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Item 1. Business

2021-03-15 compared with 2020-03-27 · 1307 added, 901 removed, 412 unchanged (84% of the section changed)

Company Overview

Capricor Therapeutics,

is a clinical-stage biotechnology company focused on the discovery, development and commercialization of first-in-class biological

therapies for the treatment of diseases, with a focus on Duchenne muscular dystrophy, or DMD, and other rare disorders.

We are currently conducting

HOPE-2, a Phase II clinical trial in the United States with our product candidate, CAP-1002, a cardiac cell derived therapy which

is being used to treat patients with late-stage DMD.

We plan to report final 12-month data from HOPE-2 in the second quarter of

Following the receipt of this data, if positive, we plan to continue with the next stages of development towards potential

registration which may include seeking approval from the FDA and, whether or not that approval is obtained following HOPE-2, pursuing

a partnership to conduct a Phase III trial.

Additionally, we have

begun work on developing our exosomes platform technology as a next-generation vaccine and therapeutic investigating a variety

of disorders.

Therapeutics, Inc.

is a biotechnology company focused on the development of transformative cell- and

exosome-based therapeutics for the treatment and prevention of a broad spectrum of diseases.

Cell Therapy (CAP-1002) Program

CAP-1002 - Duchenne Muscular Dystrophy

have completed HOPE-2, a Phase II clinical trial in the United States with our product candidate, CAP-1002, a cardiac cell derived

therapy which was used to treat patients with late-stage Duchenne muscular dystrophy, or DMD.

The 12-month final top-line

data showed improvements in multiple measures of upper limb, cardiac and respiratory functions.

Following receipt of the 12-month

data, we discussed this program with the FDA in a Type B meeting focusing on the data, next steps and a pathway to approval of

a Biologics License Application, or BLA, for CAP-1002 in DMD.

The FDA has continued to encourage us to conduct a Phase III study;

at this time, however, we are still discussing the pathway forward for this program with the FDA and have not initiated a Phase

Additionally, we are actively seeking partners for this program.

CAP-1002 - COVID-19 Program

In 2020, under an Expanded

Access (or Compassionate Use) program, seven patients hospitalized with severe COVID-19 (also referred to sometimes as SARS-CoV-2)

symptoms, six of whom were ventilated, were treated with CAP-1002.

Four of the seven patients were fully discharged and three died

between one- and two-months post-treatment.

Previously published data has shown that COVID-19 patients on ventilators experience

higher mortality rates.

While we are unable to definitively ascertain whether CAP-1002 improved patient outcomes, by analyzing

blood samples and other tests, it was determined that CAP-1002 was associated with identifiable improvements in certain patients

such as a decrease in white blood cell count, a decrease in IL-6, a decrease in C-reactive protein, and/or reduced reliance on

supplemental oxygen.

However, the efficacy of CAP-1002 in treating COVID-19 was not demonstrated due to the small sample size,

the fact that seven patients were contemporaneously on other experimental medications, and the lack of an established control group,

among other factors.

In August 2020,

we received FDA acceptance of our IND application for a clinical study of CAP-1002 in patients with severe or critical COVID-19.

The INSPIRE trial is a Phase II, randomized, double-blind, placebo-controlled study that is enrolling up to 60 patients from several

trial sites in the United States.

The study is enrolling patients who have a diagnosis of SARS-CoV-2 and require supplemental

Various outcome measures will be analyzed including, but not limited to, safety, cytokine biomarkers, all-cause mortality,

cardiac biomarkers and hospitalization length.

We expect to have top-line data available in the third quarter of 2021.

receipt of this data, we will discuss next steps for the program with FDA.

Additionally, we are actively seeking partners for this

Exosomes Program

Exosome-Based Vaccines

are currently engaged in the development of two vaccine candidates for the potential prevention of COVID-19.

The first vaccine

candidate is a tripartite exosome-mRNA vaccine which is designed to elicit a protective, long-lasting immune response to SARS-CoV-2

by targeting multiple structural proteins of the virus.

In December 2020, we announced positive preclinical data from

a study using our exosome-mRNA vaccine approach We recently met with the FDA in a pre-IND meeting and are planning on filing an

IND by the third quarter of 2021, subject to regulatory approval, for this vaccine for SARS-CoV-2.

We have also been investigating

an exosomal antigen vaccine which is a vesicle-based, nucleic acid-free formulation carrying multiple structural proteins of SARS-CoV-2.

Exosome-Based Therapeutics

We are also developing

our exosomes platform technology as a next-generation therapeutic platform.

Our current focus is on the development of exosomes

loaded with nucleic acids, including mRNA, to treat a variety of diseases.

mRNA medicines are not small molecules, like traditional

pharmaceutical drugs and they are not traditional biologics (such as recombinant proteins and monoclonal antibodies) –

were the origins of the biotech industry.

Instead, mRNA medicines are sets of instructions.

And these instructions direct cells

in the body to make all the proteins required for life as well as to prevent or fight disease.

Our platform builds

on advances in fundamental RNA science, targeting technology and manufacturing, providing us the opportunity to build a broad pipeline

of potential new therapeutic candidates.

At this time, we are developing therapeutics and vaccines for infectious diseases,

monogenic diseases and other indications.

CDC-Derived Exosomes (CAP-2003)

In April 2020,

we filed an IND with the FDA to investigate the use of CAP-2003 in patients with DMD.

At this time, the FDA has requested more

information related to manufacturing and we are evaluating the next steps for this program.

We need to submit further information

to FDA to support the potential acceptance of this IND.

Additionally, in July 2018,

we entered into a Cooperative Research and Development Agreement with the U.S.

Army Institute of Surgical Research, or 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.

Aspects of our exosomes

pipeline have been supported through collaborations and alliances.

We have entered into a Sponsored Research Agreement with Johns

Hopkins University, or JHU, pursuant to which researchers in the lab of Dr.

Stephen Gould will perform certain research activities

in connection with our exosomes program and the further development of the platform.

Additional collaborations include the Department

of Defense, the National Institutes of Health and Cedars-Sinai Medical Center, or CSMC.

executive offices are located at 8840 Wilshire Blvd., 2 nd Floor, Beverly Hills, California 90211.

Our telephone number

is (310) 358-3200 and our Internet address is www.capricor.com .

Our Technologies

Cardiosphere-Derived Cells (CAP-1002)

Our core therapeutic

Our core cell therapy

technology is based on cardiosphere-derived cells, or CDCs, a cardiac-derived cell therapy that was first identified in the academic

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Eduardo Marbán.

Since the initial publication in 2007, CDCs have

been the subject of over 100 peer-reviewed scientific publications and have been administered to approximately 150 human subjects

across several clinical trials.

Since the initial publication in 2007, CDCs

have been the subject of over 100 peer-reviewed scientific publications and have been administered to over 200 human subjects across

several clinical trials.

CDCs have been shown to exert potent immunomodulatory activity and to alter the immune system’s

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We have been developing allogeneic CDCs (CAP-1002) as a product candidate for the

treatment of Duchenne muscular dystrophy, or DMD, and investigating their effects on skeletal and cardiac function.

and clinical data support the therapeutic concept of administering CDCs as a means to address conditions in which the heart or

skeletal muscle has been damaged.

treatment of DMD and investigating their effects on skeletal and cardiac function.

Preclinical and clinical data support the therapeutic

concept of administering CDCs as a means to address conditions in which the heart or skeletal muscle has been damaged.

In a variety of preclinical

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programmed cell death and scar formation.

Published data by Cedars-Sinai Medical Center, or CSMC, which tested the effectiveness

of CDCs in a mouse model of DMD, showed for the first time that the skeletal and cardiac improvements could be directly attributed

to treatment with CDCs.

The data also provide further evidence of the potential of CDCs to stimulate tissue repair and regeneration

by first reducing inflammation, which then enables new healthy muscle to form, as was shown in the mouse model of DMD.

Published data by CSMC, which tested the effectiveness of CDCs in a mouse model of DMD,

showed for the first time that the skeletal and cardiac improvements could be directly attributed to treatment with CDCs.

also provide further evidence of the potential of CDCs to stimulate tissue repair and regeneration by first reducing inflammation,

which then enables new healthy muscle to form, as was shown in the mouse model of DMD.

CDCs are derived from

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Capricor has performed

clinical studies to establish the range of CDC dose levels that appear to be safe via intracoronary administration or peripheral

clinical studies to establish the range of CDC dose levels that appear to be safe via intracoronary administration and peripheral

venous access.

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as a product candidate.

Our preclinical data

has shown that cardiosphere-derived cells mediate most of their therapeutic activities through the secretion of extracellular vesicles.

Extracellular vesicles, including exosomes and microvesicles, are nano-scale, membrane-enclosed vesicles which are secreted by

most cells and contain characteristic lipids, proteins and nucleic acids such as mRNA and microRNAs.

They can signal through the

binding and activation of membrane receptors or through the delivery of their cargo into the cytosol of target cells.

Extracellular vesicles,

including exosomes and microvesicles, are nano-scale, membrane-enclosed vesicles which are secreted by most cells and contain characteristic

lipids, proteins and nucleic acids such as mRNA and microRNAs.

They can signal through the binding and activation of membrane receptors

or through the delivery of their cargo into the cytosol of target cells.

Our preclinical data has shown that CDCs mediate most

of their therapeutic activities through the secretion of extracellular vesicles.

Exosomes act as messengers

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inflammation and tissue regeneration.

Furthermore, pre-clinical research has shown that exogenously-administered exosomes can modify

Furthermore, preclinical research has shown that exogenously-administered exosomes can modify

cellular activities, thereby supporting their therapeutic potential.

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and administered in similar fashion to common biopharmaceutical products such as antibodies.

strategy is to discover, develop and commercialize first-in-class cell-derived therapies for the treatment of diseases.

candidates in active development consist of CAP-1002 (allogeneic CDCs) and our exosome technologies.

We believe that CDC-exosomes

are primarily responsible for the mechanism of action of our cell therapy product.

We are now positioning ourselves to advance

our exosome product candidates into a platform technology for clinical development.

Additionally, we are also exploring

potential strategic alternatives with respect to the Company as well as our product candidates.

Our Product Candidates

Our drug candidates

which are in various stages of active development, consist of CAP-1002, our CDC-derived cells, and our exosome technologies.

2018 we commenced enrollment of patients with DMD in a Phase II clinical trial of CAP-1002 called HOPE-2.

CAP-1002 was also the

subject of three previous clinical trials conducted by us.

CAP-1002 is also currently being investigated in two additional trials

sponsored by CSMC, which are the REGRESS trial investigating heart failure with preserved ejection fraction and the ALPHA trial

investigating pulmonary arterial hypertension.

Although we are not the sponsor of these two trials, we are providing the investigational

product for use in the trials.

We are also evaluating our exosomes in pre-clinical studies for the treatment of various indications,

with a view to making an IND filing for Duchenne muscular dystrophy in exosomes during the second quarter of 2020.

The following table summarizes our active

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Development Stage

Commercial Rights

Duchenne Muscular Dystrophy*

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in planning stages

interim analysis completed

12-month data expected in Q2-2020

Phase II completed***

HOPE-Duchenne

Phase I/II completed**

Exosome Technologies

Immune-inflammatory conditions

Neuromuscular,

including DMD

Food and Drug Administration, or FDA,

has granted Orphan Drug, Regenerative Medicine Advanced Therapies, or RMAT, and Rare Pediatric Disease designations to CAP-1002

for the treatment of DMD.

Phase II enrolling

Exosome-mRNA vaccine

Engineered Exosomes (RNA delivery)

Monogenic Diseases

CDC-Exosomes (CAP-2003)

Duchenne Muscular Dystrophy

IND submitted

Exosome-VLP vaccine

Engineered Exosomes (biologics delivery)

Food and Drug Administration, or FDA, has granted Orphan Drug, Regenerative Medicine Advanced Therapies, or RMAT, and

Rare Pediatric Disease designations to CAP-1002 for the treatment of DMD.

**We completed an Open Label Extension, or OLE, for the usual

care only comparator arm of the HOPE-Duchenne trial.

***We are planning an OLE for the usual care only comparator

arm of the HOPE-2 trial.

***We are currently conducting an OLE of the HOPE-2 trial.

Background on Duchenne Muscular Dystrophy

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Patients with DMD experience

progressive muscle weakness starting at an early age.

Generally, a loss of ambulation occurs after the first decade of life and

eventually the patients suffer respiratory and cardiac failure.

Their lifespan is abbreviated and averages less than three decades.

progressive muscle weakness and degeneration starting at an early age.

Generally, a loss of ambulation occurs after the first decade

of life and eventually the patients suffer respiratory and cardiac failure.

Their lifespan is abbreviated and averages less than

three decades.

The annual cost of care for patients with DMD is very high and increases with disease progression.

We therefore believe that DMD

represents a significant market opportunity for our lead product candidate.

believe that DMD represents a significant market opportunity for our product candidate, CAP-1002.

CAP-1002 for the Treatment of Duchenne

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Based on our understanding

of the mechanism of action of CAP-1002 which has been seen in pre-clinical models of DMD, we believe that CAP-1002 has the potential

to decrease inflammation and muscle degeneration while exerting positive effects on muscle regeneration, all of which may translate

into patients retaining muscle function for a longer period of time.

Data supporting peripheral intravenous route of administration

of CAP-1002 in the DMD setting has been provided by pre-clinical mouse studies where CDCs, the active ingredient in CAP-1002, have

been shown to increase exercise capacity and diaphragmatic function.

We are currently developing

CAP-1002 for the treatment of DMD.

We completed the positive HOPE-Duchenne Phase I/II trial in 2017 and then subsequently began

the HOPE-2 Phase II trial in 2018.

We reported positive interim 6-month results from HOPE-2 in the third quarter of 2019 and we

plan to report final 12-month results in the second quarter of 2020.

Our further plans with respect to the clinical development

of CAP-1002 in DMD, including our decision to conduct a Phase III trial, will be based on the final guidance received from the

FDA, our ability to secure funding necessary to conduct the trial should we decide to pursue that path and/or our ability to partner

with another company to advance the development of CAP-1002 for DMD, as well as other factors, some of which are not known at this

After the receipt of our final 12-month data from HOPE-2, we plan to request another meeting with the FDA to discuss the

next stages of development which may include seeking approval from the FDA.

of the mechanism of action of CAP-1002 which has been seen in preclinical models of DMD, we believe that CAP-1002 has the potential

to decrease inflammation and slow muscle degeneration while exerting positive effects on muscle regeneration, all of which may

translate into patients retaining muscle function for a longer period of time.

Data supporting peripheral intravenous route of

administration of CAP-1002 in the DMD setting has been provided by preclinical mouse studies where CDCs, the active ingredient

in CAP-1002, have been shown to increase exercise capacity and diaphragmatic function.

are currently developing CAP-1002 for the treatment of DMD.

We completed the positive HOPE-Duchenne Phase I/II trial in 2017 and

then subsequently began the HOPE-2 Phase II trial in 2018.

We reported positive interim 6-month results from HOPE-2 in 2019 and

we reported final top-line 12-month results in May 2020.

Our further plans with respect to the clinical development of CAP-1002

in DMD, including our decision to conduct a Phase III trial, will be based on the final guidance received from the FDA, our ability

to secure funding necessary to conduct the trial should we decide to pursue that path, our ability to partner with another company

to advance the development of CAP-1002 for DMD, and/or our ability to manufacture the product through a contract manufacturer,

as well as other factors, some of which are not known at this time .

Further, we have submitted a proposed Phase III protocol

The size of the proposed Phase III trial is estimated to be approximately 60 patients and in our continuing discussions,

FDA has indicated its acceptance of this potential study design.

Phase II HOPE-2 Clinical Trial

HOPE-2 is a randomized,

double-blind, placebo-controlled clinical trial which is being conducted at multiple sites located in the United States.

we have randomized 20 patients in our HOPE-2 clinical trial.

The clinical trial was designed to evaluate the safety and efficacy

of repeat, intravenous, or IV, doses of CAP-1002, in boys and young men with evidence of skeletal muscle impairment regardless

of ambulatory status and who are on a stable regimen of systemic glucocorticoids.

While there are many clinical initiatives in

DMD, HOPE-2 is one of the very few to focus on non-ambulant patients.

These boys and young men are looking to maintain what function

they have in their arms and hands, and Capricor’s previous study of a single intracoronary dose of CAP-1002 provided preliminary

evidence of efficacy that CAP-1002 may be able to help DMD patients retain or slow the loss of upper limb function.

double-blind, placebo-controlled clinical trial which was conducted at multiple sites located in the United States.

We randomized

20 patients in our HOPE-2 clinical trial.

Approximately 80% of the patients were non-ambulant and all patients were on a stable

regimen of steroids.

Demographic and baseline characteristics were similar between the two treatment groups.

The clinical trial

was designed to evaluate the safety and efficacy of repeat, intravenous, or IV, doses of CAP-1002, in boys and young men with evidence

of skeletal muscle impairment regardless of ambulatory status and who are on a stable regimen of systemic glucocorticoids.

While there are many

clinical initiatives in DMD, HOPE-2 is one of the very few to focus on non-ambulant patients.

These boys and young men are looking

to maintain what function they have in their arms and hands, and Capricor’s previous study of a single intracoronary dose

of CAP-1002 provided preliminary evidence of efficacy that CAP-1002 may be able to help DMD patients retain or slow the loss of

upper limb function.

The primary efficacy

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of daily living and are important to their quality of life.

These abilities will be measured through the Performance of the Upper

These abilities were measured through the Performance of the Upper

Limb, or PUL, test.

