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Item 1A. Risk Factors

2021-03-15 compared with 2020-03-27 · 1215 added, 733 removed, 1428 unchanged (58% of the section changed)

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the risks described below are not the only ones that we face.

Summary Risk Factors

Our business is subject

to a number of risks, including risks that may prevent us from achieving our business objectives or may adversely affect our business,

clinical and commercialization activities, the manufacturing of our product candidates, intellectual property, third-party relationships,

competition factors, product and environmental liability, and common stock.

These risks are discussed more fully below and include,

but are not limited to, risks related to:

Risks Related to Our Business

the COVID-19 pandemic, including its impact on our business and operations;

substantial additional funding is needed to complete the development of our product candidates;

the Company has incurred significant losses and may never be profitable;

the occurrence of security breaches, improper access to or disclosure of our data or user data, and other cyber incidents or undesirable cyber activity related to our, or our third party vendor’s systems and data;

we may not have adequate personnel and may not be able to attract or retain personnel needed to develop our products;

Risks Related to Clinical and Commercialization

our success depends upon the viability of our product candidates, all of which require regulatory approval to commercialize and we cannot be certain any of them will receive regulatory approval to be commercialized;

delays in commencement, enrollment, and completion of clinical testing could result in increased costs to us and delay or limit our ability to obtain regulatory approval for our product candidates;

our exosome technologies are unproven in their ability to achieve sufficient biological activity or scale in development to date;

product candidates can fail to meet their efficacy endpoints at any time during the clinical development process, which would likely make them ineligible for becoming commercial products;

Risks Related to the Manufacturing

of our Product Candidates

the manufacturing of our product candidates is heavily reliant on supply chain requirements including the availability of raw materials that are critical for the manufacturing of our product candidates;

we rely upon third party manufacturers for the expansion of our manufacturing capabilities for later-stage clinical trials and for ultimate commercialization;

we may not have adequate manufacturing facilities required for any scale-up of manufacturing which may be required in the future;

Risks Related to Our Intellectual

our ability to obtain, maintain, protect, and enforce our intellectual property rights;

potential challenges to the enforceability or scope of our intellectual property;

potential claims from third parties that we are infringing their patents or other intellectual property rights;

Risks Related to Our Relationships

with Third Parties

we depend on our relationships with our licensors and collaborators and there is no guarantee that such relationships will continue;

Risks Related to Competitive Factors

our products will likely face intense competition;

any of our product candidates for which we receive regulatory approval may not achieve broad market acceptance, which could limit the revenue that we will generate from their sales, if any;

Risks Related to Product and Environmental

our products may expose us to potential product liability;

Risks Related to Our Common Stock

we expect that our stock price will continue to fluctuate significantly;

we have never paid dividends and we do not anticipate paying dividends in the future.

Risks Related to Our Business

We need substantial additional funding

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Developing biopharmaceutical

products, including conducting pre-clinical studies and clinical trials and establishing manufacturing capabilities, is expensive.

As of December 31, 2019, we had cash, cash equivalents and marketable securities totaling approximately $9.9 million.

generated any revenues from the commercial sale of products.

We will not be able to generate any product revenues until, and only

if, we receive approval to sell our drug candidates from the FDA or other regulatory authorities.

products, including conducting preclinical studies and clinical trials and establishing manufacturing capabilities, is expensive.

As of December 31, 2020, we had cash and cash equivalents totaling approximately $32.7 million.

We have not generated any

revenues from the commercial sale of products.

We will not be able to generate any product revenues until, and only if, we receive

approval to sell our drug candidates from the FDA or other regulatory authorities.

From inception, we

have financed our operations through public and private sales of our equity and debt securities, grants from the National Institutes

of Health, or NIH, and the Department of Defense, or DoD, and a loan commitment and grant award from the California Institute for

have financed our operations through public and private sales of our equity securities, grants from the National Institutes of

Health, or NIH, and the Department of Defense, or DoD, and a loan commitment and grant award from the California Institute for

Regenerative Medicine, or CIRM.

In December 2013 we also entered into a collaboration agreement with Janssen Biotech, Inc., or

Janssen, which provided funding for the development of our cell manufacturing program, including CAP-1002.

As we have not generated

any revenue from commercial sales to date and we do not expect to generate revenue for several years, if ever, we will need to

raise substantial additional capital in order to fund our general corporate activities and to fund our research and development,

including our ongoing clinical trials and plans for new clinical trials and product development.

In 2019, we implemented

certain cost cutting measures including a reduction in the size of our workforce in order to conserve cash resources.

our cash on hand and the funds expected to be received from our supplying product for clinical trials sponsored by CSMC and the

DoD grant award which funds ongoing pre-clinical work for our exosomes, as well as potential sales under our August 2019 ATM Program,

we currently have no commitments or arrangements for any additional financing to fund the research and clinical development of

CAP-1002 or our exosomes.

As we have not generated any revenue from commercial sales to date and we do not expect to generate

revenue for several years, if ever, we will need to raise substantial additional capital in order to fund our general corporate

activities and to fund our research and development, including our ongoing clinical trials and plans for new clinical trials and

product development.

We may seek to raise

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licenses on terms that may not be favorable to us.

Given our capital constraints,

we need to prioritize spending on our clinical and pre-clinical programs.

If we are unable to raise sufficient funds to support

our current and planned operations, we may elect to discontinue certain of our ongoing activities or programs.

Our inability to

raise additional funds could also prevent us from taking advantage of opportunities to pursue promising new or existing programs

in the future.

If we are unable to

raise sufficient funds to support our current and planned operations, we may elect to discontinue certain of our ongoing activities

The inability to raise additional funds could also prevent us from taking advantage of opportunities to pursue promising

new or existing programs in the future.

Our forecasts regarding

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will depend on many factors, including, but not limited to:

the scope, rate of progress, cost and results of our research and development activities, especially our HOPE-2 clinical trial and our ongoing exosomes program;

the scope, rate of progress, cost and results of our research and development activities, especially our CAP-1002 and exosomes programs;

the next steps in the development of our Duchenne muscular dystrophy, or DMD, program, which may potentially include a Phase III clinical trial for our CAP-1002 product candidate in DMD;

the availability of funding from government programs including the NIH, and DoD;

the availability of funding from government programs including the NIH, and DoD, if applicable;

the costs of developing adequate manufacturing processes and facilities;

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Our operations to date have been primarily limited to organizing and staffing our company, developing our technology, and undertaking

pre-clinical studies and clinical trials of our product candidates.

preclinical studies and clinical trials of our product candidates.

We have not yet obtained regulatory approval for any of our

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delays in the commencement, enrollment, and timing of clinical testing;

the viability of CAP-1002 as a potential product candidate for the treatment of DMD and its development through all stages of clinical development;

the viability of our exosome technologies as potential product candidates and the advancement of our exosome technologies through all stages of its pre-clinical and clinical development;

the viability of CAP-1002 as a potential product candidate for the treatment of DMD and COVID-19 and its development through all stages of clinical development;

the viability of our exosome technologies as potential product candidates and the advancement of our exosome technologies through all stages of its preclinical and clinical development;

any delays in regulatory review and approval of our product candidates in clinical development;

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our ability to establish an effective sales and marketing infrastructure once our products are commercialized or to establish partnerships with other companies who have greater sales and marketing capabilities;

our ability to establish or maintain collaborations, licensing or other arrangements, including strategic partnerships for CAP-1002 in DMD;

our ability to establish or maintain collaborations, licensing or other arrangements, including strategic partnerships for CAP-1002 and our exosomes technologies;

our ability and third parties’

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The Company’s technology is

not yet proven and each of our product candidates is still in clinical or pre-clinical development.

Each of the Company’s

two active product candidates, CAP-1002 and our exosome technologies, are in development and each requires further and, in some

cases, extensive clinical testing before it may be approved by the FDA, or another regulatory authority in a jurisdiction outside

the United States, which could take several years to complete, if ever.

The Company’s failure to establish the efficacy of

its technologies would have a material adverse effect on the Company.

We cannot predict with any certainty the results of such

clinical testing, including the results of our HOPE-2 trial or any potential Phase III trial of our CAP-1002 product candidate

Additionally, we cannot predict with any certainty if, or when, we might commence any additional clinical trials of our

product candidates, whether we will be able to secure a partner to fund and/or conduct a potential Phase III trial, or whether

our current trials will yield sufficient data to permit us to proceed with additional clinical development and ultimately submit

an application for regulatory approval of our product candidates in the United States or abroad, or whether such applications will

be accepted by the appropriate regulatory agencies.

We are also unable to predict whether our pre-clinical studies of our exosomes

product will result in a viable clinical development program.

not yet proven and each of our product candidates is still in clinical or preclinical development.

The Company’s

product candidates, CAP-1002 and our exosome technologies, are in development and each requires further and, in some cases, extensive

clinical testing before it may be approved by the FDA, or another regulatory authority in a jurisdiction outside the United States,

which could take several years to complete, if ever.

The Company’s failure to establish the efficacy of its technologies

would have a material adverse effect on the Company.

We cannot predict with any certainty the results of such clinical testing,

including the results of any potential Phase III trial of our CAP-1002 product candidate in DMD.

Additionally, we cannot predict

with any certainty if, or when, we might commence any additional clinical trials of our product candidates, whether we will be

able to secure a partner to fund and/or conduct a potential Phase III trial, or whether our current trials will yield sufficient

data to permit us to proceed with additional clinical development and ultimately submit an application for regulatory approval

of our product candidates in the United States or abroad, or whether such applications will be accepted by the appropriate regulatory

We are also unable to predict whether our preclinical studies of our exosomes products will result in a viable clinical

development program.

Our business depends

entirely on the successful development and commercialization of our product candidates.

We currently have no products approved

for sale and generate no revenues from sales of any products, and we may never be able to develop a marketable product.

Our product candidates

will require additional clinical development, evaluation of clinical, preclinical and manufacturing activities, marketing approval

in multiple jurisdictions, substantial investment and significant marketing efforts before we generate any revenues from product

We are not permitted to market or promote our product candidates, before we receive marketing approval from the FDA and

comparable foreign regulatory authorities, and we may never receive such marketing approvals.

success of our product candidates will depend on several factors, including the following:

successful and timely completion of our clinical trials;

initiation and successful patient enrollment and completion of additional clinical trials on a timely basis;

the impact of COVID-19 on our operations, ability to conduct clinical trials and on the ability of our regulators to review and approve or authorize our products;

our ability to demonstrate our products’

safety, tolerability and efficacy to the FDA or any comparable foreign regulatory authority for emergency use authorization (EUA) or marketing approval;

timely receipt of an EUA or marketing approval for our products;

obtaining and maintaining patent protection, trade secret protection and regulatory exclusivity, both in the United States and internationally;

successfully defending and enforcing our rights in our intellectual property portfolio;

avoiding and successfully defending against any claims that we have infringed, misappropriated or otherwise violated any intellectual property of any third party;

the performance of our current and future collaborators, if any;

the extent of, and our ability to timely complete, any required post-marketing approval commitments imposed by FDA or other applicable regulatory authorities;

successfully developing a companion diagnostic test on a timely and cost effective basis, if required;

establishment of supply arrangements with third-party raw materials and drug product suppliers and manufacturers who are able to manufacture clinical trial and commercial quantities of drug substance and drug product and to develop, validate and maintain a commercially viable manufacturing process that is compliant with current good manufacturing practices, or cGMP, at a scale sufficient to meet anticipated demand and over time enable us to reduce our cost of manufacturing;

establishment of scaled production arrangements with third-party manufacturers to obtain finished products that are compliant with cGMP and appropriately packaged for sale;

successful launch of commercial sales following any EUA or marketing approval;

a continued acceptable safety profile following any EUA or marketing approval;

commercial acceptance by patients, the medical community and third-party payors;

the availability of coverage and adequate reimbursement and pricing by third-party payors and government authorities;

the availability, perceived advantages, relative cost, relative safety and relative efficacy of alternative and competing treatments;

our ability to compete with other therapies.

We do not have complete

control over many of these factors, including certain aspects of clinical development and the regulatory submission process, potential

threats to our intellectual property rights and the manufacturing, marketing, distribution and sales efforts of any future collaborator.

Accordingly, we cannot assure you that we will ever be able to generate revenue through the sale of our products.

If we are not

successful in marketing or commercializing our products, or are significantly delayed in doing so, our business will be materially

Business disruptions such as natural

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In addition, outbreaks of viruses, infectious diseases

or pandemics (including, for example, recent outbreak of the novel coronavirus (COVID-19)), terrorist acts or acts of war targeted

or pandemics (including, for example, the outbreak of the novel coronavirus (COVID-19)), terrorist acts or acts of war targeted

at the United States, and specifically the Los Angeles, California region, could cause damage or disruption to us, our employees,

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impact our business.

In December 2019, it

was first reported that there had been an outbreak of a novel strain of coronavirus (COVID-19), in China.

COVID-19 has since

spread globally, and the number of cases is increasing daily.

Governments in the United States and elsewhere are taking severe

measures to slow the spread of COVID-19, including requiring that certain business close or conduct only the minimum necessary

An epidemic or pandemic

disease outbreak, including the 2019 novel coronavirus (COVID-19), could severely disrupt our operations or the operations of third

parties that we depend on, including our single third-party contract manufacturer, our CROs, clinical data management organizations,

medical institutions and clinical investigators, and have a material adverse effect on our business, results of operations, financial

condition and prospects.

In December 2019, it was first reported that there had been an outbreak of a novel strain of coronavirus

(COVID-19), in China.

COVID-19 has since spread globally and while cases and hospitalization are currently on the decline

in the US, there can be no assurances they will not continue at the current rate or increase in the future especially in light

of the number of variants that are emerging across the world.

Governments in the United States and elsewhere have taken and

are continuing to take severe measures to slow the spread of COVID-19, including requiring that certain businesses close or conduct

only the minimum necessary operations.

As COVID-19 continues

to spread, we may experience disruptions that could severely impact our business, including:

delays or difficulties in enrolling patients in our clinical trials;

diversion of healthcare resources to address COVID-19, which could limit the availability of medical

facilities for our clinical trials;

forced closures, or reductions in operations, at our facilities or the facilities of third parties

with whom we do business;

disruptions to our workforce, or the workforces of third parties with whom we do business, caused

by sickness, travel restrictions or quarantines, including but not limited to the announcement on March 19, 2020 by the Governor

of the State of California ordering all individuals living in the State of California to stay at home or at their place of residence.

or difficulties in enrolling patients in our clinical trials and having patients complete their assessments in accordance with

the clinical protocol;

preventing trial investigators, patients or other critical staff from traveling to our trial sites;

of healthcare resources to address COVID-19, which could limit the availability of medical facilities for our clinical trials;

closures, or reductions in operations, at our facilities or the facilities of third parties with whom we do business;

chain disruptions, which could have a material adverse effect on the availability or cost of materials for our product candidates;

to our workforce, or the workforces of third parties with whom we do business, caused by sickness, travel restrictions or quarantines,

including but not limited to the announcement on March 19, 2020 by the Governor of the State of California ordering all individuals

living in the State of California to stay at home or at their place of residence.

Additionally, disruptions

at the at FDA, the EMA and other regulators, caused by global health concerns, including the COVID-19 pandemic, including delays

in inspections of clinical trial or manufacturing sites required as part of the application review process, could result in delays

of reviews and approvals of our product candidate or our proposed clinical trials.

For example, in response to the COVID-19 pandemic,

on March 10, 2020, the FDA announced its intention to postpone most inspections of foreign manufacturing facilities and products

inspections of domestic manufacturing facilities through April 2020.

On March 18, 2020, the FDA announced its intention

to temporarily postpone routine surveillance inspections of domestic manufacturing facilities and provided guidance regarding the

conduct of clinical trials.

On July 10, 2020, the FDA announced that it is working toward the goal of restarting on-site inspections

it deems to be “mission critical.”

On August 19, 2020, the FDA published guidance clarifying how it intends to

conduct inspections during the COVID-19 pandemic, including how it plans to determine which inspections are “mission-critical.”

It is unclear how FDA’s policies and guidance will impact any inspections of our facilities, including our clinical trial

Regulatory authorities outside the United States may adopt similar restrictions or other policy measures in response to

the COVID-19 pandemic.

