorded Notices of Default affecting the Premise; (ii) any delinquent amounts due
under any loan secured by the Premises; and (iii) any bankruptcy proceeding affecting the
Premises.
2.3
Compliance. Lessor warrants that to the best of its knowledge the improvements
on the Premises comply with the building codes, applicable laws, covenants or restrictions
of record, regulations, and ordinances ("Applicable Requirements") that were in effect at
the time that each improvement, or portion thereof, was constructed. Lessor is unaware of
any current violations or noncompliance with Applicable Requirements affecting the
Premises. Said warranty does not apply to the use to which Lessee will put the Premises,
modifications which may be required by the Americans with Disabilities Act or any similar
laws as a result of Lessee's use (see Paragraph 49), or to any Alterations or Utility
Installations (as defined in Paragraph 7.3(a)) made or to be made by Lessee. NOTE:
Lessee is responsible for determining whether or not the Applicable Requirements, and
especially the zoning are appropriate for Lessee's intended use, and acknowledges that
past uses of the Premises may no longer be allowed. If the Premises do not comply with
said warranty, Lessor shall, except as otherwise provided, promptly after receipt of written
notice from Lessee setting forth with specificity the nature and extent of such non-
compliance, rectify the same at Lessor's expense. If Lessee does not give Lessor written
notice of a non-compliance with this warranty within 6 months following the Start Date,
correction of that non-compliance shall be the obligation of Lessee at Lessee's sole cost
and expense. If the Applicable Requirements are hereafter changed so as to require
during the term of this Lease the construction of an addition to or an alteration of the Unit,
Premises and/or Building, the remediation of any Hazardous Substance, or the
reinforcement or other physical modification of the Unit, Premises and/or Building ("Capital
Expenditure"), Lessor and Lessee shall allocate the cost of such work as follows:
(a)
Subject to Paragraph 2.3(c) below, if such Capital Expenditures are
required as a result of the specific and unique use of the Premises by Lessee as
compared with uses by tenants in general, Lessee shall be fully responsible for the
cost thereof, provided, however, that if such Capital Expenditure is required during
the last 2 years of this Lease and the cost thereof exceeds 6 months' Base Rent,
Lessee may instead terminate this Lease unless Lessor notifies Lessee, in writing,
within 10 days after receipt of Lessee's termination notice that Lessor has elected
to pay the difference between the actual cost thereof and the amount equal to 6
months' Base Rent. If Lessee elects termination, and a dangerous condition exists
such that it would be unsafe for Lessee to continue occupying the Premises,
Lessee shall immediately cease the use of the Premises which requires such
Capital Expenditure and deliver to Lessor written notice specifying a termination
date at least 60 days thereafter. Such termination date shall, however, in no event
be earlier than the last day that Lessee could legally utilize the Premises without
commencing such Capital Expenditure.
If such Capital Expenditure is not the result of the specific and unique use
(b)
of
the Premises by Lessee (such as, governmentally mandated seismic
modifications), then Lessor shall pay for such Capital Expenditure and Lessee shall
only be obligated to pay, each month during the remainder of the term of this Lease
or any extension thereof, on the date that on which the Base Rent is due, an
amount equal to 1/144th of the portion of such costs reasonably attributable to the
Premises. Lessee shall pay Interest on the balance but may prepay its obligation at
any time. If, however, such Capital Expenditure is required during the last 2 years
of this Lease or if Lessor reasonably determines that it
is not economically feasible to pay its share thereof, Lessor shall have the option to
terminate this Lease upon 90 days prior written notice to Lessee unless Lessee
notifies Lessor, in writing, within 10 days after receipt of Lessor's termination notice
that Lessee will pay for such Capital Expenditure. If Lessor does not elect to
terminate, and fails to tender its share of any such Capital Expenditure, Lessee
may advance such funds and deduct same, with Interest, from Rent until Lessor's
share of such costs have been fully paid. If Lessee is unable to finance Lessor's
share, or if the balance of the Rent due and payable for the remainder of this Lease
is not sufficient to fully reimburse Lessee on an offset basis, Lessee shall have the
right to terminate this Lease upon 30 days written notice to Lessor. Nothing herein
shall relieve Lessor of the obligation to pay Lessee for any monies advanced and
not offset.
(c)
Notwithstanding the above, the provisions concerning Capital Expenditures
are intended to apply only to non-voluntary, unexpected, and new Applicable
Requirements. If the Capital Expenditures are instead triggered by Lessee as a
result of an actual or proposed change in use, change in intensity of use, or
modification to the Premises then, and in that event, Lessee shall either: (i)
immediately cease such changed use or intensity of use and/or take such other
steps as may be necessary to eliminate the requirement for such Capital
Expenditure, or (ii) complete such Capital Expenditure at its own expense. Lessee
shall not have any right to terminate this Lease.
Acknowledgements. Lessee acknowledges that: (a) it has been given an
2.4
opportunity to inspect and measure the Premises; (b) it has been advised by Lessor and/or
Brokers to satisfy itself with respect to the size and condition of the Premises (including but
not limited to the electrical, HVAC and fire sprinkler systems, security, environmental
aspects, and compliance with Applicable Requirements and the Americans with
Disabilities Act), and their suitability for Lessee's intended use; (c) Lessee has made such
investigation as it deems necessary with reference to such matters and assumes all
responsibility therefor as the same relate to its occupancy of the Premises; (d) it is not
relying on any representation as to the size of the Premises made by Brokers or Lessor;
(e) the square footage of the Premises was not material to Lessee's decision to lease the
Premises and pay the Rent stated herein; and (f) neither Lessor, Lessor's agents, nor
Brokers have made any oral or written representations or warranties with respect to said
matters other than as set forth in this Lease. In addition, Lessor acknowledges that: (i)
Brokers have made no representations, promises or warranties concerning Lessee's ability
to honor the Lease or suitability to occupy the Premises and (ii) it is Lessor's sole
responsibility to investigate the financial capability and/or suitability of all proposed
tenants.
2.5
Lessee as Prior Owner/Occupant. The warranties made by Lessor in Paragraph
2 shall be of no force or effect if immediately prior to the Start Date Lessee was the owner
or occupant of the Premises. In such event, Lessee shall be responsible for any necessary
corrective work.
2.6
Vehicle Parking. Lessee shall be entitled to use the number of Parking Spaces
specified in Paragraph 1.2(b) on those portions of the Common Areas designated from
time to time by Lessor for parking. Lessee shall not use more parking spaces than said
number. Said parking spaces shall be used for parking by vehicles no larger than full size
passenger automobiles or pick-up trucks, herein called "Permitted Size Vehicles." Lessor
may regulate the loading and unloading of vehicles
by adopting Rules and Regulations as provided in Paragraph 2.9. No vehicles other than
Permitted Size Vehicles may be parked in the Common Area without the prior written
permission of Lessor. In addition:
(a)
Lessee shall not permit or allow any vehicles that belong to or are
controlled by Lessee or Lessee's employees, suppliers, shippers, customers,
contractors or invitees to be loaded, unloaded, or parked in areas other than those
designated by Lessor for such activities.
(b)
Lessee shall not service or store any vehicles in the Common Areas.
If Lessee permits or allows any of the prohibited activities described in this
(c)
Paragraph 2.6, then Lessor shall have the right, without notice, in addition to such
other rights and remedies that it may have, to remove or tow away the vehicle
involved and charge the cost to Lessee, which cost shall be immediately payable
upon demand by Lessor.
2.7
Common Areas Definition. The term "Common Areas" is defined as all areas and
facilities outside the Premises and within the exterior boundary line of the Project and
interior utility raceways and installations within the Unit that are provided and designated
by the Lessor from time to time for the general non-exclusive use of Lessor, Lessee and
other tenants of the Project and their respective employees, suppliers, shippers,
customers, contractors and invitees, including parking areas, loading and unloading areas,
trash areas, roofs, roadways, walkways, driveways and landscaped areas.
2.8
Common Areas Lessee's Rights. Lessor grants to Lessee, for the benefit of
Lessee and its employees, suppliers, shippers, contractors, customers and invitees, during
the term of this Lease, the non-exclusive right to use, in common with others entitled to
such use, the Common Areas as they exist from time to time, subject to any rights,
powers, and privileges reserved by Lessor under the terms hereof or under the terms of
any rules and regulations or restrictions governing the use of the Project. Under no
circumstances shall the right herein granted to use the Common Areas be deemed to
include the right to store any property, temporarily or permanently, in the Common Areas.
Any such storage shall be permitted only by the prior written consent of Lessor or Lessor's
designated agent, which consent may be revoked at any time. In the event that any
unauthorized storage shall occur, then Lessor shall have the right, without notice, in
addition to such other rights and remedies that it may have, to remove the property and
charge the cost to Lessee, which cost shall be immediately payable upon demand by
Lessor.
2.9
Common Areas Rules and Regulations. Lessor or such other person(s) as
Lessor may appoint shall have the exclusive control and management of the Common
Areas and shall have the right, from time to time, to establish, modify, amend and enforce
reasonable rules and regulations ("Rules and Regulations") for the management, safety,
care, and cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants or tenants of
the Building and the Project and their invitees. Lessee agrees to abide by and conform to
all such Rules and Regulations, and shall use its best efforts to cause its employees,
suppliers, shippers, customers, contractors and invitees to so abide and conform. Lessor
shall not be responsible to Lessee for the non-compliance with said Rules
and Regulations by other tenants of the Project. Lessee shall not be responsible for any
damage or loss caused by any other tenant in the Project.
2.10 Common Areas Changes. Lessor shall have the right, in Lessor's sole discretion,
from time to time:
To make changes to the Common Areas, including, without limitation,
(a)
changes in the location, size, shape and number of driveways, entrances, parking
spaces, parking areas, loading and unloading areas, ingress, egress, direction of
traffic, landscaped areas, walkways and utility raceways;
To close temporarily any of the Common Areas for maintenance purposes
(b)
so long as reasonable access to the Premises remains available;
To use
(c)
the Common Areas while engaged
improvements, repairs or alterations to the Project, or any portion thereof; and
in making additional
(d)
To do and perform such other acts and make such other changes in, to or
with respect to the Common Areas and Project as Lessor may, in the exercise of
sound business judgment, deem to be appropriate.
3.
Term.
Term. The Commencement Date, Expiration Date and Original Term of this Lease
3.1
are as specified in Paragraph 1.3.
3.2
Early Possession. Any provision herein granting Lessee Early Possession of the
Premises is subject to and conditioned upon the Premises being available for such
possession prior to the Commencement Date. Any grant of Early Possession only conveys
a non-exclusive right to occupy the Premises. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent shall be
abated for the period of such Early Possession. All other terms of this Lease (including but
not limited to the obligations to pay Lessee's Share of Common Area Operating Expenses,
Real Property Taxes and insurance premiums and to maintain the Premises) shall be in
effect during such period. Any such Early Possession shall not affect the Expiration Date.
3.3
Delay In Possession. Lessor agrees to use commercially reasonable efforts to
deliver exclusive possession of the Premises to Lessee by the Commencement Date. If,
despite said efforts, Lessor is unable to deliver possession by such date, Lessor shall not
be subject to any liability therefor, nor shall such failure affect the validity of this Lease or
change the Expiration Date. Lessee shall not, however, be obligated to pay Rent or
perform its other obligations until Lessor delivers possession of the Premises and any
period of rent abatement that Lessee would otherwise have enjoyed shall run from the
date of delivery of possession and continue for a period equal to what Lessee would
otherwise have enjoyed under the terms hereof, but minus any days of delay caused by
the acts or omissions of Lessee. If possession is not delivered within 60 days after the
Commencement Date, as the same may be extended under the terms of any Work Letter
executed by Parties, Lessee may, at its option, by notice in writing within 10 days after the
end of such 60-day period, cancel this Lease, in which event the Parties shall be
discharged from all
obligations hereunder. If such written notice is not received by Lessor within said 10-day
period, Lessee's right to cancel shall terminate. If possession of the Premises is not
delivered within 120 days after the Commencement Date, this Lease shall terminate
unless other agreements are reached between Lessor and Lessee, in writing.
3.4
Lessee Compliance. Lessor shall not be required to tender possession of the
Premises to Lessee until Lessee complies with its obligation to provide evidence of
insurance (Paragraph 8.5). Pending delivery of such evidence, Lessee shall be required to
perform all of its obligations under this Lease from and after the Start Date, including the
payment of Rent, notwithstanding Lessor's election to withhold possession pending receipt
of such evidence of insurance. Further, if Lessee is required to perform any other
conditions prior to or concurrent with the Start Date, the Start Date shall occur but Lessor
may elect to withhold possession until such conditions are satisfied.
4.
Rent.
Rent Defined. All monetary obligations of Lessee to Lessor under the terms of this
4.1.
Lease (except for the Security Deposit) are deemed to be rent ("Rent").
Common Area Operating Expenses. Lessee shall pay to Lessor during the term
4.2
hereof, in addition to the Base Rent, Lessee's Share (as specified in Paragraph 1.6) of all
Common Area Operating Expenses, as hereinafter defined, during each calendar year of
the term of this Lease, in accordance with the following provisions:
"Common Area Operating Expenses" are defined, for purposes of this
(a)
Lease, as all costs relating to the ownership and opera on of the Project, including,
but not limited to, the following:
The operation, repair and maintenance, in neat, clean, good order
(i)
and condition, and if necessary the replacement, of the following:
(aa) The Common Areas and Common Area improvements,
including parking areas, loading and unloading areas, trash areas,
roadways, parkways, walkways, driveways, landscaped areas,
bumpers, irrigation systems, Common Area lighting facilities, fences
and gates, elevators, roofs, exterior walls of the buildings, building
systems and roof drainage systems.
(bb) Exterior signs and any tenant directories.
(cc) Any fire sprinkler systems.
(dd) All other areas and improvements that are within the exterior
boundaries of the Project but outside of the Premises and/or any
other space occupied by a tenant.
The cost of water, gas, electricity and telephone to service the
(ii)
Common Areas and any utilities not separately metered.
The cost of
(iii)
trash disposal, pest control services, property
management, security services, owners' association dues and fees, the
cost to repaint the exterior of any structures and the cost of any
environmental inspections.
(iv)
Real Property Taxes (as defined in Paragraph 10).
The cost of the premiums for the insurance maintained by Lessor
(v)
pursuant to Paragraph 8.
Any deductible portion of an insured loss concerning the Building or
(vi)
the Common Areas.
Auditors', accountants' and attorneys' fees and costs related to the
(vii)
operation, maintenance, repair and replacement of the Project.
(viii) The cost of any capital improvement to the Building or the Project
not covered under the provisions of Paragraph 2.3 provided; however, that
Lessor shall allocate the cost of any such capital improvement over a 12-
year period and Lessee shall not be required to pay more than Lessee's
Share of 1/144th of the cost of such capital improvement in any given
month. Lessee shall pay Interest on the unamortized balance but may
prepay its obligation at any time. Such obligations shall cease upon
termination of the Lease.
(ix) The cost of any other services to be provided by Lessor that are stated
elsewhere in this Lease to be a Common Area Operating Expense.
(b)
Any Common Area Operating Expenses and Real Property Taxes that are
specifically attributable to the Unit, the Building or to any other building in the
Project or to the operation, repair and maintenance thereof, shall be allocated
entirely to such Unit, Building, or other building. However, any Common Area
Operating Expenses and Real Property Taxes that are not specifically attributable
to the Building or to any other building or to the operation, repair and maintenance
thereof, shall be equitably allocated by Lessor to all buildings in the Project.
Notwithstanding the foregoing, Lessee shall not be obligated to pay the costs of
repairs for any damage caused by another tenant in the Building or any other third
party.
(c)
The inclusion of the improvements, facilities and services set forth in
Subparagraph 4.2(a) shall not be deemed to impose an obligation upon Lessor to
either have said improvements or facilities or to provide those services unless the
Project already has the same, Lessor already provides the services, or Lessor has
agreed elsewhere in this Lease to provide the same or some of them.
(d)
Lessee's Share of Common Area Operating Expenses is payable monthly
on the same day as the Base Rent is due hereunder. The amount of such
payments shall be based on Lessor's estimate of the annual Common Area
Operating Expenses. Within 60 days after written request (but not more than once
each year) Lessor shall deliver to Lessee a reasonably detailed statement showing
Lessee's Share of the actual Common Area Operating Expenses for the preceding
year. If Lessee's payments during such year exceed
Lessee's Share, Lessor shall credit the amount of such over payment against
Lessee's future payments. If Lessee's payments during such year were less than
Lessee's Share, Lessee shall pay to Lessor the amount of the deficiency within 10
days after delivery by Lessor to Lessee of the statement.
(e)
Common Area Operating Expenses shall not include any expenses paid by
any tenant directly to third parties, or as to which Lessor is otherwise reimbursed
by any third party, other tenant, or insurance proceeds.
4.3
Payment. Lessee shall cause payment of Rent to be received by Lessor in lawful
money of the United States, without offset or deduction (except as specifically permitted in
this Lease), on or before the day on which it is due. All monetary amounts shall be
rounded to the nearest whole dollar. In the event that any statement or invoice prepared by
Lessor is inaccurate such inaccuracy shall not constitute a waiver and Lessee shall be
obligated to pay the amount set forth in this Lease. Rent for any period during the term
hereof which is for less than one full calendar month shall be prorated based upon the
actual number of days of said month. Payment of Rent shall be made to Lessor at its
address stated herein or to such other persons or place as Lessor may from time to time
designate in writing. Acceptance of a payment which is less than the amount then due
shall not be a waiver of Lessor's rights to the balance of such Rent, regardless of Lessor's
endorsement of any check so stating. In the event that any check, draft, or other
instrument of payment given by Lessee to Lessor is dishonored for any reason, Lessee
agrees to pay to Lessor the sum of $25 in addition to any Late Charge to compensate
Lessor for additional time and expenses incurred in handling the dishonored payment and
Lessor, at its option, may require all future Rent be paid by cashier's check. Payments will
be applied first to accrued late charges and attorney's fees, second to accrued interest,
then to Base Rent and Common Area Operating Expenses, and any remaining amount to
any other outstanding charges or costs. The Base Rent shall be adjusted upward annually
by three percent (3%).
5.
Security Deposit. Lessee shall deposit with Lessor upon execution hereof the Security
Deposit as security for Lessee's faithful performance of its obligations under this Lease. If Lessee
fails to pay Rent, or otherwise Defaults under this Lease, Lessor may use, apply or retain all or
any portion of said Security Deposit for the payment of any amount already due Lessor, for Rents
which will be due in the future, and/or to reimburse or compensate Lessor for any liability,
expense, loss or damage which Lessor may suffer or incur by reason thereof. If Lessor uses or
applies all or any portion of the Security Deposit, Lessee shall within 10 days after written request
therefor deposit monies with Lessor sufficient to restore said Security Deposit to the full amount
required by this Lease. If the Base Rent increases during the term of this Lease, Lessee shall,
upon written request from Lessor, deposit additional monies with Lessor so that the total amount
of the Security Deposit shall at all times bear the same proportion to the increased Base Rent as
the initial Security Deposit bore to the initial Base Rent. Should the Agreed Use be amended to
accommodate a material change in the business of Lessee or to accommodate a sublessee or
assignee, Lessor shall have the right to increase the Security Deposit to the extent necessary, in
Lessor's reasonable judgment, to account for any increased wear and tear that the Premises may
suffer as a result thereof. If a change in control of Lessee occurs during this Lease and following
such change the financial condition of Lessee is, in Lessor's reasonable judgment, significantly
reduced, Lessee shall deposit such additional monies with Lessor as shall be sufficient to cause
the Security Deposit to be at a commercially reasonable level based on such change in financial
condition, but in no event shall the increase be more than 10% of
the original amount of the Security Deposit. Lessor shall not be required to keep the Security
Deposit separate from its general accounts. Within 90 days after the expiration or termination of
this Lease, Lessor shall return that portion of the Security Deposit not used or applied by Lessor.
Lessor shall upon written request provide Lessee with an accounting showing how that portion of
the Security Deposit that was not returned was applied. No part of the Security Deposit shall bear
interest or be considered prepayment for any monies to be paid by Lessee under this Lease. THE
SECURITY DEPOSIT SHALL NOT BE USED BY LESSEE IN LIEU OF PAYMENT OF THE LAST
MONTH'S RENT. After the 30th month of the Lease term, 50% of the Security Deposit will be
returned to Lessee as long as Lessee is not in default.
6.
Use.
6.1
Use. Lessee shall use and occupy the Premises only for the Agreed Use, or any
other legal use which is reasonably comparable thereto, and for no other purpose. Lessee
shall not use or permit the use of the Premises in a manner that is unlawful, creates
damage, waste or a nuisance, or that disturbs occupants of or causes damage to
neighboring premises or properties. Other than guide, signal and seeing eye dogs, Lessee
shall not keep or allow in the Premises any pets, animals, birds, fish, or reptiles. Lessor
shall not unreasonably withhold or delay its consent to any written request for a
modification of the Agreed Use, so long as the same will not impair the structural integrity
of the Building or the mechanical or electrical systems therein, and/or is not significantly
more burdensome to the Project. If Lessor elects to withhold consent, Lessor shall within 7
days after such request give written notification of same, which notice shall include an
explanation of Lessor's objections to the change in the Agreed Use.
6.2
Hazardous Substances.
(a)
Reportable Uses Require Consent. The term "Hazardous Substance" as
used in this Lease shall mean any product, substance, or waste whose presence,
use, manufacture, disposal, transportation, or release, either by itself or in
combination with other materials expected to be on the Premises, is either: (i)
potentially injurious to the public health, safety or welfare, the environment or the
Premises, (ii) regulated or monitored by any governmental authority, or (iii) a basis
for potential liability of Lessor to any governmental agency or third party under any
applicable statute or common law theory. Hazardous Substances shall include, but
not be limited to, hydrocarbons, petroleum, gasoline, and/or crude oil or any
products, by products or fractions thereof. Lessee shall not engage in any activity
in or on the Premises which constitutes a Reportable Use of Hazardous
Substances without the express prior written consent of Lessor and timely
compliance (at Lessee's expense) with all Applicable Requirements. "Reportable
Use" shall mean (i) the installation or use of any above or below ground storage
tank, (ii) the generation, possession, storage, use, transportation, or disposal of a
Hazardous Substance that requires a permit from, or with respect to which a report,
notice, registration or business plan is required to be filed with, any governmental
authority, and/or (iii) the presence at the Premises of a Hazardous Substance with
respect to which any Applicable Requirements requires that a notice be given to
persons entering or occupying
the Premises or neighboring properties.
Notwithstanding the foregoing, Lessee may use any ordinary and customary
materials reasonably required to be used in the normal course of the Agreed Use,
ordinary office supplies (copier toner, liquid paper,
glue, etc.) and common household cleaning materials, so long as such use is in
compliance with all Applicable Requirements, is not a Reportable Use, and does
not expose the Premises or neighboring property to any meaningful risk of
contamination or damage or expose Lessor to any liability therefor. In addition,
Lessor may condition its consent to any Reportable Use upon receiving such
additional assurances as Lessor reasonably deems necessary to protect itself, the
public, the Premises and/or the environment against damage, contamination, injury
and/or liability, including, but not limited to, the installation (and removal on or
before Lease expiration or termination) of protective modifications (such as
concrete encasements) and/or increasing the Security Deposit.
(b)
Duty to Inform Lessor. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance has come to be located in, on, under or about
the Premises, other than as previously consented to by Lessor, Lessee shall
immediately give written notice of such fact to Lessor, and provide Lessor with a
copy of any report, notice, claim or other documentation which it has concerning
the presence of such Hazardous Substance.
(c)
Lessee Remediation. Lessee shall not cause or permit any Hazardous
Substance to be spilled or released in, on, under, or about the Premises (including
through the plumbing or sanitary sewer system) and shall promptly, at Lessee's
expense, comply with all Applicable Requirements and take all investigatory and/or
remedial action reasonably recommended, whether or not formally ordered or
required, for the cleanup of any contamination of, and for the maintenance, security
and/or monitoring of the Premises or neighboring properties, that was caused or
materially contributed to by Lessee, or pertaining to or involving any Hazardous
Substance brought onto the Premises during the term of this Lease, by or for
Lessee, or any third party.
(d)
Lessee Indemnification. Lessee shall indemnify, defend and hold Lessor,
its agents, employees, lenders and ground lessor, if any, harmless from and
against any and all loss of rents and/or damages, liabilities, judgments, claims,
expenses, penalties, and attorneys' and consultants' fees arising out of or involving
any Hazardous Substance brought onto the Premises by or for Lessee, or any third
party (provided, however, that Lessee shall have no liability under this Lease with
respect to underground migration of any Hazardous Substance under the Premises
from areas outside of the Project not caused or contributed to by Lessee), nor from
any condition caused by Lessor, any other tenant in the Building, or any third party
not affiliated with Lessee. Lessee's obligations shall include, but not be limited to,
the effects of any contamination or injury to person, property or the environment
created or suffered by Lessee, and the cost of investigation, removal, remediation,
restoration and/or abatement, and shall survive the expiration or termination of this
Lease. No termination, cancellation or release agreement entered into by Lessor
and Lessee shall release Lessee from its obligations under this Lease with respect
to Hazardous Substances, unless specifically so agreed by Lessor in writing at the
time of such agreement.
(e)
Lessor Indemnification. Except as otherwise provided in paragraph 8.7,
Lessor and its successors and assigns shall indemnify, defend, reimburse and hold
Lessee, its employees and lenders, harmless from and against any and all
environmental damages,
including the cost of remediation, which are suffered as a direct result of
Hazardous Substances on the Premises prior to Lessee taking possession or
which are caused by the negligence or willful misconduct of Lessor, its agents or
employees. Lessor's obligations, as and when required by the Applicable
Requirements, shall include, but not be limited to, the cost of investigation,
removal, remediation, restoration and/or abatement, and shall survive the
expiration or termination of this Lease.
Investigations and Remediations. Lessor shall retain the responsibility
(f)
and pay for any investigations or remediation measures required by governmental
entities having jurisdiction with respect to the existence of Hazardous Substances
on the Premises prior to the Lessee taking possession, unless such remediation
measure is required as a result of Lessee's use (including "Alterations", as defined
in paragraph 7.3(a) below) of the Premises, in which event Lessee shall be
responsible for such payment. Lessee shall cooperate fully in any such activities at
the request of Lessor, including allowing Lessor and Lessor's agents to have
reasonable access to the Premises at reasonable times in order to carry out
Lessor's investigative and remedial responsibilities.
Lessor Termination Option. If a Hazardous Substance Condition (see
(g)
Paragraph 9.1(e)) occurs during the term of this Lease, unless Lessee is legally
responsible therefor (in which case Lessee shall make the investigation and
remediation thereof required by the Applicable Requirements and this Lease shall
continue in full force and effect, but subject to Lessor's rights under Paragraph
6.2(d) and Paragraph 13), Lessor may, at Lessor's option, either (i) investigate and
remediate such Hazardous Substance Condition, if required, as soon as
reasonably possible at Lessor's expense, in which event this Lease shall continue
in full force and effect, or (ii) if the estimated cost to remediate such condition
exceeds 12 times the then monthly Base Rent or $100,000, whichever is greater,
give written notice to Lessee, within 30 days after receipt by Lessor of knowledge
of the occurrence of such Hazardous Substance Condition, of Lessor's desire to
terminate this Lease as of the date ninety (90) days following the date of such
notice. In the event Lessor elects to give a termination notice, Lessee may, within
10 days thereafter, give written notice to Lessor of Lessee's commitment to pay the
amount by which the cost of the remediation of such Hazardous Substance
Condition exceeds an amount equal to 12 times the then monthly Base Rent or
$100,000, whichever is greater. Lessee shall provide Lessor with said funds or
satisfactory assurance thereof within 30 days following such commitment. In such
event, this Lease shall continue in full force and effect, and Lessor shall proceed to
make such remediation as soon as reasonably possible after the required funds
are available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the me provided, this Lease shall terminate as of the date
specified in Lessor's notice of termination.
