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What changed in CAPRICOR THERAPEUTICS, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of CAPRICOR THERAPEUTICS, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+548 added−529 removedSource: 10-K (2024-03-11) vs 10-K (2023-03-17)

Top changes in CAPRICOR THERAPEUTICS, INC.'s 2023 10-K

548 paragraphs added · 529 removed · 373 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

125 edited+72 added−67 removed173 unchanged
Biggest changeThis cardiomyopathy eventually leads to heart failure, which is currently the leading cause of death among those with DMD. ​ Patients with DMD experience progressive muscle weakness and degeneration starting at an early age. Generally, a loss of ambulation occurs after the first decade of life and eventually the patients suffer respiratory and cardiac failure.
Biggest changeDue 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. 5 Table of Contents ​ 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.
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 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.
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 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.
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.
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.
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.
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.
For instance, the California Consumer Privacy Act (“CCPA”) became effective on January 1, 2020, giving California residents expanded privacy rights, and requiring businesses provide detailed information about their data practices. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation.
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.
This designation confers special incentives to the drug developer, including tax credits on the clinical development costs and prescription drug user fee waivers and may allow for a seven-year period of market exclusivity in the United States upon FDA approval. ​ In July 2017, the FDA granted Rare Pediatric Disease Designation to CAP-1002 for the treatment of DMD.
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.
Various laws and regulations govern or influence the research and development, non-clinical and clinical testing, manufacturing, processing, packaging, validation, safety, labeling, storage, record keeping, registration, listing, distribution, advertising, sale, marketing and post-marketing commitments of our products. The lengthy process of seeking these approvals, and the subsequent compliance with applicable laws and regulations, require expending substantial resources.
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 development of complex biotechnology products such as ours typically includes the early discovery of a technology platform – often in an academic institution – followed by increasingly focused development around a product opportunity, including identification and definition of a specific product candidate and development of scalable manufacturing processes, formulations, patient selection and treatment regimes, and delivery and dosage regimens.
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.
Our policy is to actively seek to obtain, where appropriate, the broadest intellectual property protection possible for our current product candidates and any future product candidates, proprietary information and proprietary technology through a combination of contractual arrangements and patents, both in the United States and abroad.
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.
In the United States, the process for receiving such approval is long, expensive and risky, and includes the following steps: ● preclinical laboratory tests, animal studies, and formulation studies; ● submission to the FDA of an IND for human clinical testing, which must become effective before human clinical trials may begin; ● approval by an IRB at each clinical site before each trial may be initiated; ● adequate and well-controlled human clinical trials to establish the safety and efficacy of the drug for each indication; ● submission to the FDA of an NDA, for a drug, or BLA, for a biological product; ● satisfactory completion of an FDA advisory committee review, if applicable; ● satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug is produced to assess compliance with cGMP; ● a potential FDA audit of the preclinical and clinical trial sites that generated the data in support of the NDA or BLA; ● the ability to obtain clearance or approval of companion diagnostic tests, if required, on a timely basis, or at all; ● FDA review and approval of the NDA or BLA prior to any commercial marketing or sale of the drug in the United States; and 18 Table of Contents ● 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.
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.
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. ​ 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.
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. ​ 12 Table of Contents 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 next milestone is triggered upon successful completion of a full Phase III study for which a payment of $500,000 will be due. ​ The JHU License Agreement will, unless sooner terminated, continue in effect in each applicable country until the date of expiration of the last to expire patent within the patent rights, or, if no patents are issued, then for twenty years from the effective date.
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.
Research and Development Capricor’s research and development program has been advanced in part through federal and state grants and loan awards totaling approximately $28 million to date.
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.
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 reimbursable, in whole or in part, under Medicare, Medicaid or other federal healthcare programs.
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.
Capricor may also terminate for any reason upon 90 days’ written notice to the University of Rome. 13 Table of Contents ​ 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.
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.
Additional compliance investment and potential business process changes may be required to respond to these rapidly changing privacy law landscape. If we fail to comply with existing or new privacy laws and regulations, we could face legal liability from regulatory actions or litigation, as well as reputational damage.
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.
Our patents, or patent applications, if issued and upon payment of patent maintenance fees, would expire as early as 2024 and as late as 2043 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.
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 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 10 Table of Contents disease or condition will be recovered from sales in the United States for that drug.
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.
We have promising preclinical data in several indications from studies done utilizing CAP-2003 in our labs as well as in collaboration with other companies and academic institutions. In 2020, we filed an IND with the FDA to investigate the use of CAP-2003 in patients with DMD.
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 results of preclinical testing, which include laboratory evaluation of product chemistry, formulation, toxicity and carcinogenicity animal studies to assess the potential safety and efficacy of the product and its formulations, details concerning the drug manufacturing process and its controls, and a proposed clinical trial protocol and other information must be submitted to the FDA as part of an IND that must be reviewed and become effective before clinical testing can begin.
The 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 18 Table of Contents 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.
However, effective January 1, 2024, manufacturers’ Medicaid Drug Rebate Program rebate liability will no longer be capped, potentially resulting in a manufacturer paying more in Medicaid Drug Rebate Program rebates than it receives on the sale of certain covered outpatient drugs.
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.
Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing 22 Table of Contents 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.
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.
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.
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 23 Table of Contents and services, and potentially could reduce demand for our products once approved, create additional pricing pressures, or ultimately limit our net revenue and results.
If and when those conditions have been met to the FDA’s satisfaction, the FDA will typically issue an approval letter, which authorizes commercial marketing of the product with specific prescribing information for specific indications, and sometimes with specified post-marketing commitments and/or distribution and use restrictions imposed under a Risk Evaluation and Mitigation Strategy program.
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 19 Table of Contents under a Risk Evaluation and Mitigation Strategy program.
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 II study pursuant to the terms of the JHU License Agreement.
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.
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 an Exclusive Commercialization and Distribution Agreement (the “U.S.
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.
Typically, clinical testing involves a three-phase process; however, the phases may overlap or be combined: ● Phase I clinical trials typically are conducted in a small number of volunteers or patients to assess the early tolerability and safety profile, the pattern of drug absorption, distribution and metabolism, the mechanism of action in humans, and may include studies where investigational drugs are used as research to explore biological phenomena or disease processes; ● Phase II clinical trials typically are conducted in a limited patient population with a specific disease in order to assess appropriate dosages and dose regimens, expand evidence of the safety profile and evaluate preliminary efficacy; and ● Phase III clinical trials typically are larger scale, multicenter, well-controlled trials conducted on patients with a specific disease to generate enough data to statistically evaluate the efficacy and safety of the product, to establish the overall benefit-risk relationship of the drug and to provide adequate information for the labeling of the drug.
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.
ITEM 1. BUSINESS 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, or DMD, a rare form of muscular dystrophy which results in muscle degeneration and premature death, and other diseases with high unmet medical needs.
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.
Although we do not currently have any products on the market, once our product candidates or clinical trials are covered by federal health care programs, we will be subject to additional healthcare statutory and regulatory requirements and enforcement by the federal and state governments of the jurisdictions in which we conduct our business.
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 26 Table of Contents and enforcement by the federal and state governments of the jurisdictions in which we conduct our business.
The RMAT designation makes therapies eligible for the same actions to expedite the development and review of a marketing application that are available to drugs that receive fast track or breakthrough therapy designation – including increased meeting opportunities, early interactions to discuss any potential surrogate or intermediate endpoints and the potential to support accelerated approval.
The RMAT designation makes therapies eligible 16 Table of Contents 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.
Manufacturing Process for CDC-Exosomes (CAP-2003) The process for manufacturing CAP-2003 starts with the proprietary process of creating a cell bank from donor heart tissue through the expansion of CDCs. Afterwards, exosomes are isolated from the expanded CDCs. After these exosomes are prepared, formulated, filled, tested, and validated, the exosomes product becomes available for clinical investigation, subject to regulatory approval.
