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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
þ
☐
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the fiscal year ended December 31, 2023
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)
(858) 727-1755
(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
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ◻ Yes þ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ◻ Yes þ No
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes ◻ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ◻
Indicate by check mark 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
◻
þ
Accelerated filer
Smaller reporting company
Emerging growth company
◻
þ
☐
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. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to
previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers
during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes þ No
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of June 30, 2023 was approximately $119,715,277, based on the last reported sale of the
registrant’s common stock on The Nasdaq Capital Market on June 30, 2023 of $4.78 per share.
As of March 7, 2024, there were 31,399,667 shares of the registrant’s common stock, par value $0.001 per share, issued and outstanding.
Part III of this Annual Report on Form 10-K incorporates information by reference from the definitive proxy statement for the registrant’s 2024 Annual Meeting of Stockholders.
DOCUMENTS INCORPORATED BY REFERENCE
Table of Contents
TABLE OF CONTENTS
Part I
Item 1.
Item 1A.
Item 1B.
Item 1C.
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
Cybersecurity
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 product
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; timing of study or trial results; manufacturing capabilities, investigational new drug filings, similar
plans or projections; the regulatory approval of our drug candidates and dates for regulatory meetings; 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 and ability to operate as a going
concern; the impact of taxes on our business, including our ability to utilize net operating losses; 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.
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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, 2023 are not necessarily indicative of results that
may be attained in the future.
PART I
ITEM 1. BUSINESS
Overview
Capricor Therapeutics, Inc. is a clinical-stage biotechnology company focused on the development of transformative cell and
exosome-based therapeutics for treating Duchenne muscular dystrophy (“DMD”), a rare form of muscular dystrophy which results in
muscle degeneration and premature death, and other diseases with high unmet medical needs.
Technology and Platforms
Cell Therapy Platform
Our core program is focused on the development and commercialization of a cell therapy (referred to herein as CAP-1002)
comprised of cardiosphere-derived cells (“CDCs”), which are a population of stromal cells isolated from donated cells of healthy human
hearts currently being developed for the treatment of DMD. DMD is a rare, monogenic, X-linked muscle disease driven by the impaired
production of functional dystrophin, which normally functions as a structural protein in muscle. The reduction of functional dystrophin in
muscle cells leads to significant cell damage and ultimately causes muscle cell death and fibrotic replacement. CAP-1002 is designed to
slow disease progression in DMD through the immunomodulatory, anti-inflammatory, and anti-fibrotic actions of CDCs, which are
mediated by secreted exosomes laden with bioactive cargo. Among the cargo elements known to be bioactive in CDC-exosomes are
microRNAs. Collectively, these non-coding RNA species alter gene expression in macrophages and other target cells, dialing down
generalized inflammation and stimulating tissue regeneration in DMD (and in a variety of other inflammatory diseases). This mechanism of
action, consistent with the changes observed in clinical studies to date in circulating inflammatory biomarkers, contrasts with that of exon-
skipping oligonucleotides and gene therapy approaches that aim to restore dystrophin expression. Our CAP-1002 cell therapy program for
the treatment of DMD is currently in Phase 3 clinical development in the United States, for which we expect to have top-line data available
in the fourth quarter of 2024.
Exosomes Platform
Extracellular vesicles, including exosomes and microvesicles, are nano-scale, membrane-enclosed vesicles 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 the delivery of their cargo into the cytosol of target cells. 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. Their size, low or null immunogenicity and ability to communicate in native cellular language potentially make them
an exciting new class of therapeutic agents with the potential to expand our ability to address complex biological responses. Because
exosomes are cell-free substances, they can be stored, handled, reconstituted and administered in similar fashion to common
biopharmaceutical products such as antibodies. Aspects of our exosome pipeline have been supported through collaborations and alliances.
Our collaborations and research around exosomes include the National Institutes of Health (“NIH”), the National Institute of Allergy and
Infectious Diseases (“NIAID”), Johns Hopkins University (“JHU”), the Department of Defense (“DoD”), the U.S. Army Institute of
Surgical Research (“USAISR”), and Cedars-Sinai Medical Center (“CSMC”). Our platform builds on advances in fundamental RNA and
protein science, targeting technology and manufacturing, providing us the opportunity to potentially build a broad pipeline of new
therapeutic candidates. Currently, we are developing exosome-based vaccines and therapeutics for infectious diseases, monogenic diseases
and other potential indications. Our current strategy is focused on securing partners who will provide capital and additional resources to
enable us to bring this program into the clinic.
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Objectives and Business Strategy
We believe that our cell therapy and exosome-based platforms can be used to develop novel therapeutics to treat a broad range of
diseases. We intend to leverage our technology, collaborations and resources to develop therapeutics for diseases with high unmet needs. In
pursuit of this objective, we intend to focus on the following activities:
● continuing the development of our CAP-1002 program for the treatment of DMD in preparation for potential commercialization,
which includes streamlining our manufacturing capabilities, furthering our commercial capabilities and securing additional
partners in other markets around the world for the potential launch in the U.S., Japan and in other select territories;
● advancing our exosome technology for therapeutic development, focused on internal research, strategic partnerships and
collaborations; and
● opportunistically evaluating strategic collaborations to accelerate development and commercialization timelines as well as
potentially expand our pipeline within our core therapeutic areas.
Our History
Capricor, Inc., 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. Our core cell therapy technology was first identified in the academic
laboratory of Dr. Eduardo Marbán while he was Chief of Cardiology at Johns Hopkins. Since its 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. We began to explore the therapeutic potential of exosomes as we learned that CDCs mediate most of their therapeutic
activities through the secretion of exosomes.
We have assembled a scientific advisory board with cardiology and neurology experts, including DMD specialists. Our advisors
include clinicians and researchers who are experts on DMD’s skeletal and cardiac aspects. Moreover, some of our advisors lead clinical
units at some of the leading DMD centers in the United States and are actively involved in our drug development process and programs.
Capricor became public after the completion of a merger between Capricor and a subsidiary of Nile Therapeutics, Inc., a Delaware
corporation (“Nile”), in 2013, where Capricor became a wholly-owned subsidiary of Nile and Nile formally changed its name to Capricor
Therapeutics, Inc. Capricor Therapeutics was listed on the Nasdaq Capital Market shortly thereafter and currently trades under the symbol
“CAPR”. Capricor Therapeutics and Capricor have together raised approximately $145.0 million in equity capital (both privately and
publicly) as well as approximately $90.0 million in non-dilutive funding from our partners including Nippon Shinyaku Co. Ltd., a Japanese
corporation (“Nippon Shinyaku”), as well as government sources such as the NIH and the California Institute for Regenerative Medicine
(“CIRM”).
Core Therapeutic Areas
Duchenne muscular dystrophy (DMD): DMD is a rare, monogenic, X-linked muscle disease with mortality at a median age of
approximately 30 years. There is no cure for DMD, and for the vast majority of patients, there are no satisfactory symptomatic or disease-
modifying treatments. It is estimated that DMD occurs in approximately one in every 3,500 to 5,000 live male births and that the patient
population is estimated to be approximately 15,000-20,000 in the United States. DMD pathophysiology is driven by the impaired
production of functional dystrophin, which normally functions as a structural protein in muscle. The reduction of functional dystrophin in
muscle cells leads to significant cell damage and ultimately causes muscle cell death and fibrotic replacement. Due to reduced functional
dystrophin protein, affected individuals generally experience the following symptoms, although disease severity and life expectancy vary:
● muscle damage characterized by inflammation and fibrosis beginning at an early age;
● muscle weakness and progressive loss of muscle function beginning in the first few years of life;
● decline of ambulation and respiratory function after the age of seven;
● total loss of ambulation in the pre-teenage or early teenage years;
● progressive loss of upper extremity function during mid- to late-teens;
● respiratory and/or cardiac failure, resulting in death before the age of 30; and
● cardiomyopathy eventually leads to heart failure, which is currently the leading cause of death among those with DMD.
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Glucocorticoid treatment, the current standard of care, has been shown to improve muscle strength temporarily, prolong the period
of ambulation and slow the progression of DMD. However, glucocorticoid use is associated with well-known adverse side effects,
including: severe weight gain, stunted growth, weakening of bone structure (osteoporosis) and metabolic dysfunctions, among others.
Despite recent therapeutic advances, DMD represents a significant societal and economic burden. The annual cost of care for patients with
DMD is very high and increases with disease progression. The economic burden includes costs associated with hospital admissions,
medications, frequent doctor visits, assistive devices, as well as indirect costs related to productivity losses for caregivers and costs due to
pain, anxiety, social handicap as well as end-of-life care expenses. While there are many clinical initiatives in DMD, Capricor’s program is
one of the very few to focus on predominantly non-ambulant patients. These boys and young men are looking to maintain their function in
their arms and hands and slow the progression of cardiomyopathy. We therefore believe that DMD represents a significant market
opportunity for our product candidate, CAP-1002.
SARS-CoV-2: Coronaviruses are a large family of viruses that can cause illness in animals or humans. In humans, several known
coronaviruses cause respiratory infections. These coronaviruses range from the common cold to more severe diseases such as severe acute
respiratory syndrome (“SARS”), Middle East respiratory syndrome (“MERS”) and COVID-19. SARS-CoV-2 is the novel coronavirus first
identified in humans in 2019 and is the cause of COVID-19. The risk of mortality increases with age and the risk of severe disease and
mortality increases for persons with certain pre-existing diseases or comorbid conditions (e.g. cardiovascular disease, diabetes, chronic lung
disease, obesity). Since late 2021, infections have been dominated by subvariants of the Omicron strain which continue to displace previous
circulating strains by evading immunity and spreading more efficiently resulting in an increased risk of breakthrough infection among the
vaccinated. As the world pivots from the kinds of responses needed during the pandemic, vulnerable populations need a vaccine strategy to
provide protective durable immunity against current and emerging variants of SARS-CoV-2 to reduce the infection and disease burden for
both the public and the health care systems globally. We therefore believe that SARS-CoV-2 represents a potential market opportunity for
our exosome-based vaccine program.
Our Pipeline – Key Programs
CAP-1002: Duchenne Muscular Dystrophy Program: CAP-1002 is designed to slow disease progression in DMD through the
immunomodulatory, anti-inflammatory, and anti-fibrotic actions of CDCs, with the goal of improving skeletal and cardiac muscle function
in patients with DMD.
Phase 3 (HOPE-3) Clinical Trial: HOPE-3 is a Phase 3, multi-center, randomized, double-blind, placebo-controlled clinical trial
comprised of two cohorts evaluating the safety and efficacy of CAP-1002 in participants with DMD and impaired skeletal muscle function
who are on a stable regimen of systemic glucocorticoids. Non-ambulatory and ambulatory boys who meet eligibility criteria are randomly
assigned to receive either CAP-1002 or placebo every 3 months for a total of 4 doses during the first 12-months of the study.
Approximately 102 eligible study subjects will participate in this dual-cohort study. Enrollment has been completed for Cohort A where 61
subjects were randomized to either CAP-1002 or placebo in a 1:1 ratio and is intended to support a Biologics License Application (“BLA”)
submission. In December 2023, we announced a positive outcome of the interim futility analysis for Cohort A of HOPE-3, which was
reviewed by the Data Safety Monitoring Board (“DSMB”). This resulted in a favorable recommendation to continue the HOPE-3 trial as
planned. At this time, we expect to have topline data available from Cohort A in the fourth quarter of 2024. Cohort A uses product
manufactured at our Los Angeles facility.
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Performance of the Upper Limb (PUL entry items) (1)
(CAP-1002 current DMD target population)
(1) Image from HOPE-2 Lancet Publication (March 2022)
Enrollment is underway for Cohort B, which is designed to enroll approximately 44 participants randomized to either CAP-1002
or placebo in a 1:1 ratio. A primary efficacy and safety analysis will be performed for each individual cohort at month 12, following 4
administrations of CAP-1002 or placebo. We plan to complete enrollment for Cohort B in the second quarter of 2024. Cohort B uses
product manufactured at our San Diego facility.
The primary outcome measure of the HOPE-3 study will be the Performance of the Upper Limb (“PUL”) v2.0, a validated tool
specifically designed for assessing high (shoulder), mid (elbow) and distal (wrist and hand) functions, with a conceptual framework
reflecting weakness progression in upper limb function. HOPE-3 will also measure various secondary endpoints including cardiac function
assessments.
Under our RMAT designation, in the third quarter of 2023, we met with the FDA in a Type-B meeting where we discussed our
manufacturing plans in anticipation of potentially submitting a BLA application. In this meeting, we affirmed alignment with respect to our
Phase 3, HOPE-3 program. Additionally, we discussed our plans with respect to commercial manufacturing activities, including our
potency assay and other product release criteria to support commercialization. We plan to meet with FDA in the first quarter of 2024 to
continue discussing our pathway to BLA. In the upcoming Type-B meeting, we intend to discuss our further CMC plans for commercial
launch, if approved, with the aim of expediting our BLA submission pathway. Our ultimate goal is to file a BLA allowing for the use of
CAP-1002 commercial product manufactured at our San Diego facility.
Phase 2 HOPE-2 Clinical Trial: HOPE-2 was a randomized, double-blind, placebo-controlled clinical trial conducted at multiple
sites in the United States and was completed in 2021. The clinical trial was designed to evaluate the safety and efficacy of repeated,
intravenous doses of CAP-1002, in boys and young men with evidence of skeletal muscle impairment regardless of ambulatory status.
Approximately 90% of the patients in the study 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 final one-year results from HOPE-2 were published in The
Lancet in March 2022, showing that the trial met its primary efficacy endpoint of the mid-level dimension of the PUL v1.2 (p=0.01) and
additional positive endpoints of full PUL v2.0 (p=0.04). Although the PUL v1.2 for the mid-level was the primary endpoint established for
the trial, we also conducted an analysis using the PUL v2.0 as the FDA suggested the use of the updated PUL v2.0 as the primary efficacy
endpoint in support of a BLA. Left ventricular ejection fraction (LVEF), a global measure of cardiac pump function, decreased in the
placebo group over time, but improved in the CAP-1002 group, showing a 107% slowing of the progression of cardiac disease (p=0.002).
Additionally, the data suggested global improvements in cardiac function as measured by indexed volumes (LVESV, LVEDV). These are
surrogate measures of cardiac function and are considered significant in 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. 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. 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. CAP-1002 was generally safe and well
tolerated throughout the study. With the exception of hypersensitivity
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reactions early in the clinical trial, which were mitigated with a common pre-medication regimen, there were no serious safety signals
identified by the HOPE-2 DSMB.
HOPE-2 Study Results - 12-Month Efficacy Data
Skeletal-Muscle (Upper Limb Function)
Mid-level PUL (v1.2)*
Shoulder + Mid + Distal PUL (v1.2)
Shoulder + Mid + Distal PUL (v2.0)
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)
12-Month Difference in Change from Baseline†
Δ, CAP-1002 vs. Placebo
(n=8, n=12)
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
ITT (intent to treat) population shown
†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
*Graphed figures below
PUL v1.2 mid-level dimension (1)
Left ventricular ejection fraction % (LVEF) (1)
(1)
Images from HOPE-2 Lancet Publication (March 2022)
Phase 2 HOPE-2-Open Label Extension (“OLE”) Clinical Trial: We are currently conducting an OLE clinical trial available to all
patients who participated in the HOPE-2 study which includes those patients who received placebo.
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12 patients elected to continue treatment. We announced positive one-year and two-year results from this ongoing OLE study. Data from
the study suggests disease modification with statistically significant differences in the PUL v2.0 scale in the CAP-1002 original treatment
group when compared to the original placebo group from HOPE-2. The HOPE-2-OLE study previously met its primary endpoint at the
one-year timepoint on the PUL v2.0 scale (p=0.02). At the two-year timepoint, data showed statistically significant differences in the PUL
v2.0 in the OLE treatment group when compared to the original rate of decline of the placebo group from HOPE-2 after one-year
(p=0.021). LVEF was measured using cardiac magnetic resonance imaging (cMRI) and six of nine patients showed improvements in heart
function with CAP-1002 treatment compared to their final assessment at the end of the HOPE-2 study. CAP-1002 treatment during the
OLE portion of the study continues to yield a consistent safety profile and has been well-tolerated throughout the study. At this time, we
expect to have three-year data available from this OLE study in the second quarter of 2024.
Phase 1/2 HOPE-Duchenne Clinical Trial: HOPE-Duchenne was a randomized, controlled, multi-center Phase 1/2 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 from the CIRM. In
2019, this study was published in Neurology, the medical journal of the American Academy of Neurology. 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 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.
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 (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 (the “ALPHA trial”). Enrollment of the REGRESS and ALPHA
trials have been completed. In December 2023, the results from the ALPHA study were published in the peer-reviewed journal,
eBioMedicine, a Lancet journal. The Phase 1 results were shown to be safe, with no short-term clinical safety adverse events related to the
investigational product, which was the primary outcome measure of the study. Although this study was only designed to assess the safety of
the CAP-1002 infusions, investigators observed encouraging changes that might indicate the 16 patients who received CAP-1002 infusions
had improved cardiopulmonary health.
Exosome Platform: Our exosome platform program consists of engineered exosomes and exosomes derived from CDCs (CAP-
2003), both of which are in preclinical development.
Exosome Platform: Engineered Exosome-Based Vaccines: The StealthX™ vaccine is a proprietary vaccine developed internally by
Capricor utilizing exosomes that were engineered to express either spike or nucleocapsid proteins on the surface. Preclinical results from
murine and rabbit models published in the peer-reviewed journal, Microbiology Spectrum, showed the StealthX™ vaccine, resulted in
robust antibody production, potent neutralizing antibodies, a strong T-cell response and a favorable safety profile. These effects were
obtained with administration of only nanogram amounts of protein and without adjuvant or synthetic lipid nanoparticles. Exosomes offer a
new antigen delivery system that could potentially be utilized to rapidly generate multivalent protein-based vaccines. Recently, we were
selected to be part of Project NextGen, an initiative by the U.S. Department of Health and Human Services to advance a pipeline of new,
innovative vaccines providing broader and more durable protection for COVID-19. As part of Project NextGen, the National Institute of
Allergy and Infectious Diseases, part of the National Institutes of Health, will conduct a Phase 1 clinical study with our StealthX™ vaccine,
subject to regulatory approval. At this time, we have submitted an Investigational New Drug Application (“IND”) to the FDA for our
StealthX™ vaccine, which is currently under review and we anticipate that if the IND is approved, that NIAID plans to initiate this trial in
late 2024. NIAID's Division of
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Microbiology and Infectious Diseases (DMID) would oversee the study. If NIAID finds that our StealthX™ vaccine meets its criteria for
safety and efficacy, they may consider our program for a funded Phase 2.
Exosome Platform: Engineered Exosome-Based Therapeutics: We are focused on developing a precision-engineered exosome
platform technology that has the potential to deliver defined sets of effector molecules that exert their effects through defined mechanisms
of action. At this time, we are exploring the use of our proprietary StealthX™ exosome platform for a broad range of therapeutic
applications including targeted RNA, protein and small molecule therapeutics to treat or prevent a variety of diseases.
Exosome Platform: CDC-Derived Exosomes (CAP-2003): CAP-2003 is the name of our exosomes product candidate which are
derived from 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 academic institutions. In 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 as we continue to further develop our exosome platform.
These programs represent our core technology and products.
The following table summarizes our active product development programs:
Product Candidate
CAP-1002
(allogeneic CDCs)
Indication
Duchenne muscular
dystrophy*
Exosome protein-based
vaccine (multivalent design)
Engineered Exosomes
(RNA, protein and small
molecule delivery)
CAP-2003 (CDC-
exosomes)
SARS-CoV-2
Evaluating
Duchenne muscular
dystrophy
Development Stage
Phase 3 (HOPE-3)
Cohort A: enrollment complete
Cohort B: enrolling
Phase 2 (HOPE-2) completed**
IND submitted
Distributor/Partner/Collaborator
Nippon Shinyaku Co., Ltd. (U.S. and
Japan rights)
Collaboration with National Institute of
Allergy and Infectious Diseases
Preclinical
IND submitted
* The FDA has granted orphan drug, Regenerative Medicine Advanced Therapy, 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.