In the HOPE-2 study we are evaluating these through both the PUL 1.2 and 2.0 versions.

HOPE-2 is focusing on

the mid-level dimension of the PUL which assesses the ability to use muscles from the elbow to the hand, which are essential for

operating wheelchairs and performing other daily functions.

In HOPE-2, additional secondary and exploratory endpoints such as cardiac

function, pulmonary function, quality of life and additional measures are included.

In July 2019, we reported

interim top-line results from the HOPE-2 trial which showed that a pre-specified interim analysis performed on 6-month data showed

In the HOPE-2 study we have evaluated these through both the PUL 1.2 and 2.0 versions.

Although the PUL 1.2

version for the mid-level was the primary endpoint established for the trial, we also conducted an analysis using the PUL 2.0 version

as the FDA suggested the use of the updated PUL 2.0 version as the primary efficacy endpoint in support of a Biologics License

Application, or BLA.

HOPE-2 assessed the mid-level dimension of the PUL which evaluates one’s ability to use muscles extending

from the elbow to the hand, which muscles are essential for operating wheelchairs and performing other daily functions.

additional secondary and exploratory endpoints such as cardiac function, pulmonary function, quality of life and additional measures

were included.

In July 2019,

we reported interim top-line results from a pre-specified interim analysis of 6-month data from the HOPE-2 trial, which showed

meaningful results across several independent clinical measures.

In October 2019, we

reported additional data from the interim analysis at the 24 th Annual International Congress of the World Muscle Society.

Data from a total of 20 patients was analyzed (12 placebo and 8 treated) at the 3- and 6-month time-point in the intent to treat

(ITT) population.

The late breaking podium presentation presented the top-line, 6-month results from the HOPE-2 clinical trial

which showed meaningful results across several independent clinical measures which is summarized below.

Skeletal Assessments

To assess skeletal

muscle function, investigators used the PUL, versions 1.2 and 2.0.

The FDA has suggested the use of the updated PUL 2.0 version

as the primary efficacy endpoint in support of a Biologics License Application, or BLA.

Additional independent tests assessing

grip strength showed improvements at 6 months and tests assessing tip to tip pinch strength showed positive results.

We also expanded

the skeletal assessment beyond the mid-level and evaluated patients’

PUL “scores”

to include the upper and distal

Skeletal Assessments at 3 and 6-month time-points (PUL 2.0)

presented at World Muscle Society

Shoulder + Mid + Distal Level

Mid + Distal Level

Mean Change from baseline (standard deviation) shown.

In May 2020, we

reported final top-line 12-month results.

The data showed improvements in upper limb, cardiac and respiratory functions with

p-values of less than p=0.05 in multiple measures.

The 12-month data showed statistically meaningful improvements in the PUL 2.0

in CAP-1002 treated patients (p=0.05) with a mean change of 2.4 points over placebo patients.

We also came very close to significance

with the PUL 1.2 mid-level with all the data (p=0.08) with a mean change of 2.8 points over placebo patients.

With the exception

of steroids, preservation of function in DMD is uncommon.

The placebo patients declined consistent with natural history, but in

the treated group, most patients were stable or improved throughout the one-year treatment period.

The data also showed

global improvements in cardiac function as measured by ejection fraction (p=0.004) and indexed volumes (LVESV, p=0.01, LVEDV p=0.07).

These are surrogate measures of cardiac function and are considered significant in terms of relevance to long term outcomes.

Additionally,

there was also a reduction in the biomarker CK-MB, an enzyme that is only released when there is cardiac muscle cell damage.

normal human subjects, there is typically no CK-MB measurable in the blood.

It is well accepted that continuous muscle cell damage

in DMD leads to pathologically high enzyme levels associated with cardiac muscle cell loss.

In HOPE-2 treatment with CAP-1002 was

associated with a reduction in CK-MB levels as compared to placebo (p=0.006).

This is the first ever study in DMD that correlates

cardiac functional stabilization with reduction of a biomarker of cell damage.

Study Results

12-month Top-Line Efficacy Data:

12-month Time-point

Upper Limb Function

Mid-level PUL (version 1.2)

Shoulder + Mid + Distal PUL (version 1.2)

Shoulder + Mid + Distal PUL (version 2.0)

LV Ejection Fraction %

LV End-Diastolic Volume, Indexed mL/m 2

LV End-Systolic Volume, Indexed mL/m 2

Creatine Kinase-MB (% of total CK)

Mean Change from baseline to 12 months (standard deviation)

ITT (intent to treat) population shown

Comparisons treated vs.

placebo using mixed model repeated ANOVA with covariates

Pulmonary Assessments

To assess pulmonary

function, investigators measured several clinically relevant parameters.

At 3 months, inspiratory flow reserve (absolute), a reflection

of diaphragmatic strength, showed an improvement.

Additionally, an improvement was observed at 3 months in peak expiratory flow

(% predicted), another measure of diaphragmatic strength.

Cardiac Assessments

As reported from our

July interim analysis, magnetic resonance imaging, or MRI, was used to assess cardiac structure and function at 6 months.

trends were found in cardiac muscle function including systolic wall thickening and cardiac mass among those treated with CAP-1002

compared to placebo.

The hearts of DMD patients atrophy progressively and have impaired systolic function.

Improved mass and wall

thickening suggest possible cardiac regeneration and functional improvement.

These trends were consistent with the cardiac findings

seen in the previously published HOPE-Duchenne study.

In late December 2018,

Capricor put a voluntary hold on dosing after two patients in the HOPE trials had a serious adverse event in the form of an

immediate immune reaction.

The investigation suggested the patients may have developed hypersensitivity to something contained

in the investigational product, including possibly an excipient or inactive ingredient in the formulation.

To reduce the risk of

future adverse events, Capricor initiated a commonly used pre-medication strategy including oral steroids and antihistamines to

prevent or mitigate potential immune reactions during the administration.

Since the initiation of the pre-treatment regimen, approximately

40 infusions of investigational drug (CAP-1002 or placebo) have been administered to HOPE-2 patients with only one serious adverse

event reported that required an overnight observation of the patient.

P-values are nominal values unadjusted for multiple testing

Mixed model repeated measures analysis

Additionally, we are

conducting an open-label extension available to all patients who participated in the HOPE-2 study which includes those patients

who received placebo.

CAP-1002 was generally

safe and well tolerated throughout the study.

With the exception of hypersensitivity reactions which were mitigated with a common

pre-medication regimen, no safety signals were identified in the HOPE-2 trial.

Regulatory Developments

In June 2017, we had

a meeting with the FDA to discuss potential clinical endpoints that could be used for registration strategies for CAP-1002 in the

DMD indication.

The minutes of the meeting indicated the FDA's willingness to accept Capricor's proposal to use the PUL test as

the basis for the primary efficacy endpoint for clinical studies in support of a BLA.

The PUL test is an outcome instrument that

was specifically designed to assess upper limb function in ambulant and non-ambulant patients with DMD.

In December 2018, we

met with the FDA as part of the expedited review afforded under the RMAT designation.

The agency stated that the trial would need

to provide evidence of clinically meaningful changes in the PUL, as well as other evidence supportive of CAP-1002 efficacy for

patients with advanced Duchenne muscular dystrophy, in order to potentially serve as a registration trial.

In October 2019, we

had a meeting with the FDA to discuss, among other things, the results of the 6-month interim analysis of the HOPE-2 trial and

In June 2017,

we had a meeting with the FDA to discuss potential clinical endpoints that could be used for registration strategies for CAP-1002

in the DMD indication.

The minutes of the meeting indicated the FDA's willingness to accept Capricor's proposal to use the PUL

test as the basis for the primary efficacy endpoint for clinical studies in support of a BLA.

The PUL test is an outcome instrument

that was specifically designed to assess upper limb function in ambulant and non-ambulant patients with DMD.

In December 2018,

we met with the FDA as part of the expedited review afforded under the RMAT designation.

The agency stated that the trial would

need to provide evidence of clinically meaningful changes in the PUL, as well as other evidence supportive of CAP-1002 efficacy

for patients with advanced Duchenne muscular dystrophy, in order to potentially serve as a registration trial.

In October 2019,

we had a meeting with the FDA to discuss, among other things, the results of the 6-month interim analysis of the HOPE-2 trial and

our path forward with our DMD program.

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not supportive of an accelerated approval pathway at that time and noted that the HOPE-2 trial was designed as an exploratory trial

and that data from the HOPE-2 trial did not provide substantial evidence of effectiveness to support a future biologics license

application, or BLA.

The FDA did, however, indicate its support for conducting a Phase III trial of CAP-1002 for the treatment

In addition, the FDA reiterated that as part of our RMAT designation, they are willing to work with us to further

the clinical development of the therapy.

and that the 6-month data from the HOPE-2 trial did not provide substantial evidence of effectiveness to support a future BLA.

The FDA did, however, indicate its support for conducting a Phase III trial of CAP-1002 for the treatment of DMD.

the FDA reiterated that as part of our RMAT designation, they are willing to work with us to further the clinical development of

In a follow-up to the

October 2019 meeting, Capricor requested an additional meeting to clarify endpoints for a Phase III clinical trial.

October 2019 meeting, Capricor requested an additional meeting to clarify endpoints for future clinical trials.

response, FDA supported the use of the full PUL 2.0 from baseline to twelve months as a primary efficacy endpoint as long as clinical

meaningfulness can be demonstrated.

They suggested that a 1.0 point change appears suitable from a clinical perspective for a Phase

III intended to provide primary evidence of effectiveness to support a BLA.

They suggested that a 1.0 point difference appears suitable to demonstrate product efficacy

to support a BLA.

In a Type B meeting

with the FDA in 2020, we focused on the 12-month results from the HOPE-2 trial and discussed next steps and a pathway to approval

of a BLA for CAP-1002 in DMD.

The FDA has continued to encourage us to conduct a Phase III study;

at this time, however, we are

still discussing the pathway forward for this program with the FDA and have not initiated a Phase III study.

Phase I/II HOPE-Duchenne Clinical Trial

We have completed the

randomized, controlled, multi-center Phase I/II HOPE-Duchenne clinical trial which was designed to evaluate the safety and exploratory

efficacy of CAP-1002 in patients with cardiomyopathy associated with Duchenne muscular dystrophy, or DMD.

Twenty-five patients

were randomized in a 1:1 ratio to receive either CAP-1002 on top of usual care or usual care only.

In patients receiving CAP-1002,

25 million cells were infused into each of their three main coronary arteries for a total dose of 75 million cells.

It was a one-time

treatment, and the last patient was infused in September 2016.

Patients were observed over the course of 12 months.

evaluated according to several exploratory outcome measures.

This study was funded in part through a grant award from the California

Institute for Regenerative Medicine, or CIRM.

In January 2019, this study was published in the online issue of Neurology ,

the medical journal of the American Academy of Neurology.

We commenced the HOPE-Duchenne

trial in February 2016 and completed enrollment in September 2016.

In April 2017, we reported positive top-line results from a

pre-specified six-month interim analysis of this study, which showed that CAP-1002 was generally safe and well-tolerated over the

initial six-month follow-up period.

The six-month results were presented at the 22nd Annual International Congress of the World

Muscle Society in October 2017.

In exploratory efficacy

analyses, observed changes from baseline to Month 6 significantly differed by treatment group for systolic thickening of the inferior

wall of the heart as measured by MRI (p=0.03).

In a post-hoc analysis of function of the mid- and distal-level upper limb in which

a responder was defined as a patient who demonstrated a 10% improvement from baseline in score on the PUL test, CAP-1002 patients

were more likely to be responders than patients in usual care (p=0.045) at Week 6.

In addition, numerical results in some other

cardiac and skeletal muscle measures, including cardiac scar (p=0.09), were consistent with a treatment effect although differences

between treatment groups were not statistically significant.

The observed clinical results appear to generally corroborate a large

body of pre-clinical data from studies in DMD animal models.

We reported our 12-month

data from the HOPE-Duchenne trial at a Late-Breaking Science session of the American Heart Association Scientific Sessions 2017.

As shoulder function had already been lost in most of the HOPE participants, investigators used the combined mid-distal PUL subscales

to assess changes in skeletal muscle function and found significant improvement in those treated with CAP-1002 in a defined post-hoc

Among the lower-functioning patients, defined as patients with a baseline mid-distal PUL score < 55 out of 58, investigators

reported sustained or improved motor function at 12 months in 8 of 9 (89%) patients treated with CAP-1002 as compared to none (0%)

of the usual care participants (p=0.007).

To assess cardiac structure

and function, investigators used magnetic resonance imaging, or MRI.

They found significant improvements in systolic thickening

of the left ventricular wall among those patients treated with CAP-1002.

Systolic wall thickening is the component of myocardial

contraction ultimately responsible for ejection of blood from the left ventricle.

Preservation or enhancement of systolic wall

thickening may potentially be the result of the reversal of fibrosis.

In the inferior wall,

they recorded a mean (SD) 31.2% (47.0%) increase in thickening six months after treatment and a mean 25.8% (46.7%) increase in

thickening 12 months after treatment.

In comparison, the usual care group showed a mean 8.8% (27.7%) decrease at six months and

a mean 1.6% (37.9%) increase at 12 months in the systolic thickening of the inferior wall.

The difference between the groups in

absolute change from baseline to six months achieved statistical significance (p=0.04) and trended in favor of CAP-1002 treatment

group (p=0.09) from baseline to 12 months.

Investigators also

found that scarring of the heart muscle among those treated with CAP-1002 decreased relative to the control group.

cardiac scarring eventually impairs the heart's pumping ability and is currently the leading cause of death in Duchenne muscular

At the 12-month follow-up, those treated with CAP-1002 had a mean (SD) 7.1% (10.3%) reduction in scar size, in contrast

to a mean 4.8% (22.3%) increase in scar size in the usual care group, a difference that achieved statistical significance using

non-parametric analysis to account for outliers (p=0.03).

have completed the randomized, controlled, multi-center Phase I/II HOPE-Duchenne clinical trial which was designed to evaluate

the safety and exploratory efficacy of CAP-1002 in patients with cardiomyopathy associated with Duchenne muscular dystrophy, or

Twenty-five patients were randomized in a 1:1 ratio to receive either CAP-1002 on top of usual care or usual care only.

patients receiving CAP-1002, 25 million cells were infused into each of their three main coronary arteries for a total dose of

75 million cells.

It was a one-time treatment, and the last patient was infused in September 2016.

Patients were observed

over the course of 12 months.

Efficacy was evaluated according to several exploratory outcome measures.

This study was funded in

part through a grant award from the California Institute for Regenerative Medicine, or CIRM.

In January 2019, this

study was published in the online issue of Neurology , the medical journal of the American Academy of Neurology.

reported our 12-month data from the HOPE-Duchenne trial at a Late-Breaking Science session of the American Heart Association Scientific

Sessions 2017.

As shoulder function had already been lost in most of the HOPE-Duchenne participants, investigators used

the combined mid-distal PUL subscales to assess changes in skeletal muscle function and found significant improvement in those

treated with CAP-1002 in a defined post-hoc analysis.

Among the lower-functioning patients, defined as patients with a baseline

mid-distal PUL score < 55 out of 58, investigators reported sustained or improved motor function at 12 months in 8 of 9 (89%)

patients treated with CAP-1002 as compared to none (0%) of the usual care participants (p=0.007).

Additionally, we reported significant

improvements in systolic thickening of the left ventricular wall as well as reduction in scarring of the heart muscle among those

treated with CAP-1002 decreased relative to the control group.

CAP-1002 was generally

safe and well-tolerated in the HOPE-Duchenne trial.

There was no significant difference in the incidence of treatment-emergent

There was no significant difference in the incidences of treatment-emergent

adverse events in either group.

There were no early study discontinuations due to adverse events.

Additionally, in 2018

we conducted an open-label extension of the Hope-Duchenne trial, or HOPE-OLE, where 8 patients who were randomized into the control

group of the HOPE-Duchenne trial were given two doses of CAP-1002.

We have completed enrollment and treatment of the patients in

the HOPE-OLE trial.

In January 2019, we entered into an Amendment to the CIRM Notice of Award pursuant to which CIRM allowed us

to use excess funds from our grant award to fund, in part, certain activities associated with HOPE-OLE.

Regulatory Designations for CAP-1002

for the treatment of DMD

In April 2015, the

FDA granted Orphan Drug Designation to CAP-1002 for the treatment of DMD.

In April 2015,

the FDA granted Orphan Drug Designation to CAP-1002 for the treatment of DMD.

Orphan Drug Designation is granted by the FDA’s

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of market exclusivity in the United States upon FDA approval.

In July 2017, the FDA

granted Rare Pediatric Disease Designation to CAP-1002 for the treatment of DMD.

The FDA defines a “rare pediatric disease”

as a serious or life-threatening disease affecting individuals primarily aged from birth to 18 years and that affects fewer than

200,000 individuals in the United States.

Under the FDA's Rare Pediatric Disease Priority Review Voucher program, upon the approval

of a qualifying New Drug Application, or NDA, or BLA for the treatment of a rare pediatric disease, the sponsor of such application

would be eligible for a Rare Pediatric Disease Priority Review Voucher that can be used to obtain priority review for a subsequent

The Priority Review Voucher may be sold or transferred an unlimited number of times.

In February 2018, we

were notified by the FDA Office of Tissues and Advanced Therapies, that we were granted the Regenerative Medicine Advanced Therapy,

In July 2017,

the FDA granted Rare Pediatric Disease Designation to CAP-1002 for the treatment of DMD.