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.
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 25 Table of Contents or injunctions in federal courts to enforce HIPAA and seek attorneys’ fees and costs associated with pursuing federal civil actions.
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.
Products granted RMAT 21 Table of Contents 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.
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.
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 23 Table of Contents 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.
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.
There can be no assurance that existing or future therapies developed by others will not render our potential products obsolete or noncompetitive. In addition, companies pursuing different but related fields represent substantial competition. These organizations also compete with us to attract patients for clinical trials, qualified personnel and parties for acquisitions, joint ventures, or other collaborations.
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 17 Table of Contents 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.
To this end, we require all of our employees, consultants, advisors and other contractors to enter into confidentiality agreements that prohibit the disclosure and use of confidential information and, where applicable, require disclosure and assignment to us of the ideas, developments, discoveries and inventions relevant to our technologies and important to our business.
To this end, we require all of our employees, consultants, advisors and 15 Table of Contents 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.
As HIPAA requirements evolve, we may be required to update our compliance strategies or modify our business processes to comply. 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.
As HIPAA and HITECH requirements evolve, we may be required to update our compliance strategies or modify our business processes to comply. 25 Table of Contents 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.
The Exosomes License 15 Table of Contents 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.
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.
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 11 Table of Contents related injuries and conditions.
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.
Substantial new provisions affecting compliance have also been enacted, which may affect our business practices with healthcare providers and entities. 27 Table of Contents Additionally, there have been executive, judicial, and legislative challenges to certain aspects of the ACA.
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.
In recent years, there have been multiple legal challenges to this FDA interpretation, 20 Table of Contents 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.
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.
Department of Health and Human Services on an annual basis. 26 Table of Contents Many states have similar statutes or regulations to the above federal laws that may be broader in scope and may apply regardless of payor.
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.
Prior to the Supreme Court’s decision, President Biden had issued an executive order that instructed certain governmental agencies to review and 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.
Prior to the Supreme Court’s decision, President Biden had issued an executive order that instructed certain governmental agencies to review and 27 Table of Contents 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.
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”) 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. ​ 11 Table of Contents Under the terms of the U.S.
In addition, 24 Table of Contents 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.
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.
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 28 Table of Contents Medicare Parts B and D following a price negotiation process with the Centers for Medicare and Medicaid Services.
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.
Regenerative Medicine Advanced Therapies (RMAT) Designation The FDA has established a Regenerative Medicine Advanced Therapy (“RMAT”) designation as part of its implementation of the Cures Act.
Regenerative Medicine Advanced Therapies (RMAT) Designation The FDA has established a RMAT designation as part of its implementation of the Cures Act.
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. Capricor will sell commercial product to Nippon Shinyaku.
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.
Earlier filed broad patent applications directed to the discovery of the platform technology thus usually expire ahead of patents covering later developments such as scalable manufacturing processes and dosing regimens. Patent expirations on products may therefore span several years and vary from country to country based on the scope of available coverage.
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.
For example, the Budget Control Act of 2011 included reductions to Medicare payments to providers of up to 2% per fiscal year, which went into effect on April 1, 2013 and, due to subsequent legislation, will stay in effect into 2031 (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).
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).
This 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.
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.
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 expects to receive an upfront payment of $12 million and in addition, Capricor will potentially receive additional development and sales-based milestone payments of up to approximately $89 million, subject to foreign currency exchange rates, and a meaningful double-digit share of product revenue.
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.
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 Biologics License Application (“BLA”).
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.
Other Healthcare Fraud and Abuse Laws Although we currently do not have any products on the market, our activities, including current and future arrangements with investigators, healthcare professionals, consultants, third-party payors and customers, may be subject to additional healthcare laws, regulations and enforcement by the federal government and by authorities in the states and foreign jurisdictions in which we conduct our business.
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.
Our second manufacturing facility is located within our laboratory and research and manufacturing facilities located at CSMC pursuant to a Facilities Lease.
Our second manufacturing facility is located within our laboratory, research and manufacturing facilities at CSMC in Los Angeles pursuant to a Facilities Lease.
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.
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.
We believe these developments will enable us to scale up our manufacturing capabilities and allow us to manufacture enough material for early-stage clinical development. We are exploring the use of various cell sources to generate our exosomes for preclinical and potential clinical use.
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.
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. 29 Table of Contents
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. ​ 29 Table of Contents
In that portion of the leased premises where we manufacture CAP-1002 and may manufacture our exosome products for potential clinical use, we believe that we follow, current good manufacturing practices, to the extent that they are applicable to the stage of our clinical programs although our current facility does not meet commercial current Good Manufacturing Practices (“cGMP”) standards.
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.
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 CMS information related to certain payments or other transfers of value made or distributed to physicians and teaching hospitals, or to entities or individuals at the request of, or designated on behalf of, the physicians, physician assistants, nurse practitioners, clinical nurse specialists, anesthesiologist assistants, certified nurse anesthetists, certified nurse-midwives and teaching hospitals and to report annually certain ownership and investment interests held by physicians and their immediate family members.
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.
(U.S. and Japan distribution rights) ​ ​ ​ ​ HOPE-2 Phase II completed** ​ ​ Exosome protein-based vaccine (multivalent design) SARS-CoV-2 Preclinical ​ ​ Engineered Exosomes (RNA, protein and small molecule delivery) Evaluating Preclinical ​ ​ CAP-2003 (CDC-exosomes) Duchenne muscular dystrophy IND submitted ​ ​ ​ * The FDA has granted orphan drug, RMAT, and Rare Pediatric Disease designations to CAP-1002 for the treatment of DMD. **We are currently conducting an OLE study of the HOPE-2 trial.
(U.S. and Japan rights) Exosome protein-based vaccine (multivalent design) SARS-CoV-2 IND submitted ​ Collaboration with National Institute of Allergy and Infectious Diseases Engineered Exosomes (RNA, protein and small molecule delivery) Evaluating Preclinical ​ ​ CAP-2003 (CDC-exosomes) Duchenne muscular dystrophy 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.
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 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.
Furthermore, the Biden administration continues to direct the Department of Health and Human Services HHS 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.
However, we expect these initiatives to increase pressure on drug pricing. 28 Table of Contents 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.
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.
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.
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 $13,508 and $27,018 for each separate false claim per false claim or statement for penalties assessed after January 30, 2023 with respect to violations occurring after November 2, 2015 (and penalties of between $5,500 and $11,000 per claim or statement with respect to violations occurring before that date).
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.
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.
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.
This mechanism of action, which is 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.
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.
Capricor may terminate the agreement if CSMC fails to cure any material breach within 90 days after notice.
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.
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.
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.
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.
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.
Our Programs Cell Therapy (CAP-1002) for the Treatment of Duchenne Muscular Dystrophy (Phase III) Our core program is focused on the development and commercialization of a cell therapy (referred herein as CAP-1002) comprised of cardiosphere-derived cells (“CDCs”), which are an endogenous population of stromal cells isolated from donated cells of healthy human hearts for the treatment of Duchenne muscular dystrophy (“DMD”).
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.
Unique to a Fast Track product, the FDA may consider for review sections of the marketing application on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the application, the FDA agrees to accept sections of the application and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the application FDA may revoke the Fast Track designation if it believes that the designation is no longer supported by data emerging in the clinical trial process.
Unique to a Fast Track product, the FDA may consider for review sections of the marketing application on a rolling basis before the 20 Table of Contents 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.
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.
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.
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.
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.
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 of full PUL v2.0 (p=0.04) and a cardiac endpoint of left ventricular ejection fraction (p=0.002).
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).