Manufacturing, Supply and Distribution
We have developed proprietary Chemistry, Manufacturing and Controls (“CMC”) and manufacturing capabilities that allow
manufacturing and testing of our product candidates to support both clinical development as well as potential commercialization.
Manufacturing is subject to extensive regulations that impose procedural and documentation requirements. These regulations govern record
keeping, manufacturing processes and controls, personnel, quality control and quality assurance. We continue to enhance, refine and
optimize our manufacturing processes. We currently maintain two manufacturing facilities for the production of CAP-1002. In 2022, we
completed construction of our San Diego Research and Development Facility (GMP pilot manufacturing facility) as we prepare for
potential commercial launch, subject to FDA approval. This facility was designed to be compliant with U.S. and European Medicines
Agency (“EMA”) standards. This facility is currently producing CAP-1002 product for clinical use in Cohort B of our HOPE-3 trial and
supporting our OLE trials. We are preparing for a potential commercial launch, subject to FDA approval, from the San Diego facility. It is
to be determined whether the FDA will ultimately approve commercial manufacturing at this facility. Our second manufacturing facility is
located within our laboratory, research and manufacturing facilities at CSMC in Los Angeles 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
facility at CSMC is not current Good Manufacturing Practices (“cGMP”) qualified for commercial at this time. Capricor manufactured
CAP-1002
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in this facility for our current and previous studies including Cohort A of the HOPE-3 trial. Our Facilities Lease at CSMC has an expiration
date of July 31, 2026.
In the third quarter of 2023, we met with the FDA, where we affirmed alignment with respect to our Phase 3, HOPE-3 program
where the FDA agreed to allow us to submit a BLA supported by results using product manufactured at our Los Angeles manufacturing
site. At this time, we are planning on utilizing such data for the submission of a BLA, but it is to be determined whether the FDA will
ultimately approve commercial manufacturing at this facility. The sale of commercial product produced in our Los Angeles facility may
require the consent of CSMC.
We are required to obtain and maintain certain other licenses in connection with our manufacturing facilities and activities. At this
time, we have a Drug Manufacturing License issued from the State of California for both our San Diego and CSMC facilities. We are
currently applying for a Tissue Bank License from the State of California for both of our facilities.
Additionally, in February 2024, we entered into a License and Services Agreement with Azzur Cleanrooms-on-Demand – San
Diego, LLC (the “Azzur License Agreement”) pursuant to which we have been granted an exclusive license to use certain space and the
non-exclusive right to use certain equipment and property for our early phase clinical and/or pre-clinical manufacturing purposes. We are
planning to use this facility to manufacture our exosome-based vaccine for potential clinical use to support our collaboration with NIAID.
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 (“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 Engineered-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, subject to FDA approval. We have explored the use of various cell sources to generate our exosomes for
preclinical and potential clinical use.
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 may become available for clinical investigation, subject to regulatory
approval.
Material Agreements, License Agreements & Collaborations
To accelerate the advancement of our technologies, we have entered into, and intend to seek other opportunities to form
collaborations with a diverse group of strategic partners. We have forged productive collaborations with pharmaceutical and biotechnology
companies, government agencies, academic laboratories, and research institutes with diverse area expertise and resources in as effort to
advance our programs.
Commercialization and Distribution Agreement with Nippon Shinyaku (Territory: United States)
On January 24, 2022, Capricor entered into a Commercialization and Distribution Agreement (the “U.S. Distribution Agreement”)
with Nippon Shinyaku, a Japanese corporation. Under the terms of the U.S. Distribution Agreement, Capricor appointed Nippon Shinyaku
as its exclusive distributor in the United States of CAP-1002 for the treatment of DMD.
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Under the terms of the U.S. Distribution Agreement, Capricor will be responsible for the conduct of the HOPE-3 trial as well as
the manufacturing of CAP-1002. Nippon Shinyaku will be responsible for the distribution of CAP-1002 in the United States. Pursuant to
the U.S Distribution Agreement, Capricor received an upfront payment of $30.0 million in the first quarter of 2022. The first milestone
payment of $10.0 million was paid upon completion of the interim futility analysis of the HOPE-3 trial whereby the outcome was
determined to be not futile. Additionally, there are potential milestones totaling up to $90.0 million leading up to and including the BLA
approval. Further, there are various potential sales-based milestones, if commercialized, tied to the achievement of certain sales thresholds
for annual net sales of CAP-1002 of up to $605.0 million. Further, pursuant to the U.S. Distribution Agreement, Capricor has the obligation
to sell commercial product to Nippon Shinyaku, subject to regulatory approval, and Capricor will have the right to receive a meaningful
mid-range double-digit share of product revenue.
Commercialization and Distribution Agreement with Nippon Shinyaku (Territory: Japan)
On February 10, 2023, Capricor entered into a Commercialization and Distribution Agreement (the “Japan Distribution
Agreement”) with Nippon Shinyaku. Under the terms of the Japan Distribution Agreement, Capricor appointed Nippon Shinyaku as its
exclusive distributor in Japan of CAP-1002 for the treatment of DMD.
Under the terms of the Japan Distribution Agreement, Capricor received an upfront payment of $12.0 million in the first quarter of
2023 and in addition, Capricor may potentially receive additional development and sales-based milestone payments of up to approximately
$89.0 million, subject to foreign currency exchange rates, and a meaningful double-digit share of product revenue. Nippon Shinyaku will
be responsible for the distribution of CAP-1002 in Japan. Capricor will be responsible for the conduct of clinical development in Japan, as
may be required, as well as the manufacturing of CAP-1002. Subject to regulatory approval, Capricor will sell commercial product to
Nippon Shinyaku in Japan. In addition, Capricor or its designee will hold the Marketing Authorization in Japan if the product is approved
in that territory.
Collaboration Agreement with NIH
In 2023, we were notified by the NIH that we had been selected to be part of Project NextGen, an initiative by the U.S.
Department of Health and Human Services to advance a pipeline of new, innovative vaccines providing broader and more durable
protection for COVID-19. As part of Project NextGen, the National Institute of Allergy and Infectious Diseases, part of the National
Institutes of Health, will conduct a Phase 1 clinical study with our StealthX™ vaccine, subject to regulatory approval. NIAID's Division of
Microbiology and Infectious Diseases (DMID) will oversee the study. Under the terms of the collaboration, Capricor will be responsible for
supplying investigational product for the trial.
Cooperative Research and Development Agreement with the U.S. Army Institute of Surgical Research
In 2018, we entered into a Cooperative Research and Development Agreement with the 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 USAISR, we published a manuscript demonstrating CAP-2003 as a potential antishock therapeutic, if
delivered early.
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”), JHU and CSMC. Capricor has also entered into an exclusive
license agreement for intellectual property rights related to exosomes with CSMC and JHU. 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.
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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. Various amendments were entered into to revise certain provisions of the JHU License Agreement. 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 FDA. The maximum aggregate
amount of milestone payments payable under the JHU License Agreement, as amended, is $1,850,000. In March 2022, Capricor paid the
$250,000 development milestone related to the Phase 2 study pursuant to the terms of the JHU License Agreement. The next milestone is
triggered upon successful completion of a full Phase 3 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 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 provided for the grant of an exclusive, worldwide, 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. The JHU Exosome License Agreement was terminated by
Capricor on December 15, 2023.
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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 (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.
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.
Capricor and CSMC have entered into several 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 and extend the timing of certain development
milestones, among other things. Capricor reimbursed CSMC for certain attorneys’ fees and filing fees incurred in connection with the
additional patent applications.
We recently received a letter from CSMC alleging that pursuant to the Amended CSMC License Agreement between CSMC and
Capricor, Capricor has certain overdue payment obligations to CSMC arising out of a milestone payment received by Capricor pursuant to
the U.S. Distribution Agreement entered into between Capricor and Nippon Shinyaku. The notice letter requests that Capricor cure the
alleged breaches of the Amended CSMC License Agreement, and reserves CMSC’s purported right to terminate the Amended CSMC
License Agreement if such alleged breaches are not cured. We dispute the allegations in the letter from CSMC and intend to vigorously
defend our position and pursue all available remedies, but there is no guarantee that any disputes that we have with CSMC will be resolved
or if resolved, will not result in our incurring certain payment and other obligations.
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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 CDC-derived 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.
Capricor and CSMC have entered into several 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, 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, and converted certain
exclusive rights to co-exclusive rights. 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.
Cell Line License Agreement with Life Technologies
On March 7, 2022, Capricor entered into a non-exclusive cell line license agreement with Life Technologies Corporation, a
subsidiary of Thermo Fisher Scientific, Inc., for the supply of certain cells which we will use in connection with the development of our
exosomes platform. An initial license fee payment was made in 2022 and additional milestone fees may become due based on the progress
of our development program.
Patents and Proprietary Rights
Our goal is to obtain, maintain and enforce patent rights for our products, formulations, manufacturing processes, methods of use
and other proprietary technologies, preserve our trade secrets, and operate without knowingly infringing on the valid and enforceable
proprietary rights of other parties, both in the United States and abroad. Our policy is to actively seek to obtain, where appropriate, the
broadest and focused 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
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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 manufacturing processes, formulations, patient selection and treatment
regimes, and 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
manufacturing processes, specific formulations, additional indications 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, would expire as early as 2024 and as late as 2044 or beyond depending on any patent term
adjustment or patent term extension. There are also limited opportunities to obtain extensions of patent terms in certain countries. The
earlier expiring patents are generally directed to precursor cell populations or early non-DMD indications and administration methods. We
have patents directed to CAP-1002 for the treatment of DMD that expire in 2038 unless otherwise extended under Hatch-Waxman. We
continue to file patents on processes, indications, dosage forms and formulations directed to extend the patent portfolio related to CAP-
1002 and our exosome technologies as our technology progresses.
Our product candidates and our technologies are primarily protected by composition of matter and process (methods of use and
methods of making) patents and patent applications as well as trade secrets. As of the date of this filing, we have 46 granted patents and 15
pending patent applications covering processes and compositions of matter related to our CDC (CAP-1002) technology and 37 granted
patents and 43 pending patent applications covering processes and compositions of matter related to our exosome technology.
Regulatory Designations
Regulatory Designations for CAP-1002 for the treatment of DMD
In 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 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 (“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. If Capricor were to receive market approval for CAP-1002 by the FDA, Capricor would be
eligible to receive a Priority Review Voucher based on its designation as a rare pediatric disease.
In 2018, we were granted the Regenerative Medicine Advanced Therapy (“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
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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 late-stage patients with DMD. To receive the RMAT designation, we submitted data from the HOPE-Duchenne Trial.
Trademarks
Our trademarks are generally filed to protect our corporate brand, our products and our platform technologies. We typically file
trademark applications and pursue their registration in the U.S., Europe and other markets in which we anticipate using such trademarks.
We are the owner of several common law, and federal trademark registrations or applications in the U.S. including, but not limited to,
Capricor®, Capricor Therapeutics, STEALTHX™ and the Capricor logo. Trademark protection varies in accordance with local law, and
continues in some countries as long as the trademark is used and in other countries as long as the trademark is registered. Trademark
registrations generally are for fixed but renewable terms.
Research and Development
Capricor’s research and development program has been advanced in part through federal and state grants and loan awards totaling
approximately $28.0 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.
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, academic institutions, government agencies and
research organizations both in the United States and abroad. There are many pharmaceutical companies, biotechnology companies, public
and private universities, government agencies and research organizations that compete with us in developing various approaches to the
treatment of DMD, which includes competitors both in the United States and internationally. With CAP-1002, we expect to face
competition from existing products and products in development. In addition, at this time, there are four FDA conditionally approved exon
skipping drugs: EXONDYS 51 (eteplirsen), AMONDYS 45 (casimersen) and VYONDYS 53 (golodirsen), which are phosphorodiamidate
Morpholino oligomers (PMOs) approved for the treatment of DMD patients amenable to Exon 51, Exon 45 and Exon 53 skipping,
respectively, and are marketed by Sarepta Therapeutics, Inc., and VILTEPSO (vitolarsen), a PMO approved for the treatment of DMD
patients amenable to Exon 53 skipping, which is marketed by Nippon Shinyaku (U.S. subsidiary: NS Pharma, Inc.). In June 2023, the FDA
approved Sarepta’s BLA application seeking accelerated approval of Elevidys (delandistrogene moxeparvovec), its microdystrophin gene
therapy, for the treatment of ambulant individuals with Duchenne. There are multiple other companies focused on developing genetic based
therapies that target dystrophin mechanisms and non-dystrophin mechanisms for the treatment of DMD. Additionally, competition is
particularly intense for products involving the treatment or prevention 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 being involved.
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. 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
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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 (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 pre-clinical 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
● compliance with any post-approval requirements, including the potential requirement to implement a Risk Evaluation and
Mitigation Strategy (“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 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
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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 (“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
(“GLP”), and Good Clinical Practice (“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 1 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 2 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 3 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 (the “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 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 (“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
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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 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
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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 RMAT designation as part of its implementation of the 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 an RMAT, which is defined as a cell therapy, therapeutic tissue engineering product,
human cell and tissue product, or any combination product using such therapies or products, with limited exceptions; (2) it is intended to
treat, modify, reverse, or cure a serious or life-threatening disease or condition; and (3) preliminary clinical evidence indicates that the drug
has the potential to address unmet medical needs for such a disease or condition. Like breakthrough therapy designation, RMAT
designation provides potential benefits that include more frequent meetings with FDA to discuss the development plan for the product
candidate, and eligibility for rolling review and priority review. Products granted RMAT designation may also be eligible for accelerated
approval on the basis of a surrogate or intermediate endpoint reasonably likely to predict long-term clinical benefit, or reliance upon data
obtained from a meaningful number of sites, including through expansion to additional sites. RMAT-designated products that receive
accelerated approval may, as appropriate, fulfill their post-approval requirements through the submission of clinical evidence, clinical
studies, patient registries, or other sources of real-world evidence (such as electronic health records); through the collection of larger
confirmatory data sets; or via post-approval monitoring of all patients treated with such therapy prior to approval of the therapy.
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 Rare Pediatric Disease
designation before September 30, 2024, it is eligible to receive a voucher if it is approved before September 30, 2026.
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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 if we are selling or manufacturing in foreign countries. 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 an REMS program. Other potential consequences
include, among other things:
● 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.
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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 may 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.
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 prices 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 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) have 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. Several federal healthcare reform efforts have been adopted in
recent years which aim to restrict drug product pricing and limit reimbursement. For further details, See Part I, Item 1- Healthcare Reform.
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
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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.
In Japan, almost all medical-use drugs that have been approved (i.e., whose efficacy and safety have been confirmed) under the
Pharmaceuticals and Medical Devices Act may be covered by the National Health Insurance (“NHI”). In order to be covered by the NHI, a
drug must be listed on the NHI drug price standard within 60 or 90 days after approval for marketing. After the NHI drug price is listed, the
NHI price, which is the official price of drugs, will be reviewed and updated on a regular basis. In principle, NHI price revisions are
conducted once every two years in conjunction with the April revision of medical fees. When NHI drug prices are revised, most drugs will
be priced lower than before the revision. The reason for this is that between pharmaceutical wholesalers and medical institutions and
pharmacies, drugs are sold at prices lower than the NHI price, and the basic principle of NHI price revision is to reduce the NHI price in
line with the prevailing market price. Accordingly, the NHI drug price revisions every two years may lead to the cut of the drug price in
Japan.
Other Healthcare Fraud and Abuse Laws
Although we currently do not have any products on the market and do not make patient referrals or bill Medicare, Medicaid, or
other government or commercial third-party payors, 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 U.S. 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 that may be 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, among others, on the other, including, for example, arrangements relating to consulting/speaking arrangements,
discount and rebate offers, grants, charitable contributions, and patient support offerings. Although there are a number of statutory
exceptions and regulatory safe harbors protecting some common business activities from prosecution under the Anti-Kickback Statute.
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 Patient Protection and Affordable Care Act, as amended by the Health Care and
Education Reconciliation Act of 2010 (collectively, the “Affordable Care Act” or 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. A violation of the federal Anti-Kickback Statue includes
per violation civil monetary penalties and significant criminal fines under the statute, additional civil penalties and treble damages under
the False Claims Act, as discussed in more detail below, possible imprisonment, and mandatory exclusion from participation in the federal
healthcare programs, meaning that federal healthcare programs would no longer reimburse (directly or indirectly) for products or services
furnished by the excluded entity or individuals.
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The U.S. 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 $13,946 and $27,894 per false claim or statement for penalties assessed after January 15, 2024 with respect to
violations occurring after November 2, 2015. 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 U.S. 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 U.S. Federal Civil Monetary Penalties Law (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.
The federal Health Insurance Portability and Accountability Act of 1996 (“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 (“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 (“OCR”) issued a
proposed rule aimed at reducing regulatory burdens that may exist in discouraging coordination of care, among other changes. Finally,
pursuant to legislation passed in 2021, OCR recently issued guidance on recognized security practices for covered entities and business
associates. OCR indicated that recognized security practices will not be an aggravating factor in OCR investigations, but that
implementation of recognized security practices strengthen an organization’s cybersecurity and regulatory posture, as well as possibly
lessening enforcement penalties in a potential regulatory enforcement. As HIPAA and HITECH requirements evolve, we may be required
to update our compliance strategies or modify our business processes to comply.
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The Federal Trade Commission (“FTC”) and many state attorneys general are interpreting existing federal and state consumer
protection laws to impose evolving standards for the collection, use, dissemination and security of health-related and other personal
information. Privacy laws require us to publish statements that describe how we handle personal information and choices individuals may
have about the way we handle their personal information. Violating individuals’ privacy rights, publishing false or misleading information
about security practices, or failing to take appropriate steps to keep individuals’ personal information secure may constitute unfair or
deceptive acts or practices in violation of Section 5 of the FTC Act. Additionally, the FTC recently published an advance notice of proposed
rule making on “commercial surveillance” and data security, and is seeking comment on whether it should implement new trade regulation
rules or other regulatory alternatives concerning the ways in which companies (1) collect, aggregate, protect, use, analyze, and retain
consumer data, as well as (2) transfer, share, sell, or otherwise monetize that data in ways that are unfair or deceptive. Federal regulators,
state attorneys general and plaintiffs’ attorneys have been and will likely continue to be active in this space, and if we do not comply with
existing or new laws and regulations related to patient health information, we could be subject to criminal or civil sanctions.
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 to 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 amended the CCPA beginning in 2023. The CPRA imposes 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 also created a new California data protection agency authorized to
issue substantive regulations and could result in increased privacy and information security enforcement. Similar laws have been adopted in
other states or proposed in other states and at the federal level, and if passed, such laws may have potentially conflicting requirements that
would make compliance challenging. Additional compliance investment and potential business process changes may be required to respond
to this 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 U.S. federal Physician Payments Sunshine Act (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 Centers for
Medicare and Medicaid Services (“CMS”) information related to certain payments or other transfers of value made or distributed to
physicians (defined to include doctors, dentists, optometrists, podiatrists, and licensed chiropractors), physician assistants, nurse
practitioners, clinical nurse specialists, anesthesiologist assistants, certified nurse anesthetists, certified nurse-midwives and U.S. teaching
hospitals and to report annually certain ownership and investment interests held by physicians and their immediate family members. 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 $150,000 (adjusted annually for inflation) per year and up to an
aggregate of $1,000,000 (adjusted annually for inflation) 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.
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 regulations.
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
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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 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, 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 statutorily defined
covered 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 (“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.
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.
Additionally, there have been executive, judicial, and legislative challenges to certain aspects of the ACA. For example, 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.” Additionally, 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. The Inflation
Reduction Act of 2022 (“IRA”) extended this increased tax credit assistance and removal of the 400% federal poverty limit through 2025.
Moreover, 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, President Biden had issued an
executive order that instructed certain governmental agencies to review and
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reconsider their existing policies and rules that limit access to healthcare, including among others, policies that create barriers to obtaining
access to health insurance coverage through the ACA marketplaces.
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.