The FDA defines a “rare pediatric

disease”

as a serious or life-threatening disease in which the serious or life-threatening manifestations primarily affect

individuals aged from birth to 18 years and that affects fewer than 200,000 individuals in the United States, or a disease or condition

that affects more than 200,000 people in the United States and for which there is no reasonable expectation that the cost of developing

and making available in the United States a drug for this type of disease or condition will be recovered from sales in the United

States for that drug.

Under the FDA's Rare Pediatric Disease Priority Review Voucher program, upon the approval of a qualifying

New Drug Application, or NDA, or BLA for the treatment of a rare pediatric disease, the sponsor of such application would be eligible

for a Rare Pediatric Disease Priority Review Voucher that can be used to obtain priority review for a subsequent NDA or BLA.

Priority Review Voucher may be sold or transferred an unlimited number of times.

In February 2018,

we were notified by the FDA Office of Tissues and Advanced Therapies, that we were granted the Regenerative Medicine Advanced Therapy,

or RMAT, designation for CAP-1002 for the treatment of DMD.

The FDA grants the RMAT designation to regenerative medicine therapies

intended to treat a serious condition and for which preliminary clinical evidence indicates a potential to address unmet medical

needs for that condition.

The RMAT designation makes therapies eligible for the same actions to expedite the development and review

of a marketing application that are available to drugs that receive breakthrough therapy designation –

including increased

meeting opportunities, early interactions to discuss any potential surrogate or intermediate endpoints and the potential to support

accelerated approval.

CAP-1002 is one of the few therapies currently in development to help non-ambulant patients with DMD.

receive the RMAT designation, we submitted data from the HOPE-Duchenne Trial.

intended to treat, modify, reverse, or cure a serious or life-threatening disease or condition and for which preliminary clinical

evidence indicates a potential to address unmet medical needs for that condition.

The RMAT designation makes therapies eligible

for the same actions to expedite the development and review of a marketing application that are available to drugs that receive

fast track or breakthrough therapy designation –

including increased meeting opportunities, early interactions to discuss

any potential surrogate or intermediate endpoints and the potential to support accelerated approval.

CAP-1002 is one of the few

therapies currently in development to help non-ambulant patients with DMD.

To receive the RMAT designation, we submitted data from

the HOPE-Duchenne Trial.

CAP-1002 for the Treatment of SARS-CoV-2

Within the framework

of SARS-CoV-2 pathogenesis, multiple pathways known to be CAP-1002 sensitive may serve as therapeutic targets.

These targets include

pro-inflammatory pathways (TNF-α, interferon γ, IL-1, and IL-6) and anti-inflammatory pathways (regulatory T cells

and IL-10) that have been explored with CAP-1002 in preclinical models of myocardial ischemia, myocarditis, heart failure, Duchenne

muscular dystrophy and pulmonary hypertension.

Given that CAP-1002 polarizes macrophages to an anti-inflammatory (healing) immunomodulatory

phenotype, CAP-1002 may subsequently attenuate cytokine storm associated with SARS-CoV-2.

Furthermore, as CAP-1002 directly targets

cardiac dysfunction, CAP-1002 potentially may also be an important tool in the treatment of the cardiac complications of SARS-CoV-2.

We are currently conducting the INSPIRE Phase II clinical trial in patients with a diagnosis of SARS-CoV-2.

CAP-1002 for the Treatment of Cardiac

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we completed several trials investigating the use of CAP-1002 for the treatment of various cardiac conditions, including heart

failure (the DYNAMIC Trial) and post myocardial infarction (MI) with cardiac dysfunction (ALLSTAR).

Because of our decision to

focus our efforts on DMD, we have decided not to pursue those indications at this time, nor do we have any plans to continue with

the development of these programs although we are continuing to evaluate certain cardiac measures in our HOPE-2 trial.

no further material expenses in connection with these programs.

failure (the DYNAMIC Trial) and post myocardial infarction (MI) with cardiac dysfunction (the ALLSTAR trial).

Because of our decision

to focus our efforts on DMD, we have decided not to pursue those indications at this time, nor do we have any plans to continue

with the development of these programs although we are continuing to evaluate certain cardiac measures in our HOPE-2 trial.

expect no further material expenses in connection with these programs.

CAP-1002 - Investigator Sponsored

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The first trial is known as “Regression of Fibrosis and Reversal of

Diastolic Dysfunction in HFpEF Patients Treated with Allogeneic CDCs.”

Eduardo Marbán is the named principal investigator

under the study.

We were recently informed that the REGRESS study was put on clinical hold by the FDA.

This is an investigator

sponsored trial for which Capricor is providing CAP-1002, the investigational product.

The preliminary information we have received

suggests that the issue may be related to inadequate patient monitoring at the study site to assess safety for certain patients

who were experiencing adverse events after receiving an intracoronary infusion of CAP-1002.

It is currently not known whether the

clinical hold is related to the investigational product or the procedure.

Capricor did not use intracoronary infusions in its HOPE-2

The second trial is

known as “Pulmonary Arterial Hypertension treated with Cardiosphere-derived Allogeneic Stem Cells.”

In this trial,

the investigational product is infused into the venous system via catheter into the right atrium.

Diastolic Dysfunction in HFpEF Patients Treated with Allogeneic CDCs, or the REGRESS trial.

Eduardo Marbán is the

named principal investigator under the study.

The second trial is known as “Pulmonary Arterial Hypertension treated with

Cardiosphere-derived Allogeneic Stem Cells, or the ALPHA trial.

In this trial, the investigational product is infused into the

venous system via catheter into the right atrium.

This trial is currently ongoing.

In both studies, Capricor is providing the necessary number of doses of cells and will receive a negotiated amount of monetary

compensation which is estimated to be approximately $2.1 million over several years.

In both studies, Capricor is providing the necessary

number of doses of cells and will receive a negotiated amount of monetary compensation which was estimated to be approximately

$2.1 million over several years.

Due to the current COVID-19 pandemic, additional testing in each of the ALPHA and REGRESS trials

has been delayed and as a result, purchases of additional doses of CAP-1002 have been delayed.

Exosomes Program

Our exosomes program

consists of exosomes derived from CDCs (CAP-2003) and engineered exosomes, both of which are in various stages of preclinical development.

We have explored the use of our CDC-exosomes in pre-clinical studies of inflammation and intense immune activation such as DMD,

sepsis, Graft versus-host disease (GVHD) and trauma.

While CDC-exosomes are the initial technology used in preclinical development,

we have expanded Capricor’s pipeline to include additional exosome technologies.

We are now focused on developing a precision-engineered

exosome platform technology that can carry defined sets of effector molecules which exert their effects through defined mechanisms

We have announced our planned expansion of our exosome platform technology that potentially may be used for vaccine

development, vesicle mediated protein therapies and treatment of inherited diseases.

Capricor has been working

to harness the natural therapeutic capability of exosomes by isolating them to develop a new class of therapeutic agents capable

of recapitulating the activities mediated by the CDCs.

Isolated and purified exosomes appear to be preclinically less immunogenic

and demonstrate superior stability than isolated CDCs.

To date, we have performed an extensive phenotypic analysis of CDC-exosomes

and identified a biomolecular profile that differentiates our CDC-exosomes from exosomes obtained from mesenchymal stem cells (MSC-exosomes).

Additionally, we have also developed an in vitro bioactivity assay to evaluate the potency of the CDC-exosomes compared

to exosomes obtained from different cellular sources.

In several preclinical studies, CDC exosomes performed better than MSC exosomes.

These assays represent an extremely useful tool for our product development.

Immunomodulation

In pre-clinical studies,

Capricor’s exosomes have shown strong immunomodulatory activity by their ability to reduce the expression of pro-inflammatory

genes and concurrently increase the expression of genes related to tissue regeneration.

These activities have been confirmed in

vivo in different animal models and open the possibility of using our exosomes technologies therapeutically for the treatment

We have used RNA sequencing

analysis to identify miRNAs contained in our exosomes which are not seen in exosomes obtained from other cell types.

of these miRNAs in our exosomes correlate with their immunomodulatory capabilities on macrophages.

Multiple scientific publications

support the role of these miRNAs in macrophage polarization.

Biodistribution

During pre-clinical

development, we analyzed the biodistribution of our exosomes using different administration routes (intravenous, intrathecal, intranasal

or subconjunctival) in healthy and diseased animal models.

After intravenous administration of our exosomes into these models,

we observed an accumulation of exosomes in the liver, spleen and lungs as well as in the heart.

In disease models we also found

exosomes in damaged tissues suggesting a preferential uptake by cells involved in tissue repair.

Ex vivo experiments

have shown a strong uptake of our exosomes by skeletal muscle stem cells (or satellite cells), which opens the possibility that

our exosome technologies target this population of cells that play a critical role in muscle regeneration and which, to date, have

been difficult to reach.

Manufacturing

We have also made significant

progress planning the next steps for the manufacturing process for our exosome product candidates.

We believe these developments

will enable us to scale up our manufacturing capabilities and potentially allow us to manufacture enough material for clinical

In order to expand

the stability profile of our exosome technologies, we have also established a collaboration to further develop lyophilization of

the exosomes.

Much of this work has been funded in part through a grant from the Department of Defense (DoD) awarded for the development

and characterization of the exosomes for product development.

consists of exosome-based vaccines, engineered exosomes and exosomes derived from CDCs (CAP-2003), all of which are in various

stages of development.

We have explored the use of our CDC-exosomes in preclinical studies of inflammation and intense immune activation

such as DMD, sepsis, Graft versus-host disease (GVHD) and trauma.

While CDC-exosomes are the initial technology we have used in

preclinical development, we have expanded Capricor’s pipeline to include additional exosome technologies.

We are now 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 have begun work on our planned expansion of our exosome platform

technology that potentially may be used for vaccine development, vesicle mediated protein therapies and treatment of monogenic

In conjunction with

these expansion efforts, we have entered into a Sponsored Research Agreement with JHU pursuant to which researchers in the lab

Stephen Gould will perform certain research activities in connection with our exosomes program and the further development

of the platform.

Exosome-Based Vaccine Platform

We are now working

on developing exosome-based vaccines for COVID-19.

The exosome-based vaccine platform technology will aim to combine the improved

protection that comes from immunizing individuals with multiple antigens in a manner that mimics the advantages of conventional

virus vaccines, with the superior safety profile of virus-free vaccines.

We are currently designing exosome-based vaccines to elicit

strong humoral and cellular immune responses due to the simultaneous expression of antigens.

are developing two exosome vaccine candidates.

The first vaccine candidate is a tripartite exosome-mRNA vaccine which is designed

to elicit a protective, long-lasting immune response to SARS-CoV-2 by targeting multiple structural proteins of the virus.

Recently, in collaboration with researchers at JHU, we announced positive data from a preclinical study in mice using our

exosome-based mRNA vaccine.

The key findings of the data include the development of a safe exosome formulation capable of delivering

functional mRNA in vitro and in vivo.

Furthermore, the potential vaccine induced both antibody responses and cellular

immunity to multiple proteins of SARS-CoV-2.

We recently met with

the FDA in a pre-IND meeting and are planning on filing an IND by the third quarter of 2021, subject to regulatory approval, for

this vaccine for SARS-CoV-2.

The second candidate

is an exosomal antigen vaccine which is a vesicle-based, nucleic acid-free formulation carrying multiple structural proteins of

We continue to assess this technology for potential uses within infectious diseases and potentially other uses.

Furthermore, we recently

entered into a non-exclusive license to intellectual property, know-how and data with JHU related to a new imaging-based serology

test platform for COVID-19.

This platform, which is amenable to a vast array of serology applications, has been applied to the

analysis of patient antibodies to multiple SARS-CoV-2 proteins, including spike, nucleocapsid, and membrane.

The development of

this companion diagnostic allows us to accurately evaluate the effects of our vaccines and therapeutics and we intend to explore

the potential for partnership opportunities for this technology.

Engineered Exosomes Platform

To build upon the natural

ability of exosomes for intercellular communication, we have initiated a program to engineer exosomes and load them with different

macromolecules.

Our preliminary results demonstrated that it is possible to load exosomes with specific miRNAs which pave the way

to use our exosomes to potentially deliver miRNAs to specific target tissue.

We are now working on developing exosome-based vaccines

for COVID-19.

While these efforts are still in their early-stages, our exosome-based vaccine platform technology will aim to combine

the improved protection that comes from immunizing individuals with multiple antigens in a manner that mimics the advantages of

conventional virus vaccines, with the superior safety profile of virus-free vaccines.

We plan to design exosome-based vaccines

to elicit strong humoral and cellular immune responses due to the simultaneous expression of antigens.

Investigation of Potential Indications

for our Exosomes Technologies

Capricor has exclusively

licensed intellectual property relating to CDC-exosomes from Cedars-Sinai Medical Center and is also pursuing its own intellectual

property rights relating to exosome technologies.

We have promising pre-clinical

Building upon the natural

ability of exosomes for intercellular communication, we are focused on engineering exosomes to load them with different macromolecules.

We are actively developing an engineered exosomes platform for the delivery of nucleic acids (including mRNA) for a variety of

different diseases.

In collaboration with researchers at JHU, we recently published data demonstrating exosome-mediated delivery

of mRNAs with enhanced expression and lower toxicity compared to lipid nanoparticles.

Additionally, we showed functional enzyme

expression and real-time imaging of mRNA expression in live animals.

Building on this platform, we have promising data for enhanced

targeting of exosomes.

Our plan is to actively develop this platform for a broad spectrum of diseases.

CDC-Exosomes (CAP-2003)

We have promising preclinical

data in several indications from studies done in our labs as well as in collaboration with other companies and academic institutions.

Additionally, in July 2018, we entered into a Cooperative Research and Development Agreement with the U.S.

Army Institute of Surgical

Research (USAISR) pursuant to which we agreed to cooperate in research and development on the evaluation of our CDC-exosomes for

the treatment of trauma related injuries and conditions which are now the third leading cause of death in the U.S.

We plan to file an

IND for DMD with the FDA in advance of the filing deadline under our license agreement with CSMC, which is April 19, 2020, unless

we negotiate for an extension of this date with CSMC.

We have also begun work on developing an exosome-based vaccine platform for

These programs

represent our core technology and products.

Additionally, in July 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 CDC-Exosomes for the treatment of trauma related injuries

and conditions which are one of the leading causes of death in the U.S.

In April 2020,

we filed an IND with the FDA to investigate the use of CAP-2003 in patients with DMD.

At this time, the FDA has requested more

information related to manufacturing and we are evaluating the next steps for this program.

We need to submit further information

to FDA to support the potential acceptance of this IND.

These programs represent

our core technology and products.

Intellectual Property and Proprietary

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followed by increasingly focused development around a product opportunity, including identification

and definition of a specific product candidate and development of scalable manufacturing processes, formulation, delivery and dosage

As a result, biotechnology products are often protected by several families of patent filings that are made at different

times in the development cycle and cover different aspects of the product.

Earlier filed broad patent applications directed to

the discovery of the platform technology thus usually expire ahead of patents covering later developments such as scalable manufacturing

and definition of a specific product candidate and development of scalable manufacturing processes, formulations, delivery and

dosage regimens.

As a result, biotechnology products are often protected by several families of patent filings that are made at

different times in the development cycle and cover different aspects of the product.

Earlier filed broad patent applications directed

to the discovery of the platform technology thus usually expire ahead of patents covering later developments such as scalable manufacturing

processes and dosing regimens.

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based on the scope of available coverage.

Our patents, if issued and upon payment of patent maintenance fees, would expire as early

as 2024 and as late as 2039.

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 2041.

There are also limited opportunities to obtain extensions of patent terms

in certain countries.

Capricor’s Technology - CAP-1002

Exosomes, CAP-1001 and CSps

Capricor has entered

into exclusive license agreements for intellectual property rights related to certain cardiac-derived cells with Università

Degli Studi Di Roma La Sapienza, or the University of Rome, The Johns Hopkins University, or JHU, and CSMC.

In addition, Capricor

has filed patent applications related to the technology developed by its own scientists.

Degli Studi Di Roma La Sapienza, or the University of Rome, JHU and CSMC.

Capricor has also entered into an exclusive license agreement

for intellectual property rights related to exosomes with CSMC and a non-exclusive license agreement with JHU related to the imaging-based

serology technology for COVID-19.

In addition, Capricor has filed patent applications related to the technology developed by its

own scientists.

University of Rome

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Capricor and the University

of Rome entered into a License Agreement, dated June 21, 2006, or the Rome License Agreement, which provides for the grant of an

exclusive, world-wide, royalty-bearing license by the University of Rome to Capricor (with the right to sublicense) to develop

of Rome entered into a License Agreement, dated June 21, 2006, or the Rome License Agreement, which provides for the grant

of an exclusive, world-wide, royalty-bearing license by the University of Rome to Capricor (with the right to sublicense) to develop

and commercialize licensed products under the licensed patent rights in all fields.

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written notice to the University of Rome.

The Johns Hopkins

University License Agreement

The Johns Hopkins University License

License Agreement

Capricor and JHU entered

into an Exclusive License Agreement, effective June 22, 2006, or the JHU License Agreement, which provides for the grant of an

exclusive, world-wide, royalty-bearing license by JHU to Capricor (with the right to sublicense) to develop and commercialize licensed

products and licensed services under the licensed patent rights in all fields and a nonexclusive right to the know-how.

2009, the JHU License Agreement was amended to add additional patent rights to the JHU License Agreement in consideration of a

payment to JHU and reimbursement of patent costs.