Lessee's Compliance with Applicable Requirements. Except as otherwise
6.3
provided in this Lease, Lessee shall, at Lessee's sole expense, fully, diligently and in a
timely manner, materially comply with all Applicable Requirements, the requirements of
any applicable fire insurance underwriter or rating bureau, and the recommendations of
Lessor's engineers and/or consultants
which relate in any manner to the Premises, without regard to whether said Applicable
Requirements are now in effect or become effective after the Start Date. Lessee shall,
within 10 days after receipt of Lessor's written request, provide Lessor with copies of all
permits and other documents, and other information evidencing Lessee's compliance with
any Applicable Requirements specified by Lessor, and shall immediately upon receipt,
notify Lessor in writing (with copies of any documents involved) of any threatened or actual
claim, notice, citation, warning, complaint or report pertaining to or involving the failure of
Lessee or the Premises to comply with any Applicable Requirements. Likewise, Lessee
shall immediately give written notice to Lessor of: (i) any water damage to the Premises
and any suspected seepage, pooling, dampness or other condition conducive to the
production of mold; or (ii) any mustiness or other odors that might indicate the presence of
mold in the Premises.
6.4
Inspection; Compliance. Lessor and Lessor's "Lender" (as defined in Paragraph
30) and consultants authorized by Lessor shall have the right to enter into the Premises at
any time in the case of an emergency, and otherwise at reasonable times after reasonable
notice, for the purpose of inspecting and/or testing the condition of the Premises and/or for
verifying compliance by Lessee with this Lease. The cost of any such inspections shall be
paid by Lessor, unless a violation of Applicable Requirements, or a Hazardous Substance
Condition (see Paragraph 9.1(e)) is found to exist or be imminent, or the inspection is
requested or ordered by a governmental authority. In such case, Lessee shall upon
request reimburse Lessor for the cost of such inspection, so long as such inspection is
reasonably related to the violation or contamination. In addition, Lessee shall provide
copies of all relevant material safety data sheets (MSDS) to Lessor within 10 days of the
receipt of written request therefor. Lessee acknowledges that any failure on its part to
allow such inspections or testing will expose Lessor to risks and potentially cause Lessor
to incur costs not contemplated by this Lease, the extent of which will be extremely difficult
to ascertain. Accordingly, should the Lessee fail to allow such inspections and/or testing in
a timely fashion the Base Rent shall be automatically increased upon notice to Lessee, by
an amount equal to 5% of the then existing Base Rent or $100, whichever is greater for
the length of time that Lessee remains in default of this provision. The Parties agree that
such increase in Base Rent represents fair and reasonable compensation for the
additional risk/costs that Lessor will incur by reason of Lessee's failure to allow such
inspection and/or testing. Such increase in Base Rent shall in no event constitute a waiver
of Lessee's Default or Breach with respect to such failure nor prevent the exercise of any
of the other rights and remedies granted hereunder.
7.
Maintenance; Repairs; Utility Installations; Trade Fixtures and Alterations.
7.1
Lessee's Obligations.
(a)
In General. Subject to the provisions of Paragraph 2.2 (Condition), 2.3
(Compliance), 6.3 (Lessee's Compliance with Applicable Requirements), 7.2
(Lessor's Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee
shall, at Lessee's sole expense, keep the Premises, Utility Installations (intended
for Lessee's exclusive use, no matter where located), and Alterations in good
order, condition and repair (whether or not the portion of the Premises requiring
repairs, or the means of repairing the same, are reasonably or readily accessible to
Lessee, and whether or not the need for such repairs occurs as a result of
Lessee's use, any prior use, the elements or the age of such
portion of the Premises), including, but not limited to, all equipment or facilities,
such as plumbing, HVAC equipment, electrical, lighting facilities, boilers, pressure
vessels, fixtures, interior walls, interior surfaces of exterior walls, ceilings, floors,
windows, doors, plate glass, and skylights but excluding any items which are the
responsibility of Lessor pursuant to Paragraph 7.2 or which have been damaged by
another tenant or other third party not affiliated with Lessee. Lessee, in keeping the
Premises in good order, condition and repair, shall exercise and perform good
maintenance practices, specifically including the procurement and maintenance of
the service contracts required by Paragraph 7.1(b) below. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair.
Service Contracts. Lessee shall, at Lessee's sole expense, procure and
(b)
maintain contracts, with copies to Lessor, in customary form and substance for, and
with contractors specializing and experienced in the maintenance of the following
equipment and improvements, if any, if and when installed on the Premises: (i)
HVAC equipment, (ii) boiler and pressure vessels, and (iii) clarifiers. However,
Lessor reserves the right, upon notice to Lessee, to procure and maintain any or all
of such service contracts, and Lessee shall reimburse Lessor, upon demand, for
the cost thereof. So long as the cost thereof does not exceed that amount which
could have been paid by Lessee for a similar contract.
Failure to Perform. If Lessee fails to perform Lessee's obligations under
(c)
this Paragraph 7.1, Lessor may enter upon the Premises after 10 days' prior written
notice to Lessee (except in the case of an emergency, in which case no notice shall
be required), perform such obligations on Lessee's behalf, and put the Premises in
good order, condition and repair, and Lessee shall promptly pay to Lessor a sum
equal to 115% of the cost thereof.
Replacement. Subject to Lessee's indemnification of Lessor as set forth in
(d)
Paragraph 8.7 below, and without relieving Lessee of liability resulting from
Lessee's failure to exercise and perform good maintenance practices, if an item
described in Paragraph 7.1(b) cannot be repaired other than at a cost which is in
excess of 50% of the cost of replacing such item, then such item shall be replaced
by Lessor, and the cost thereof shall be prorated between the Parties and Lessee
shall only be obligated to pay, each month during the remainder of the term of this
Lease or any extension thereof, on the date on which Base Rent is due, an amount
equal to the product of multiplying the cost of such replacement by a fraction, the
numerator of which is one, and the denominator of which is 144 (i.e. 1/144th of the
cost per month). Lessee shall pay Interest on the unamortized balance but may
prepay its obligation at any time. Such obligations shall cease upon termination of
the Lease.
Lessor's Obligations. Subject to the provisions of Paragraphs 2.2 (Condition), 2.3
7.2
(Compliance), 4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's
Obligations), 9 (Damage or Destruction) and 14 (Condemnation), Lessor, subject to
reimbursement pursuant to Paragraph 4.2, shall keep in good order, condition and repair
the foundations, exterior walls,
structural condition of interior bearing walls, exterior roof, roof membrane, fire sprinkler
system, Common Area fire alarm and/or smoke detection systems, fire hydrants, parking
lots, walkways, parkways, driveways, landscaping, fences, signs and utility systems
serving the Common Areas and all parts thereof, as well as providing the services for
which there is a Common Area Operating Expense pursuant to Paragraph 4.2. Lessor
shall not be obligated to paint the exterior or interior surfaces of exterior walls nor shall
Lessor be obligated to maintain, repair or replace windows, doors or plate glass of the
Premises. Nothing contained in this paragraph shall apply to Lessor's obligation to perform
Tenant Improvements as set forth in the Work Letter for which Lessor shall be responsible,
without charge to Lessee.
7.3
Utility Installations; Trade Fixtures; Alterations.
(a)
Definitions. The term "Utility Installations" refers to all floor and window
coverings, air and/or vacuum lines, power panels, electrical distribution, security
and fire protection systems, communication cabling, lighting fixtures, HVAC
equipment, plumbing, and fencing in or on the Premises. The term "Trade
Fixtures" shall mean Lessee's machinery and equipment that can be removed
without doing material damage to the Premises. The term "Alterations" shall mean
any modification of the improvements, other than Utility Installations or Trade
Fixtures, whether by addition or deletion. "Lessee Owned Alterations and/or
Utility Installations" are defined as Alterations and/or Utility Installations made by
Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a).
(b)
Consent. Lessee shall not make any Alterations or Utility Installations to
the Premises without Lessor's prior written consent. Lessee may, however, make
non-structural Alterations or Utility Installations to the interior of the Premises
(excluding the roof) without such consent but upon notice to Lessor, as long as
they are not visible from the outside, do not involve puncturing, relocating or
removing the roof or any existing walls, will not affect the electrical, plumbing,
HVAC, and/or life safety systems, do not trigger the requirement for additional
modifications and/or improvements to the Premises resulting from Applicable
Requirements, such as compliance with Title 24, and/or life safety systems, and the
cumulative cost thereof during this Lease as extended does not exceed a sum
equal to 3 month's Base Rent in the aggregate or a sum equal to one month's Base
Rent in any one year. Notwithstanding the foregoing, Lessee shall not make or
permit any roof penetrations and/or install anything on the roof without the prior
written approval of Lessor. Lessor may, as a precondition to granting such
approval, require Lessee to utilize a contractor chosen and/or approved by Lessor.
Any Alterations or Utility Installations that Lessee shall desire to make and which
require the consent of the Lessor shall be presented to Lessor in written form with
detailed plans. Consent shall be deemed conditioned upon Lessee's: (i) acquiring
all applicable governmental permits, (ii) furnishing Lessor with copies of both the
permits and the plans and specifications prior to commencement of the work, and
(iii) compliance with all conditions of said permits and other Applicable
Requirements in a prompt and expeditious manner. Any Alterations or Utility
Installations shall be performed in a workmanlike manner with good and sufficient
materials. Lessee shall promptly upon completion furnish Lessor with as built plans
and specifications. For work which costs an amount in excess of one month's Base
Rent, Lessor may condition its consent upon Lessee providing a lien and
completion bond in an amount equal to 150% of the estimated cost of such
Alteration or Utility Installation and/or upon Lessee's posting an additional Security
Deposit with Lessor.
(c)
Liens; Bonds. Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use on the
Premises, which claims are or may be secured by any mechanic's or materialmen's
lien against the Premises or any interest therein. Lessee shall give Lessor not less
than 10 days notice prior to the commencement of any work in, on or about the
Premises, and Lessor shall have the right to post notices of non-responsibility. If
Lessee shall contest the validity of any such lien, claim or demand, then Lessee
shall, at its sole expense defend and protect itself, Lessor and the Premises
against the same and shall pay and satisfy any such adverse judgment that may be
rendered thereon before the enforcement thereof. If Lessor shall require, Lessee
shall furnish a surety bond in an amount equal to 150% of the amount of such
contested lien, claim or demand, indemnifying Lessor against liability for the same.
If Lessor elects to participate in any such action, Lessee shall pay Lessor's
attorneys' fees and costs.
7.4
Ownership; Removal; Surrender; and Restoration.
(a)
Ownership. Subject to Lessor's right to require removal or elect ownership
as hereinafter provided, all Alterations and Utility Installations made by Lessee
shall be the property of Lessee, but considered a part of the Premises. Lessor may,
at any time, elect in writing to be the owner of all or any specified part of the
Lessee Owned Alterations and Utility Installations. Unless otherwise instructed per
paragraph 7.4(b) hereof, all Lessee Owned Alterations and Utility Installations
shall, at the expiration or termination of this Lease, become the property of Lessor
and be surrendered by Lessee with the Premises.
(b)
Removal. By delivery to Lessee of written notice from Lessor not earlier
than 90 and not later than 30 days prior to the end of the term of this Lease, Lessor
may require that any or all Lessee Owned Alterations or Utility Installations be
removed by the expiration or termination of this Lease. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or Utility
Installations made without the required consent.
(c)
Surrender; Restoration. Lessee shall surrender the Premises by the
Expiration Date or any earlier termination date, with all of the improvements, parts
and surfaces thereof broom clean and free of debris, and in good operating order,
condition and state of repair, ordinary wear and tear excepted. "Ordinary wear and
tear" shall not include any damage or deterioration that would have been prevented
by good maintenance practice. Notwithstanding the foregoing and the provisions of
Paragraph 7.1(a), if the Lessee occupies the Premises for 12 months or less, then
Lessee shall surrender the Premises in the same condition as delivered to Lessee
on the Start Date with NO allowance for ordinary wear and tear. Lessee shall repair
any damage occasioned by the installation, maintenance or removal of Trade
Fixtures, Lessee owned Alterations and/or Utility Installations, furnishings, and
equipment as well as the removal of any storage tank installed by or for Lessee.
Lessee shall also remove from the Premises any and all
Hazardous Substances brought onto the Premises by or for Lessee, or any third
party (except Hazardous Substances which were deposited via underground
migration from areas outside of the Project) to the level specified in Applicable
Requirements. Trade Fixtures shall remain the property of Lessee and shall be
removed by Lessee. Any personal property of Lessee not removed on or before the
Expiration Date or any earlier termination date shall be deemed to have been
abandoned by Lessee and may be disposed of or retained by Lessor as Lessor
may desire. The failure by Lessee to timely vacate the Premises pursuant to this
Paragraph 7.4(c) without the express written consent of Lessor shall constitute a
holdover under the provisions of Paragraph 26 below.
8.
Insurance; Indemnity.
8.1
Payment of Premiums. The cost of the premiums for the insurance policies
required to be carried by Lessor, pursuant to Paragraphs 8.2(b), 8.3(a) and 8.3(b), shall be
a Common Area Operating Expense. Premiums for policy periods commencing prior to, or
extending beyond, the term of this Lease shall be prorated to coincide with the
corresponding Start Date or Expiration Date.
8.2
Liability Insurance.
(a)
Carried by Lessee. Lessee shall obtain and keep in force a Commercial
General Liability policy of insurance protecting Lessee and Lessor as an additional
insured against claims for bodily injury, personal injury and property damage based
upon or arising out of the ownership, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto. Such insurance shall be on an
occurrence basis providing single limit coverage in an amount not less than
$1,000,000 per occurrence with an annual aggregate of not less than $2,000,000.
Lessee shall add Lessor as an additional insured by means of an endorsement at
least as broad as the Insurance Service Organization's "Additional Insured
Managers or Lessors of Premises" Endorsement. The policy shall not contain any
intra-insured exclusions as between insured persons or organizations, but shall
include coverage for liability assumed under this Lease as an "insured contract"
for the performance of Lessee's indemnity obligations under this Lease. The limits
of said insurance shall not, however, limit the liability of Lessee nor relieve Lessee
of any obligation hereunder. Lessee shall provide an endorsement on its liability
policy(ies) which provides that its insurance shall be primary to and not contributory
with any similar insurance carried by Lessor, whose insurance shall be considered
excess insurance only.
(b)
Carried by Lessor. Lessor shall maintain liability insurance as described in
Paragraph 8.2(a), in addition to, and not in lieu of, the insurance required to be
maintained by Lessee. Lessee shall not be named as an additional insured therein.
8.3
Property Insurance - Building, Improvements and Rental Value.
(a)
Building and Improvements. Lessor shall obtain and keep in force a
policy or policies of insurance in the name of Lessor, with loss payable to Lessor,
any ground lessor, and to any Lender insuring loss or damage to the Premises.
The amount of such insurance shall be equal to the full insurable replacement cost
of the Premises, as the same shall
exist from time to time, or the amount required by any Lender, but in no event more
than the commercially reasonable and available insurable value thereof. Lessee
Owned Alterations and Utility Installations, Trade Fixtures, and Lessee's personal
property shall be insured by Lessee not by Lessor. If the coverage is available and
commercially appropriate, such policy or policies shall insure against all risks of
direct physical loss or damage (except the perils of flood and/or earthquake unless
required by a Lender), including coverage for debris removal and the enforcement
of any Applicable Requirements requiring the upgrading, demolition, reconstruction
or replacement of any portion of the Premises as the result of a covered loss. Said
policy or policies shall also contain an agreed valuation provision in lieu of any
coinsurance clause, waiver of subrogation, and inflation guard protection causing
an increase in the annual property insurance coverage amount by a factor of not
less than the adjusted U.S. Department of Labor Consumer Price Index for All
Urban Consumers for the city nearest to where the Premises are located. If such
insurance coverage has a deductible clause, the deductible amount shall not
exceed $5,000 per occurrence.
(b)
Rental Value. Lessor shall also obtain and keep in force a policy or policies
in the name of Lessor with loss payable to Lessor and any Lender, insuring the loss
of the full Rent for one year with an extended period of indemnity for an additional
180 days ("Rental Value insurance"). Said insurance shall contain an agreed
valuation provision in lieu of any coinsurance clause, and the amount of coverage
shall be adjusted annually to reflect the projected Rent otherwise payable by
Lessee, for the next 12 month period.
(c)
Adjacent Premises. Lessee shall pay for any increase in the premiums for
the property insurance of the Building and for the Common Areas or other buildings
in the Project if said increase is caused by Lessee's acts, omissions, use or
occupancy of the Premises.
(d)
Lessee's Improvements. Since Lessor is the Insuring Party, Lessor shall
not be required to insure Lessee Owned Alterations and Utility Installations unless
the item in question has become the property of Lessor under the terms of this
Lease.
8.4
Lessee's Property; Business
Compensation Insurance.
Interruption
Insurance; Worker's
(a)
Property Damage. Lessee shall obtain and maintain insurance coverage
on all of Lessee's personal property, Trade Fixtures, and Lessee Owned Alterations
and Utility Installations. Such insurance shall be full replacement cost coverage
with a deductible of not to exceed $1,000 per occurrence. The proceeds from any
such insurance shall be used by Lessee for the replacement of personal property,
Trade Fixtures and Lessee Owned Alterations and Utility Installations.
Business Interruption. Lessee shall obtain and maintain loss of income
(b)
and extra expense insurance in amounts as will reimburse Lessee for direct or
indirect loss of earnings attributable to all perils commonly insured against by
prudent lessees in the business of Lessee or attributable to prevention of access to
the Premises as a result of such perils.
(c)
Worker's Compensation Insurance. Lessee shall obtain and maintain
Worker's Compensation Insurance in such amount as may be required by
Applicable Requirements. Such policy shall include a 'Waiver of Subrogation'
endorsement. Lessee shall provide Lessor with a copy of such endorsement along
with the certificate of insurance or copy of the policy required by paragraph 8.5.
No Representation of Adequate Coverage. Lessor makes no
(d)
representation that the limits or forms of coverage of insurance specified herein are
adequate to cover Lessee's property, business operations or obligations under this
Lease.
8.5
Insurance Policies. Insurance required herein shall be by companies maintaining
during the policy term a "General Policyholders Rating" of at least A-, VII, as set forth in
the most current issue of "Best's Insurance Guide,” or such other rating as may be
required by a Lender. Lessee shall not do or permit to be done anything which invalidates
the required insurance policies. Lessee shall, prior to the Start Date, deliver to Lessor
certified copies of policies of such insurance or certificates with copies of the required
endorsements evidencing the existence and amounts of the required insurance. No such
policy shall be cancelable or subject to modification except after 30 days prior written
notice to Lessor. Lessee shall, at least 10 days prior to the expiration of such policies,
furnish Lessor with evidence of renewals or "insurance binders" evidencing renewal
thereof, or Lessor may increase his liability insurance coverage and charge the cost
thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand.
Such policies shall be for a term of at least one year, or the length of the remaining term of
this Lease, whichever is less. If either Party shall fail to procure and maintain the insurance
required to be carried by it, the other Party may, but shall not be required to, procure and
maintain the same.
8.6 Waiver of Subrogation. Without affecting any other rights or remedies, Lessee
and Lessor each hereby release and relieve the other, and waive their entire right to
recover damages against the other, for loss of or damage to its property arising out of or
incident to the perils required to be insured against herein. The effect of such releases and
waivers is not limited by the amount of insurance carried or required, or by any deductibles
applicable hereto. The Parties agree to have their respective property damage insurance
carriers waive any right to subrogation that such companies may have against Lessor or
Lessee, as the case may be, so long as the insurance is not invalidated thereby.
8.7
Indemnity. Except for Lessor's negligence or willful misconduct, Lessee shall
indemnify, protect, defend and hold harmless the Premises, Lessor and its agents,
Lessor's master or ground lessor, partners and Lenders, from and against any and all
claims, loss of rents and/or damages, liens, judgments, penalties, reasonable attorneys'
and consultants' fees, expenses and/or liabilities arising out of, involving, or in connection
with, a Breach of the Lease by Lessee and/or the use and/or occupancy of the Premises
and/or Project by Lessee and/or by Lessee's employees, contractors or invitees . If any
action or proceeding is brought against Lessor by reason of any of the foregoing matters,
Lessee shall upon notice defend the same at Lessee's expense by counsel reasonably
satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor
need not have first paid any such claim in order to be defended or indemnified. So long as
Lessee is conducting the defense of the claim for liability in accordance with this
Paragraph 8.7, (i) the Indemnitee will not consent to the entry of any judgment or enter into
any settlement with
respect to the claim without the prior written consent of the Lessee, (ii) Lessee will not
consent to the entry of any judgment or enter into any settlement with respect to the claim
without the prior written consent of the Indemnitee, which consent will not be unreasonably
withheld or delayed, provided, however, that such consent of the Indemnitee will not be
required if the judgement or settlement contains a full release of claims against the
Indemnitee without an admission of wrongdoing or liability. The foregoing sentence will
apply to all indemnification provisions contained elsewhere in this Lease.
8.8
Exemption of Lessor and its Agents from Liability. Notwithstanding the
negligence or breach of this Lease by Lessor or its agents, and except to the extent
caused by Lessor's gross negligence or willful misconduct, neither Lessor nor its agents
shall be liable under any circumstances for: (i) injury or damage to the person or goods,
wares, merchandise or other property of Lessee, Lessee's employees, contractors,
invitees, customers, or any other person in or about the Premises, whether such damage
or injury is caused by or results from fire, steam, electricity, gas, water or rain, indoor air
quality, the presence of mold or from the breakage, leakage, obstruction or other defects of
pipes, fire sprinklers, wires, appliances, plumbing, HVAC or lighting fixtures, or from any
other cause, whether the said injury or damage results from conditions arising upon the
Premises or upon other portions of the Building, or from other sources or places; (ii) any
damages arising from any act or neglect of any other tenant of Lessor or from the failure of
Lessor or its agents to enforce the provisions of any other lease in the Project; or (iii) injury
to Lessee's business or for any loss of income or profit therefrom.
Failure to Provide Insurance. Lessee acknowledges that any failure on its part to
8.9
obtain or maintain the insurance required herein will expose Lessor to risks and potentially
cause Lessor to incur costs not contemplated by this Lease, the extent of which will be
extremely difficult to ascertain. Accordingly, for any month or portion thereof that Lessee
does not maintain the required insurance and/or does not provide Lessor with the required
binders or certificates evidencing the existence of the required insurance, the Base Rent
shall be automatically increased upon notice to Lessee, by an amount equal to 5% of the
then existing Base Rent or $100, whichever is greater for the length of time that Lessee
remains in default of this provision. The parties agree that such increase in Base Rent
represents fair and reasonable compensation for the additional risk/costs that Lessor will
incur by reason of Lessee's failure to maintain the required insurance. Such increase in
Base Rent shall in no event constitute a waiver of Lessee's Default or Breach with respect
to the failure to maintain such insurance, prevent the exercise of any of the other rights
and remedies granted hereunder, nor relieve Lessee of its obligation to maintain the
insurance specified in this Lease.
9.
Damage or Destruction.
9.1
Definitions.
(a)
"Premises Partial Damage" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, which can reasonably be repaired in 3 months or less from the date of
the damage or destruction, and the cost thereof does not exceed a sum equal to 6
month's Base Rent. Lessor shall notify Lessee in writing within 30 days from the
date of the damage or destruction as to whether or not the damage is Partial or
Total.
(b)
"Premises Total Destruction" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations and Trade Fixtures, which cannot reasonably be repaired in 3 months
or less from the date of the damage or destruction and/or the cost thereof exceeds
a sum equal to 6 month's Base Rent. Lessor shall notify Lessee in writing within 30
days from the date of the damage or destruction as to whether or not the damage
is Partial or Total.
(c)
"Insured Loss" shall mean damage or destruction to improvements on the
Premises, other than Lessee Owned Alterations and Utility Installations and Trade
Fixtures, which was caused by an event required to be covered by the insurance
described in Paragraph 8.3(a), irrespective of any deductible amounts or coverage
limits involved.
(d)
"Replacement Cost" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of Applicable Requirements, and without
deduction for depreciation.
"Hazardous Substance Condition" shall mean
(e)
the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance, in, on, or under the Premises which requires restoration.
Partial Damage - Insured Loss. If a Premises Partial Damage that is an Insured
9.2
Loss occurs, then Lessor shall, at Lessor's expense, repair such damage (but not Lessee's
Trade Fixtures or Lessee Owned Alterations and Utility Installations) as soon as
reasonably possible and this Lease shall continue in full force and effect; provided,
however, that Lessee shall, at Lessor's election, make the repair of any damage or
destruction the total cost to repair of which is $10,000 or less, and, in such event, Lessor
shall make any applicable insurance proceeds available to Lessee on a reasonable basis
for that purpose. Notwithstanding the foregoing, if the required insurance was not in force
or the insurance proceeds are not sufficient to effect such repair, the Insuring Party shall
promptly contribute the shortage in proceeds as and when required to complete said
repairs. In the event, however, such shortage was due to the fact that, by reason of the
unique nature of the improvements, full replacement cost insurance coverage was not
commercially reasonable and available, Lessor shall have no obligation to pay for the
shortage in insurance proceeds or to fully restore the unique aspects of the Premises
unless Lessee provides Lessor with the funds to cover same, or adequate assurance
thereof, within 10 days following receipt of written notice of such shortage and request
therefor. If Lessor receives said funds or adequate assurance thereof within said 10 day
period, the party responsible for making the repairs shall complete them as soon as
reasonably possible and this Lease shall remain in full force and effect. If such funds or
assurance are not received, Lessor may nevertheless elect by written notice to Lessee
within 10 days thereafter to: (i) make such restoration and repair as is commercially
reasonable with Lessor paying any shortage in proceeds, in which case this Lease shall
remain in full force and effect, or (ii) have this Lease terminate 30 days thereafter. Lessee
shall not be entitled to reimbursement of any funds contributed by Lessee to repair any
such damage or destruction. Premises Partial Damage due to flood or earthquake shall be
subject to Paragraph 9.3, notwithstanding that there may be some insurance coverage, but
the net proceeds of any such insurance shall be made available for the repairs if made by
either Party.
9.3
Partial Damage - Uninsured Loss. If a Premises Partial Damage that is not an
Insured Loss occurs, unless caused by a negligent or willful act of Lessee (in which event
Lessee shall make the repairs at Lessee's expense), Lessor may either: (i) repair such
damage as soon as reasonably possible at Lessor's expense (subject to reimbursement
pursuant to Paragraph 4.2), in which event this Lease shall continue in full force and effect,
or (ii) terminate this Lease by giving written notice to Lessee within 30 days after receipt by
Lessor of knowledge of the occurrence of such damage. Such termination shall be
effective 60 days following the date of such notice. In the event Lessor elects to terminate
this Lease, Lessee shall have the right within 10 days after receipt of the termination notice
to give written notice to Lessor of Lessee's commitment to pay for the repair of such
damage without reimbursement from Lessor. Lessee shall provide Lessor with said funds
or satisfactory assurance thereof within 30 days after making such commitment. In such
event this Lease shall continue in full force and effect, and Lessor shall proceed to make
such repairs as soon as reasonably possible after the required funds are available. If
Lessee does not make the required commitment, this Lease shall terminate as of the date
specified in the termination notice.