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 through the first six months of the fiscal year 2032 sequestration order (with the exception
of a temporary suspension due to the COVID-19 pandemic from May 1, 2020 through March 31, 2022 and a subsequent reduction to 1%
from April 1, 2022 until 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. 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 (the “PDP”)
sponsors and Medicare Advantage organizations (“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. However, effective
January 1, 2024, manufacturers’ Medicaid Drug Rebate Program rebate liability is 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, in August 2022, President Biden signed into law IRA, which implements substantial changes to the Medicare program, including
drug pricing reforms and the creation of new Medicare inflation rebates. Namely, the IRA imposes inflation rebates on drug manufacturers
for products reimbursed under Medicare Parts B and D if the prices of those products increase faster than inflation; implements changes to
the Medicare Part D benefit that, beginning in 2025, will cap beneficiary annual out-of-pocket spending at $2,000, while imposing new
discount obligations for pharmaceutical manufacturers; and, beginning in 2026, establishes a “maximum fair price” for a fixed number of
high expenditure pharmaceutical and biological products covered under Medicare Parts B and D following a price negotiation process with
the CMS. Since its enactment, CMS has taken steps to implement various drug pricing provisions of the IRA. This includes, without
limitation, issuing guidance on June 30, 2023 detailing the requirements and parameters of the first round of price negotiations, to take
place during 2023 and 2024, for products subject to the “maximum fair price” provision that would become effective in 2026; on August
29, 2023, releasing the initial list of 10 drugs subject to price negotiations; and on December 14, 2023 releasing a list of 48 Medicare Part B
products that had adjusted coinsurance rates based on the inflationary rebate provisions of the IRA for the time period of January 1, 2024 to
March 31, 2024. Several pharmaceutical manufacturers and other industry stakeholders have challenged the law, including through lawsuits
brought against the Department of Health and Human Services, the Secretary of the Department of Health and Human Services, CMS, and
the CMS Administrator challenging the constitutionality and administrative implementation of the IRA’s drug price negotiation provisions.
We cannot predict whether the IRA, or any of its component parts, will be overturned, repealed, replaced, or amended nor can we predict
the likelihood, nature, or extent of other health reform initiatives that may arise from future legislation, administrative, or other action.
However, we expect these initiatives to increase pressure on drug pricing.
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Furthermore, the Biden administration continues to direct the Department of Health and Human Services to consider new
healthcare payment and delivery models that would lower drug costs and promote access to innovative therapies for beneficiaries enrolled
in the Medicare and Medicaid programs. For example, on October 14, 2022 President Biden issued an Executive Order on Lowering
Prescription Drug Costs for Americans, which instructed the Secretary of the Department of Health and Human Services to consider
whether to select for testing by the CMS Innovation Center new health care payment and delivery models that would lower drug costs and
promote access to innovative drug therapies for beneficiaries enrolled in the Medicare and Medicaid programs. On February 14, 2023, the
Department of Health and Human Services issued a report in response to the October 14, 2022 Executive Order, which, among other
things, selects three potential drug affordability and accessibility models to be tested by the CMS Innovation Center. Specifically, the report
addresses: (1) a model that would allow Part D Sponsors to establish a “high-value drug list” setting the maximum co-payment amount for
certain common generic drugs at $2; (2) a Medicaid-focused model that would establish a partnership between CMS, manufacturers, and
state Medicaid agencies that would result in multi-state outcomes-based agreements for certain cell and gene therapy drugs; and (3) a
model that would adjust Medicare Part B payment amounts for Accelerated Approval Program drugs to advance the developments of novel
treatments. We cannot predict how, or to what extent, the Biden administration’s drug pricing policies will affect our products. 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. The implementation of cost containment measures or other healthcare reforms may prevent us from being
able to generate revenue, attain profitability, or commercialize any product that is ultimately approved, if approved. In addition, several
recently passed state laws require disclosures related to state agencies and/or commercial purchasers with respect to certain price increases
that exceed a certain level as identified in the relevant statutes. Another emerging trend at the state level is the establishment of prescription
drug affordability boards, some of which will prospectively permit certain states to establish upper payment limits for drugs that the state
has determined to be “high-cost.” Some of these laws and regulations contain ambiguous requirements that government officials have not
yet clarified. Given the lack of clarity in the laws and their implementation, our future reporting actions could be subject to the penalty
provisions of the pertinent federal and state laws and regulations.
From time to time, legislation is drafted, introduced and passed in Congress that could significantly change the statutory
provisions governing the testing, approval, manufacturing and marketing of products regulated by the FDA. In addition to new legislation,
FDA regulations and policies are often revised or interpreted by the agency in ways that may significantly affect our business and our
products. It is impossible to predict whether further legislative changes will be enacted or whether FDA regulations, guidance, policies or
interpretations will be changed or what the effect of such changes, if any, may be.
Corporate Information
Our corporate and research headquarters are located at 10865 Road to the Cure, Suite 150, San Diego, California 92121. Our
telephone number is (858) 727-1755 and our internet address is www.capricor.com. The information on, or accessible through, our website
is not incorporated into this Annual Report on Form 10-K or any other filings we make with the U.S. Securities and Exchange Commission
(the “SEC”). We have included our website address in this Annual Report on Form 10-K solely as an inactive textual reference.
Employees
As of December 31, 2023, we had 102 employees, of whom 101 are full-time employees with 34 holding advanced degrees. 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
● 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; and
● 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 CAP-1002 product for commercial purposes;
● we may be required to obtain consent from CSMC in order to sell commercial product from our Los Angeles facility;
● we may not be able to satisfy clinical and/or regulatory requirements necessary for the approval of our product in the U.S. or
Japan;
● we may not be able to reach the milestones set forth in our distribution agreements therefore preventing us from receiving the
financial benefits of those agreements; and
● our partners may not perform as expected and therefore deny us the financial benefits of those agreements.
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;
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● we may not be able to identify or retain necessary manufacturing personnel;
● the FDA may not accept the viability or comparability of our manufacturing processes; and
● the FDA may not approve our manufacturing facilities for the manufacture of commercial products.
Risks Related to Our Intellectual Property
● we may not be able to obtain, maintain, protect, and enforce our intellectual property rights;
● we may face potential challenges to the validity, enforceability, or scope of our intellectual property;
● we may experience claims from third parties that we are infringing their patents or other intellectual property rights; and
● we may not be able to satisfy our obligations under our licensing agreements.
Risks Related to Our Relationships with Third Parties
● we depend on our relationships with our licensors, collaborators, and other third parties and there is no guarantee that such
relationships will continue; and
● we will depend on the ability of Nippon Shinyaku to perform according to the terms of the U.S. Distribution and Japan
Distribution Agreements 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; and
● 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, 2023, we had cash, cash equivalents, and marketable securities totaling
approximately $39.5 million. Additionally, we received a milestone payment of $10.0 million in the first quarter of 2024 under the terms of
our U.S. Distribution Agreement with Nippon Shinyaku and we may potentially receive other additional development and sales-based
milestones. 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 private and public sales of our equity securities, government grants and
payments from distribution agreements and collaboration partners. As we have not generated any revenue from the commercial sale of our
products to date, and we do not expect to generate revenue for several years, if ever, we will need to raise substantial additional capital in
order to fund our general corporate activities and to fund our research and development, including our long-term plans for clinical trials and
new product development.
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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.
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 DMD program, which includes our HOPE-3 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;
● our ability to manufacture commercial-scale GMP CAP-1002 product at our San Diego manufacturing facility;
● 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.
If our business plans are not successful, we may not be able to continue operations as a going concern and our stockholders may lose
their entire investment in us.
Our audited financial statements include a statement that there is substantial doubt about our ability to continue as a going
concern. We have historically incurred substantial losses to fund our business operations including our research and development activities
and more recently manufacturing scale-up 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. While we have historically
been able to adjust the timing associated with our R&D efforts, as well as reducing headcount and implementing certain budget restrictions,
to alleviate
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uncertainties surrounding our ability to continue as a going concern, if ultimately we cannot continue as a going concern, our stockholders
may lose their entire investment in us.
We have a history of net losses, and we expect losses to continue for the foreseeable future. In addition, a number of factors may cause
our operating results to fluctuate on a quarterly and annual basis, which may make it difficult to predict our future performance.
We have a history of net losses, expect to continue to incur substantial net losses for the foreseeable future, and may never achieve
or maintain profitability. Our operations to date have been primarily limited to organizing and staffing our company, developing our
technology, and undertaking 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 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;
● 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, as necessary;
● our ability to maintain and staff our current manufacturing facilities;
● our ability to build or secure new manufacturing facilities, if necessary, and achieve and maintain cGMP and obtain required
certifications as required;
● 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 adequate reimbursement levels 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 to manage our business and operations.
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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 ongoing Phase 3 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 strategic
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 or some other infectious disease outbreak on our operations, ability to conduct clinical trials and on
the ability of our regulators to review and approve or authorize our products;
● our ability to demonstrate our products’ safety, tolerability and efficacy to the FDA or any comparable foreign regulatory
authority for marketing approval;
● timely receipt of marketing approval for our products;
● obtaining and maintaining patent protection, trade secret protection and regulatory exclusivity, both in the United States and
internationally;
● 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 distributors or 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 product supplies and potential manufacturers
who are able to manufacture clinical trial and commercial quantities of drug substance and drug products;
● our ability to develop, validate and maintain a commercially viable manufacturing process that is compliant with cGMP at a
scale sufficient to meet anticipated demand;
● establishment of arrangements with potential manufacturers who are able to develop, validate and maintain a commercially
viable manufacturing process that is compliant with cGMP at a scale sufficient to meet anticipated demand and over time
enable us to reduce our cost of manufacturing, if necessary;
● 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 marketing approval;
● a continued acceptable safety profile following marketing approval;
● commercial acceptance by patients, the medical community and third-party payors;
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● 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;
● our ability to compete with other therapies; and
● our ability to conduct post-marketing surveillance and comply with requirements of FDA and other comparable regulatory
authorities after product approval.
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 or geopolitical conflicts 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, or geopolitical conflicts, such as the Russia-Ukraine conflict and the
conflicts in the Middle East, 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.
A breakdown, corruption or breach of our information technology systems or computer systems, or those used or hosted by our CROs,
contractors, consultants or third-party vendors could subject us to liability or interrupt the operation of our business.
We are increasingly dependent upon information technology systems, computer systems and data, as well as the information
technology systems, computer systems and data of our current and future clinical research organizations (“CROs”), contractors, consultants
and third-party vendors, especially if we expand our clinical trials and therefore our databases of patient information.
Our information technology systems, computer systems and data (and those of our current and future CROs, contractors,
consultants and third-party vendors) are potentially vulnerable to breakdown, corruption, deliberate attacks, malicious intrusion or
software, as well as unintentional cybersecurity incidents, such as system misconfigurations, misuses or human error. 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.
We utilize and rely on services of third parties 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 third parties that their systems and services are
compliant with 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 third parties or weaknesses in their cybersecurity 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 information technology systems and computer systems, and those of our
current and future CROs, contractors, consultants and other third parties are potentially vulnerable to breakdown, corruption, disruption or
cybersecurity incidents. Cyber-attacks are increasing in their frequency, sophistication and intensity and are becoming increasingly difficult
to detect. 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
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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 significantly delayed.
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, information technology systems and computer systems, and we intend to defend against and
respond to data security incidents. 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, which could result in a material disruption of our development
programs and business operations, and our business, financial condition, results of operations and prospects could be adversely impacted.
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 an NDA 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 and other foreign regulatory agencies have substantial
discretion in the 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.
We have limited experience in conducting late-stage clinical trials, which are complex and subject to strict regulatory oversight.
We have limited late-stage clinical trial experience with respect to its product candidates. The clinical testing process is governed
by stringent regulations 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 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.
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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.
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 2, Phase 3 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 2 or Phase 3 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 the probability 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, and to the best of our knowledge, no products based on exosomes have been approved in the United States for therapeutic use. 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 our exosome technologies
and we cannot predict whether the application of our 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.
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The clinical trial requirements of the FDA, the 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.
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:
● to our knowledge, obtaining marketing approval 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 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.
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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. Additionally, 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 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 site personnel availability, patient screening and patient enrollment;
● competition from other companies operating in the same disease setting;
● 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;
● 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 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
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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. In August 2023, the FDA published a guidance document, Informed Consent, Guidance for
IRBs, Clinical Investigators, and Sponsors, which supersedes past guidance and finalizes draft guidance on informed consent. The FDA’s
new guidance presents evolving requirements for informed consent which may affect recruitment and retention of patients in clinical trials.
Further, in December 2023, the FDA published a final rule, Institutional Review Board Waiver or Alteration of Informed Consent for
Minimal Risk Clinical Investigations, which allows exceptions from informed consent requirements when a clinical investigation poses no
more than minimal risk to the human subject and includes appropriate safeguards to protect the rights, safety, and welfare of human
subjects. Modifications to informed consent or other clinical trial requirements may affect enrollment or retention of patients, require
modifications to trial documents and may cause delays to the trial.
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 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.
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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 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.
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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 in our target
markets, including the United States and Japan.
The regulatory pathway for COVID-19 or other infectious disease vaccines is continually evolving and may result in unexpected or
unforeseen challenges.
The speed at which select parties have acted to create and test many therapeutics and vaccines for COVID-19 or other infection
diseases is atypical. Further, changing plans or priorities within the FDA or the regulatory authorities in other jurisdictions, including
changes based on new knowledge of COVID-19 or other infectious diseases, 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 potential COVID-19 vaccine 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.
We may not be successful in our efforts to identify or discover additional potential product candidates or additional indications for our
existing product candidates.
Our research programs may initially show promise in identifying potential product candidates or potential additional indications
for existing product candidates, yet fail to lead to successful 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.
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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.
If any of our product candidates receives marketing approval 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 distributors or
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;
● 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 sufficient revenues from sales of drugs to cover our costs 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 third-party distributors, such as our exclusive distributor for our lead product candidate, CAP-1002;
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● 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 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.
There are many pharmaceutical companies, biotechnology companies, public and private universities, government agencies and
research organizations that compete with us in developing various approaches to the treatment of DMD which includes competitors both in
the United States and internationally. We have competitors both in the United States and internationally. With CAP-1002, we expect to face
competition from existing products and products in development. In addition, at this time, there are four FDA conditionally approved exon
skipping drugs: EXONDYS 51 (eteplirsen), AMONDYS 45 (casimersen) and VYONDYS 53 (golodirsen), which are PMOs approved for
the treatment of DMD patients amenable to Exon 51, Exon 45 and Exon 53 skipping, respectively, and are marketed by Sarepta
Therapeutics, Inc., and VILTEPSO (vitolarsen), a PMO approved for the treatment of DMD patients amenable to Exon 53 skipping, which
is marketed by Nippon Shinyaku (U.S. subsidiary: NS Pharma, Inc.). In June 2023, the FDA approved Sarepta’s BLA application seeking
accelerated approval of Elevidys (delandistrogene moxeparvovec), its microdystrophin gene therapy, for the treatment of ambulant
individuals with Duchenne. There are multiple other companies focused on developing genetic based therapies that target dystrophin
mechanisms and non-dystrophin mechanisms for the treatment of DMD.
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 an 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 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.
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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.
In addition, Congress is considering updates to the orphan drug provisions of the FDCA in response to a recent 11th Circuit
decision. Any changes to the orphan drug provisions could change our opportunities for, or likelihood of success in obtaining, orphan drug
exclusivity and would materially adversely affect our business, financial condition, results of operations, cash flows and prospects.
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.
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 Rare Pediatric Disease 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.
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Providing product for use in third-party trials or for compassionate use 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. Additionally, we recently were selected to be part of Project NextGen, an initiative by the U.S.
Department of Health and Human Services to advance a pipeline of new, innovative vaccines for COVID-19. As part of Project NextGen,
the National Institute of Allergy and Infectious Diseases, part of the National Institutes of Health, will conduct a Phase 1 clinical study with
our StealthX™ vaccine, subject to regulatory approval. NIAID's Division of Microbiology and Infectious Diseases (DMID) would oversee
the study.
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. Similarly, providing product for compassionate
use can pose risks for the Company as its use will not be subject to the same protocol and procedures established in our clinical trials.
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
the CAP-1002 (REGRESS and ALPHA) 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 our current trials or 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.
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 including determinations that our manufacturing processes being utilized in
the United States are not compliant with the regulations adopted in those 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
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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;
● we may be subject to litigation or product liability claims; and
● the products we manufacture may experience failures in the manufacturing process.
There are additional risks involved in conducting clinical trials internationally.
If we decide to expand or conduct one or more of our clinical trials to investigative sites in Europe, Japan, 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 ensure that
our facility meets Japanese, European or other foreign 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.
Further, we have entered into the Japanese Distribution Agreement with Nippon Shinyaku for the distribution of CAP-1002 in
Japan. In order for us to be able to sell CAP-1002 in Japan, we will be required to satisfy the requirements of and get approval from the
PMDA. At this time, we are uncertain as to the type or types of trials that may be required, whether the PMDA in Japan will accept product
manufactured at our facilities, if approved, the price at which our product may be sold and market acceptance.
To the extent we conduct business in the European Union (“EU”), or receive information about EU residents, we will also have to
comply with the EU General Data Protection Regulation (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 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 (“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.
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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.
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,
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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. Some of our pre-commercial
activities also may be subject to some of these laws. For more information on potentially applicable healthcare laws and regulations, See
Part I, Item 1 – Other Healthcare Fraud and Abuse Laws.
The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare
reform. Federal and state enforcement bodies have 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 of these or any other healthcare 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. 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
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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 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 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 of care and/or expanding access to care and
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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 healthcare reforms may prevent us from being able to generate revenue, attain
profitability or commercialize our drugs, once marketing approval is obtained. See Part I, Item 1 – Healthcare Reform for additional detail
on recent legislative and regulatory changes that could affect our operations.
Our risk mitigation measures cannot guarantee that we effectively manage all operational risks and that we are in compliance with all
potentially applicable U.S. federal and state regulations and all potentially applicable foreign regulations and 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.
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 (“BBA”), and the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”),
an annual 2% reduction to Medicare payments took effect on April 1, 2013, and has been extended into through the first six months of the
fiscal year 2032 sequestration order (with the exception of a temporary suspension from May 1, 2020 through March 31, 2022 and a
subsequent reduction to 1% from April 1, 2022 until June 30, 2022). The U.S. federal budget remains in flux, which could, among other
things, result in additional cuts 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. 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
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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, Japan 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, PMDA 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.
We have limited manufacturing capability and may not be able to maintain our manufacturing licenses.
Risks Related to the Manufacturing of our Product Candidates
In 2022, we completed construction of our new primary manufacturing facility located within our Research and Development
Facility in San Diego, California as we prepare for potential commercial launch. This facility is designed to produce commercial-scale
GMP CAP-1002 product for clinical and potential commercial use, subject to FDA approval.
Additionally, we also maintain a portion of our laboratories, research and manufacturing facilities in leased premises at CSMC in
Los Angeles, California. Currently, in the area of our leased premises at CSMC where we manufacture CAP-1002 and may potentially
manufacture our exosome technologies, we believe that we follow good manufacturing practices sufficient for an investigational stage
product. Capricor has been manufacturing CAP-1002 in this facility for our current and previous studies including Cohort A of the HOPE-3
trial. We are using product manufactured from our San Diego facility to support Cohort B of the ongoing HOPE-3 trial and supporting our
OLE trials. Furthermore, it is to be determined whether the FDA will ultimately approve commercial manufacturing at this facility. Our
plans to use the CSMC facility for future trials could change if we fail to meet the specifications necessary to produce our product in a
qualified manner. Currently, our CSMC Facilities Lease is scheduled to expire on July 31, 2026. There can be no assurance that the
Facilities Lease for the manufacturing space will be continued beyond July 31, 2026 or whether the facility will be approved by the FDA
for commercial manufacturing following approval of the BLA.
In the third quarter of 2023, we met with the FDA, where we affirmed alignment with respect to our Phase 3, HOPE-3 program
where the FDA agreed to allow us to submit a BLA supported by results using product manufactured at our Los Angeles manufacturing
site. At this time, we can provide no assurance that the FDA will ultimately approve this facility for commercial use, or that CMSC will
allow us to market commercial product from this facility. Should this facility ultimately not be approved to manufacture commercial
product, this may result in delays and significant expenses which would materially impact our business and product development.