Capricor and JHU executed a Second Amendment to the JHU License Agreement, effective

as of December 20, 2013, pursuant to which, among other things, certain definitions were added or amended, the timing of certain

obligations was revised and other obligations of the parties were clarified.

Under the JHU License Agreement, Capricor is required

to exercise commercially reasonable and diligent efforts to develop and commercialize licensed products covered by the licenses

Pursuant to the JHU

License Agreement, JHU was paid an initial license fee and, thereafter, Capricor is required to pay minimum annual royalties on

the anniversary dates of the JHU License Agreement.

The minimum annual royalties range from $5,000 on the first and second anniversary

dates to $20,000 on the tenth anniversary date and thereafter.

The minimum annual royalties are creditable against a low single-digit

running royalty on net sales of products and net service revenues, which Capricor is also required to pay under the JHU License

Agreement, which running royalty may be subject to further reduction in the event that Capricor is required to pay royalties on

any patent rights to third parties in order to make or sell a licensed product.

In addition, Capricor is required to pay a low

double-digit percentage of the consideration received by it from sublicenses granted, and is required to pay JHU certain defined

development milestone payments upon the successful completion of certain phases of its clinical studies and upon receiving approval

from the FDA.

The development milestones range from $100,000 upon successful completion of a full Phase I clinical study to $1,000,000

upon full FDA market approval and are fully creditable against payments owed by Capricor to JHU on account of sublicense consideration

attributable to milestone payments received from a sublicensee.

The maximum aggregate amount of milestone payments payable under

the JHU License Agreement, as amended, is $1,850,000.

In May 2015, Capricor paid the development milestone related to Phase I that

was owed to JHU pursuant to the terms of the JHU License Agreement.

The next milestone is triggered upon successful completion

of a full Phase II study for which a payment of $250,000 will be due.

into an Exclusive License Agreement, effective June 22, 2006, or the JHU License Agreement, which provides for the grant of

an exclusive, world-wide, royalty-bearing license by JHU to Capricor (with the right to sublicense) to develop and commercialize

licensed products and licensed services under the licensed patent rights in all fields and a nonexclusive right to the know-how.

In May 2009, the JHU License Agreement was amended to add additional patent rights to the JHU License Agreement in consideration

of a payment to JHU and reimbursement of patent costs.

Capricor and JHU executed a Second Amendment to the JHU License Agreement,

effective as of December 20, 2013, pursuant to which, among other things, certain definitions were added or amended, the timing

of certain obligations was revised and other obligations of the parties were clarified.

Under the JHU License Agreement, Capricor

is required to exercise commercially reasonable and diligent efforts to develop and commercialize licensed products covered by

the licenses from JHU.

to the JHU License Agreement, JHU was paid an initial license fee and, thereafter, Capricor is required to pay minimum annual royalties

on the anniversary dates of the JHU License Agreement.

The minimum annual royalties are creditable against a low single-digit running

royalty on net sales of products and net service revenues, which Capricor is also required to pay under the JHU License Agreement,

which running royalty may be subject to further reduction in the event that Capricor is required to pay royalties on any patent

rights to third parties in order to make or sell a licensed product.

In addition, Capricor is required to pay a low double-digit

percentage of the consideration received by it from sublicenses granted, and is required to pay JHU certain defined development

milestone payments upon the successful completion of certain phases of its clinical studies and upon receiving approval from

Food and Drug Administration, or the FDA.

The development milestones range from $100,000 upon successful completion of

a full Phase I clinical study to $1,000,000 upon full FDA market approval and are fully creditable against payments owed by Capricor

to JHU on account of sublicense consideration attributable to milestone payments received from a sublicensee.

The maximum aggregate

amount of milestone payments payable under the JHU License Agreement, as amended, is $1,850,000.

In May 2015, Capricor paid

the development milestone related to Phase I that was owed to JHU pursuant to the terms of the JHU License Agreement.

milestone is triggered upon successful completion of a full Phase II study for which a payment of $250,000 will be due.

time, it is uncertain as to whether the $250,000 milestone payment will become due.

The JHU License Agreement

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written notice.

Cedars-Sinai Medical Center License

License Agreement

for Serology Diagnostic

Capricor and JHU entered

into a Nonexclusive License Agreement, effective January 6, 2021, or the JHU Serology License Agreement, which provides for

the grant of a non-exclusive, world-wide, non-royalty-bearing license by JHU to Capricor to develop and commercialize licensed

products under the licensed patent rights for COVID-19.

Cedars-Sinai Medical Center License Agreements

License Agreement for CDCs

On January 4,

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things, a reduction in the percentage of sublicense fees which would have been payable to CSMC.

Effective December 30, 2013, Capricor

entered into an Amended and Restated Exclusive License Agreement with CSMC, or the Amended CSMC License Agreement, which amended,

restated, and superseded the Original CSMC License Agreement, pursuant to which, among other things, certain definitions were added

or amended, the timing of certain obligations was revised and other obligations of the parties were clarified.

Effective December 30, 2013,

Capricor entered into an Amended and Restated Exclusive License Agreement with CSMC, or the Amended CSMC License Agreement, which

amended, restated, and superseded the Original CSMC License Agreement, pursuant to which, among other things, certain definitions

were added or amended, the timing of certain obligations was revised and other obligations of the parties were clarified.

The Amended CSMC License

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Additionally, Capricor is required to meet certain spending and development

The annual spending requirements ranged from $350,000 to $800,000 each year between 2010 and 2017 (with the exception

of 2014, for which there was no annual spending requirement).

Pursuant to the Amended

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(i) if Capricor ceases, dissolves or winds up its business operations;

event of the insolvency or bankruptcy of Capricor or if Capricor makes an assignment for the benefit of its creditors;

the event of the insolvency or bankruptcy of Capricor or if Capricor makes an assignment for the benefit of its creditors;

performance by either party jeopardizes the licensure, accreditation or tax exempt status of CSMC or the agreement is deemed illegal

2 unchanged sentences

(v) after 90 days’

notice from CSMC if Capricor

fails to undertake commercially reasonable efforts to exploit the patent rights or future patent rights;

(vi) if a material breach

has not been cured within 90 days;

notice from CSMC if

Capricor fails to undertake commercially reasonable efforts to exploit the patent rights or future patent rights;

a material breach has not been cured within 90 days;

or (vii) if Capricor challenges any of the CSMC patent rights.

If Capricor fails to undertake

commercially reasonable efforts to exploit the patent rights or future patent rights, and fails to cure that breach after 90 days’

notice from CSMC, instead of terminating the license, CSMC has the option to convert any exclusive license to Capricor to a non-exclusive

or co-exclusive license.

Capricor may terminate the agreement if CSMC fails to cure any material breach within 90 days after notice.

fails to undertake commercially reasonable efforts to exploit the patent rights or future patent rights, and fails to cure that

breach after 90 days’

notice from CSMC, instead of terminating the license, CSMC has the option to convert any exclusive

license to Capricor to a non-exclusive or co-exclusive license.

Capricor may terminate the agreement if CSMC fails to cure any

material breach within 90 days after notice.

On March 20, 2015,

Capricor and CSMC entered into a First Amendment to the Amended CSMC License Agreement, pursuant to which the parties agreed to

delete certain patent applications from the list of scheduled patents which Capricor determined not to be material to the portfolio.

On August 5, 2016,

Capricor and CSMC entered into a Second Amendment to the Amended CSMC License Agreement, or the Second License Amendment, pursuant

to which the parties agreed to add certain patent applications to the schedule of patent rights set forth in the agreement.

the Second License Amendment, (i) the description of scheduled patent rights has been replaced by a revised schedule that includes

six additional patent applications;

(ii) Capricor paid an upfront fee of $2,500;

and (iii) Capricor reimbursed CSMC approximately

$10,000 for attorneys’

fees and filing fees that were incurred in connection with the additional patent applications.

On December 26, 2017,

Capricor entered into a Third Amendment to the Amended CSMC License Agreement thereby amending the CDCs License, or the Third License

Under the Third License Amendment, (i) the description of scheduled patent rights has been replaced by a revised

schedule that includes seven additional patent applications;

and (ii) Capricor is required to reimburse CSMC approximately $50,000

for attorneys’

fees and filing fees that were incurred in connection with the additional patent rights.

On June 20, 2018, Capricor

and CSMC entered into a Fourth Amendment to the Amended CSMC License Agreement, or the Fourth License Amendment.

Under the Fourth

License Amendment, the description of scheduled patent rights has been replaced by a revised schedule that includes two additional

patent applications.

License Agreement

On May 5, 2014, Capricor

entered into an Exclusive License Agreement with CSMC, or the Exosomes License Agreement, for certain intellectual property rights

related to exosomes technology.

August 5, 2016, December 26, 2017, and June 20, 2018, Capricor and CSMC entered into a number of amendments to the

Amended CSMC License Agreement, pursuant to which the parties agreed to add and delete certain patent applications from the list

of scheduled patents.

Capricor reimbursed CSMC for certain attorneys’

fees and filing fees incurred in connection with the

additional patent applications.

License Agreement for Exosomes

On May 5, 2014,

Capricor entered into an Exclusive License Agreement with CSMC, or the Exosomes License Agreement, for certain intellectual property

rights related to exosomes technology.

The Exosomes License Agreement provides for the grant of an exclusive, world-wide, royalty-bearing

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(i) if Capricor ceases, dissolves or winds up its business operations;

(ii) in the event

of the insolvency or bankruptcy of Capricor or if Capricor makes an assignment for the benefit of its creditors;

(iii) if performance

by either party jeopardizes the licensure, accreditation or tax exempt status of CSMC or the agreement is deemed illegal by a governmental

the event of the insolvency or bankruptcy of Capricor or if Capricor makes an assignment for the benefit of its creditors;

performance by either party jeopardizes the licensure, accreditation or tax exempt status of CSMC or the agreement is deemed illegal

by a governmental body;

(iv) within 30 days for non-payment of royalties;

(v) after 90 days if Capricor fails to undertake commercially reasonable

efforts to exploit the patent rights or future patent rights;

(vi) if a material breach has not been cured within 90 days;

if Capricor challenges any of the CSMC patent rights.

If Capricor fails to undertake commercially reasonable efforts to exploit

the patent rights or future patent rights, and fails to cure that breach after 90 days’

notice from CSMC, instead of terminating

the license, CSMC has the option to convert any exclusive license to Capricor to a non-exclusive or co-exclusive license.

may terminate the agreement if CSMC fails to cure any material breach within 90 days after notice.

On February 27, 2015,

Capricor and CSMC entered into a First Amendment to Exosomes License Agreement, or the First Exosomes License Amendment.

the First Exosomes License Amendment, (i) the description of scheduled patent rights has been replaced by a revised schedule that

includes four additional patent applications;

(ii) Capricor was required to pay CSMC an upfront fee of $20,000;

(iii) Capricor

was required to reimburse CSMC approximately $34,000 for attorneys’

fees and filing fees that were incurred in connection

with the additional patent rights;

and (iv) Capricor is required to pay CSMC certain defined product development milestone payments

upon reaching certain phases of its clinical studies and upon receiving approval for a product from the FDA.

The product development

milestones range from $15,000 upon the dosing of the first patient in a Phase I clinical trial of a product to $75,000 upon receipt

of FDA approval for a product.

The maximum aggregate amount of milestone payments payable under the Exosomes License Agreement,

as amended, is $190,000.

On June 10, 2015, Capricor

and CSMC entered into a Second Amendment to Exosomes License Agreement, thereby amending the Exosomes License Agreement further

to add an additional patent application to the Schedule of Patent Rights.

On August 5, 2016,

Capricor and CSMC entered into a Third Amendment to the Exosomes License Agreement, or the Third Exosomes License Amendment, pursuant

to which the parties agreed to add certain patent applications to the schedule of patent rights under the agreement.

Third Exosomes License Amendment, (i) the description of scheduled patent rights has been replaced by a revised schedule that includes

three additional patent applications;

(ii) Capricor paid CSMC an upfront fee of $2,500;

and (iii) Capricor reimbursed CSMC approximately

$16,000 for attorneys’

fees and filing fees that were incurred in connection with the additional patent applications.

On December 26, 2017,

Capricor and CSMC entered into a Fourth Amendment to Exosomes License Agreement, thereby amending the Exosomes License, or the

Fourth Exosomes License Amendment.

Under the Fourth Exosomes License Amendment, (i) the description of scheduled patent rights

was replaced by a revised schedule that includes seven additional patent applications;

(ii) Capricor is required to reimburse CSMC

approximately $50,000 for attorneys’

fees and filing fees that were incurred in connection with the additional patent rights;

and (iii) a schedule to the Exosomes License was modified to extend the milestone deadline for filing an IND for at least one product

to December 31, 2018.

On June 20, 2018, Capricor

and CSMC entered into a Fifth Amendment to the Exosomes License Agreement, or the Fifth License Amendment.

Under the Fifth License

Amendment, (i) the description of scheduled patent rights has been replaced by a revised schedule that includes four additional

patent applications;

and (ii) Capricor is required to reimburse CSMC approximately $27,000 for attorneys’

fees and filing

fees that were incurred in connection with the additional patent rights.

On September 25, 2018,

Capricor and CSMC entered into a Sixth Amendment to the Exosomes License Agreement, or the Sixth License Amendment.

Under the Sixth

License Amendment, the milestone deadline for filing an IND for at least one product has been extended to December 31, 2019.

the Company does not file an IND by December 31, 2019, or negotiate an additional extension of the milestone deadline, CSMC would

have the option to convert the exclusive license to a non-exclusive license or to a co-exclusive license or terminate the license

under Title 35, Section 203 of the United States Code.

Prior to exercising such option, Capricor has the opportunity to cure the

failure to file an IND for a period of 90 days after its receipt of written notice from CSMC of its intent to exercise its option.

In the first quarter of 2020, Capricor received a notice from CSMC indicating that Capricor was in default of this milestone and

further that unless such default is cured by April 19, 2020, the Exosomes License Agreement will automatically terminate.

intends to file an IND in advance of the April 19, 2020 deadline in order to avoid the termination of the license, or alternatively

negotiate an extension of the deadline with CSMC.

Such intent has been communicated to CSMC.

(v) after 90 days if Capricor fails to undertake

commercially reasonable efforts to exploit the patent rights or future patent rights;

(vi) if a material breach has not been

cured within 90 days;

or (vii) if Capricor challenges any of the CSMC patent rights.

If Capricor fails to undertake commercially

reasonable efforts to exploit the patent rights or future patent rights, and fails to cure that breach after 90 days’

from CSMC, instead of terminating the license, CSMC has the option to convert any exclusive license to Capricor to a non-exclusive

or co-exclusive license.

Capricor may terminate the agreement if CSMC fails to cure any material breach within 90 days after notice.

February 27, 2015, June 10, 2015, August 5, 2016, December 26, 2017, June 20, 2018, September 25,

2018, August 19, 2020, and August 28, 2020 Capricor and CSMC entered into a number of amendments to the Exosomes License

These amendments added additional patent applications and patent families to the Exosomes License Agreement, added certain

defined product development milestone payments, modified certain milestone deadlines, and added certain performance milestones

with respect to product candidates covered by certain future patent rights in order to maintain an exclusive license to

those future patent rights;

failure to meet those milestones would cause CSMC to have the right to convert the license from exclusive

to non-exclusive or co-exclusive, or to terminate the license, subject to Capricor’s right to license such patent rights

for internal research purposes on a non-exclusive basis.

These amendments also obligated Capricor to reimburse CSMC for certain

attorneys’

fees and filing fees in connection with the additional patent applications and patent families.

sponsored by CSMC.

If we elect to not extend the term of our Facilities Lease, Capricor would have to secure alternative facilities

in which to manufacture its products, which would involve a significant monetary investment and would negatively impact the progress

of our planned clinical trials and regulatory approvals.

In addition, we would have to establish a collaboration agreement with

a third party or build out our own manufacturing facility for any commercial scale manufacturing or potentially for a Phase III

We are currently evaluating

a proposed contract manufacturing agreement with a contract manufacturing organization, or CMO, for continued expansion focused

on potential commercialization and scale-up of our cell therapy program for the treatment of DMD.

CAP-1002 and our exosome technologies for its own clinical trials, Capricor has agreed to provide CAP-1002 for investigational

purposes in two clinical trials sponsored by CSMC.

If we are unable to extend the term of our Facilities Lease, Capricor would

have to secure alternative facilities in which to manufacture its products, which would involve a significant monetary investment

and would negatively impact the progress of our planned clinical trials and regulatory approvals.

In addition, we would have to

establish a collaboration agreement with a third party or build out our own manufacturing facility for any commercial scale manufacturing

of our exosome products.

We have initiated a

technology transfer with Lonza Houston, Inc., a leading global contract manufacturing organization to prepare for commercial

or possibly for late-stage clinical manufacturing of CAP-1002.

The current activities are focused on process development services

for the manufacturing processes and related other activities necessary for potential cGMP readiness.

Manufacturing Process

The manufacturing process

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and then administered to patients as needed.

Exosomes (CAP-2003):

Manufacturing Process for CDC-Exosomes

The process for manufacturing

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potentially enable us to create a scalable cell-derived product.

Manufacturing Processes

for Other Exosome Technologies

We have also made significant

progress planning the next steps for the manufacturing process for our exosome product candidates, including our exosome-mRNA vaccine.

We believe these developments will enable us to scale up our manufacturing capabilities and allow us to manufacture enough material

for early-stage clinical development.

We are exploring the use of various cell sources to generate our exosomes for preclinical

and potential clinical use.

Research and Development

Capricor’s research

and development program has been advanced in part through federal and state grants and loan awards totaling over approximately

$28.0 million to date.