9.4
Total Destruction. Notwithstanding any other provision hereof, if a Premises Total
Destruction occurs, this Lease shall terminate 30 days following such Destruction. If the
damage or destruction was caused by the gross negligence or willful misconduct of
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee, except as
provided in Paragraph 8.6.
Damage Near End of Term. If at any time during the last 6 months of this Lease
9.5
there is damage for which the cost to repair exceeds one month's Base Rent, whether or
not an Insured Loss, Lessor may terminate this Lease effective 60 days following the date
of occurrence of such damage by giving a written termination notice to Lessee within 30
days after the date of occurrence of such damage. Notwithstanding the foregoing, if
Lessee at that time has an exercisable option to extend this Lease or to purchase the
Premises, then Lessee may preserve this Lease by (a) exercising such option and (b)
providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof)
needed to make the repairs on or before the earlier of (i) the date which is 10 days after
Lessee's receipt of Lessor's written notice purporting to terminate this Lease, or (ii) the day
prior to the date upon which such option expires. If Lessee duly exercises such option
during such period and provides Lessor with funds (or adequate assurance thereof) to
cover any shortage in insurance proceeds, Lessor shall, at Lessor's commercially
reasonable expense, repair such damage as soon as reasonably possible and this Lease
shall continue in full force and effect. If Lessee fails to exercise such option and provide
such funds or assurance during such period, then this Lease shall terminate on the date
specified in the termination notice and Lessee's option shall be extinguished.
9.6
Abatement of Rent; Lessee's Remedies.
(a)
Abatement. In the event of Premises Partial Damage or Premises Total
Destruction or a Hazardous Substance Condition for which Lessee is not
responsible under this Lease, the Rent payable by Lessee for the period required
for the repair, remediation or restoration of such damage shall be abated in
proportion to the degree to which Lessee's use of the Premises is impaired, but not
to exceed the proceeds received from the Rental Value insurance. All other
obligations of Lessee hereunder shall be performed
by Lessee, and Lessor shall have no liability for any such damage, destruction,
remediation, repair or restoration except as provided herein.
(b)
Remedies. If Lessor is obligated to repair or restore the Premises and does
not commence, in a substantial and meaningful way, such repair or restoration
within 90 days after such obligation shall accrue, Lessee may, at any time prior to
the commencement of such repair or restoration, give written notice to Lessor and
to any Lenders of which Lessee has actual notice, of Lessee's election to terminate
this Lease on a date not less than 30 days following the giving of such notice. If
Lessee gives such notice and such repair or restoration is not commenced within
30 days thereafter, this Lease shall terminate as of the date specified in said notice.
If the repair or restoration is commenced within such 30 days, this Lease shall
continue in full force and effect. "Commence" shall mean either the unconditional
authorization of the preparation of the required plans, or the beginning of the actual
work on the Premises, whichever first occurs.
9.7
Termination; Advance Payments. Upon termination of this Lease pursuant to
Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be made concerning
advance Base Rent and any other advance payments made by Lessee to Lessor. Lessor
shall, in addition, return to Lessee so much of Lessee's Security Deposit as has not been,
or is not then required to be, used by Lessor.
10.
Real Property Taxes.
10.1 Definition. As used herein, the term "Real Property Taxes" shall include any form
of assessment; real estate, general, special, ordinary or extraordinary, or rental levy or tax
(other than inheritance, personal income or estate taxes); improvement bond; and/or
license fee imposed upon or levied against any legal or equitable interest of Lessor in the
Project, Lessor's right to other income therefrom, and/or Lessor's business of leasing, by
any authority having the direct or indirect power to tax and where the funds are generated
with reference to the Project address. The term "Real Property Taxes" shall also include
any tax, fee, levy, assessment or charge, or any increase therein: (i) imposed by reason of
events occurring during the term of this Lease, including but not limited to, a change in the
ownership of the Project, (ii) a change in the improvements thereon, and/or (iii) levied or
assessed on machinery or equipment provided by Lessor to Lessee pursuant to this
Lease. In calculating Real Property Taxes for any calendar year, the Real Property Taxes
for any real estate tax year shall be included in the calculation of Real Property Taxes for
such calendar year based upon the number of days which such calendar year and tax year
have in common.
10.2 Payment of Taxes. Except as otherwise provided in Paragraph 10.3, Lessor shall
pay the Real Property Taxes applicable to the Project, and said payments shall be
included in the calculation of Common Area Operating Expenses in accordance with the
provisions of Paragraph 4.2.
10.3 Additional Improvements. Common Area Operating Expenses shall not include
Real Property Taxes specified in the tax assessor's records and work sheets as being
caused by additional improvements placed upon the Project by other lessees or by Lessor
for the exclusive enjoyment of such other lessees. Notwithstanding Paragraph 10.2 hereof,
Lessee shall, however, pay to Lessor at the time Common Area Operating Expenses are
payable under Paragraph 4.2, the
entirety of any increase in Real Property Taxes if assessed solely by reason of Alterations,
Trade Fixtures or Utility Installations placed upon the Premises by Lessee or at Lessee's
request or by reason of any alterations or improvements to the Premises made by Lessor
subsequent to the execution of this Lease by the Parties.
10.4
Joint Assessment. If the Building is not separately assessed, Real Property Taxes
allocated to the Building shall be an equitable proportion of the Real Property Taxes for all
of the land and improvements included within the tax parcel assessed, such proportion to
be determined by Lessor from the respective valuations assigned in the assessor's work
sheets or such other information as may be reasonably available. Lessor's reasonable
determination thereof, in good faith, shall be conclusive.
10.5 Personal Property Taxes. Lessee shall pay prior to delinquency all taxes
assessed against and levied upon Lessee Owned Alterations and Utility Installations,
Trade Fixtures, furnishings, equipment and all personal property of Lessee contained in
the Premises. When possible, Lessee shall cause its Lessee Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all other personal property to be
assessed and billed separately from the real property of Lessor. If any of Lessee's said
property shall be assessed with Lessor's real property, Lessee shall pay Lessor the taxes
attributable to Lessee's property within 10 days after receipt of a written statement setting
forth the taxes applicable to Lessee's property.
11.
Utilities and Services.
Lessee shall pay for all water, gas, heat, light, power, telephone, trash disposal and
11.1
other utilities and services supplied to the Premises, together with any taxes thereon.
Notwithstanding the provisions of Paragraph 4.2, if at any time in Lessor's sole judgment,
Lessor determines that Lessee is using a disproportionate amount of water, electricity or
other commonly metered utilities, or that Lessee is generating such a large volume of trash
as to require an increase in the size of the trash receptacle and/or an increase in the
number of times per month that it is emptied, then Lessor may increase Lessee's Base
Rent by an amount equal to such increased costs. There shall be no abatement of Rent
and Lessor shall not be liable in any respect whatsoever for the inadequacy, stoppage,
interruption or discontinuance of any utility or service due to riot, strike, labor dispute,
breakdown, accident, repair or other cause beyond Lessor's reasonable control or in
cooperation with governmental request or directions.
11.2 Within fifteen days of Lessor's written request, Lessee agrees to deliver to Lessor
such information, documents and/or authorization as Lessor needs in order for Lessor to
comply with new or existing Applicable Requirements relating to commercial building
energy usage, ratings, and/or the reporting thereof.
12.
Assignment and Subletting.
12.1
Lessor's Consent Required.
Lessee shall not voluntarily or by operation of law assign, transfer,
(a)
mortgage or encumber (collectively, "assign or assignment") or sublet all or any
part of Lessee's interest in this Lease or in the Premises without Lessor's prior
written consent, which consent shall not be unreasonably withheld or delayed.
(b)
Unless Lessee is a corporation and its stock is publicly traded on a national
stock exchange, a change in the control of Lessee shall constitute an assignment
requiring consent. The transfer, on a cumulative basis, of 25% or more of the voting
control of Lessee shall constitute a change in control for this purpose.
(c)
The involvement of Lessee or its assets in any transaction, or series of
transactions (by way of merger, sale, acquisition, financing, transfer, leveraged
buy-out or otherwise), whether or not a formal assignment or hypothecation of this
Lease or Lessee's assets occurs, which results or will result in a reduction of the
Net Worth of Lessee by an amount greater than 25% of such Net Worth as it was
represented at the me of the execution of this Lease or at the time of the most
recent assignment to which Lessor has consented, or as it exists immediately prior
to said transaction or transactions constituting such reduction, whichever was or is
greater, shall be considered an assignment of this Lease to which Lessor may
withhold its consent. "Net Worth of Lessee" shall mean the net worth of Lessee
(excluding any guarantors) established under generally accepted accounting
principles.
(d)
An assignment or subletting without consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1(d), or a non-curable Breach without
the necessity of any notice and grace period. If Lessor elects to treat such
unapproved assignment or subletting as a non-curable Breach, Lessor may either:
terminate this Lease, or (ii) upon 30 days written notice, increase the monthly Base
Rent to 110% of the Base Rent then in effect. Further, in the event of such Breach
and rental adjustment, (i) the purchase price of any option to purchase the
Premises held by Lessee shall be subject to similar adjustment to 110% of the
price previously in effect, and (ii) all fixed and non-fixed rental adjustments
scheduled during the remainder of the Lease term shall be increased to 110% of
the scheduled adjusted rent.
Lessee's remedy for any breach of Paragraph 12.1 by Lessor shall be
(e)
limited to compensatory damages and/or injunctive relief.
Lessor may reasonably withhold consent to a proposed assignment or
(f)
subletting if Lessee is in Default at the time consent is requested.
Notwithstanding the foregoing, allowing a de minimis portion of the
(g)
Premises, i.e. 20 square feet or less, to be used by a third party vendor in
connection with the installation of a vending machine or payphone shall not
constitute a subletting.
12.2
Terms and Conditions Applicable to Assignment and Subletting.
(a)
Regardless of Lessor's consent, no assignment or subletting shall : (i) be
effective without the express written assumption by such assignee or sublessee of
the obligations of Lessee under this Lease, (ii) release Lessee of any obligations
hereunder, or (iii) alter the primary liability of Lessee for the payment of Rent or for
the performance of any other obligations to be performed by Lessee.
(b)
Lessor may accept Rent or performance of Lessee's obligations from any
person other than Lessee pending approval or disapproval of an assignment.
Neither a delay in
the approval or disapproval of such assignment nor the acceptance of Rent or
performance shall constitute a waiver or estoppel of Lessor's right to exercise its
remedies for Lessee's Default or Breach.
Lessor's consent to any assignment or subletting shall not constitute a
(c)
consent to any subsequent assignment or subletting.
(d)
In the event of any Default or Breach by Lessee, Lessor may proceed
directly against Lessee, any Guarantors or anyone else responsible for the
performance of Lessee's obligations under this Lease, including any assignee or
sublessee, without first exhausting Lessor's remedies against any other person or
entity responsible therefor to Lessor, or any security held by Lessor.
(e)
Each request for consent to an assignment or subletting shall be in writing,
accompanied by information relevant to Lessor's determination as to the financial
and operational responsibility and appropriateness of the proposed assignee or
sublessee, including but not limited to the intended use and/or required
modification of the Premises, if any, together with a fee of $500 as consideration for
Lessor's considering and processing said request. Lessee agrees to provide
Lessor with such other or additional information and/or documentation as may be
reasonably requested. (See also Paragraph 36)
(f)
Any assignee of, or sublessee under, this Lease shall, by reason of
accepting such assignment, entering into such sublease, or entering into
possession of the Premises or any portion thereof, be deemed to have assumed
and agreed to conform and comply with each and every term, covenant, condition
and obligation herein to be observed or performed by Lessee during the term of
said assignment or sublease, other than such obligations as are contrary to or
inconsistent with provisions of an assignment or sublease to which Lessor has
specifically consented to in writing.
(g)
Lessor's consent to any assignment or subletting shall not transfer to the
assignee or sublessee any Option granted to the original Lessee by this Lease
unless such transfer is specifically consented to by Lessor in writing. (See
Paragraph 39.2)
12.3 Additional Terms and Conditions Applicable to Subletting. The following terms
and conditions shall apply to any subletting by Lessee of all or any part of the Premises
and shall be deemed included in all subleases under this Lease whether or not expressly
incorporated therein:
Lessee hereby assigns and transfers to Lessor all of Lessee's interest in all
(a)
Rent payable on any sublease, and Lessor may collect such Rent and apply same
toward Lessee's obligations under this Lease; provided, however, that until a
Breach shall occur in the performance of Lessee's obligations, Lessee may collect
said Rent. In the event that the amount collected by Lessor exceeds Lessee's then
outstanding obligations any such excess shall be refunded to Lessee. Lessor shall
not, by reason of the foregoing or any assignment of such sublease, nor by reason
of the collection of Rent, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such sublessee.
Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a Breach exists
in the performance of Lessee's obligations under this Lease, to pay to Lessor all
Rent due and to become due under the sublease. Sublessee shall rely upon any
such notice from Lessor and shall pay all Rents to Lessor without any obligation or
right to inquire as to whether such Breach exists, notwithstanding any claim from
Lessee to the contrary.
(b)
In the event of a Breach by Lessee, Lessor may, at its option, require
sublessee to attorn to Lessor, in which event Lessor shall undertake the
obligations of the sublessor under such sublease from the time of the exercise of
said option to the expiration of such sublease; provided, however, Lessor shall not
be liable for any prepaid rents or security deposit paid by such sublessee to such
sublessor or for any prior Defaults or Breaches of such sublessor.
Any matter requiring the consent of the sublessor under a sublease shall
(c)
also require the consent of Lessor.
No sublessee shall further assign or sublet all or any part of the Premises
(d)
without Lessor's prior written consent.
(e)
Lessor shall deliver a copy of any notice of Default or Breach by Lessee to
the sublessee, who shall have the right to cure the Default of Lessee within the
grace period, if any, specified in such notice. The sublessee shall have a right of
reimbursement and offset from and against Lessee for any such Defaults cured by
the sublessee.
13.
Default; Breach; Remedies.
13.1 Default; Breach. A "Default" is defined as a failure by the Lessee to comply with
or perform any of the terms, covenants, conditions or Rules and Regulations under this
Lease. A "Breach" is defined as the occurrence of one or more of the following Defaults,
and the failure of Lessee to cure such Default within any applicable grace period:
The abandonment of the Premises; the vacating of the Premises prior to the
(a)
expiration or termination of this Lease without providing a commercially reasonable
level of security, or where the coverage of the property insurance described in
Paragraph 8.3 is jeopardized as a result thereof, or without providing reasonable
assurances to minimize potential vandalism; or failure to deliver to Lessor exclusive
possession of the entire Premises in accordance herewith prior to the expiration or
termination of this Lease.
(b)
The failure of Lessee to (i) make any payment of Rent or any Security
Deposit required to be made by Lessee hereunder, whether to Lessor or to a third
party, within 5 days after due, (ii) to provide reasonable evidence of insurance or
surety bond, or (iii) to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of 3 business
days following written notice to Lessee. THE ACCEPTANCE BY LESSOR OF A
PARTIAL PAYMENT OF RENT OR SECURITY DEPOSIT SHALL NOT
CONSTITUTE A WAIVER OF ANY OF LESSOR'S RIGHTS, INCLUDING
LESSOR'S RIGHT TO RECOVER POSSESSION OF THE PREMISES.
(c)
The failure of Lessee to allow Lessor and/or its agents access to the
Premises or the commission of waste, act or acts constituting public or private
nuisance, and/or an illegal activity on the Premises by Lessee, where such actions
continue for a period of 3 business days following written notice to Lessee. In the
event that Lessee commits waste, a nuisance or an illegal activity a second time
then, the Lessor may elect to treat such conduct as a non-curable Breach rather
than a Default.
(d)
The failure by Lessee to provide (i) reasonable written evidence of
compliance with Applicable Requirements, (ii) the service contracts, (iii) the
rescission of an unauthorized assignment or subletting, (iv) an Estoppel Certificate
or financial statements, (v) a requested subordination, (vi) evidence concerning any
guaranty and/or Guarantor, (vii) any document requested under Paragraph 41, (viii)
material safety data sheets (MSDS), or (ix) any other documentation or information
which Lessor may reasonably require of Lessee under the terms of this Lease,
where any such failure continues for a period of 10 business days following written
notice to Lessee.
(e)
A Default by Lessee as to the terms, covenants, conditions or provisions of
this Lease, or of the rules adopted under Paragraph 2.9 hereof, other than those
described in subparagraphs 13.1(a), (b), (c) or (d), above, where such Default
continues for a period of 30 days after written notice; provided, however, that if the
nature of Lessee's Default is such that more than 30 days are reasonably required
for its cure, then it shall not be deemed to be a Breach if Lessee commences such
cure within said 30 day period and thereafter diligently prosecutes such cure to
completion.
The occurrence of any of the following events: (i) the making of any general
(f)
arrangement or assignment for the benefit of creditors; (ii) becoming a "debtor" as
defined in 11 U.S.C. § 101 or any successor statute thereto (unless, in the case of
a petition filed against Lessee, the same is dismissed within 60 days); (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where possession is not restored to Lessee within 30 days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets located at
the Premises or of Lessee's interest in this Lease, where such seizure is not
discharged within 30 days; provided, however, in the event that any provision of
this subparagraph is contrary to any applicable law, such provision shall be of no
force or effect, and not affect the validity of the remaining provisions.
The discovery that any financial statement of Lessee or of any Guarantor
(g)
given to Lessor was materially false.
(h)
If the performance of Lessee's obligations under this Lease is guaranteed:
(i) the death of a Guarantor, (ii) the termination of a Guarantor's liability with
respect to this Lease other than in accordance with the terms of such guaranty, (iii)
a Guarantor's becoming insolvent or the subject of a bankruptcy filing, (iv) a
Guarantor's refusal to honor the guaranty, or (v) a Guarantor's breach of its
guaranty obligation on an anticipatory basis, and Lessee's failure, within 60 days
following written notice of any such event, to provide written alternative assurance
or security, which, when coupled with the
then existing resources of Lessee, equals or exceeds the combined financial
resources of Lessee and the Guarantors that existed at the time of execution of this
Lease.
13.2 Remedies. If Lessee fails to perform any of its affirmative duties or obligations,
within 10 days after written notice (or in case of an emergency, without notice), Lessor
may, at its option, perform such duty or obligation on Lessee's behalf, including but not
limited to the obtaining of reasonably required bonds, insurance policies, or governmental
licenses, permits or approvals. Lessee shall pay to Lessor an amount [***] in such
performance upon receipt of an invoice therefor. In the event of a Breach, Lessor may, with
or without further notice or demand, and without limiting Lessor in the exercise of any right
or remedy which Lessor may have by reason of such Breach:
(a)
Terminate Lessee's right to possession of the Premises by any lawful
means, in which case this Lease shall terminate and Lessee shall immediately
surrender possession to Lessor. In such event Lessor shall be entitled to recover
from Lessee: (i) the unpaid Rent which had been earned at the time of termination;
(ii) the worth at the time of award of the amount by which the unpaid rent which
would have been earned after termination until the time of award exceeds the
amount of such rental loss that the Lessee proves could have been reasonably
avoided; (iii) the worth at the time of award of the amount by which the unpaid rent
for the balance of the term after the time of award exceeds the amount of such
rental loss that the Lessee proves could be reasonably avoided; and (iv) any other
amount necessary to compensate Lessor for all the detriment proximately caused
by the Lessee's failure to perform its obligations under this Lease or which in the
ordinary course of things would be likely to result therefrom, including but not
limited to the cost of recovering possession of the Premises, expenses of reletting,
including necessary renovation and alteration of the Premises, reasonable
attorneys' fees, and that portion of any leasing commission paid by Lessor in
connection with this Lease applicable to the unexpired term of this Lease. Lessor
and Lessee agree that the damages to be incurred by the Lessor in the event of
Lessee's default of the Lease would be difficult or impossible to calculate and the
parties therefore intend to provide by the foregoing for liquidated damages and not
a penalty and agree that the sum provided is a reasonable pre-estimate of the
probable loss. The worth at the time of award of the amount referred to in provision
(iii) of the immediately preceding sentence shall be computed by discounting such
amount at the discount rate of the Federal Reserve Bank of the District within
which the Premises are located at the time of award plus one percent. Efforts by
Lessor to mitigate damages caused by Lessee's Breach of this Lease shall not
waive Lessor's right to recover any damages to which Lessor is otherwise entitled.
If termination of this Lease is obtained through the provisional remedy of unlawful
detainer, Lessor shall have the right to recover in such proceeding any unpaid Rent
and damages as are recoverable therein, or Lessor may reserve the right to
recover all or any part thereof in a separate suit. If a notice and grace period
required under Paragraph 13.1 was not previously given, a notice to pay rent or
quit, or to perform or quit given to Lessee under the unlawful detainer statute shall
also constitute the notice required by Paragraph 13.1. In such case, the applicable
grace period required by Paragraph 13.1 and the unlawful detainer statute shall run
concurrently, and the failure of Lessee to cure the Default within
the greater of the two such grace periods shall constitute both an unlawful detainer
and a Breach of this Lease entitling Lessor to the remedies provided for in this
Lease and/or by said statute.
(b)
Continue the Lease and Lessee's right to possession and recover the Rent
as it becomes due, in which event Lessee may sublet or assign, subject only to
reasonable limitations. Acts of maintenance, efforts to relet, and/or the appointment
of a receiver to protect the Lessor's interests, shall not constitute a termination of
the Lessee's right to possession.
Pursue any other remedy now or hereafter available under the laws or
(c)
judicial decisions of the state wherein the Premises are located. The expiration or
termination of this Lease and/or the termination of Lessee's right to possession
shall not relieve Lessee from liability under any indemnity provisions of this Lease
as to matters occurring or accruing during the term hereof or by reason of Lessee's
occupancy of the Premises.
13.3
Inducement Recapture. Any agreement for free or abated rent or other charges,
the cost of tenant improvements for Lessee paid for or performed by Lessor, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus, inducement or
consideration for Lessee's entering into this Lease, all of which concessions are
hereinafter referred to as "Inducement Provisions," shall be deemed conditioned upon
Lessee's full and faithful performance of all of the terms, covenants and conditions of this
Lease. Upon Breach of this Lease by Lessee, resulting in termination of the Lease, any
such Inducement Provision shall automatically be deemed deleted from this Lease and of
no further force or effect, and any rent, other charge, bonus, inducement or consideration
theretofore abated, given or paid by Lessor under such an Inducement Provision shall be
immediately due and payable by Lessee to Lessor, notwithstanding any subsequent cure
of said Breach by Lessee. The acceptance by Lessor of rent or the cure of the Breach
which initiated the operation of this paragraph shall not be deemed a waiver by Lessor of
the provisions of this paragraph unless specifically so stated in writing by Lessor at the
time of such acceptance.
13.4
Late Charges. Lessee hereby acknowledges that late payment by Lessee of Rent
will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which
will be extremely difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by any
Lender. Accordingly, if any Rent shall not be received by Lessor within 5 days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee shall
immediately pay to Lessor a one-time late charge equal to 5% of each such overdue
amount or $100, whichever is greater. The parties hereby agree that such late charge
represents a fair and reasonable estimate of the costs Lessor will incur by reason of such
late payment. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor prevent
the exercise of any of the other rights and remedies granted hereunder. In the event that a
late charge is payable hereunder, whether or not collected, for 3 consecutive installments
of Base Rent, then notwithstanding any provision of this Lease to the contrary, Base Rent
shall, at Lessor's option, become due and payable quarterly in advance.
Interest. Any monetary payment due Lessor hereunder, other than late charges,
13.5
not received by Lessor, when due shall bear interest from the 31st day after it was due.
The interest
("Interest") charged shall be computed at the rate of 10% per annum but shall not exceed
the maximum rate allowed by law. Interest is payable in addition to the potential late
charge provided for in Paragraph 13.4.
13.6 Breach by Lessor.
Notice of Breach. Lessor shall not be deemed in breach of this Lease
(a)
unless Lessor fails within a reasonable time to perform an obligation required to be
performed by Lessor. For purposes of this Paragraph, a reasonable time shall in no
event be less than 30 days after receipt by Lessor, and any Lender whose name
and address shall have been furnished to Lessee in writing for such purpose, of
written notice specifying wherein such obligation of Lessor has not been
performed; provided, however, that if the nature of Lessor's obligation is such that
more than 30 days are reasonably required for its performance, then Lessor shall
not be in breach if performance is commenced within such 30 day period and
thereafter diligently pursued to completion.
(b)
Performance by Lessee on Behalf of Lessor. In the event that neither
Lessor nor Lender cures said breach within 30 days after receipt of said notice, or if
having commenced said cure they do not diligently pursue it to completion, then
Lessee may elect to cure said breach at Lessee's expense and offset from Rent
the actual and reasonable cost to perform such cure, provided however, that such
offset shall not exceed an amount equal to the greater of one month's Base Rent or
the Security Deposit, reserving Lessee's right to reimbursement from Lessor for
any such expense in excess of such offset. Lessee shall document the cost of said
cure and supply said documentation to Lessor.
the
threat of
14.
Condemnation. If the Premises or any portion thereof are taken under the power of
the exercise of said power (collectively
eminent domain or sold under
"Condemnation"), this Lease shall terminate as to the part taken as of the date the condemning
authority takes title or possession, whichever first occurs. If more than 10% of the floor area of
the Unit, or more than 25% of the parking spaces is taken by Condemnation, Lessee may, at
Lessee's option, to be exercised in writing within 10 days after Lessor shall have given Lessee
written notice of such taking (or in the absence of such notice, within 10 days after the
condemning authority shall have taken possession) terminate this Lease as of the date the
condemning authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in proportion to the reduction
in utility of the Premises caused by such Condemnation. Condemnation awards and/or payments
shall be the property of Lessor, whether such award shall be made as compensation for
diminution in value of the leasehold, the value of the part taken, or for severance damages;
provided, however, that Lessee shall be entitled to any compensation paid by the condemnor for
Lessee's relocation expenses, loss of business goodwill and/or Trade Fixtures, without regard to
whether or not this Lease is terminated pursuant to the provisions of this Paragraph. All
Alterations and Utility Installations made to the Premises by Lessee, for purposes of
Condemnation only, shall be considered the property of the Lessee and Lessee shall be entitled to
any and all compensation which is payable therefor. In the event that this Lease is not terminated
by reason of the Condemnation, Lessor shall repair any damage to the Premises caused by such
Condemnation.
15.
Brokerage Fees.
15.1 Additional Commission. In addition to the payments owed pursuant to Paragraph
1.10 above, Lessor agrees that: (a) if Lessee exercises any Option, (b) if Lessee or
anyone affiliated with Lessee acquires from Lessor any rights to the Premises or other
premises owned by Lessor and located within the Project, (c) if Lessee remains in
possession of the Premises, with the consent of Lessor, after the expiration of this Lease,
or (d) if Base Rent is increased, whether by agreement or operation of an escalation
clause herein, then, Lessor shall pay Brokers a fee in accordance with the fee schedule of
the Brokers in effect at the time the Lease was executed. The provisions of this paragraph
are intended to supersede the provisions of any earlier agreement to the contrary.