In addition, FDA may consider the data we provide are insufficient to prove that the drug used in Cohort B of our HOPE-3 study
is comparable to the drug produced in our Los Angeles facility and used in our prior clinical studies. This could result in us being required
to conduct further comparability testing and may result in us being required to conduct
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additional clinical and/or nonclinical studies 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, the FDA may still disagree with our determination that the trial is sufficient to support the
submission and approval of a BLA application.
We obtain the donor hearts from which our CDCs are manufactured from organ procurement organizations (“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 CDC-exosomes and the development of our lead product candidate 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 candidates.
We are required to obtain and maintain certain licenses in connection with our manufacturing facilities and activities. For example,
we have recently entered into Azzur License Agreement with Azzur Cleanrooms-on-Demand – San Diego, LLC pursuant to which we have
been granted an exclusive license to use certain space and the non-exclusive right to use certain equipment and property for our early phase
clinical and/or pre-clinical manufacturing purposes. We are planning to use this facility to manufacture our exosome-based vaccine for
potential clinical use. 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.
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 are currently producing doses of CAP-1002 in order to conduct our ongoing clinical trials at both of our facilities. 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 and/or nonclinical testing, 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 product candidates, 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,
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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 suppliers, 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 that any stability failures or other issues relating to the manufacture of our
product candidates will not occur in the future. Additionally, we may experience manufacturing difficulties due to resource constraints or as
a result of labor disputes or unstable political environments. If we 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.
We are subject to a number of manufacturing risks, any of which could substantially increase our costs and limit supply of our product
candidates.
The process of manufacturing our product candidates is complex, highly regulated, and subject to several risks. For example, the
process of manufacturing our product candidates is extremely susceptible to product loss due to contamination, equipment failure or
improper installation or operation of equipment, or vendor or operator error. Even minor deviations from normal manufacturing processes
for any of our product candidates could result in reduced production yields, product defects, and other supply disruptions. If microbial,
viral, or other contaminations are discovered in our product candidates or in the manufacturing facilities in which our product candidates
are made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination.
In addition, the manufacturing facilities in which our product candidates are made could be adversely affected by supply chain issues,
equipment failures, labor shortages, natural disasters, power failures and numerous other factors.
We may need to rely exclusively on third parties to formulate and manufacture our product candidates and provide us with the devices
and other products necessary to administer such a product.
Our resources and expertise to formulate or manufacture our product candidates on a large or commercial scale basis are still very
limited. If we need to secure an additional manufacturer of our product candidates, 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 products.
If CAP-1002 or any of our exosome technologies receives FDA approval, we may need to ultimately rely on one or more third-party
contractors to manufacture supplies of these 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.
● 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.
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Each of these risks could delay our clinical trials, the approval, if any, of our product candidates by the FDA, or the
commercialization of our product candidates, or result in higher costs or deprive us of potential product revenues.
Even if our product candidates receive regulatory approval, they may still face future development and regulatory difficulties.
Our product candidates, if approved, 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. In addition, approved
products, manufacturers and manufacturers’ facilities are subject to continual review and periodic inspections. If a regulatory agency
discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency or problems with the
facility where the product is manufactured, a regulatory agency may impose restrictions on that product or us, including requiring
withdrawal of the product from the market. If our product candidates fail to comply with applicable regulatory requirements, such as
cGMPs, a regulatory agency may:
● issue warning letters 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 non-compliance;
● 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.
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 products in compliance with cGMP. These contract manufacturers are subject to periodic
unannounced inspections by the FDA and corresponding state and foreign authorities to ensure strict compliance with cGMP and other
applicable government regulations and corresponding foreign requirements. We do not have control over a third-party manufacturer’s
compliance with these regulations and requirements. In addition, changes in cGMP could negatively impact the ability of our contract
manufacturers to complete the manufacturing process of our product candidates in a compliant manner on the schedule we require for
clinical trials or for potential commercial use. The failure to achieve and maintain high quality compliance, including failure to detect or
control anticipated or unanticipated manufacturing errors, could result in patient injury or death or product recalls. Any difficulties or
delays in our contractors’ manufacturing and supply of product candidates, or any failure of our contractors to maintain compliance with
the applicable regulations and requirements could increase our costs, make us postpone or cancel clinical trials, prevent or delay regulatory
approvals by the FDA and corresponding state and foreign authorities, prevent the import and/or export of our products, cause us to lose
revenue, result in the termination of the development of a product candidate, or have our product candidates recalled or withdrawn from
use.
We may face uncertainty and difficulty in obtaining and enforcing our patents and other proprietary rights.
Risks Related to Our Intellectual Property
Our success will depend in large part on our ability to obtain, maintain, and defend patents on our product candidates, obtain
licenses to use third-party technologies, protect our trade secrets and operate without infringing the valid and enforceable 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 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 enforce against 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
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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 valid and enforceable 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 may 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 (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 (“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 and
product candidates 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 the University of Rome, JHU, and CSMC. We have also licensed certain
patent and other intellectual property rights from CSMC 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 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
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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.
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
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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.
We may be subject to claims that we or our employees, consultants or independent contractors have wrongfully used or disclosed
confidential information of third parties.
We have received confidential and proprietary information from third parties. In addition, we employ individuals who were
previously employed at other biotechnology or pharmaceutical companies. We may be subject to claims that we or our employees,
consultants or independent contractors have inadvertently or otherwise improperly used, misappropriated or disclosed confidential
information of these third parties or our employees’ former employers. Litigation
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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.
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 and Japan, if we receive regulatory approval in those territories.
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 and
Japan for a significant period of time, with only limited rights of either party to terminate these agreements.
We are 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. By way
of example, we recently received a letter from CSMC alleging that pursuant to the Amended CSMC License Agreement between CSMC
and Capricor, Capricor has certain overdue payment obligations to CSMC arising out of a milestone payment received by Capricor
pursuant to the U.S. Distribution Agreement entered into between Capricor and Nippon Shinyaku. The notice letter requests that Capricor
cure the alleged breaches of the Amended CSMC License Agreement, and reserves CMSC’s purported right to terminate the Amended
CSMC License Agreement if such alleged breaches are not cured. We dispute the allegations in the letter from CSMC and intend to
vigorously defend our position and pursue all available remedies, but there is no guarantee that any disputes that we have with CSMC will
be resolved or if resolved, will not result in our incurring certain payment and other obligations.
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
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Marbán, who is the Director of the Smidt Heart Institute at CSMC) are under no obligation to conduct, continue, or conclude either current
or future studies utilizing our cell therapy or exosomes technology, and they are not compelled to license any further technologies or
intellectual property rights to us except as may be stated in the applicable licensing agreements or research agreements between those
institutions and 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.
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
additional territories outside the United States and Japan and our exosomes product candidates. If we do not establish strategic 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;
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● 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 (“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. Further, GCP requirements may evolve. In June
2023, the FDA published a draft guidance, E6(R3) Good Clinical Practice (GCP), which seeks to unify standards for clinical trial data for
ICH member countries and regions. Changes to data requirements may cause the FDA or comparable foreign regulatory authorities to
disagree with data from preclinical studies or clinical trials, and may require further studies.
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, 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.
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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.
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 from time to time have contributed 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.
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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 and
manufacturing 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 having access to 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. We have entered into the U.S. Distribution Agreement and the Japan Distribution Agreement with
Nippon Shinyaku for the exclusive commercialization and distribution rights in the United States and Japan of CAP-1002 for DMD. We
continue to evaluate additional potential partners for this program in other territories outside of these territories, subject to any rights of
Nippon Shinyaku.
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 U.S. Distribution Agreement and the Japan 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 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, 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;
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● 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 and
visibility 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.
Even if our product candidates are approved, our ability to generate product revenues will be diminished if our products 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 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
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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 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, biologics, 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,
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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 provisions requiring us to maintain
certain levels of insurance extending for multiple years beyond the termination or expiration of the agreement as well as 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.
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.
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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 U.S. Distribution Agreement and Japan
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.
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.
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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; and
● establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that
can be acted on by stockholders at stockholder meetings.
These provisions could make it more difficult for our stockholders to affect our corporate policies or make changes in our Board
of Directors and for a third-party to acquire us, even if doing so would benefit our stockholders.
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, 2023, there were approximately 31.1 million shares of common stock outstanding and approximately 5.0
million common warrants outstanding, as well as outstanding awards to purchase approximately 8.2 million shares of common stock under
various incentive stock plans of the Company. Additionally, as of December 31, 2023, there were approximately 1.2 million shares of
common stock available for future issuance under our incentive plans. This number of shares available for future issuance under those
plans was subsequently increased by 1,557,416 shares in accordance with the terms of our 2021 equity incentive plan which include an
automatic increase previously approved by our Board and stockholders. 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.
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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 (“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 (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 U.S. Internal Revenue Service (“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 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 of 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 (the
“Exchange Act”), and other applicable securities rules and regulations, and are subject to the listing requirements of The Nasdaq Stock
Market LLC (“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.
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 (“Sarbanes-Oxley”), as well as rules implemented by the SEC, 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 (“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
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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 subject to 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. Additionally, we may be subject to litigation and business challenges in the operation of our company due to actions
instituted by activist stockholders. Perceived uncertainties as to our future direction as a result of stockholder activism may lead to the
perception of a change in the direction of the business or other instability and may affect our relationships with vendors, distributors,
collaborators, prospective and current employees and others. Responding to legal and/or business challenges related to securities class
action litigation, or litigation initiated by individual stockholders, including activist stockholders, could be costly and time-consuming, may
not align with our business strategies, and could divert management’s attention and resources from the pursuit of our business strategies,
any of 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 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.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 1C. CYBERSECURITY
We operate in the biotechnology sector, which is subject to various cybersecurity risks that could adversely affect our business,
financial condition, and results of operations, including intellectual property theft; fraud; extortion; harm to employees; violation of privacy
laws and other litigation and legal risk; and reputational risk. We have implemented a risk-based approach to identify and assess the
cybersecurity threats that could affect our business and information systems. We use various tools and methodologies to manage
cybersecurity risk that are tested on a regular cadence to the best of our ability. We also monitor and evaluate our cybersecurity posture and
performance on an ongoing basis through regular vulnerability scans and penetration tests.
Our business depends on the availability, reliability, and security of our information systems, networks, data, and intellectual
property. Any disruption, compromise, or breach of our systems or data due to a cybersecurity threat or incident could adversely affect our
operations, research, product development, and competitive position. They may also result in a breach of our contractual obligations or
legal duties to protect the privacy and confidentiality of our stakeholders. Such a breach could expose us to business interruption, future
lost revenue, ransom payments, remediation costs, liabilities to affected parties, cybersecurity protection costs, lost assets, litigation,
regulatory scrutiny and actions, reputational harm, and harm to our vendor relationships.
The company is currently in the process of implementing a more formalized cybersecurity program.
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, if necessary.
Location of Property
Lease Expiration Date (1)
Purpose
10865 Road to the Cure, Suite
150, San Diego, California
10865 Road to the Cure, Room
7, San Diego, California
8840 Wilshire Blvd., 2nd Floor,
Beverly Hills, California
8700 Beverly Blvd., Davis
Building, Los Angeles,
California
September 30, 2026
October 31, 2024
Corporate Headquarters:
Laboratory, manufacturing and
office space
Laboratory space
Month-to-Month, terminable on
90-day notice
July 31, 2026
Office space
Laboratory, manufacturing and
office space
(1) Certain leases have specific options for potential renewal or extensions.
ITEM 3. LEGAL PROCEEDINGS
Square Footage
(approximate)
12,161
234
1,627
1,892
We are not involved in any material pending legal proceedings and are not aware of any material threatened legal proceedings
against us by any governmental authority. We draw your attention to the disclosure in Item 1A. above under “Risk Factors -- Risks Related
to Our Relationships with Third Parties -- We are dependent on our relationships with our licensors and collaborators and there is no
guarantee that such relationships will be maintained or continued.”
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
PART II
Market for Common Stock
Our common stock is traded on the Nasdaq Capital Market under the symbol “CAPR”.
Holders
According to the records of our transfer agent, Equiniti Trust Company LLC, as of March 7, 2024, we had 126 holders of record
of common stock, which does not include holders who held in “street name” or beneficial holders, whose shares are held of record by
banks, brokers and other financial institutions.
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 2024 Annual Meeting of Stockholders, to be filed with the SEC within 120
days after the end of the fiscal year ended December 31, 2023, 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 and Use of Proceeds
Not applicable.
Issuer Purchases of Equity Securities
None.
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 related 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,
including those set forth under Item 1A., “Risk Factors” or elsewhere in this annual report, 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 treating Duchenne muscular dystrophy (“DMD”), a rare form of muscular dystrophy which results in
muscle degeneration and premature death, and other diseases with high unmet medical needs.
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 for the treatment
of DMD and our other product candidates. If successfully developed and approved, we intend to commercialize CAP-1002 in the United
States and Japan with our partner, Nippon Shinyaku Co., Ltd., a Japanese corporation (“Nippon Shinyaku”), and may enter into 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 3): Our core program is focused on the development and commercialization
of a cell therapy technology (referred herein as CAP-1002) comprised of CDCs, which are a population of stromal cells
isolated from donated cells of healthy human hearts, for the treatment of DMD. CAP-1002 is designed to slow disease
progression in DMD through the immunomodulatory, anti-inflammatory, and anti-fibrotic actions of CDCs, which are
mediated by secreted exosomes laden with bioactive cargo. Among the cargo elements known to be bioactive in CDC
exosomes are microRNAs. Collectively, these non-coding RNA species alter gene expression in macrophages and other target
cells, dialing down generalized inflammation and stimulating tissue regeneration in DMD (and in a variety of other
inflammatory diseases). This mechanism of action, consistent with the changes observed in clinical studies to date in
circulating inflammatory biomarkers, contrasts with that of exon-skipping oligonucleotides and gene therapy approaches,
which aim to restore dystrophin expression. DMD is a rare form of muscular dystrophy which results in muscle degeneration
and premature death. DMD pathophysiology is driven by the impaired production of functional dystrophin which normally
functions as a structural protein in muscle. The reduction of functional dystrophin in muscle cells leads to significant cell
damage and ultimately causes muscle cell death and fibrotic replacement. 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. Our CAP-1002 cell therapy program for the treatment of DMD is currently in Phase 3
clinical development in the United States, for which we expect to have top-line data available in the fourth quarter of 2024.
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 conducted in the United States, CAP-1002 was used to treat patients with late-stage DMD. In March 2022, we announced
that the final one-year results from HOPE-2 were published in The Lancet showing that the trial met its primary efficacy
endpoint of the mid-level dimension of the Performance of the Upper Limb (“PUL”) v1.2 (p=0.01) and additional positive
endpoints
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of full PUL v2.0 (p=0.04) and a cardiac endpoint of left ventricular ejection fraction (p=0.002). CAP-1002 was generally safe
and well-tolerated throughout the studies.
Additionally, we are currently conducting an open label extension (“OLE”) study of the HOPE-2 trial in which 12 patients
have elected to continue treatment of CAP-1002. We announced positive one-year and two-year results from this ongoing
OLE study. The HOPE-2-OLE study previously met its primary endpoint at the one-year timepoint on the PUL v2.0 scale
(p=0.02). At the two-year timepoint, data showed statistically significant differences in the PUL v2.0 in the OLE treatment
group when compared to the original rate of decline of the placebo group from HOPE-2 after one-year (p=0.021). CAP-1002
treatment during the OLE portion of the study continues to yield a consistent safety profile and has been well-tolerated
throughout the study. At this time, we expect to have three-year data available from this OLE study in the second quarter of
2024.
Phase 3 (HOPE-3) Clinical Trial: HOPE-3 is a Phase 3, multi-center, randomized, double-blind, placebo-controlled clinical
trial comprised of two cohorts evaluating the safety and efficacy of CAP-1002 in participants with DMD and impaired
skeletal muscle function who are on a stable regimen of systemic glucocorticoids. Non-ambulatory and ambulatory boys who
meet eligibility criteria are randomly assigned to receive either CAP-1002 or placebo every 3 months for 4 doses during the
first 12-months of the study. Approximately 102 eligible study subjects will participate in this dual-cohort study. Enrollment
has been completed for Cohort A where 61 subjects were randomized to either CAP-1002 or placebo in a 1:1 ratio and is
intended to support a Biologics License Application (“BLA”) submission. In December 2023, we announced a positive
outcome of the interim futility analysis for Cohort A of HOPE-3, which was reviewed by the Data Safety Monitoring Board
(“DSMB”). This resulted in a favorable recommendation to continue the HOPE-3 trial as planned. At this time, we expect to
have topline data available from Cohort A in the fourth quarter of 2024. Cohort A uses product manufactured at our Los
Angeles facility.
Enrollment is underway for Cohort B which is designed to enroll approximately 44 participants randomized to either CAP-
1002 or placebo in a 1:1 ratio. A primary efficacy and safety analysis will be performed for each individual cohort at month
12, following 4 administrations of CAP-1002 or placebo. We plan to complete enrollment for Cohort B in the second quarter
of 2024. Cohort B uses product manufactured at our San Diego facility.
The primary outcome measure of the HOPE-3 study will be the Performance of the Upper Limb (“PUL”) v2.0, a validated
tool specifically designed for assessing high (shoulder), mid (elbow) and distal (wrist and hand) functions, with a conceptual
framework reflecting weakness progression in upper limb function. HOPE-3 will also measure various secondary endpoints
including cardiac function assessments.
Under our RMAT designation, in the third quarter of 2023, we met with the FDA in a Type-B meeting where we discussed our
manufacturing plans in anticipation of potentially submitting a BLA application. In this meeting, we affirmed alignment with
respect to our Phase 3, HOPE-3 program. Additionally, we discussed our plans with respect to commercial manufacturing
activities, including our potency assay and other product release criteria to support commercialization. We plan to meet with
FDA in the first quarter of 2024 to continue discussing our pathway to BLA. In the upcoming Type-B meeting, we intend to
discuss our further CMC plans for commercial launch, if approved, with the aim of expediting our BLA submission pathway.
Our ultimate goal is to file a BLA allowing for the use of CAP-1002 commercial product manufactured at our San Diego
facility.
The regulatory pathway for CAP-1002 is supported by RMAT designation as well as orphan drug designation. In addition, if
Capricor were to receive FDA marketing approval for CAP-1002 for the treatment of DMD, Capricor would be eligible to
receive a Priority Review Voucher (“PRV”) based on its previous receipt of a rare pediatric disease designation. Capricor
retains full rights to the PRV, if received. Further, Capricor has entered into two Commercialization and Distribution
Agreements with Nippon Shinyaku appointing Nippon Shinyaku as its exclusive distributor of CAP-1002 in the United States
and Japan.
● Exosome-Based Platform (Preclinical): 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 the delivery of
their cargo into the cytosol of target cells. Exosomes act
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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. Their size, low or null immunogenicity and ability to
communicate in native cellular language potentially make them an exciting new class of therapeutic agents with the potential
to expand our ability to address complex biological responses. Because exosomes are cell-free substances, they can be stored,
handled, reconstituted and administered in similar fashion to common biopharmaceutical products such as antibodies.
We are focused on developing a precision-engineered exosome platform technology that has the ability to deliver defined sets
of effector molecules that exert their effects through defined mechanisms of action. Aspects of our exosome pipeline have
been supported through collaborations and alliances. Our collaborations and research around exosomes include the National
Institutes of Health (“NIH”), the National Institute of Allergy and Infectious Diseases (“NIAID”), Johns Hopkins University
(“JHU”), the Department of Defense (“DoD”), the U.S. Army Institute of Surgical Research (“USAISR”), and Cedars-Sinai
Medical Center (“CSMC”). We have published preclinical data on our StealthX™ platform showing the rapid development of
a recombinant protein-based vaccine for immunization and prevention against SARS-CoV-2, the virus causing COVID-19.