Additionally, the final 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 terms of relevance to long term outcomes. Furthermore, the data showed a reduction in the biomarker CK-MB, an enzyme that is only released when there is cardiac muscle cell damage.
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.
We plan to report the 24-month OLE data in the second quarter of this year. Phase I/II HOPE-Duchenne Clinical Trial In 2017, we completed the randomized, controlled, multi-center Phase I/II HOPE-Duchenne clinical trial which was designed to evaluate the safety and exploratory efficacy of CAP-1002 in patients with cardiomyopathy associated with DMD.
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.
Patients were observed over the course of 12 months. Efficacy was evaluated according to several exploratory outcome measures. This study was funded in part through a grant award (the “CIRM Award”) from the California Institute for Regenerative Medicine (“CIRM”).
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.
There were no early study discontinuations due to adverse events. ​ Regulatory Designations for CAP-1002 for the treatment of DMD In April 2015, the FDA granted orphan drug designation to CAP-1002 for the treatment of DMD.
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.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThese 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; ● we may not have adequate personnel and may not be able to attract or retain personnel needed to develop our products; ● the COVID-19 pandemic, including its impact on our business and operations; ​ Risks Related to Clinical and Commercialization Activities ● our success depends upon the viability of our product candidates, all of which require regulatory approval to commercialize and we cannot be certain any of them will receive regulatory approval to be commercialized; ● delays in commencement, enrollment, and completion of clinical testing could result in increased costs to us and delay or limit our ability to obtain regulatory approval for our product candidates; ● our exosome technologies are unproven in their ability to achieve sufficient biological activity or scale in development to date; ● product candidates can fail to meet their efficacy endpoints at any time during the clinical development process, which would likely make them ineligible for becoming commercial products; ● we may not be able to use our facilities to manufacture product for use in our Phase III trial of CAP-1002 for DMD; ● 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; ● 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; 30 Table of Contents ● 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 ; Risks Related to Our Intellectual Property ● our ability to obtain, maintain, protect, and enforce our intellectual property rights; ● potential challenges to the validity, enforceability, or scope of our intellectual property; ● potential claims from third parties that we are infringing their patents or other intellectual property rights; ● our ability 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; ● we will depend on the ability of Nippon Shinyaku to perform according to the terms of the U.S.
Biggest changeThese 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.
Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. If reimbursement is not available or is available only at limited levels, we may not be able to successfully commercialize any product candidate that we successfully develop.
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.
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 and JHU that cover extracellular vesicles, such as exosomes and microvesicles.
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.
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.
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.
If the Company in unable to access sufficient sources of such materials, or if tighter restrictions are imposed on the use of such materials, the Company may not be able to conduct research or product development activities as planned and may incur additional costs. ● The development, manufacturing and marketing of vaccines are subject to regulation by the FDA, the EMA and other regulatory bodies that are often more complex and extensive than the regulations applicable to other pharmaceutical products.
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.
Additionally, we cannot predict with any certainty if, or when, we might commence any additional clinical trials of our product candidates, whether we will be able to secure additional partners, or whether our current trials will yield sufficient data to permit us to proceed with additional clinical development and ultimately submit an application for regulatory approval of our product candidates in the United States or abroad, or whether such applications will be accepted by the appropriate regulatory agencies.
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.
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 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 be prone to withdraw due to the treatment protocol, lack of efficacy, personal issues, or side effects from the therapy, or who are lost to further follow-up; ● manufacturing sufficient quantities of a product candidate for use in clinical trials on a timely basis; ● obtaining advice from regulatory authorities regarding the statistical analysis plan to be used to evaluate the clinical trial data or other trial design issues; ● demonstrating the bioequivalence of products we manufacture to prior products manufactured by us; ● complying with design protocols of any applicable special protocol assessment we receive from the FDA; ● severe or unexpected drug-related side effects experienced by patients in a clinical trial; ● collecting, analyzing and reporting final data from the clinical trials; ● breaches in quality of manufacturing runs that compromise all or some of the doses made; positive results in FDA-required viral testing; karyotypic abnormalities in our cell product; or contamination in our manufacturing facilities, all of which events would necessitate disposal of all cells made from that source; ● availability of materials provided by third parties necessary to manufacture our product candidates; ● availability of adequate amounts of acceptable tissue for preparation of master cell banks for our products; 39 Table of Contents ● 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.
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.
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/or other requirements.
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.
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 drug approval process and may require us to conduct additional preclinical and clinical testing or to perform post-marketing studies.
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 degree of market acceptance of any of our approved products will depend on a number of factors, including: ● limitations or warnings contained in a product’s FDA-approved labeling; ● changes in the standard of care for the targeted indications for any of our product candidates, which could reduce the marketing impact of any claims that we could make following FDA approval; ● limitations inherent in the approved indication for any of our product candidates compared to more commonly understood or addressed conditions; ● lower demonstrated clinical safety and efficacy compared to other products; ● prevalence and severity of adverse effects; ● ineffective marketing and distribution efforts; ● lack of availability of reimbursement from managed care plans and other third-party payors; ● lack of cost-effectiveness; ● timing of market introduction and perceived effectiveness of competitive products; 64 Table of Contents ● availability of alternative therapies at similar costs; and ● potential product liability claims.
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; 63 Table of Contents ● 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.
The testing, marketing, and sale of human cell therapeutics, pharmaceuticals, and services entail an inherent risk of adverse effects or medical complications to patients and, as a result, product liability claims may be asserted against us. A future product liability claim or product recall could have a material adverse effect on the Company.
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.
Even if our product candidates are approved, our ability to generate product revenues will be diminished if our drugs sell for inadequate prices or patients are unable to obtain adequate levels of reimbursement. Our or our collaborators’ ability to generate significant sales of our products, if approved, depends on the availability of adequate coverage and reimbursement from third-party payors.
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.
We are largely dependent on our relationships with our licensors and collaborators and there is no guarantee that such relationships will be maintained or continued. We have entered into certain license agreements for certain intellectual property rights which are essential to enable us to develop and commercialize our products.
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.
Our exosome technologies are based on a novel therapeutic approach which makes it difficult to predict the time and cost of development and of subsequently obtaining regulatory approval, if at all. Our exosome technologies involve a relatively new therapeutic approach which will face both clinical and regulatory challenges.
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 the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development and commercialization of our product candidates could be delayed.
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.
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 drug products which may cause delays in our ability to sell commercially.
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.
We may be at risk of securities class action litigation or litigation initiated by individual stockholders. We may be at risk of securities class action litigation or litigation initiated by individual stockholders. This risk is especially relevant due to our dependence on positive clinical trial outcomes and regulatory approvals.
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.
Although we continue to build on our experience in manufacturing our products, we have no experience, as a company, manufacturing product candidates for commercial supply. We may never be successful in manufacturing product candidates in sufficient quantities or with sufficient quality for commercial use.
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.
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; 67 Table of Contents ● 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.
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.
Furthermore, compliance with cGMP requirements and other quality issues may arise during our internal efforts to scale-up manufacturing, and with our current or any future CMOs.
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.
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 50 Table of Contents authorities, private health insurers and other organizations. However, there may be significant delays in obtaining coverage for newly-approved drugs.
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 49 Table of Contents for newly-approved drugs.
In addition, government regulations in multiple jurisdictions, such as the United States and the EU, could result in restricted access to, or the transport or use of, such materials.
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.
There can also be no assurance that our proposed technology will not infringe upon valid and enforeceable 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.
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.