15.2 Assumption of Obligations. Any buyer or transferee of Lessor's interest in this
Lease shall be deemed to have assumed Lessor's obligation hereunder. Brokers shall be
third party beneficiaries of the provisions of Paragraphs 1.10, 15, 22 and 31. If Lessor fails
to pay to Brokers any amounts due as and for brokerage fees pertaining to this Lease
when due, then such amounts shall accrue Interest. In addition, if Lessor fails to pay any
amounts to Lessee's Broker when due, Lessee's Broker may send written notice to Lessor
and Lessee of such failure and if Lessor fails to pay such amounts within 10 days after
said notice, Lessee shall pay said monies to its Broker and offset such amounts against
Rent. In addition, Lessee's Broker shall be deemed to be a third party beneficiary of any
commission agreement entered into by and/or between Lessor and Lessor's Broker for the
limited purpose of collecting any brokerage fee owed.
15.3 Representations and Indemnities of Broker Relationships. Lessee and Lessor
each represent and warrant to the other that it has had no dealings with any person, firm,
broker, agent or finder (other than the Brokers and Agents, if any) in connection with this
Lease, and that no one other than said named Brokers and Agents is entitled to any
commission or finder's fee in connection herewith. Lessee and Lessor do each hereby
agree to indemnify, protect, defend and hold the other harmless from and against liability
for compensation or charges which may be claimed by any such unnamed broker, finder or
other similar party by reason of any dealings or actions of the indemnifying Party, including
any costs, expenses, attorneys' fees reasonably incurred with respect thereto.
16.
Estoppel Certificates.
Each Party (as "Responding Party") shall within 10 days after written
(a)
notice from the other Party (the "Requesting Party") execute, acknowledge and
deliver to the Requesting Party a statement in writing in form similar to the then
most current "Estoppel Certificate" form published by AIR CRE, plus such
additional information, confirmation and/or statements as may be reasonably
requested by the Requesting Party.
(b)
If the Responding Party shall fail to execute or deliver the Estoppel
Certificate within such 10 day period, the Requesting Party may execute an
Estoppel Certificate stating that: (i) the Lease is in full force and effect without
modification except as may be represented by the Requesting Party, and (ii) there
are no uncured defaults in the Requesting Party's performance. Prospective
purchasers and encumbrancers may rely upon the Requesting Party's Estoppel
Certificate, and the Responding Party shall be estopped from denying the truth of
the facts contained in said Certificate. In addition,
Lessee acknowledges that any failure on its part to provide such an Estoppel
Certificate will expose Lessor to risks and potentially cause Lessor to incur costs
not contemplated by this Lease, the extent of which will be extremely difficult to
ascertain. Accordingly, should the Lessee fail to execute and/or deliver a requested
Estoppel Certificate in a timely fashion the monthly Base Rent shall be
automatically increased upon notice to Lessee, by an amount equal to 5% of the
then existing Base Rent or $100, whichever is greater for length of time that
Lessee remains in default of this provision. The Parties agree that such increase in
Base Rent represents fair and reasonable compensation for the additional
risk/costs that Lessor will incur by reason of Lessee's failure to provide the
Estoppel Certificate. Such increase in Base Rent shall in no event constitute a
waiver of Lessee's Default or Breach with respect to the failure to provide the
Estoppel Certificate nor prevent the exercise of any of the other rights and
remedies granted hereunder.
(c)
If Lessor desires to finance, refinance, or sell the Premises, or any part
thereof, Lessee and all Guarantors shall within 10 days after written notice from
Lessor deliver to any potential lender or purchaser designated by Lessor such
financial statements as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past 3 years. All
such financial statements shall be received by Lessor and such lender or
purchaser in confidence and shall be used only for the purposes herein set forth.
Definition of Lessor. The term "Lessor" as used herein shall mean the owner or owners
17.
at the time in question of the fee title to the Premises, or, if this is a sublease, of the Lessee's
interest in the prior lease. In the event of a transfer of Lessor's title or interest in the Premises or
this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor. Upon such transfer or assignment and delivery of the Security
Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the
obligations and/or covenants under this Lease thereafter to be performed by the Lessor. Subject
to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor
shall be binding only upon the Lessor as hereinabove defined.
Severability. The invalidity of any provision of this Lease, as determined by a court of
18.
competent jurisdiction, shall in no way affect the validity of any other provision hereof.
Days. Unless otherwise specifically indicated to the contrary, the word "days" as used in
19.
this Lease shall mean and refer to calendar days.
20.
Limitation on Liability. The obligations of Lessor under this Lease shall not constitute
personal obligations of Lessor, or its partners, members, directors, officers or shareholders, and
Lessee shall look to the Premises, and to no other assets of Lessor, for the satisfaction of any
liability of Lessor with respect to this Lease, and shall not seek recourse against Lessor's
partners, members, directors, officers or shareholders, or any of their personal assets for such
satisfaction. The obligations of Lessee under this Lease shall not constitute personal obligations
of Lessee's directors, officers or shareholders and Lessor shall look to the Lessee for the
satisfaction of any liability of Lessee with respect to this Lease, and shall not seek recourse
against Lessee's directors, officers or shareholders, or any of their personal assets for such
satisfaction.
Time of Essence. Time is of the essence with respect to the performance of all obligations
21.
to be performed or observed by the Parties under this Lease.
22.
No Prior or Other Agreements; Broker Disclaimer. This Lease contains all agreements
between the Parties with respect to any matter mentioned herein, and no other prior or
contemporaneous agreement or understanding shall be effective. Lessor and Lessee each
represents and warrants to the Brokers that it has made, and is relying solely upon, its own
investigation as to the nature, quality, character and financial responsibility of the other Party to
this Lease and as to the use, nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach hereof by either Party.
23.
Notices.
23.1 Notice Requirements. All notices required or permitted by this Lease or applicable
law shall be in writing and may be delivered in person (by hand or by courier) or may be
sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with
postage prepaid, or by facsimile transmission, or by email, and shall be deemed
sufficiently given if served in a manner specified in this Paragraph 23. The addresses
noted adjacent to a Party's signature on this Lease shall be that Party's address for
delivery or mailing of notices. Either Party may by written notice to the other specify a
different address for notice, except that upon Lessee's taking possession of the Premises,
the Premises shall constitute Lessee's address for notice. A copy of all notices to Lessor
shall be concurrently transmitted to such party or parties at such addresses as Lessor may
from time to time hereafter designate in writing.
23.2 Date of Notice. Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt card, or if
no delivery date is shown, the postmark thereon. If sent by regular mail the notice shall be
deemed given 72 hours after the same is addressed as required herein and mailed with
postage prepaid. Notices delivered by United States Express Mail or overnight courier that
guarantees next day delivery shall be deemed given 24 hours after delivery of the same to
the Postal Service or courier. Notices delivered by hand, or transmitted by facsimile
transmission or by email shall be deemed delivered upon actual receipt. If notice is
received on a Saturday, Sunday or legal holiday, it shall be deemed received on the next
business day.
23.3 Options. Notwithstanding the foregoing, in order to exercise any Options (see
paragraph 39), the Notice must be sent by Certified Mail (return receipt requested),
Express Mail (signature required), courier (signature required) or some other methodology
that provides a receipt establishing the date the notice was received by the Lessor.
24. Waivers.
(a)
No waiver by Lessor of the Default or Breach of any term, covenant or
condition hereof by Lessee, shall be deemed a waiver of any other term, covenant
or condition hereof, or of any subsequent Default or Breach by Lessee of the same
or of any other term, covenant or condition hereof. Lessor's consent to, or approval
of, any act shall not be deemed to render unnecessary the obtaining of Lessor's
consent to, or approval of, any subsequent or similar act by Lessee, or be
construed as the basis of an estoppel to
enforce the provision or provisions of this Lease requiring such consent. No waiver
by Lessee of the Default or Breach of any term, covenant or condition hereof by
Lessor, shall be deemed a waiver of any other term, covenant or condition hereof,
or of any subsequent Default or Breach by Lessor of the same or of any other term,
covenant or condition hereof.
The acceptance of Rent by Lessor shall not be a waiver of any Default or
(b)
Breach by Lessee. Any payment by Lessee may be accepted by Lessor on
account of monies or damages due Lessor, notwithstanding any qualifying
statements or conditions made by Lessee in connection therewith, which such
statements and/or conditions shall be of no force or effect whatsoever unless
specifically agreed to in writing by Lessor at or before the time of deposit of such
payment.
(c)
THE PARTIES AGREE THAT THE TERMS OF THIS LEASE SHALL
GOVERN WITH REGARD TO ALL MATTERS RELATED THERETO AND
HEREBY WAIVE THE PROVISIONS OF ANY PRESENT OR FUTURE STATUTE
TO THE EXTENT THAT SUCH STATUTE IS INCONSISTENT WITH THIS LEASE.
25.
Disclosures Regarding The Nature of a Real Estate Agency Relationship.
(a)
When entering into a discussion with a real estate agent regarding a real
estate transaction, a Lessor or Lessee should from the outset understand what
type of agency relationship or representation it has with the agent or agents in the
transaction. Lessor and Lessee acknowledge being advised by the Brokers in this
transaction, as follows:
(i)
Lessor's Agent. A Lessor's agent under a listing agreement with the
Lessor acts as the agent for the Lessor only. A Lessor's agent or subagent
has the following affirmative obligations: To the Lessor: A fiduciary duty of
utmost care, integrity, honesty, and loyalty in dealings with the Lessor. To
the Lessee and the Lessor: (a) Diligent exercise of reasonable skills and
care in performance of the agent's duties. (b) A duty of honest and fair
dealing and good faith. (c) A duty to disclose all facts known to the agent
materially affecting the value or desirability of the property that are not
known to, or within the diligent attention and observation of, the Parties. An
agent is not obligated to reveal to either Party any confidential information
obtained from the other Party which does not involve the affirmative duties
set forth above.
(ii)
Lessee's Agent. An agent can agree to act as agent for the Lessee
only. In these situations, the agent is not the Lessor's agent, even if by
agreement the agent may receive compensation for services rendered,
either in full or in part from the Lessor. An agent acting only for a Lessee
has the following affirmative obligations. To the Lessee: A fiduciary duty of
utmost care, integrity, honesty, and loyalty in dealings with the Lessee. To
the Lessee and the Lessor: (a) Diligent exercise of reasonable skills and
care in performance of the agent's duties. (b) A duty of honest and fair
dealing and good faith. (c) A duty to disclose all facts known to the agent
materially affecting the value or desirability of the property that are not
known to, or within the diligent attention and observation of, the
Parties. An agent is not obligated to reveal to either Party any confidential
information obtained from the other Party which does not involve the
affirmative duties set forth above.
(iii)
Agent Representing Both Lessor and Lessee. A real estate agent,
either acting directly or through one or more associate licensees, can
legally be the agent of both the Lessor and the Lessee in a transaction, but
only with the knowledge and consent of both the Lessor and the Lessee. In
a dual agency situation, the agent has the following affirmative obligations
to both the Lessor and the Lessee: (a) A fiduciary duty of utmost care,
integrity, honesty and loyalty in the dealings with either Lessor or the
Lessee. (b) Other duties to the Lessor and the Lessee as stated above in
subparagraphs (i) or (ii). In representing both Lessor and Lessee, the agent
may not, without the express permission of the respective Party, disclose to
the other Party confidential information, including, but not limited to, facts
relating to either Lessee's or Lessor's financial position, motivations,
bargaining position, or other personal information that may impact rent,
including Lessor's willingness to accept a rent less than the listing rent or
Lessee's willingness to pay rent greater than the rent offered. The above
duties of the agent in a real estate transaction do not relieve a Lessor or
Lessee from the responsibility to protect their own interests. Lessor and
Lessee should carefully read all agreements to assure that they adequately
express their understanding of the transaction. A real estate agent is a
person qualified to advise about real estate. If legal or tax advice is desired,
consult a competent professional. Both Lessor and Lessee should strongly
consider obtaining tax advice from a competent professional because the
federal and state tax consequences of a transaction can be complex and
subject to change.
(b)
Brokers have no responsibility with respect to any default or breach hereof
by either Party. The Parties agree that no lawsuit or other legal proceeding
involving any breach of duty, error or omission relating to this Lease may be
brought against Broker more than one year after the Start Date and that the liability
(including court costs and attorneys' fees), of any Broker with respect to any such
lawsuit and/or legal proceeding shall not exceed the fee received by such Broker
pursuant to this Lease; provided, however, that the foregoing limitation on each
Broker's liability shall not be applicable to any gross negligence or willful
misconduct of such Broker.
(c)
Lessor and Lessee agree to identify to Brokers as "Confidential" any
communication or information given Brokers that is considered by such Party to be
confidential.
26.
No Right To Holdover. Lessee has no right to retain possession of the Premises or any
part thereof beyond the expiration or termination of this Lease. At or prior to the expiration or
termination of this Lease Lessee shall deliver exclusive possession of the Premises to Lessor. For
purposes of this provision and Paragraph 13.1(a), exclusive possession shall mean that Lessee
shall have vacated the Premises, removed all of its personal property therefrom and that the
Premises have been returned in the condition specified in this Lease. In the event that Lessee
does not deliver exclusive possession to Lessor as specified
above, then Lessor's damages during any holdover period shall be computed at the amount of the
Rent (as defined in Paragraph 4.1) due during the last full month before the expiration or
termination of this Lease (disregarding any temporary abatement of Rent that may have been in
effect), but with Base Rent being 150% of the Base Rent payable during such last full month.
Nothing contained herein shall be construed as consent by Lessor to any holding over by Lessee.
Cumulative Remedies. No remedy or election hereunder shall be deemed exclusive but
27.
shall, wherever possible, be cumulative with all other remedies at law or in equity.
28.
Covenants and Conditions; Construction of Agreement. All provisions of this Lease to
be observed or performed by Lessee are both covenants and conditions. In construing this Lease,
all headings and titles are for the convenience of the Parties only and shall not be considered a
part of this Lease. Whenever required by the context, the singular shall include the plural and vice
versa. This Lease shall not be construed as if prepared by one of the Parties, but rather according
to its fair meaning as a whole, as if both Parties had prepared it.
29.
Binding Effect; Choice of Law. This Lease shall be binding upon the Parties, their
personal representatives, successors and assigns and be governed by the laws of the State in
which the Premises are located. Any litigation between the Parties hereto concerning this Lease
shall be initiated in the county in which the Premises are located. Signatures to this Lease
accomplished by means of electronic signature or similar technology shall be legal and binding.
30.
Subordination; Attornment; Non Disturbance.
30.1 Subordination. This Lease and any Option granted hereby shall be subject and
subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or
security device (collectively, "Security Device"), now or hereafter placed upon the
Premises, to any and all advances made on the security thereof, and to all renewals,
modifications, and extensions thereof. Lessee agrees that the holders of any such Security
Devices (in this Lease together referred to as "Lender") shall have no liability or obligation
to perform any of the obligations of Lessor under this Lease. Any Lender may elect to have
this Lease and/or any Option granted hereby superior to the lien of its Security Device by
giving written notice thereof to Lessee, whereupon this Lease and such Options shall be
deemed prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 Attornment. In the event that Lessor transfers title to the Premises, or the
Premises are acquired by another upon the foreclosure or termination of a Security Device
to which this Lease is subordinated (i) Lessee shall, subject to the non-disturbance
provisions of Paragraph 30.3, attorn to such new owner, and upon request, enter into a
new lease, containing all of the terms and provisions of this Lease, with such new owner
for the remainder of the term hereof, or, at the election of the new owner, this Lease will
automatically become a new lease between Lessee and such new owner, for the
remainder of the term hereof and (ii) Lessor shall thereafter be relieved of any further
obligations hereunder (except for any obligations which arose prior to the date of such
transfer of title) and such new owner shall assume all of Lessor's obligations, except that
such new owner shall not: (a) be liable for any act or omission of any prior lessor or with
respect to events occurring prior to acquisition of ownership; (b) be subject to any offsets
or defenses
which Lessee might have against any prior lessor, or (c) be liable for the return of any
security deposit paid to any prior lessor which was not paid or credited to such new owner.
30.3 Non-Disturbance. With respect to Security Devices entered into by Lessor after
the execution of this Lease, Lessee's subordination of this Lease shall be subject to
receiving a commercially reasonable non disturbance agreement (a "Non-Disturbance
Agreement") from the Lender which Non Disturbance Agreement provides that Lessee's
possession of the Premises, and this Lease, including any options to extend the term
hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the
record owner of the Premises. Further, within 60 days after the execution of this Lease,
Lessor shall, if requested by Lessee, use its commercially reasonable efforts to obtain a
Non Disturbance Agreement from the holder of any pre-existing Security Device which is
secured by the Premises. In the event that Lessor is unable to provide the Non
Disturbance Agreement within said 60 days, then Lessee may, at Lessee's option, directly
contact Lender and attempt to negotiate for the execution and delivery of a Non
Disturbance Agreement.
30.4 Self Executing. The agreements contained in this Paragraph 30 shall be effective
without the execution of any further documents; provided, however, that, upon written
request from Lessor or a Lender in connection with a sale, financing or refinancing of the
Premises, Lessee and Lessor shall execute such further writings as may be reasonably
required to separately document any subordination, attornment and/or Non Disturbance
Agreement provided for herein.
31.
Attorneys' Fees. If any Party or Broker brings an action or proceeding involving the
Premises whether founded in tort, contract or equity, or to declare rights hereunder, the Prevailing
Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to
reasonable attorneys' fees. Such fees may be awarded in the same suit or recovered in a
separate suit, whether or not such action or proceeding is pursued to decision or judgment. The
term, "Prevailing Party" shall include, without limitation, a Party or Broker who substantially
obtains or defeats the relief sought, as the case may be, whether by compromise, settlement,
judgment, or the abandonment by the other Party or Broker of its claim or defense. The attorneys'
fees award shall not be computed in accordance with any court fee schedule, but shall be such as
to fully reimburse all attorneys' fees reasonably incurred. In addition, Lessor shall be entitled to
attorneys' fees, costs and expenses incurred in the preparation and service of notices of Default
and consultations in connection therewith, whether or not a legal action is subsequently
commenced in connection with such Default or resulting Breach ($200 is a reasonable minimum
per occurrence for such services and consultation).
32.
Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents shall have
the right to enter the Premises at any time, in the case of an emergency, and otherwise at
reasonable times after reasonable prior notice for the purpose of showing the same to prospective
purchasers, lenders, or tenants, and making such alterations, repairs, improvements or additions
to the Premises as Lessor may deem necessary or desirable and the erecting, using and
maintaining of utilities, services, pipes and conduits through the Premises and/or other premises
as long as there is no material adverse effect on Lessee's use of the Premises. All such activities
shall be without abatement of rent or liability to Lessee.
33.
Auctions. Lessee shall not conduct, nor permit to be conducted, any auction upon the
Premises without Lessor's prior written consent. Lessor shall not be obligated to exercise any
standard of reasonableness in determining whether to permit an auction.
34.
Signs. Lessor may place on the Premises ordinary "For Sale" signs at any time and
ordinary "For Lease" signs during the last 6 months of the term hereof. Except for ordinary "For
Sublease" signs which may be placed only on the Premises, Lessee shall not place any sign upon
the Project without Lessor's prior written consent. All signs must comply with all Applicable
Requirements.
Termination; Merger. Unless specifically stated otherwise in writing by Lessor, the
35.
voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation
hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any
sublease or lesser estate in the Premises; provided, however, that Lessor may elect to continue
any one or all existing subtenancies. Lessor's failure within 10 days following any such event to
elect to the contrary by written notice to the holder of any such lesser interest, shall constitute
Lessor's election to have such event constitute the termination of such interest.
36.
Consents. All requests for consent shall be in writing. Except as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by or for the other Party,
such consent shall not be unreasonably withheld or delayed. Lessor's actual reasonable costs
and expenses (including but not limited to architects', attorneys', engineers' and other consultants'
fees) incurred in the consideration of, or response to, a request by Lessee for any Lessor consent,
including but not limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee upon receipt of an invoice and supporting
documentation therefor. Lessor's consent to any act, assignment or subletting shall not constitute
an acknowledgment that no Default or Breach by Lessee of this Lease exists, nor shall such
consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise
specifically stated in writing by Lessor at the time of such consent. The failure to specify herein
any particular condition to Lessor's consent shall not preclude the imposition by Lessor at the time
of consent of such further or other conditions as are then reasonable with reference to the
particular matter for which consent is being given. In the event that either Party disagrees with any
determination made by the other hereunder and reasonably requests the reasons for such
determination, the determining party shall furnish its reasons in writing and in reasonable detail
within 10 business days following such request.
37.
Guarantor.
37.1 Execution. The Guarantors, if any, shall each execute a guaranty in the form most
recently published by AIR CRE.
37.2 Default. It shall constitute a Default of the Lessee if any Guarantor fails or refuses,
upon request to provide: (a) evidence of the execution of the guaranty, including the
authority of the party signing on Guarantor's behalf to obligate Guarantor, and in the case
of a corporate Guarantor, a certified copy of a resolution of its board of directors
authorizing the making of such guaranty, (b) current financial statements, (c) an Estoppel
Certificate, or (d) written confirmation that the guaranty is still in effect.
38.
Quiet Possession. Subject to payment by Lessee of the Rent and performance of all of
the covenants, conditions and provisions on Lessee's part to be observed and performed under
this Lease, Lessee shall have quiet possession and quiet enjoyment of the Premises during the
term hereof.
Options. If Lessee is granted any option, as defined below, then the following provisions
39.
shall apply.
39.1 Definition. "Option" shall mean: (a) the right to extend or reduce the term of or
renew this Lease or to extend or reduce the term of or renew any lease that Lessee has on
other property of Lessor; (b) the right of first refusal or first offer to lease either the
Premises or other property of Lessor; (c) the right to purchase, the right of first offer to
purchase or the right of first refusal to purchase the Premises or other property of Lessor.
39.2 Options Personal To Original Lessee. Any Option granted to Lessee in this
Lease is personal to the original Lessee, and cannot be assigned or exercised by anyone
other than said original Lessee and only while the original Lessee is in full possession of
the Premises and, if requested by Lessor, with Lessee certifying that Lessee has no
intention of thereafter assigning or subletting.
39.3 Multiple Options. In the event that Lessee has any multiple Options to extend or
renew this Lease, a later Option cannot be exercised unless the prior Options have been
validly exercised.
39.4 Effect of Default on Options.
(a)
Lessee shall have no right to exercise an Option: (i) during the period
commencing with the giving of any notice of Default and continuing until said
Default is cured, (ii) during the period of time any Rent is unpaid (without regard to
whether notice thereof is given Lessee), (iii) during the time Lessee is in Breach of
this Lease, or (iv) in the event that Lessee has been given 3 or more notices of
separate Default, whether or not the Defaults are cured, during the 12 month
period immediately preceding the exercise of the Option.
The period of time within which an Option may be exercised shall not be
(b)
extended or enlarged by reason of Lessee's inability to exercise an Option because
of the provisions of Paragraph 39.4(a).
An Option shall
force or effect,
terminate and be of no
(c)
notwithstanding Lessee's due and timely exercise of the Option, if, after such
exercise and prior to the commencement of the extended term or completion of the
purchase, (i) Lessee fails to pay Rent for a period of 30 days after such Rent
becomes due (without any necessity of Lessor to give notice thereof), or (ii) if
Lessee commits a Breach of this Lease.
further
40.
Security Measures. Lessee hereby acknowledges that the Rent payable to Lessor
hereunder does not include the cost of guard service or other security measures, and that Lessor
shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the
protection of the Premises, Lessee, its agents and invitees and their property from the acts of third
parties.
Reservations. Lessor reserves the right: (i) to grant, without the consent or joinder of
41.
Lessee, such easements, rights and dedications that Lessor deems necessary; (ii) to cause the
recordation of parcel maps and restrictions; and (iii) to create and/or install new utility raceways,
so long as such easements, rights, dedications, maps, restrictions, and utility raceways do not
unreasonably interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to effectuate such rights.
42.
Performance Under Protest. If at any time a dispute shall arise as to any amount or sum
of money to be paid by one Party to the other under the provisions hereof, the Party against
whom the obligation to pay the money is asserted shall have the right to make payment "under
protest" and such payment shall not be regarded as a voluntary payment and there shall survive
the right on the part of said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or any part thereof,
said Party shall be entitled to recover such sum or so much thereof as it was not legally required
to pay. A Party who does not initiate suit for the recovery of sums paid "under protest" within 6
months shall be deemed to have waived its right to protest such payment.
43.
Authority; Multiple Parties; Execution.
(a)
If either Party hereto is a corporation, trust, limited liability company,
partnership, or similar entity, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. Each Party shall, within 30 days after request,
deliver to the other Party satisfactory evidence of such authority.
(b)
If this Lease is executed by more than one person or entity as "Lessee",
each such person or entity shall be jointly and severally liable hereunder. It is
agreed that any one of the named Lessees shall be empowered to execute any
amendment to this Lease, or other document ancillary thereto and bind all of the
named Lessees, and Lessor may rely on the same as if all of the named Lessees
had executed such document.
(c)
This Lease may be executed by the Parties in counterparts, each of which
shall be deemed an original and all of which together shall constitute one and the
same instrument.
Conflict. Any conflict between the printed provisions of this Lease and the typewritten or
44.
handwritten provisions shall be controlled by the typewritten or handwritten provisions.
45.
Offer. Preparation of this Lease by either party or their agent and submission of same to
the other Party shall not be deemed an offer to lease to the other Party. This Lease is not intended
to be binding until executed and delivered by all Parties hereto.
46.
Amendments. This Lease may be modified only in writing, signed by the Parties in
interest at the time of the modification. As long as they do not materially change Lessee's
obligations hereunder, Lessee agrees to make such reasonable non-monetary modifications to
this Lease as may be reasonably required by a Lender in connection with the obtaining of normal
financing or refinancing of the Premises.
47. Waiver of Jury Trial. THE PARTIES HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO
TRIAL BY JURY IN ANY ACTION OR PROCEEDING INVOLVING THE PROPERTY OR
ARISING OUT OF THIS AGREEMENT.
Arbitration of Disputes. An Addendum requiring the Arbitration of all disputes between
48.
the Parties and/or Brokers arising out of this Lease ☐ is ⌧ is not attached to this Lease.
49.
Accessibility; Americans with Disabilities Act.
(a)
The Premises:
⌧ have not undergone an inspection by a Certified Access Specialist (CASp).
Note: A Certified Access Specialist (CASp) can inspect the subject premises and
determine whether the subject premises comply with all of the applicable
construction related accessibility standards under state law. Although state law
does not require a CASp inspection of the subject premises, the commercial
property owner or lessor may not prohibit the lessee or tenant from obtaining a
CASp inspection of the subject premises for the occupancy or potential occupancy
of the lessee or tenant, if requested by the lessee or tenant. The parties shall
mutually agree on the arrangements for the me and manner of the CASp
inspection, the payment of the fee for the CASp inspection, and the cost of making
any repairs necessary to correct violations of construction related accessibility
standards within the premises.
☐ have undergone an inspection by a Certified Access Specialist (CASp) and it
was determined that the Premises met all applicable construction related
accessibility standards pursuant to California Civil Code §55.51 et seq. Lessee
acknowledges that it received a copy of the inspection report at least 48 hours prior
to executing this Lease and agrees to keep such report confidential.