Our ongoing research and development activities primarily concern CDCs and exosomes, and are focused on

the characterization of their composition and actions, the evaluation of their therapeutic potential in selected disease settings,

the development of next generation product candidates, and the identification of new technologies and indications.

Capricor spent

approximately $5.1 million and $12.1 million on research and development activities for the years ended December 31, 2019 and 2018,

respectively.

and development program has been advanced in part through federal and state grants and loan awards totaling approximately $28 million

Our ongoing research and development activities primarily concern CDCs and exosomes, and are focused on the characterization

of their composition and actions, the evaluation of their therapeutic potential in selected disease settings, the development of

next generation product candidates, and the identification of new technologies and indications.

We are engaged in fields

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biotechnology companies, hospitals, physicians and academic institutions, both in the United States and abroad.

The pharmaceutical

industry is highly competitive, with a number of established, large pharmaceutical companies, as well as many smaller companies.

Many of the organizations competing with us have substantially greater financial resources, larger research and development staffs

and facilities, longer drug development history in obtaining regulatory approvals, and greater manufacturing and marketing capabilities

There are many pharmaceutical companies, biotechnology companies, public and private universities, government agencies,

and research organizations actively engaged in research and development of products which may target the same indications as our

product candidates.

We expect any future products and product candidates we develop to compete on the basis of, among other things,

product efficacy and safety, time to market, price, extent of adverse side effects, and convenience of treatment procedures.

biotechnology and pharmaceutical industries are subject to rapid and significant technological change.

The drugs that we are attempting

to develop will have to compete with existing and future therapies.

Our future success will depend in part on our ability to maintain

a competitive position with respect to evolving cell therapy and exosome technologies.

There can be no assurance that existing

or future therapies developed by others will not render our potential products obsolete or noncompetitive.

In addition, companies

pursuing different but related fields represent substantial competition.

These organizations also compete with us to attract patients

for clinical trials, qualified personnel and parties for acquisitions, joint ventures, or other collaborations.

This competition

is particularly intense and advanced with respect to the development of vaccines for SARS-CoV-2.

The pharmaceutical industry is

highly competitive, with a number of established, large pharmaceutical companies, as well as many smaller companies.

organizations competing with us have substantially greater financial resources, larger research and development staffs and facilities,

longer drug development history in obtaining regulatory approvals, and greater manufacturing and marketing capabilities than we

There are many pharmaceutical companies, biotechnology companies, public and private universities, government agencies, and

research organizations actively engaged in research and development of products which may target the same indications as our product

We expect any future products and product candidates we develop to compete on the basis of, among other things, product

efficacy and safety, time to market, price, extent of adverse side effects, and convenience of treatment procedures.

The biotechnology

and pharmaceutical industries are subject to rapid and significant technological change.

The drugs that we are attempting to develop

will have to compete with existing and future therapies.

Our future success will depend in part on our ability to maintain a competitive

position with respect to evolving cell therapy and exosome technologies.

There can be no assurance that existing or future therapies

developed by others will not render our potential products obsolete or noncompetitive.

In addition, companies pursuing different

but related fields represent substantial competition.

These organizations also compete with us to attract patients for clinical

trials, qualified personnel and parties for acquisitions, joint ventures, or other collaborations.

Government Regulation

The research, development,

testing, manufacture, labeling, promotion, advertising, distribution and marketing, among other things, of our product candidates

are extensively regulated by governmental authorities in the United States and other countries.

In the United States, the FDA regulates

drugs under the Federal Food, Drug, and Cosmetic Act, or the FDCA, and its implementing regulations.

Failure to comply with the

applicable U.S.

requirements may subject us to administrative or judicial sanctions, such as the FDA’s refusal to approve

a pending NDA or a pending BLA, warning letters, product recalls, product seizures, total or partial suspension of production or

distribution, injunctions and/or criminal prosecution.

Drug Approval Process

testing, manufacture, quality control, approval, labeling, packaging, storage, recordkeeping, serialization and tracking, promotion,

advertising, distribution and marketing, post-approval monitoring and reporting, and export and import, among other things, of

our product candidates are extensively regulated by governmental authorities in the United States and other countries.

In the United

States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or the FDCA, and its implementing regulations.

Failure to comply with the applicable U.S.

requirements may subject us to administrative or judicial sanctions, such as the FDA’s

refusal to approve a pending NDA or a pending BLA, warning letters, product recalls, product seizures, total or partial suspension

of production or distribution, injunctions and/or criminal prosecution.

FDA Approval Process for Drugs and Biologics

Pharmaceutical products,

such as ours may not be commercially marketed without prior approval from the FDA and comparable regulatory agencies in other countries.

In the United States, the process for receiving such approval is long, expensive and risky, and includes the following steps:

pre-clinical laboratory tests, animal studies, and formulation studies;

submission to the FDA of an IND for human clinical testing, which must become effective before

human clinical trials may begin;

adequate and well-controlled human clinical trials to establish the safety and efficacy of the

drug for each indication;

submission to the FDA of an NDA or BLA;

satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which

the drug is produced to assess compliance with cGMP;

a potential FDA audit of the preclinical and clinical trial sites that generated the data in support

of the NDA or BLA;

the ability to obtain clearance or approval of companion diagnostic tests, if required, on a timely

basis, or at all;

FDA review and approval of the NDA or BLA.

including biological products such as ours may not be commercially marketed without prior approval from the FDA and comparable

regulatory agencies in other countries.

In the United States, the process for receiving such approval is long, expensive and risky,

and includes the following steps:

preclinical laboratory tests, animal studies, and formulation studies;

submission to the FDA of an IND for human clinical testing, which must become effective before human clinical trials may begin;

approval by an IRB at each clinical site before each trial may be initiated;

adequate and well-controlled human clinical trials to establish the safety and efficacy of the drug for each indication;

submission to the FDA of an NDA, for a drug, or BLA, for a biological product;

satisfactory completion of an FDA advisory committee review, if applicable;

satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug is produced to assess compliance with cGMP;

a potential FDA audit of the preclinical and clinical trial sites that generated the data in support of the NDA or BLA;

the ability to obtain clearance or approval of companion diagnostic tests, if required, on a timely basis, or at all;

FDA review and approval of the NDA or BLA prior to any commercial marketing or sale of the drug in the United States;

compliance with any post-approval requirements, including the potential requirement to implement a REMS, and the potential requirement to conduct post-approval studies.

Sponsors submit NDAs

in order to obtain marketing approval for drugs.

Sponsors submit BLAs in order to obtain marketing approval for biologics, which

include, among other product classes, vaccines.

Regulation by U.S.

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expending substantial resources.

The results of pre-clinical

testing, which include laboratory evaluation of product chemistry and formulation, animal studies to assess the potential safety

and efficacy of the product and its formulations, details concerning the drug manufacturing process and its controls, and a proposed

clinical trial protocol and other information must be submitted to the FDA as part of an IND that must be reviewed and become effective

before clinical testing can begin.

The study protocol and informed consent information for patients in clinical trials must also

be submitted to an independent Institutional Review Board, or IRB, for approval covering each institution at which the clinical

trial will be conducted.

Once a sponsor submits an IND, the sponsor must wait 30 calendar days before initiating any clinical trials.

If the FDA has comments or questions within this 30-day period, the issue(s) must be resolved to the satisfaction of the FDA before

clinical trials can begin.

In addition, the FDA, an IRB or Capricor may impose a clinical hold on ongoing clinical trials due to

safety concerns.

If the FDA imposes a clinical hold, clinical trials can only proceed under terms authorized by the FDA.

Our pre-clinical

and clinical studies must conform to the FDA’s Good Laboratory Practice, or GLP, and Good Clinical Practice, or GCP, requirements,

respectively, which are designed to ensure the quality and integrity of submitted data and protect the rights and well-being of

study patients.

Information for certain clinical trials also must be publicly disclosed within certain time limits on the clinical

trial registry and results databank maintained by the NIH.

The results of preclinical

testing, which include laboratory evaluation of product chemistry, formulation, toxicity and carcinogenicity animal studies to

assess the potential safety and efficacy of the product and its formulations, details concerning the drug manufacturing process

and its controls, and a proposed clinical trial protocol and other information must be submitted to the FDA as part of an IND that

must be reviewed and become effective before clinical testing can begin.

The study protocol and informed consent information for

patients in clinical trials must also be submitted to an independent Institutional Review Board, or IRB, for approval covering

each institution at which the clinical trial will be conducted.

Once a sponsor submits an IND, the sponsor must wait 30 calendar

days before initiating any clinical trials.

If the FDA has comments or questions within this 30-day period, the issue(s) must

be resolved to the satisfaction of the FDA before a clinical trial can begin.

In addition, the FDA or IRB may impose a clinical

hold on ongoing clinical trials if, among other things, it believes that a clinical trial either is not being conducted in accordance

with FDA requirements or presents an unacceptable and significant risk to clinical trial patients.

If the FDA imposes a clinical

hold, clinical trials can only proceed under terms authorized by the FDA.

If applicable, our preclinical and clinical studies must

conform to the FDA’s Good Laboratory Practice, or GLP, and Good Clinical Practice, or GCP, requirements, respectively, which

are designed to ensure the quality and integrity of submitted data and protect the rights and well-being of study patients.

for certain clinical trials also must be publicly disclosed within certain time limits on the clinical trial registry and results

databank maintained by the NIH.

Typically, clinical

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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, and the pattern of drug absorption, distribution and metabolism;

Phase II clinical trials typically are conducted in a limited patient population with a specific

disease in order to assess appropriate dosages and dose regimens, expand evidence of the safety profile and evaluate preliminary

Phase III clinical trials typically are larger scale, multicenter, well-controlled trials conducted

on patients with a specific disease to generate enough data to statistically evaluate the efficacy and safety of the product, to

establish the overall benefit-risk relationship of the drug and to provide adequate information for the registration of the drug.

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;

Phase III clinical trials typically are larger scale, multicenter, well-controlled trials conducted on patients with a specific disease to generate enough data to statistically evaluate the efficacy and safety of the product, to establish the overall benefit-risk relationship of the drug and to provide adequate information for the labeling of the drug.

A therapeutic product

candidate being studied in clinical trials may be made available for treatment of individual patients, in certain circumstances.

Pursuant to the 21st Century Cures Act (Cures Act), which was signed into law in December 2016, the manufacturer of an investigational

product for a serious disease or condition is required to make available, such as by posting on its website, its policy on evaluating

and responding to requests for individual patient access to such investigational product.

candidate being studied in clinical trials may be made available for treatment of individual patients, intermediate-size patient

populations, or for widespread treatment use under an expanded access protocol, under certain circumstances.

Pursuant to the 21st

Century Cures Act (Cures Act), which was signed into law in December 2016, the manufacturer of one or more investigational

products for the diagnosis, monitoring, or treatment of one or more serious diseases or conditions is required to make available,

such as by posting on its website, its policy on evaluating and responding to requests for individual patient access to such investigational

Additionally, on May 30,

2018, the Trickett Wendler, Frank Mongiello, Jordan McLinn, and Matthew Bellina Right to Try Act of 2017 was signed into law.

law, among other things, provides a federal framework for certain patients to access certain investigational new drug products

that have completed a Phase 1 clinical trial and that are undergoing investigation for FDA approval.

Under certain circumstances,

eligible patients can seek treatment without enrolling in clinical trials and without obtaining FDA authorization under an FDA

expanded access program;

however, manufacturers are not obligated to provide investigational new drug products under the current

federal right to try law.

The results of the

pre-clinical and clinical testing, chemistry, manufacturing and control information, proposed labeling and other information are

preclinical and clinical testing, chemistry, manufacturing and control information, proposed labeling and other information are

then submitted to the FDA in the form of either an NDA or BLA for review and potential approval to begin commercial sales.

In responding

to an NDA or BLA, the FDA may grant marketing approval, request additional information in a Complete Response Letter, or CRL, or

deny the approval if it determines that the NDA or BLA does not provide an adequate basis for approval.

A CRL generally contains

a statement of specific conditions that must be met in order to secure final approval of an NDA or BLA and may require additional

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.

to an NDA or BLA, the FDA may grant marketing approval, or issue a Complete Response Letter, or CRL.

A CRL generally contains a

statement of specific conditions that must be met in order to secure final approval of an NDA or BLA and may require substantial

additional testing or information.

If and when those conditions have been met to the FDA’s satisfaction, the FDA will typically

issue an approval letter, which authorizes commercial marketing of the product with specific prescribing information for specific

indications, and sometimes with specified post-marketing commitments and/or distribution and use restrictions imposed under a Risk

Evaluation and Mitigation Strategy program.

Any approval required from the FDA might not be obtained on a timely basis, if at all.

Among the conditions

for an NDA or BLA approval is the requirement that the manufacturing operations conform on an ongoing basis with cGMP.

with cGMP, we must expend time, money and effort in the areas of training, production and quality control within our own organization

and at our contract manufacturing facilities.

A successful inspection of the manufacturing facility by the FDA is usually a prerequisite

for final approval of a pharmaceutical product.

Following approval of the NDA or BLA, we and our manufacturers will remain subject

to periodic inspections by the FDA to assess compliance with cGMP requirements and the conditions of approval.

We will also face

similar inspections coordinated by foreign regulatory authorities.

Disclosure of Clinical

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Act, the FDA may grant orphan drug designation to therapeutic candidates intended to treat a rare disease or condition, which is

generally a disease or condition that affects fewer than 200,000 individuals in the U.S.

or more than 200,000 individuals in the

and for which there is no reasonable expectation that the cost of developing and making available in the U.S.

a therapeutic

candidate for this type of disease or condition will be recovered from sales in the U.S.

a disease or condition that affects fewer than 200,000 individuals in the U.S.

or more than 200,000 individuals in the U.S.

for which there is no reasonable expectation that the cost of developing and making available in the U.S.

a therapeutic candidate

for this type of disease or condition will be recovered from sales in the U.S.

for that therapeutic candidate.

drug designation must be requested before submitting a marketing application for the therapeutic for that particular disease or

After the FDA grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use are

disclosed publicly by the FDA.

Orphan drug designation does not convey any advantage in or shorten the duration of the regulatory

review and approval process.

The FDA may revoke orphan drug designation, and if it does, it will publicize that the drug is no

longer designated as an orphan drug.

Orphan drug designation

must be requested before submitting a marketing application for the therapeutic candidate for that particular disease or condition.

After the FDA grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use are disclosed

publicly by the FDA.

Orphan drug designation does not convey any advantage in or shorten the duration of the regulatory review

and approval process.

Among the other benefits of orphan drug designation are tax credits for certain research and an exemption

from the NDA or BLA application fee.

The FDA may revoke orphan drug designation, and if it does, it will publicize that the drug

is no longer designated as an orphan drug.

If a therapeutic candidate

with orphan drug designation subsequently receives the first FDA approval for the disease for which it has such designation, the

therapeutic candidate is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications

to market the same therapeutic candidate for the same indication, except in very limited circumstances, for seven years.

drug exclusivity, however, could also block the approval of one of our therapeutic candidates for seven years if a competitor obtains

approval of the same therapeutic candidate as defined by the FDA or if our therapeutic candidate is determined to be contained

within the competitor’s therapeutic candidate for the same indication or disease.

with orphan drug designation subsequently receives the first FDA approval for such drug for the disease for which it has such designation,

the therapeutic candidate is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications

to market the same therapeutic candidate for the same indication, for seven years, unless the sponsor of the subsequent application

demonstrates clinical superiority, in the form of a greater efficacy, greater safety, or a major contribution to patient care.

Orphan drug exclusivity, however, could also block the approval of one of our therapeutic candidates for seven years if a competitor

obtains orphan drug designation and FDA approval of the same therapeutic candidate for the same condition or disease as our orphan-designated

For macromolecules, FDA considers a drug to be the same drug as an orphan-designated macromolecule if it contains the same

principal molecular structural features, but not necessarily all of the same structural features.

In addition, as the

FDA has interpreted the Orphan Drug Act, even if a previously approved same drug does not have unexpired orphan exclusivity, while

a demonstration of clinical superiority is not required for a subsequent orphan-designated drug to obtain marketing approval, a

demonstration of clinical superiority is required for the subsequent orphan-designated same drug to be awarded a 7-year period

of orphan exclusivity upon marketing approval.

In recent years, there have been multiple legal challenges to this FDA interpretation,

and in August 2017, Congress amended the orphan drug provisions of the FDCA through enactment of the FDA Reauthorization Act of

2017 to codify FDA’s longstanding interpretation.

Section 527 of the FDCA now expressly provides that if a sponsor of a drug

that is designated as an orphan drug and is otherwise the same as an already approved drug is seeking exclusive approval for the

same rare disease or condition as the already approved drug, FDA shall require such sponsor, as a condition of such exclusive approval,

to demonstrate that such drug is clinically superior to any already approved or licensed drug that is the same drug.

exclusivity does not prevent the FDA from approving a different drug for the same disease or condition, or the same drug for a

different disease or condition.

FDA has interpreted the Orphan Drug Act, even if a previously approved same drug does not have unexpired orphan exclusivity, a

demonstration of clinical superiority is required for a subsequent marketing application for the same orphan-designated drug for

the same disease or condition to be awarded a 7-year period of orphan exclusivity upon marketing approval.