The global outbreak

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We are increasingly

dependent upon information technology systems and data, especially if we expand our clinical trials and therefore our databases

of patient information.

Our computer systems are potentially vulnerable to breakdown, malicious intrusion and random attack.

data privacy or security breaches by individuals authorized to access our information technology systems or others may pose a risk

that sensitive data, including intellectual property, trade secrets or personal information belonging to us, our patients, customers

dependent upon information technology systems and data, as well as the information technology systems and data of our third party

vendors, especially if we expand our clinical trials and therefore our databases of patient information.

Our or our third party

vendors’

computer systems are potentially vulnerable to breakdown, malicious intrusion and random attack.

Likewise, data

privacy or security breaches by individuals authorized to access our information technology systems or others may pose a risk that

sensitive data, including intellectual property, trade secrets or personal information belonging to us, our patients, customers

or other business partners, may be exposed to unauthorized persons or to the public.

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While we continue to build and improve our information systems and infrastructure and believe we

have taken appropriate security measures to minimize these risks to our data and information technology systems, there can be no

assurance that our efforts will prevent breakdowns or breaches in our systems that could adversely affect our business.

have taken appropriate security measures to minimize these risks to our data and information technology systems, we intend to defend

against and respond to data security incidents, and there can be no assurance that our efforts will prevent breakdowns or breaches

in our systems, or adequately contain and mitigate risks from a data security incident, that could adversely affect our business.

Our internal computer systems, or

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While we receive assurances from these vendors that their services are

compliant with the Health Insurance Portability and Accountability Act, or HIPAA, and other applicable privacy laws, there can

be no assurance that such third parties will comply with applicable laws or regulations.

Non-compliance by such vendors may result

in liability for us which would have a material adverse effect on our business, financial conditions and results of operations.

compliant with the Health Insurance Portability and Accountability Act, or HIPAA, and other applicable privacy and cybersecurity

laws, there can be no assurance that such third parties will comply with applicable laws or regulations.

Non-compliance by such

vendors or weaknesses in their information security programs may result in liability for us which would have a material adverse

effect on our business, financial condition and results of operations.

Despite the implementation

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we could incur liability and the further development and commercialization of our product candidates could be delayed.

If we achieve our near-term product

development milestones, we may not be able to manage any subsequent growth .

we achieve our near-term product development milestones, we may not be able to manage any subsequent growth .

Should we achieve our

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This demonstration requires significant

research and animal tests, which are referred to as pre-clinical studies, as well as human tests, which are referred to as clinical

research and animal testing, which are referred to as preclinical studies, as well as human testing, which are referred to as clinical

Satisfaction of the FDA’s regulatory requirements typically takes many years, depends upon the type, complexity,

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The FDA has substantial discretion in the drug approval process and may require us to conduct additional

pre-clinical and clinical testing or to perform post-marketing studies.

The approval process may also be delayed by changes in

government regulation, future legislation, administrative action or changes in FDA policy that occur prior to or during our regulatory

preclinical and clinical testing or to perform post-marketing studies.

The approval process may also be delayed by changes in government

regulation, future legislation, administrative action or changes in FDA policy that occur prior to or during our regulatory review.

Even if we comply with

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and adverse impact on our business.

As the results of earlier pre-clinical

As the results of earlier preclinical

studies or clinical trials are not necessarily predictive of future results, any product candidate we advance into clinical trials

may not have favorable results in later clinical trials or receive regulatory approval.

Even if our pre-clinical

Even if our preclinical

studies and clinical trials are completed as planned, we cannot be certain that their results will support the claims of our product

Positive results in pre-clinical testing and early clinical trials do not ensure that results from later clinical trials

Positive results in preclinical testing and early clinical trials do not ensure that results from later clinical trials

will also be positive, and we cannot be sure that the results of later clinical trials will replicate the results of prior clinical

trials and pre-clinical testing.

Results of our interim analysis of the HOPE-2 trial conducted at 6 months may not be predictive

of the 12-month results.

Because we partially unblinded the results in order to conduct the interim analysis, our ability to use

the data from the HOPE-2 trial has been impacted.

trials and preclinical testing.

Our clinical trial

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candidate to market could decrease our ability to generate sufficient product revenue, and our business, financial condition, results

of operations and prospects may be harmed.

Negative developments

in the field of exosomes could damage public perception of any product candidates that we develop, which could adversely affect

our ability to conduct our business or obtain regulatory approvals for such product candidates.

therapeutics are novel and unproven therapies which may not gain the acceptance of the public, patients or the medical community.

To date, other efforts to leverage natural exosomes have generally demonstrated an inability to generate exosomes with predictable

biologically active properties or to manufacture exosomes at suitable scale to treat more than a small number of patients.

success will depend on our ability to demonstrate that our exosome technologies can overcome these challenges.

of operations and prospects may be adversely impacted.

Negative developments in the field

of exosomes could damage public perception of any product candidates that we develop, which could adversely affect our ability

to conduct our business or obtain regulatory approvals for such product candidates.

Exosome-based

vaccines and therapeutics are novel and unproven therapies which may not gain the acceptance of the public, patients or the medical

To date, efforts by others to leverage natural exosomes have generally demonstrated an inability to generate exosomes

with predictable biologically active properties or to manufacture exosomes at suitable scale to treat more than a small number

Our success will depend on our ability to demonstrate that our exosome technologies can overcome these challenges.

Additionally,

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use as therapies could also result in greater governmental regulation, stricter labeling requirements and potential regulatory

delays in the testing or approvals of our exosomes or other future product candidates.

Any increased scrutiny could delay or increase

the costs of obtaining marketing approval for our exosomes or any other product candidates which we may develop in the future.

delays in the testing or approvals of our exosomes or other potential future product candidates.

Any increased scrutiny could delay

or increase the costs of obtaining marketing approval for our exosomes or any other product candidates which we may develop in

vaccine candidates based on our exosome platform as novel products creates significant challenges for us, including:

obtaining marketing approval, as obtaining an EUA or regulatory approval of such a vaccine candidate from the FDA or comparable foreign regulatory authorities has never been done before;

educating medical personnel regarding the potential efficacy and safety benefits, as well as the challenges, of incorporating our product candidates, if approved, into treatment regimens;

establishing the sales and marketing capabilities to gain market acceptance, if approved.

We may not be able to file INDs to

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However, the timing of our filing of these INDs is primarily dependent on receiving further data from

our pre-clinical studies.

As discussed below, we need to file an IND with respect to one therapeutic indication on or before April

19, 2020, in order to retain our exclusive license with CSMC for exosomes.

our preclinical studies and having sufficient processes in place in connection with the manufacturing of the exosomes.

We cannot be sure that

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The Company has limited experience

in conducting clinical trials, which are complex and subject to strict regulatory oversight.

in conducting late-stage clinical trials, which are complex and subject to strict regulatory oversight.

The Company has limited

clinical trial experience with respect to its product candidates.

The clinical testing process is governed by stringent regulation

and is highly complex, costly, time-consuming, and uncertain as to outcome, and pharmaceutical products and products used in the

regeneration of tissue may invite particularly close scrutiny and requirements from the FDA and other regulatory bodies.

or the failure of our collaborators to conduct clinical trials successfully or our failure to capitalize on the results of clinical

trials for our product candidates would have a material adverse effect on the Company.

If our clinical trials of our product candidates

or future product candidates do not sufficiently enroll or produce results necessary to support regulatory approval in the United

States or elsewhere, or if they show undesirable side effects, we will be unable to commercialize these product candidates.

late-stage clinical trial experience with respect to its product candidates.

The clinical testing process is governed by stringent

regulation and is highly complex, costly, time-consuming, and uncertain as to outcome, and pharmaceutical products and products

used in the regeneration of tissue may invite particularly close scrutiny and requirements from the FDA and other regulatory bodies.

Our failure or the failure of our collaborators to conduct clinical trials successfully or our failure to capitalize on the results

of clinical trials for our product candidates would have a material adverse effect on the Company.

If our clinical trials of our

product candidates or future product candidates do not sufficiently enroll or produce results necessary to support regulatory approval

in the United States or elsewhere, or if they show undesirable side effects, we will be unable to commercialize these product candidates.

To receive regulatory

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enrollment or completion of clinical testing could significantly affect our product development costs.

A clinical trial may be

suspended or terminated by the Company, the FDA, or other regulatory authorities due to a number of factors.

The commencement and

completion of clinical trials require us to identify and maintain a sufficient number of trial sites, many of which may already

be engaged in other clinical trial programs for the same indication as our product candidates or may otherwise be resource constrained.

We may be required to withdraw from a clinical trial as a result of changing standards of care, or we may become ineligible to

participate in clinical studies.

We do not know whether planned clinical trials will begin on time or be completed on schedule,

The commencement, enrollment and completion of clinical trials can be delayed for a number of reasons, including, but

not limited to, delays related to:

findings in pre-clinical studies;

The current pandemic has

had an impact on the ability to conduct clinical trials due to inabilities to enroll or even get subjects to complete the trials

due to lockdowns, reluctance to travel, limitations set by trial sites and other reasons.

We cannot predict how long this will

exist and while the hospitalization rates and number of cases seem to be on the decline, no assurance it will not revert to prior

critical levels.

A clinical trial may be suspended or terminated by the Company, the FDA, or other regulatory authorities due to

a number of factors.

The commencement and completion of clinical trials require us to identify and maintain a sufficient number

of trial sites, many of which may already be engaged in other clinical trial programs for the same indication as our product candidates

or may otherwise be resource constrained.

We may be required to withdraw from a clinical trial as a result of changing standards

of care, or we may become ineligible to participate in clinical studies.

We do not know whether planned clinical trials will begin

on time or be completed on schedule, if at all.

The commencement, enrollment and completion of clinical trials can be delayed for

a number of reasons, including, but not limited to, delays related to:

findings in preclinical studies;

reaching agreements on acceptable terms with prospective CROs, vendors and trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs, vendors and trial sites;

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recruiting and enrolling patients to participate in clinical trials for a variety of reasons, including the size of the patient population, nature of trial protocol, meeting the enrollment criteria for our studies, screening failures, the inability of the sites to conduct trial procedures properly, the inability of the sites to devote their resources to the trial, the availability of approved effective treatments for the relevant disease and competition from other clinical trial programs for similar indications;

the impact of COVID-19 on patient screening and patient enrollment;

developing and validating any companion diagnostic to be used in the trial, to the extent we are required to do so;

patients failing to comply with the clinical trial protocol or dropping out of a trial;

clinical trial sites failing to comply with the clinical trial protocol or dropping out of a trial;

addressing any conflicts with new or existing laws or regulations;

the need to add new clinical trial sites;

retaining patients who have initiated their participation in a clinical trial but may be prone to withdraw due to the treatment protocol, lack of efficacy, personal issues, or side effects from the therapy, or who are lost to further follow-up;

manufacturing sufficient quantities of a product candidate for use in clinical trials on a timely basis;

obtaining advice from regulatory authorities regarding the statistical analysis plan to be used to evaluate the clinical trial data or other trial design issues;

demonstrating the bioequivalence of products we manufacture to prior products manufactured on our behalf;

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diminish any competitive advantages that we may otherwise enjoy.

We may experience numerous

unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval

or commercialize our product candidates, including:

we may receive feedback from regulatory authorities that requires us to modify the design of our clinical trials;

clinical trials of our product candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon drug development programs;

the number of patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate or participants may drop out of these clinical trials at a higher rate than we anticipate;

our third-party contractors, including our CROs, may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;

we, our investigators, or any of the overseeing IRBs or ethics committees might decide to suspend or terminate clinical trials of our product candidates for various reasons, including non-compliance with regulatory requirements, a finding that our product candidates have undesirable side effects or other unexpected characteristics, or a finding that the participants are being exposed to unacceptable health risks;

the cost of clinical trials of our product candidates may be greater than we anticipate;

the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate;

regulators may revise the requirements for approving our product candidates, or such requirements may not be as we anticipate;

any future collaborators that conduct clinical trials may face any of the above issues, and may conduct clinical trials in ways they view as advantageous to them but that are suboptimal for us.

If we are required

to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, if

we are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these trials

or tests are not positive or are insufficiently positive to support marketing approval, or if there are safety concerns, we may:

incur unplanned costs;

be delayed in obtaining marketing approval for our product candidates or not obtain marketing approval at all;

obtain marketing approval in some countries and not in others;

obtain marketing approval for indications or patient populations that are narrower or more limited in scope than intended or desired;

obtain marketing approval subject to significant use or distribution restrictions or with labeling that includes significant safety warnings, including boxed warnings;

be subject to additional post-marketing testing requirements;

have the drug removed from the market after obtaining marketing approval.

Our drug development

costs will also increase if we experience delays in testing or marketing approvals.

We do not know whether clinical trials will

begin as planned, will need to be restructured or will be completed on schedule, or at all.

Furthermore, we rely on third-party

CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials, and while we have agreements governing

their committed activities, we have limited influence over their actual performance.

Significant clinical trial delays also could

shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors

to bring drugs to market before we do and impair our ability to successfully commercialize our product candidates and may harm

our business and results of operations.

The outcome of preclinical testing

and early clinical trials may not be predictive of the success of later clinical trials, interim results of a clinical trial do

not necessarily predict final results, and the results of our clinical trials may not satisfy the requirements of the FDA or comparable

foreign regulatory authorities.

We currently have no

products approved for sale and we cannot guarantee that we will ever have marketable drugs.

Clinical failure can occur at any stage

of clinical development.

Clinical trials may produce negative or inconclusive results, and we or any future collaborators may decide,

or regulators may require us, to conduct additional clinical trials or preclinical studies.

We will be required to demonstrate

with substantial evidence through adequate and well-controlled clinical trials that our product candidates are safe and effective

for use in treating specific conditions in order to obtain marketing approvals for their commercial sale.

Success in preclinical

studies and early-stage clinical trials does not mean that future larger registration clinical trials will be successful because

product candidates in later-stage clinical trials may fail to demonstrate safety and efficacy to the satisfaction of the FDA and

regulatory authorities despite having progressed through preclinical studies and early-stage clinical trials.

candidates that have shown promising results in preclinical studies and early-stage clinical trials may still suffer significant

setbacks in subsequent registration clinical trials.

Additionally, the outcome of preclinical studies and early-stage clinical

trials may not be predictive of the success of later-stage clinical trials.

From time to time,

we may publish or report interim or preliminary data from our clinical trials, once initiated.

Interim or preliminary data from

clinical trials that we may conduct may not be indicative of the final results of the trial and are subject to the risk that one

or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available.

Interim or preliminary data also remain subject to audit and verification procedures that may result in the final data being materially

different from the interim or preliminary data.

As a result, interim or preliminary data should be viewed with caution until the

final data are available.

In addition, the design

of a clinical trial can determine whether its results will support approval of a drug and flaws in the design of a clinical trial

may not become apparent until the clinical trial is well advanced.

We have limited experience in designing clinical trials and

may be unable to design and conduct a clinical trial to support marketing approval.

Further, if our product candidates are found

to be unsafe or lack efficacy, we will not be able to obtain marketing approval for them and our business would be harmed.

of companies in the pharmaceutical industry, including those with greater resources and experience than us, have suffered significant

setbacks in advanced clinical trials, even after obtaining promising results in preclinical studies and earlier clinical trials.

In some instances,

there can be significant variability in safety and efficacy results between different clinical trials of the same product candidate

due to numerous factors, including changes in trial protocols, differences in size and type of the patient populations, differences

in and adherence to the dosing regimen and other trial protocols and the rate of dropout among clinical trial participants.

do not know whether any clinical trials we may conduct will demonstrate consistent or adequate efficacy and safety sufficient to

obtain marketing approval to market our product candidates.

In the event that an

adverse safety issue, clinical hold or other adverse finding occurs in one or more of our clinical trials, once initiated, such

event could adversely affect our other clinical trials using the same product candidate.

Moreover, there is a relatively limited

safety data set for product candidates using an exosome platform.

An adverse safety issue or other adverse finding in a clinical

trial conducted by a third party with a product candidate similar to ours could adversely affect our clinical trials.