☐ have undergone an inspection by a Certified Access Specialist (CASp) and it
was determined that the Premises did not meet all applicable construction related
accessibility standards pursuant to California Civil Code §55.51 et seq. Lessee
acknowledges that it received a copy of the inspection report at least 48 hours prior
to executing this Lease and agrees to keep such report confidential except as
necessary to complete repairs and corrections of violations of construction related
accessibility standards.
In the event that the Premises have been issued an inspection report by a CASp
the Lessor shall provide a copy of the disability access inspection certificate to
Lessee within 7 days of the execution of this Lease.
(b)
Since compliance with the Americans with Disabilities Act (ADA) and other
state and local accessibility statutes are dependent upon Lessee's specific use of
the Premises, Lessor makes no warranty or representation as to whether or not the
Premises comply with ADA or any similar legislation. In the event that Lessee's use
of the Premises requires modifications or additions to the Premises in order to be in
compliance with ADA or other accessibility statutes, Lessee agrees to make any
such necessary modifications and/or additions at Lessee's expense.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH
TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE
SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY
AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE
COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF
LESSOR AND LESSEE WITH RESPECT TO THE PREMISES.
ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY AIR CRE OR BY
ANY BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES. THE
PARTIES ARE URGED TO:
SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF
1.
THIS LEASE.
2.
RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE
CONDITION OF THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE
LIMITED TO: THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF
THE PREMISES, THE STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND
OPERATING SYSTEMS, COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT
AND THE SUITABILITY OF THE PREMISES FOR LESSEE'S INTENDED USE.
WARNING: IF THE PREMISES ARE LOCATED IN A STATE OTHER THAN CALIFORNIA,
CERTAIN PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE
LAWS OF THE STATE IN WHICH THE PREMISES ARE LOCATED.
The parties hereto have executed this Lease at the place and on the dates specified above their
respective signatures.
Executed at: ________________
Executed at: ________________
On: 07/23/2021
On: _______________________
By LESSOR:
Altman Investment Company, LLC
By: /s/ David Odmark
Name Printed: David Odmark
Title: Managing Principal
Phone: [***]
Fax:
Email: [***]
By: _______________
Name Printed: _______________
Title: _________________
Phone: ______________
Fax: _
Email:_______________________
Address: _____________________
Floor
By LESSEE:
Capricor Therapeutics, Inc.
By: /s/ Linda Marban
Name Printed: Linda Marban
Title: CEO
Phone: [***]
Fax: [***]
Email: [***]
By: /s/ AJ Bergmann
Name Printed: AJ Bergmann
Title: CFO
Phone: [***]
Fax: [***]
Email: [***]
Address: 8840 Wilshire Blvd., 2nd
Beverly Hills, CA 90211
Federal ID No.: ________________
Federal ID No.: [***]
BROKER
Cushman & Wakefield
Attn: ________________________
________________________
Title: ________________________
________________________
Address: _____________________
_____________________
Phone: ______________
______________________
Fax: _
________________________
Email:_______________________
_______________________
Federal ID No.: ________________
________________
Broker DRE License #: [***]
Agent DRE License #: [***]
BROKER
CBRE
Attn:
Title:
Address:
Phone:
Fax:
Email:
Federal ID No.:
Broker DRE License #: [***]
Agent DRE License #: [***]
[***]
NOTICE: No part of these works may be reproduced in any form without permission in
writing.
ADDENDUM TO LEASE
Date: July 16, 2021
By and Between
Lessor:Altman Investment Company, LLC
Lessee:Capricor Therapeutics, Inc.
Property Address: 10865 Road to the Cure, San Diego, CA 92121
(street address, city, state, zip)
Paragraph: 1 - 7
[***]
[***]
NOTICE: No part of these works may be reproduced in any form without permission in
writing.
EXHIBIT A
FLOOR PLAN
Exhibit 10.55
*Portions of the exhibit have been excluded because it is both not material and is the type
of information that the registrant treats as private or confidential.
COMMERCIALIZATION AND DISTRIBUTION AGREEMENT
This Commercialization and Distribution Agreement (“Agreement”) is made and entered
into as of the 25th day of January, 2022 (“Effective Date”), by and between CAPRICOR
THERAPEUTICS, INC., a corporation organized under the laws of the State of Delaware, with its
principal office located at 8840 Wilshire Blvd., 2nd Floor, Beverly Hills, California 90211 USA
(“Capricor”) and NIPPON SHINYAKU CO., LTD. a corporation organized under the laws of
Japan, with its principal office located at 14, Nishinosho-Monguchi-cho, Kisshoin, Minami-ku,
Kyoto 601-8550, Japan (“Distributor”). Capricor and Distributor may sometimes individually be
referred to herein as a “Party” and together as the “Parties”.
In consideration of the mutual promises contained herein, the Parties agree as follows:
1.
DEFINITIONS. For purposes of this Agreement, the words, terms and phrases when used
in this Section 1 or throughout the Agreement with an initial capital letter, shall have the meanings
assigned to them unless the context otherwise requires:
1.1
“Affiliate” means any person or entity directly or indirectly controlling or controlled
by, or under direct or indirect common control with a Party, during the term of this Agreement and
only so long as such control exists. For purposes of this definition, “control” means the power to
direct the management and policies of such person or entity directly or indirectly, whether through
ownership of voting or other equity securities, by contract or otherwise, and shall include entities
which become Affiliates after the Effective Date.
1.2
“BLA” means a Biologics License Application as defined by the FDA as a request
for permission to introduce, or deliver for introduction, a biologic product into interstate commerce.
1.3
“Cell Therapy” means the administration of living cells to a patient for the
treatment of a disease or condition.
1.4
the body of
“Chemistry, Manufacturing and Controls (“CMC”)” means
information that defines the manufacturing process and the quality control release testing,
specifications and stability of the Product together with the manufacturing facility and all of its
support utilities, including their design, qualification, operation and maintenance for regulatory
compliance in the Territory.
1.5
“Commercially Reasonable Efforts” means with respect to a party, those efforts
and resources consistent with those typically applied by a biopharmaceutical or biotechnology
company of comparable size and resources to such party and its affiliates to a product that is at a
similar stage of development or commercialization and has similar market potential, taking into
account efficacy, safety, patent and regulatory exclusivity, anticipated or approved labelling,
present and future market potential, competitive conditions, the profitability of the product in light
of pricing and reimbursement issues, and all other relevant factors.
1.6
“Competing Products” means any Cell-Therapy product used as a therapeutic for
DMD.
1.7
“Customers” means hospitals or other healthcare providers equipped with
pharmacy services and cold storage capabilities.
1.8
1.9
“DMD” means Duchenne muscular dystrophy.
“FDA” means the United States Food and Drug Administration.
1.10
“First Commercial Sale” means, with respect to a Product in the Territory, the first
bona fide commercial sale to a third party of such Product following Marketing Approval. Sales or
other dispositions by Capricor for clinical trial or other scientific testing purposes, or under early
access or compassionate use programs, shall not constitute a First Commercial Sale.
1.11
“Governmental Authority” means any government or any court, administrative
agency or commission or other governmental or regulatory authority or agency and shall also
include any quasi-governmental authority or agency with jurisdictional or regulatory authority over
any activity contemplated by this Agreement.
1.12
“Interim Analysis” means an analysis of data that is conducted before all data
collection has been completed.
1.13
“Marketing Approval” means all approvals,
registrations or
authorizations of any Governmental Authority necessary for the manufacturing, use, storage,
import, transport and sale of Products in the Territory.
licenses,
1.14
“Net Sales” is defined on Exhibit A hereto.
1.15
“Person” means an individual, corporation, partnership, limited liability company,
unincorporated syndicate, association or organization, trust, trustee, executor, administrator or
other legal representative, governmental authority or agency, or any group of Persons acting in
concert.
1.16
“Product(s)” means
the Cell Therapy product using human allogeneic
cardiosphere-derived cells (“CDCs”), developed by Capricor and known as “CAP-1002”, used for
the treatment of diseases and symptoms in humans for DMD.
1.17
“Product Specifications” means specifications for the Product set forth on the
product packaging and/or the written instructions for use accompanying the Product.
1.18
“Purchase Order(s)” means a formal offer to buy a specified number of units of
Product at a specified price within a specified timeframe.
1.19
“Regulations” means all laws, statutes, rules, regulations (including, without
limitation, all health and safety legislation) of the Territory in which the Products are sold by
Distributor.
1.20
“Supply Price” means the price at which Capricor shall sell the Products to
Distributor determined in accordance with the provisions set forth on Exhibit A.
1.21
Puerto Rico.
“Territory” means the United States of America. (“U.S.”), including the territory of
1.22
“Trademarks” means the Trademarks of Capricor listed on Exhibit B, together with
any further trademarks and trade names of which Capricor may become the proprietor or which
Capricor may
have the right to use on or in relation to the Products at any time during the term of this
Agreement, and in each case which Capricor adds to Exhibit B in its sole discretion.
1.23
“Transfer Price” means the price paid by Distributor to Capricor on the initial
Delivery of the Product, as set forth on Exhibit A.
2.
PRODUCT DEVELOPMENT BY CAPRICOR
2.1 Obligations Regarding Preclinical Development. Capricor shall complete any
tests or studies necessary and/or desired to complete the preclinical development of the Product
for DMD which Capricor, in its discretion, believes to be necessary to advance the clinical
development of the Product and the ability to obtain regulatory approval thereof. The costs and
expense associated with preclinical tests or studies shall be the sole responsibility of Capricor.
2.2 Obligations Regarding Clinical Development of CAP-1002. Capricor shall have
the obligation to sponsor and conduct a Phase-3 clinical trial of CAP-1002 for the treatment of
DMD, the IND for such trial having been cleared by the FDA (the “HOPE-3 Trial”). The protocol for
the HOPE-3 Trial will be determined by Capricor pursuant to guidance given by the FDA. Capricor
will keep Distributor advised as to the progress of the HOPE-3 Trial and Distributor may offer
advice to Capricor in connection therewith. Notwithstanding the foregoing, all decisions with
respect to the conduct of the HOPE-3 Trial will be made by Capricor. The costs and expense of
the HOPE-3 Trial shall be the sole responsibility of Capricor.
2.3
CMC Studies. Capricor shall conduct those CMC studies and gather applicable
data required by FDA at Capricor’s sole cost and expense.
2.4 Manufacturing and Marketing Approval. Capricor shall be responsible for
determining whether to submit a BLA based on the results of the Hope-3 Trial and shall use
Commercially Reasonable Efforts to (a) obtain Marketing Approval for the Product in the Territory,
and (b) manufacture the Product for clinical and commercial purposes, in each instance at its sole
cost and expense.
2.5
Pharmacovigilance and Post-Marketing Surveillance. Capricor shall be
responsible for any safety surveillance related to pharmacovigilance and post-marketing
surveillance required for the Product in the Territory with such assistance from Distributor as may
be requested by Capricor. Distributor will provide Capricor with ready access to all materials, data
and other information on clinical use and related matters on a timely basis to enable compliance
with all regulatory and quality requirements, including, but not limited to, U.S. 21 CFR 314.80.
Capricor shall be responsible for the out-of-pocket costs thereof but shall not be required to
reimburse Distributor for Distributor’s time or efforts in providing such information to Capricor. The
details of each Party’s role in relation to the above-mentioned safety surveillance shall be
separately set forth in another agreement.
2.6 Joint Steering Committee.
2.6.1 Establishment of Committee. Within thirty (30) days after the Effective
Date, Capricor and Distributor will assemble a Joint Steering Committee (the “JSC”). Initially, the
JSC will be composed of at least two, but no more than four, representatives of each Party, with
an equal number appointed by each of Capricor and Distributor. Each Party will provide a list of its
representatives to the
other Party within thirty (30) days after the Effective Date. Each Party will promptly notify the other
Party in writing of any change in its appointed representatives. Each Party may invite its
employees and its Affiliates’ employees and consultants to attend meetings of the JSC who are
bound to obligations of confidentiality, non-use, and assignment of inventions similar to those of
that Party’s members of the JSC.
2.6.2 Meetings. The JSC will hold its first meeting within ninety (90) days of the
Effective Date. While in existence, the JSC will meet at least on a quarterly basis by audio or
video teleconference or in person, to be agreed by the Parties. After Marketing Approval is
obtained for the Product, the JSC will meet at least on a quarterly basis by audio or video
teleconference or in person, to be agreed by the Parties. Each Party will bear its own costs
relating to any JSC meeting. The Parties will endeavour to schedule meetings of the JSC at least
two (2) months in advance or as necessary to resolve any matters requiring a joint decision,
2.6.3 Responsibilities. The duties of the JSC will include, but not be limited to,
reviewing the progress of the HOPE-3 Trial and clinical development, making determinations as to
forecasts, pricing, Minimum Sales Requirements (as hereinafter defined), monetary disputes and
such other matters that may require the joint decision of the Parties, in each case, subject to the
applicable provisions set forth in this Agreement. Distributor shall have the right to render advice
to Capricor with respect to the HOPE-3 Trial and Capricor will give good faith consideration to
Distributor’s suggestions provided on a timely basis, but all final decisions with respect to the
conduct and operations of the HOPE-3 Trial shall be made by Capricor.
2.7 Call Center. Capricor shall, at its own cost and expense, be responsible for
setting up and operating a call center to receive any inquiry or information related to the Product
from Customers. The details of each Party’s role in relation to such call center shall be separately
set forth in another agreement.
3.
PAYMENTS TO CAPRICOR FOR PRODUCT DEVELOPMENT
3.1 In consideration of the costs and expenses incurred by Capricor in connection with
all pre-clinical, clinical, CMC and commercial development of the Product, Distributor shall pay to
Capricor Thirty Million U.S. dollars (US$30,000,000) upon the execution of this Agreement,
provided that such payment shall be made by Distributor within thirty (30) days from Distributor’s
receipt of the invoice thereof from Capricor. The payment made to Capricor specified in this
Section 3.1 shall be non-refundable and non-creditable.
3.2 Product Development Milestones. In addition to the payment set forth in Section
3.1 above, Distributor shall pay to Capricor within thirty (30) days after Distributor’s receipt of an
invoice of the milestone payment and documents evidencing the achievement of the relevant
milestone, the following amounts:
3.2.1
[***];
3.2.2
[***]; and
3.2.3
[***].
4.
APPOINTMENT OF DISTRIBUTOR
4.1
Appointment.
4.1.1 Subject to the terms and conditions set forth herein, Capricor hereby
appoints Distributor, and Distributor hereby accepts such appointment, to serve during the term of
this Agreement as Capricor’s exclusive (even as to Capricor, subject further to Section 4.1.2)
distributor of the Product in the Territory (subject to Section 4.4). Except as may be permitted
under Section 4.2 hereof, Distributor shall only distribute the Products directly to Customers
located in and for use exclusively in the Territory. Distributor shall be entitled to describe itself as
Capricor’s “Authorized Distributor” solely for the Products in the Territory. Distributor is not
authorized to, and shall not, do business in Capricor’s name or hold itself out as Capricor’s sales
agent (but rather as an authorized distributor) of the Products or as being entitled to bind or
obligate Capricor in any way.
4.1.2
For so long as this Agreement is in full force and effect and Distributor is
not in breach or default hereunder, which breach or default has not been cured pursuant to
Section 15.2.1 of this Agreement, Capricor shall not sell, nor appoint any other distributors to sell
the Product in the Territory, without the written consent of Distributor; provided, that Capricor shall
have the right (directly and/or through its distributors) to:
(a) distribute Products to customers within the Territory other than through
Distributor if and to the extent Distributor is unable to so distribute the Products due to (a)
regulatory requirements; (b) Distributor's failure to meet its Minimum Sales Requirements, subject
to Section 5.2; or (c) Distributor being otherwise prohibited or prevented from selling and/or
distributing the Products or refusing or being unable to sell and/or distribute the Products to any
Customer or class of Customers other than by Customer decision; and
(b) sell and distribute CAP-1002 through relationships that do not include
Distributor for indications other than for DMD; provided that Capricor shall clearly indicate to any
third parties to whom Capricor intends to sell Products, that Distributor is Capricor’s “Authorized
Distributor” for the Products in the Territory for the DMD indication and Capricor shall promptly
forward all inquiries regarding purchase of the Product in the Territory received by Capricor for use
in the DMD indication to Distributor.
4.1.3
If the Parties agree to expand the grant of rights to Distributor to cover
indications other than DMD, the terms of such expansion shall be set forth in an addendum to this
Agreement which will set forth the responsibilities of the respective Parties, remuneration to
Capricor, sales and other milestones, and other matters to be agreed upon by the Parties.
4.1.4 This Agreement shall in no way limit the right of Capricor, its Affiliates,
sublicensees, distributors or other appointees to market, sell or otherwise distribute the Product
outside the Territory, subject to the provisions contained in Article 17.
4.1.5 If during the term of this Agreement, both Parties concur that any patent
rights held by third parties would be infringed by the sale of Product in the Territory pursuant to
this Agreement, Capricor shall use Commercially Reasonable Efforts to acquire such rights at its
sole responsibility and expense.
4.2
Subdistributors. Distributor shall not, without the prior written consent of
Capricor, appoint any subdistributors or agents (including the replacing of any previously
approved subdistributors) to promote, market, sell and distribute the Product within the Territory;
provided, however, that Distributor may enter into a subdistribution agreement with its Affiliate, NS
Pharma, Inc., a corporation organized under the General Corporation Law of the State of
Delaware, with its principal office located at 140 East Ridgewood Ave, Suite 280S Paramus, New
Jersey 07652 USA (“NS Pharma”), to serve as a subdistributor of the Product in the Territory
without further consent from Capricor. In addition, notwithstanding Capricor’s consent to any
subdistributor, or Distributor’s appointment of NS Pharma as a subdistributor, Distributor shall at
all times remain fully liable for the acts or omissions of its subdistributors and/or agents as if such
act or omission was undertaken directly by Distributor, and Distributor hereby agrees to indemnify
and hold harmless Capricor from any and all damages, losses, liabilities or expenses (including
reasonable attorneys’ fees and costs) arising from the promotion and distribution of the Product in
any manner from any act or omission on the part of Distributor’s subdistributors or agents. In
addition, any subdistributors permitted to be appointed pursuant to the terms and conditions of
this Agreement shall comply with all applicable obligations under this Agreement to the same
extent as Distributor. Without amending or limiting Distributor’s obligations in this Section 4.2 or
elsewhere in this Agreement, (including in respect of any nonperformance or omissions by NS
Pharma), with respect to Article 4, 5, 6, 7, 8, 9, 12 and 15 and Exhibit A and Exhibit D, Distributor
may cause NS Pharma to perform and exercise Distributor’s obligations and rights in whole or
part. For the avoidance of doubt, Subdistributor shall, in addition to Distributor, be responsible for
any breach of Distributor’s obligations under this Agreement assumed by Subdistributor, and any
action or claim by Capricor in respect of any breach, act, error or omission hereunder by
Distributor or Subdistributor may be brought against either Distributor or Subdistributor, and each
of Distributor and Subdistributor shall be jointly and severally liable hereunder.
4.3
Territorial Responsibility. Distributor shall use its Commercially Reasonable
Efforts to establish sales policies and procedures to realize the maximum sales potential for the
Products in the Territory, consistent with applicable Regulations. Without the prior written consent
of Capricor, Distributor shall not advertise, promote or seek customers for Products or establish
any office through which orders for Products are solicited for use or distribution outside the
Territory, nor knowingly sell Products for use outside the Territory. Any requests or inquiries
received by potential Customers, whether directly or indirectly, for the purchase of Product for use
or distribution outside the Territory shall be referred to Capricor.
4.4
Competing Products. Distributor agrees that any efforts by Distributor to sell
Competing Products in the Territory would constitute a conflict of interest with respect to
Distributor’s obligations to Capricor to market and sell the Products. During the term of this
Agreement, neither Distributor, its Affiliates, nor any of its subdistributors shall, either directly or
indirectly, without Capricor's prior written consent:
4.4.1
market or promote any product or accept orders through agents or
otherwise, to or from any Customer or any Affiliate of any Customer for any Competing Product in
the Territory;
4.4.2
develop or manufacture any Competing Product in the Territory; or
4.4.3 market to or solicit orders from, or distribute any Product through
distributors, agents, or otherwise, to or from any Customer, any Affiliate of any Customer or any
third Person located outside of the Territory.
4.5
Independent Contractors. The relationship of Distributor to Capricor established
by this Agreement is that of an independent contractor, and nothing contained in this Agreement
shall be construed so that Distributor will be deemed to be an employee, agent, joint venturer, co-
owner or otherwise a participant in a common undertaking. Each Party shall be solely responsible
for its own financial obligations associated with its respective business. Neither Party shall have,
nor represent itself as having, any right or authority to obligate or bind the other in any manner
whatsoever. All sales and other agreements between Distributor and its Customers are
Distributor’s exclusive responsibility.
4.6 Reservation of Rights. Except as expressly provided in this Article 4, no right,
title, license or interest is granted, whether express or implied, by Capricor to Distributor, and
nothing in this Agreement shall be deemed to grant to Distributor rights in any products or
technology other than the Products (and with respect to the Products solely as set forth herein),
nor shall any provision of this Agreement be deemed to restrict Capricor’s right to exploit the
technology or other intellectual property rights relating to the Products in products other than the
Products. Subject to Article 17, Distributor acknowledges and agrees that Capricor has and
retains the right to appoint other authorized distributors, licensees or resellers of the Products
outside the Territory without restriction and without any obligations to Distributor.
5.
GENERAL OBLIGATIONS OF DISTRIBUTOR
5.1
Forecasts. At least ninety (90) days prior to the anticipated approval of the BLA,
the JSC shall meet to decide upon a twelve (12) month unit forecast indicating Distributor’s
intended purchases of Products during each month of such period as well as such other
information as Capricor may reasonably request in the format reasonably specified by Capricor
from time to time. Such forecasts shall be updated by Distributor on a rolling quarterly basis for
each new twelve (12) month period following the preceding quarter, which updated forecast must
be received by Capricor no later than the last day of the second month of the applicable quarter
during the term of this Agreement. Such rolling forecasts shall be used for the purpose of meeting
the lead times required by Capricor. The first three months of this initial forecast and the first three
months of each subsequent updated 12-month forecast delivered hereunder shall be binding on
the Parties and shall be covered by a firm Purchase Order for a quantity of Products not less than
that forecasted for such quarterly period. Capricor shall review the 12-month forecasts provided
by Distributor and upon accepting the 12-month forecast, Capricor shall provide the volume of
Products specified by Distributor in such 12-month forecast. Capricor may, in its discretion, reject
Purchase Orders calling for quantities exceeding the 12-month forecasted quantities but shall be
under no obligation to do so. If the Parties are unable to agree on the forecast herein, such
forecast shall be determined by Expert Determination pursuant to the procedure set forth in
Section 18.3.2 below. The cost of such Expert Determination shall be borne equally by the
Parties.
5.2
Sales. Distributor shall use its Commercially Reasonable Efforts to achieve the
First Commercial Sale of the Product as promptly as practicable following Marketing Approval and
notification by Capricor that the Products are ready for Delivery, and to make sales of the
Products to Customers in the Territory. For clarification, Capricor agrees that (i) Distributor has the
right to choose to whom it sells the Products in its sole discretion so long as such sale is to a
Customer (as defined in Section 1.7), and (ii)
Distributor may refuse a Customer’s order in its sole discretion. Distributor shall not sell any
expired Products, and Capricor shall not have any responsibility under this Agreement with
respect to any such expired Products, including, without limitation, any obligation to repurchase or
replenish expired Products.
5.2.1 Minimum Sales Requirements. During the term of this Agreement,
Distributor shall be required to sell a certain minimum number of Products in the Territory
(“Minimum Sales Requirements”) during each calendar year of this Agreement commencing
with the year in which the BLA is approved and ending upon termination or expiration of this
Agreement. Within ninety (90) days prior to the anticipated date of approval of the BLA and within
ninety (90) days prior to the beginning of each of Distributor’s calendar years thereafter during the
term of this Agreement, the JSC shall meet and attempt to come to an agreement on the Minimum
Sales Requirements for each calendar year following BLA approval. If the Parties are unable to
agree on such amounts, the Minimum Sales Requirements shall be determined by Expert
Determination pursuant to the procedure set forth in Section 18.3.2 below. The cost of such
Expert Determination shall be borne equally by the Parties.
5.2.2 Shortfall in Minimum Sales. Distributor shall notify Capricor within thirty
(30) days following the end of each calendar year whether it has achieved the Minimum Sales
Requirements for that year and shall include a reasonably detailed calculation of any shortfall in
sales of Products. [***].
5.2.3 Failure to Meet Minimum Sales Requirements.
(a)
Initial 24-Month Period. [***].
(b)
Subsequent 12-Month Periods. Following the end of initial 24-
month period, the Minimum Sales Requirements shall be determined no later than the last day of
September in the preceding year of each calendar year for which such Minimum Sales
Requirements shall be applicable. If Distributor fails to meet its Minimum Sales Requirements for
any such calendar year, [***].
Continuous Failure to Meet Minimum Sales Requirements. If
Distributor fails to meet its Minimum Sales Requirements for [***] during the term of this
Agreement, [***].
(c)
5.2.4 Payment of Sales Milestones. Upon reaching the Sales Milestones set
forth in Exhibit C, Distributor shall pay to Capricor those amounts set forth on said Exhibit C,
attached hereto. Distributor shall notify Capricor within thirty (30) days of achieving each
applicable Sales Milestone and Distributor shall pay Capricor the respective accrued and payable
Sales Milestones within thirty (30) days of receipt of an invoice from Capricor with respect thereto.
For purposes of calculating the Sales Milestones, the Net Sales shall be calculated based on the
quarterly gross sales of the Product by Distributor, subdistributors, agents or other Persons during
the term of this Agreement. If Distributor achieves more than one Sales Milestone in a given
calendar year, each Sales Milestone amount shall accrue and be payable as and when achieved.
The payment(s) made to Capricor specified in Exhibit C shall be non-refundable and non-
creditable.
5.3
Customer Training. Distributor shall train its Customers with respect to the use,
handling, storage and administration of the Products sold in the Territory pursuant to the
instructions for use accompanying the Products.
5.4
Market Access, Pricing, Marketing and Promotion of the Products. Distributor
shall at its own expense, be responsible for market access, patient advocacy, reimbursement and
patient support, and shall at its own expense, vigorously promote the sale of the Product in a
manner that preserves the existing goodwill and promotes the good image of the Product and of
Capricor in the Territory as soon as Marketing Approval for the Product has been obtained. Such
promotion shall include, without limitation, distributing promotional and marketing materials in the
Territory, detailing the Product on the Product website, and advertising the Product as permitted
by the applicable Regulations within the Territory to the extent determined by Distributor.
5.4.1 Promotional Materials. Distributor shall discuss with Capricor the contents
of any promotional or marketing literature or materials created by the Distributor for the Products
prior to their use or distribution in the Territory. Such materials must be consistent with Capricor’s
approved indications for use and guidelines for the Products and all Regulations and related
requirements and must be approved by Capricor. Capricor shall not unreasonably withhold or
delay such approval. Capricor shall allocate an adequate sales and marketing staff to discuss with
Distributor regarding the contents of such promotional or marketing literature or materials. The
Distributor may use any marketing materials which may be provided by Capricor. Capricor will
own all right, title, and interest in all promotional and marketing materials related to the Products,
provided that Capricor shall not own any right, title, and interest related to Distributor’s
pharmaceutical products other than those related only to the Products. Distributor hereby
irrevocably transfers, conveys and assigns to Capricor in perpetuity all right, title, and interest in
such materials, including all copyrights, the right to make derivative works and collective works
with respect thereto. For clarification, Distributor shall have a non-exclusive right to use such
promotional and marketing materials and with respect thereto solely in the performance of its
obligations hereunder during the term of this Agreement.