In recent years, there

have been multiple legal challenges to this FDA interpretation, and in August 2017, Congress amended the orphan drug provisions

of the FDCA through enactment of the FDA Reauthorization Act of 2017 to codify FDA’s longstanding interpretation.

of the FDCA now expressly provides that if a sponsor of an orphan-designated drug that is otherwise the same as an already approved

drug for the same rare disease or condition is seeking orphan exclusivity, FDA shall require such sponsor to demonstrate that such

drug is clinically superior to any already approved or licensed drug that is the same drug in order to obtain orphan drug exclusivity.

Orphan drug exclusivity does not prevent the FDA from approving a different drug for the same disease or condition, or the same

drug for a different disease or condition.

Expedited Development

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of the sections of the application, the FDA agrees to accept sections of the application and determines that the schedule is acceptable,

and the sponsor pays any required user fees upon submission of the first section of the application.

Any product submitted

to the FDA for marketing, including under a Fast Track program, may be eligible for other types of FDA programs intended to expedite

development and review, such as priority review and accelerated approval.

Under the Breakthrough Therapy program, products intended

to treat a serious or life-threatening disease or condition may be eligible for the benefits of the Fast Track program when preliminary

clinical evidence demonstrates that such product may have substantial improvement on one or more clinically significant endpoints

over existing therapies.

Additionally, FDA will seek to ensure the sponsor of a breakthrough therapy product receives timely advice

and interactive communications to help the sponsor design and conduct a development program as efficiently as possible.

is eligible for priority review if it has the potential to provide safe and effective therapy where no satisfactory alternative

therapy exists or a significant improvement in the treatment, diagnosis or prevention of a disease compared to marketed products.

The FDA will attempt to direct additional resources to the evaluation of an application for a new drug or biological product designated

for priority review in an effort to facilitate the review.

Additionally, a product may be eligible for accelerated approval.

or biological products studied for their safety and effectiveness in treating serious or life-threatening illnesses and that provide

meaningful therapeutic benefit over existing treatments may receive accelerated approval, which means that they may be approved

on the basis of adequate and well-controlled clinical studies establishing that the product has an effect on a surrogate endpoint

that is reasonably likely to predict a clinical benefit, or on the basis of an effect on a clinical endpoint other than survival

or irreversible morbidity.

As a condition of approval, the FDA may require that a sponsor of a drug or biological product receiving

accelerated approval perform adequate and well-controlled post-marketing clinical studies.

In addition, the FDA currently requires

as a condition for accelerated approval the pre-approval of promotional materials, which could adversely impact the timing of the

commercial launch of the product.

Fast Track designation, Breakthrough Therapy designation, priority review and accelerated approval

do not change the standards for approval but may expedite the development or approval process.

and the sponsor pays any required user fees upon submission of the first section of the application FDA may revoke the Fast Track

designation if it believes that the designation is no longer supported by data emerging in the clinical trial process.

Products may also be

eligible for other types of FDA programs intended to expedite development and review, such as Breakthrough Therapy designation,

priority review and accelerated approval.

Under the Breakthrough Therapy program, products intended to treat a serious or life-threatening

disease or condition may be eligible for the benefits of the Fast Track program when preliminary clinical evidence demonstrates

that such product may have substantial improvement on one or more clinically significant endpoints over existing therapies.

Additionally,

FDA will seek to ensure the sponsor of a breakthrough therapy product receives timely advice and interactive communications to

help the sponsor design and conduct a development program as efficiently as possible.

A product is eligible

for priority review if it is intended to treat a serious condition and, if approved, it would provide a significant improvement

in safety or effectiveness.

FDA intends to take action on a priority review marketing application within 6 months of receipt, compared

to 10 months of receipt for regular review submissions.

Additionally, a product

may be eligible for accelerated approval if it is intended to treat a serious or life-threatening disease or condition and would

provide meaningful therapeutic benefit over existing treatments.

Eligible products may receive accelerated approval on the basis

of adequate and well-controlled clinical studies establishing that the product has an effect on a surrogate endpoint that is reasonably

likely to predict a clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality

and is reasonably likely to predict an effect on irreversible morbidity, mortality, or other clinical benefit.

As a condition of

approval, the FDA may require that a sponsor of a drug or biological product receiving accelerated approval diligently perform

adequate and well-controlled post-marketing clinical studies demonstrating clinical benefit.

In addition, the FDA requires as a

condition for accelerated approval the submission of promotional materials, which could adversely impact the timing of the commercial

launch of the product.

Fast Track designation, Breakthrough Therapy designation, priority review and accelerated approval do not

change the standards for full approval but may expedite the development or approval process.

Regenerative Medicine

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program for, and expedite review of, any drug that meets the following criteria:

(1) it qualifies as a RMAT, which is defined as

a cell therapy, therapeutic tissue engineering product, human cell and tissue product, or any combination product using such therapies

or products, with limited exceptions;

(2) it is intended to treat, modify, reverse, or cure a serious or life-threatening disease

or condition;

and (3) preliminary clinical evidence indicates that the drug has the potential to address unmet medical needs for

such a disease or condition.

Like breakthrough therapy designation, RMAT designation provides potential benefits that include more

frequent meetings with FDA to discuss the development plan for the product candidate, and eligibility for rolling review and priority

Products granted RMAT designation may also be eligible for accelerated approval on the basis of a surrogate or intermediate

endpoint reasonably likely to predict long-term clinical benefit, or reliance upon data obtained from a meaningful number of sites,

including through expansion to additional sites.

RMAT-designated products that receive accelerated approval may, as appropriate,

fulfill their post-approval requirements through the submission of clinical evidence, clinical studies, patient registries, or

other sources of real world evidence (such as electronic health records);

through the collection of larger confirmatory data sets;

(1) it qualifies as a RMAT, which is defined

as a cell therapy, therapeutic tissue engineering product, human cell and tissue product, or any combination product using such

therapies or products, with limited exceptions;

(2) it is intended to treat, modify, reverse, or cure a serious or life-threatening

disease or condition;

and (3) preliminary clinical evidence indicates that the drug has the potential to address unmet medical

needs for such a disease or condition.

Like breakthrough therapy designation, RMAT designation provides potential benefits that

include more frequent meetings with FDA to discuss the development plan for the product candidate, and eligibility for rolling

review and priority review.

Products granted RMAT designation may also be eligible for accelerated approval on the basis of a surrogate

or intermediate endpoint reasonably likely to predict long-term clinical benefit, or reliance upon data obtained from a meaningful

number of sites, including through expansion to additional sites.

RMAT-designated products that receive accelerated approval may,

as appropriate, fulfill their post-approval requirements through the submission of clinical evidence, clinical studies, patient

registries, or other sources of real-world evidence (such as electronic health records);

through the collection of larger confirmatory

or via post-approval monitoring of all patients treated with such therapy prior to approval of the therapy.

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A drug designated as a drug for a rare pediatric disease

by September 30, 2020, and approved by September 30, 2022, may receive a voucher.

by December 18, 2020, and approved by December 18, 2022, may receive a voucher.

FDA Emergency Use

Authorization

Section 564 of

the FDCA allows the FDA to authorize the shipment of drugs, biological products (including vaccines), or medical devices that either

lack required approval, licensure, or clearance (unapproved products), or are approved but are to be used for unapproved ways to

diagnose, treat, or prevent serious diseases or conditions in the event of an emergency declaration by the HHS Secretary.

On February 4,

2020, HHS Secretary Alex M.

Azar II declared a public health emergency for COVID-19, under 21 U.S.C.

360bbb-3(b)(1), justifying

the authorization of emergency use of IVDs for detection and/or diagnosis of COVID-19.

This determination was published in the

Federal Register on February 7, 2020.

While this emergency

declaration is effective, the FDA may authorize the use of an unapproved product or an unapproved use of an approved product if

it concludes that:

an agent referred to in the emergency declaration could cause a serious or life-threatening disease or condition;

it is reasonable to believe that the authorized product may be effective in diagnosing, treating, or preventing that disease or condition or a serious or life-threatening disease or condition caused by an approved product or a product marketed under an EUA;

the known and potential benefits of the authorized product, when used for that disease or condition, outweigh known and potential risks, taking into consideration the material threat of agents identified in the emergency declaration;

there is no adequate, approved, and available alternative to the authorized product for diagnosing, preventing, or treating the relevant disease or condition;

any other criteria prescribed by the FDA is satisfied.

To date, FDA has submitted

all EUAs it has received for vaccine candidates to treat COVID-19 for advisory committee review prior to issuing an EUA.

Medical products that

are granted an EUA are only permitted to commercialize their products under the terms and conditions provided in the authorization.

The FDCA authorizes FDA to impose such conditions on an EUA as may be necessary to protect the public health.

Consequently, postmarketing

requirements will vary across EUAs.

In addition, FDA has, on occasion, waived requirements for drugs marketed under an EUA.

Generally, EUAs for

unapproved products or unapproved uses of approved products require that manufacturers distribute factsheets for healthcare providers,

addressing significant known and potential benefits and risk, and the extent to which benefits and risks are unknown, and the fact

that FDA has authorized emergency use;

and, distribution of factsheets for recipients of the product, addressing significant known

and potential benefits and risk, and the extent to which benefits and risks are unknown, the option to accept or refuse the product,

the consequences of refusing, available alternatives, and the fact that FDA has authorized emergency use.

Generally, EUAs for

unapproved products and, per FDA’s discretion, EUAs for unapproved uses of approved products, include requirements for adverse

event monitoring and reporting, and other recordkeeping and reporting requirements.

Note, however, that approved products are already

subject to equivalent requirements.

In addition, FDA may

include various requirements in an EUA as a matter of discretion as deemed necessary to protect the public health, including restrictions

on which entities may distribute the product, and how to perform distribution (including requiring that distribution be limited

to government entities), restrictions on who may administer the product, requirements for collection and analysis of safety and

effectiveness data, waivers of cGMP, and restrictions applicable to prescription drugs or restricted devices (including advertising

and promotion restrictions).

The FDA may revoke

an EUA where it is determined that the underlying health emergency no longer exists or warrants such authorization, if the conditions

for the issuance of the EUA are no longer met, or if other circumstances make revocation appropriate to protect the public health

FDA Approval and

Regulation of Companion Diagnostics

A therapeutic product

may rely upon an in vitro companion diagnostic for use in selecting the patients that will be more likely to respond to

that therapy.

If safe and effective use of a therapeutic depends on an in vitro diagnostic, then the FDA generally will

require approval or clearance of that diagnostic, known as a companion diagnostic, at the same time that the FDA approves the therapeutic

In August 2014, the FDA issued final guidance clarifying the requirements that will apply to approval of therapeutic

products and in vitro companion diagnostics.

According to the guidance, for novel drugs, a companion diagnostic device and

its corresponding therapeutic should be approved or cleared contemporaneously by the FDA for the use indicated in the therapeutic

product’s labeling.

In July 2016, the FDA issued a draft guidance intended to assist sponsors of the drug therapeutic

and in vitro companion diagnostic device on issues related to co-development of the products.

If FDA determines that

a companion diagnostic device is essential to the safe and effective use of a novel therapeutic product or indication, FDA generally

will not approve the therapeutic product or new therapeutic product indication if the companion diagnostic device is not approved

or cleared for that indication.

Approval or clearance of the companion diagnostic device will ensure that the device has been adequately

evaluated and has adequate performance characteristics in the intended population.

The review of any in vitro companion

diagnostics developed for use with any of our therapeutic products will, therefore, likely involve coordination of review by the

FDA’s Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research, as applicable, and the FDA’s

Center for Devices and Radiological Health Office of In Vitro Diagnostics Device Evaluation and Safety.

Under the FDCA, in

vitro diagnostics, including companion diagnostics, are regulated as medical devices.

In the United States, the FDCA and its

implementing regulations, and other federal and state statutes and regulations govern, among other things, medical device design

and development, preclinical and clinical testing, premarket clearance or approval, registration and listing, manufacturing, labeling,

storage, advertising and promotion, sales and distribution, export and import, and post-market surveillance.

Unless an exemption

applies, diagnostic tests require marketing clearance or approval from the FDA prior to commercial distribution.

The two primary

types of FDA marketing authorization applicable to a medical device are premarket notification, also called 510(k) clearance,

and premarket approval, or PMA.

The FDA has generally required PMAs for in vitro companion diagnostics.

The PMA process, including

the gathering of clinical and preclinical data and the submission to and review by the FDA, can take several years or longer.

involves a rigorous premarket review during which the applicant must prepare and provide the FDA with reasonable assurance of the

device’s safety and effectiveness and information about the device and its components regarding, among other things, device

design, manufacturing and labeling.

PMA applications are subject to an application fee of $365,657 for most PMAs for fiscal year

In addition, PMAs for certain devices must generally include the results from extensive preclinical and adequate and well-controlled

clinical trials to establish the safety and effectiveness of the device for each indication for which FDA approval is sought.

particular, for a diagnostic, a PMA application typically requires data regarding analytical and clinical validation studies.

part of the PMA review, the FDA will typically inspect the manufacturer’s facilities for compliance with the Quality System

Regulation, or QSR, which imposes elaborate testing, control, documentation and other quality assurance requirements.

PMA approval is not

guaranteed, and the FDA may ultimately respond to a PMA submission with a not approvable determination based on deficiencies in

the application and require additional clinical trial or other data that may be expensive and time-consuming to generate and that

can substantially delay approval.

If the FDA’s evaluation of the PMA application is favorable, the FDA typically issues an

approvable letter requiring the applicant’s agreement to specific conditions, such as changes in labeling, or specific additional

information, such as submission of final labeling, in order to secure final approval of the PMA.

If the FDA’s evaluation

of the PMA or manufacturing facilities is not favorable, the FDA will deny approval of the PMA or issue a not approvable letter.

A not approvable letter will outline the deficiencies in the application and, where practical, will identify what is necessary

to make the PMA approvable.

The FDA may also determine that additional clinical trials are necessary, in which case the PMA approval

may be delayed for several months or years while the trials are conducted and then the data submitted in an amendment to the PMA.

If the FDA concludes that the applicable criteria have been met, the FDA will issue a PMA for the approved indications, which can

be more limited than those originally sought by the applicant.

The PMA can include post-approval conditions that the FDA believes

necessary to ensure the safety and effectiveness of the device, including, among other things, restrictions on labeling, promotion,

sale and distribution.

Once granted, PMA approval may be withdrawn by the FDA if compliance with post approval requirements, conditions

of approval or other regulatory standards are not maintained or problems are identified following initial marketing.

After a device is placed

on the market, it remains subject to significant regulatory requirements.

Medical devices may be marketed only for the uses and

indications for which they are cleared or approved.

Device manufacturers must also establish registration and device listings with

A medical device manufacturer’s manufacturing processes and those of its suppliers are required to comply with the

applicable portions of the QSR, which cover the methods and documentation of the design, testing, production, processes, controls,

quality assurance, labeling, packaging and shipping of medical devices.

Domestic facility records and manufacturing processes are

subject to periodic unscheduled inspections by the FDA.

The FDA also may inspect foreign facilities that export products to the

Post-Approval Requirements

FDA Requirements

Drugs manufactured

or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other

things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion

with the product.

After approval, most changes to the approved product, such as adding new indications or other labeling claims,

are subject to prior FDA review and approval.

There also are continuing, annual user fee requirements for any marketed products

and the establishments at which such products are manufactured, as well as new application fees for supplemental applications with

clinical data.

Oftentimes, even after

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and manufacturing procedures conform to cGMP after approval.

In addition, drug manufacturers and other entities involved in the

manufacture and distribution of approved drugs are required to register their establishments with the FDA and state agencies, and

are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements.

to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented.

FDA regulations

also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon

the sponsor and any third-party manufacturers that the sponsor may decide to use.

Accordingly, manufacturers must continue to expend

time, money, and effort in the area of production and quality control to maintain cGMP compliance.

Among the conditions

for an NDA or BLA approval is the requirement that the manufacturing operations conform on an ongoing basis with cGMP.

with cGMP, we must expend time, money and effort in the areas of training, production and quality control within our own organization

and at our contract manufacturing facilities.

A successful inspection of the manufacturing facility by the FDA is usually a prerequisite

for final approval of a pharmaceutical product.

Following approval of the NDA or BLA, we and our manufacturers will remain subject

to periodic inspections by the FDA to assess compliance with cGMP requirements and the conditions of approval.

We will also face

similar inspections coordinated by foreign regulatory authorities.

The FDA periodically inspects the sponsor’s records related

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manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance.

Once an approval is

granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems

occur after the product reaches the market.

Later discovery of previously unknown problems with a product, including adverse events

of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may

result in revisions to the approved labeling to add new safety information;

imposition of post-market studies or clinical trials

to assess new safety risks;

or imposition of distribution or other restrictions under a REMS program.

Other potential consequences

include, among other things:

restrictions on the marketing or manufacturing of the product, including total or partial suspension of production, complete withdrawal of the product from the market or product recalls;

fines, warning letters or holds on post-approval clinical trials;

refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation of product license approvals;

product seizure or detention, or refusal to permit the import or export of products;

injunctions or the imposition of civil or criminal penalties.

The FDA strictly regulates

marketing, labeling, advertising and promotion of products that are placed on the market.

Drugs may be promoted only for the approved

indications and in accordance with the provisions of the approved labeling.

The FDA and other agencies actively enforce the laws

and regulations prohibiting the promotion of off label uses, and a company that is found to have improperly promoted off label

uses may be subject to significant liability.

In addition, the distribution

of prescription drug products is subject to the Prescription Drug Marketing Act (the PDMA) which regulates the distribution of

drugs and drug samples at the federal level, and sets minimum standards for the registration and regulation of drug distributors

by the states.

Both the PDMA and state laws limit the distribution of prescription drug product samples and impose requirements

to ensure accountability in distribution.