If we enter into any strategic partnerships with pharmaceutical, biotechnology or other life science companies, we will be subject to a number of risks, including: ● we may not be able to control the amount and timing of resources that our strategic partners devote to the development or commercialization of product candidates; ● strategic partners may delay clinical trials, provide insufficient funding, terminate a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new version of a product candidate for clinical testing; ● strategic partners may not pursue further development and commercialization of products resulting from the strategic partnering arrangement or may elect to discontinue research and development programs; ● strategic partners may not commit adequate resources to the marketing and distribution of any future products, limiting our potential revenues from these products; ● disputes may arise between us and our strategic partners that result in the delay or termination of the research, development or commercialization of our product candidates or that result in costly litigation or arbitration that diverts management’s attention and consumes resources; ● strategic partners may experience financial difficulties; ● strategic partners may not properly maintain or defend our intellectual property rights or may use our proprietary information in a manner that could jeopardize or invalidate our proprietary information or expose us to potential litigation; ● business combinations or significant changes in a strategic partner’s business strategy may also adversely affect a strategic partner’s willingness or ability to complete its obligations under any arrangement; and ● strategic partners could independently move forward with a competing product candidate developed either independently or in collaboration with others, including our competitors. 61 Table of Contents We rely and will rely on third parties to conduct our clinical trials.
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; 60 Table of Contents ● 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.
An element of our business strategy includes potentially partnering with pharmaceutical, biotechnology and other companies to obtain assistance for the development and potential commercialization of our product candidates, including the cash and other resources we need for such development and potential commercialization. We may not be able to negotiate strategic partnerships on acceptable terms, or at all.
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.
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 and our CMOs may experience manufacturing difficulties due to resource constraints or as a result of labor disputes or unstable political environments.
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.
Our manufacturing capabilities could be affected by cost-overruns, unexpected delays, equipment failures, labor shortages, operator error, natural disasters, unavailability of qualified personnel, difficulties with logistics and shipping, problems regarding yields or stability of product, contamination or other quality control issues, power failures, and numerous other factors that could prevent us from realizing the intended benefits of our manufacturing strategy and have a material adverse effect on our business.
Our manufacturing capabilities could be affected by cost-overruns, unexpected delays, equipment failures, labor shortages, operator error, 53 Table of Contents 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.
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 III trial of our CAP-1002 product candidate for DMD.
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.
This could result in us being required to conduct further comparability testing and may result in us being required to conduct additional clinical and/or nonclinical studies before we are able to submit a BLA for approval. Additional testing or clinical 53 Table of Contents trial requirements could lead us not to pursue an application for approval.
This could result in us being required to conduct further comparability testing and may result in us being required to conduct 52 Table of Contents 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.
Eduardo Marbán, who is the Director of the Smidt Heart Institute at CSMC) are under no obligation to conduct, continue, or conclude either current or future studies utilizing our cell therapy or exosomes technology, and they are not compelled to license any further technologies or intellectual property rights to us except as may be stated in the applicable licensing agreements or research agreements between those institutions and us.
Eduardo 59 Table of Contents 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.
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; 32 Table of Contents ● our ability to receive regulatory approval or commercialize our product candidates, within and outside the United States; ● potential side effects of our current or future products and product candidates that could delay or prevent commercialization or cause an approved treatment drug to be taken off the market; ● market acceptance of our product candidates; ● our ability to establish an effective sales and marketing infrastructure once our products are commercialized, as necessary or to establish partnerships with other companies who have greater sales and marketing capabilities; ● 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 necessary; ● costs related to and outcomes of potential intellectual property litigation; ● compliance with obligations under intellectual property licenses with third parties; ● our ability to implement additional internal systems and infrastructure; ● our ability to adequately support future growth; ● if our products are approved for commercial sale, the ability to secure reimbursement for our products; ● our ability to attract and retain key personnel to manage our business effectively; and ● the ability of members of our senior management to manage our business and operations.
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. 33 Table of Contents The Company’s technology is not yet proven and each of our product candidates is still in clinical or preclinical development .
If we need to secure an additional manufacturer of our product candidates, demand for third- 54 Table of Contents 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 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 our securities are delisted from trading on The Nasdaq Stock Market, however, and we are not able to list our securities on another exchange or to have them quoted on The Nasdaq Stock Market, our securities could be quoted on the OTC Markets or on the “pink sheets.” As a result, we could face significant adverse consequences including: ● a limited availability of market quotations for our securities; ● a determination that our common stock is a “penny stock,” which would require brokers trading in our common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities; ● a limited amount of news and analyst coverage; and ● a decreased ability to issue additional securities (including pursuant to short-form registration statements on Form S-3) or obtain additional financing in the future.
If 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. 70 Table of Contents ITEM 1B.
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. 56 Table of Contents 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.
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.
Such effects include the risks that our product candidates may not be approved for all indications requested, which could limit the uses of our product candidates and have an adverse effect on product sales and potential royalties, and that such approval may be subject to limitations on the indicated uses for which the product may be marketed or require costly, post-marketing follow-up studies.
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, 48 Table of Contents 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.
Some of our own or in-licensed patents may be subject to challenge and subsequent invalidation in a variety of post-grant 58 Table of Contents 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.
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.
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. 68 Table of Contents 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.
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.
If those OPOs or an alternative OPO is not able or willing to supply us with donor hearts, we would be unable to produce our CDCs or exosomes and the development of our lead product candidates would be significantly impaired and possibly terminated. Additionally, OPOs are subject to regulations of various government agencies.
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.
Patients who are prescribed treatments 65 Table of Contents 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.
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.
The use of our product candidates in clinical trials and the sale of any products for which we obtain marketing approval, if at all, expose the Company to the risk of product liability claims. Product liability claims might be brought against the Company by consumers, health care providers or others using, administering or selling our products.
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, 65 Table of Contents administering or selling our products.
We do not have control over third-party manufacturers’ compliance with these regulations and standards. Each of these risks could delay our clinical trials, the approval, if any, of our product candidates by the FDA, or the commercialization of our product candidates, or result in higher costs or deprive us of potential product revenues.
We do not have control over third-party manufacturers’ compliance with these regulations and standards. 54 Table of Contents 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.
Furthermore, there can be no assurance that others will not independently develop substantially equivalent technologies not covered by patents to which we have rights or obtain access to our know-how. In addition, the laws of certain countries may not adequately protect our intellectual property.
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 55 Table of Contents may not adequately protect our intellectual property.
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. 60 Table of Contents In addition, we are responsible for the cost of filing and prosecuting certain patent applications and maintaining certain issued patents licensed to us.
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.
Our certificate of incorporation, our bylaws and Delaware law contain provisions that may have the effect of preserving our current management, such as: ● authorizing the issuance of “blank check” preferred stock without any need for action by stockholders; ● eliminating the ability of stockholders to call special meetings of stockholders; and ● establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings.
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.
If federal spending is reduced, anticipated budgetary shortfalls may also impact the ability of relevant agencies, such as the FDA or the National Institutes of Health, to continue to function at current levels. Amounts allocated to federal grants and contracts may be reduced or eliminated.
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 51 Table of Contents eliminated.
Business disruptions such as natural disasters, widespread infectious diseases or pandemics could seriously harm our future revenues and financial condition and increase our costs and expenses.
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.
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 37 Table of Contents we may develop.
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.
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 52 Table of Contents of President Biden’s administration and the U.S. Congress may have on the federal budget.
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.
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. 57 Table of Contents Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in the patents we own or that are in-licensed.
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.
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”) 69 Table of Contents in the month of the ownership change or the two preceding months.
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.
The merger between Nile Therapeutics, Inc. (“Nile”) and Capricor resulted in an “ownership change” of Nile. In addition, previous or current changes in the Company’s stock ownership may have triggered or, in the future, may trigger an “ownership change,” some of which may be outside our control.
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.
If material weaknesses or other significant deficiencies occur, these weaknesses or deficiencies could result in misstatements of our results of operations, restatements of our consolidated financial statements, a decline in our stock price, or other material adverse effects on our business, reputation, results of operations, financial condition or liquidity.