Our platform builds on advances in fundamental RNA and protein science, targeting technology and manufacturing, providing
us the opportunity to potentially build a broad pipeline of new therapeutic candidates. Recently, we were selected to be part
of Project NextGen, an initiative by the U.S. Department of Health and Human Services to advance a pipeline of new,
innovative vaccines providing broader and more durable protection for COVID-19. As part of Project NextGen, the National
Institute of Allergy and Infectious Diseases, part of the National Institutes of Health, will conduct a Phase 1 clinical study
with our StealthX™ vaccine, subject to regulatory approval. At this time, we have submitted an Investigational New Drug
Application (“IND”) to the FDA for our StealthX™ vaccine, which is currently under review and we anticipate that once the
IND is approved, that NIAID plans to initiate this trial in late 2024. Furthermore, If NIAID finds that our StealthX™ vaccine
meets its criteria for safety and efficacy, they may consider our program for a funded Phase 2. At this time, we are developing
exosome-based vaccines and therapeutics for infectious diseases, monogenic diseases and other potential indications. Our
current strategy is focused on securing partners who will provide capital and additional resources to enable us to bring this
program into the clinic.
As of December 31, 2023, we had cash, cash equivalents, and marketable securities totaling approximately $39.5 million. In the
fourth quarter of 2023, we announced a positive outcome of the interim futility analysis for HOPE-3, which was reviewed by the Data
Safety Monitoring Board. This resulted in a favorable recommendation to continue the HOPE-3 trial as planned, and in accordance with
our U.S. Distribution Agreement with Nippon Shinyaku, triggered a milestone payment of $10.0 million which was received in January
2024. We estimate this will fund our operating expenses and capital expenditure requirements into the first quarter of 2025. This
expectation includes the $10.0 million milestone payment but excludes any additional potential milestone payments under our
Commercialization and Distribution agreements with Nippon Shinyaku. 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.
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 $22.3 million and $29.0 million, for the
years ended December 31, 2023 and 2022, respectively. As of December 31, 2023, we had an accumulated deficit of $159.4 million. We
expect to incur significant expenses and operating losses for the foreseeable future.
During the year ended December 31, 2023, we sold 877,821 shares of common stock at an average price of approximately $4.78
per share pursuant to a sales agreement by and between us and H.C. Wainwright & Co. LLC (“Wainwright”) under our at-the-market
offering, resulting in net proceeds of $4.1 million. Additionally, in October 2023, we completed a registered direct offering for gross
proceeds of approximately $23.0 million.
Recent Operational Developments
CAP-1002 DMD Program Updates
● Enrollment has been completed for Cohort A in our Phase 3 trial which enrolled 61 subjects randomized to either CAP-1002
or placebo in a 1:1 ratio.
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● Reported a positive outcome from the interim futility analysis for Cohort A which triggered the first milestone payment of
$10.0 million under our U.S. Commercialization Agreement with Nippon Shinyaku. There is an additional $90.0 million in
potential milestone payments up to the time of approval which are triggered upon certain regulatory-based achievements.
Following potential approval, there is an additional $605.0 million in potential milestones payments which may be payable to
Capricor based on various sales-based targets being met.
● Next steps for Cohort A: plan to readout top-line data in the fourth quarter of 2024.
● Enrollment is underway for Cohort B designed to enroll approximately 44 subjects randomized to either CAP-1002 or
placebo in a 1:1 ratio.
● Next steps for Cohort B: expect to complete enrollment in the second quarter of 2024.
● Announced the scale-up to expand the manufacturing capacity of CAP-1002 to our new San Diego facility, intended for
commercial use, subject to regulatory approval. This facility was designed to be a versatile and cost-effective way to bring
CAP-1002 to market efficiently and it is expected that our enhanced manufacturing capacity will increase our supply
capabilities and improve our margins on ultimate product sales, if any. We are currently producing CAP-1002 doses at our
San Diego facility for use in Cohort B.
● Announced a positive outcome from a Type-B meeting held with FDA in the third quarter of 2023. In the meeting, the FDA
affirmed alignment on the current HOPE-3 clinical trial design comprised of two cohorts and our plan to submit a BLA
supported by results from Cohort A which uses product manufactured from our Los Angeles manufacturing facility.
● We plan to meet with FDA in the first quarter of 2024 to continue discussing our pathway to BLA. In the upcoming Type-B
meeting, we intend to discuss our further CMC plans for commercial launch, if approved, with an aim to expedite the
approval pathway to our BLA filing. Our ultimate goal is to transition to our San Diego manufacturing facility for
commercial manufacturing as quickly as possible.
● Hosted a webinar in conjunction with Parent Project Muscular Dystrophy (PPMD) where key updates on our DMD program
were outlined.
● Presented a late-breaking poster at the 28th International Annual Congress of the World Muscle Society (WMS). Highlights
from the poster included data from the HOPE-2 OLE trial measured by the Performance of the Upper Limb (PUL 2.0)
showing a delta change=4.9 points, p=0.021 after 24-months of treatment, compared with the placebo patient group.
Exosome Program
● Announced that our proprietary StealthX™ exosome-based multivalent vaccine (StealthX™ vaccine) for the prevention of
SARS-CoV-2 was selected to be part of Project NextGen, an initiative by the U.S. Department of Health and Human Services
to advance a pipeline of new, innovative vaccines providing broader and more durable protection for COVID-19. As part of
Project NextGen, NIAID, part of the National Institutes of Health, will conduct and fund a Phase 1 clinical trial with our
StealthX™ vaccine, subject to regulatory approval. Under the terms of the collaboration, Capricor will supply the
investigational product and NIAID's Division of Microbiology and Infectious Diseases (DMID) will oversee the trial.
● Next steps for this project: NIAID plans to initiate the Phase 1 clinical trial in late 2024, subject to regulatory approval.
● Currently, in collaboration with an undisclosed pharmaceutical company, we are also investigating the therapeutic application
of our StealthX™ exosome platform.
● Presented a late-breaking poster at the WMS on the application of our StealthX™ exosome platform for the delivery of
antisense oligonucleotides (ASO). Highlights from the poster included data showing the presence of exosomes loaded with a
labeled ASO in the lower limbs of mice 24 hours post-intravenous (IV) injection. Notably, the exosomes carrying the muscle-
targeting moiety were not detected in any other tissues except for the expected clearance pathways (kidney and liver) with a
single dose.
Corporate Updates
● Announced receipt of our first milestone payment of $10.0 million under our U.S. Exclusive Distribution and
Commercialization Agreement with Nippon Shinyaku.
● Announced completion of a registered direct offering with participation from Nippon Shinyaku for gross proceeds of
approximately $23.0 million.
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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 other potential funding 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.
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 product candidates. Developing
biological 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 public equity sales of securities and upfront payments pursuant to our U.S. and Japan
Distribution Agreements with Nippon Shinyaku. 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.
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 conditions.
Stock-based compensation expense is included in the consolidated statements of operations under general and administrative (“G&A”) or
research and development (“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, 2023 and 2022
Revenue
Clinical Development Income. Clinical development income for the years ended December 31, 2023 and 2022 was approximately
$25.2 million and $2.6 million, respectively. The Company began to recognize the $30.0 million upfront payment received from Nippon
Shinyaku related to an Exclusive Commercialization and Distribution Agreement (the “U.S. Distribution Agreement”) with Nippon
Shinyaku in the third quarter of 2022. The Company began to recognize the $10.0 million milestone payment in connection with the U.S.
Distribution Agreement in the fourth quarter of 2023. Revenue is ratably recognized using a proportional performance method in relation to
the completion of the HOPE-3 clinical trial (Cohort A).
Operating Expenses
Research and Development Expenses. R&D expenses consist primarily of compensation and other related personnel costs,
supplies, clinical trial costs, patient treatment costs, rent for laboratories and manufacturing facilities, consulting fees, costs of personnel
and supplies for manufacturing, costs of service providers for preclinical, clinical and manufacturing, certain legal expenses resulting from
intellectual property prosecution, stock-based compensation expense and other expenses relating to the design, development, testing and
enhancement of our product candidates.
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The following table summarizes our R&D expenses by category for each of the periods indicated:
Compensation and other personnel expenses
Duchenne muscular dystrophy (CAP-1002)
Exosomes platform research
Facility expenses
Stock-based compensation
Depreciation
Research and other
Total research and development expenses
Year ended December 31,
2022
2023
Change ($)
Change (%)
$
$
11,272,356
18,667,993
2,090,999
1,457,097
1,916,245
626,514
416,835
36,448,039
$
$
7,450,879
7,470,558
3,600,916
1,070,598
805,089
420,581
998,328
21,816,949
$
$
3,821,477
11,197,435
(1,509,917)
386,499
1,111,156
205,933
(581,493)
14,631,090
51 %
150 %
(42)%
36 %
138 %
49 %
(58)%
67 %
R&D expenses for 2023 increased by approximately $14.6 million, or 67%, compared to 2022. The increase was primarily driven
by the following:
● $3.8 million increase in compensation and other personnel expenses primarily due to increases in headcount;
● $11.2 million increase in DMD (CAP-1002) program primarily due to the enrollment of our HOPE-3 clinical program, our
HOPE-2 OLE clinical trial and our expanded manufacturing production efforts for CAP-1002;
● $0.4 million increase in facility expenses primarily related to increased lease expenses due to our expansion efforts of our research
and manufacturing facility in San Diego;
● $1.1 million increase in stock-based compensation expense primarily due to increases in headcount and risk-free rate, which
resulted in an increase in fair value of option issued; and
● $0.2 million increase in depreciation expense primarily related to increased equipment purchases and capital improvements
related to expansion efforts of our research and manufacturing facility in San Diego.
This increase was partially offset by a $1.5 million decrease in exosomes research primarily due to reduced expenses related to
completion of certain research projects and a $0.6 million decrease in research and other primarily due to the completion of activities
related to our INSPIRE clinical program in 2022.
General and Administrative Expenses. G&A expenses consist primarily of compensation and other related personnel expenses for
executive, finance and other administrative personnel, stock-based compensation expense, accounting, legal and other professional fees,
consulting expenses, rent for corporate offices, business insurance and other corporate expenses.
The following table summarizes our G&A expenses by category for each of the periods indicated:
Stock-based compensation
Compensation and other personnel expenses
Professional services
Facility expenses
Depreciation
Other corporate expenses
Total general and administrative expenses
Year ended December 31,
2022
2023
Change ($)
Change (%)
$
$
5,476,151
3,702,469
1,700,852
294,841
442,368
1,191,205
12,807,886
$
$
3,653,489
3,283,964
1,958,666
355,318
112,550
1,067,916
10,431,903
$
$
1,822,662
418,505
(257,814)
(60,477)
329,818
123,289
2,375,983
50 %
13 %
(13)%
(17)%
293 %
12 %
23 %
G&A expenses for 2023 increased by approximately $2.4 million, or 23%, compared to 2022. The increase was primarily driven
by the following:
● $1.8 million increase in stock-based compensation expense primarily due to increases in headcount;
● $0.4 million increase in compensation and other personnel expenses primarily due to increases in headcount and recruiting costs;
● $0.3 million increase in depreciation related to leasehold improvements to our San Diego corporate headquarters; and
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● $0.1 million increase in other corporate expenses primarily related to increased travel and payroll processing costs due to
increased headcount.
This increase was partially offset by a $0.3 million decrease in professional service expenses primarily due to a decrease in
business development related expenses.
Other Income
Other Income. Other income for the years ended December 31, 2023 and 2022 was approximately $0.1 million and $0.2 million,
respectively. Other income in 2022 was related to the Employer Retention Credit under the CARES Act.
Investment Income. Investment income for the years ended December 31, 2023 and 2022 was approximately $1.7 million and $0.5
million, respectively. The increase in investment income in 2023 as compared to 2022 is due to increased interest rates and the higher
principal balance in our marketable securities, savings and money market fund accounts.
Products Under Active Development
CAP-1002 for the treatment of DMD – We are currently conducting our HOPE-3, Phase 3 study for DMD and our ongoing OLE
study of the HOPE-2 trial for which we expect to spend approximately $25.0 million to $35.0 million in 2024. The expenses for our DMD
program will include costs for personnel, clinical, regulatory and manufacturing-related expenses, including expenses related to the scale-
up for potential commercial scale manufacturing if our CAP-1002 product is approved.
Exosome-Based Therapeutics and Vaccines – Our exosome platform is in early-stage preclinical development. We expect to spend
approximately $3.0 million to $5.0 million during 2024 on development expenses related to our exosomes program, which includes
personnel, preclinical studies and manufacturing related expenses for these technologies. Our expenses for this program are primarily
focused on the expansion of our engineered exosomes platform including the manufacturing of our StealthX™ vaccine to be used in
connection with our collaboration with NIAID.
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 a strategic partner. 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 availability of necessary materials required to make our product candidates; and
● the costs, requirements and timing of, and the ability to secure, regulatory approvals.
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Liquidity and Capital Resources for the fiscal years ended December 31, 2023 and 2022
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, cash equivalents, and marketable securities 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
Marketable securities
Working capital
Stockholders’ equity
Cash flow data
Cash provided by (used in):
Operating activities
Investing activities
Financing activities
Net increase (decrease) in cash and cash equivalents
As of December 31,
2023
2022
14,695
24,793
19,586
22,601
$
$
$
$
9,603
31,818
19,302
11,786
$
$
$
$
Year ended December 31,
2022
2023
$
$
$
(25,596)
5,108
25,580
5,092
$
4,917
(35,073)
4,874
(25,282)
Our total cash, cash equivalents, and marketable securities as of December 31, 2023 were approximately $39.5 million compared
to approximately $41.4 million as of December 31, 2022. The decrease in cash, cash equivalents and marketable securities from
December 31, 2023 as compared to December 31, 2022 is due to a net loss of approximately $22.3 million for the year ended December 31,
2023, receipt of $12.0 million upfront from Nippon Shinyaku related to the Japan Distribution Agreement in the first quarter of 2023, and
approximately $23.0 million raised in October 2023 through a registered direct offering. The net loss of approximately $22.3 million for the
year ended December 31, 2023 was driven by the increased R&D expenses in connection with our clinical program in DMD. As of
December 31, 2023, we had approximately $36.1 million in total liabilities, of which approximately $24.3 million relates to deferred
revenue and approximately $2.2 million related to lease liabilities in connection with our operating lease right-of-use assets. As of
December 31, 2023, we had approximately $19.6 million in net working capital.
Cash used in operating activities was approximately $25.6 million for the year ended December 31, 2023 and cash provided by
operating activities was approximately $4.9 million for the year ended December 31, 2022. The net change of approximately $30.5 million
in cash from operating activities is due to the milestone payment of $10.0 million from Nippon Shinyaku and deferred revenue.
Furthermore, there was an increase of approximately $2.9 million in stock-based compensation and a decrease in net loss of approximately
$6.7 million for the year ended December 31, 2023 as compared to the same period in 2022. Furthermore, there was a net change of
approximately $0.1 million in accounts payable and accrued expenses, which includes related party accounts payable and accrued
expenses. 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 platform 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 investing activity of approximately $5.1 million for the year ended December 31, 2023 and cash
flow used in investing activities of approximately $35.1 million for the year ended December 31, 2022. The change in cash flow by
investing activities for the year ended December 31, 2023 as compared to the same period of 2022 is due to the net effect from purchases,
sales, and maturities of marketable securities as well as purchases of property and equipment and leasehold improvements.
We had cash flow provided by financing activities of approximately $25.6 million and $4.9 million for the years ended
December 31, 2023 and 2022, respectively. The increase in cash provided by financing activities for the year ended December 31, 2023 as
compared to the same period of 2022 is primarily due to the net proceeds from the sale of common stock. During 2023 we received net
proceeds from the sale of stock of approximately $25.5 million compared to approximately $4.8 million over the same period of 2022.
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From inception through December 31, 2023, we financed our operations primarily through private and public sales of our equity
securities, government grants, and payments from distribution agreements and collaboration partners. 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 or other distribution 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. 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 clinical and research activities;
● the number and scope of our clinical and 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;
● our ability to successfully manufacture product for our clinical trials and potential commercial use;
● the availability of materials necessary to manufacture our product candidates;
● the costs of manufacturing our product candidates, and the progress of efforts with parties with whom we may enter into
commercial manufacturing agreements, if necessary;
● 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.
Collaborations
Commercialization and Distribution Agreement with Nippon Shinyaku (Territory: United States)
On January 24, 2022, Capricor entered into a Commercialization and Distribution Agreement (the “U.S. Distribution Agreement”)
with Nippon Shinyaku, a Japanese corporation. Under the terms of the U.S. 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 U.S. Distribution Agreement, Capricor will be responsible for the conduct of the HOPE-3 trial as well as
the manufacturing of CAP-1002. Nippon Shinyaku will be responsible for the distribution of CAP-1002 in the United States. Pursuant to
the U.S Distribution Agreement, Capricor received an upfront payment of $30.0 million in the first quarter of 2022. The first milestone
payment of $10.0 million was paid upon completion of the interim futility analysis of the HOPE-3 trial whereby the outcome was
determined to be not futile. Capricor received this milestone payment from Nippon Shinyaku in January 2024. Additionally, there are
potential milestones totaling up to $90.0 million leading up to and including the BLA approval. Further, there are various potential sales-
based milestones, if commercialized, tied to the achievement of certain sales thresholds for annual net sales of CAP-1002 of up to $605.0
million. Further, pursuant to the U.S. Distribution Agreement, Capricor has the obligation to sell commercial product to Nippon Shinyaku,
subject to regulatory approval, and Capricor will have the right to receive a meaningful mid-range double-digit share of product revenue.
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Commercialization and Distribution Agreement with Nippon Shinyaku (Territory: Japan)
On February 10, 2023, Capricor entered into a Commercialization and Distribution Agreement (the “Japan Distribution
Agreement”) with Nippon Shinyaku. Under the terms of the Japan Distribution Agreement, Capricor appointed Nippon Shinyaku as its
exclusive distributor in Japan of CAP-1002 for the treatment of DMD.
Under the terms of the Japan Distribution Agreement, Capricor received an upfront payment of $12.0 million in the first quarter of
2023 and in addition, Capricor will potentially receive additional development and sales-based milestone payments of up to approximately
$89.0 million, subject to foreign currency exchange rates, and a meaningful double-digit share of product revenue. Nippon Shinyaku will
be responsible for the distribution of CAP-1002 in Japan. Capricor will be responsible for the conduct of clinical development in Japan, as
may be required, as well as the manufacturing of CAP-1002. Subject to regulatory approval, Capricor will sell commercial product to
Nippon Shinyaku in Japan. In addition, Capricor or its designee will hold the Marketing Authorization in Japan if the product is approved
in that territory.
Financing Activities by the Company
October 2023 Financing
On October 3, 2023, the Company entered into Securities Purchase Agreements with its commercial partner, Nippon Shinyaku and
funds associated with Highbridge Capital Management, LLC (the “Investors”), pursuant to which the Company agreed to issue and sell to
the Investors, in a registered direct offering (the “Registered Direct Offering”), an aggregate of 4,935,621 shares of its common stock, par
value $0.001 per share, at a price per share of $4.66 for an aggregate purchase price of approximately $23.0 million. Each share of common
stock offered was sold with a warrant to purchase one share of common stock at an exercise price of $5.70 per share. Each warrant will be
exercisable beginning six months after issuance and will expire seven years from the date of issuance. As part of the Registered Direct
Offering, the Company agreed not to issue or sell shares (subject to customary exceptions for employee stock option issuances and other
customary exceptions) for a period of 30 days following the date of the prospectus supplement that was used in the Registered Direct
Offering. That prospectus was dated September 29, 2023, and the Company “lock-up” expired on October 29, 2023. The Company’s
directors and executive officers also entered into “lock-up” agreements with the placement agent in the Registered Direct Offering, which
agreements expired on the 60th day following the date of the Securities Purchase Agreements, or December 2, 2023.
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 (the “ATM Program”), with the common stock to be distributed at the market prices prevailing at the time of sale. The
ATM Program was established under a Common Stock Sales Agreement (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 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 ATM Program were issued pursuant to our shelf registration statement on Form S-3 (File No.
333-254363), which was initially filed with 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 March 7, 2024, the Company sold an aggregate of 3,227,501 shares of common stock under the
ATM Program at an average price of approximately $5.50 per share for gross proceeds of approximately $17.8 million. Approximately
$57.2 million of common stock may still be sold pursuant to the 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
$0.6 million.