Pricing, Coverage

and Reimbursement

Sales of pharmaceutical

products depend, in part, on the extent to which the costs of products are covered and paid for by third-party payors, such as

government health programs, commercial insurance, and managed healthcare organizations.

Third-party payors may limit coverage to

specific products on an approved list or formulary, which might not include all of the FDA-approved products for a particular indication.

Also, third-party payors may refuse to include a particular branded drug on their formularies or otherwise restrict patient access

to a branded drug when a less costly generic equivalent or another alternative is available.

Third-party payors are increasingly

challenging the prices charged for medical products and services.

Additionally, the containment of healthcare costs has become

a priority of federal and state governments, and the prices of drugs have been a focus in this effort.

government, state

legislatures and foreign governments have shown significant interest in implementing cost-containment programs, including price

controls, restrictions on reimbursement and requirements for substitution of generic products.

The current U.S.

administration

has indicated support for possible new measures to regulate drug pricing.

For example, the Patient

Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010, collectively

referred to as the ACA, enacted in March 2010, has had a significant impact on the health care industry by, for example, expanding

coverage for the uninsured and seeking to contain overall healthcare costs.

With regard to pharmaceutical products, among other

things, the ACA contains provisions that may reduce the profitability of drug products such as expanding and increasing industry

rebates for drugs covered under Medicaid programs and making changes to the coverage requirements under the Medicare Part D program.

Recently, the current U.S.

administration and certain members of the U.S.

Congress have expressed a desire to modify, repeal, or

otherwise invalidate all, or certain provisions of, the ACA, which has contributed to the uncertainty of the ongoing implementation

and impact of the ACA and also underscores the potential for additional health care reform going forward.

There is still uncertainty

with respect to the impact the current U.S.

administration and the U.S.

Congress may have, if any, and any changes will likely

take time to unfold.

Further other legislative

changes have been proposed and adopted since the ACA was enacted.

For example, in August 2011, President Obama signed into law

the Budget Control Act of 2011, which, among other things, created the Joint Select Committee on Deficit Reduction to recommend

to Congress proposals in spending reductions.

The Joint Select Committee on Deficit Reduction did not achieve a targeted deficit

reduction of at least $1.2 trillion for fiscal years 2012 through 2021, triggering the legislation’s automatic reduction

to several government programs.

This includes aggregate reductions to Medicare payments to providers of up to 2% per fiscal year,

which went into effect beginning on April 1, 2013 and will stay in effect through 2027 unless additional Congressional action is

In addition, on February 9, 2018, Congress passed the Bipartisan Budget Act that made a number of healthcare reforms.

example, the law changes the discounts manufacturers were required to apply to their drugs under the Coverage Gap Discount Program

from 50% to 70% of the negotiated price starting in 2019.

In addition, the law increases civil and criminal penalties for fraud

and abuse laws, including, for example, criminal fines for violations of the Anti-Kickback Statute increase from $25,000 to $100,000

and corresponding prison sentences also increase from no more than five years to no more than ten years.

There has also been

heightened governmental scrutiny recently over the manner in which drug manufacturers set prices for their marketed products, which

have resulted in several Congressional inquiries and proposed bills designed to, among other things, bring more transparency to

product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement

methodologies for drug products.

Individual states in the United States have also become increasingly aggressive in passing legislation

and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement

constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures.

in September 2017, the California State Assembly approved SB17 which requires pharmaceutical companies to notify health insurers

and government health plans at least 60 days before any scheduled increases in the prices of their products if they exceed 16%

over a two-year period, and further requiring pharmaceutical companies to explain the reasons for such increase.

Significant uncertainty

exists as to the coverage and reimbursement status of any of our products, if any when approved.

Sales of pharmaceutical products

depend, in part, on the availability of sufficient coverage and adequate reimbursement from third-party payors, which include government

health programs, such as Medicare, Medicaid, TRICARE, and the Veterans Administration, as well as commercial insurance, and managed

healthcare organizations.

Prices at which we or our customers seek reimbursement for our therapeutic product candidates can be

subject to challenge, reduction, or denial by payors.

Third-party payors may limit coverage to specific products on an approved

list or formulary, which might not include all of the FDA-approved products for a particular indication.

Also, third-party payors

may refuse to include a particular branded drug on their formularies or otherwise restrict patient access to a branded drug when

a less costly generic equivalent or another alternative is available.

Third-party payors are increasingly challenging the prices

charged for medical products and services.

Additionally, the containment of healthcare costs has become a priority of federal and

state governments, and the prices of drugs have been a focus in this effort.

government, state legislatures and foreign

governments have shown significant interest in implementing cost-containment programs, including price controls, restrictions on

reimbursement and requirements for substitution of generic products.

The process for determining

whether a payor will provide coverage for a product is typically separate from the process for setting the reimbursement rate that

the payor will pay for the product.

A payor’s decision to provide coverage for a product does not imply that an adequate

reimbursement rate will be available.

Additionally, in the United States there is no uniform policy among payors for determining

coverage or reimbursement.

Many third-party payors often rely upon Medicare coverage policy and payment limitations in setting

their own coverage and reimbursement policies, but also have their own methods and approval processes.

Therefore, coverage and

reimbursement for products can differ significantly from payor to payor.

One third-party payor’s decision to cover a particular

medical product or service does not ensure that other payors will also provide coverage for the medical product or service, or

will provide coverage at an adequate reimbursement rate.

As a result, the coverage determination process will require us to provide

scientific and clinical support for the use of our products to each payor separately and will likely be a time-consuming process.

If coverage and adequate reimbursement are not available, or are available only at limited levels, successful commercialization

of, and obtaining a satisfactory financial return on, any product we develop may not be possible.

Third-party payors

are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and services,

in addition to their safety and efficacy.

In order to obtain coverage and reimbursement for any product that might be approved

for marketing, we may need to conduct expensive studies in order to demonstrate the medical necessity and cost-effectiveness of

any products, which would be in addition to the costs expended to obtain regulatory approvals.

Third-party payors may not consider

our product candidates to be medically necessary or cost-effective compared to other available therapies, or payor negotiations

may not enable us to maintain price levels sufficient to realize an appropriate return on our investment in drug development.

these third-party payors do not consider our products to be cost-effective compared to other therapies, they may not cover our

products once approved as a benefit under their plans or, if they do, the level of reimbursement may not be sufficient to allow

us to sell our products on a profitable basis.

Decreases in third-party reimbursement for our products once approved or a decision

by a third-party payor to not cover our products could reduce or eliminate utilization of our products and have an adverse effect

on our sales, results of operations, and financial condition.

Additionally, efforts

to contain healthcare costs (including drug prices) has become a priority of federal and state governments.

state legislatures, and foreign governments have shown significant interest in implementing cost-containment programs, including

price controls, restrictions on reimbursement, and requirements for substitution by generic products.

There has also been heightened

governmental scrutiny recently over the manner in which drug manufacturers set prices for their marketed products, which has resulted

in several Congressional inquiries and proposed bills designed to, among other things, bring more transparency to product pricing,

review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies

for drug products.

We anticipate additional state and federal healthcare reform measures will be adopted in the future.

include price controls and cost-containment measures, or more restrictive policies in jurisdictions with existing controls and

measures, any of which could limit the amounts that federal and state governments will pay for healthcare products and services,

and potentially could reduce demand for our products once approved, create additional pricing pressures, or ultimately limit our

net revenue and results.

In addition, in some

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and generally tend to have price structures that are significantly lower.

Coverage and reimbursement

of our COVID-19 vaccine candidate, which has not yet been granted EUA status, may be subject to unique regulatory policies.

the ACA preventive care mandate, non-grandfathered group health plans and health insurance coverage offered in the individual or

group market typically have at least one year before it must provide first-dollar coverage for a newly issued preventive care requirement

or guideline.

However, pursuant to the CARES Act, non-grandfathered group health plans and health insurance coverage offered in

the individual or group market must cover any qualifying coronavirus preventive service 15 business days after the United States

Preventive Services Task Force, or Advisory Committee on Immunization Practices (ACIP) designates such service as preventive.

reimbursement for providers administering any approved COVID-19 vaccine may affect market acceptance of the product.

the CARES Act and its implementing regulations state (i) providers that participate in the CDC COVID-19 Vaccination Program

must administer a COVID-19 immunization regardless of an individual’s ability to pay or health insurance coverage status,

(ii) providers may not seek any reimbursement, including through balance billing, from an immunization recipient, (iii) that

coverage is required, without cost-sharing, for the administration of the immunization even if a third party, such as the federal

government, pays for the cost of the immunization, and (iv) that private health insurance plans must cover COVID-19 immunizations

and their administration even when provided by out-of-network providers for the duration of the public health emergency for COVID-19.

There is no guarantee payors will provide coverage and reimbursement for our COVID-19 vaccine, if approved, during or after the

termination of the public health emergency, nor can we guarantee that even if coverage is provided, the approved reimbursement

amount will be high enough to allow us to establish or maintain pricing sufficient to realize a sufficient return on our investment.

Under the CARES Act

and an accompanying interim final rule, Medicare beneficiaries are expected to have coverage for COVID-19 vaccines through Medicare

Part B with no cost sharing.

Coverage is further expected to apply whether the vaccine receives FDA authorization through

an EUA or is licensed under a BLA and will likely extend to employer-sponsored and individual health plans subject to the ACA’s

preventive services standards.

The outcome of current and future clinical trials, as well as the market demand for COVID-19 vaccines

may impact patient eligibility and future coverage determinations.

It is unclear whether the FDA will approve the administration

of our COVID-19 vaccine, and if so if approval will extend to children and adolescents, or if the vaccine will be required to be

administered once (i.e.

one-time, double dose), annually, or if future booster shots will be required.

We cannot predict continued

prevalence of COVID-19, whether herd immunity will be achieved which would affect the need for future administration of the vaccine,

or whether the vaccine would be effective against future mutations or variants of the SARS-CoV-2 virus.

Such factors may impact

whether our vaccine, if approved, would be reimbursable under Medicare Part D rather than Part B and if our vaccine,

if approved would be excluded from participating in certain federal entitlement programs such as the Vaccines for Children Program.

Other Healthcare

Fraud and Abuse Laws

In the U.S., our activities

are potentially subject to regulation by various federal, state and local authorities in addition to the FDA, including, but not

limited to, the Centers for Medicare and Medicaid Services, or CMS, other divisions of the U.S.

Department of Health and Human

Services (such as the Office of Inspector General and the Health Resources and Service Administration), the U.S.

Department of

Justice, or the DOJ, and individual U.S.

Attorney offices within the DOJ, and state and local governments.

For example, sales,

marketing and scientific/educational grant programs may have to comply with the anti-fraud and abuse provisions of the Social Security

Act, the false claims laws, the privacy and security provisions of the Health Insurance Portability and Accountability Act, or

HIPAA, and similar state laws, each as amended, as applicable.

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.

include, without limitation, state and federal anti-kickback, fraud and abuse, false claims, privacy and security, price reporting,

and physician sunshine laws.

Some of our pre-commercial activities also may be subject to some of these laws.

The federal Anti-Kickback

Statute prohibits, among other things, any person or entity from knowingly and willfully offering, paying, soliciting or receiving

any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or in return for purchasing, leasing,

ordering or arranging for the purchase, lease or order of any item or service reimbursable, in whole or in part, under Medicare,

Medicaid or other federal healthcare programs.

The term remuneration has been interpreted broadly to include anything of value.

The Anti-Kickback Statute has been interpreted to apply to arrangements between therapeutic product manufacturers on one hand and

prescribers, purchasers, and formulary managers on the other.

There are a number of statutory exceptions and regulatory safe harbors

protecting some common activities from prosecution.

The exceptions and safe harbors are drawn narrowly and practices that involve

remuneration that may be alleged to be intended to induce prescribing, purchasing or recommending may be subject to scrutiny if

they do not qualify for an exception or safe harbor.

Failure to meet all of the requirements of a particular applicable statutory

exception or regulatory safe harbor does not make the conduct per se illegal under the Anti-Kickback Statute.

Instead, the legality

of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all of its facts and circumstances.

Additionally, the intent standard under the Anti-Kickback Statute was amended by the ACA to a stricter standard such that a person

or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a

In addition, the ACA codified case law that a claim including items or services resulting from a violation of the federal

Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act, or FCA.

The federal false claims

and civil monetary penalty laws, including the FCA, which imposes significant penalties and can be enforced by private citizens

through civil qui tam actions, prohibit any person or entity from, among other things, knowingly presenting, or causing to be presented,

a false or fraudulent claim for payment to, or approval by, the federal healthcare programs, including Medicare and Medicaid, or

knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim to the

federal government.

A claim includes “any request or demand”

for money or property presented to the U.S.

For instance, historically, pharmaceutical and other healthcare companies have been prosecuted under these laws for allegedly providing

free product to customers with the expectation that the customers would bill federal programs for the product.

Other companies

have been prosecuted for causing false claims to be submitted because of the companies’

marketing of the product for unapproved,

off-label, and thus generally non-reimbursable, uses.

Statute prohibits, among other things, any person or entity, including a prescription drug manufacturer or a party acting on its

behalf, from knowingly and willfully offering, paying, soliciting or receiving any remuneration, directly or indirectly, overtly

or covertly, in cash or in kind, to induce or in return for purchasing, leasing, ordering or arranging for the purchase, lease

or order of any item or service reimbursable, in whole or in part, under Medicare, Medicaid or other federal healthcare programs.

The term “remuneration”

has been interpreted broadly to include anything of value.

The Anti-Kickback Statute has been

interpreted to apply to arrangements between therapeutic product manufacturers on one hand and prescribers, purchasers, and formulary

managers on the other.

There are a number of statutory exceptions and regulatory safe harbors protecting some common activities

from prosecution.

The exceptions and safe harbors are drawn narrowly and practices that involve remuneration that may be alleged

to be intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exception

or safe harbor.

Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor

does not make the conduct per se illegal under the Anti-Kickback Statute.

Instead, the legality of the arrangement will be evaluated

on a case-by-case basis based on a cumulative review of all of its facts and circumstances.

Several courts have interpreted the

statute’s intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals

of federal healthcare covered business, the Anti-Kickback Statute has been violated.

Additionally, the intent standard under the

Anti-Kickback Statute was amended by the ACA to a stricter standard such that a person or entity no longer needs to have actual

knowledge of the statute or specific intent to violate it in order to have committed a violation.

In addition, the ACA codified

case law that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a

false or fraudulent claim for purposes of the federal False Claims Act, or FCA.

Violations of the federal Anti-Kickback Statute

may result in civil monetary penalties up to $100,000 for each violation, plus up to three times the remuneration involved.

penalties for such conduct can further be assessed under the federal False Claims Act.

Violations can also result in criminal penalties,

including criminal fines of up to $100,000 and imprisonment of up to 10 years.

Similarly, violations can result in exclusion from

participation in federal and state healthcare programs, including Medicare and Medicaid.

On November 20,

2020, OIG issued two final regulations implementing significant modifications to regulatory safe harbors to the federal Anti-Kickback

The first rule finalized new safe harbors and modified existing safe harbors to promote certain value-based and coordinated

care arrangements and reduce regulatory burden, which are scheduled to become effective January 19, 2021.

The second rule (the

Rebate Rule) created new safe harbor protection, scheduled to become effective January 29, 2021, for certain (i) point-of-sale

discounts from pharmaceutical manufacturers to Medicare Part D plans, Medicaid managed care organizations, and their contracted

pharmacy benefit managers (PBMs), and (ii) fees for certain services that PBMs provide to pharmaceutical manufacturers.

addition, the Rebate Rule revised the discount safe harbor to exclude from protection price reductions (e.g., rebates) for

pharmaceutical products from manufacturers to Part D plans when made directly or indirectly through a PBM, a change that is

scheduled to become effective January 1, 2022.

The Rebate Rule is intended to create incentives for manufacturers, covered

plans, and PBMs to shift from retrospective rebates to point-of-sale discounts, potentially lowering list prices of, and reducing

consumers’

out-of-pocket costs for, prescription drugs.

In a court order filed on January 30, 2021, the Biden Administration

agreed to delay the implementation of provisions of the rule that were scheduled to take effect on January 1, 2022 by

one year until January 1, 2023 in response to a suit brought by the Pharmaceutical Care Management Association (PCMA) challenging

The postponement does not affect provisions of the rule that were scheduled to take effect prior to January 1,

PMCA’s case will be held in abeyance pending the duration of HHS’s review of the rule, subject to the continued

consent of the parties.

We cannot predict the outcome of the Biden Administration’s review of the Rebate Rule or the

outcome of any subsequent litigation by PMCA.

The federal civil False Claims Act, prohibits, among other things, any person or

entity from knowingly presenting, or causing to be presented, for payment to, or approval by, federal programs, including Medicare

and Medicaid, claims for items or services, including drugs, that are false or fraudulent or not provided as claimed.

entities can be held liable under these laws if they are deemed to “cause”

the submission of false or fraudulent claims

by, for example, providing inaccurate billing or coding information to customers or promoting a product off-label.

certain of our future activities relating to the reporting of wholesaler or estimated retail prices for our products, the reporting

of prices used to calculate Medicaid rebate information, and other information affecting federal, state, and third-party reimbursement

for our products, and the sale and marketing of our products, are subject to scrutiny under this law.

Penalties for federal civil

False Claims Act violations may include up to three times the actual damages sustained by the government, plus mandatory civil

penalties of between $11,665 and $23,331 for each separate false claim per false claim or statement for penalties assessed after

June 19, 2020 with respect to violations occurring after November 2, 2015 (and penalties of between $5,500 and $11,000

per claim or statement with respect to violations occurring before that date).