Further, our product

candidates may not be approved even if they achieve their primary endpoints in Phase 3 clinical trials or registration trials.

The FDA or comparable foreign regulatory authorities may disagree with our trial design and our interpretation of data from preclinical

studies and clinical trials.

In addition, any of these regulatory authorities may change requirements for the approval of a product

candidate even after reviewing and providing comments or advice on a protocol for a pivotal clinical trial that has the potential

to result in approval by the FDA or comparable foreign regulatory authorities.

In addition, any of these regulatory authorities

may also approve a product candidate for fewer or more limited indications than we request or may grant approval contingent on

the performance of costly post-marketing clinical trials.

In addition, the FDA or other comparable foreign regulatory authorities

may not approve the labeling claims that we believe would be necessary or desirable for the successful commercialization of our

product candidates.

Before obtaining marketing

approvals for the commercial sale of any product candidate for a target indication, we must demonstrate with substantial evidence

gathered in preclinical studies and adequate and well-controlled clinical trials, and, with respect to approval in the United

States, to the satisfaction of the FDA and elsewhere to the satisfaction of other comparable foreign regulatory authorities, that

the product candidate is safe and effective for use for that target indication.

There is no assurance that the FDA or other comparable

foreign regulatory authorities will consider our future clinical trials to be sufficient to serve as the basis for approval of

one of our product candidates for any indication.

The FDA and other comparable foreign regulatory authorities retain broad discretion

in evaluating the results of our clinical trials and in determining whether the results demonstrate that a product candidate is

safe and effective.

If we are required to conduct additional clinical trials of a product candidate than we expect prior to its

approval, we will need substantial additional funds and there is no assurance that the results of any such additional clinical

trials will be sufficient for approval.

The failure to obtain required regulatory

clearances or approvals for any companion diagnostic tests that we may pursue may prevent or delay approval of any of our product

Moreover, the commercial success of any of our product candidates that require a companion diagnostic will be tied

to the receipt of any required regulatory clearances or approvals and the continued availability of such tests.

In connection with

the clinical development of our product candidates for certain indications, we may work with collaborators to develop or obtain

access to companion diagnostic tests to identify appropriate patients for our product candidates.

We may rely on third parties

for the development, testing and manufacturing of these companion diagnostics, the application for and receipt of any required

regulatory clearances or approvals, and the commercial supply of these companion diagnostics.

The FDA and foreign regulatory authorities

regulate companion diagnostics as medical devices that will likely be subject to clinical trials in conjunction with the clinical

trials for product candidates, and which will require separate regulatory clearance or approval prior to commercialization.

process could include additional meetings with health authorities, such as a pre-submission meeting and the requirement to submit

an investigational device exemption.

In the case of a companion diagnostic that is designated as “significant risk device,”

approval of an investigational device exemption by the FDA and IRB is required before such diagnostic is used in conjunction with

the clinical trials for a corresponding product candidate.

We or our third-party collaborators may fail to obtain the required

regulatory clearances or approvals, which could prevent or delay approval of our product candidates.

In addition, the commercial

success of any of our product candidates that require a companion diagnostic will be tied to and dependent upon the receipt of

required regulatory clearances or approvals and the continued ability of such third parties to make the companion diagnostic commercially

available to us on reasonable terms in the relevant geographies.

If we are required to in the future

and if we are unable to successfully develop companion diagnostic tests for our product candidates that require such tests, or

experience significant delays in doing so, we may not realize the full commercial potential of these product candidates.

We may be required

by the FDA to develop, either by ourselves or with collaborators, companion diagnostic tests for our product candidates for certain

To be successful, we or our collaborators will need to address a number of scientific, technical, regulatory and logistical

We have no prior experience with medical device or diagnostic test development.

If we choose to develop and seek FDA

approval for companion diagnostic tests on our own, we will require additional personnel.

We may rely on third parties for the

design, development and manufacture of companion diagnostic tests for our therapeutic product candidates that require such tests.

If these parties are unable to successfully develop companion diagnostics for these therapeutic product candidates, or experience

delays in doing so, we may be unable to enroll enough patients for our current and planned clinical trials, the development of

these therapeutic product candidates may be adversely affected, these therapeutic product candidates may not obtain marketing approval,

and we may not realize the full commercial potential of any of these therapeutics that obtain marketing approval.

Any failure to

successfully develop this companion diagnostic may cause or contribute to delayed enrollment of this trial, and may prevent us

from initiating or completing further clinical trials to support marketing approval for our product candidates.

As a result, our

business, results of operations and financial condition could be materially harmed.

We may be unsuccessful in adapting

our COVID-19 vaccine or developing future versions of our COVID-19 vaccine to protect against variants of the SARS-CoV-2 virus

and a market for vaccines against these variants may not develop.

As the pandemic has

continued, the SARS-CoV-2 virus continues to evolve, and new strains of the virus or those that are already in circulation may

prove more transmissible or cause more severe forms of COVID-19 disease than the predominant strains to date.

There is a risk that

any vaccine product candidates we develop will not be as effective in protecting against variant strains of the SARS-CoV-2 virus.

The failure to adapt our vaccine product candidate to other variants of the SARS-CoV-2 virus could lead to significant reputational

harm, in addition to adversely affecting our financial results.

It is also possible that we may expend significant resources adapting

our COVID-19 vaccine to protect against variants of the SARS-CoV-2 virus, but that a market for this adapted vaccine does not develop

or demand does not align with our projections or cost expenditures.

The regulatory pathway for COVID-19

vaccines is continually evolving, and may result in unexpected or unforeseen challenges.

The speed at which

all parties are acting to create and test many therapeutics and vaccines for COVID-19 is atypical, and evolving or changing plans

or priorities within the FDA or the regulatory authorities in other jurisdictions, including changes based on new knowledge of

COVID-19 and how the disease affects the human body, and new variants of the virus, may significantly affect the regulatory timeline

for further authorizations or approvals for our COVID vaccine.

We cannot anticipate or predict with certainty the timelines or

regulatory processes that may be required for the development of ourCOVID-19 vaccine, or vaccines that may be developed to fight

against variants of the SARS-CoV-2 virus.

We may not be successful in our efforts to identify or

discover additional potential product candidates.

Our research programs may initially

show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development for a number of

reasons, including:

the research methodology used may not be successful in identifying potential product candidates;

potential product candidates may, on further study, be shown to have harmful side effects or other characteristics that indicate that they are unlikely to be drugs that will receive marketing approval and/or achieve market acceptance;

potential product candidates may not be safe or effective in treating their targeted diseases.

Research programs to

identify new product candidates require substantial technical, financial and human resources.

If we are unable to identify suitable

compounds for preclinical and clinical development, our business would be harmed.

Negative perception of the efficacy,

safety, or tolerability of any investigational medicines that we develop, or of other products similar to products we are developing,

such as mRNA medicines and COVID-19 vaccines, could adversely affect our ability to conduct our business, advance our investigational

medicines, or obtain regulatory approvals.

To date, COVID-19 vaccines

have only received EUAs in the United States, and FDA has not granted full approval of a BLA for any COVID-19 vaccine.

these EUAs, no other mRNA medicines have been granted EUA or have been approved to date by the FDA or any other regulatory agency.

Adverse events in clinical trials of our investigational medicines or in clinical trials of others developing similar products,

including other mRNA COVID-19 vaccine, and the resulting publicity, as well as any other adverse events in the field of mRNA medicine,

or other products that are perceived to be similar to mRNA medicines, such as those related to gene therapy or gene editing, could

result in a decrease in the perceived benefit of one or more of our programs, increased regulatory scrutiny, decreased confidence

by patients and clinical trial collaborators in our investigational medicines, and less demand for any product that we may develop.

If and when they are used in clinical trials, our developmental candidates and investigational medicines could result in a greater

quantity of reportable adverse events, including suspected unexpected serious adverse reactions, other reportable negative clinical

outcomes, manufacturing reportable events or material clinical events that could lead to clinical delay or hold by the FDA or applicable

regulatory authority or other clinical delays, any of which could negatively impact the perception of one or more of our programs,

as well as our business as a whole.

In addition, responses by U.S., state, or foreign governments to negative public perception

may result in new legislation or regulations that could limit our ability to develop any investigational medicines or commercialize

any approved products, obtain or maintain regulatory approval, or otherwise achieve profitability.

More restrictive statutory regimes,

government regulations, or negative public opinion would have an adverse effect on our business, financial condition, results of

operations, and prospects and may delay or impair the development of our investigational medicines and commercialization of any

approved products or demand for any products we may develop.

If any of our product candidates

receives marketing approval or an EUA and we, or others, later discover that the drug is less effective than previously believed

or causes undesirable side effects that were not previously identified, our ability, or that of any future collaborators, to market

the drug could be compromised.

Clinical trials of

our product candidates must be conducted in carefully defined subsets of patients who have agreed to enter into clinical trials.

Consequently, it is possible that our clinical trials, or those of any future collaborator, may indicate an apparent positive effect

of a product candidate that is greater than the actual positive effect, if any, or alternatively fail to identify undesirable side

If one or more of our product candidates receives marketing approval and we, or others, discover that the drug is less

effective than previously believed or causes undesirable side effects that were not previously identified, a number of potentially

significant negative consequences could result, including:

regulatory authorities may withdraw their approval of the drug or seize the drug;

we, or any future collaborators, may be required to recall the drug, change the way the drug is administered or conduct additional clinical trials;

additional restrictions may be imposed on the marketing of, or the manufacturing processes for, the particular drug;

we may be subject to fines, injunctions or the imposition of civil or criminal penalties;

regulatory authorities may require the addition of labeling statements, such as a “black box”

warning or a contraindication;

we, or any future collaborators, may be required to create a Medication Guide outlining the risks of the previously unidentified side effects for distribution to patients;

we, or any future collaborators, could be sued and held liable for harm caused to patients;

the drug may become less competitive in the marketplace;

our reputation may suffer.

Any of these events

could have a material and adverse effect on our operations and business and could adversely impact our stock price.

Even if any of our product candidates

receive marketing approval, they may fail to achieve the degree of market acceptance by physicians, patients, healthcare payors

and others in the medical community necessary for commercial success.

If any of our product

candidates receive marketing approval, they may nonetheless fail to gain sufficient market acceptance by physicians, patients,

healthcare payors and others in the medical community.

If our product candidates do not achieve an adequate level of acceptance,

we may not generate significant revenues from sales of drugs and we may not become profitable.

The degree of market acceptance

of our product candidates, if approved for commercial sale, will depend on a number of factors, including:

the efficacy and safety of the product;

the potential advantages of the product compared to alternative therapies;

the prevalence and severity of any side effects;

whether the product is designated under physician and other provider treatment guidelines as a first-, second- or third-line therapy;

our ability, or the ability of any future collaborators, to offer the product for sale at competitive prices;

the product’s convenience and ease of administration for patients and healthcare practitioners compared to alternative treatments;

the willingness of the target patient population to try, and of physicians to prescribe, the product;

limitations or warnings, including distribution or use restrictions and safety information contained in the product’s approved labeling;

the strength of sales, marketing and distribution support;

changes in the standard of care for the targeted indications for the product;

the availability of coverage by, and the amount of reimbursement from, government payors, managed care plans and other third-party payors.

We face substantial competition,

which may result in others discovering, developing or commercializing products before or more successfully than we do.

The pharmaceutical

and biotechnology industries are highly competitive and characterized by rapidly advancing technologies, evolving understanding

of disease etiology and a strong emphasis on proprietary drugs.

We face competition with respect to any product candidates that

we may seek to discover and develop or commercialize in the future, from major pharmaceutical, specialty pharmaceutical and biotechnology

Potential competitors also include academic institutions and governmental agencies and public and private research institutions.

Many of the companies

that we compete or may compete against in the future have significantly greater financial resources and expertise in research and

development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved

drugs than we do.

Small or early-stage companies may also prove to be significant competitors, particularly through collaborative

arrangements with large and established companies.

These competitors also compete with us in recruiting and retaining qualified

scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well

as in acquiring technologies complementary to, or that may be necessary for, our programs.

Our commercial opportunity

could be reduced or eliminated if our competitors develop and commercialize drugs that are safer, more effective, have fewer or

less severe side effects, are more convenient or are less expensive than any drugs that we may develop.

Our competitors also may

obtain FDA or other comparable foreign regulatory approval for their drugs more rapidly than we may obtain approval for ours, which

could result in our competitors establishing a strong market position before we are able to enter the market.

The key competitive

factors affecting the success of all of our product candidates, if approved, are likely to be their efficacy, safety, convenience,

price, the effectiveness of companion diagnostics in guiding the use of related therapeutics, the level of generic competition

and the availability of reimbursement from government and other third-party payors.

The FDA has granted orphan drug status

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that the FDA facilitate an efficient development program for, and expedite review of, any drug that meets the following criteria:

(1) it qualifies as a RMAT, which is defined as a cell therapy, therapeutic tissue engineering product, human cell and tissue product,

or any combination product using such therapies or products, with limited exceptions;

(2) it is intended to treat, modify, reverse,

or cure a serious or life-threatening disease or condition;

and (3) preliminary clinical evidence indicates that the drug has the

potential to address unmet medical needs for such a disease or condition.

Like breakthrough therapy designation, RMAT designation

provides potential benefits that include more frequent meetings with FDA to discuss the development plan for the product candidate,

and eligibility for rolling review and priority review.

Products granted RMAT designation may also be eligible for accelerated

approval on the basis of a surrogate or intermediate endpoint reasonably likely to predict long-term clinical benefit, or may be

able to rely upon data obtained from a meaningful number of sites, including through expansion to additional sites.

RMAT designation

does not change the standards for product approval, and there is no assurance that such designation will result in expedited review

or approval or that the approved indication will not be narrower than the indication covered by the RMAT designation.

Additionally,

RMAT designation can be revoked if the criteria for eligibility cease to be met as clinical data emerges.

(1) it qualifies as a RMAT, which is defined as a cell therapy, therapeutic tissue engineering product, human cell and tissue

product, or any combination product using such therapies or products, with limited exceptions;

(2) it is intended to treat,

modify, reverse, or cure a serious or life-threatening disease or condition;

and (3) preliminary clinical evidence indicates

that the drug has the potential to address unmet medical needs for such a disease or condition.

Like breakthrough therapy designation,

RMAT designation provides potential benefits that include more frequent meetings with FDA to discuss the development plan for the

product candidate, and eligibility for rolling review and priority review.

Products granted RMAT designation may also be eligible

for accelerated approval on the basis of a surrogate or intermediate endpoint reasonably likely to predict long-term clinical benefit,

or may be able to rely upon data obtained from a meaningful number of sites, including through expansion to additional sites.

designation does not change the standards for product approval, and there is no assurance that such designation will result in

expedited review or approval or that the approved indication will not be narrower than the indication covered by the RMAT designation.

Additionally, RMAT designation can be revoked if the criteria for eligibility cease to be met as clinical data emerges.

Even if we were to obtain approval

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rare pediatric disease designation from the FDA for the treatment of DMD.

The FDA generally defines a "rare pediatric disease"

The FDA generally define “a "rare pediatric

disease"

as a serious or life-threatening disease that affects fewer than 200,000 individuals in the U.S.

primarily under the age of 18

Under the FDA's Rare Pediatric Disease Priority Review Voucher program, upon the approval of a NDA or BLA for the treatment

of a rare pediatric disease, the sponsor of such application would be eligible for a Rare Pediatric Disease Priority Review Voucher

that can be used to obtain priority review for a subsequent NDA or BLA.

The Priority Review Voucher may be sold or transferred

an unlimited number of times.

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.

This program has been subject to criticism, including by the FDA, and it is possible that even

if we obtain approval for CAP-1002 and qualify for such a Priority Review Voucher, the program may no longer be in effect at the

time of approval.

primarily under

the age of 18 years old.

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

BLA for the treatment of a rare pediatric disease, the sponsor of such application would be eligible for a Rare Pediatric Disease

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

The Priority Review Voucher may

be sold or transferred an unlimited number of times.

A drug designated as a drug for a rare pediatric disease by December 18,

2020, and approved by December 18, 2022, may receive a voucher.