CIRM Grant Award
On June 16, 2016, Capricor entered into an award (the “CIRM Award”) with the California Institute for Regenerative Medicine
(“CIRM”) in the amount of approximately $3.4 million to fund, in part, Capricor’s Phase 1/2 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
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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 the CIRM Loan Policy and CIRM Grants Administration Policy for Clinical Stage Projects
(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.
Depending on the timing of our election, additional funds may be owed. 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 the
amounts awarded by CIRM, therefore the Company accounts for this award as a liability rather than income.
In 2019, Capricor completed all milestones and close-out activities associated with the CIRM Award and expended all funds
received. As of December 31, 2023, Capricor’s liability balance for the CIRM Award was approximately $3.4 million.
Off-Balance Sheet Arrangements
During the periods presented, we did not have, nor do we currently have, any off-balance sheet arrangements, as defined in the
rules and regulations of the SEC.
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 Topic 842, Leases (“ASC 842”), requires lessees to recognize most leases on the balance sheet with a corresponding right-to-
use (“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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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 for Contracts from Customers, which amended revenue recognition principles and
provides a single, comprehensive set of criteria for revenue recognition within and across all industries. The Company has not yet achieved
commercial sales of its drug candidates to date, however, the new standard is applicable to its distribution agreements.
The revenue standard provides a five-step framework for recognizing revenue as control of promised goods or services is
transferred to a customer at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods
or services. To determine revenue recognition for arrangements that it determines are within the scope of the revenue standard, the
Company performs the following five steps: (i) identify the contract; (ii) identify the performance obligations; (iii) determine the
transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as)
the Company satisfies a performance obligation. At contract inception, the Company assesses whether the goods or services promised
within each contract are distinct and, therefore, represent a separate performance obligation, or whether they are not distinct and are
combined with other goods and services until a distinct bundle is identified. The Company then determines the transaction price, which
typically includes upfront payments and any variable consideration that the Company determines is probable to not cause a significant
reversal in the amount of cumulative revenue recognized when the uncertainty associated with the variable consideration is resolved. The
Company then allocates the transaction price to each performance obligation and recognizes the associated revenue when, or as, each
performance obligation is satisfied.
The Company’s distribution agreements may entitle it to additional payments upon the achievement of milestones or shares of
product revenue. The milestones are generally categorized into three types: development milestones, regulatory milestones and sales-based
milestones. The Company evaluates whether it is probable that the consideration associated with each milestone or shared revenue
payments will not be subject to a significant reversal in the cumulative amount of revenue recognized. Amounts that meet this threshold are
included in the transaction price using the most likely amount method, whereas amounts that do not meet this threshold are excluded from
the transaction price until they meet this threshold. At the end of each subsequent reporting period, the Company re-evaluates the
probability of a significant reversal of the cumulative revenue recognized for its milestones and shared revenue payments, and, if necessary,
adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect
revenues and net income (loss) in the Company’s consolidated statements of operation and comprehensive loss. Typically, milestone
payments and shared revenue payments are achieved after the Company’s performance obligations associated with the distribution
agreements have been completed and after the customer has assumed responsibility for the respective clinical program. Milestones or
shared revenue payments achieved after the Company’s performance obligations have been completed are recognized as revenue in the
period the milestone or shared revenue payments was achieved. If a milestone payment is achieved during the performance period, the
milestone payment would be recognized as revenue to the extent performance had been completed at that point, and the remaining balance
would be recorded as deferred revenue.
The revenue standard requires the Company to assess whether a significant financing component exists in determining the
transaction price. The Company performs this assessment at the onset of its distribution agreements. Typically, a significant financing
component does not exist because the customer is paying for services in advance with
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an upfront payment. Additionally, future shared revenue payments are not substantially within the control of the Company or the customer.
Whenever the Company determines that goods or services promised in a contract should be accounted for as a combined
performance obligation over time, the Company determines the period over which the performance obligations will be performed and
revenue will be recognized. Revenue is recognized using either the proportional performance method or on a straight-line basis if efforts
will be expended evenly over time. Percentage of completion of patient visits in clinical trials are used as the measure of performance. The
Company feels this method of measurement to be the best depiction of the transfer of services and recognition of revenue. Significant
management judgment is required in determining the level of effort required under an arrangement and the period over which the Company
is expected to complete its performance obligations. If the Company determines that the performance obligation is satisfied over time, any
upfront payment received is initially recorded as deferred revenue on its consolidated balance sheets.
Certain judgments affect the application of the Company’s revenue recognition policy. For example, the Company records short-
term (less than one year) and long-term (over one year) deferred revenue based on its best estimate of when such revenue will be
recognized. This estimate is based on the Company’s current operating plan and, the Company may recognize a different amount of
deferred revenue over the next 12-month period if its plan changes in the future.
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.
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 (“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
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for each individual trial. These estimates are reviewed and discussed with the CRO or vendor as necessary, and are included in R&D
expenses for the related period. For clinical study sites which are paid periodically on a per-subject basis to the institutions performing the
clinical study, we accrue an estimated amount based on subject screening and enrollment in each quarter. All estimates may differ
significantly from the actual amount subsequently invoiced, which may occur several months after the related services were performed.
In the normal course of business, we contract with third parties to perform various R&D activities in the on-going development of
our product candidates. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in
uneven payment flows. Payments under the contracts depend on factors such as the achievement of certain events, the successful
enrollment of patients, and the completion of portions of the clinical trial or similar conditions. The objective of the accrual policy is to
match the recording of expenses in the financial statements to the actual services received and efforts expended. As such, expense accruals
related to clinical trials and other R&D activities are recognized based on our estimates of the degree of completion of the event or events
specified in the applicable contract.
No adjustments for material changes in estimates have been recognized in any period presented.
Stock-Based Compensation
Our results include non-cash compensation expense as a result of the issuance of stock, stock options and warrants, as applicable.
We have issued stock options to employees, directors and consultants under our 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”). At this time, the Company only issues options under the 2020 Plan and the 2021 Plan and no
longer issues options under the 2006 Stock Option Plan, the 2012 Plan, or the 2012 Non-Employee Director 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 conditions. Stock-based compensation expense is included in general and administrative
expense or research and development expense, as applicable, in the Statements of Operations and Comprehensive Income (Loss). We
expect to record additional non-cash compensation expense in the future, which may be significant.
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,
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 discussions 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
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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 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-06, Disclosure Improvements:
Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative. This standard was issued in response to
the SEC’s disclosure update and simplification initiative, which affects a variety of topics within the Accounting Standards Codification.
The amendments apply to all reporting entities within the scope of the affected topics unless otherwise indicated. The effective date for
each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes
effective, with early adoption prohibited. The Company is currently evaluating the impact this guidance will have on its financial statement
disclosures.
Other recent accounting pronouncements issued by the Financial Accounting Standards Board, 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, 2023, the fair value of our cash, cash equivalents, and marketable securities was approximately $39.5
million. Additionally, as of December 31, 2023, Capricor’s investment portfolio was classified as cash, cash equivalents and marketable
securities which consisted primarily of money market funds and bank money market accounts, 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 materially 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, 2023 and 2022, 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, 2023, 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, 2023 and 2022, and the consolidated results of its operations and its
cash flows for each of the years in the two-year period ended December 31, 2023, in conformity with accounting principles generally
accepted in the United States of America.
Explanatory Paragraph – Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As
discussed in Note 1 to the consolidated financial statements, the Company has continued to incur significant operating losses and negative
cash flows from operations, during the year ended December 31, 2023. These conditions raise substantial doubt about the Company’s
ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or
fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As
part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such
opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial
statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated 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. The communication of
critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by
communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to
which they relate.
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Revenue Recognition – Revenue Recognized Over Time
Description of the Matter
As discussed in Note 1 and Note 7 to the Consolidated Financial Statements, the Company earns its revenue through an exclusive
commercialization and distribution agreement. For performance obligations related to services that are required to be recognized over time,
the Company generally measures its progress to completion using an input measure of total costs for patient visits incurred divided by total
costs expected to be incurred for all patient visits.
Auditing revenue recognition is complex and highly judgmental due to the variability and uncertainty associated with the Company’s
assessment of measure of progress. Changes in these estimates would have a significant effect on the amount of revenue recognized.
How We Addressed the Matter in Our Audit
To test the measures of progress used for performance obligations related to services that are required to be recognized over time, our audit
procedures included, among others, evaluating the appropriateness of the Company’s accounting policy for each type of arrangement,
testing the identified measure of performance by reading contracts with customers, including all amendments, and reviewing the contract
analyses prepared by management. We evaluated whether the selected measures of progress towards satisfaction of performance
obligations were applied consistently. We also tested the completeness and accuracy of the underlying data used for the measure of progress
by testing and or analyzing the underlying data and conducting interviews of project personnel.
/s/ Rose, Snyder & Jacobs LLP
Rose, Snyder & Jacobs LLP
We have served as the Company’s auditor since 2011.
Encino, California
March 8, 2024
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CAPRICOR THERAPEUTICS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2023 AND 2022
ASSETS
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CURRENT ASSETS
Cash and cash equivalents
Marketable securities
Receivables
Prepaid expenses and other current assets
TOTAL CURRENT ASSETS
PROPERTY AND EQUIPMENT, net
OTHER ASSETS
Lease right-of-use assets, net
Other assets
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses
Accounts payable and accrued expenses, related party
Lease liabilities, current
Deferred revenue, current
TOTAL CURRENT LIABILITIES
LONG-TERM LIABILITIES
CIRM liability
Lease liabilities, net of current
Deferred revenue, net of current
TOTAL LONG-TERM LIABILITIES
TOTAL LIABILITIES
December 31, 2023
December 31, 2022
$
$
$
$
14,694,857
24,792,846
10,371,993
995,776
9,603,242
31,818,020
547,580
919,892
50,855,472
42,888,734
5,560,641
4,588,030
2,050,042
268,172
2,349,974
268,172
58,734,327
$
50,094,910
$
6,222,762
27,479
749,112
24,270,465
4,834,683
89,234
682,039
17,980,599
31,269,818
23,586,555
3,376,259
1,486,783
—
3,376,259
1,878,070
9,467,932
4,863,042
14,722,261
36,132,860
38,308,816
COMMITMENTS AND CONTINGENCIES (NOTE 6)
STOCKHOLDERS’ EQUITY
Preferred stock, $0.001 par value, 5,000,000 shares authorized, none issued and outstanding
Common stock, $0.001 par value, 50,000,000 shares authorized, 31,148,320 and 25,241,402 shares issued
and outstanding, respectively
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
TOTAL STOCKHOLDERS’ EQUITY
—
—
31,148
181,701,859
235,813
(159,367,353)
25,241
148,735,420
105,244
(137,079,811)
22,601,467
11,786,094
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
58,734,327
$
50,094,910
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, 2023 AND 2022
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
Loss on disposal of fixed assets
TOTAL OTHER INCOME (EXPENSE)
NET LOSS
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
Years ended December 31,
2022
2023
$
25,178,066
$
2,551,469
25,178,066
2,551,469
36,448,039
12,807,886
21,816,949
10,431,903
49,255,925
32,248,852
(24,077,859)
(29,697,383)
67,657
1,728,701
(6,041)
1,790,317
190,582
521,535
(34,266)
677,851
(22,287,542)
(29,019,532)
130,569
105,244
$
$
(22,156,973)
(0.83)
$
$
(28,914,288)
(1.18)
26,778,360
24,552,688
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, 2021 THROUGH DECEMBER 31, 2023
COMMON STOCK
SHARES AMOUNT
ADDITIONAL PAID- COMPREHENSIVE ACCUMULATED STOCKHOLDERS'
IN CAPITAL
INCOME
DEFICIT
EQUITY
OTHER
TOTAL
Balance at December 31, 2021
24,185,001
$ 24,185
$
139,404,060
$
— $
(108,060,279)
$
31,367,966
Issuance of common stock, net of fees
830,858
831
4,802,703
Stock-based compensation
—
—
4,458,578
Stock options exercised
225,543
225
70,079
—
—
—
—
—
—
4,803,534
4,458,578
70,304
Unrealized gain on marketable
securities
Net loss
—
—
—
—
—
—
105,244
—
105,244
—
(29,019,532)
(29,019,532)
Balance at December 31, 2022
25,241,402
$ 25,241
$
148,735,420
$
105,244
$
(137,079,811)
$
11,786,094
Issuance of common stock, net of fees
5,813,442
5,813
25,509,536
Stock-based compensation
—
—
7,392,396
Stock options exercised
93,476
Unrealized gain on marketable
securities
—
94
—
Net loss
—
—
64,507
—
—
—
—
—
130,569
—
25,515,349
—
7,392,396
—
—
64,601
130,569
—
(22,287,542)
$
$
(22,287,542)
22,601,467
Balance at December 31, 2023
31,148,320
$ 31,148
$
181,701,859
$
235,813
$
(159,367,353)
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, 2023 AND 2022
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Loss on disposal of fixed assets
Depreciation and amortization
Stock-based compensation
Changes in lease liabilities
Changes in operating assets and liabilities:
Receivables
Prepaid expenses and other current assets
Other assets
Accounts payable and accrued expenses
Accounts payable and accrued expenses, related party
Deferred revenue
Net cash provided by (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
Payments for leasehold improvements
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Net proceeds from sale of common stock
Proceeds from exercise of stock awards
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents balance at beginning of period
Cash and cash equivalents balance at end of period
Supplemental disclosures of cash flow information:
Interest paid in cash
Income taxes paid in cash
Years ended December 31,
2022
2023
$
(22,287,542)
$
(29,019,532)
6,041
1,068,882
7,392,396
(24,282)
(9,824,413)
(75,884)
—
1,388,078
(61,755)
(3,178,066)
(25,596,545)
34,266
533,131
4,458,578
161,740
(155,830)
240,045
7,550
1,718,312
(510,154)
27,448,531
4,916,637
(97,441,506)
104,597,249
(1,311,660)
(735,873)
5,108,210
(114,218,737)
82,505,961
(2,000,243)
(1,359,488)
(35,072,507)
25,515,349
64,601
25,579,950
4,803,534
70,304
4,873,838
5,091,615
(25,282,032)
9,603,242
34,885,274
14,694,857
$
9,603,242
— $
— $
—
—
$
$
$
See accompanying notes to the audited consolidated financial statements.
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CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 AND 2022
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,” “we,” “us”
or “our”), is a clinical-stage biotechnology company focused on the development of transformative cell and exosome-based therapeutics for
treating Duchenne muscular dystrophy (“DMD”), a rare form of muscular dystrophy which results in muscle degeneration and premature
death, and other diseases with high unmet medical needs. 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 therapeutic drug 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 and Going Concern
The Company has historically financed its research and development activities as well as operational expenses primarily from
equity financings, government grants, and payments from distribution agreements and collaboration partners.
Cash, cash equivalents, and marketable securities as of December 31, 2023 were approximately $39.5 million, compared to
approximately $41.4 million as of December 31, 2022. In the first quarter of 2023, the Company received an upfront payment of $12.0
million from Nippon Shinyaku Co., Ltd., a Japanese corporation, (“Nippon Shinyaku”), in accordance with its Japan Exclusive
Commercialization and Distribution Agreement (see Note 7 – “License and Distribution Agreements”). In October 2023, the Company
completed a registered direct offering for gross proceeds of approximately $23.0 million (see Note 2 – “Stockholder’s Equity”). We
received our first milestone payment of $10.0 million in the first quarter of 2024, which was triggered upon completion of the interim
futility analysis of the HOPE-3 trial whereby the outcome was determined to be not futile. Additionally, the Company has a Common Stock
Sales Agreement in place with H.C. Wainwright & Co. LLC ("Wainwright") to create at-the-market equity programs under which the
Company, from time to time, sells shares of its common stock (see Note 2 - "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 our research and development activities, clinical trials and preclinical studies, including the
enrollment and progress of our ongoing HOPE-3 Phase 3 clinical trial of CAP-1002 in DMD;
● the timing and costs associated with the manufacturing of our product candidates, including the expansion of our manufacturing
capacity to support the potential commercialization of CAP-1002 for DMD;
● the timing and costs associated with potential commercialization of our product candidates;
● the number and scope of our research programs, including the expansion of our exosomes program; and
● the costs involved in prosecuting and enforcing patent claims and other intellectual property rights.
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CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 AND 2022
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 distribution
and other partnering opportunities, and from government grants. The Company has incurred significant operating losses and negative cash
flows from operations. Based on the Company’s available cash resources and based upon the Company’s projections for its operations, the
Company does not have sufficient cash on hand to support current operations for at least the next twelve months from the date of filing this
Annual Report on Form 10-K. Therefore, there is a substantial doubt about the Company’s ability to continue as a going concern.
The Company’s plan to address its financial position may include potentially seeking additional financing primarily from, but not
limited to, the sale and issuance of equity or debt securities, the licensing or sale of its technology and from government grants. The
accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets
and satisfaction of liabilities in the ordinary course of business. The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result
from the outcome of this uncertainty.
The Company will require substantial additional capital to fund its operations. The Company cannot provide assurances that
financing will be available when and as needed or that, if available, financing will be available on favorable or acceptable terms. 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 portions of its clinical trial and research and
development 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 presented substantial public health and economic challenges around the world. Our business operations
and financial condition and results have been impacted to varying degrees.
In light of past 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 REGRESS and ALPHA trials as well as any potential equity and debt
financings, the Company submitted for the Employee Retention Credit (“ERC”), a credit against certain payroll taxes allowed to an eligible
employer for qualifying wages, which was established by the CARES Act. The Company has submitted $738,778 in ERC for applicable
2020 and 2021 periods, receiving $191,199 in 2021 and $191,463 in 2023. As of December 31, 2023, the Company has recorded a
receivable for $366,551 for the remainder of funds expected to be received.
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. 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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CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 AND 2022
presented as accumulated other comprehensive income (loss) as a separate component of stockholders’ equity. As of December 31, 2023,
marketable securities consist primarily of short-term United States treasuries.
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 $1,068,882 and $533,131 for the years ended December 31, 2023 and 2022, respectively.
Property and equipment, net consisted of the following:
Furniture and fixtures
Laboratory equipment
Leasehold improvements
Less accumulated depreciation
Property and equipment, net
Long-Lived Assets
December 31,
December 31,
2023
187,997
5,449,597
2,129,102
7,766,696
(2,206,055)
5,560,641
$
$
2022
139,336
4,237,089
1,393,230
5,769,655
(1,181,625)
4,588,030
$
$
The Company accounts for the impairment and disposition of long-live assets in accordance with guidance issued by the Financial
Accounting Standards Board (“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, 2023 and 2022.
Leases
ASC Topic 842, Leases (“ASC 842”), 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.
The Company leases office and laboratory space, all of which are operating leases (see Note 6 - “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.
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Revenue Recognition
CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 AND 2022
The Company adopted ASU 606, Revenue for Contracts from Customers (“ASU 606”), which amended revenue recognition
principles and provides a single, comprehensive set of criteria for revenue recognition within and across all industries (see Note 7 –
“License and Distribution Agreements”).
The revenue standard provides a five-step framework for recognizing revenue as control of promised goods or services is
transferred to a customer at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods
or services. To determine revenue recognition for arrangements that it determines are within the scope of the revenue standard, the
Company performs the following five steps: (i) identify the contract; (ii) identify the performance obligations; (iii) determine the
transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as)
the Company satisfies a performance obligation. At contract inception, the Company assesses whether the goods or services promised
within each contract are distinct and, therefore, represent a separate performance obligation, or whether they are not distinct and are
combined with other goods and services until a distinct bundle is identified. The Company then determines the transaction price, which
typically includes upfront payments and any variable consideration that the Company determines is probable to not cause a significant
reversal in the amount of cumulative revenue recognized when the uncertainty associated with the variable consideration is resolved. The
Company then allocates the transaction price to each performance obligation and recognizes the associated revenue when, or as, each
performance obligation is satisfied.