5.5
Distributor’s Obligations. Distributor shall have the following specific obligations
with respect to the handling and distribution of the Products:
5.5.1 to comply with all quality requirements as set forth in a quality agreement to
be prepared and executed by the Parties (“Quality Agreement”);
5.5.2 to respond promptly to all inquiries from Customers, including complaints
and reports of adverse events and other Product incidences and to advise Capricor promptly of all
such matters in accordance with the provisions set forth in the Quality Agreement;
5.5.3 to investigate diligently all leads with respect to potential payors and
Customers in the Territory referred to it by any source, including Capricor, and to provide
adequate contact with existing and potential payors and Customers within the Territory on a
regular basis, consistent with good business practices;
5.5.4 to permit, upon reasonable notice, (a) Capricor personnel and/or (b)
individuals designated by Capricor and bound to a duty of confidentiality by written agreement
with Capricor, to visit Distributor’s place of business and Distribution Warehouse (as hereinafter
defined) and inspect its inventories, records, and other relevant documents pertaining to the
Products and/or Distributor’s performance of its obligations under this Agreement, which
inspections shall be limited to records relating to inventory management and product traceability
for the sole purpose of ensuring compliance by Distributor with the terms and conditions of this
Agreement; and
5.5.5
to maintain an adequate staff of trained and qualified sales and medical
affairs personnel dedicated to the Product and, upon the request of Capricor, to make such
personnel available for orientation and training with respect to the selling, use and handling of the
Products.
5.5.6 Distributor shall establish a distribution warehouse (the “Distribution
Warehouse”) whereat it will receive all Products purchased from Capricor. The Distribution
Warehouse will have the storage capabilities designed to hold the Products in accordance with
the specification set therefor in accordance with the Quality Agreement. All Products sent to
Distributor’s Customers shall be shipped from the Distribution Warehouse at Distributor’s sole cost
and expense. Once Product is delivered to the Distribution Warehouse, Distributor shall bear the
risk of loss thereof. Except as otherwise agreed, Distributor will adhere to existing receiving,
storage, and shipping practices including such practices applicable to time-/ temperature-sensitive
requirements set forth in the Quality Agreement and Distributor will be responsible for the
management of the Distribution Warehouse at its own cost and expense.
5.6
Shipments to Customers. Distributor shall be solely responsible for all shipping
and transportation costs for all shipments of the Products from the Distribution Warehouse to
Customers and will be responsible for freight claims and resolving with Customers any disputes
regarding product deliveries, shortages, and overages.
5.7
Post-Sales Service.
5.7.1 Credit and Collection. Distributor shall be responsible for all collection
and credit approval processes for all invoices. Distributor shall have the sole authority to issue
credits and resolve Customer issues. Distributor shall communicate with Capricor regarding same
if there are recurring problems that may affect Capricor’s responsibilities.
5.7.2 Product Complaints. Customer complaints will be logged by Distributor in
accordance with the Quality Agreement and forwarded to Capricor’s Vice President of Regulatory
Affairs (or such person's designee) at a frequency to be agreed upon by the Parties or otherwise
required by the Regulations. Such complaints may be escalated for resolution per applicable
regulatory procedures.
5.8 Pricing/Billing. Within thirty (30) days after the filing of the BLA, the JSC shall
meet and endeavour in good faith to arrive at the agreed wholesale price, and range of applicable
discounts, at which Distributor will be selling the Product to its Customers. If the Parties fail to
come to an agreement, the JSC will retain a third-party consulting firm with experience in pricing
and reimbursement for orphan drugs to advise on the appropriate price and applicable discount
ranges for the Product. If the Parties are unable to agree on such price and ranges, the pricing
and discount ranges shall be determined by Expert Determination pursuant to the procedure set
forth in Section 18.3.2 below. The cost of such consulting firm and Expert Determination shall be
borne equally by the Parties. Distributor will negotiate the delivered price within the discount
ranges for the Product and Distributor shall be responsible for processing all billing to the
Customer.
5.9
Regulations; Compliance.
5.9.1 Distributor shall comply fully with all Regulations as they relate to the
Products in the Territory, including the storage, promotion and sale of the Products. Distributor
shall monitor the
appropriate information sources closely for changes in such Regulations and other requirements
in the Territory and will notify Capricor promptly in writing of any and all such changes.
5.9.2 Without limiting the foregoing provisions of this Section 5.9, Distributor
shall comply with all necessary government and regulatory requirements regarding the
importation, marketing, and distribution of Products in the Territory. These include, but are not
limited to, specific requirements for traceability, vigilance, complaint reporting and handling.
Distributor shall not sell or distribute Products in the Territory until such time as all
regulatory/marketing licenses and approvals required by the specific Regulations of the Territory
have been obtained. Distributor shall allow Capricor or a Capricor-authorized party to assess,
periodically, Distributor’s compliance with the aforementioned standards.
5.10
Representations. Neither Distributor nor any of
its agents, employees,
representatives or subdistributors shall (i) market or promote the Product for uses other than the
indications and protocols approved by the FDA (i.e., no “off-label” promotion), (ii) make any false
or misleading representations to Customers or others regarding Distributor, Capricor or the
Products, or (iii) make any representations, warranties or guarantees with respect to the
specifications, features or capabilities of the Product that are not consistent with Capricor’s
documentation accompanying the Product or Capricor’s literature describing the Product. Neither
Distributor, nor any of its agents, employees or representatives may change, extend, or alter any
representation or obligation which is binding upon Capricor or its Affiliates.
5.11 Governmental Requirements; Regulatory Affairs.
Except as otherwise
provided herein, Distributor shall be responsible for compliance with all requirements established
by Governmental Authorities within the Territory applicable to its activities under this Agreement.
Distributor shall provide Capricor with all reasonably required support to comply with any local
regulatory law and requirements including, but not limited to, assisting and executing all
documents necessary to satisfy all regulatory requirements in the U.S and the individual states in
which the Products are distributed, whenever it is mandatory or necessary to register the Product
in that state.
5.12
Expenses. Except as otherwise expressly provided herein, Distributor assumes
full responsibility for all costs and expenses which it incurs in carrying out its obligations under this
Agreement,
to all rentals, salaries, commissions, advertising,
demonstration, travel and accommodation expenses, without the right to reimbursement for any
portion thereof from Capricor.
including but not
limited
5.13
Insurance. Distributor shall obtain and keep in full force and effect during the term
of this Agreement and for a minimum of three (3) years thereafter, one or more policies of liability
insurance which shall cover all liabilities of Distributor, whenever arising, attributable to the
activities of Distributor, its agents, employees, representatives and subdistributors under this
Agreement. [***]. Such policies shall not be cancellable without thirty (30) days prior written notice
to Capricor. Capricor shall have the option to be designated as an additional named insured under
each such policy and shall be provided with a certificate of insurance within thirty (30) days after
the issuance of such policy and each renewal thereof. All policies of insurance maintained by
Distributor under this Section 5.13 shall be taken out with insurance companies holding a
Financial Strength Rating of at least “A-VII”, as set forth in the most current issue of Best’s
Insurance Reports.
5.14
Packaging and Labelling. Distributor shall not package or label any Products
and shall not alter any Product or any package or label used in connection with any Product,
except as specifically authorized in writing by Capricor. In the event Capricor shall authorize or
require repackaging or re-labeling, Distributor shall comply with the instructions given by Capricor
at Capricor’s expense. If requested by Capricor in writing, Distributor shall initiate the translation
of all user and technical manuals, advertising and marketing information provided by Capricor into
the languages of its Customers in the Territory and provide Capricor with advance copies of all
such materials for written approval by Capricor (which approval shall not be unreasonably
withheld). Any translations in the possession of Capricor as of the Effective Date shall be offered
to Distributor free of charge. Capricor shall own all such translations and all related intellectual
property rights in and to such translations, and Distributor hereby assigns to Capricor all right, title
and interest it may have therein and thereto; provided, however that Distributor shall have a non-
exclusive right to use such translations solely in the performance of its obligations hereunder
during the term of this Agreement.
5.15
Tracking of Products. Distributor shall keep adequate records to enable the
tracking of the Products sold as more particularly set forth in the Quality Agreement (collectively,
“Traceability Information”). During the term of this Agreement and for a period of at least that
time required by applicable Regulations (but in no case for less than ten (10) years following
termination or expiration of this Agreement), Distributor shall comply with all applicable information
security and privacy legal requirements with respect to the collection, storage and processing of
Traceability Information, including privacy notice requirements and data subject rights under
applicable Regulations, and Distributor shall be solely responsible for the protection and security
of Traceability Information while under its or any third party agent’s control, including with respect
to any data security incidents that may affect such data. Distributor shall keep complete and
accurate historical records of the information described in this Section 5.15. Capricor shall have
the right, at any time upon no less than seven (7) days’ notice, to verify that such records are
being properly maintained by Distributor and to receive copies of such records upon Capricor’s
request. The requirements of this Section 5.15 shall survive the termination or expiration of this
Agreement for the duration of Distributor’s collection and storage obligations. In the event at the
expiration of the tenth year following the termination or expiration of this Agreement (or such
longer period if required by applicable Regulation), Distributor does not want to retain such
records, Distributor may notify Capricor of its intention to destroy such records, and upon
Capricor’s election, shall deliver such records to Capricor for its retention thereafter.
5.16 Sales Reports. No later than thirty (30) days after the end of each month during
the term of this Agreement, Distributor shall provide Capricor with a comprehensive monthly sales
report (the “Monthly Sales Report”) summarizing the sales of the Product during the preceding
month. Such Monthly Sales Report shall include, at a minimum, the following: (a) the total number
of units sold by Distributor, its Affiliates (and its or their subdistributors); (b) gross revenue in U.S.
dollars, (c) the average selling price in U.S. dollars; (d) any deductions from gross revenue or
average selling price taken with respect to such Product to arrive at Net Sales (with reasonable
supporting detail provided to enable Capricor to affirm and verify such deductions) of Product
during such period; and (e) the approximate figure of the aggregate Supply Price that has accrued
and is payable with respect to Product sales during such period.
5.17 Record Retention. During the term of this Agreement and for a period of at least
ten (10) years following the termination or expiration hereof, Distributor shall keep complete and
accurate historical records of the sales information described in this Section 5.17. Within thirty
(30) days after
completion of the Distributor’s annual audit, Distributor shall have its independent auditors confirm
in writing to Capricor that the sales reports delivered to Capricor by Distributor are consistent with
the findings of the annual audit. Nothing contained in this Section shall reduce the obligations of
Distributor set forth in Section 5.16 above.
5.18
Permits. Capricor shall be responsible, at its expense, for obtaining Marketing
Approval for the Product from the FDA and any other applicable regulatory authority. Distributor
shall be responsible, at its expense, for obtaining and maintaining all licenses and permits
necessary for the distribution and sale of the Products in the Territory, including delivery of the
Products from the Distribution Warehouse to Customers in the Territory.
6.
GENERAL OBLIGATIONS OF CAPRICOR
6.1
Information. Capricor shall provide Distributor with (a) technical information
concerning the Products, (b) limited quantities of Capricor’s instructional materials, sales
literature, if any, and (c) available clinical, preclinical, CMC, data and other Product data that
Capricor has or obtains during the term of this Agreement, with all such information, materials and
data printed in the English language.
6.2
Training by Capricor. Capricor shall provide training to Distributor at Capricor’s
sole cost and expense (other than the cost and expense of Distributor’s trainers’ travel costs
which shall be borne by Distributor, if any), on the use, storage, handling and shipping
requirements for the Products. As part of such training, Capricor shall, at a time that is mutually
agreed to by both Parties, conduct an initial Product training session for qualified personnel
designated by Distributor. Additionally, Capricor shall conduct a “train the trainer” session with the
relevant individuals of Distributor who will be responsible for Customer training. The timing and
location of trainings shall be mutually agreed to by the Parties. Capricor shall provide on-going
Product training for Distributor personnel as reasonably requested by Distributor.
6.3 Product Labelling. Capricor shall provide labelling for the Products which is
compliant with the Regulations. Distributor shall not re-label Products supplied to Distributor by
Capricor hereunder without the prior written consent of Capricor.
6.4
Regulatory Approval.
6.4.1
BLA Approval. As soon as reasonably practicable, Capricor shall use
Commercially Reasonable Efforts to obtain in its own name and at its own expense Marketing
Approval for the Product in the U.S. Capricor shall provide Distributor with notice and a copy of
the BLA related to the Product promptly after receipt thereof.
6.4.2 Other Approvals. If any additional approvals are necessary to market the
Products in the Territory according to the Regulations, Capricor shall use Commercially
Reasonable Efforts to obtain those approvals as soon as reasonably practicable at its own
expense.
6.4.3 Product Registrations and Certifications. Capricor shall obtain all
necessary registrations and certifications for the Products, and Distributor shall assist Capricor in
obtaining such registrations and certifications, provided that Distributor shall not attempt to obtain
any such registration or certification in its own name. The Parties understand and agree that
Capricor itself, or through its agents (but not including Distributor), shall have the sole right to
correspond with and submit regulatory
applications and other filings to the applicable Governmental Authorities to obtain approvals to
import, export, sell or otherwise commercialize the Products. Accordingly, Distributor shall not
correspond directly with any Governmental Authority relating to the process of obtaining approvals
for Products, without Capricor’s prior written consent, unless mandated by applicable Regulations,
and in such case, Distributor shall in advance of such communications, provide Capricor in writing
notice of any such correspondence and shall provide Capricor with a copy thereof.
6.5
Representations by Capricor. Neither Capricor nor any of its agents, employees
or representatives shall make any false or misleading representations to Customers or others
regarding Distributor or the Products.
6.6
Insurance. Capricor shall obtain and keep in force during the term of this
Agreement and for a minimum of three (3) years thereafter, one or more policies of liability
insurance which shall cover all liabilities of Capricor, whenever arising, attributable to the activities
of Capricor, its agents, employees and contractors under this Agreement. [***]. Distributor shall
have the option to be designated as an additional named insured under each such policy and
shall be provided with a certificate of insurance within thirty (30) days after the issuance of such
policy and each renewal thereof. All policies of insurance maintained by Capricor under this
Section 6.6 shall be taken out with insurance companies holding a Financial Strength Rating of at
least “A-VII”, as set forth in the most current issue of Best’s Insurance Reports.
6.7 Customer Leads. During the term of this Agreement, Capricor shall refer to
Distributor any request it receives either directly or via its Affiliates for the purchase of Products in
the Territory.
6.8
Marketing Authorization Holder. Capricor shall be responsible for obtaining and
maintaining its status as the marketing authorization holder of the Products for the DMD
indication.
7.
PURCHASE ORDERS; TITLE and DELIVERY
7.1
Terms and Conditions. All purchases of Products by Distributor from Capricor
during the term of this Agreement shall be subject to the terms and conditions of this Agreement,
and nothing contained in any Distributor Purchase Orders shall in any way modify such terms and
conditions of purchase or add any additional terms or conditions.
7.2 Delivery. All Products delivered pursuant to the terms and conditions of this
Agreement shall be suitably packed for shipment in Capricor’s designated shipping containers,
marked for shipment to Distributor’s Distribution Warehouse at the address specified by
Distributor. All freight, insurance, all applicable taxes, import duties, customs fees, similar charges
and other shipping expenses for shipments to the Distribution Warehouse, as well as any special
packing expense, shall be paid by Capricor pursuant to the DDP (Delivered Duty Paid) the
Distribution Warehouse, INCOTERMS 2020 (Distributor’s receipt of the Product at the Distribution
Warehouse shall be hereinafter referred to as “Delivery” with a correlative meaning for “Deliver”
and “Delivered”). Distributor shall bear all applicable taxes, duties, customs fees and similar
charges that may be assessed against the Products following Delivery.
7.3 Purchase Orders. Pursuant to this Agreement, the Distributor will submit written
purchase orders (“Purchase Orders”) for the Products consistent with the forecasts set forth in
Article 5. Except with respect to the quantity of Products ordered in accordance with the terms and
conditions of this Agreement, no additional terms and conditions contained in a Purchase Order
shall be binding on
Capricor. Such Purchase Orders shall be subject to Capricor’s standard terms and conditions
which may be established during the term of this Agreement and shall be agreed by Distributor
when such standard terms and conditions are established or revised.
7.4
Acceptance of Purchase Orders.
7.4.1 No Purchase Order shall be binding upon Capricor until accepted by
Capricor in writing, and Capricor shall have no liability to Distributor with respect to Purchase
Orders that are not accepted. Within ten (10) days after receipt of a Purchase Order, Capricor
shall notify Distributor of the acceptance or rejection of a Purchase Order and of the assigned
date of Delivery (the “Delivery Date”) for accepted Purchase Orders. Partial acceptances by
Capricor shall be permitted. Any portion of a Purchase Order that has not been rejected within
such ten (10) day period shall be deemed to have been accepted by Capricor, and Capricor shall
notify Distributor of the Delivery Date for the accepted Purchase Order immediately after such ten
(10) day period. The Minimum Sales Requirements shall be reduced by an amount equal to any
portion of a Purchase Order that has been rejected by Capricor without Due Cause (as hereinafter
defined) for the year in which delivery for the rejected quantities was requested by Distributor.
Notwithstanding the foregoing, no such reduction shall occur if the Purchase Order, or portion
thereof, was rejected for Due Cause. For purposes hereof, the term “Due Cause” shall mean (a)
the orders exceed the forecast; (b) the orders were placed during such period of time when
Distributor is in arrears with respect to payments to be made pursuant to this Agreement; and (c)
Distributor is in material default of its obligations under this Agreement, which default has not
been cured within the applicable cure periods set forth in Section 15.2.1 hereof.
7.4.2 No partial shipment of a Purchase Order shall constitute the acceptance of
the entire Purchase Order. Capricor shall use Commercially Reasonable Efforts to deliver the
Products at the times specified in its written acceptance of Distributor’s Purchase Orders;
provided, however, that the failure to Deliver Products by the agreed upon Delivery Date (or
Delivery in advance of such Delivery Date) shall not give Distributor any right of rescission with
respect to this Agreement or any right to refuse Delivery. However, Distributor shall have the right
to rescind the Purchase Order if Capricor has not completed a Delivery of the Products ordered
within thirty (30) days after the accepted Delivery Date. In the event Capricor fails to Deliver the
quantities which have been ordered by Distributor and accepted by Capricor within thirty (30) days
after the scheduled Delivery Date therefor, the Minimum Sales Requirements for the month in
which delivery was scheduled shall be reduced by the quantities accepted but not Delivered by
the end of such thirty (30) day period.
8.
PRICING AND TERMS OF PAYMENT
8.1 Transfer Prices and Supply Prices.
8.1.1 Capricor shall supply the Products to Distributor in U.S. dollars at the
Supply Price determined in accordance with Exhibit A. Upon Delivery of the Products to
Distributor, Distributor shall be obligated to pay to Capricor the Transfer Price for such Products
as set forth on Exhibit A. Shipping charges and insurance associated with the shipment of the
Products to the Distribution Warehouse shall be borne by Capricor.
8.1.2 Payment of Transfer Prices. Payments of Transfer Prices to be made
hereunder shall be due and sent to Capricor by wire transfer within thirty (30) days after the end of
each month
during the term of this Agreement for all Products Delivered to Distributor in accordance with
Section 7.2 during that month. Until payment for the Products is received by Capricor, there shall
be no quantities applied to satisfy the Minimum Sales Requirements.
8.1.3 Payment of Supply Prices. Distributor shall report to Capricor the
approximate figure of the aggregate Supply Price that has accrued and is payable to Capricor
during each monthly period (which amount shall correspond to the Monthly Sales Reports for such
period) and revise such approximate figure to the definitive figure quarterly. Payments of Supply
Prices accruing under this Agreement, shall be due and sent to Capricor by wire transfer [***]
upon receipt of an invoice from Capricor with respect thereto.
8.2 Overdue Payments. For so long as any payment from Distributor to Capricor shall
be overdue, Distributor shall pay (a) interest on the overdue amount at a rate which is [***] per
annum of the overdue amount from the date on which such amounts were originally due, or such
lower rate as may be the maximum legally permissible rate of interest under similar circumstances
in the State of California. Such amounts shall automatically become due on all balances
outstanding, and any payments received thereon shall be applied first to the payment of accrued
interest.
8.3
Taxes. Each Party shall be solely responsible for the payment of all taxes imposed
on its share of income arising directly or indirectly from the activities of the Parties under this
Agreement. Distributor agrees to pay, indemnify and hold Capricor harmless from any sales, use,
excise, import or export, value-added, or similar tax or duty, and any withholding taxes or duties
not based on Capricor’s net income (“Transfer Taxes”), and all government permit fees, license
fees, customs fees or similar fees (“Fees”) levied upon any deliverables under this Agreement or
due to any payment to be made pursuant to this Agreement or the sale of the Products, and any
governmental penalties for the non-payment of Transfer Taxes, interest, collection costs and
withholding costs associated with any of the foregoing items (“Additional Costs”). Transfer
Taxes, Fees and Additional Costs required to be paid by Distributor pursuant to this Section 8.3
are in addition to and may not be claimed as a reduction or offset against, any payment due to
Capricor hereunder. For clarification, Distributor shall deduct the withholding taxes, if required by
applicable laws and Regulations, from the amount paid to Capricor when Distributor pays the
amount of the payment provided in this Agreement (including but not limited to the amount
specified in Article 3 and Sales Milestones).
8.4
No Acknowledgement.
Neither payments made by Distributor nor
the
acceptance of payments by Capricor in the amount of or less than the amount shown on any
invoice from Capricor shall be construed as an acceptance or agreement with the amount so
stated or the amount received. Either Party may recover from the other Party the amount of any
overpayment or underpayment. Without limiting the generality of the foregoing, Capricor may
supplement any invoice it renders to Distributor hereunder for less than the full amount to which it
is entitled; provided that such supplement is made within a reasonable time after the date of the
invoice being supplemented.
8.5
Audit. Capricor shall have the right to audit Distributor’s books and records to the
extent necessary to determine Distributor’s compliance with the terms and conditions of this
Agreement. Capricor may use independent auditors who may participate fully in such audit. Such
independent auditors shall enter into an agreement with the Parties hereto, on terms that are
agreeable to both Parties hereto, under which such independent auditors shall agree to maintain
the confidentiality of the information obtained during the course of such audit. Any such audit shall
be conducted during regular
business hours and in a manner that does not interfere unreasonably with the operations of
Distributor. Capricor may perform such an audit one time in each twelve-month period during the
term of this Agreement and one time within two (2) years following the expiration of the term;
provided that Capricor may perform an additional audit at any time if the preceding audit reveals a
failure to conform to the terms and conditions of this Agreement. Each audit shall begin upon the
date specified by Capricor in a notice to the Distributor a minimum of fifteen (15) days prior to the
commencement of the audit and shall be performed diligently and in good faith and shall be
completed within a reasonable period of time. If the results of the audit reveal an underpayment to
Capricor of more than five percent (5%), then the costs of the audit shall be borne by Distributor.
9.
ACCEPTANCE AND REJECTION OF PRODUCTS
9.1
Acceptance and Rejection. Distributor shall inspect all shipments of the Products
promptly upon Delivery thereof. In the event of any damage, visible defect, shortage or
discrepancy in or to a shipment of the Products, Distributor shall inspect all incoming shipments
as soon as reasonably practicable and, no later than ten (10) days after the Delivery (the
“Rejection Period”), promptly report the same to Capricor and furnish such written evidence or
other documentation as Capricor may deem appropriate. Capricor shall not be liable for any such
damage, visible defect, shortage, or discrepancy unless Capricor has received notice and
substantiating evidence thereof from Distributor within the Rejection Period. Any Product not
properly rejected within the Rejection Period shall be deemed accepted and any claims thereto,
except for claims in relation to Latent Defects as provided in Section 9.4, shall be deemed waived.
If any unit of a Product is shipped by Distributor to its Customer prior to expiration of the Rejection
Period, then that unit shall be deemed accepted upon shipment by Distributor. If the substantiating
evidence delivered by Distributor reasonably demonstrates that the damage, visible defect,
shortage or discrepancy in or to a shipment of the Products meets the criteria for rejection of the
Product by Distributor, Capricor shall promptly deliver additional or substitute Products to
Distributor in accordance with the delivery procedures set forth herein, but in no event shall
Capricor be liable for any additional costs, expenses or damages incurred by Distributor, directly
or indirectly, as a result of such damage, visible defect shortage or discrepancy in or to a shipment
discovered in Distributor’s acceptance inspection provided above in this Section 9.1. Such criteria
for rejection of the Product shall be specified in the Quality Agreement. Capricor shall not be liable
for any such damage, visible defect, shortage, or discrepancy unless Capricor has received notice
and such substantiating evidence thereof from Distributor within the Rejection Period.
9.2
Method of Rejection. To reject a Product, Distributor shall, within the Rejection
Period, notify Capricor in writing of its rejection and request that Capricor provide a Return Goods
Authorization number (“RGA”) to Distributor and Distributor shall otherwise comply with the
procedures set forth on Exhibit D, attached hereto. Capricor may elect either to have the rejected
Products shipped back or to have them destroyed at Capricor's expense. If Capricor elects to
have the Products returned, within ten (10) days after receipt of the RGA number, Distributor shall
return to Capricor the rejected Products, freight prepaid, in their original shipping carton (if
reasonably practicable) with the RGA number displayed on the outside of the carton. Provided
that Capricor has provided a RGA to Distributor, Capricor reserves the right to refuse to accept
any rejected Products that do not bear an RGA number on the outside of the carton. As promptly
as possible, but no later than thirty (30) days after receipt by Capricor of properly rejected
Products, if the Products were properly rejected due to damage, visible defect, shortage or
discrepancy, Capricor shall, at Distributor’s option, either replace the Products or credit Distributor
therefor. Capricor shall pay the shipping charges back to Distributor and shall credit Distributor for
any prepaid shipping charges paid by Distributor for properly rejected Products, and Capricor shall
be responsible for the shipping charges for any shipment of replacement Products to Distributor.
9.3
Title and Risk of Loss. Title and risk of loss of the Product will transfer from
Capricor to Distributor upon Delivery of the Product.
9.4
Latent Defects. If Distributor becomes aware of any damage, defect or non-
conformance to Product Specifications in or to the Products which was not discoverable at its
visual inspection described in Section 9.1, Distributor shall promptly report such damage, defect
or non-conformance to Capricor and furnish Capricor with such written evidence or other
documentation. If the written evidence delivered by Distributor shall demonstrate that such
damage, defect or non-conformance meet the criteria for the latent defect (“Latent Defect”),
Capricor shall promptly deliver additional or substitute Products to Distributor in accordance with
the delivery procedures set forth in Section 9.1. The criteria for the Latent Defect shall be
specified in the Quality Agreement.