This program has been subject to criticism, including by the

FDA, and it is possible that even if we obtain approval for CAP-1002 and qualify for such a Priority Review Voucher, the program

may no longer be in effect at the time of approval.

Providing product for use in third

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amount of monetary compensation in exchange for doing so.

Providing product

for clinical trials sponsored by third parties poses significant risks for the Company as we will not have control over the conduct

Providing product for

clinical trials sponsored by third parties poses significant risks for the Company as we will not have control over the conduct

of the trial even though we have used our commercially reasonable efforts to ensure that the investigative sites are contractually

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Additionally, even though the investigative sites have

experience in conducting clinical trials, any adverse event that may occur during the trial may have a negative impact on our

efforts to obtain regulatory approval for our product.

There are no assurances that the clinical trial sites will perform the

studies in accordance with the protocol, the manuals provided by Capricor or the sponsor’s instructions, or otherwise act

in accordance with applicable law.

There is no assurance that if research injuries are sustained, any insurance carrier will compensate

Capricor for any liabilities or other losses sustained by Capricor arising out of these injuries.

Since we cannot predict

when the trials will be completed, there is a risk that product designated for the trials will have expired at the time they are

Additionally, there is a risk that our product may encounter some kind of contamination internally in our leased facility,

at our contracted shipping facility or in transit which may have an adverse effect on our business or operations.

While the Company

expects to continue to receive payment for the product that it supplies for the REGRESS and ALPHA trials, we cannot predict the

rate at which such payments will be made, if at all, due to delays in enrollment or other problems that may arise at the trial

experience in conducting clinical trials, any adverse event that may occur during the trial may have a negative impact on our efforts

to obtain regulatory approval for our product.

There are no assurances that the clinical trial sites will perform the studies in

accordance with the protocol, the manuals provided by Capricor or the sponsor’s instructions, or otherwise act in accordance

with applicable law.

There is no assurance that if research injuries are sustained, any insurance carrier will compensate Capricor

for any liabilities or other losses sustained by Capricor arising out of these injuries.

Since we cannot predict when the

trials will be completed, there is a risk that product designated for the trials will have expired at the time they are required.

Additionally, there is a risk that our product may encounter some kind of contamination internally in our leased facility, at our

contracted shipping facility or in transit which may have an adverse effect on our business or operations.

Our products face a risk of failure

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To reduce the risk of future events, we initiated a pre-medication strategy commonly used by physicians to prevent and treat allergic

Although at the time of filing this Annual Report on Form 10-K, all infusions in the HOPE-2 trial have been completed

and we are not aware of the occurrence of any additional allergic reactions or further severe safety issues, we cannot provide

any assurances that this will not happen again in any future studies.

If these or other reactions continue to occur, it could have

a material adverse impact on the effectiveness of the product, our ability to receive approval of our product candidates, and could

result in substantial delays, increased costs and potentially termination of the trial.

We cannot provide any assurances that this will not happen again in any future studies.

If these or other reactions

continue to occur, it could have a material adverse impact on the effectiveness of the product, our ability to receive approval

of our product candidates, and could result in substantial delays, increased costs and potentially termination of the trial.

Our business faces significant government

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Our research and development

activities, pre-clinical studies, clinical trials, and manufacturing and marketing of our potential products are subject to extensive

activities, preclinical studies, clinical trials, and manufacturing and marketing of our potential products are subject to extensive

regulation by the FDA and other regulatory authorities in the United States, as well as by regulatory authorities in other countries.

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Data Protection Regulation, or the GDPR, which was officially adopted in April 2016 and went into effect in May 2018.

introduces new data protection requirements in the EU, as well as substantial fines for breaches of data protections rules.

GDPR enhances data protection obligations for processors and controllers of personal data, including, for example, expanded disclosures

about how personal information is to be used, limitations on retention of information, mandatory data breach notification requirements

and onerous new obligations on services providers.

Non-compliance with the GDPR may result in monetary penalties of up to €20

million or 4% of worldwide revenue, whichever is higher.

The GDPR and other changes in laws or regulations associated with the

enhanced protection of certain types of personal data, such as healthcare data or other sensitive information, could greatly increase

our cost of providing our products and services or even prevent us from offering certain services in jurisdictions in which we

The GDPR introduces new data protection requirements in the EU, as well as substantial fines for breaches of data protections rules.

The GDPR enhances data protection obligations for processors and controllers of personal data, including, for example, expanded

disclosures about how personal information is to be used, limitations on retention of information, mandatory data breach notification

requirements and onerous new obligations on services providers.

Non-compliance with the GDPR may result in monetary penalties of

up to €20 million or 4% of worldwide revenue, whichever is higher.

The GDPR and other changes in laws or regulations associated

with the enhanced protection of certain types of personal data, such as healthcare data or other sensitive information, could greatly

increase our cost of providing our products and services or even prevent us from offering certain services in jurisdictions in

which we operate.

Additionally, the U.S.

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Even if our product candidates receive

regulatory approval, we may still face future development and regulatory difficulties.

regulatory approval, we may still face future development and FDA regulatory difficulties.

approval is obtained, the FDA may still impose significant restrictions on a product’s indicated uses or marketing, or impose

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federal and state healthcare laws and regulations include, but are not limited to, the following:

federal Anti-Kickback Statute, which prohibits, among other things, persons from soliciting, receiving, offering or providing remuneration, directly or indirectly, to induce either the referral of an individual for a healthcare item or service, or the purchasing or ordering of an item or service, for which payment may be made, in whole or in part, under a federal healthcare program such as Medicare or Medicaid;

federal civil and criminal false claims laws and civil monetary penalty laws, such as the U.S.

federal False Claims Act, or FCA, which imposes criminal and civil penalties, including through civil whistleblower or qui tam actions, against, individuals or entities for knowingly presenting or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government.

In addition, the government may assert that a claim including items and services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the FCA;

the Health Insurance Portability and Accountability Act, or HIPAA, includes a fraud and abuse provision referred to as the HIPAA All-Payor Fraud Law, which imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services.

Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and its implementing regulations, which impose obligations on certain covered entity healthcare providers, health plans, and healthcare clearinghouses as well as their business associates that perform certain services involving the use or disclosure of individually identifiable health information, including mandatory contractual terms, with respect to safeguarding, the privacy, security, and transmission of individually identifiable health information, and require notification to affected individuals and regulatory authorities of certain breaches of security of individually identifiable health information;

federal and state consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers;

the federal Physician Payment Sunshine Act and the implementing regulations, also referred to as “Open Payments,”

issued under the 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, which require that manufacturers of pharmaceutical and biological drugs reimbursable under Medicare, Medicaid, and Children’s Health Insurance Programs report to the Department of Health and Human Services all consulting fees, travel reimbursements, research grants, and other payments, transfers of value or gifts made to physicians and teaching hospitals with limited exceptions;

analogous state laws and regulations, such as, state anti-kickback and false claims laws potentially applicable to sales or marketing arrangements and claims involving healthcare items or services reimbursed by nongovernmental third party payors, including private insurers;

and some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring drug manufacturers to report information related to payments to physicians and other healthcare providers or marketing expenditures, and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

federal Anti-Kickback Statute, which prohibits, among other

things, persons from soliciting, receiving, offering or providing remuneration, directly or indirectly, to induce either the referral

of an individual for a healthcare item or service, or the purchasing or ordering of an item or service, for which payment may be

made, in whole or in part, under a federal healthcare program such as Medicare or Medicaid.

The term remuneration has been broadly

interpreted to include anything of value.

The Patient Protection and Affordable Care Act, as amended by the Health Care

and Education Reconciliation Act of 2010, or collectively the Affordable Care Act, or the ACA, among other things, amended the

intent requirement of the federal Anti-Kickback Statute to clarify that a person or entity need not have actual knowledge of this

statute or specific intent to violate it.

The Anti-Kickback Statute applies to arrangements between pharmaceutical manufacturers

on the one hand and individuals, such as healthcare providers and prescribers, patients, purchasers, pharmacy benefit managers,

group purchasing organizations, third-party payors, wholesalers and distributors on the other hand, including, for example, consulting/speaking

arrangements, discount and rebate offers, certain pricing arrangements, grants, charitable contributions, and patient support offerings,

among others.

Although there are a number of statutory exceptions and regulatory safe harbors protecting some common activities

from prosecution, the exceptions and safe harbors are drawn narrowly.

Practices that involve remuneration that may be alleged to

be intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exception

or safe harbor.

Violations of the federal Anti-Kickback Statute may result in significant civil monetary penalties for each violation,

plus up to three times the remuneration involved.

Civil penalties for such conduct can further be assessed under the federal False

Violations can also result in criminal penalties, including criminal fines and imprisonment.

Similarly, violations

can result in exclusion from participation in government healthcare programs, including Medicare and Medicaid;

the federal False Claims Act imposes civil penalties, including through civil whistleblower or

qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government,

claims for payment that are false or fraudulent, knowingly making, using or causing to be made or used, a false record or statement

material to a false or fraudulent claim, or knowingly making or causing to be made, a false statement to avoid, decrease or conceal

an obligation to pay money to the federal government.

In addition, the government may assert that a claim including items or services

resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False

When an entity is determined to have violated the federal civil False Claims Act, the government may impose significant

civil fines and penalties for each false claim, plus treble damages, and exclude the entity from participation in Medicare, Medicaid

and other federal healthcare programs.

As a result of a modification made by the Fraud Enforcement and Recovery Act of 2009, a

claim includes “any request or demand”

for money or property presented to the U.S.

In addition, manufacturers

can be held liable under the federal False Claims Act even when they do not submit claims directly to government payors if they

are deemed to “cause”

the submission of false or fraudulent claims

the Federal Criminal Statute on False Statements Relating to Health Care Matters makes it a crime to knowingly and willfully

falsify, conceal, or cover up a material fact, make any materially false, fictitious, or fraudulent statements or representations,

or make or use any materially false writing or document knowing the same to contain any materially false, fictitious, or fraudulent

statement or entry in connection with the delivery of or payment for healthcare benefits, items, or services;

the Federal Civil Monetary Penalties Law authorizes the imposition of substantial civil monetary penalties against an entity,

such as a pharmaceutical manufacturer, that engages in activities including, among others (1) knowingly presenting, or causing

to be presented, a claim for services not provided as claimed or that is otherwise false or fraudulent in any way;

(2) arranging

for or contracting with an individual or entity that is excluded from participation in federal health care programs to provide

items or services reimbursable by a federal health care program;

(3) violations of the federal Anti-Kickback Statute;

or (4) failing

to report and return a known overpayment;

the Health Insurance Portability and Accountability Act, or HIPAA, includes a fraud and abuse provision

referred to as the HIPAA All-Payor Fraud Law, which imposes criminal and civil liability for executing a scheme to defraud any

healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially

false statement in connection with the delivery of or payment for healthcare benefits, items or services.

Similar to the federal

Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it

in order to have committed a violation;

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or

HITECH, and its implementing regulations, which impose obligations on certain covered entity healthcare providers, health plans,

and healthcare clearinghouses as well as their business associates that perform certain services involving the use or disclosure

of individually identifiable health information, including mandatory contractual terms, with respect to safeguarding, the privacy,

security, and transmission of individually identifiable health information, and require notification to affected individuals and

regulatory authorities of certain breaches of security of individually identifiable health information;

federal and state consumer protection and unfair competition laws, which broadly regulate marketplace

activities and activities that potentially harm consumers;

the federal Physician Payments Sunshine Act, which requires certain manufacturers of drugs, devices, biologics, and medical

supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain

exceptions) to report annually to the government information related to payments or other “transfers of value”

to, at the request of, or on behalf of “covered recipients,”

which include physicians, certain other healthcare providers,

and teaching hospitals, and requires applicable manufacturers and group purchasing organizations to report annually to the government

ownership and investment interests held by physicians and their immediate family members;

analogous state laws and regulations, such as, state anti-kickback and false claims laws potentially

applicable to sales or marketing arrangements and claims involving healthcare items or services reimbursed by nongovernmental third

party payors, including private insurers;

and some state laws require pharmaceutical companies to comply with the pharmaceutical

industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in

addition to requiring drug manufacturers to report information related to payments to physicians and other healthcare providers

or marketing expenditures, and state laws governing the privacy and security of health information in certain circumstances, many

of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

The scope and enforcement

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have an adverse effect on our business.

Ensuring that our business

arrangements with third parties comply with applicable healthcare laws and regulations could involve substantial costs.

operations are found to be in violation of any such requirements, we may be subject to penalties, including civil or criminal penalties,

monetary damages, the curtailment or restructuring of our operations, or exclusion from participation in government contracting,

healthcare reimbursement or other government programs, including Medicare and Medicaid, any of which could adversely affect our

financial results.

Although effective compliance programs can mitigate the risk of investigation and prosecution for violations

of these laws, these risks cannot be entirely eliminated.

Any action against us for an alleged or suspected violation could cause

us to incur significant legal expenses and could divert our management’s attention from the operation of our business, even

if our defense is successful.

In addition, achieving and sustaining compliance with applicable laws and regulations may be costly

to us in terms of money, time and resources.

Efforts to ensure that

our current and future business arrangements with third parties comply with applicable healthcare laws and regulations could involve

substantial costs.

If our operations are found to be in violation of any such requirements, we may be subject to significant penalties,

including the imposition of civil, criminal or administrative penalties, monetary fines, damages, disgorgement, individual imprisonment,

the curtailment or restructuring of our operations, or exclusion from participation in government contracting, healthcare reimbursement

or other government programs, including Medicare and Medicaid, any of which could adversely affect our financial results.

operations are found to be in violation of any of these or any other health regulatory laws that may apply to us, we may be subject

to significant penalties, including the imposition of significant civil, criminal and administrative penalties, damages, monetary

fines, disgorgement, individual imprisonment, possible exclusion from participation in Medicare, Medicaid and other federal healthcare

programs or similar programs in other countries or jurisdictions, contractual damages, reputational harm, diminished profits and

future earnings, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar

agreement and curtailment or restructuring of our operations, any of which could adversely impact our ability to operate our business

and our results of operations.

Although effective

compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, these risks cannot be

entirely eliminated.

Any action against us for an alleged or suspected violation, even the mere issuance of a subpoena or the fact

of an investigation alone, regardless of the merit, could result in negative publicity, a drop in our share price, or other harm

to our business, financial condition and results of operations.

Defending against any such actions could cause us to incur significant

legal expenses and could divert our management’s attention from the operation of our business, even if our defense is successful.

In addition, achieving and sustaining compliance with applicable laws and regulations may be costly to us in terms of money, time

and resources.

Any drugs we develop may become subject

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under Medicare through Medicare Part B.

Specifically, Medicare Part B coverage may be available for eligible beneficiaries when

the following, among other requirements have been satisfied:

Specifically, Medicare Part B coverage may be available for eligible beneficiaries

when the following, among other requirements have been satisfied:

the product is reasonable and necessary for the diagnosis or treatment of the illness or injury for which the product is administered according to accepted standards of medical practice;

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for a unique billing code.

Self-administered, outpatient drugs are typically reimbursed under Medicare Part D, and drugs that are

administered in an inpatient hospital setting are typically reimbursed under Medicare Part A under a bundled payment.

It is difficult

for us to predict how Medicare coverage and reimbursement policies will be applied to our products in the future and coverage and

reimbursement under different federal healthcare programs are not always consistent.

Medicare reimbursement rates may also reflect

budgetary constraints placed on the Medicare program.

Self-administered, outpatient drugs are typically reimbursed under Medicare Part D, and drugs that

are administered in an inpatient hospital setting are typically reimbursed under Medicare Part A under a bundled payment.

It is difficult for us to predict how Medicare coverage and reimbursement policies will be applied to our products in the future

and coverage and reimbursement under different federal healthcare programs are not always consistent.

Medicare reimbursement rates

may also reflect budgetary constraints placed on the Medicare program.

Third party payors

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needed to commercialize products and our financial condition.

We expect that these

and other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and lower

reimbursement, and in additional downward pressure on the price that we receive for any approved product.

Any reduction in reimbursement

from Medicare or other government-funded programs may result in a similar reduction in payments from private payors.