The Company’s distribution agreements may entitle it to additional payments upon the achievement of milestones or shares of
product revenue on sales. The milestones are generally categorized into three types: development milestones, regulatory milestones and
sales-based milestones. The Company evaluates whether it is probable that the consideration associated with each milestone or shared
revenue payments will not be subject to a significant reversal in the cumulative amount of revenue recognized. Amounts that meet this
threshold are included in the transaction price using the most likely amount method, whereas amounts that do not meet this threshold are
excluded from the transaction price until they meet this threshold. At the end of each subsequent reporting period, the Company re-
evaluates the probability of a significant reversal of the cumulative revenue recognized for its milestones and royalties, and, if necessary,
adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect
revenues and net income (loss) in the Company’s consolidated statements of operation and comprehensive loss. Typically, milestone
payments and shared revenue payments are achieved after the Company’s performance obligations associated with the distribution
agreements have been completed and after the customer has assumed responsibility for the commercialization program. Milestones or
shared revenue payments achieved after the Company’s performance obligations have been completed are recognized as revenue in the
period the milestone or shared revenue payments were achieved. If a milestone payment is achieved during the performance period, the
milestone payment would be recognized as revenue to the extent performance had been completed at that point, and the remaining balance
would be recorded as deferred revenue.
The revenue standard requires the Company to assess whether a significant financing component exists in determining the
transaction price. The Company performs this assessment at the onset of its distribution agreements. Typically, a significant financing
component does not exist because the customer is paying for services in advance with an upfront payment. Additionally, future shared
revenue payments are not substantially within the control of the Company or the customer.
Whenever the Company determines that goods or services promised in a contract should be accounted for as a combined
performance obligation over time, the Company determines the period over which the performance obligations will be performed and
revenue will be recognized. Revenue is recognized using either the proportional performance method or on a straight-line basis if efforts
will be expended evenly over time. Percentage of completion of patient visits in clinical trials are used as the measure of performance. The
Company feels this method of measurement to be the best depiction of the transfer of services and recognition of revenue. Significant
management judgment is required in determining the level of effort required under an arrangement and the period over which the Company
is expected to
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CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 AND 2022
complete its performance obligations. If the Company determines that the performance obligation is satisfied over time, any upfront
payment received is initially recorded as deferred revenue on its consolidated balance sheets.
Certain judgments affect the application of the Company’s revenue recognition policy. For example, the Company records short-
term (less than one year) and long-term (over one year) deferred revenue based on its best estimate of when such revenue will be
recognized. This estimate is based on the Company’s current operating plan and the Company may recognize a different amount of deferred
revenue over the next 12-month period if its plan changes in the future.
Under the U.S. Commercialization and Distribution Agreement (the “US Distribution Agreement”) with Nippon Shinyaku, the
transaction price consists of variable shared revenue payments and fixed components in the form of an upfront payment and milestones.
The timing of the fixed component of the transaction price is upfront, however, the performance obligation is satisfied over a period of
time, which is the estimated duration of the HOPE-3 clinical trial, Cohort A arm. Therefore, upon receipt of the upfront payment and
achievement of milestones, a contract liability is recorded which represents deferred revenue. The Company evaluates the measure of
progress each reporting period and, if necessary, adjusts the related revenue recognition.
Grant Income
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 (the “CIRM Award”) from the California
Institute for Regenerative Medicine (“CIRM”) 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 5 - “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. No
grant income was recognized during the years ended December 31, 2023 and 2022.
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, 2023, the Company had federal net operating loss carryforwards of approximately $106.9 million, available
to reduce future taxable income, of which approximately $50.7 million will begin to expire in 2027. The post December 31, 2017 net
operating losses generated of approximately $56.2 million will carryforward indefinitely, but may be subject to an 80% limitation upon
utilization. As of December 31, 2023, the Company had state net operating loss carryforwards of approximately $147.3 million, available to
reduce future taxable income, which will begin to expire in 2028. Utilization of these net operating losses could be limited under
Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), and similar state laws based on ownership changes and the
value of the Company’s stock. Additionally, currently, the Company has approximately $6.2 million of federal research and development
credits and approximately $3.7 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. Additionally, the Company currently has
approximately $2.2 million of California research and development credits available to offset future taxable income which will
carryforward indefinitely. Utilization of these credits could be limited under Section 383 of the Code and similar state laws based on
ownership changes and the value of the Company’s stock.
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CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 AND 2022
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, 2023 and 2022. 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 FASB ASC 730-10, Research and Development. Research and development costs amounted to approximately $36.4 million and $21.8
million for the years ended December 31, 2023 and 2022, 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 $22.2 million and $28.9
million for the years ended December 31, 2023 and 2022, 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, 2023 and 2022, the Company’s other comprehensive
income was $130,569 and $105,244, 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,
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 discussions 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.
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Stock-Based Compensation
CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 AND 2022
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.
For the years ended December 31, 2023 and 2022, warrants and options to purchase 13,268,807 and 5,882,621 shares of common
stock, respectively, have been excluded from the computation of potentially dilutive securities. Potentially dilutive shares of common stock,
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, 2023 and 2022.
Fair Value Measurements
Assets and liabilities recorded at fair value in the balance sheet are categorized based upon the level of judgment associated with
the inputs used to measure their fair value. The categories are as follows:
Level Input:
Level I
Level II
Level III
Input Definition:
Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.
Inputs, other than quoted prices included in Level I, that are observable for the asset or liability through
corroboration with market data at the measurement date.
Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the
asset or liability at the measurement date.
The following table summarizes the fair value measurements by level at December 31, 2023 and 2022 for assets and liabilities
measured at fair value on a recurring basis:
Marketable Securities
Level I
24,792,846
$
Level II
Level III
Total
$
— $
— $
24,792,846
December 31, 2023
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Marketable Securities
CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 AND 2022
Level I
31,818,020
$
Level II
Level III
Total
$
— $
— $
31,818,020
December 31, 2022
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 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s
Disclosure Update and Simplification Initiative. This standard was issued in response to the SEC’s disclosure update and simplification
initiative, which affects a variety of topics within the Accounting Standards Codification. The amendments apply to all reporting entities
within the scope of the affected topics unless otherwise indicated. The effective date for each amendment will be the date on which the
SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. The
Company is currently evaluating the impact this guidance will have on its financial statement disclosures.
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. STOCKHOLDERS’ EQUITY
ATM Program
The Company established an “at-the-market” program (the “ATM Program”) on June 21, 2021, with an aggregate offering price of
up to $75.0 million, pursuant to a Common Stock Sales Agreement with Wainwright by which Wainwright has 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.
From June 21, 2021 through December 31, 2023, the Company sold an aggregate of 2,976,154 shares of common stock under the
ATM Program at an average price of approximately $5.59 per share for gross proceeds of approximately $16.6 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 $0.6 million. As of the date of this filing, approximately $57.2 million of common stock may still be
sold pursuant to the ATM Program. Additionally, subsequent to December 31, 2023, the Company sold shares under the ATM Program (see
Note 9 – “Subsequent Events”).
October 2023 Financing
On October 3, 2023, the Company entered into Securities Purchase Agreements with its commercial partner, Nippon Shinyaku and
funds associated with Highbridge Capital Management, LLC (the “Investors”), pursuant to which the Company agreed to issue and sell to
the Investors, in a registered direct offering (the “Registered Direct Offering”), an aggregate of 4,935,621 shares of its common stock, par
value $0.001 per share, at a price per share of $4.66 for an aggregate purchase price of approximately $23.0 million. Each share of common
stock offered was sold with a warrant to purchase one share of common stock at an exercise price of $5.70 per share. Each warrant will be
exercisable beginning six months after issuance and will expire seven years from the date of issuance. As part of the Registered Direct
Offering, the Company agreed not to issue or sell shares (subject to customary exceptions for employee stock option issuances and other
customary exceptions) for a period of 30 days following the date of the prospectus supplement that was used in the Registered Direct
Offering. That prospectus was dated September 29, 2023, and the Company “lock-up” expired on October 29, 2023. The Company’s
directors and executive officers also entered into “lock-up” agreements with the
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CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 AND 2022
placement agent in the Registered Direct Offering, which agreements expired on the 60th day following the date of the Securities Purchase
Agreements, or December 2, 2023.
Outstanding Shares
At December 31, 2023, the Company had 31,148,320 shares of common stock issued and outstanding.
3. STOCK AWARDS, WARRANTS AND OPTIONS
Warrants
The following table summarizes all warrant activity for the years ended December 31, 2023 and 2022:
Outstanding at January 1, 2022
Granted
Exercised
Outstanding at December 31, 2022
Granted
Exercised
Outstanding at December 31, 2023
Warrants
Weighted Average
Exercise Price
105,782
—
—
105,782
4,935,621
—
5,041,403
$
$
$
1.37
—
—
1.37
5.70
—
5.61
The following table summarizes all outstanding warrants to purchase shares of the Company’s common stock:
Type
Grant Date
Warrants Outstanding
December 31,
2023
December 31,
2022
Exercise Price
per Share
Expiration
Date
Common Warrants
Common Warrants
Common Warrants
12/19/2019
3/27/2020
10/3/2023
40,782
65,000
4,935,621
40,782
65,000
$
$
— $
1.10
1.5313
5.70
12/19/2024
3/27/2025
10/3/2030
5,041,403
105,782
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”). At this time, the Company only issues options under the 2020 Plan and the 2021 Plan and no
longer issues options under the 2006 Stock Option Plan, the 2012 Plan, or the 2012 Non-Employee Director 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. Once the 2021
Plan was approved on June 11, 2021, no new shares were 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 the lesser of 5% of the
outstanding shares of Common Stock as of the last day of the immediately preceding
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CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 AND 2022
fiscal year or such number of shares determined by the compensation committee of the Board. On January 1, 2024 and 2023, 1,557,416 and
1,262,070 shares were added under the 2021 Plan, respectively.
As of December 31, 2023, 1,232,318 options remain available for issuance under the respective stock option plans.
The Company’s stock option plans are administered by the Board, in conjunction with 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 not less than 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 2023 and 2022 were approximately $3.85 and $3.04 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 during the year ended December 31, 2023 and 2022:
Expected volatility
Expected term
Dividend yield
Risk-free interest rates
Year ended December 31,
2023
111 - 121 %
5 - 7 years
0 %
3.5 - 4.5 %
2022
123 - 124 %
6 - 7 years
0 %
1.5 - 3.9 %
Employee and non-employee stock-based compensation expense was as follows:
General and administrative
Research and development
Total
Year ended December 31,
2023
2022
$
$
5,476,151
1,916,245
7,392,396
$
$
3,653,489
805,089
4,458,578
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. The Company accounts for forfeitures upon occurrence.
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CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 AND 2022
The following table summarizes information about stock options outstanding and exercisable at December 31, 2023:
Range of Ex. Prices
$1.39
$2.54 - $3.41
$3.61 - $3.85
$4.11 - $7.14
Range of Ex. Prices
$1.39
$2.54 - $3.41
$3.61 - $3.85
$4.11 - $7.14
Options Outstanding
Options Outstanding
Weighted Average
Term (yrs.)
Weighted Average
Exercise Price
1,600,054
1,889,562
3,004,621
1,733,167
8,227,404
5.71
8.14
8.17
9.02
Options Exercisable
Options Exercisable
Weighted Average
Term (yrs.)
1,544,732
845,993
1,601,850
255,561
4,248,136
5.69
8.00
7.85
7.49
$
$
$
$
1.39
3.19
3.80
5.08
3.46
Weighted Average
Exercise Price
1.39
3.18
3.79
5.16
2.88
As of December 31, 2023, the total unrecognized fair value compensation cost related to non-vested stock options was
approximately $13.5 million, which is expected to be recognized over a weighted average period of approximately 1.5 years.
The following is a schedule summarizing employee and non-employee stock option activity for the years ended December 31,
2023 and 2022:
Outstanding at January 1, 2022
Granted
Exercised
Expired/Cancelled
Outstanding at December 31, 2022
Granted
Exercised
Expired/Cancelled
Outstanding at December 31, 2023
Exercisable at December 31, 2023
Number of
Options
3,793,824
2,817,370
(325,667)
(508,688)
5,776,839
3,420,979
(182,405)
(788,009)
8,227,404
4,248,136
$
$
$
$
Weighted Average
Exercise Price
Aggregate
Intrinsic Value
2.68
3.46
1.37 $
4.55
2.97
4.32
2.55 $
3.82
3.46
2.88
$
$
867,854
367,422
12,493,414
8,636,326
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.
4. CONCENTRATIONS
Concentration of Risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, principally consist of cash, cash
equivalents, and marketable securities. The Company maintains accounts at three financial institutions. These accounts are insured by the
Federal Deposit Insurance Corporation (the “FDIC”) for up to $250,000 and/or the Securities Investor Protection Corporation, as
applicable. The Company’s cash, cash equivalents, and marketable securities in excess of the FDIC insured limits as of December 31, 2023,
were approximately $39.2 million. The Company monitors the financial stability of the financial institutions with which it maintains
accounts and believes it is not exposed to any significant credit risk in cash and cash equivalents. Historically, the Company has not
experienced any significant losses
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CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 AND 2022
in such accounts and does not believe it is exposed to any significant credit risk due to the quality nature of the financial instruments in
which the money is held.
5. 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 1/2 HOPE-Duchenne clinical trial investigating CAP-1002 for the treatment of DMD-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 the CIRM Loan Policy and CIRM Grants Administration Policy for Clinical Stage Projects
(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.
Depending on the timing of our election, additional funds may be owed. If we elect to do so, Capricor would be required to repay the
amounts awarded by CIRM; therefore, the Company accounts for this award as a liability rather than income.
In 2019, Capricor completed all milestones and close-out activities associated with the CIRM Award and expended all funds
received. As of December 31, 2023, Capricor’s liability balance for the CIRM Award was approximately $3.4 million.
6. COMMITMENTS AND CONTINGENCIES
Short-Term Operating Leases
Capricor leases office space in Beverly Hills, California from The Bubble Real Estate Company, LLC ("Bubble Real Estate")
pursuant to a lease beginning in 2013. Capricor subsequently entered into several amendments modifying certain terms of the lease.
Effective January 1, 2021, we entered into a month-to-month lease amendment with Bubble Real Estate, which is terminable by either
party upon 90 days’ written notice to the other party. Commencing in July 2022, the monthly lease payment was $7,869 per month.
Effective July 1, 2023, the monthly lease payment was reduced to $7,619 per month.
Expenses incurred under short-term operating leases for the years ended December 31, 2023 and 2022 were $92,928 and $81,735,
respectively.
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Long-Term Operating Leases
CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 AND 2022
Capricor leases facilities in Los Angeles, California from Cedars-Sinai Medical Center (“CSMC”), a related party (see Note 8 –
“Related Party Transactions”), pursuant to a lease (the “Facilities Lease”) entered into in 2014. Capricor has subsequently entered into
several amendments modifying certain terms of the lease. In July 2022, we entered into an amendment for an additional 24-month period
extending the term through July 31, 2024 with a monthly lease payment of $10,707. Additionally, in September 2023, we entered into an
amendment pursuant to which Capricor was granted an option to extend the lease for an additional 24-month period extending the term
through July 31, 2026 with a monthly lease payment of $11,028 commencing on August 1, 2024.
The Company entered into a lease agreement commencing October 1, 2021 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 (the “San Diego
Lease”). The rent is subject to a 3.0% annual rent increase during the initial lease term of five years, plus certain operating expenses and
taxes. The San Diego Lease contains an option for Capricor to renew it for an additional term of five years. The Company has subsequently
entered into several amendments to the San Diego Lease increasing the square footage of the premises and effective July 1, 2022, the
monthly lease payment was increased to $49,322 per month. Effective December 1, 2022, the monthly lease payment was increased to
$51,444 per month. Effective October 1, 2023, the monthly lease payment was increased to $58,409 per month.
Effective November 1, 2021, the Company entered into a vivarium agreement with Explora BioLabs, Inc. (“Explora”), a Charles
River Company, for vivarium space and services. Under the terms of the agreement, the Company is obligated to pay a base rent of $4,021
per month for an exclusive large vivarium room located in San Diego, California. 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 of its
election not to renew prior to the end of the then-current term. In December 2022, we were notified by Explora of a monthly rent escalation
of 4.5% bringing the base rent to approximately $4,202 per month effective January 1, 2023. 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 Consolidated Balance
Sheet and represent 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 Consolidated 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, 2023:
2024
2025
2026
2027
2028
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
107
$
$
$
$
886,672
910,106
676,908
—
—
2,473,686
(237,791)
2,235,895
749,112
1,486,783
2,235,895
2.73 years
7.24%
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CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 AND 2022
As of December 31, 2023, ROU assets for operating leases were approximately $2.1 million and operating lease liabilities were
approximately $2.2 million. The following table contains a summary of the lease costs recognized and lease payments pertaining to the
Company’s operating leases under ASC 842 for the period indicated:
Lease costs, unrelated parties
Lease costs, related parties
Lease payments, unrelated parties
Lease payments, related parties
Legal Contingencies
Year ended December 31,
2023
2022
$
$
663,684
129,158
684,444
117,772
632,689
128,478
470,950
128,478
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. The Company records a loss contingency reserve
for a legal proceeding when it considers the potential loss probable and it can reasonably estimate the amount of the loss or determine a
probable range of loss. The Company has not recorded any material accruals for loss contingencies as of December 31, 2023. The
Company has received a letter from CSMC alleging certain overdue payment obligations and alleged breaches (see Note 7 – “License and
Distribution Agreements”).
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 7 - "License and Distribution
Agreements").
Additionally, the Company is a party to various agreements with contract research, manufacturing and other organizations 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.
Employee Severances
The Board of Directors approves 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
under these severance packages has been recorded as of December 31, 2023.
7. LICENSE AND DISTRIBUTION 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”), JHU and CSMC. Capricor has also entered into an exclusive
license agreement for intellectual property rights related to exosomes with CSMC and JHU. 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
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CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 AND 2022
to Capricor (with the right to sublicense) to develop and commercialize licensed products under the licensed patent rights in all fields.
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. Various amendments were entered into to revise certain provisions of the JHU License Agreement. 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 FDA. The maximum aggregate
amount of milestone payments payable under the JHU License Agreement, as amended, is $1,850,000. In March 2022, Capricor paid the
$250,000 development milestone related to the Phase 2 study pursuant to the terms of the JHU License Agreement. The next milestone is
triggered upon successful completion of a full Phase 3 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 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 provided 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. The JHU Exosome License Agreement was terminated by
Capricor on December 15, 2023.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 AND 2022
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.
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.
Capricor and CSMC have entered into several 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 and extend the timing of certain development
milestones, among other things. Capricor reimbursed CSMC for certain attorneys’ fees and filing fees incurred in connection with the
additional patent applications.
We recently received a letter from CSMC alleging that pursuant to the Amended CSMC License Agreement between CSMC and
Capricor, Capricor has certain overdue payment obligations to CSMC arising out of a milestone payment received by Capricor pursuant to
the U.S. Distribution Agreement entered into between Capricor and Nippon Shinyaku. Capricor has received a milestone payment of $10.0
million under its U.S. Distribution Agreement with Nippon Shinyaku, which CSMC is claiming 10% of this milestone payment is owed to
them. The notice letter requests that Capricor cure the alleged breaches of the Amended CSMC License Agreement, and reserves CMSC’s
purported right to terminate the Amended CSMC License Agreement if such alleged breaches are not cured. We dispute the allegations in
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CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 AND 2022
the letter from CSMC and intend to vigorously defend our position and pursue all available remedies, but there is no guarantee that any
disputes that we have with CSMC will be resolved or if resolved, will not result in our incurring certain payment and other obligations.
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 CDC-derived 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.
Capricor and CSMC have entered into several 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, 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, and converted certain
exclusive rights to co-exclusive rights. 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.
Cell Line License Agreement with Life Technologies
On March 7, 2022, Capricor entered into a non-exclusive cell line license agreement with Life Technologies Corporation, a
subsidiary of Thermo Fisher Scientific, Inc., for the supply of certain cells which we will use in connection with the development of our
exosomes platform. An initial license fee payment was made in 2022 and additional milestone fees may become due based on the progress
of our development program.