10. WARRANTIES; LIMITATION OF LIABILITY
10.1
Product Warranty. Capricor warrants to Distributor that, at the time of Delivery to
Distributor’s Distribution Warehouse: (a) the Products have been manufactured, tested, stored
and handled in accordance with the Quality Agreement; (b) the Products have been manufactured
to the Product Specifications set forth on its packaging and the written instructions for use that
accompany the Products; (c) the Products shall not be adulterated or misbranded within the
meaning of the Federal Food, Drug and Cosmetic Act (as amended) (the “Act”) or the Regulations
issued thereunder; (d) the Products shall not violate any other medical or health law, statute,
Regulation or directive applicable to the Products or their distribution in the Territory; (e) the
Products shall not violate any applicable customs, trade or environmental law, statute, Regulation
or directive; and (f) Capricor shall have good and marketable title to all Products free and clear of
all liens or encumbrances (other than any created by Distributor). If the Products fail to satisfy one
of the warranty conditions (a), (b), (c), (d), (e), and (f) above, such Products shall be referred to as
“Non-Conforming Products”. The warranties set forth in this Article 10 are intended solely for the
benefit of Distributor. All claims hereunder shall be made by Distributor and may not be made by
Distributor’s Customers. In the event any of the Products shipped to Distributor are Non-
Conforming Products, Capricor will replace the Non-Conforming Products at no charge to
Distributor, subject to the following:
10.1.1 The Product and its package are returned to Capricor (or destroyed at its
instruction), at which time they become the sole property of Capricor; and
10.1.2 The Product has not been altered, mishandled, improperly stored,
reprocessed, misused, or subject to unusual physical stress, nor has it been subject to
temperature incursions, and the tamper proof seal has not been removed.
10.2
Disclaimer. THE FOREGOING WARRANTY IS EXCLUSIVE AND IN LIEU OF
ALL OTHER WARRANTIES OF ANY KIND, WHETHER STATUTORY, WRITTEN, ORAL,
EXPRESS OR IMPLIED, INCLUDING ANY WARRANTIES OF FITNESS FOR A PARTICULAR
PURPOSE AND MERCHANTABILITY. IN NO EVENT, WHETHER AS A RESULT OF BREACH
OF CONTRACT, TORT LIABILITY (INCLUDING NEGLIGENCE) OR
OTHERWISE, SHALL CAPRICOR BE LIABLE TO DISTRIBUTOR FOR ANY SPECIAL,
INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES.
10.3
Limitation of Liability. [***].
10.4 Capricor shall not be liable with respect to any Product labeling or package inserts
provided or used by Distributor or for any noncompliance with the foregoing due to the handling or
packaging of Products by Distributor in a manner inconsistent with Capricor’s instructions.
10.5 Capricor’s warranty shall not apply to or cover any Product which Capricor can
demonstrate has not been stored under the required conditions after Delivery of the Products, or
to any Product that has in any way been affected by handling or distribution by anyone other than
Capricor after Delivery of the Products, or any adulteration occurring after Delivery of the Products
unless this has been directed by Capricor.
11.
INDEMNIFICATION
11.1
By Distributor. In addition to any indemnification obligation described elsewhere
in this Agreement, Distributor shall indemnify, defend and hold harmless Capricor and the
Capricor Indemnified Parties (as hereinafter defined) from and against and in respect of (a) any
and all claims by, and liabilities to, third parties (“Third-Party Claims”) asserted against or
incurred by Capricor or any of the Capricor Indemnified Parties, and (b) any and all expenses,
interests, fines, penalties, damages or other liabilities payable to third parties (including
reasonable fees and expenses of counsel, travel costs and other out of pocket costs) by Capricor
or any of the Capricor Indemnified Parties in connection with actual, pending or threatened
litigation or other proceedings regarding such Third-Party Claims (“Expenses”), in each instance
that arise out of or relate to:
11.1.1 any tort claim (including any claim for personal injury, wrongful death or
property damage) to the extent such claim arises from any negligent act or omission or willful
misconduct by Distributor (or its employees, agents, subdistributors, or contractors) in the course
of its performance pursuant to this Agreement, including any misrepresentation concerning the
characteristics or method of usage of Products or relating to the storage, handling or delivery of
Products;
11.1.2 the creation, extension or alteration of any warranty, representation or
obligation by Distributor or any of its agents, employees, representatives or subdistributors, which
is inconsistent with the provisions of this Agreement;
11.1.3 any action taken or omitted to be taken by Distributor or Distributor’s
agents, employees, representatives or subdistributors which is inconsistent with the provisions of
this Agreement;
11.1.4 claims arising from the use of materials created or prepared by or on
behalf of Distributor without obtaining the written approval of Capricor;
11.1.5 any violation by Distributor, its agents, employees, representatives or
subdistributors of any law, Regulation or order of any Governmental Authority in the Territory
applicable to Distributor including, without limitation, any sale or import of the Products into any
countries or regions outside the Territory;
11.1.6 any material breach by Distributor of this Agreement or any of the
representations, warranties or covenants of Distributor contained in this Agreement; and
11.1.7 any actual or alleged patent, copyright or trademark infringement, or
misappropriation or violation of any other proprietary right, arising out of Distributor's performance
pursuant to this Agreement (but not arising out of or relating to any of the proprietary rights in the
Products as delivered);
provided that this Section 11.1 shall not apply to any Third-Party Claim or Expense to the extent
that the Parties agree, or it is finally determined pursuant to Article 10 that the Third-Party Claim
or Expense is within the scope of Capricor’s indemnity obligation set forth in Section 11.2 below.
The "Capricor Indemnified Parties" shall mean and include (i) Capricor’s Affiliates (ii) the
respective directors, officers, agents and employees of and counsel to Capricor and its Affiliates,
(iii) each other Person, if any, controlling Capricor or any of its Affiliates, and (iv) the successors,
assigns, heirs and personal representatives of any of the foregoing.
11.2
By Capricor. In addition to any indemnification obligation described elsewhere in
this Agreement, Capricor shall indemnify and hold Distributor and the Distributor Indemnified
Parties (as hereinafter defined) harmless from and against, and in respect of, any and all Third-
Party Claims asserted against or incurred by, and any and all Expenses payable by, Distributor or
any of the Distributor Indemnified Parties that arise out of or relate to:
11.2.1 any actual or alleged breach of any warranty (including written warranties
included within the Product packaging) or obligation, if any, accompanying the Products, subject
to the limitations provided in Section 10.3;
11.2.2 the creation, extension or alteration of any warranty, representation or
obligation by Capricor or any of its agents, employees or representatives which is inconsistent
with the provisions of this Agreement;
11.2.3 any action taken or omitted to be taken by Capricor or Capricor’s agents,
employees or representatives which is inconsistent with the provisions of this Agreement;
11.2.4 claims arising from the use of materials created or prepared by or on behalf
of Capricor.
11.2.5 death or bodily injury to patients on whom a Product was properly used in
accordance with the instructions for use accompanying the Product; provided, however, that such
indemnification shall not apply to the extent that such death or personal injury was caused by (a)
any breach of this Agreement by Distributor; (b) any act of negligence, willful misconduct or
intentional act or omission to act by Distributor, its agents, employees, representatives,
subdistributors, Customers and/or the hospital at which the Product was used, its employees,
medical staff, contractors, agents and the medical personnel administering the Product; or (c) any
material violation of any applicable Regulations by Distributor. Capricor will be entitled to offset
from its indemnification obligation described herein all collateral sources, including amounts
covered by third-party payers or any other source.
11.2.6 any violation by Capricor of any Regulation, law or order of any
Governmental Authority in the Territory applicable to Capricor (other than to the extent that any
violation is caused by
the breach of this Agreement by Distributor or any of its agents, employees, representatives,
subdistributors or Affiliates or any negligence or intentional act or omission of any such persons or
entities);
11.2.7 any material breach by Capricor of this Agreement or any of the
representations, warranties or covenants of Capricor contained in this Agreement; and
11.2.8 actual or alleged infringement or misappropriation alleged by third parties of
patents, copyrights, trademarks, or other intellectual property rights by the using or selling of
Product(s) (except to the extent arising from Distributor’s use or sale of the Product(s) in a
manner not approved by Capricor);
provided that this Section 11.2 shall not apply to any Third-Party Claim or Expense to the extent
that the Parties agree, or it is finally determined pursuant to Article 10 that the Third-Party Claim
or Expense is within the scope of Distributor's indemnity obligation set forth in Section 11.1 above.
The "Distributor Indemnified Parties" shall mean and include (i) Distributor's Affiliates, (ii) the
respective directors, officers, agents and employees of and counsel to Distributor and its Affiliates,
(iii) each other Person, if any, controlling Distributor or any of its Affiliates, and (iv) the successors,
assigns, heirs and personal representatives of any of the foregoing.
11.3
Neither Party shall be liable to the other or to such other Party’s Indemnified
Persons for any indirect, special, consequential, punitive or incidental damages resulting from any
claim arising out of this Agreement, nor shall the foregoing indemnification obligations extend to
any such damages.
11.4
Procedure.
11.4.1 If any third party shall make any claim or commence any arbitration
proceeding or suit against any one or more of Distributor’s Indemnified Parties or Capricor’s
Indemnified Parties (“Indemnified Persons”) with respect to which an Indemnified Person intends
to make any claim for indemnification against Capricor under Section 11.2 or against Distributor
under Section 11.1 (as the case may be, the “Indemnitor”) such Indemnified Persons, (each an
“Indemnitee”) shall promptly (but in no event more than thirty (30) days after learning of such
Third-Party Claim) give written notice to the Indemnitor of such Third Party Claim, arbitration
proceeding or suit and the following provisions shall apply. The Indemnitee shall provide the
Indemnitor all information and documentation necessary to support and verify the losses so
claimed and the Indemnitor and its representatives shall be given access to all books and records
in the possession or control of the Indemnitee which the Indemnitor reasonably determines to be
related to such Third-Party Claim. Indemnitee shall tender the defense thereof to the Indemnitor.
Indemnitor shall have the right, but not the obligation, to assume sole control of the defense,
settlement or disposition thereof, including, without limitation, the selection of defense counsel
reasonably acceptable to Indemnitee. The Indemnitee will reasonably cooperate with the
Indemnitor in the defense and settlement of all such Third-Party Claims at the Indemnitor’s
request and expense. The Indemnitor will keep the Indemnitee advised concerning the relevant
Third-Party Claim(s), and the Indemnitor shall not admit liability with respect thereto without the
express prior written consent of the Indemnitee. A failure to promptly notify the Indemnitor of a
claim shall serve to reduce the indemnity rights of the Indemnitee only to the extent that such
delay or failure to promptly notify the Indemnitor actually prejudiced or damaged the Indemnitor’s
defense of the claim. If the Indemnitor elects to assume
any such defense, the Indemnitor shall not be liable for any legal or other expenses subsequently
incurred directly by the Indemnitee in connection with such defense.
11.4.2 So long as the Indemnitor is conducting the defense of the Third Party
Claim in accordance with this Article 11, (a) the Indemnitee will not consent to the entry of any
judgment or enter into any settlement with respect to the Third-Party Claim without the prior
written consent of the Indemnitor, and (ii) the Indemnitor will not consent to the entry of any
judgment or enter into any settlement with respect to the Third-Party Claim without the prior
written consent of the Indemnitee, which consent will not be unreasonably withheld or delayed;
provided, however, that such consent of the Indemnitee will not be required if the judgment or
settlement contains a full release of claims against the Indemnitee with no admission of liability or
wrongdoing. Notwithstanding any other provision of this Section 11.4, if an Indemnitee withholds
its consent to a bona fide settlement offer, where, but for such action, the Indemnitor could have
settled such Third-Party Claim, the Indemnitor will be required to indemnify the Indemnitee only up
to a maximum of the bona fide settlement offer for which the Indemnitor could have settled such
Third-Party Claim.
11.4.3 If the Indemnitor does not assume and conduct the defense of any such
Third Party Claim for which it is obligated to provide indemnification under Section 11.4.1 or
Section 11.4.2 (as applicable), notwithstanding anything to the contrary in this Agreement, (a) the
Indemnitee may defend against, consent to the entry of any judgment, or enter into any settlement
in any manner the Indemnitee may deem reasonably appropriate and the Indemnitee need not
consult with, or obtain any consent from, the Indemnitor, and (b) the Indemnitor shall remain liable
to indemnify the Indemnitee for any damages, losses and expenses (including without limitation
the attorney’s fee and arbitration costs) as provided in this Agreement.
11.5
Entire Obligations. The foregoing provisions of this Article 11 state the entire
obligations of the Parties and the exclusive remedy of the Parties and any Indemnified Persons
with respect to any alleged infringement of patents, copyrights, trademarks or other intellectual
property rights by the Products or the use or sale of the Products.
12.
NOTIFICATIONS
12.1 Safety Notifications. In case a Product is potentially deviating from Capricor’s
Product Specifications, or under any other circumstance where such Product might cause, or
already has caused, harm to a patient, user or other person, each Party shall notify the other
Party in writing (“Safety Notification”), irrespective of the time or location of detection of the
potentially faulty Product, as soon as the respective party gains knowledge of such. It is
Capricor’s sole right and responsibility to file safety reports or vigilance reports to any legal
authority for the Products in order to comply with the applicable Regulations in the Territory.
Nothing in this Agreement shall prevent Distributor from complying with any applicable law or
Regulation that requires Distributor to report medical incidents, provided that Distributor shall
concurrently provide Capricor with a copy of any such reports. Safety Notifications and any other
complaints with respect to the Product are to be promptly delivered to the following addresses:
Capricor Therapeutics, Inc.
NS PHARMA, INC.
10865 Road to the Cure
Suite 150
San Diego, CA 92121
140 East Ridgewood Ave, Suite 280S
Paramus, NJ 07652
Attn: Director of Regulatory Affairs
Attn: Director of Regulatory Affairs
With a copy to:
General Counsel
8840 Wilshire Blvd., 2nd Floor
Beverly Hills, CA 90211
12.2
Statements. In the event of an actual or alleged defect of a Product, Distributor or
its representatives or agents shall not make any statement as to the cause, before having
informed Capricor and having received Capricor’s written report on the initial analysis of the
defect, which shall be provided by Capricor within thirty (30) days after its receipt of notification
from Distributor, and shall then not render statements different from or in addition to the results of
such analysis. Notwithstanding the foregoing, Distributor shall be free to make such reports as are
required by applicable law. Unless otherwise proscribed by law, Distributor shall concurrently
provide Capricor with a copy of any report filed pursuant to this Section.
12.3
Product Recalls. If either Party believes that a recall of any Product in the
Territory is desirable or required by Regulations in the Territory or elsewhere, it shall immediately
notify the other Party. The Parties shall then discuss reasonably and in good faith whether such
recall is appropriate or required and the manner in which any recall should be handled.
Notwithstanding Section 10.3, if the reason for such recall is finally determined to have been
caused due to Capricor’s gross negligence, willful misconduct or breach of this Agreement,
Capricor shall reimburse Distributor for all of the costs and expenses actually incurred by
Distributor in connection with such recall. If the reason for such recall is finally determined to have
been caused due to Distributor’s gross negligence, willful misconduct or breach of this
Agreement, Distributor shall reimburse Capricor for all of the costs and expenses actually incurred
by Capricor in connection with such recall. Any Product Recall shall be conducted in accordance
with the relevant provisions set forth in the Quality Agreement.
12.4
Remedial Actions. It is Capricor’s exclusive right and obligation to issue recalls,
safety alerts, advisory notices or similar remedial actions with respect to the Product. In such
case, Capricor and Distributor shall each support and fully cooperate with each other to comply
with all applicable laws and Regulations. Furthermore, in such case, Distributor shall notify its
Customers and, upon Capricor’s request, retrieve identified Products. Notwithstanding the
foregoing, Distributor shall be free to take any actions required by applicable Regulations. Unless
otherwise proscribed by law, Distributor shall concurrently inform Capricor about all actions taken
by Distributor in connection with any remedial actions.
12.5 Material Safety Risk. In the event that Capricor determines in good faith that the
continued manufacture and sale of the Product poses a material safety risk to patients, Capricor
shall immediately give notice of such a material safety risk to Distributor and discuss suspension
of the continued sale of the Product. If Distributor disputes suspension of the continued sale of the
Product, such matter shall be submitted to the JSC and the JSC shall attempt to resolve the
dispute; provided that if the JSC is unable to resolve such dispute thereunder within thirty (30)
days of referral to the JSC, then such dispute shall be submitted to Expert Determination pursuant
to Section 18.3.2. Capricor will consider in good faith the determination of the expert, but, if after
applying sound scientific judgment and acting
only in the interest of patient safety without consideration for any other business reasons Capricor
is unable to accept such determination, Capricor shall have the final decision-making authority
regarding whether a material safety risk exists and suspension of the continued sale of the
Product, and its decision with respect thereto shall not be subject to appeal. For clarification, this
Agreement shall continue in effect during such suspension of the continued sale unless
terminated in accordance with any provisions of this Agreement. During such suspension of the
continued sale of the Product, the performance of Distributor’s obligations hereunder shall be
suspended except as required to be performed by applicable laws, Regulations or Governmental
Authority. When the suspension of the continued sale of the Product is lifted and the sales of the
Product resumes, the suspension of the performance of these obligations shall be lifted, provided
that the Parties shall agree on when the sales of the Product will resume and discuss the
amendment of this Agreement.
13.
PROPERTY RIGHTS AND CONFIDENTIALITY
13.1
Property Rights. Distributor agrees that Capricor and/or its Affiliates own all right,
title, and interest in the Product and in all of Capricor’s patents, trademarks, trade names,
inventions, copyrights, know-how, and trade secrets relating to the design, manufacture, operation
and/or use of the Products. The use by Distributor of any of these property rights is authorized
only for the purposes set forth in this Agreement, and upon termination of this Agreement for any
reason, such authorization shall cease.
13.2
Transfer Conveys No Right to Manufacture or Copy. The Products are being
transferred hereunder by Capricor subject in every case to the condition that such transfer does
not convey any license, expressly or by implication, to manufacture, duplicate, modify or otherwise
copy or reproduce the Product. Distributor shall take appropriate steps with its subdistributors and
Customers, as Capricor may request, to inform them of and assure compliance with the
restrictions contained in this Section 13.2.
13.3
Confidentiality.
13.3.1 This Agreement applies to all Confidential Information disclosed by a Party
(the “Disclosing Party”) and/or its Affiliates to a receiving Party (the “Receiving Party”).
“Confidential Information” means confidential and/or proprietary information of the Disclosing
Party and its licensors and Affiliates, whether in written, printed, verbal or electronic form,
including, without limitation: (a) research and development activities, preclinical study information,
clinical trial information and data, results, product design details and specifications, manufacturing
processes, CMC development, protocols, technology and know-how, regulatory processes and
information, sales and marketing plans,
forecasts, procurement
requirements, vendor information, customer lists, personnel information, and strategic plans; (b)
other information that the Disclosing Party identifies in writing as confidential to the Receiving
Party; (c) information that the Receiving Party knows or has reason to know is confidential or
proprietary information of the Disclosing Party; (d) information which is of such a nature or the
manner or circumstance in which such information is disclosed is such that it may be reasonably
inferred to be confidential and/or proprietary to the Disclosing Party; and (e) all notes, analyses,
compilations, studies, interpretations or other documents prepared by the Receiving Party or its
representatives to the extent they contain, reflect or are based upon, in whole or in part,
Confidential Information of a Disclosing Party furnished to the Receiving Party or its
representatives in connection with this Agreement by or on behalf of the Disclosing Party and (f)
information obtained during an audit or tour of the Disclosing Party’s (or its Affiliates’ facility).
finances and business
13.3.2 Restriction on Use and Disclosure. Distributor and Capricor each
agree that during the term of this Agreement and for a period of seven (7) years after the
termination hereof, to hold the Disclosing Party’s Confidential Information in confidence and not to
use it in any way for their own account or for the account of any third party, nor disclose to any
third party, any Confidential Information of the Disclosing Party, except as specifically permitted or
required for their respective performances hereunder. Distributor and Capricor each agree to take
all necessary measures to prevent any disclosure of the other Party’s Confidential Information and
to ensure compliance with the above obligations by its employees, agents, contractors,
subdistributors, or consultants. Distributor shall not publish any technical description of the
Products beyond the description published by Capricor. Distributor shall not manufacture or have
manufactured any pharmaceutical or biologic product utilizing any of Capricor’ Confidential
Information and shall not alter, amend or modify all or any part of the Product. The Receiving
Party shall be responsible for any unauthorized use or disclosure of the Confidential Information
by the Receiving Party's employees, agents, contractors, representatives, subdistributors,
directors, or consultants.
13.3.3 Mutual Nondisclosure Agreement. The Parties have executed that
certain Mutual Nondisclosure Agreement dated [***], a copy of which is attached hereto as
Exhibit E (the “NDA”). The terms and conditions of the NDA are incorporated herein as though
set forth in full and shall be applicable to the obligations of the Parties in connection with the use
and protection of the Parties’ Confidential Information hereunder. In the event of a conflict
between the terms and conditions of the NDA and this Agreement, the terms and conditions of
this Agreement shall control. For clarification, (i) Confidential Information shall not include the
information specified in Section 1.2 of the NDA and (ii) if the disclosure is legally compelled, such
disclosure shall be subject to Article 7 of NDA.
14.
TRADEMARKS
14.1
License.
14.1.1 During the term of this Agreement, Distributor shall have:
the exclusive distributor of the Product in the Territory; and
(a)
the exclusive, non-transferable right to indicate to the public that it is
(b)
the right to advertise, sell, distribute, promote, and market such
Product in the Territory under the Trademarks listed on Exhibit B, provided such Trademarks are
used by Distributor in accordance with Capricor’s standards, specifications and instructions, but in
no event beyond the Term of this Agreement.
(c) Notwithstanding the foregoing, Distributor may sublicense such rights
to the approved subdistributors including NS Pharma, subject to the provisions set forth in Section
4.2.
14.1.2 Except as set forth in this Section 14.1, nothing contained in this
Agreement shall grant to Distributor any right, title, or interest in the Trademarks, and all goodwill
accruing from the use of the Trademarks shall inure solely to the benefit of Capricor. At no time
during or after the term shall Distributor, directly or indirectly, challenge or assist others to
challenge the Trademarks or the registration thereof. Distributor shall afford Capricor reasonable
opportunities during the term hereof to inspect and monitor the activities of Distributor in order to
ensure Distributor’s use of the Trademarks in accordance with Capricor’s standards and
instructions. Distributor shall acquire no right, title or interest in such
Trademarks other than the foregoing limited license and all rights in the Trademarks shall be in
the name of Capricor and/or its Affiliates, and Distributor shall not use any Trademarks as part of
Distributor’s corporate or trade name or permit any third party to do so without the prior written
consent of Capricor. In the event Capricor determines in its sole discretion that it is necessary or
advisable to enter into a Registered User Agreement or a similar document in connection with
protection of such Trademarks, Distributor shall enter into such an agreement.
14.2
Registration. Capricor, in its sole discretion, shall determine whether to register
the Trademarks in the Territory. In addition, in the event Capricor believes that it is advisable to
effect any filing or obtain any governmental approval or sanction for the use by Distributor of any
of the Trademarks pursuant to this Agreement, the Parties shall fully cooperate in order to do so.
All expenses relating to the registration of the Trademarks in the Territory, as well as the making of
any filings or obtaining any governmental approvals for the use by Distributor of the Trademarks
shall be borne by Capricor.
14.3 Markings. Distributor shall not, without the prior written consent of Capricor,
remove or alter any patent numbers, trade names, trademarks, notices, serial numbers, labels,
tags or other identifying marks, symbols or legends affixed to any Product or containers or
packages.
14.4
Infringements. Distributor shall promptly notify Capricor of any use by any third
party of the Trademarks or any similar marks which may constitute an infringement or passing off
of the Trademarks. Capricor reserves the right in its sole discretion to institute any proceedings
against such third party infringers and Distributor shall refrain from doing so without Capricor’ prior
written consent. Distributor agrees to cooperate fully with Capricor in any action taken by Capricor
against such third parties, provided that all expenses of such action shall be borne by Capricor
and all damages which may be awarded or agreed upon in settlement of such action shall accrue
to Capricor. If Capricor elects not to pursue any such action against a third party infringer,
Distributor shall have the right, but not the obligation, to pursue such action at its own cost and
expense and shall be subject to Capricor’s consent, not to be unreasonably withheld. In such
case, the costs to be borne and allocation of any recovery Distributor is awarded for any action
against the third party infringer shall first be allocated to reimburse Distributor for costs and
expenses incurred under such action, and any remaining amounts shall be allocated between the
Parties as agreed between the Parties prior to Distributor’s initiation of such action.
14.5
Termination of Use. Distributor acknowledges the proprietary rights of Capricor
and/or its Affiliates in and to the Trademarks and any trade names regularly applied by Capricor to
the Product, and Distributor hereby waives in favor of Capricor all rights to any trademarks, trade
names, trade dress, and logotypes now or hereafter originated by Capricor, and all goodwill
accruing from the use of any of the foregoing shall inure solely to the benefit of Capricor.
Distributor shall not adopt, use or register any words, phrases or symbols which are identical to
any of such trademarks, trade names, trade dress or logotypes. Upon termination of this
Agreement, Distributor shall cease and desist from use of the Trademarks in any manner. In
addition, Distributor hereby empowers Capricor and agrees to assist Capricor, if requested, to
cancel, revoke or withdraw any governmental registration or authorization permitting Distributor to
use the Trademarks in the Territory.
14.6
Approval of Representations. All representations of Capricor’s Trademarks that
Distributor intends to use shall first be submitted to Capricor for written approval of design, color,
and other details or shall be exact copies of those used by Capricor.
15. TERM AND TERMINATION
15.1
Term. Unless sooner terminated under the provisions of this Article 15 or any
other termination provision contained elsewhere in this Agreement, the term of this Agreement
shall commence on the date of mutual execution hereof and shall continue in full force and effect
until [***]. Thereafter, the term of this Agreement may be extended upon the mutual agreement of
the Parties, in writing. for successive periods of one (1) year each unless otherwise terminated in
writing by either Party. If the Agreement is extended, the Parties may discuss reducing the Supply
Price of the Product.
15.2
Termination
15.2.1 Termination By Capricor. In addition to any termination provisions
contained elsewhere in this Agreement, Capricor shall have the right to terminate this Agreement
by written notice to Distributor in the following circumstances:
(i)
Distributor shall have failed to pay all undisputed amounts for its
purchases of Products in accordance with Article 8 or breached any other monetary obligation
hereunder, which failure is not cured within sixty (60) days after receiving notification thereof from
Capricor; provided, however, that all amounts that are subject to a bona fide dispute (“Disputed
Amounts”) raised by a Party in writing within such sixty (60) day period may be withheld from the
specific invoice to which it relates and submitted first to the JSC for resolution, and if not resolved,
then to General Arbitration pursuant to Section 18.3.1. hereof. All Disputed Amounts that
Distributor subsequently agrees in writing to pay or that are required to be paid pursuant to a
proper arbitration determination shall be paid within thirty (30) days from the date of such
agreement or determination.
(ii)
Distributor shall have breached a material obligation (other than
under Section 15.2.1) under this Agreement and failed to cure such breach within ninety (90) days
after receiving notice thereof from Capricor; provided, however, that if there is a bona fide dispute
as to any non-monetary obligation raised by a Party in writing within such ninety (90) day period,
such dispute shall first be submitted to the JSC for resolution, and if not resolved, then to General
Arbitration pursuant to Section 18.3.1 hereof.
(iii)
In the event Distributor shall have failed to pay any monetary
amounts or failed to cure any non-monetary obligation after determination by the arbitrator that it
is obligated to do so, Capricor shall have the right to terminate this Agreement upon thirty (30)
days’ written notice thereof by Capricor to Distributor.
(iv) Upon ten (10) days’ written notice, in that event that any Regulation
or Governmental Authority enactment or decree suspends or prohibits the performance by
Capricor of its obligations hereunder, and, after using Commercially Reasonable Efforts to do so,
Capricor is unable to resume its responsibilities hereunder.