The implementation

of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability

or commercialize our drugs, once marketing approval is obtained.

We believe that the

efforts of governments and third-party payors to contain or reduce the cost of healthcare and legislative and regulatory proposals

to broaden the availability of healthcare will continue to affect the business and financial condition of pharmaceutical and biopharmaceutical

A number of legislative and regulatory changes in the healthcare system in the U.S.

and other major healthcare markets

have been proposed, and such efforts have expanded substantially in recent years.

These developments could, directly or indirectly,

affect our ability to sell our products, if approved, at a favorable price.

There have been, and

continue to be, several legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent

or delay marketing approval of product candidates, restrict or regulate post approval activities and affect our ability to profitably

sell any product candidates for which we obtain marketing approval.

Among policy makers and payors in the United States there is

significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving

quality and/or expanding access and the pharmaceutical industry has been a particular focus of these efforts and has been significantly

affected by major legislative initiatives.

We expect that these and other healthcare reform measures that may be adopted in the

future, may result in more rigorous coverage criteria and lower reimbursement, and in additional downward pressure on the price

that we receive for any approved product.

Any reduction in reimbursement from Medicare or other government-funded programs may

result in a similar reduction in payments from private payors.

The implementation of cost containment measures or other healthcare

reforms may prevent us from being able to generate revenue, attain profitability or commercialize our drugs, once marketing approval

number of legislative and regulatory changes in the healthcare system in the U.S.

and other major healthcare markets have been

proposed, and such efforts have expanded substantially in recent years.

These developments could, directly or indirectly, affect

our ability to sell our products, if approved, at a favorable price.

For example, in the U.S., in 2010, the U.S.

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impose new taxes and fees on the healthcare industry and impose additional policy reforms.

Among the provisions of the ACA addressing

coverage and reimbursement of pharmaceutical products, of importance to our potential therapeutic candidates are the following:

increases to pharmaceutical manufacturer rebate liability under the Medicaid Drug Rebate Program due to an increase in the minimum basic Medicaid rebate on most branded prescription drugs and the application of Medicaid rebate liability to drugs used in risk-based Medicaid managed care plans;

the expansion of the 340B Drug Pricing Program to require discounts for “covered outpatient drugs”

sold to certain children’s hospitals, critical access hospitals, freestanding cancer hospitals, rural referral centers, and sole community hospitals;

requirements imposed on pharmaceutical companies are required to offer discounts on brand-name drugs to patients who fall within the Medicare Part D coverage gap, commonly referred to as the “Donut Hole”;

requirements imposed on pharmaceutical companies to pay an annual non-tax-deductible fee to the federal government based on each company’s market share of prior year total sales of branded drugs to certain federal healthcare programs, such as Medicare, Medicaid, Department of Veterans Affairs and Department of Defense;

for products classified as biologics, marketing approval for a follow-on biologic product may not become effective until 12 years after the date on which the reference innovator biologic product was first licensed by the FDA, with a possible six-month extension for pediatric products.

After this exclusivity ends, it may be possible for biosimilar manufacturers to enter the market, which is likely to reduce the pricing for the innovator product and could affect our profitability if our products are classified as biologics.

Recently, the Trump

Administration and certain members of U.S.

Congress have expressed a desire to modify, repeal, or otherwise invalidate all or certain

provisions of the ACA, which contributes to the uncertainty of the ongoing implementation and impact of the ACA and also underscores

the potential for additional health care reform going forward.

For example, a recently enacted federal income tax law effective

January 1, 2019 repealed what is commonly referred to as the “individual mandate,”

a tax-based shared responsibility

payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage.

Separately, pursuant

to the health reform legislation and related initiatives, the Centers for Medicare and Medicaid Services, or CMS, is working with

various healthcare providers to develop, refine, and implement Accountable Care Organizations, or ACOs, and other innovative models

of care for Medicare and Medicaid beneficiaries, including the Bundled Payments for Care Improvement Initiative, the Comprehensive

Primary Care Initiative, the Duals Demonstration, and other models.

The continued development and expansion of ACOs and other innovative

models of care will have an uncertain impact on any future reimbursement we may receive for approved therapeutics administered

by these organizations.

The healthcare industry is heavily

regulated in the U.S.

at the federal, state, and local levels, and our failure to comply with applicable requirements may subject

us to penalties and negatively affect our financial condition.

As a biotechnology

company, our operations, clinical trial activities and interactions with healthcare providers may be subject to extensive regulation

in the U.S., particularly if we receive FDA approval for any of our products in the future.

For example, if we receive FDA approval

for a product for which reimbursement is available under a federal healthcare program (e.g., Medicare, Medicaid), it would be subject

to a variety of federal laws and regulations, including those that prohibit the filing of false or improper claims for payment

by federal healthcare programs (e.g., the federal FCA), prohibit unlawful inducements for the referral of business reimbursable

by federal healthcare programs (e.g., the federal Anti-Kickback Statute), and require disclosure of certain payments or other transfers

of value made to U.S.-licensed physicians and teaching hospitals or other entities subject to the Open Payments regulations.

are not able to predict how third parties will interpret these laws and apply applicable governmental guidance and may challenge

our practices and activities under one or more of these laws.

If our past or present operations are found to be in violation of

any of these laws, we could be subject to civil and criminal penalties, which could hurt our business, our operations and financial

The federal Anti-Kickback

Statute prohibits, among other things, any person or entity from knowingly and willfully offering, paying, soliciting or receiving

any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or in return for purchasing, leasing,

ordering or arranging for the purchase, lease or order of any item or service reimbursable under Medicare, Medicaid or other federal

healthcare programs.

The term remuneration has been interpreted broadly to include anything of value.

The Anti-Kickback Statute

has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers, and

formulary managers on the other.

There are a number of statutory exceptions and regulatory safe harbors protecting some common

activities from prosecution.

The exceptions and safe harbors are drawn narrowly and practices that involve remuneration that may

be alleged to be intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for

an exception or safe harbor.

Failure to meet all of the requirements of a particular applicable statutory exception or regulatory

safe harbor does not make the conduct per se illegal under the Anti-Kickback Statute.

Instead, the legality of the arrangement

will be evaluated on a case-by-case basis based on a cumulative review of all of its facts and circumstances.

Our practices may

not in all cases meet all of the criteria for protection under a statutory exception or regulatory safe harbor.

Additionally, the intent

standard under the Anti-Kickback Statute was amended by the ACA, to a stricter standard such that a person or entity no longer

needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.

the ACA codified case law that a claim including items or services resulting from a violation of the federal Anti- Kickback Statute

constitutes a false or fraudulent claim for purposes of the federal FCA.

The civil monetary

penalties statute imposes penalties against any person or entity that, among other things, is determined to have presented or caused

to be presented a claim to a federal healthcare program that the person knows or should know is for an item or service that was

not provided as claimed or is false or fraudulent.

Federal false claims

and false statement laws, including the federal FCA, prohibit, among other things, any person or entity from knowingly presenting,

or causing to be presented, a false or fraudulent claim for payment to, or approval by, the federal healthcare programs, including

Medicare and Medicaid, or knowingly making, using, or causing to be made or used a false record or statement material to a false

or fraudulent claim to the federal government.

A claim includes “any request or demand”

for money or property presented

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

Other companies have been prosecuted for causing false claims to be submitted because of the companies’

of the product for unapproved, off-label, and thus generally non-reimbursable, uses.

HIPAA prohibits, among

other offenses, knowingly and willfully executing a scheme to defraud any health care benefit program, including private payors,

or falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in

connection with the delivery of or payment for items or services under a health care benefit program.

To the extent that we act

as a business associate to a healthcare provider engaging in electronic transactions, we may also be subject to the privacy and

security provisions of HIPAA, as amended by HITECH, which restricts the use and disclosure of patient-identifiable health information,

mandates the adoption of standards relating to the privacy and security of patient-identifiable health information, and requires

the reporting of certain security breaches to healthcare provider customers with respect to such information.

Additionally, many

states have enacted similar laws that may impose more stringent requirements on entities like ours.

Failure to comply with applicable

laws and regulations could result in substantial penalties and adversely affect our financial condition and results of operations.

Many states also have

similar fraud and abuse statutes or regulations that apply to items and services reimbursed under Medicaid and other state programs,

or, in several states, apply regardless of the payor.

Additionally, to the extent that our product is sold in a foreign country,

we may be subject to similar foreign laws.

Our products, once

approved, may be eligible for coverage under Medicare and Medicaid, among other government healthcare programs.

Accordingly, we

may be subject to a number of obligations based on their participation in these programs, such as a requirement to calculate and

report certain price reporting metrics to the government, such as average sales price (ASP) and best price.

Penalties may apply

in some cases when such metrics are not submitted accurately and timely.

Further, these prices for drugs may be reduced by mandatory

discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently

restrict imports of drugs from countries where they may be sold at lower prices than in the United States.

It is difficult to predict

how Medicare coverage and reimbursement policies will be applied to our products in the future and coverage and reimbursement under

different federal healthcare programs are not always consistent.

Medicare reimbursement rates may also reflect budgetary constraints

placed on the Medicare program.

In order to distribute

products commercially, we must comply with state laws that require the registration of manufacturers and wholesale distributors

of drug and biological products in a state, including, in certain states, manufacturers and distributors who ship products into

the state even if such manufacturers or distributors have no place of business within the state.

Some states also impose requirements

on manufacturers and distributors to establish the pedigree of product in the chain of distribution, including some states that

require manufacturers and others to adopt new technology capable of tracking and tracing product as it moves through the distribution

Several states have enacted legislation requiring pharmaceutical and biotechnology companies to establish marketing compliance

programs, file periodic reports with the state, make periodic public disclosures on sales, marketing, pricing, clinical trials

and other activities, and/or register their sales representatives, as well as to prohibit pharmacies and other healthcare entities

from providing certain physician prescribing data to pharmaceutical and biotechnology companies for use in sales and marketing,

and to prohibit certain other sales and marketing practices.

All of our activities are potentially subject to federal and state

consumer protection and unfair competition laws.

If our operations are

found to be in violation of any of the federal and state healthcare laws described above or any other governmental regulations

that apply to us, we may be subject to penalties, including without limitation, civil, criminal and/or administrative penalties,

damages, fines, disgorgement, exclusion from participation in government programs, such as Medicare and Medicaid, injunctions,

private “qui tam”

actions brought by individual whistleblowers in the name of the government, or refusal to allow us

to enter into government contracts, contractual damages, reputational harm, administrative burdens, diminished profits and future

earnings, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our

business and our results of operations.

The ACA substantially

changed the way healthcare is financed by both the government and private insurers, and significantly impacts the U.S.

pharmaceutical

The ACA, among other things:

(1) introduced a new average manufacturer price definition for drugs and biologics

that are inhaled, infused, instilled, implanted or injected and not generally dispensed through retail community pharmacies;

(2) increased

the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program, or MDRP;

(3) established a branded

prescription drug fee that pharmaceutical manufacturers of branded prescription drugs must pay to the federal government;

the list of covered entities eligible to participate in the 340B drug pricing program by adding new entities to the program;

(5) established

a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer point-of-sale discounts (which

through subsequent legislative amendments, was increased to 70% from 50% starting in 2019) off negotiated prices of applicable

branded drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient

drugs to be covered under Medicare Part D;

(6) extended manufacturers’

MDRP rebate liability to covered drugs dispensed

to individuals who are enrolled in Medicaid managed care organizations;

(7) expanded eligibility criteria for Medicaid programs

by, among other things, allowing states to offer Medicaid coverage to additional individuals, including individuals with income

at or below 133% of the federal poverty level, thereby potentially increasing manufacturers’

Medicaid rebate liabilities;

(8) created a licensure framework for follow-on biologic products;

and (9) established a Center for Medicare and Medicaid

Innovation at the Centers for Medicare and Medicaid Services to test innovative payment and service delivery models to improve

patient care and lower costs.

The framework of the

ACA and other healthcare reforms continues to evolve as a result of executive, legislative, regulatory, and administrative developments;

in addition, healthcare-related litigation and judicial proceedings contribute to regulatory uncertainty.

While Congress has not

passed legislation to comprehensively repeal the ACA, the Tax Cuts and Jobs Act of 2017, included a provision that, effective January 1,

2019, changed to $0 the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain

qualifying health coverage for all or part of a year, which is commonly referred to as the “individual mandate.”

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.

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

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 reforms.

Other legislative changes

have been proposed and adopted since the ACA was enacted.

These changes include aggregate reductions to Medicare payments to providers

of 2% per fiscal year pursuant to the Budget Control Act of 2011 and subsequent laws, which began in 2013 and will remain in effect

through 2030, with the exception of a temporary suspension from May 1, 2020 through March 31, 2021 enacted as part of

the Coronavirus Aid, Relief, and Economic Security, or the CARES Act, unless additional Congressional action is taken.

Additionally,

the American Taxpayer Relief Act of 2012, among other things, further reduced Medicare payments to several types of providers,

including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government

to recover overpayments to providers from three to five years.

New laws may result in additional reductions in Medicare and other

healthcare funding, which may materially adversely affect customer demand and affordability for our products and, accordingly,

the results of our financial operations.

In addition, effective

January 1, 2019, the Bipartisan Budget Act of 2018, among other things, further amended portions of the Social Security Act

implemented as part of the ACA to increase from 50% to 70% the point-of-sale discount that pharmaceutical manufacturers participating

in the Coverage Gap Discount Program must provide to eligible Medicare Part D beneficiaries during the coverage gap phase

of the Part D benefit, commonly referred to as the “donut hole,”

and to reduce standard beneficiary cost sharing

in the coverage gap from 30% to 25% in most Medicare Part D plans.

In the future, there may be additional challenges and/or

amendments to the ACA.

It remains to be seen precisely what any new legislation will provide, when or if it will be enacted, and

what impact it will have on the availability and cost of healthcare items and services, including drug products.

In addition, in recent

years the pricing and costs of prescription pharmaceuticals has been the subject of considerable discussion in the United States.

A number of federal reports and inquiries have focused on these issues, and various legislative and regulatory provisions have

been proposed and enacted at the federal and state level that seek to bring more transparency to product pricing, reduce the cost

of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and reform government

program reimbursement methodologies for drug products.

On December 21, 2020, Congress passed a $900 billion U.S.

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.

things, the Act includes provisions requiring Medicare Part D prescription drug plan, or PDP, sponsors and Medicare Advantage

organizations, or MAOs, to implement tools to display Medicare Part D prescription drug benefit information in real time and

provisions requiring group and health insurance issuers offering health insurance coverage to report information on certain pharmacy

benefit and drug costs to the Secretaries of HHS, Labor, and the Treasury.

We believe that the efforts of governments and third-party

payors to contain or reduce the cost of healthcare and legislative and regulatory proposals to broaden the availability of healthcare

will continue to affect the business and financial condition of pharmaceutical and biopharmaceutical companies.

Further, the Biden

Administration and 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.

The Biden Administration’s review is ongoing and we cannot predict which regulatory actions it may or

may not affect.

We also cannot predict what other healthcare reforms will ultimately be implemented at the federal or state level

or the effect of any future legislation or regulation and, accordingly, face uncertainties that might result from additional reforms.

Our risk mitigation measures cannot

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agencies currently face potentially significant spending reductions.

The Bipartisan Budget Act of 2015 extended sequestration for

Medicare through fiscal year 2027.

federal budget remains in flux, however, which could, among other things, result in

a cut to Medicare payments to providers and otherwise affect federal spending on clinical and pre-clinical research and development.

For example, as a result of the Budge Control Act of 2011,

the Bipartisan Budget Act, or BBA, and the CARES Act, an annual 2% reduction to Medicare payments took effect on April 1,

2013, and has been extended through 2030 (though the reduction was temporarily suspended from May 1, 2020 through March 31,

2021 in connection with COVID-19 relief related legislation).

federal budget remains in flux, however, which could, among

other things, result in a cut to Medicare payments to providers and otherwise affect federal spending on clinical and preclinical

research and development.

The Medicare program is frequently mentioned as a target for spending cuts.

The full impact on our business of any future cuts

in Medicare or other programs is uncertain.