If material weaknesses or other 69 Table of Contents 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.
In addition, we employ individuals who were previously employed at other biotechnology or pharmaceutical companies. We may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise improperly used, misappropriated or disclosed confidential information of these third parties or our employees’ former employers. Litigation may be necessary to defend against these claims.
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.
Under our Amended and Restated Exclusive License Agreement with CSMC and our Exclusive License Agreement with CSMC, as the same have been amended, we have assumed, in coordination with CSMC, financial responsibility for the prosecution and maintenance of certain patents and patent applications thereunder.
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 56 Table of Contents thereunder.
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. Risks Related to Competitive Factors Our products will likely face intense competition.
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. 61 Table of Contents Risks Related to Competitive Factors Our products will likely face intense competition.
Our competitors may obtain regulatory approval of their 62 Table of Contents 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 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.
As of December 31, 2022, there were approximately 25.2 million shares of common stock outstanding and approximately 0.1 million common warrants outstanding, as well as outstanding awards to purchase approximately 5.8 million shares of common stock under various incentive stock plans of the Company.
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.
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 31 Table of Contents will be sufficient to meet our needs.
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.
For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data.
For example, the loss of 35 Table of Contents 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.
Despite the results reported in earlier clinical trials for our product candidates, we do not know whether any Phase II, Phase III or other clinical trial which we may conduct will demonstrate adequate efficacy and safety to result in regulatory approval to market our product candidates.
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.
Any such determinations would delay or deny the introduction of our product candidates to the market and have a material adverse effect on our business, financial condition, and results of operations.
Any such determinations 46 Table of Contents 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.
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 are acting to create and test many therapeutics and vaccines for COVID-19 or other infection diseases is atypical.
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.
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, 55 Table of Contents achieving scale, decreasing processing time, increasing manufacturing success rate, or other reasons.
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.
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 70 Table of Contents superior to you.
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.
To date , and to the best of our knowledge, no products based on exosomes have been approved in the United States or the European Union. It is therefore difficult to accurately predict the developmental challenges we may face for our exosome technologies as they proceed through preclinical studies and clinical trials.
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.
The Sarbanes-Oxley Act of 2002, as amended (“Sarbanes-Oxley”), as well as rules implemented by the Securities and Exchange Commission (“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 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.
There has been a close working relationship between the academic lab at CSMC and our research and development team where employees and consultants of both entities contribute time and services to the research being performed by the other.
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.
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.
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.
A number of companies in the pharmaceutical industry, including those with greater resources and experience, have suffered significant setbacks in Phase II or Phase III clinical trials, even after seeing promising results in earlier clinical trials.
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.
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. 33 Table of Contents The success of our product candidates will depend on several factors, including the following: ● successful and timely completion of our clinical trials; ● initiation and successful patient enrollment and completion of additional clinical trials on a timely basis; ● the impact of COVID-19 on our operations, ability to conduct clinical trials and on the ability of our regulators to review and approve or authorize our products; ● 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; ● successfully defending and enforcing our rights in our intellectual property portfolio; ● avoiding and successfully defending against any claims that we have infringed, misappropriated or otherwise violated any intellectual property of any third party; ● the performance of our current and future collaborators, if any; ● the extent of, and our ability to timely complete, any required post-marketing approval commitments imposed by FDA or other applicable regulatory authorities; ● successfully developing a companion diagnostic test on a timely and cost effective basis, if required; ● establishment of supply arrangements with third-parties for raw materials and drug product supplies and potential manufacturers who are able to manufacture clinical trial and commercial quantities of drug substance and drug products and to develop, validate and maintain a commercially viable manufacturing process that is compliant with 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; ● the availability of coverage and adequate reimbursement and pricing by third-party payors and government authorities; ● the availability, perceived advantages, relative cost, relative safety and relative efficacy of alternative and competing treatments; and ● our ability to compete with other therapies.
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; 34 Table of Contents ● 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.
An adverse safety issue or 41 Table of Contents 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 III clinical trials or registration trials.
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 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; ● 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. 43 Table of Contents We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.
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; 43 Table of Contents ● 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.
Other risks include: ● regulatory authorities may require the addition of labeling statements, specific warnings, a contraindication, or field alerts to physicians and pharmacies; ● regulatory authorities may withdraw their approval of the IND or the product or require us to take our approved products off the market; ● we may be required to change the way the product is manufactured or administered, and we may be required to conduct additional clinical trials or change the labeling of our products; ● we will be required to manufacture on our own behalf or retain the services of a commercial manufacturer to develop product suitable for commercial sale in compliance with cGMP requirements; ● we may have limitations on how we or our distributor promote our products; and ● we may be subject to litigation or product liability claims. 46 Table of Contents There are additional risks involved in conducting clinical trials internationally.
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.
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 2031 (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).
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).
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.
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. 42 Table of Contents Research programs to identify new product candidates require substantial technical, financial and human resources.
In addition, outbreaks of viruses, infectious diseases or pandemics (including, for example, the outbreak of the novel coronavirus (COVID-19), terrorist acts or acts of war targeted at the United States, and specifically in the California region, could cause damage or disruption to us, our employees, facilities, contractors and collaborators, which could have a material adverse effect on our business, financial condition and results of operations.
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.
We may not be able to obtain approval for indications that are as broad as intended, or we may be able to obtain approval only for indications that are entirely different from those indications for which we sought approval.
We may not be able to obtain approval for 39 Table of Contents 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.
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 45 Table of Contents been informed by CSMC that both of these trials have ceased enrollment and that the trials have been concluded.
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.
While we receive assurances from these vendors that their services are compliant with HIPAA and other applicable privacy and cybersecurity laws, there can 35 Table of Contents be no assurance that such third parties will comply with applicable laws or regulations.
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.
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.
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.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe 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 Square Footage 10865 Road to the Cure, Suite 150, San Diego, California September 30, 2026 Corporate Headquarters: Laboratory, manufacturing and office space 9,605 10865 Road to the Cure, Room 7, San Diego, California October 31, 2023 Laboratory space 234 8840 Wilshire Blvd., 2 nd Floor, Beverly Hills, California Month-to-Month, terminable on 90-day notice Office space 1,627 8700 Beverly Blvd., Davis Building, Los Angeles, California July 31, 2024 Laboratory, manufacturing and office space 1,892 ​ (1) Certain leases have specific options for potential renewal or extensions. ​ ITEM 3.
Biggest changeWe 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 Square Footage (approximate) 10865 Road to the Cure, Suite 150, San Diego, California September 30, 2026 Corporate Headquarters: Laboratory, manufacturing and office space 12,161 10865 Road to the Cure, Room 7, San Diego, California October 31, 2024 Laboratory space 234 8840 Wilshire Blvd., 2 nd Floor, Beverly Hills, California Month-to-Month, terminable on 90-day notice Office space 1,627 8700 Beverly Blvd., Davis Building, Los Angeles, California July 31, 2026 Laboratory, manufacturing and office space 1,892 (1) Certain leases have specific options for potential renewal or extensions. ​ ITEM 3.
LEGAL PROCEEDINGS We are not involved in any material pending legal proceedings and are not aware of any material threatened legal proceedings against us. ​
LEGAL PROCEEDINGS 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.
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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 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe ability of our Board of Directors to declare a dividend is subject to limits imposed by Delaware corporate law.
Biggest changeDividends 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 2023 Annual Meeting of Stockholders, to be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2022, and is incorporated herein by reference.
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 Not applicable. Issuer Purchases of Equity Securities None. ​ ITEM 6. RESERVED ​ 73 Table of Contents
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 ​ ​ 72 Table of Contents
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ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market for Common Stock Our common stock is traded on the Nasdaq Capital Market under the symbol “CAPR”. The following table lists the high and low closing sales prices of our common stock as quoted, in U.S. dollars, by Nasdaq for the periods indicated.