15.2.2 Termination By Distributor. In addition to any termination provisions
contained elsewhere in this Agreement, Distributor shall have the right to terminate this
Agreement by written notice to Capricor in the following circumstances:
Capricor shall have breached a material obligation under this
Agreement and failed to cure such breach within ninety (90) days after receiving written notice
thereof from
(i)
Distributor; provided, however, that if there is a bona fide dispute as to any obligation raised by a
Party in writing within such ninety (90) day period, such dispute shall first be submitted to the JSC
for resolution, and if not resolved, then to General Arbitration pursuant to Section 18.3 hereof.
(ii)
Upon ten (10) days’ written notice, in that event that any Regulation
or Governmental Authority enactment or decree suspends or prohibits the performance by
Distributor of its obligations hereunder, and, after using Commercially Reasonable Efforts to do
so, Distributor is unable to resume its responsibilities hereunder.
15.2.3 Either Party may terminate this Agreement immediately upon written notice
to the other Party if:
The other Party shall be or become bankrupt or insolvent or if there
are instituted by or against it proceedings in bankruptcy or under insolvency laws or for its
reorganization, receivership, liquidation or dissolution;
(i)
(ii)
The Product is adjudicated to infringe the intellectual property of a
third party and it is not commercially or technically feasible for Capricor or Distributor to obtain a
license from the third party or to replace or modify the Product so that it is no longer infringing any
third party’s intellectual property rights or such replacement or modification of the Product is not
acceptable for Distributor.
15.2.4 Termination for Change of Control. [***].
15.3
Rights and Obligations on Termination. In addition to any provision contained
elsewhere in this Agreement, in the event of termination of this Agreement for any reason, the
Parties shall have the following rights and obligations:
15.3.1 Termination of this Agreement shall not release the Parties from the
obligation to make payments of all amounts then due and payable, including, without limitation,
any Supply Price payments, Transfer Price payments and Milestone payments accruing through
the date of such termination or expiration.
15.3.2 Subject to any provision contained elsewhere in this Agreement, Capricor
shall have the right at its option to either (i) cancel any or all accepted Purchase Orders which
provide for delivery after the effective date of termination; or (ii) continue to fulfill, subject to the
terms of Section 7.4 above, all orders accepted by Capricor prior to the effective date of
termination which specify a Delivery Date no later than ninety (90) days after the acceptance of
such order, provided that Capricor shall continue to fulfill orders accepted by Capricor prior to the
effective date of termination to enable Distributor to fulfill its remaining obligations under any
orders which have been given to Distributor prior to the applicable notice of termination, and
provided further, that (i) Distributor is in material compliance with Distributor’s obligations under
this Agreement; and (ii) Capricor is otherwise not restricted in its ability to sell additional Products
to Distributor
15.3.3 In case of termination by Capricor pursuant to Section 15.2.1 (i), (ii) or (iii)
or Section 15.2.3(i), Capricor shall have the right, but not the obligation, to repurchase all or any
part of the inventories of Products in Distributor’s possession as of the termination date at
Capricor’s invoiced Transfer Price to Distributor for such Products, less freight to Capricor’s place
of business. Capricor shall
exercise its option under this subsection by notifying Distributor in writing no later than fifteen (15)
days after the effective termination date. In case of any termination other than a termination by
Capricor specified above in this Section 15.3.3, Capricor shall (i) repurchase all or any part of the
inventories of Products in Distributor’s possession as of the termination date which are unsold, not
expired and which have been properly stored and maintained at Capricor’s invoiced Transfer
Price to Distributor for such Products, and (ii) bear the cost of the freight of the Products to be
repurchased by Capricor to Capricor’s designated place of business.
15.3.4 In the event Capricor exercises its right to terminate this Agreement
pursuant to the foregoing termination provisions, Capricor shall continue to sell Products to
Distributor to enable Distributor to fulfill its remaining obligations under any orders which have
been given to Distributor prior to the applicable notice, provided that (i) Distributor is in material
compliance with the terms and conditions of this Agreement; and (ii) Capricor is otherwise not
restricted in its ability to sell additional Products to Distributor.
15.4
Remedies Cumulative. Any rights or remedies provided by this Agreement to
either Party shall be cumulative and in addition to any rights or remedies such Party may have at
law, or in equity, or under any other agreements between the Parties.
15.5
Return of Materials. All of the trademarks, trade names, packaging, photographs,
samples, literature and sales aids of every kind of Capricor and/or its Affiliates shall remain the
property of Capricor and/or its Affiliates, as applicable. Within thirty (30) days after the termination
of this Agreement, Distributor shall prepare all such items in its possession for shipment, as
Capricor may direct, at Capricor’ expense. Distributor shall not make, use, dispose of, or retain
any copies of any Confidential Information or items which may have been entrusted to it except for
those materials necessary to satisfy its regulatory obligations. Effective upon the termination of
this Agreement, Distributor shall cease to use all of Capricor’s trademarks, marks, trade names,
data, and literature of every kind.
16.
FORCE MAJEURE. The obligations of either Party to perform under this Agreement shall
be excused during each period of delay caused by matters (not including lack of funds or other
financial causes) such as fires, floods, explosions, accidents, acts of God, war, riots, strikes,
lockout or other concerted acts of workers, pandemic, communicable diseases, acts of
Governmental Authorities, supplier delays, shortages of raw materials, actions or failures to act by
Governmental Authorities, and Government orders, in each case that are reasonably beyond the
control of the Party obligated to perform; provided that nothing contained in this Agreement shall
affect either Party's ability or discretion with respect to any strike or other employee dispute or
disturbance and all such strikes, disputes or disturbances shall be deemed to be beyond the
control of such Party. A condition of force majeure shall be deemed to continue only so long as
the affected Party shall be taking all reasonable actions necessary to overcome such condition. If
either Party shall be affected by a condition of force majeure, such Party shall give the other Party
prompt notice thereof, which notice shall contain the affected Party's estimate of the duration of
such condition and a description of the steps being taken or proposed to be taken to overcome
such condition of force majeure. Any delay occasioned by any such cause shall not constitute a
default under this Agreement, and the obligations of the Parties shall be suspended during the
period of delay so occasioned. During any period of force majeure, the Party that is not directly
affected by such condition of force majeure shall be entitled to take any reasonable action
necessary to mitigate the effects of such condition of force majeure.
17.
RIGHT OF FIRST REFUSAL; RIGHT OF FIRST NEGOTIATION
[***]
18.
DISPUTE RESOLUTION
18.1 General. Any dispute arising out of or relating to this Agreement shall be resolved
in accordance with the procedures specified in this Article 18, which shall be the sole and
exclusive procedures for the resolution of any such disputes.
18.2 Escalation. The Parties will attempt in good faith to resolve any claim or
controversy arising out of or relating to the execution, interpretation and performance of this
Agreement (including the validity, scope and enforceability of this mediation and arbitration
provision) promptly by negotiations between executives of each Party who have authority to settle
the controversy and who are at a higher level of management than the persons with direct
responsibility for the administration of this Agreement. Any Party may give the other Party written
notice of any dispute not resolved in the normal course of business. Within fifteen (15) days after
delivery of the notice, the receiving Party shall submit to the other a written response. The notice
and the response shall include (a) a statement of each Party's position and a summary of
arguments supporting that position, and (b) the name and title of the executive who will represent
that Party and of any other person who will accompany the executive. Within thirty (30) days after
delivery of the notifying Party's notice, the executives of both Parties shall meet at a mutually
acceptable time and place, and thereafter as often as they reasonably deem necessary, to
attempt to resolve the dispute. All reasonable requests for information made by one Party to the
other will be honored. All negotiations pursuant to this clause are confidential and shall be treated
as compromise and settlement negotiations for purposes of applicable rules of evidence. All
applicable limitation periods and defenses based upon the passage of time shall be automatically
tolled while the negotiations pursuant to this section are pending.
18.3 Arbitration.
18.3.1 General Arbitration.
(a) Except as controlled by Section 18.3.2, any matter submitted to
arbitration pursuant to any provision contained in this Agreement or any dispute arising out of or
relating to this Agreement or its breach, termination or validity, including whether the claims
asserted are arbitrable, which has not been resolved by the specified binding procedure pursuant
to Section 18.2 within sixty (60) days of the initiation of the date of delivery of notice shall be
settled by binding arbitration under the Rules of Arbitration of the International Chamber of
Commerce (“ICC Rules”), except as modified in this Agreement, in effect on the date of this
Agreement, by three independent and impartial arbitrators, one of whom shall be appointed by
each Party and the third by the two appointees. The arbitration and this arbitration clause shall be
governed by the United States Arbitration Act, 9 U.S.C. §§ 1-16, and judgment upon the award
rendered by the arbitrators may be entered by any court having jurisdiction thereof. The place of
the arbitration shall be New York, New York or Los Angeles, California and shall be determined by
the Party that initiated the arbitration. The arbitrators may award attorneys' fees in their discretion.
Otherwise, the arbitrators are not empowered to award damages in excess of compensatory
damages, and each Party hereby irrevocably waives any right to recover such damages.
(b) The Parties may request limited discovery in accordance with the IBA
Rules on the Taking Evidence in International Arbitration. In addition, the Parties hereby confirm
that (i) the arbitrators shall have the power to compel the production of documents at their
discretion, (ii) in principle, discovery shall be limited to the minimum necessary scope to allow the
Parties a reasonable opportunity to present their cases and fairly establish the facts of the dispute,
and (iii) any request for production of documents made by a Party shall be sufficiently detailed in
its description of the requested document and accompanied by a statement explaining how such
document is relevant to the dispute and why the requesting party believes the requested
document is in the possession of the other Party. The statute of limitations of the State of New
York shall apply with respect to any notification of a dispute under this Agreement and shall be
extended until commencement of arbitration if all interim deadlines have been complied with by
the notifying Party.
18.3.2 Expert Determination. If the Parties, through the JSC or otherwise, are
unable to agree on Minimum Sales Requirements, forecasts, the pricing and applicable discount
ranges for the Products and a material safety risk, either Party may submit such dispute to binding
Expert Determination for resolution in accordance with the following provisions:
The submitting Party shall notify the other Party of its decision to
initiate the Expert Determination proceeding pursuant to this Section 18.3.2 through written notice.
(a)
(b)
Within ten (10) days following receipt of such notice, the Parties
shall use Commercially Reasonable Efforts to agree on an independent third party expert with at
least ten (10) years of experience in the marketing, sales and distribution of pharmaceutical
compounds or products. If the Parties cannot agree on such expert within such time period, each
Party shall nominate one independent expert within such ten (10)-day period, and the two experts
so selected shall nominate the presiding expert (the “Presiding Expert”) within ten (10) calendar
days of their nomination. No person nominated by a Party or appointed by the experts shall be
entitled to act as the Presiding Expert unless such person has at least ten (10) years of
experience in the marketing, sales and distribution of pharmaceutical compounds or products. Any
person appointed or selected as the Presiding Expert in accordance with the above provisions
shall be entitled to act as such expert provided that before accepting such appointment, the
proposed Presiding Expert shall have fully disclosed in writing any interest or duty which conflicts
or may conflict with the function under the appointment and/or may prejudice an opinion. No
person shall, without the prior written agreement of both Parties, be appointed as expert who is, or
has been, an employee of either Party or either Party’s Affiliate or who is, or has been, a
consultant to or contractor of either Party or either Party’s Affiliate or who holds any financial
interest in either Party or either Party’s Affiliate. No person shall be appointed as a Presiding
Expert who has not agreed to hold in confidence any and all information furnished by the Parties
in connection with the dispute and the existence of the dispute and the outcome thereof.
Within ten (10) days of its appointment, the Presiding Expert shall
set a date for the hearing, which date shall be no more than thirty (30) days after the date the
Presiding Expert has accepted the appointment.
(c)
(d)
The Expert Determination shall be in an accelerated form;
accordingly, at least fourteen (14) calendar days prior to the hearing, each Party shall provide the
Presiding Expert with a proposed resolution, along with supporting documentation (each, a
“Proposed Resolution”) to the issue in question. Such Proposed Resolution may be no more
than thirty (30) pages, single spaced, single-sided
(inclusive of any graphs or exhibits, and secondary materials), and must clearly provide and
identify the Party’s position with respect to the disputed matter(s) (“Position”);
(e)
After receiving both Parties’ Proposed Resolutions, the Presiding
Expert will distribute each Party’s Proposed Resolution to the other Party. Seven (7) calendar
days in advance of the hearing (described in clause (f) below), the Parties shall submit to the
Presiding Expert and exchange response briefs of no more than ten (10) pages, with the same
rules applied as to the Proposed Resolution. The Parties’ Proposed Resolution and responsive
briefs may also include or attach demonstratives and/or expert opinion based on the permitted
documentary evidence, subject to the page limits. Neither Party may have any other
communications (either written or oral) with the Presiding Expert other than for the sole purpose of
engaging the Presiding Expert or as expressly permitted in this Section 18.3.2;
(f)
The hearing shall consist of a one (1) day hearing of no longer than
eight (8) hours, such time to be split equally between the Parties, in the form of presentations by
counsel and/or employees and officers of the Parties. No live witnesses shall be permitted except
expert witnesses whose opinions were provided with the Parties’ briefs. The Presiding Expert
shall determine whether to hold the meeting in person, in which case it will be held in New York,
New York, or by video or teleconference;
(g)
No later than ten (10) calendar days following the hearing, the
Presiding Expert shall issue his or her written decision. The Presiding Expert shall take into due
consideration each Party’s Position and changes in the market environment of the Product but
shall be under no obligation to select one Party’s Proposed Resolution as his or her decision. The
Presiding Expert’s decision shall be final and binding on the Parties and the written decision by
the Presiding Expert shall constitute a binding agreement between the Parties that may be
enforced in accordance with its terms. Each Party shall bear its own costs and expenses in
connection with such Expert Determination, and shall share equally the experts’ fees and
expenses;
(h)
The violation of one of the time limits prescribed in this Section
18.3.2 by the expert shall not affect the expert’s competence to decide on the subject matter, and
shall not affect the final and binding decision rendered by the expert, unless otherwise agreed by
the Parties; and
The above Expert Determination shall be the exclusive and
binding remedy of either Party if the Parties cannot agree on those matters designated in this
Agreement as being subject to Expert Determination, with the exception of Section 12.5 regarding
material safety risk.
(i)
18.3.3 Injunctive Relief. Nothing contained in this Article 18 shall prevent either
Party from resorting to judicial process if injunctive or other equitable relief from a court is
necessary to prevent serious and irreparable injury to one Party or to others. The use of
arbitration procedures will not be construed under the doctrine of laches, waiver or estoppel to
affect adversely either Party's right to assert any claim or defense.
19. PUBLICITY AND DISCLOSURES
19.1 On or after the Effective Date of this Agreement, the Parties shall issue a press
release substantially in a form to be agreed upon by the Parties. Thereafter, Distributor and
Capricor may each disclose to third parties the information contained in such press release
without the need for further approval by the other Party, provided that such information is still
accurate. Any subsequent press release will contain the same accuracy and truthfulness as the
original press release. No other press releases or
public disclosures of the transaction contemplated by this Agreement may be made that discloses
additional information about such transactions without the mutual consent of the other Party or to
the extent required by applicable law, rule or regulation (including stock exchange requirements).
To the extent that a release of information is required by applicable law, rule or regulation
(including stock exchange requirements), the disclosing Party will use Commercially Reasonable
Efforts to ensure that the content is accurate and in accordance with reasonable business
standards and will, to the extent practicable, provide the other Party with advance notice of the
proposed disclosure and an opportunity to review and comment upon such disclosure. A copy of
this Agreement may be filed with the Securities and Exchange Commission, The New York Stock
Exchange, the NASDAQ Market and/or the Tokyo Stock Exchange as required by applicable
Regulations. In connection with such filing, the Parties will endeavor to obtain confidential
treatment of economic and trade secret information. For clarification, subject to the foregoing
provision in this Section 19.1, Distributor may cause NS Pharma to issue a press release in
relation to this Agreement.
19.2
The restrictions contained in Section 19.1 will not apply to any disclosures to any
prospective investor, acquirer, financing source, analyst, consultant, agent, representative,
successor or finder, or any licensee of Capricor, or any other third party with whom Capricor is
considering entering into a commercial relationship including but not limited to business alliance or
M&A provided that Capricor takes reasonable precautions to maintain confidentiality prior to
disclosure. Capricor will have taken reasonable precautions for purpose of this Agreement if it
obtains a written confidentiality agreement with the intended recipient containing confidentiality
provisions substantially similar to those contained in Article 13 of this Agreement. Capricor shall
indemnify and hold harmless the Distributor for any subsequent breach of such confidentiality
agreement by such recipient. Any information that is now, or hereafter becomes generally known
or available to the public will be excluded from the prohibitions of this Article 19. In addition to the
foregoing, Capricor shall have the right to use without further consent, the names or marks of
Distributor on Capricor’s website, corporate presentations, and in media segments, provided that
Capricor shall not change or modify such names, marks, or logos of Distributor.
20.
GENERAL PROVISIONS
20.1 Governing Law and Jurisdiction. This Agreement shall be governed by and
construed under the laws of the State of New York, USA. The UN Convention on Contracts for the
International Sale of Goods shall not apply.
20.2
Entire Agreement. This Agreement, including all exhibits attached hereto which
are incorporated herein and the NDA, constitute the entire agreement and understanding of the
Parties with respect to the subject matter hereof, and supersedes all previous agreements by and
between the Parties as well as all proposals, term sheets, oral or written, and all negotiations,
conversations or discussions heretofore had between the Parties related hereto. Distributor
acknowledges that it has not been induced to enter into this Agreement by any representations or
statements, oral or written, not expressly contained herein.
20.3 Amendment; Modification. No modification or amendment to any provision of, nor
any consent required by, this Agreement, nor any consent to any departure by either Party there
from, shall in any event be effective unless the same shall be in writing and signed by the other
Party and then such modification, amendment, or consent shall be effective only in the specific
instance and for the purpose
for which it is given. No notice to or demand on either Party in any case shall entitle such Party to
any other or further notice or demand in the same, similar or other circumstances.
20.4
No Waiver. To the fullest extent permitted by law, no failure or delay by a Party to
insist upon the strict performance of any term, condition, covenant or agreement of this
Agreement or any other agreement referred to herein, or to exercise any right, power or remedy
hereunder or thereunder or consequent upon a breach hereof or thereof, shall constitute a waiver
of any such term, condition, covenant, agreement, right, power or remedy or of any such breach,
or preclude such Party from exercising any such right, power, or remedy at any later time or times.
20.5
Notices. Any notice required or permitted to be given by either Party to the other
under this Agreement shall be in writing addressed to the other Party at its registered office or
principal place of business or such other address as may at the relevant time have been notified
pursuant to this provision to the Party giving the notice. At the time of execution of this Agreement,
notices shall be given as follows:
If to Distributor:
[***]
If to Capricor:
With a copy to:
Capricor Therapeutics, Inc.
10865 Road to the Cure
Suite 150
General Counsel
8840 Wilshire Blvd., 2nd Floor
Beverly Hills, CA 90211
San Diego, CA 92121
[***]
[***]
20.6
Assignment. Distributor agrees that its rights and obligations under this
Agreement may not be transferred or assigned, directly or indirectly, without the prior written
consent of Capricor. Capricor shall be entitled to assign any or all of its rights and obligations
hereunder to any other person or entity excluding any company that had or has been in litigation
with Distributor in the period three (3) years prior to the Effective Date of this Agreement to the
time of the intended assignment by Capricor, provided that such assignee shall assume all of
Capricor’s obligations hereunder. Any prohibited assignment shall be null and void. For purposes
of clarity, nothing contained herein shall restrict or be construed to limit Capricor’s right or the
rights of a third party to enter into an acquisition agreement or other form of corporate transaction
with Capricor, including, without limitation, a sale, merger, sale of substantially all assets, or
change of control of Capricor.
20.7
Counterparts. This Agreement shall be executed in two or more counterparts in
the English language, and each such counterpart shall be deemed an original hereof. In case of
any conflict between the English version and any translated version of this Agreement, the English
version shall govern. All correspondence, documents and communications of any kind made
under this Agreement shall be made in the English language.
20.8
Severability. If any provision of this Agreement is held to be invalid, illegal, void
or otherwise unenforceable in any jurisdiction by reason of any rule of law, administrative decision,
judicial decision, public policy or otherwise, such provision shall be ineffective in such jurisdiction
to the extent of
such invalidity, illegality, voidness or unenforceability without affecting, impairing or invalidating
any remaining provisions of this Agreement. Any such invalid, illegal, void or otherwise
unenforceable provisions shall be replaced by valid enforceable substitute provisions that are as
similar as possible to such invalid, illegal, void or otherwise unenforceable provisions with respect
to the economic and other commercial effects upon the Parties, which substitute provisions shall
be established pursuant to the dispute resolution procedure set forth in Article 18.
20.9
Headings; Captions. The headings and captions of this Agreement are for
convenience and reference only and are not to be used to explain, modify, amplify or interpret this
Agreement.
20.10 Binding Effect. Subject to the limitations on assignment contained in Section
20.6 above, this Agreement shall be binding on and inure to the benefit of the parties to this
Agreement and their respective heirs, personal representatives, successors, and assigns.
20.11 Authorization. If any signatory hereto is executing this Agreement on behalf of an
entity, such individual represents and warrants that he or she is duly authorized to execute and
deliver this Agreement on behalf of said entity and that this Agreement is binding upon said entity
in accordance with its terms.
20.12 Survival. Notwithstanding any other provision of this Agreement to the contrary,
the provisions of Sections 1, 2.5, 4.2, 5.2.4, 5.5.2, 5.5.4, 5.7.1, 5.7.2, 5.9.2, 5.13, 5.15, 5.17, 6.6,
8.1.3, 8.2, 8.3, 8.5, 10.2, 10.3, 10.5, 11, 12.1, 12.2, 12.3, 12.4, 13.3, 14.1.2, 14.5, 15.3, 18, 19.1
and 20 shall survive the expiration or termination of this Agreement as necessary to give full effect
to all of the provisions contained therein, provided that (i) the provisions of Sections 2.5, 5.5.2 and
5.7.2 shall survive the expiration or termination of this Agreement for three (3) months, (ii) the
provisions of Sections 5.5.4 and 5.9.2 shall survive the expiration or termination of this Agreement
for twelve (12) months and (iii) the provisions of Sections 5.2.4, 5.7.1, 8.1.3, 8.2 and 8.3 shall
apply only to the payment obligations accruing through the date of the expiration or termination of
this Agreement.
Signature Page Follows
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the Effective Date.
CAPRICOR THERAPEUTICS, INC.
NIPPON SHINYAKU CO., LTD.
By: /s/ Linda Marban_______________
Name: Linda Marbán
Its: Chief Executive Officer
Date: _January 25, 2022_____________
By: _/s/ Toru Nakai__________________
Name: Toru Nakai
Its: President
Date: _January 25, 2022______________
LIST OF EXHIBITS
EXHIBIT A
PRODUCT PRICING
EXHIBIT B
TRADEMARKS
EXHIBIT C
SALES MILESTONES
EXHIBIT D
PROCEDURES FOR PRODUCT RETURNS
EXHIBIT E
NONDISCLOSURE AGREEMENT
EXHIBIT A
PRODUCT PRICING
Transfer Price
During the term of the Agreement, Distributor shall pay to Capricor a Transfer Price for each unit
of Product sold to Distributor, which price shall be [***].
Supply Price
During the term of the Agreement, Distributor shall pay to Capricor [***].
Net Sales
“Net Sales” means the gross amounts billed or invoiced with respect to sales of the Product by
Distributor, Distributor’s Affiliates, agents, representative or subdistributors to any Customer within
the Territory during the term of this Agreement, calculated in the same manner as reported in such
entity’s audited financial statements, less the following to the extent actually incurred:
(a)
Credits, refunds or allowances granted upon returns, rejections or recalls and for
retroactive price reductions or billing errors;
(b)
Rebates, chargeback payments or credits or other equivalents thereof to
formularies, government or government agency programs, trade customers, managed health care
organizations and pharmacy benefit managers (or equivalents thereof) to obtain listing or
purchase of the applicable Products; and
(c)
Bad debts, uncollectible amounts, and collection costs relating to the sale of
Products that are actually written off.
EXHIBIT B
TRADEMARKS
To be determined
EXHIBIT C
SALES MILESTONES
[***]
EXHIBIT D
PROCEDURES FOR PRODUCT RETURNS
1.
General Principles
All returned goods must include a Return Goods Authorization number (“RGA”) issued by
Capricor. Any goods returned to Capricor without an RGA will not be eligible for credit and/or
replacement, and will not be returned to Distributor. This policy applies to all returns for any
reason, including but not limited to transportation errors, damaged products, defective products,
product complaints and/or warranty claims.
2.
Return Authorization Process
Prior to returning any Capricor product for credit consideration or product replacement, Distributor
must request pre-approval for the return by contacting Capricor’s Customer Service and
completing the RGA Form.
To receive an RGA, Distributor must provide all of the following information on the RGA form: (a)
Distributor name; (b) lot number; (c) quantity of each item to be returned; (d) invoice number and
(if available) purchase order number; and (e) reason for return.
Upon receipt of a complete RGA form, Customer Service will issue an RGA, which Distributor can
use to return the goods, following the procedure in Section 3 (Return Location) below.
3.
Return Location
After receiving a completed RGA from Distributor, Capricor will validate that all required
information has been provided and that all conditions for return of goods have been met. Upon
validation, Customer Service will confirm to Distributor that the RGA has been authorized. Within
five (5) business days of receiving RGA authorization, Distributor should return the approved units
(and only the approved units) to Capricor via prepaid freight to the following address:
_____________________________________________________________________________________
All returned products must be accompanied with the RGA Form in its proper protective packaging
and the RGA Number must be written on outside of the box used to return the shipment.
EXHIBIT E
NONDISCLOSURE AGREEMENT
SUBSIDIARIES OF THE REGISTRANT
Exhibit 21.1
LEGAL NAME
Capricor, Inc.
JURISDICTION OF ORGANIZATION
Delaware
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Capricor Therapeutics, Inc. and Subsidiary
San Diego, 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, 333-215510, 333-239241, 333-253083, and 333-262826), Form S-3 (File Nos. 333-161339, 333-
165167, 333- 207149, 333-212017, 333-219188, 333-227955, 333-238088, and 333-254363), and Form S-1 (File No. 333-235358) of
our report dated March 11, 2022, relating to the consolidated financial statements, appearing in this Annual Report on Form 10-K.
Exhibit 23.1
/s/ Rose, Snyder & Jacobs LLP
Rose, Snyder & Jacobs LLP
Encino, California
March 11, 2022
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 11, 2022
/s/ Linda Marbán, Ph.D.
Name: Linda Marbán, Ph.D.
Title: Chief Executive Officer and Principal Executive Officer
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 11, 2022
/s/ Anthony J. Bergmann
Name: Anthony J. Bergmann
Title: Chief Financial Officer and Principal Financial Officer
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, 2021 (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 11, 2022
/s/ Linda Marbán, Ph.D.
Name: Linda Marbán, Ph.D.
Title: Chief Executive Officer and Principal Executive Officer
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, 2021 (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 11, 2022
/s/ Anthony J. Bergmann
Name: Anthony J. Bergmann
Title: Chief Financial Officer and Principal Financial Officer