In addition, we cannot predict any impact which the actions of President Trump's administration

The full impact on our business

of any future cuts in Medicare or other programs is uncertain.

In addition, we cannot predict any impact which the actions of President

Biden’s administration and the U.S.

Congress may have on the federal budget.

Following the most recent federal elections, Congress has again focused on

reducing the cost of drugs and other medical treatments.

If federal spending is reduced, anticipated budgetary shortfalls may also

impact the ability of relevant agencies, such as the FDA or the National Institutes of Health, to continue to function at current

Following the most recent federal elections,

Congress has again focused on reducing the cost of drugs and other medical treatments.

If federal spending is reduced, anticipated

budgetary shortfalls may also impact the ability of relevant agencies, such as the FDA or the National Institutes of Health, to

continue to function at current levels.

Amounts allocated to federal grants and contracts may be reduced or eliminated.

These reductions may also impact the ability

of relevant agencies to timely review and approve drug research and development, manufacturing, and marketing activities, which

may delay our ability to develop, market and sell any products we may develop.

These reductions

may also impact the ability of relevant agencies to timely review and approve drug research and development, manufacturing, and

marketing activities, which may delay our ability to develop, market and sell any products we may develop.

Vaccines carry unique risks and uncertainties,

which could have a negative impact on future results of operations.

We are in the process

of initiating development of vaccine candidates using our exosome technologies.

The successful development, testing, manufacturing

and commercialization of vaccines is a long, complex, expensive and uncertain process.

There are unique risks and uncertainties

associated with vaccines, including:

There may be limited access to, and supply of, normal and diseased tissue samples, cell lines,

media pathogens, bacteria, viral strains, synthesized nucleic acids and other biological materials.

In addition, government regulations

in multiple jurisdictions, such as the United States and the EU, could result in restricted access to, or transport or use of,

such materials.

If the Company in unable to access sufficient sources of such materials, or if tighter restrictions are imposed

on the use of such materials, the Company may not be able to conduct research or product development activities as planned and

may incur additional costs.

The development, manufacturing and marketing of vaccines are subject to regulation by the FDA,

the EMA and other regulatory bodies that are often more complex and extensive than the regulations applicable to other pharmaceutical

For example, in the United States, a BLA, including both preclinical and clinical trial data and extensive data regarding

the manufacturing procedures, is required for human vaccine candidates, and FDA approval is generally required for the release

of each manufactured commercial lot.

Vaccines are frequently costly to manufacture because production ingredients are inactive biological

materials derived from virus, animals, or plants and most biologics and vaccines cannot be made synthetically.

In particular, keeping

up with the demand for vaccines may be difficult due to the complexity of producing vaccines.

We are developing vaccine

candidates using our exosome technologies.

The successful development, testing, manufacturing and commercialization of vaccines

is a long, complex, expensive and uncertain process.

There are unique risks and uncertainties associated with vaccines, including:

There may be limited access to, and supply of, normal and diseased tissue samples, cell lines, media pathogens, bacteria, viral strains, synthesized nucleic acids, including mRNA and other biological materials.

In addition, government regulations in multiple jurisdictions, such as the United States and the EU, could result in restricted access to, or transport or use of, such materials.

If the Company in unable to access sufficient sources of such materials, or if tighter restrictions are imposed on the use of such materials, the Company may not be able to conduct research or product development activities as planned and may incur additional costs.

The development, manufacturing and marketing of vaccines are subject to regulation by the FDA, the EMA and other regulatory bodies that are often more complex and extensive than the regulations applicable to other pharmaceutical products.

For example, in the United States, a BLA, including both preclinical and clinical trial data and extensive data regarding the manufacturing procedures, is required for human vaccine candidates, and FDA approval is generally required for the release of each manufactured commercial lot.

Vaccines are frequently costly to manufacture because production ingredients are inactive biological materials derived from virus, animals, or plants and most biologics and vaccines cannot be made synthetically.

In particular, keeping up with the demand for vaccines may be difficult due to the complexity of producing vaccines.

Risks Related to the Manufacturing of

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In that portion

of the leased premises where we manufacture CAP-1002 and plan to manufacture our exosomes, we believe that we follow good manufacturing

practices sufficient for an investigational stage product, but it is not a cGMP approved facility and would not be adequate for

manufacturing product for commercial use.

Capricor manufactured CAP-1002 in this facility for our previous clinical studies as

well as our HOPE-2 clinical trial.

In addition to manufacturing CAP-1002 for its own clinical trials, Capricor has agreed to provide

CAP-1002 for investigational purposes in two clinical trials sponsored by CSMC.

of the leased premises where we manufacture CAP-1002 and plan to manufacture our exosome technologies, including our exosome-mRNA

vaccine, we believe that we follow good manufacturing practices sufficient for an investigational stage product, but it is not

a cGMP approved facility and would not be adequate for manufacturing product for commercial use.

Capricor manufactured CAP-1002

in this facility for our previous clinical studies as well as our HOPE-2 clinical trial.

In addition to manufacturing CAP-1002

for its own clinical trials, Capricor has agreed to provide CAP-1002 for investigational purposes in two clinical trials sponsored

Our plans to use this

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Currently, we also

intend to utilize our premises at CSMC to develop and manufacture our exosomes.

Currently, our Facilities Lease is scheduled to

expire on July 31, 2020 although we have an additional 1-year option enabling us to extend the term of our Facilities Lease to

July 31, 2021.

There can be no assurance that the Facilities Lease will be continued beyond July 31, 2021.

If the Facilities Lease

with CSMC is terminated or expires, we would have to secure alternative facilities in which to operate our research and development

activities and/or manufacture our products, which would involve a significant monetary investment and would negatively impact the

progress of our clinical trials and regulatory approvals.

intend to utilize our premises at CSMC to develop and manufacture our exosomes technologies.

Currently, our Facilities Lease pertaining

to our research and development facility is scheduled to expire on July 31, 2021.

We have an additional 1-year option enabling

us to extend the term of our Facilities Lease to July 31, 2022.

There can be no assurance that the Facilities Lease for the

manufacturing space will be continued beyond July 31, 2022.

If the Facilities Lease with CSMC is terminated or expires, we

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

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

At this time, we are actively considering

new facilities for our research, development and/or manufacturing activities or the possible extension of our current lease.

If we were to initiate

a Phase III study, we are unsure at this time if the FDA would allow us to produce doses in our current facility or whether the

FDA would require us to use a cGMP facility.

If we were required to use a cGMP facility to produce product for a Phase III study,

this would result in delays and significant expenses which would have a negative impact on our business and product development.

Furthermore, given our workforce reductions in our manufacturing group in early 2019, and the scale required for the manufacturing

of products for commercial sale, we will have to establish a collaboration agreement with a third party or build out our own manufacturing

facility for any commercial scale manufacturing which would also involve significant expenses and cause delays.

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.

Concurrently, Capricor is internally

developing additional process development improvements in anticipation of potential commercial scale and/or later stage clinical

trials which may affect the timing of our technology transfer.

a Phase III study for DMD, we are unsure at this time if the FDA would allow us to produce doses in our current facility or whether

the FDA would require us to use a cGMP facility.

If we were required to use a cGMP facility to produce product for a Phase III

study, it may result in delays and significant expenses which would have a negative impact on our business and product development.

In 2020, we initiated

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

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

We are required to

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Our manufacturing experience

has been limited to manufacturing CAP-1002 for the ALLSTAR, DYNAMIC and HOPE-Duchenne clinical trials, the ongoing CSMC trials

and our current HOPE-2 clinical trial.

Our experience in the manufacturing of exosomes is limited to producing product for pre-clinical

We have no prior history or experience in manufacturing our allogeneic product or any other product for any other clinical

use and no experience manufacturing any product for large clinical trials or commercial use.

Our product candidates have not previously

been tested in any large trials to show safety or efficacy, nor are they available for commercial use.

We face risks of manufacturing

failures and risks of making products that are not proven to be safe or effective.

has been limited to manufacturing CAP-1002 for the ALLSTAR, DYNAMIC, HOPE-Duchenne, HOPE-2, and INSPIRE clinical trials, and the

ongoing CSMC trials.

Our experience in the manufacturing of exosomes is limited to producing product for preclinical use.

no prior history or experience in manufacturing our allogeneic product or any other product for any other clinical use and no experience

manufacturing any product for large clinical trials or commercial use.

Our product candidates have not previously been tested in

any large trials to show safety or efficacy, nor are they available for commercial use.

We face risks of manufacturing failures

and risks of making products that are not proven to be safe or effective.

We are in the early

stages of technology transfer of our CAP-1002 product with Lonza Houston, Inc.

We can provide no assurances that they will

be able to meet product demand for potential late-stage clinical trials or commercial use.

We are subject to a number of manufacturing

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If we continue with the development

of CAP-1002 or our exosomes, we may need to rely exclusively on third parties to formulate and manufacture these product candidates

and provide us with the devices and other products necessary to administer such a product.

of CAP-1002 or our exosome technologies, we may need to rely exclusively on third parties to formulate and manufacture these product

candidates and provide us with the devices and other products necessary to administer such a product.

We have not established

our own manufacturing facilities sufficient for the production of CAP-1002 or our exosomes for commercial purposes.

While we plan

to utilize our currently manufactured product for a potential Phase III trial, there is no assurance that the FDA will not require

that the product used in the Phase III trial be manufactured under cGMP conditions.

Also, our resources and expertise to formulate

or manufacture this product candidate are limited.

If we were to conduct such a trial or reach the commercialization stage, we

may have to engage one or more manufacturers to manufacture, supply, store, and distribute drug supplies for such purposes.

CAP-1002 or any of our exosome technologies receives FDA approval, we may need to rely on one or more third-party contractors to

manufacture supplies of these drug products which may cause delays in our ability to sell commercially.

Our current and anticipated

future reliance on a limited number of third-party manufacturers exposes us to the following risks:

our own manufacturing facilities sufficient for the production of CAP-1002 or our exosome technologies for commercial purposes.

While we plan to potentially utilize our currently manufactured product for a potential Phase III trial, there is no assurance

that the FDA will not require that the product used in the Phase III trial be manufactured under cGMP conditions.

Also, our resources

and expertise to formulate or manufacture this product candidate on a large or commercial scale basis are limited.

initiated a technology transfer with Lonza Houston, Inc., to prepare for commercial or possibly late-stage clinical manufacturing

Additionally, if the field of mRNA and other nucleic acid medicines continues to expand, we may encounter increasing

competition for these supplies, materials and services.

Demand for third-party manufacturing or testing facilities may grow at

a faster rate than their existing capacity, which could disrupt our ability to find and retain third-party manufacturers capable

of producing sufficient quantities of such raw materials, components, parts, and consumables required to manufacture our exosome-based

RNA products.

If CAP-1002 or any of our exosome technologies receives FDA approval, we may need to rely on one or more third-party

contractors to manufacture supplies of these drug products which may cause delays in our ability to sell commercially.

and anticipated future reliance on a limited number of third-party manufacturers exposes us to the following risks:

We may be unable to identify manufacturers needed to manufacture our product candidates on acceptable terms or at all, because the number of potential manufacturers is limited, and subsequent to approval of an NDA or BLA, the FDA must approve any replacement contractor.

This approval would require new testing and compliance inspections.

In addition, a new manufacturer may have to be educated in, or develop substantially equivalent processes for, production of our products or the devices after receipt of FDA approval, if any.

In addition, a new manufacturer may have to be educated in, or develop substantially equivalent processes for, production of our products or the devices after receipt of FDA approval, if any, FDA may also exercise oversight over manufacturing facilities for products authorized under an EUA.

Our third-party manufacturers may not be able to formulate and manufacture our drugs in the volume and of the quality required to meet our clinical and commercial needs, if any.

Our third-party manufacturers may not be able to manufacture or supply us with sufficient quantities of acceptable materials necessary for the development or use of our product candidates.

Our future contract manufacturers may not perform as agreed or may not remain in the contract manufacturing business for the time required to supply our clinical trials or to successfully produce, store, and distribute our products or the materials needed to manufacture or utilize our product candidates.

Our future contract manufacturers

may not perform as agreed or may not remain in the contract manufacturing business for the time required to supply our clinical

trials or to successfully produce, store, and distribute our products or the materials needed to manufacture or utilize our product

Our contract manufacturers may elect to

terminate our agreements with them.

Drug manufacturers are subject to ongoing periodic unannounced inspection by the FDA, the Drug Enforcement Agency, and corresponding state agencies to ensure strict compliance with good manufacturing practices and other government regulations and corresponding foreign standards.

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In addition, the government(s) has the right to “march in”

us to grant third parties licenses to such technology, in certain circumstances, such as if we fail to take effective steps to

achieve practical application of such inventions.

and require us to grant third parties licenses to such technology, in certain circumstances, such as if we fail to take effective

steps to achieve practical application of such inventions.

The licenses by which

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patent litigation.

In particular, under the Leahy-Smith Act, the United States transitioned in March 2013 to a “first to

In particular, under the Leahy-Smith Act, the United States transitioned in March 2013 to a “first

to file”

system in which the first inventor to file a patent application will be entitled to the patent.

Third parties are allowed

to submit prior art before the issuance of a patent by the U.S.

Third parties are

allowed to submit prior art before the issuance of a patent by the U.S.

Patent and Trademark Office, or USPTO, and may become involved

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License Agreement with CSMC, as the same have been amended, we have assumed, in coordination with CSMC, financial responsibility

for the prosecution and maintenance of all patents and patent applications thereunder.

Our enforcement of certain of these licensed

patents or defense of any claims asserting the invalidity and/or unenforceability of these patents would also be subject to the

cooperation of the University of Rome, JHU, and/or CSMC.

Additionally, in 2018,

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

Under the Sixth License Amendment, the milestone

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

If the Company does not file an IND

by December 31, 2019, or negotiate an additional extension of the milestone deadline, CSMC would have the option to convert

the exclusive license to a non-exclusive license or to a co-exclusive license or terminate the license under Title 35, Section

203 of the United States Code.

Prior to exercising such option, Capricor has the opportunity to cure the failure to file an IND

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

In the first quarter

of 2020, CSMC notified Capricor that it was in breach of the Exosomes License Agreement because it failed to file an IND by December

31, 2019 and that if not done so by April 19, 2020, that the Exosomes License Agreement shall immediately terminate.

Subsequently,

Capricor informed CSMC that it intends to file an IND prior to that date.

for the prosecution and maintenance of certain patents and patent applications thereunder.

Our enforcement of certain of these

licensed patents or defense of any claims asserting the invalidity and/or unenforceability of these patents would also be subject

to the cooperation of the University of Rome, JHU, and/or CSMC.

The patent positions

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the court to rule that such patents are invalid and/or should not be enforced against that third party.

These lawsuits are expensive

and would consume time and other resources, even if we were successful in discontinuing the infringement of our patents.

there is a risk that the court will determine that these patents are not valid and that we do not have the right to stop the other

party from using the inventions.

There is also the risk that, even if the validity of these patents is upheld, the court will refuse

to stop the other party on the ground that such other party’s activities do not infringe our rights to these patents.

addition, the U.S.

Supreme Court has modified certain legal tests so as to make it harder to obtain patents from the USPTO, and

to defend issued patents against invalidity challenges.

As a consequence, issued patents may be found to contain invalid claims

according to the revised legal standards.

Some of our own or in-licensed patents may be subject to challenge and subsequent invalidation

in a variety of post-grant proceedings, before the Patent Trial and Appeal Board (the PTAB) of the USPTO or in litigation under

the revised legal standards, which make it more difficult to defend the validity of claims in already issued patents.

These lawsuits are

expensive and would consume time and other resources, even if we were successful in discontinuing the infringement of our patents.

In addition, there is a risk that the court will determine that these patents are not valid and that we do not have the right to

stop the other party from using the inventions.

There is also the risk that, even if the validity of these patents is upheld, the

court will refuse to stop the other party on the ground that such other party’s activities do not infringe our rights to

these patents.

In addition, the U.S.

Supreme Court has modified certain legal tests so as to make it harder to obtain patents from

the USPTO, and to defend issued patents against invalidity challenges.

As a consequence, issued patents may be found to contain

invalid claims according to the revised legal standards.