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MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market for Common Stock Our common stock is traded on the Nasdaq Capital Market under the symbol “CAPR”. ​ 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.
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The quotations reflect inter-dealer prices, without retail markup, markdown or commission, and may not represent actual transactions.
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Consequently, the information provided below may not be indicative of our common stock price under different conditions. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ High ​ ​ Low Year ended December 31, 2021 ​ ​ ​ ​ ​ First Quarter ​ $ 7.93 ​ ​ $ 3.63 Second Quarter ​ ​ 5.72 ​ ​ ​ 3.16 Third Quarter ​ ​ 5.23 ​ ​ ​ 3.80 ​ Fourth Quarter ​ ​ 4.16 ​ ​ ​ 2.89 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ First Quarter $ 5.68 ​ ​ $ 2.83 ​ Second Quarter ​ ​ 4.51 ​ ​ ​ 2.89 ​ Third Quarter ​ ​ 6.08 ​ ​ ​ 3.61 ​ Fourth Quarter ​ ​ 6.55 ​ ​ ​ 3.36 ​ ​ Holders According to the records of our transfer agent, American Stock Transfer & Trust Company, as of March 16, 2023, we had 134 holders of record of common stock, not including holders who held in “street name.” Dividends We have never declared or paid a dividend on our common stock and do not anticipate paying any cash dividends in the foreseeable future.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

85 edited+51 added−38 removed64 unchanged
Biggest changeThe increase was primarily driven by the following: ● $4.4 million increase in compensation and other personnel expenses primarily due to increases in headcount; ● $3.5 million increase in DMD (CAP-1002) program primarily due to the commencement of our HOPE-3 clinical trial in 2022, continuation of our HOPE-2 OLE clinical program, and our expanded manufacturing production efforts for CAP-1002; ● $0.2 million increase in exosomes platform research primarily due to our continued development efforts; ● $0.7 million increase in facility expenses primarily due to our San Diego expansion efforts; ● $0.4 million increase in stock-based compensation expense primarily due to increases in headcount and stock price; ● $0.2 million increase in depreciation expense primarily related to increased equipment purchases and capital improvements primarily due to the San Diego manufacturing cleanroom buildout; and ● $1.1 million decrease in research and other projects primarily due to the close-out of our INSPIRE program. ​ General and Administrative Expenses .
Biggest changeThe 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 .
This mechanism of action, which is 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.
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.
All shares issued pursuant to the June 2021 ATM Program were issued pursuant to our shelf registration statement on Form S-3 (File No. 333-254363), which was initially filed with the SEC on March 16, 2021, amended on June 15, 2021 and declared effective by the SEC on June 16, 2021.
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.
To the extent we obtain sufficient capital and/or long-term debt funding and are able to continue developing our product candidates, including if we expand our technology portfolio, engage in further research and development activities, and, in particular, conduct preclinical studies and clinical trials, we expect to continue incurring substantial losses, which will generate negative net cash flows from operating activities.
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.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of our financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and the audited consolidated notes to those statements included elsewhere in this Annual Report on Form 10-K.
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.
These factors include the following: ● the progress of our research activities; ● the number and scope of our research programs; ● the progress and success of our preclinical and clinical development activities; ● the progress of the development efforts of parties with whom we have entered into research and development agreements; ● our ability to successfully manufacture product for our clinical trials; ● 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.
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.
Additionally, future royalty 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.
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.
Developing pharmaceutical products is a lengthy and very expensive process. Even if we obtain the capital necessary to continue the development of our product candidates, whether through a strategic transaction or otherwise, we do not expect to complete the development of a product candidate for several years, if ever.
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.
As of December 31, 2022, 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.
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.
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.
We make 86 Table of Contents 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.
If we elect to do so, Capricor would be required to repay some or all of the amounts awarded by CIRM, therefore the Company accounts for this award as a liability rather than income. In 2019, Capricor completed all milestones and close-out activities associated with the CIRM Award and expended all funds received.
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.
We believe the following critical accounting policies reflect the more significant judgments and estimates used in the preparation of our financial statements and accompanying notes. Leases ASC 842, requires lessees to recognize most leases on the balance sheet with a corresponding right-to-use (“ROU”) asset.
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 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.
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. ​ 83 Table of Contents The Company leases office and laboratory space, all of which are operating leases.
Certain CRO and significant clinical trial vendors provide an estimate of costs incurred but not invoiced at the end of each quarter for each individual trial. These estimates are reviewed and discussed with the CRO or vendor as necessary, and are included in R&D expenses for the related period.
Certain CRO and significant clinical trial vendors provide an estimate of costs incurred but not invoiced at the end of each quarter 85 Table of Contents 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.
The increase in investment income in 2022 as compared to 2021 is due to increased interest rates and the higher principal balance in our marketable securities, savings and money market fund accounts.
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.
The change in cash flow by investing activities for the year ended December 31, 2022 as compared to the same period of 2021 is primarily due to the net effect from purchases, sales, and maturities of marketable securities as well as purchases of property and equipment and leasehold improvements.
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.
Stock-based compensation expense is included in general and administrative expense or research and development expense, as applicable, in the Statements of Operations 86 Table of Contents and Comprehensive Income (Loss). We expect to record additional non-cash compensation expense in the future, which may be significant.
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.
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.
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 84 Table of Contents an upfront payment.
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 royalties on sales. The milestones are generally categorized into three types: development milestones, regulatory milestones and sales-based milestones.
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.
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 83 Table of Contents circumstances. Our actual results could differ from these estimates.
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.
The Company evaluates whether it is probable that the consideration associated with each milestone or royalty will not be subject to a significant reversal in the cumulative amount of revenue recognized.
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.
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. Capricor will sell commercial product to Nippon Shinyaku.
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.
We have issued stock options to employees, directors and consultants under our five stock option plans: (i) the 2006 Stock Option Plan, (ii) the 2012 Restated Equity Incentive Plan (which superseded the 2006 Stock Option Plan), (iii) the 2012 Non-Employee Director Stock Option Plan, (iv) the 2020 Equity Incentive Plan, and (v) the 2021 Equity Incentive Plan.
We 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”).
A summary description of our key product candidates, is as follows: ● CAP-1002 for the treatment of DMD (Phase III): Our core program is focused on the development and commercialization of a cell therapy (referred herein as CAP-1002) comprised CDCs, which are an endogenous population of stromal cells isolated from donated cells of healthy human hearts, for the treatment of DMD.
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.
Distribution Agreement 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.
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.
The June 2021 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 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 decrease in cash provided by financing activities for the year ended December 31, 2022 as compared to the same period of 2021 is primarily due to the net proceeds from the sale of common stock.
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.
Under the terms of the Japan Distribution Agreement, Capricor expects to receive an upfront payment of $12 million and in addition, Capricor will potentially receive additional development and sales-based milestone payments of up to approximately $89 million, subject to foreign currency exchange rates, and a meaningful double-digit share of product revenue.
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.
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 PUL v1.2 (p=0.01) and additional positive endpoints of full PUL v2.0 (p=0.04) and a cardiac endpoint of left ventricular ejection fraction (p=0.002).
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 73 Table of Contents of full PUL v2.0 (p=0.04) and a cardiac endpoint of left ventricular ejection fraction (p=0.002).
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. Exosome-Based Therapeutics and Vaccines – Our exosome platform is in early-stage preclinical development.
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.
Beginning on the date of the loan, the loan shall bear interest on the unpaid principal balance, plus the interest that has accrued prior to the election point according to the terms set forth in CIRM’s Loan Policy (the “New Loan Balance”) at a per annum rate equal to the LIBOR rate for a three-month deposit in U.S. dollars, as published by the Wall Street Journal on the loan date, plus one percent.