Commercialization and Distribution Agreement with Nippon Shinyaku (Territory: United States)
On January 24, 2022, Capricor entered into a Commercialization and Distribution Agreement (the “U.S. Distribution Agreement”)
with Nippon Shinyaku, a Japanese corporation. Under the terms of the U.S. Distribution
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 AND 2022
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 U.S. Distribution Agreement, Capricor will be responsible for the conduct of the HOPE-3 trial as well as
the manufacturing of CAP-1002. Nippon Shinyaku will be responsible for the distribution of CAP-1002 in the United States. Pursuant to
the U.S Distribution Agreement, Capricor received an upfront payment of $30.0 million in the first quarter of 2022. The first milestone
payment of $10.0 million was paid upon completion of the interim futility analysis of the HOPE-3 trial whereby the outcome was
determined to be not futile. Additionally, there are potential milestones totaling up to $90.0 million leading up to and including the BLA
approval. Further, there are various potential sales-based milestones, if commercialized, tied to the achievement of certain sales thresholds
for annual net sales of CAP-1002 of up to $605.0 million. Further, pursuant to the U.S. Distribution Agreement, Capricor has the obligation
to sell commercial product to Nippon Shinyaku, subject to regulatory approval, and Capricor will have the right to receive a meaningful
mid-range double-digit share of product revenue.
The Company has evaluated the U.S. Distribution Agreement in accordance with ASU 606, Revenue for Contracts from
Customers. At the inception, the Company identified one distinct performance obligation. The Company determined that the performance
obligation is the conduct of the HOPE-3, Phase 3 clinical study.
The Company determined the transaction price totaled $40.0 million, which was the upfront payment of $30.0 million and $10.0
million milestone payment. The Company has excluded any future milestone or shared revenue payments from this transaction price to date
based on probability. The Company has allocated the $40.0 million transaction price to its one distinct performance obligation. Revenue
will be recognized using a proportional performance method in relation to the completion of the HOPE-3 clinical study, Cohort A arm, to
determine the extent of progress towards completion. Under this method, the transaction price is recognized over the contract’s entire
performance period using a cost percentage per patient visit relative to the total estimated cost of patient visits.
For the year ended December 31, 2023, the Company recognized approximately $25.2 million as revenue compared to
approximately $2.6 million for the year ended December 31, 2022. In relation to the U.S. Distribution Agreement, as of December 31,
2023, the Company recorded approximately $12.3 million as current deferred revenue on the Company’s consolidated balance sheets. As of
December 31, 2023, the Company recorded a receivable of $10.0 million in connection with the interim futility milestone, which payment
was received in January 2024.
The Company had no opening or closing contract asset balances recognized. The difference between the opening and closing
balances of the Company’s contract liability results from the Company performance of services in connection to its performance obligation.
The transaction price allocated to remaining performance obligations represents contracted revenue that has not yet been
recognized. As of December 31, 2023, remaining performance obligations related to the U.S. Distribution Agreement were approximately
$12.3 million. At this time, we estimate 100% of the remaining performance obligations are expected to be recognized over the next 12
months. Remaining performance obligations estimates are subject to change.
Commercialization and Distribution Agreement with Nippon Shinyaku (Territory: Japan)
On February 10, 2023, Capricor entered into a Commercialization and Distribution Agreement (the “Japan Distribution
Agreement”) with Nippon Shinyaku. Under the terms of the Japan Distribution Agreement, Capricor appointed Nippon Shinyaku as its
exclusive distributor in Japan of CAP-1002 for the treatment of DMD.
Under the terms of the Japan Distribution Agreement, Capricor received an upfront payment of $12.0 million in the first quarter of
2023 and in addition, Capricor may potentially receive additional development and sales-based milestone payments of up to approximately
$89.0 million, subject to foreign currency exchange rates, and a meaningful double-digit share of product revenue. Nippon Shinyaku will
be responsible for the distribution of CAP-1002 in Japan. Capricor will be responsible for the conduct of clinical development in Japan, as
may be required, as well as the manufacturing of CAP-1002. Subject to regulatory approval, Capricor will sell commercial product to
Nippon Shinyaku in Japan. In addition, Capricor or its designee will hold the Marketing Authorization in Japan if the product is approved
in that territory.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 AND 2022
The Company has evaluated the Japan Distribution Agreement in accordance with ASU 606, Revenue for Contracts from
Customers. The Company determined the initial transaction price totaled $12.0 million, which was the upfront payment fee. The Company
has excluded any future milestone or shared revenue payments from this transaction price to date based on probability. At this time, the
Company is evaluating the regulatory pathway to achieve potential product approval in this territory. Until such time, the Company cannot
identify any distinct performance obligation. As such, the Company has recorded the entire upfront payment fee of $12.0 million as current
deferred revenue on the Company’s consolidated balance sheets as of December 31, 2023.
8. RELATED PARTY TRANSACTIONS
Lease and Sub-Lease Agreement
As noted above, Capricor is a party to lease agreements with CSMC (see Note 6 – “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.
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. Additionally, in January 2022, Dr. Eduardo Marbán was granted an additional
option grant to purchase 50,000 shares of the Company’s common stock.
In January 2024, Capricor entered into a Consulting Agreement with Michael Kelliher, a member of its Board of Directors, related
to business development services whereby he was granted an option to purchase 30,000 shares of the Company's common stock.
Payables to Related Party
As of December 31, 2023 and 2022, the Company had accounts payable and accrued expenses to related parties totaling $27,479
and $89,234, respectively. CSMC accounts for $17,479 and $79,234 of the total accounts payable and accrued expenses to related parties as
of December 31, 2023 and December 31, 2022, respectively. CSMC expenses relate to research and development costs, clinical trial costs,
license and patent fees, and facilities rent. During the years ended December 31, 2023 and 2022, the Company paid CSMC approximately
$226,400 and approximately $794,000, respectively, for such costs.
9. SUBSEQUENT EVENTS
Additional Sales under ATM Program
Subsequent to December 31, 2023 and through March 7, 2024, the Company sold an aggregate of 251,347 shares of common
stock under the ATM Program at an average price of approximate $4.50 per share for gross proceeds of approximately $1.1 million. The
Company paid cash commissions on the gross proceeds, plus reimbursement of expenses to the placement agent in the aggregate amount of
approximately $35,900.
Stock Option Grants
In January 2024, the Company granted a total of 2,203,726 stock options to its employees, certain non-employee consultants, and
directors.
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License and Service Agreement
CAPRICOR THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 AND 2022
In February 2024, we entered into a License and Services Agreement with Azzur Cleanrooms-on-Demand – San Diego, LLC (the
“Azzur License Agreement”) pursuant to which we have been granted an exclusive license to use certain space and the non-exclusive right
to use certain equipment and property for our early phase clinical and/or pre-clinical manufacturing purposes. Our estimated license fee is
approximately $120,500 per month for a term of approximately 6 months.
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ITEM 9.
DISCLOSURE
None.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
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, 2023, 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, 2023 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, 2023.
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, 2023 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 “Delinquent Section 16(a) Reports” in our Definitive Proxy
Statement for our 2024 Annual Meeting of Stockholders (our “2024 Proxy Statement”), to be filed with the SEC within 120 days after the
end of the fiscal year ended December 31, 2023, and is incorporated herein by reference.
ITEM 11.
EXECUTIVE COMPENSATION.
The information required by this item will be set forth in the section entitled “2023 Executive Compensation” and “Compensation
of Directors” in our 2024 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 2024 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 2024 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 2023
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 88.
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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
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 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).
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. 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). †
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). †
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). †
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). +
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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
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).
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). +
118
Table of Contents
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
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). +
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).†
119
Table of Contents
10.39
10.40
10.41
10.42
10.43
10.44
10.45
10.46
10.47
21.1
23.1
24.1
31.1
31.2
32.1
32.2
97
101
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).
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).+
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 (incorporated by reference to Exhibit 10.54 to the Company’s Annual Report on Form
10-K, filed with the Commission on March 11, 2022). +
U.S. Commercialization and Distribution Agreement, dated as of January 25, 2022, by and among Capricor Therapeutics, Inc.,
Capricor, Inc. and Nippon Shinyaku Co. Ltd. (incorporated by reference to Exhibit 10.55 to the Company’s Annual Report on
Form 10-K, filed with the Commission on March 11, 2022). +
Japan Commercialization and Distribution Agreement, dated as of February 10, 2023, by and among Capricor Therapeutics,
Inc., Capricor, Inc. and Nippon Shinyaku Co. Ltd. (incorporated by reference to Exhibit 10.55 to the Company’s Annual
Report on Form 10-K, filed with the Commission on March 17, 2023). +
List of Subsidiaries. *
Consent of Rose Snyder & Jacobs, LLP. *
Power of Attorney (included on signature page hereof). *
Certification of Principal Executive Officer. *
Certification of Principal Financial Officer. *
Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
Capricor Therapeutics, Inc. Policy on Recoupment of Incentive Compensation. *
The following financial information from Capricor Therapeutics, Inc.’s Annual Report on Form 10-K for the year ended
December 31, 2023 formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) Consolidated Balance Sheets as
of December 31, 2023 and 2022, (ii) Consolidated Statements of Operations and Comprehensive Loss for the years ended
December 31, 2023 and 2022, (iii) Consolidated Statement of Stockholders’ Equity for the period from December 31, 2021
through December 31, 2023, (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022,
and (v) Notes to Consolidated Financial Statements.
104
Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101).
* Filed herewith.
120
Table of Contents
† 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 8, 2024.
SIGNATURES
CAPRICOR THERAPEUTICS, INC.
By:
/s/ Linda Marbán, Ph.D.
Linda Marbán, Ph.D.
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and directors of Capricor Therapeutics, Inc., hereby
severally constitute Linda Marbán, Ph.D. and Anthony J. Bergmann and each of them singly, our true and lawful attorneys with full power
to them, and each of them singly, to sign for us and in our names in the capacities indicated below, any and all amendments to said Annual
Report on Form 10-K, and generally to do all such things in our names and in our capacities as officers and directors to enable Capricor
Therapeutics, Inc. to comply with the provisions of the Securities Exchange Act of 1934, and all requirements of the U.S. Securities and
Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorneys, or any of them, to any
and all amendments hereto.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
/s/ Linda Marbán, Ph.D.
Linda Marbán, Ph.D.
/s/ Anthony J. Bergmann
Anthony J. Bergmann
/s/ Frank Litvack, M.D.
Frank Litvack, M.D.
/s/ Earl M. Collier
Earl M. Collier
/s/ David B. Musket
David B. Musket
/s/ George W. Dunbar
George W. Dunbar
/s/ Karimah Es Sabar
Karimah Es Sabar
/s/ Paul Auwaerter
Paul Auwaerter
/s/ Michael Kelliher
Michael Kelliher
/s/ Philip Gotwals
Philip Gotwals
Chief Executive Officer and Director
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial and Principal Accounting
Officer)
Date
March 8, 2024
March 8, 2024
Executive Chairman and Director
March 8, 2024
Director
Director
Director
Director
Director
Director
Director
122
March 8, 2024
March 8, 2024
March 8, 2024
March 8, 2024
March 8, 2024
March 8, 2024
March 8, 2024
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, 2023, 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 Equiniti Trust Company, LLC. Its address is 48 Wall Street, Floor 23, New York, New
York 10005, and its telephone number is 800-468-9716.
SUBSIDIARIES OF THE REGISTRANT
Exhibit 21.1
LEGAL NAME
Capricor, Inc.
Delaware
JURISDICTION OF ORGANIZATION
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, 333-262826, 333-269468 and 333-277154), 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 8,
2024, 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 8, 2024
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 8, 2024
/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 8, 2024
/s/ Anthony J. Bergmann
Name: Anthony J. Bergmann
Title: Chief Financial Officer, Principal Financial and Principal Accounting
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, 2023 (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 8, 2024
/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, 2023 (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 8, 2024
/s/ Anthony J. Bergmann
Name: Anthony J. Bergmann
Title: Chief Financial Officer, Principal Financial and Principal Accounting
Officer
CAPRICOR THERAPEUTICS, INC.
POLICY ON RECOUPMENT OF INCENTIVE COMPENSATION
Exhibit 97
Introduction
The Board of Directors (the “Board”) of Capricor Therapeutics, Inc. (the “Company”) has adopted this Policy on Recoupment of Incentive
Compensation (this “Policy”), which provides for the recoupment of compensation in certain circumstances in the event of a restatement of financial
results by the Company. This Policy shall be interpreted to comply with the requirements of U.S. Securities and Exchange Commission (“SEC”) rules and
Nasdaq Stock Market (“Nasdaq”) listing standards implementing Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of
2010 (the “Dodd-Frank Act”) and, to the extent this Policy is in any manner deemed inconsistent with such rules, this Policy shall be treated as
retroactively amended to be compliant with such rules.
Administration
This Policy shall be administered by the Company’s Compensation Committee. Any determinations made by the Compensation Committee shall be final
and binding on all affected individuals. The Compensation Committee is authorized to interpret and construe this Policy and to make all determinations
necessary, appropriate or advisable for the administration of this Policy, in all cases consistent with the Dodd-Frank Act. The Board or Compensation
Committee may amend this Policy from time to time in its discretion.
Covered Executives
This Policy applies to any current or former “executive officer,” within the meaning of Rule 10D-1 under the Securities Exchange Act of 1934, as
amended, of the Company or a subsidiary of the Company (each such individual, an “Executive”). This Policy shall be binding and enforceable against all
Executives and their beneficiaries, executors, administrators, and other legal representatives.
Recoupment Upon Financial Restatement
If the Company is required to prepare an accounting restatement due to the material noncompliance of the Company with any financial reporting
requirement under the securities laws, including any required accounting restatement to correct an error in previously issued financial statements that is
material to the previously issued financial statements, or that would result in a material misstatement if the error were corrected in the current period or left
uncorrected in the current period (a “Financial Restatement”), the Compensation Committee shall cause the Company to recoup from each Executive, as
promptly as reasonably possible, any erroneously awarded Incentive-Based Compensation, as defined below.
No-Fault Recovery
Recoupment under this Policy shall be required regardless of whether the Executive or any other person was at fault or responsible for accounting errors
that contributed to the need for the Financial Restatement or engaged in any misconduct.
Compensation Subject to Recovery; Enforcement
This Policy applies to all compensation granted, earned or vested based wholly or in part upon the attainment of any financial reporting measure
determined and presented in accordance with the accounting principles used in preparing the Company’s financial statements, and any measure that is
derived wholly or in part from such measures, whether or not presented within the Company’s financial statements or included in a filing with the SEC,
including stock price and total shareholder return (“TSR”), including but not limited to performance-based cash, stock, options or other equity-based
awards paid or granted to the Executive (“Incentive-Based Compensation”). Compensation that is granted, vests or is earned based solely upon the
occurrence of non-financial events, such as base salary, restricted stock or options with time-based vesting, or a bonus awarded solely at the discretion of
the Board or Compensation Committee and not based on the attainment of any financial measure, is not subject to this Policy.
In the event of a Financial Restatement, the amount to be recovered will be the excess of (i) the Incentive-Based Compensation received by the Executive
during the Recovery Period (as defined below) based on the erroneous data and calculated without regard to any taxes paid or withheld, over (ii) the
Incentive-Based Compensation that would have been received by the Executive had it been calculated based on the restated financial information, as
determined by the Compensation Committee. For purposes of this Policy, “Recovery Period” means the three completed fiscal years immediately
preceding the date on which the Company is required to prepare the Financial Restatement, as determined in accordance with the last sentence of this
paragraph, or any transition period that results from a change in the Company’s fiscal year (as set forth in Section 5608(b)(i)(D) of the Nasdaq Listing
Rules). The date on which the Company is required to prepare a Financial Restatement is the earlier to occur of (A) the date the Board or a Board
committee (or authorized
officers of the Company if Board action is not required) concludes, or reasonably should have concluded, that the Company is required to prepare a
Financial Restatement or (B) the date a court, regulator, or other legally authorized body directs the Company to prepare a Financial Restatement.
For Incentive-Based Compensation based on stock price or TSR, where the amount of erroneously awarded compensation is not subject to mathematical
recalculation directly from the information in the Financial Restatement, then the Compensation Committee shall determine the amount to be recovered
based on a reasonable estimate of the effect of the Financial Restatement on the stock price or TSR upon which the Incentive-Based Compensation was
received and the Company shall document the determination of that estimate and provide it to Nasdaq.
Incentive-Based Compensation is considered to have been received by an Executive in the fiscal year during which the applicable financial reporting
measure was attained or purportedly attained, even if the payment or grant of such Incentive-Based Compensation occurs after the end of that period.
The Company may use any legal or equitable remedies that are available to the Company to recoup any erroneously awarded Incentive-Based
Compensation, including but not limited to by collecting from the Executive cash payments or shares of Company common stock from or by forfeiting any
amounts that the Company owes to the Executive. Executives shall be solely responsible for any tax consequences to them that result from the recoupment
or recovery of any amount pursuant to this Policy, and the Company shall have no obligation to administer the Policy in a manner that avoids or minimizes
any such tax consequences.
No Indemnification
The Company shall not indemnify any Executive or pay or reimburse the premium for any insurance policy to cover any losses incurred by such Executive
under this Policy or any claims relating to the Company’s enforcement of rights under this Policy.
Exceptions
The compensation recouped under this Policy shall not include Incentive-Based Compensation received by an Executive (i) prior to beginning service as an
Executive or (ii) if he or she did not serve as an Executive at any time during the performance period applicable to the Incentive-Based Compensation in
question. The Compensation Committee (or a majority of independent directors serving on the Board) may determine not to seek recovery from an
Executive in whole or part to the extent it determines in its sole discretion that such recovery would be impracticable because (A) the direct expense paid to
a third party to assist in enforcing recovery would exceed the recoverable amount (after having made a reasonable attempt to recover the erroneously
awarded Incentive-Based Compensation and providing corresponding documentation of such attempt to Nasdaq), (B) recovery would violate the home
country law that was adopted prior to November 28, 2022, as determined by an opinion of counsel licensed in the applicable jurisdiction that is acceptable
to and provided to Nasdaq, or (C) recovery would likely cause the Company’s 401(k) plan or any other tax-qualified retirement plan to fail to meet the
requirements of Section 401(a)(13) or Section 411(a) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder.
Other Remedies Not Precluded
The exercise by the Compensation Committee of any rights pursuant to this Policy shall be without prejudice to any other rights or remedies that the
Company, the Board or the Compensation Committee may have with respect to any Executive subject to this Policy, whether arising under applicable law
(including pursuant to Section 304 of the Sarbanes-Oxley Act of 2002), regulation or pursuant to the terms of any other policy of the Company,
employment agreement, equity award, cash incentive award or other agreement applicable to an Executive. Notwithstanding the foregoing, there shall be
no duplication of recovery of the same Incentive-Based Compensation under this Policy and any other such rights or remedies.
Acknowledgment
To the extent required by the Compensation Committee, each Executive shall be required to sign and return to the Company the Acknowledgement Form
attached hereto as Exhibit A pursuant to which such Executive will agree to be bound by the terms of, and comply with, this Policy. For the avoidance of
doubt, each Executive shall be fully bound by, and must comply with, the Policy, whether or not such Executive has executed and returned such
Acknowledgment Form to the Company.
Effective Date and Applicability
This Policy has been adopted by the Board on November 27, 2023, and shall apply to any Incentive-Based Compensation that is received by an Executive
on or after October 2, 2023.
EXHIBIT A
DODD-FRANK COMPENSATION CLAWBACK POLICY
ACKNOWLEDGEMENT FORM
Capitalized terms used but not otherwise defined in this Acknowledgement Form (this “Acknowledgement Form”) shall have the meanings ascribed to
such terms in the Policy. By signing this Acknowledgement Form, the undersigned acknowledges, confirms and agrees that the undersigned: (i) has
received and reviewed a copy of the Policy; (ii) is and will continue to be subject to the Policy and that the Policy will apply both during and after the
undersigned’s employment with the Company; and (iii) will abide by the terms of the Policy, including, without limitation, by reasonably promptly
returning any recoverable compensation to the Company as required by the Policy, as determined by the Compensation Committee in its sole discretion.
Signature: _______________________________
Print Name: ______________________________
Date: ____________________________________