Some of our own or in-licensed patents may be subject to challenge and

subsequent invalidation in a variety of post-grant proceedings, before the Patent Trial and Appeal Board (the PTAB) of the USPTO

or in litigation under the revised legal standards, which make it more difficult to defend the validity of claims in already issued

Furthermore, a third

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fail to pay certain minimum royalties, or fail to maintain the licensed intellectual property.

For example, CSMC has indicated

that our exclusive license with CSMC for exosomes requires us to file an IND by April 19, 2020 or it will automatically terminate

Any termination of these licenses could result in the loss of significant rights and could harm our ability to commercialize

our product candidates.

Disputes may also arise between us and our licensors regarding intellectual property subject to a license

agreement, including:

the scope of rights granted under the license agreement and other contract interpretation-related issues;

whether and the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject

to the licensing agreement;

our right to sublicense patent and other rights to third parties under collaborative development relationships;

our diligence obligations with respect to the use of the licensed technology in relation to our development and commercialization

of our product candidates, and what activities satisfy those diligence obligations;

and the ownership of inventions and know-how

resulting from the joint creation or use of intellectual property by our licensors and us and our partners.

Any termination of these licenses

could result in the loss of significant rights and could harm our ability to commercialize our product candidates.

also arise between us and our licensors regarding intellectual property subject to a license agreement, including:

rights granted under the license agreement and other contract interpretation-related issues;

whether and the extent to which our

technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement;

right to sublicense patent and other rights to third parties under collaborative development relationships;

our diligence obligations

with respect to the use of the licensed technology in relation to our development and commercialization of our product candidates,

and what activities satisfy those diligence obligations;

and the ownership of inventions and know-how resulting from the joint

creation or use of intellectual property by our licensors and us and our partners.

If disputes over intellectual

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Each of those agreements also contains additional obligations that we are required to satisfy.

example, CSMC has indicated that our exclusive license with CSMC for exosomes requires us to file an IND by April 19, 2020 or it

will automatically terminate for breach.

There is no guarantee that we will be able to satisfy all of our obligations under our

license agreements to each of the institutions and that such license agreements will not be terminated.

Each of the institutions

receives funding from independent sources such as the NIH and other private or not-for-profit sources and are investigating scientific

and clinical questions of interest to their own principal investigators as well as the scientific and clinical communities at large.

These investigators (including Capricor, Inc.’s founder, Dr.

Eduardo Marbán, who is the Director of the Smidt Heart

Institute at CSMC) are under no obligation to conduct, continue, or conclude either current or future studies utilizing our cell

is no guarantee that we will be able to satisfy all of our obligations under our license agreements to each of the institutions

and that such license agreements will not be terminated.

Each of the institutions receives funding from independent sources such

as the NIH and other private or not-for-profit sources and are investigating scientific and clinical questions of interest to their

own principal investigators as well as the scientific and clinical communities at large.

These investigators (including Capricor, Inc.’s

Eduardo Marbán, who is the Director of the Smidt Heart Institute at CSMC) and Dr.

Stephen Gould (Johns

Hopkins University) are under no obligation to conduct, continue, or conclude either current or future studies utilizing our cell

therapy or exosomes technology, and they are not compelled to license any further technologies or intellectual property rights

to us except as may be stated in the applicable licensing agreements between those institutions and us.

to us except as may be stated in the applicable licensing agreements or research agreements between those institutions and us.

Changes in these collaborators’

research interests or their funding sources away from our technology would have a material adverse effect on us.

Further, the failure

of any third-party licensor to comply with its licensing obligations under its respective agreement with us would have a material

research interests or their funding sources away from our technology would have a material

adverse effect on us.

We are substantially dependent on our relationships with these institutions from which we license the rights

to our technologies and know-how.

If requirements under our license agreements are not met, including meeting defined milestones,

we could suffer significant harm, including losing rights to our product candidates.

Further, the failure of any third-party licensor to comply with its licensing obligations under its respective

agreement with us would have a material adverse effect on us.

We are substantially dependent on our relationships with these institutions

from which we license the rights to our technologies and know-how.

If requirements under our license agreements are not met, including

meeting defined milestones, we could suffer significant harm, including losing rights to our product candidates.

In addition, we are

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scalable, commercially-ready process to manufacture our exosomes.

Under the terms of the award, disbursements will be made to Capricor

over a period of approximately three years, subject to annual and quarterly reporting requirements.

We were subsequently granted

a no-cost extension until September 29, 2020 in order to be able to continue to utilize these funds.

Under the terms of the award, disbursements were made to Capricor,

subject to annual and quarterly reporting requirements.

The Company utilized approximately $2.3 million of the $2.4 million under

the terms of the award.

We are currently completing all close-out documentation associated with this award.

On February 5,

we entered into the CIRM Loan Agreement, pursuant to which CIRM agreed to disburse approximately $19.8 million to us over a period

of approximately three and one-half years to support Phase II of our ALLSTAR clinical trial.

Under the CIRM Loan Agreement, we

were required to repay the CIRM loan with interest at maturity.

2013, we entered into the CIRM Loan Agreement, pursuant to which CIRM agreed to disburse approximately $19.8 million to us over

a period of approximately three and one-half years to support Phase II of our ALLSTAR clinical trial.

Under the CIRM Loan Agreement,

we were required to repay the CIRM loan with interest at maturity.

So long as we were not in default, the Loan Agreement had provisions

allowing for forgiveness of the debt after the end of the project period, if we elected to abandon the project under certain circumstances.

On November 17, 2017, we gave notice to CIRM that we were electing to abandon the CIRM-funded project pursuant to the Loan Agreement

and on December 11, 2017, Capricor and CIRM entered into Amendment No.

3 to the CIRM Notice of Loan Award whereby the total loan

balance under the CIRM Loan Agreement was forgiven by CIRM thereby terminating Capricor’s and the Company’s obligation

to repay the loan balance.

The Company classified the forgiveness of the loan payable, consisting of principal and accrued interest,

of approximately $15.7 million as “other income”

in our Consolidated Statement of Operations and Comprehensive Income

The decision to terminate the Loan Award and forgive the loan balance was due to the abandonment of the ALLSTAR project

at the end of the project period in accordance with Section 4.10 of the Loan Agreement and Article VII, Section I of the CIRM Loan

Administration Policy.

Additionally, on June 16, 2016, Capricor entered into the CIRM Award with CIRM in the amount of approximately

$3.4 million to fund, in part, the HOPE-Duchenne trial.

Pursuant to terms of the CIRM Award, disbursements were tied to the achievement

of specified operational milestones.

The CIRM Award is further subject to the conditions and requirements set forth in the CIRM

Grants Administration Policy for Clinical Stage Projects.

Such requirements include, without limitation, the filing of quarterly

and annual reports with CIRM, the sharing of intellectual property pursuant to Title 17, California Code of Regulations (CCR) Sections

100600-100612, and the sharing with the State of California of a fraction of licensing revenue received from a CIRM funded research

project and net commercial revenue from a commercialized product which resulted from the CIRM funded research as set forth in Title

17, CCR Section 100608.

The maximum royalty on net commercial revenue that Capricor may be required to pay to CIRM is equal to

nine times the total amount awarded and paid to Capricor.

On November 17, 2017, we gave notice to CIRM that we were electing to abandon the CIRM-funded project pursuant to the Loan

Agreement and on December 11, 2017, Capricor and CIRM entered into Amendment No.

3 to the CIRM Notice of Loan Award whereby

the total loan balance under the CIRM Loan Agreement was forgiven by CIRM thereby terminating Capricor’s and the Company’s

obligation to repay the loan balance.

The Company classified the forgiveness of the loan payable, consisting of principal and accrued

interest, of approximately $15.7 million as “other income”

in our Consolidated Statement of Operations and Comprehensive

Income (Loss).

The decision to terminate the Loan Award and forgive the loan balance was due to the abandonment of the ALLSTAR

project at the end of the project period in accordance with Section 4.10 of the Loan Agreement and Article VII, Section I

of the CIRM Loan Administration Policy.

Additionally, on June 16, 2016, Capricor entered into the CIRM Award with CIRM in

the amount of approximately $3.4 million to fund, in part, the HOPE-Duchenne trial.

Pursuant to terms of the CIRM Award, disbursements

were tied to the achievement of specified operational milestones.

The CIRM Award is further subject to the conditions and requirements

set forth in the CIRM Grants Administration Policy for Clinical Stage Projects.

Such requirements include, without limitation,

the filing of quarterly and annual reports with CIRM, the sharing of intellectual property pursuant to Title 17, California Code

of Regulations (CCR) Sections 100600-100612, and the sharing with the State of California of a fraction of licensing revenue received

from a CIRM funded research project and net commercial revenue from a commercialized product which resulted from the CIRM funded

research as set forth in Title 17, CCR Section 100608.

The maximum royalty on net commercial revenue that Capricor may be

required to pay to CIRM is equal to nine times the total amount awarded and paid to Capricor.

If we enter into strategic partnerships,

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We are actively looking

into potential strategic partnerships for our product candidates, particularly for our CAP-1002 product candidate.

establish strategic partnerships, we potentially will have to undertake development and commercialization efforts with respect

to our product candidates on our own, which would be costly and adversely impact our ability to commercialize any future products

or product candidates.

If we enter into any strategic partnerships with pharmaceutical, biotechnology or other life science companies,

we will be subject to a number of risks, including:

into potential strategic partnerships for our product candidates, particularly for our CAP-1002 and exosomes product candidates.

If we do not establish strategic partnerships, we potentially will have to undertake development and commercialization efforts

with respect to our product candidates on our own, which would be costly and adversely impact our ability to commercialize any

future products or product candidates.

If we enter into any strategic partnerships with pharmaceutical, biotechnology or other

life science companies, we will be subject to a number of risks, including:

we may not be able to control the amount and timing of resources that our strategic partners devote to the development or commercialization of product candidates;

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depend upon independent investigators and collaborators, such as universities, medical institutions, CROs, vendors and strategic

partners to conduct our pre-clinical and clinical trials under agreements with us.

partners to conduct our preclinical and clinical trials under agreements with us.

We negotiate budgets and contracts with CROs,

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third parties, which in some instances may be limited, we cannot control whether or not they devote sufficient time and resources

to our ongoing pre-clinical, clinical and nonclinical programs.

to our ongoing preclinical, clinical and nonclinical programs.

These third parties may also have relationships with other commercial

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employees whom we do recruit.

In early 2019, in an effort to reduce costs and preserve our capital, we reduced our workforce by

21 employees, most of whom were engaged in manufacturing and product development.

There has been a close

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by CSMC, the Company may have rights to that intellectual property under the terms of its license agreements with CSMC.

We have also developed

a close working relationship between the academic lab of Dr.

Stephen Gould at Johns Hopkins University and our research and

development team where employees and consultants of both entities contribute time and services to the research being performed

by the other.

As a result, it can sometimes be unclear whether intellectual property developed out of these services would be owned

by JHU or by the Company, although if owned by JHU, the Company may have rights to that intellectual property under the terms of

its license and research agreements with JHU.

The Company may be

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If our approved drugs fail to achieve market acceptance, we will not be able to generate significant revenue, if any.

Our ability to generate product revenues

will be diminished if our drugs sell for inadequate prices or patients are unable to obtain adequate levels of reimbursement.

Our development of a potential vaccine

for COVID-19 is at an early stage and is subject to significant risks.

Our development of

a COVID-19 vaccine is in early stages, and we may be unable to produce a vaccine that successfully treats the virus in a timely

manner, if at all.

Even if we are able to successfully develop and obtain regulatory approval for a COVID-19 vaccine, if the outbreak

is effectively contained or the risk of coronavirus infection is diminished or eliminated before we can successfully develop and

manufacture our vaccine, we may not be able to generate product revenues from the vaccine.

Additionally, a number of pharmaceutical

companies have already obtained regulatory approval for COVID-19 vaccines, and other companies with significantly more resources

than us are developing COVID-19 vaccines.

Even if we are able to successfully develop and obtain regulatory approval for a COVID-19

vaccine, vaccines produced by these other companies may be superior to our vaccine.

Even if a vaccine that we develop is not inferior

to other available vaccines, it could be difficult to obtain market acceptance.

We are committing financial resources and personnel

to the development of a COVID-19 vaccine which may cause delays in or otherwise negatively impact our other development programs,

despite uncertainties surrounding the longevity and extent of coronavirus as a global health concern.

Our business could be negatively

impacted by our allocation of significant resources to a global health threat that is unpredictable and could rapidly dissipate

or against which our vaccine, if developed, may not be partially or fully effective, or for which better vaccine options may be

Even if our product candidates are

approved, our ability to generate product revenues will be diminished if our drugs sell for inadequate prices or patients are unable

to obtain adequate levels of reimbursement.

Our ability to generate

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or other government regulatory response.

In addition, the market

for our future products will depend significantly on access to third-party payors’

drug formularies, or lists of medications

for which third-party payors provide coverage and reimbursement.

Industry competition to be included in such formularies results

in downward pricing pressures on pharmaceutical companies.

All third-party payors,

whether governmental or commercial, whether inside the United States or outside, are developing increasingly sophisticated methods

of controlling healthcare costs.

In addition, in the United States, no uniform policy of coverage and reimbursement for medical

technology exists among all these payors.

Therefore, coverage of and reimbursement for medical products can differ significantly

from payor to payor.

Further, we believe

that future coverage and reimbursement may be subject to increased restrictions both in the United States and in international

Third-party coverage and reimbursement for our products may not be available or adequate in either the United States or

international markets, limiting our ability to sell our products on a profitable basis.

Significant uncertainty

exists as to the reimbursement status of newly approved healthcare products.

Healthcare payors, including Medicare, are challenging

the prices charged for medical products and services.

Government and other healthcare payors increasingly attempt to contain healthcare

costs by limiting both coverage and the level of reimbursement for drugs.

Even if our product candidates are approved by the FDA,

insurance coverage may not be available, and reimbursement levels may be inadequate, to cover our drugs.

If government and other

healthcare payors do not provide adequate coverage and reimbursement levels for any of our products, once approved, market acceptance

of our products could be reduced.

There have been public

announcements by members of the U.S.

Congress, President Trump and his administration regarding their plans to repeal and replace

the Patient Protection and Affordable Care Act as well as to make changes to Medicare and Medicaid.

While we cannot predict the

timing or impact of any specific changes to applicable laws, the U.S.

government has shown significant interest in pursuing healthcare

reform and reducing healthcare costs.

Any government-adopted reform measures could decrease the amount of reimbursement available

from governmental and other third-party payors for our products.

In the United States,

no uniform policy of coverage and reimbursement for products exists among third-party payors.

Many third-party payors often rely

upon Medicare coverage policy and payment limitations in setting their own coverage and reimbursement policies, but also have their

own methods and approval processes to decide which drugs they will pay for and establish reimbursement levels.

Coverage decisions

may depend upon clinical and economic standards that disfavor new drug products when more established or lower cost therapeutic

alternatives are already available or subsequently become available.

If any of our product candidates fail to demonstrate attractive

efficacy profiles, they may not qualify for coverage and reimbursement.

However, decisions regarding the extent of coverage and

amount of reimbursement to be provided for any product candidates that we develop through approval will be made on a plan-by-plan

One payor’s determination to provide coverage for a product does not assure that other payors will also provide coverage

and adequate reimbursement for the product.

As a result, the coverage determination process will require us to provide scientific

and clinical support for the use of our products to each payor separately and will likely be a time-consuming process.

determines whether or not it will provide coverage for a drug, what amount it will pay for the drug, the applicable formulary tier,

and whether to require step therapy or other utilization management controls.

Such decisions can strongly influence the adoption

of a drug by patients and physicians.

Patients who are prescribed treatments for their conditions and treating healthcare providers

generally rely on third-party payors to reimburse all or part of the associated healthcare costs.

Patients may be unlikely to use

and prescribers unlikely to prescribe our products unless adequate coverage is provided and reimbursement are available.

Additionally, a third-party

payor’s decision to provide coverage for a drug does not imply that an adequate reimbursement rate will be approved.

process for determining whether a third-party payor will provide coverage for a product may be separate from the process for setting

the price of a product or for establishing the reimbursement rate that such a payor will pay for the product.