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.
General and administrative (“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.
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 CIRM Award is further subject to the conditions and requirements set forth in the CIRM Grants Administration Policy for Clinical Stage Projects.
The CIRM Award is further subject to the conditions and requirements set forth in the CIRM Grants Administration Policy 82 Table of Contents for Clinical Stage Projects.
At the end of each subsequent reporting period, the Company re-evaluates the probability of a significant reversal of the cumulative 84 Table of Contents revenue recognized for its milestones and royalties, and, if necessary, adjusts its estimate of the overall transaction price.
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.
Milestones or royalties achieved after the Company’s performance obligations have been completed are recognized as revenue in the period the milestone or royalty was achieved.
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.
During 2022 we received net proceeds from the sale of stock of approximately $4.8 million compared to approximately $20.2 million over the same period of 2021. From inception through December 31, 2022, we financed our operations primarily through private and public sales of our equity securities, government grants, and payments from distribution agreements and collaboration partners.
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. 80 Table of Contents 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.
CAP-1002 was generally safe and well-tolerated throughout the studies. Additionally, we are conducting an OLE study of the HOPE-2 trial in which 12 patients have elected to continue treatment of CAP-1002. We recently announced positive one-year and 18-month results from this ongoing OLE study.
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.
As a result of many factors, our actual results may differ materially from those anticipated in these forward-looking statements. ​ Company Overview Capricor Therapeutics, Inc. is a clinical-stage biotechnology company focused on the development of transformative cell and exosome-based therapeutics for treating Duchenne muscular dystrophy, or DMD, a rare form of muscular dystrophy which results in muscle degeneration and premature death, and other diseases with high unmet medical needs.
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.
As of December 31, 2022, we had approximately $38.3 million in total liabilities, of which approximately $27.4 million relates to deferred revenue and approximately $2.6 million related to lease liabilities in connection with our operating lease right-of-use assets. As of December 31, 2022, we had approximately $19.3 million in net working capital.
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.
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. ​
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. ​
If successfully developed and approved, we intend to commercialize CAP-1002 in the United States and Japan with our partner, Nippon Shinyaku, and may enter into additional licensing agreements or strategic collaborations in other markets.
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.
Other income for the years ended December 31, 2022 and 2021 was approximately $0.2 million and $0.5 million, respectively. Other income was related to the Employer Retention Credit under the CARES Act. Investment Income . Investment income for the years ended December 31, 2022 and 2021 was approximately $0.5 million and $57,460, respectively.
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.
We had cash flow provided by financing activities of approximately $4.9 million and $20.2 million for the years ended December 31, 2022 and 2021, respectively.
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.
Products Under Active Development CAP-1002 for the treatment of DMD – We are currently conducting our HOPE-3, Phase III study for DMD and our ongoing OLE study of HOPE-2 for which we expect to spend approximately $12.5 million to $17.5 million in 2023.
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.
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.
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.
Furthermore, there was an increase of approximately $1.5 million in stock-based compensation and an increase in net loss of approximately $9.0 million for the year ended December 31, 2022 as compared to the same period in 2021.
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.
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.
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.
We had cash flow used in investing activities of approximately $(35.1) million and $(1.2) million for the years ended December 31, 2022 and 2021, respectively.
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.
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 I/II HOPE-Duchenne clinical trial investigating CAP-1002 for the treatment of Duchenne muscular dystrophy-associated cardiomyopathy.
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.
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. 85 Table of Contents 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.
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.
The amounts stated in the tables below are expressed in thousands. ​ ​ ​ ​ ​ ​ ​ ​ ​ Liquidity and capital resources December 31, 2022 December 31, 2021 Cash and cash equivalents ​ $ 9,603 ​ $ 34,885 Marketable securities ​ $ 31,818 ​ $ - ​ Working capital ​ $ 19,302 ​ $ 32,304 Stockholders’ equity ​ $ 11,786 ​ $ 31,368 ​ 79 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ Cash flow data 2022 2021 ​ Cash provided by (used in): ​ ​ ​ ​ ​ ​ ​ Operating activities ​ $ 4,917 ​ $ (16,809) ​ Investing activities ​ ​ (35,073) ​ ​ (1,196) ​ Financing activities ​ ​ 4,874 ​ ​ 20,225 ​ Net increase (decrease) in cash and cash equivalents $ (25,282) $ 2,220 ​ ​ Our total cash, cash equivalents, and marketable securities as of December 31, 2022 was approximately $41.4 million compared to approximately $34.9 million as of December 31, 2021.
The amounts stated in the tables below are expressed in thousands. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, Liquidity and capital resources 2023 2022 ​ Cash and cash equivalents ​ $ 14,695 ​ $ 9,603 Marketable securities ​ $ 24,793 ​ $ 31,818 ​ Working capital ​ $ 19,586 ​ $ 19,302 Stockholders’ equity ​ $ 22,601 ​ $ 11,786 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ Cash flow data 2023 2022 ​ Cash provided by (used in): ​ ​ ​ ​ ​ ​ ​ Operating activities ​ $ (25,596) ​ $ 4,917 ​ Investing activities ​ ​ 5,108 ​ ​ (35,073) ​ Financing activities ​ ​ 25,580 ​ ​ 4,874 ​ Net increase (decrease) in cash and cash equivalents $ 5,092 $ (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.
From June 21, 2021 through December 31, 2022, the Company has sold an aggregate of 2,098,333 shares of common stock under the June 2021 ATM Program at an average price of approximately $5.93 per share for gross proceeds of approximately $12.4 million. Approximately $62.6 million of common stock may still be sold pursuant to the June 2021 ATM Program.
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.
Generally, the awards vest based upon time-based conditions. Stock-based compensation expense is included in the consolidated statements of operations under G&A or R&D expenses, as applicable. We expect to record additional non-cash compensation expense in the future, which may be significant. Results of Operations for the fiscal years ended December 31, 2022 and 2021 Revenue Clinical Development Income.
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.
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.
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.
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.
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 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; ● the costs, requirements and timing of, and the ability to secure, regulatory approvals; and ● additional delays caused by the COVID-19 pandemic.
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. ​ 79 Table of Contents 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 80 Table of Contents actual amount of funds we will need to operate is subject to many factors, some of which are beyond our control.
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.
We expect to spend approximately $4.0 million to $6.0 million during 2023 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 conduct of IND-enabling studies.
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.
Additionally, under the terms of our Japan Distribution Agreement with Nippon Shinyaku, we expect to receive an upfront payment of $12.0 million in the first quarter of 2023 We estimate this will fund our operating expenses and capital expenditure requirements into the fourth quarter of 2024.
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.
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.
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. ​ 76 Table of Contents 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.
Furthermore, there was a net change of approximately $0.2 million in accounts payable and accrued expenses, which includes related party accounts payable and accrued expenses, and a change of approximately $0.2 million in receivables for the year ended December 31, 2022 as compared to the same period in 2021.
Furthermore, there was a net change of approximately $0.1 million in accounts payable and accrued expenses, which includes related party accounts payable and accrued expenses.
At this time, the Company only issues options under the 2020 Plan and the 2021 Plan. We expense the fair value of stock-based compensation over the vesting period. When more precise pricing data is unavailable, we determine the fair value of stock options using the Black-Scholes option-pricing model.
At this time, the Company only issues options under the 2020 Plan and the 2021 Plan and no longer issues options under the 2006 Stock Option Plan, the 2012 Plan, or the 2012 Non-Employee Director Plan. We expense the fair value of stock-based compensation over the vesting period.