Other penalties include the potential for exclusion

from participation in federal healthcare programs.

Additionally, although the federal False Claims Act is a civil statute, False

Claims Act violations may also implicate various federal criminal statutes.

There is also the federal

criminal False Claims Act, which is similar to the federal civil False Claims Act and imposes criminal liability on those that

make or present a false, fictitious or fraudulent claim to the federal government.

The Federal Criminal Statute on False Statements

Relating to Health Care Matters makes it a crime to knowingly and willfully falsify, conceal, or cover up a material fact, make

any materially false, fictitious, or fraudulent statements or representations, or make or use any materially false writing or document

knowing the same to contain any materially false, fictitious, or fraudulent statement or entry in connection with the delivery

of or payment for healthcare benefits, items, or services.

The Federal Civil Monetary

Penalties Law, or the CMPL, authorizes the imposition of substantial monetary penalties against an entity, such as a pharmaceutical

manufacturer, that engaged in activities including, among others (1) knowingly presenting, or causing to be presented, a

claim for services not provided as claimed or that is otherwise false or fraudulent in any way;

(2) arranging for or contracting

with an individual or entity that is excluded from participation in federal health care programs to provide items or services reimbursable

by a federal health care program;

(3) violations of the federal Anti-Kickback Statute;

or (4) failing to report and return

a known overpayment.

HIPAA created additional

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or specific intent to violate it in order to have committed a violation.

Many states have similar,

and typically more prohibitive, fraud and abuse statutes or regulations that apply to items and services reimbursed under Medicaid

and other state programs, or, in several states, apply regardless of the payor.

Additionally, to the extent that our product candidates

may in the future be sold in a foreign country, we may be subject to similar foreign laws.

We may be subject to

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federal civil actions.

In addition, many state laws govern the privacy and security of health information in specified circumstances,

many of which differ from each other in significant ways, are often not pre-empted by HIPAA, and may have a more prohibitive effect

than HIPAA, thus complicating compliance efforts.

For example, the California Consumer Privacy Act of 2018, or CCPA, which took

effect on January 1, 2020, gives California residents expanded rights to access and require deletion of their personal information,

opt out of certain personal information sharing, and receive detailed information about how their personal information is used.

In addition, the CCPA authorizes private lawsuits to recover statutory damages for certain data breaches.

While it exempts some

data regulated by HIPAA and certain clinical trials data, the CCPA may increase our compliance costs and potential liability with

respect to other personal information we collect about California residents.

We expect our product,

if and when approved, may be eligible for coverage under Medicare, the federal health care program that provides health care benefits

to the aged and disabled, and covers outpatient services and supplies, including certain pharmaceutical products, that are medically

necessary to treat a beneficiary’s health condition.

In addition, the product may be covered and reimbursed under other government

programs, such as Medicaid and the 340B Drug Pricing Program.

The Medicaid Drug Rebate Program requires pharmaceutical manufacturers

to enter into and have in effect a national rebate agreement with the Secretary of the Department of Health and Human Services

as a condition for states to receive federal matching funds for the manufacturer’s outpatient drugs furnished to Medicaid

Under the 340B Drug Pricing Program, the manufacturer must extend discounts to entities that participate in the program.

As part of the requirements to participate in certain government programs, many pharmaceutical manufacturers must calculate and

report certain price reporting metrics to the government, such as average manufacturer price, or AMP, and best price.

may apply in some cases when such metrics are not submitted accurately and timely.

Regulatory guidance and obligations continue to evolve.

For example, on December 10, 2020, the Office

for Civil Rights issued a proposed rule aimed at reducing regulatory burdens that may exist in discouraging coordination of

care, among other changes.

As HIPAA requirements evolve, we may be required to update our compliance strategies or modify our business

processes to comply.

addition, many state laws govern the privacy and security of health information in specified circumstances, many of which differ

from each other in significant ways, are often not pre-empted by HIPAA, and may have a more prohibitive effect than HIPAA, thus

complicating compliance efforts.

For instance, the California Consumer Privacy Act (CCPA) became effective on January 1,

2020, giving California residents expanded privacy rights, and requiring businesses provide detailed information about their data

The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is

expected to increase data breach litigation.

Although there are limited exemptions for PHI and certain clinical trial data, the

CCPA’s implementation standards and enforcement practices may increase our compliance costs and legal risks.

Additionally,

the California Privacy Rights Act (CPRA) was passed in November 2020, and will amend the CCPA beginning in 2023.

will impose additional data protection obligations on companies doing business in California, including additional consumer rights

processes, limitations on data uses, new audit requirements for higher risk data, and opt outs for certain uses of sensitive data.

It will also create a new California data protection agency authorized to issue substantive regulations and could result in increased

privacy and information security enforcement.

Additional state laws are being proposed, and new obligations may continue to arise.

Additional compliance investment and potential business process changes may be required to respond to these rapidly changing privacy

law landscape.

If we fail to comply with existing or new privacy laws and regulations, we could face legal liability from regulatory

actions or litigation, as well as reputational damage.

Additionally, the federal

Physician Payments Sunshine Act, or the Sunshine Act, within the ACA, and its implementing regulations, require that certain manufacturers

of drugs, devices, biological and medical supplies for which payment is available under Medicare, Medicaid or the Children’s

Health Insurance Program (with certain exceptions) report annually to CMS information related to certain payments or other transfers

of value made or distributed to physicians and teaching hospitals, or to entities or individuals at the request of, or designated

on behalf of, the physicians and teaching hospitals and to report annually certain ownership and investment interests held by physicians

and their immediate family members.

Failure to report accurately could result in penalties.

In addition, many states also govern

the reporting of payments or other transfers of value, many of which differ from each other in significant ways, are often not

pre-empted, and may have a more prohibitive effect than the Sunshine Act, thus further complicating compliance efforts.

New Legislation and Regulations

Physician Payments Sunshine Act, or the Sunshine Act, created under the ACA, and its implementing regulations, require that certain

manufacturers of drugs, devices, biological and medical supplies for which payment is available under Medicare, Medicaid or the

Children’s Health Insurance Program (with certain exceptions) report annually to CMS information related to certain payments

or other transfers of value made or distributed to physicians and teaching hospitals, or to entities or individuals at the request

of, or designated on behalf of, the physicians and teaching hospitals and to report annually certain ownership and investment interests

held by physicians and their immediate family members.

Failure to submit timely, accurately and completely the required information

for all payments, transfers of value and ownership or investment interests may result in civil monetary penalties of up to an aggregate

of $176,495 per year and up to an aggregate of $1,176,638 per year for “knowing failures.”

Covered manufacturers are

required to submit reports on aggregate payment data to the Secretary of the U.S.

Department of Health and Human Services on an

annual basis.

In addition, many states also govern the reporting of payments or other transfers of value, many of which differ

from each other in significant ways, are often not pre-empted, and may have a more prohibitive effect than the Sunshine Act, thus

further complicating compliance efforts.

Many states have similar statutes or regulations to the above federal laws that may be

broader in scope and may apply regardless of payor.

We may also be subject to state laws that require pharmaceutical companies

to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated

by the federal government, and/or state laws that require drug manufacturers to report information related to payments and other

transfers of value to physicians and other healthcare providers, drug pricing or marketing expenditures.

These laws may differ

from each other in significant ways and may not have the same effect, further complicating compliance efforts.

Additionally, to

the extent that we have business operations in foreign countries or sell any of our products in foreign countries and jurisdictions,

including Japan or the European Union, we may be subject to additional regulation.

Although we do not

currently have any products on the market, once our product candidates or clinical trials are covered by federal health care programs,

we will be subject to additional healthcare statutory and regulatory requirements and enforcement by the federal and state governments

of the jurisdictions in which we conduct our business.

Because we intend to commercialize products that could be reimbursed under

a federal healthcare program and other governmental healthcare programs, we intend to develop a comprehensive compliance program

that establishes internal controls to facilitate adherence to the rules and program requirements to which we will or may become

Although the development and implementation of compliance programs designed to establish internal control and facilitate

compliance can mitigate the risk of violating these laws, and the subsequent investigation, prosecution, and penalties assessed

for violations of these laws, the risks cannot be entirely eliminated.

If our operations are

found to be in violation of any of such laws or any other governmental regulations that apply to us, we may be subject, without

limitation, to significant civil, criminal and administrative penalties, damages, fines, individual imprisonment, disgorgement,

exclusion from participation in federal and state healthcare programs, reputational harm, diminished profits and future earnings,

additional oversight and reporting obligations pursuant to a corporate integrity agreement or similar agreement to resolve allegations

of non-compliance with applicable laws and regulations, and the curtailment or restructuring of our operations, any of which could

adversely affect our ability to operate our business and our financial results.

Additionally, we expect

our products, if and when approved, may be eligible for coverage under Medicare, the federal health care program that provides

health care benefits to the aged and disabled, and covers outpatient services and supplies, including certain pharmaceutical products,

that are medically necessary to treat a beneficiary’s health condition.

In addition, our products may be covered and reimbursed

under other government programs, such as Medicaid and the 340B Drug Pricing Program.

The Medicaid Drug Rebate Program requires

pharmaceutical manufacturers to enter into and have in effect a national rebate agreement with the Secretary of the Department

of Health and Human Services as a condition for states to receive federal matching funds for the manufacturer’s outpatient

drugs furnished to Medicaid patients.

Under the 340B Drug Pricing Program, the manufacturer must extend discounts to entities that

participate in the program.

As part of the requirements to participate in certain government programs, many pharmaceutical manufacturers

must calculate and report certain price reporting metrics to the government, such as average manufacturer price, or AMP, and best

Penalties may apply in some cases when such metrics are not submitted accurately and timely.

Healthcare Reform

In the United States

and foreign jurisdictions, there have been, and we expect there will continue to be, a number of legislative and regulatory changes

to healthcare systems that could affect our future results of operations.

There have been, and we expect there will continue to

be, a number of initiatives at the United States federal and state levels that seek to promote changes in the healthcare system

with the stated goals of reducing healthcare costs, improving quality of care, and expanding access.

In the United States,

the pharmaceutical industry has been a particular focus of healthcare reform efforts and has been significantly affected by major

legislative and regulatory initiatives, including the ACA, which has had, and is expected to continue to have, a significant impact

on the healthcare industry.

This law was designed to expand access to health insurance coverage for uninsured and underinsured

individuals while at the same time containing overall healthcare costs.

With regard to pharmaceutical products, among other things,

the ACA contains provisions that may potentially affect the profitability of our products, including, for example, increased rebates

for products sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain

products under Medicare Part D, expansion of entities eligible for discounts under the Public Health Service’s pharmaceutical

pricing program, and a significant annual fee on companies that manufacture or import certain branded prescription drug products.

Substantial new provisions affecting compliance have also been enacted, which may affect our business practices with healthcare

providers and entities.

The framework of the ACA and other healthcare reforms continues to evolve as a result of executive, legislative,

regulatory, and administrative developments;

in addition, healthcare-related litigation and judicial proceedings contribute to

regulatory uncertainty.

While Congress has not passed legislation to comprehensively repeal the ACA, the Tax Cuts and Jobs Act

included a provision that, effective January 1, 2019, changed to $0 the tax-based shared responsibility payment imposed by

ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year, which is commonly referred

to as the “individual mandate.”

In December 2018, a federal district court in Texas ruled that the individual

mandate, with the penalty that was changed to $0 effective January 1, 2019, was unconstitutional and, further, could not be

severed from the other provisions of the ACA.

As a result, the court ruled that all of the provisions of the ACA were invalid.

The Fifth Circuit Court of Appeals affirmed the district court’s ruling that the individual mandate was unconstitutional

as a result of the amendment changing the penalty amount to $0, but it remanded the case back to the district court for further

analysis of whether the individual mandate could be severed from the ACA.

The Fifth Circuit’s decision was appealed to the

Supreme Court of the United States, which granted certiorari on these issues and conducted oral argument in November 2020.

Supreme Court is expected to issue its decision in 2021.

We cannot predict the full impact of this forthcoming decision

or other efforts to challenge, repeal, replace, or alter the implementation of the ACA or other healthcare laws, regulations, or

Other legislative changes

have been proposed and adopted since the ACA was enacted.

For example, the Budget Control Act of 2011 included reductions to Medicare

payments to providers of up to 2% per fiscal year, which went into effect on April 1, 2013 and, due to subsequent legislation,

will stay in effect through 2030 unless additional Congressional action is taken, with the exception of a temporary suspension

of the payment reduction from May 1, 2020 through December 31, 2020 enacted as part of the Coronavirus Aid, Relief, and

Economic Security Act, or the CARES Act.

Additionally, the American Taxpayer Relief Act of 2012, among other things, further reduced

Medicare payments to several providers and increased the statute of limitations period for the government to recover overpayments

to providers from three to five years.

Further, effective January 1, 2019, the Bipartisan Budget Act of 2018, among other

things, further amended portions of the Social Security Act implemented as part of the ACA to increase from 50% to 70% the point-of-sale

discount that pharmaceutical manufacturers participating in the Coverage Gap Discount Program must provide to eligible Medicare

Part D beneficiaries during the coverage gap phase of the Part D benefit, commonly referred to as the “donut hole,”

and to reduce standard beneficiary cost sharing in the coverage gap from 30% to 25% in most Medicare Part D plans.

future, there may be additional challenges and/or amendments to the ACA.

It remains to be seen precisely what any new legislation

will provide, when or if it will be enacted, and what impact it may have on the availability and cost of healthcare items and services,

including drug products.

In addition, in recent

years the pricing and costs of prescription pharmaceuticals has been the subject of considerable discussion in the United States.

A number of federal reports and inquiries have focused on these issues, and various legislative and regulatory provisions have

been proposed and enacted at the federal and state level that seek to, among other things, bring more transparency to drug pricing,

review the relationship between pricing and manufacturer patient programs, reduce the out-of-pocket cost of prescription drugs,

and reform government program reimbursement methodologies for drugs.

Additionally, on December 21, 2020, Congress passed a

$900 billion U.S.

coronavirus relief and government appropriations legislation, or the Act, which contains several important new

drug price reporting and transparency measures that could result in additional transparency with respect to manufacturers’

prescription drug prices.

Among other things, the Act includes provisions requiring Medicare Part D prescription drug plan,

or the PDP, sponsors and Medicare Advantage organizations, or MAOs, to implement tools to display Medicare Part D prescription

drug benefit information in real time and provisions requiring group and health insurance issuers offering health insurance coverage

to report information on certain pharmacy benefit and drug costs to the Secretaries of HHS, Labor, and the Treasury.

Further, the incoming

Biden Administration and the new Congress may pursue additional and potentially significant changes to the current healthcare laws,

regulations, and related guidance.

The Biden Administration issued a memorandum on January 20, 2021 (President Biden’s

inauguration day) that, like similar memoranda issued by prior incoming Administrations, directed federal agencies to take steps

to halt, delay, or conduct further review of certain regulatory actions taken by the Trump Administration, such as those that had

not taken effect by inauguration day.

We cannot predict what regulatory actions the Biden Administration will take as a result

of its review.

We also cannot predict what other healthcare reforms will ultimately be implemented at the federal or state level

or the effect of any future legislation or regulation.

Accordingly, we face uncertainties that might result from additional reforms.

From time to time,

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Corporate Information

Our corporate headquarters

are located at 8840 Wilshire Blvd., 2nd Floor, Beverly Hills, California 90211.

Our telephone number is (310) 358-3200 and our

internet address is www.capricor.com .

The information on, or accessible through, our website is not part of this Annual

Report on Form 10-K.

We have included our website address in this Annual Report on Form 10-K solely as an inactive textual reference.

corporate headquarters are located at 8840 Wilshire Blvd., 2nd Floor, Beverly Hills, California 90211.

Our telephone number is

(310) 358-3200 and our internet address is www.capricor.com .

The information on, or accessible through, our

website is not part of this Annual Report on Form 10-K.

We have included our website address in this Annual Report on Form 10-K

solely as an inactive textual reference.

Currently, we have

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into an amendment with the Bubble Real Estate Company, LLC pursuant to which we extended our lease for an additional year ending

December 31, 2020 and reduced the square footage.

The monthly rental payment is $16,229 for this annual period.

December 31, 2021.

The lease is terminable by either party upon 90 days’

written notice to the other party.

rental payment is $13,073 for this annual period.

Capricor leases facilities

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Capricor has subsequently entered into several amendments extending the term of the lease and modifying its terms.

1, 2017 through March 1, 2019, total monthly rent was $19,756.

Effective March 1, 2019, the square footage of the leased premises

was reduced, resulting in a rent reduction of approximately $4,000 per month.

In July 2019, Capricor exercised an option to extend

the term of the Facilities Lease for an additional 12-month period through July 31, 2020 with a monthly lease payment of $15,805.

The Company has a further option to extend the Facilities Lease through July 31, 2021.

The premises leased from CSMC are located

at 8700 Beverly Blvd., Los Angeles, California 90048.

In July 2020,

Capricor exercised its option to extend the term of the Facilities Lease for an additional 12-month period through July 31,

2021 with a monthly lease payment of $15,805.

The Company has a further option to extend the Facilities Lease with respect to a

portion of the leased premises through July 31, 2022 and a monthly lease payment of $10,707.

The premises leased from CSMC

are located at 8700 Beverly Blvd., Los Angeles, California 90048.

At this time, we are actively considering new facilities for

our research, development and/or manufacturing activities or the possible extension of our current lease.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business