Research and development (“R&D”) expenses consist primarily of compensation and other related personnel costs, supplies, clinical trial costs, patient treatment costs, rent for laboratories and manufacturing facilities, consulting fees, costs of personnel and supplies for manufacturing, costs of service providers for preclinical, clinical and manufacturing, certain legal expenses resulting from intellectual property prosecution, stock-based compensation expense and other expenses relating to the design, development, testing and enhancement of our product candidates. 77 Table of Contents The following table summarizes our R&D expenses by category for each of the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ ​ ​ ​ ​ ​ ​ 2022 2021 Change ($) Change (%) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Compensation and other personnel expenses ​ $ 7,450,879 ​ $ 3,016,745 ​ $ 4,434,134 ​ ​ 147 % Duchenne muscular dystrophy (CAP-1002) ​ 7,470,558 ​ 4,003,854 ​ 3,466,704 ​ 87 % Exosomes platform research ​ ​ 3,600,916 ​ 3,446,950 ​ 153,966 ​ 4 % Facility expenses ​ ​ 1,070,598 ​ ​ 410,279 ​ ​ 660,319 ​ ​ 161 % Stock-based compensation ​ ​ 805,089 ​ ​ 398,809 ​ ​ 406,280 ​ ​ 102 % Depreciation ​ ​ 420,581 ​ ​ 241,593 ​ ​ 178,988 ​ ​ 74 % Research and other projects ​ ​ 998,328 ​ ​ 2,052,815 ​ ​ (1,054,487) ​ ​ (51) % Total research and development expenses ​ $ 21,816,949 ​ $ 13,571,045 ​ $ 8,245,904 ​ ​ 61 % ​ R&D expenses for 2022 increased by approximately $8.2 million, or 61%, compared to 2021.
R&D expenses consist primarily of compensation and other related personnel costs, supplies, clinical trial costs, patient treatment costs, rent for laboratories and manufacturing facilities, consulting fees, costs of personnel and supplies for manufacturing, costs of service providers for preclinical, clinical and manufacturing, certain legal expenses resulting from intellectual property prosecution, stock-based compensation expense and other expenses relating to the design, development, testing and enhancement of our product candidates. 77 Table of Contents The following table summarizes our R&D expenses by category for each of the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ ​ ​ ​ ​ ​ ​ 2023 2022 Change ($) Change (%) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Compensation and other personnel expenses ​ $ 11,272,356 ​ $ 7,450,879 ​ $ 3,821,477 ​ ​ 51 % Duchenne muscular dystrophy (CAP-1002) ​ 18,667,993 ​ 7,470,558 ​ 11,197,435 ​ 150 % Exosomes platform research ​ ​ 2,090,999 ​ 3,600,916 ​ (1,509,917) ​ (42) % Facility expenses ​ ​ 1,457,097 ​ ​ 1,070,598 ​ ​ 386,499 ​ ​ 36 % Stock-based compensation ​ ​ 1,916,245 ​ ​ 805,089 ​ ​ 1,111,156 ​ ​ 138 % Depreciation ​ ​ 626,514 ​ ​ 420,581 ​ ​ 205,933 ​ ​ 49 % Research and other ​ ​ 416,835 ​ ​ 998,328 ​ ​ (581,493) ​ ​ (58) % Total research and development expenses ​ $ 36,448,039 ​ $ 21,816,949 ​ $ 14,631,090 ​ ​ 67 % ​ R&D expenses for 2023 increased by approximately $14.6 million, or 67%, compared to 2022.
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 royalties 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.
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.
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 an upfront payment pursuant to our U.S.
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.
Additionally, the absence of 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.
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.
This expectation excludes any potential additional 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.
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 may be unable to raise additional funds or enter into such agreements or arrangements when needed on favorable terms, if at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development or commercialization of CAP-1002 or our other product candidates.
We may be unable to raise additional funds or enter into such agreements or arrangements when needed on favorable terms, if at all.
The increase was primarily driven by the following: ● $1.1 million increase in stock-based compensation expense primarily due to increases in headcount; ● $1.0 million increase in compensation and other personnel expenses primarily due to increases in headcount; ● $0.3 million increase in professional service expenses primarily due to an increase in business insurance and investor relations expenses; ● $0.2 million increase in facility related expenses primarily due to our continuing expansion efforts; and ● $0.3 million increase in other corporate expenses primarily related to accounting fees and other general corporate expenses related to increases in headcount. 78 Table of Contents ​ Other Income Other Income .
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 78 Table of Contents ● $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 .
Financing Activities by the Company June 2021 ATM Program ​ On June 21, 2021, the Company initiated an at-the-market offering under a prospectus supplement for aggregate sales proceeds of up to $75.0 million (the “June 2021 ATM Program”), with the common stock to be distributed at the market prices prevailing at the time of sale.
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 60 th 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.
Under our RMAT designation, we recently met with the FDA in a Type-B CMC meeting where we discussed our manufacturing plans in anticipation of a potential BLA application. In the meeting, we discussed our plans with respect to commercial manufacturing activities, including our potency assay and other product release criteria to support commercialization.
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.
We expect to incur significant expenses and operating losses for the foreseeable future. During the year ended December 31, 2022, we sold 830,858 shares of common stock at an average price of approximately $5.97 per share pursuant to a sales agreement by and between us and H.C. Wainwright & Co.
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.
Risk Factors of this Annual Report on Form 10-K. 76 Table of Contents Financial Operations Overview We have no commercial product sales to date and will not have the ability to generate any commercial product revenue until after we have received approval from the FDA or equivalent foreign regulatory bodies to begin selling our pharmaceutical product candidates.
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.
Pursuant to the Japan Distribution Agreement, we have the obligation to sell commercial product to Nippon Shinyaku, subject to regulatory approval, and in addition, Capricor will have the right to receive a meaningful, double-digit share of product revenue and additional development and sales-based milestone payments, if achieved.
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. 81 Table of Contents 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.
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 Therapeutics and Vaccines (Preclinical): We are focused on developing a precision-engineered exosome platform technology that has the ability to deliver defined sets of effector molecules which exert their effects through defined mechanisms of action.
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.
We had a net loss of approximately $29.0 million for the year ended December 31, 2022. Cash provided by operating activities was approximately $4.9 million and cash used in operating activities was approximately $16.8 million for the years ended December 31, 2022 and 2021, respectively.
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.
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 $29.0 million and $20.0 million, for the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, we had an accumulated deficit of $137.1 million.
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.
We recently presented new preclinical data on our StealthX TM platform showing the rapid development of a recombinant protein-based vaccine for immunization and prevention against SARS-CoV-2, the virus causing COVID-19. At this time, we are developing vaccines and therapeutics for infectious diseases, monogenic diseases and other potential indications.
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.
There could be other financial impacts on our business from the coronavirus, the specifics of which are unknown at this time. 81 Table of Contents Collaborations Commercialization and Distribution Agreement with Nippon Shinyaku (Territory: United States) On January 24, 2022, Capricor entered into an Exclusive Commercialization and Distribution Agreement (the “U.S. Distribution Agreement”) with Nippon Shinyaku, a Japanese corporation.
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.
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. We are currently enrolling the HOPE-3, Phase III clinical study investigating CAP-1002 for the treatment of late-stage DMD patients for the potential approval of CAP-1002 in the United States.
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.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeAdditionally, as of December 31, 2022, Capricor’s investment portfolio was classified as cash, cash equivalents and marketable securities which consisted primarily of money market funds and bank money market, which included short term U.S. treasuries, bank savings and checking accounts.
Biggest changeAdditionally, 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.
Due to our policy of making investments in U.S. treasury securities with primarily short-term maturities, we believe that the fair value of our investment portfolio would not be significantly impacted by a hypothetical 100 basis point increase or decrease in interest rates. 87 Table of Contents
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. ​ 87 Table of Contents
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, 2022, the fair value of our cash, cash equivalents, and marketable securities was approximately $41.4 million.
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.

Other CAPR 10-K year-over-year comparisons