Third-party payors,

such as government or private healthcare insurers, carefully review and increasingly question the coverage of, and challenge the

prices charged for, drug products.

A primary trend in the U.S.

healthcare industry and elsewhere is cost containment.

authorities and third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular

Increasingly, third-party payors are requiring that pharmaceutical companies provide them with predetermined discounts

from list prices and are challenging the prices charged for products.

We may also be required to conduct expensive pharmacoeconomic

studies to justify the coverage and the amount of reimbursement for particular medications.

We cannot be sure that coverage and

reimbursement will be available for any product that we commercialize and, if reimbursement is available, what the level of reimbursement

Inadequate coverage or reimbursement may impact the demand for, or the price of, any product for which we obtain marketing

If coverage and adequate reimbursement are not available, or are available only to limited levels, we may not be able

to successfully commercialize any product candidates that we develop.

Further, there have

been a number of legislative and regulatory proposals to change the healthcare system that could affect our ability to sell any

future drugs profitably.

government, state legislatures, and foreign governments have shown significant interest in implementing

cost-containment programs, including price controls, restrictions on reimbursement, and requirements for substitution by generic

We anticipate additional state and federal healthcare reform measures will be adopted in the future.

These may include

price controls and cost-containment measures, or more restrictive policies in jurisdictions with existing controls and measures,

any of which could limit the amounts that federal and state governments will pay for healthcare products and services, and potentially

could reduce demand for our products once approved, create additional pricing pressures, or ultimately limit our net revenue and

There can be no assurance that any of our product candidates, if approved, will be considered medically reasonable and

necessary, that they will be considered cost-effective by third-party payors, that coverage or an adequate level of reimbursement

will be available, or that reimbursement policies and practices in the United States and in foreign countries where our products

are sold will not harm our ability to sell our product candidates profitably, if they are approved for sale.

Risks Related to Product and Environmental

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exceed our insurance coverage, could significantly decrease our cash position and adversely affect our business.

In addition, our clinical trial agreements

and most agreements with third-party vendors contain indemnification obligations requiring us to indemnify them from any losses

and claims that may be brought in connection with their provision of services, testing, manufacture or other activities in connection

with the use of our products.

Our business involves risk associated

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failure or discontinuation of any of our research or development programs;

developments in establishing new strategic alliances or with existing alliances;

failure to satisfy licensing obligations, including our ability to file an IND to meet the milestone requirements under our Exosomes License Agreement;

developments in establishing and maintaining new strategic alliances or with existing alliances or collaborators;

failure to satisfy licensing obligations, including our ability to meet milestone requirements under our license agreements;

market conditions in the pharmaceutical, biotechnology and other healthcare related sectors;

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a third party to acquire us, even if doing so would benefit our stockholders.

Ownership of the Company’s

common stock is highly concentrated, which may prevent you and other stockholders from influencing significant corporate decisions

and may result in conflicts of interest that could cause the Company’s stock price to decline.

As of December 31,

2019, our executive officers, directors and holders of five percent or more of our outstanding common stock (based upon our review

of filings made with the SEC by such holders), together with their respective affiliates, owned approximately 25% of our outstanding

common stock.

The interests of these stockholders may not be the same as, or may even conflict with, the interests of our other

stockholders.

These stockholders, acting individually or as a group, will have substantial influence over the outcome of a corporate

action of the Company requiring stockholder approval, including the election of directors, any merger, consolidation or sale of

all or substantially all of the Company’s assets or any other significant corporate transaction.

These stockholders may also

exert influence in delaying or preventing a change in control of the Company, even if such change in control would benefit the

other stockholders of the Company.

In addition, the significant concentration of stock ownership may adversely affect the market

value of the Company’s common stock due to investors’

perception that conflicts of interest may exist or arise.

A significant number of shares of our common stock are

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As of December 31,

2019, there were approximately 5.2 million shares of common stock outstanding, approximately 3.2 million pre-funded common warrants

outstanding, and approximately 4.3 million common warrants outstanding, as well as outstanding awards to purchase approximately

0.8 million shares of common stock under various incentive stock plans of the Company.

Additionally, as of December 31, 2019, there

were approximately 0.1 million shares of common stock available for future issuance under various incentive plans.

additional common stock, warrants and other convertible securities from time to time to finance our operations.

We may also issue

additional shares to fund potential acquisitions or in connection with additional stock options or other equity awards granted

to our employees, officers, directors and consultants under our various incentive plans.

The issuance of additional shares of common

stock, warrants or other convertible securities and the perception that such issuances may occur or exercise of outstanding warrants

or options may have a dilutive impact on other stockholders and could have a material negative effect on the market price of our

common stock.

2020, there were approximately 20.6 million shares of common stock outstanding and approximately 0.1 million common warrants outstanding,

as well as outstanding awards to purchase approximately 2.4 million shares of common stock under various incentive stock plans

of the Company.

Additionally, as of December 31, 2020, there were approximately 1.0 million shares of common stock available

for future issuance under various incentive plans.

We may issue additional common stock, warrants and other convertible securities

from time to time to finance our operations.

We may also issue additional shares to fund potential acquisitions or in connection

with additional stock options or other equity awards granted to our employees, officers, directors and consultants under our various

incentive plans.

The issuance of additional shares of common stock, warrants or other convertible securities and the perception

that such issuances may occur or exercise of outstanding warrants or options may have a dilutive impact on other stockholders and

could have a material negative effect on the market price of our common stock.

The Company’s ability to utilize

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“ownership change”

occurs for tax purposes, as defined by Section 382 of the Internal Revenue Code of 1986, as amended,

occurs for tax purposes, as defined by Section 382 of the Internal Revenue Code of 1986, as

amended, or the Code.

In general, an ownership change occurs when stockholders owning 5% or more of a “loss corporation”

corporation entitled to use NOL or other loss carryforwards) have increased their aggregate ownership of stock in such corporation

(a corporation entitled to use NOL or other loss carryforwards) have increased their aggregate ownership of stock in such corporation

by more than 50 percentage points during any three-year period.

If an “ownership change”

occurs, Section 382 of the

Code imposes an annual limitation on the amount of post-ownership change taxable income that may be offset with pre-ownership change

NOLs of the loss corporation experiencing the ownership change.

The annual limitation is calculated by multiplying the loss corporation’s

value immediately before the ownership change by the greater of the long-term tax-exempt rate determined by the IRS in the month

of the ownership change or the two preceding months.

This annual limitation may be adjusted to reflect any unused annual limitation

for prior years and certain recognized built-in gains and losses for the year.

Section 383 of the Code also imposes a limitation

on the amount of tax liability in any post-ownership change year that can be reduced by the loss corporation’s pre-ownership

change tax credit carryforwards.

occurs, Section 382 of

the Code imposes an annual limitation on the amount of post-ownership change taxable income that may be offset with pre-ownership

change NOLs of the loss corporation experiencing the ownership change.

The annual limitation is calculated by multiplying the loss

corporation’s value immediately before the ownership change by the greater of the long-term tax-exempt rate determined by

the IRS in the month of the ownership change or the two preceding months.

This annual limitation may be adjusted to reflect any

unused annual limitation for prior years and certain recognized built-in gains and losses for the year.

Section 383 of the

Code also imposes a limitation on the amount of tax liability in any post-ownership change year that can be reduced by the loss

corporation’s pre-ownership change tax credit carryforwards.

The merger between

Nile Therapeutics, Inc., or Nile, and Capricor resulted in an “ownership change”

In addition, previous or

current changes in the Company’s stock ownership may have triggered or, in the future, may trigger an “ownership change,”

In addition, previous

or current changes in the Company’s stock ownership may have triggered or, in the future, may trigger an “ownership

change,”

some of which may be outside our control.

Accordingly, the Company’s ability to utilize Nile’s NOL and tax credit carryforwards

may be substantially limited.

These limitations could, in turn, result in increased future tax payments for the Company, which

could have a material adverse effect on the business, financial condition, or results of operations of the Company.

Accordingly, the Company’s ability to utilize Nile’s NOL and

tax credit carryforwards may be substantially limited.

These limitations could, in turn, result in increased future tax payments

for the Company, which could have a material adverse effect on the business, financial condition, or results of operations of the

The requirements of being a public

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we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and other

applicable securities rules and regulations, and are subject to the listing requirements of The Nasdaq Stock Market LLC, or Nasdaq.

Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult,

time-consuming or costly and increase demand on our systems and resources.

The Exchange Act requires, among other things, that

we file annual, quarterly and current reports with respect to our business and operating results and maintain effective disclosure

controls and procedures and internal control over financial reporting.

In order to maintain and, if required, improve our disclosure

controls and procedures and internal control over financial reporting to meet this standard, significant resources and management

oversight may be required.

In addition, these rules and regulations make it more difficult and more expensive for us to obtain

director and officer liability insurance.

As a result, management’s attention may be diverted from other business concerns,

which could harm our business and operating results.

applicable securities rules and regulations, and are subject to the listing requirements of The Nasdaq Stock Market LLC, or

Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities

more difficult, time-consuming or costly and increase demand on our systems and resources.

The Exchange Act requires, among other

things, that we file annual, quarterly and current reports with respect to our business and operating results and maintain effective

disclosure controls and procedures and internal control over financial reporting.

In order to maintain and, if required, improve

our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources

and management oversight is required.

In addition, these rules and regulations make it more difficult and more expensive for

us to obtain director and officer liability insurance.

As a result, management’s attention may be diverted from other business

concerns, which could harm our business and operating results.

Although we have hired employees in order to comply with these requirements,

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Failure to achieve and maintain effective

internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could have a material adverse effect on our

business and stock price.

internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could have a material adverse effect on

our business and stock price.

The Sarbanes-Oxley

Act of 2002, as amended, or Sarbanes-Oxley, as well as rules implemented by the Securities and Exchange Commission, Nasdaq and

any market on which the Company’s shares may be listed in the future, impose various requirements on public companies, including

those related to corporate governance practices.

The Company’s management and other personnel will need to devote a substantial

amount of time to these requirements.

Moreover, these rules and regulations will increase the Company’s legal and financial

compliance costs and will make some activities more time consuming and costly.

Section 404 of Sarbanes-Oxley,

or Section 404, requires that we establish and maintain an adequate internal control structure and procedures for financial reporting.

Our annual reports on Form 10-K must contain an assessment by management of the effectiveness of our internal control over financial

reporting and must include disclosure of any material weaknesses in internal control over financial reporting that we have identified.

Act of 2002, as amended, or Sarbanes-Oxley, as well as rules implemented by the Securities and Exchange Commission, Nasdaq

and any market on which the Company’s shares may be listed in the future, impose various requirements on public companies,

including those related to corporate governance practices.

The Company’s management and other personnel will need to devote

a substantial amount of time to these requirements.

Moreover, these rules and regulations will increase the Company’s

legal and financial compliance costs and will make some activities more time consuming and costly.

Section 404 of

Sarbanes-Oxley, or Section 404, requires that we establish and maintain an adequate internal control structure and procedures

for financial reporting.

Our annual reports on Form 10-K must contain an assessment by management of the effectiveness of

our internal control over financial reporting and must include disclosure of any material weaknesses in internal control over financial

reporting that we have identified.

The requirements of Section 404 are ongoing and also apply to future years.

We expect that our internal control over financial

reporting will continue to evolve as our business develops.

Although we are committed to continue to improve our internal control

processes and we will continue to diligently and vigorously review our internal control over financial reporting in order to ensure

compliance with Section 404 requirements, any control system, regardless of how well designed, operated and evaluated, can provide

only reasonable, not absolute, assurance that its objectives will be met.

Therefore, we cannot be certain that in the future material

weaknesses or significant deficiencies will not exist or otherwise be discovered.

If material weaknesses or other significant deficiencies

occur, these weaknesses or deficiencies could result in misstatements of our results of operations, restatements of our consolidated

financial statements, a decline in our stock price, or other material adverse effects on our business, reputation, results of operations,

financial condition or liquidity.

You may experience future dilution

as a result of future equity offerings.

We expect that

our internal control over financial reporting will continue to evolve as our business develops.

Although we are committed to continue

to improve our internal control processes and we will continue to diligently and vigorously review our internal control over financial

reporting in order to ensure compliance with Section 404 requirements, any control system, regardless of how well designed,

operated and evaluated, can provide only reasonable, not absolute, assurance that its objectives will be met.

Therefore, we cannot

be certain that in the future material weaknesses or significant deficiencies will not exist or otherwise be discovered.

weaknesses or other significant deficiencies occur, these weaknesses or deficiencies could result in misstatements of our results

of operations, restatements of our consolidated financial statements, a decline in our stock price, or other material adverse effects

on our business, reputation, results of operations, financial condition or liquidity.

You may experience future dilution as a result of future

equity offerings.

In order to raise additional

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If our business plans are not successful,

we may not be able to continue operations as a going concern and our stockholders may lose their entire investment in us.

our stockholders may lose their entire investment in us.

We have historically

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product candidates, the occurrence of which cannot be assured.

If we cannot continue as a going concern, our stockholders may lose

If our business plans are not successful, our stockholders may lose

their entire investment in us.

We may be at risk of securities class

action litigation.

action litigation or litigation initiated by individual stockholders.

We may be at risk of

securities class action litigation.

This risk is especially relevant due to our dependence on positive clinical trial outcomes

and regulatory approvals.

In the past, biotechnology and pharmaceutical companies have experienced significant stock price volatility,

particularly when associated with binary events such as clinical trials and product approvals.

If we face such litigation, it could

result in substantial costs and a diversion of management’s attention and resources, which could harm our business and result

in a decline in the market price of our common stock.

securities class action litigation or litigation initiated by individual stockholders.

This risk is especially relevant due to

our dependence on positive clinical trial outcomes and regulatory approvals.

In the past, biotechnology and pharmaceutical companies

have experienced significant stock price volatility, particularly when associated with binary events such as clinical trials and

product approvals.

If we face such litigation, it could result in substantial costs and a diversion of management’s attention

and resources, which could harm our business and result in a decline in the market price of our common stock.

In the event we fail to satisfy any

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equity requirement,

the corporate governance requirements and the minimum closing bid price requirement, among other requirements.

In the event that

we fail to satisfy any of the listing requirements of The NASDAQ Capital Market, our common stock may be delisted.

we recently received a letter from the NASDAQ Listings Qualification Department indicating that it had determined that we failed

to comply with Listing Rule 5550(b)(1) based on the Company’s Form 10-Q for the period ended June 30, 2019, evidencing stockholders’

equity below the required threshold of $2.5 million.

This failure to comply with Rule 5550(b)(1) was remedied in our subsequent

Form 10-Q filing for the period ended September 30, 2019, but there is no guarantee that we will be able to resolve any NASDAQ

listing deficiencies which may occur in the future.

If our securities are delisted from trading on The NASDAQ Stock Market, however,

and we are not able to list our securities on another exchange or to have them quoted on The NASDAQ Stock Market, our securities

could be quoted on the OTC Markets or on the “pink sheets.”

As a result, we could face significant adverse consequences

the corporate governance requirements and the minimum closing bid price requirement, maintaining Board diversity among other requirements.

In the event that we fail to satisfy any of the listing requirements of The NASDAQ Capital Market, our common stock may be delisted.

If our securities are delisted from trading on The NASDAQ Stock Market, however, and we are not able to list our securities on

another exchange or to have them quoted on The NASDAQ Stock Market, our securities could be quoted on the OTC Markets or on the

“pink sheets.”

As a result, we could face significant adverse consequences including:

a limited availability of market quotations for our securities;

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a decreased ability to issue additional securities (including pursuant to short-form registration statements on Form S-3) or obtain additional financing in the future.

If we fail to comply with California

laws governing the diversity of corporate boards of directors, we could be fined by the California Secretary of State.

In September 2018,

California Governor Jerry Brown signed into law Senate Bill 826, or SB 826, which generally requires public companies with principal

executive offices in California to have a minimum number of females on the company's board of directors.

As of December 31,

2019, each public company with principal executive offices in California was required to have at least one female on its board

of directors.

By December 31, 2021, each public company will be required to have at least two females on its board of directors

if the company has at least five directors, and at least three females on its board of directors if the company has at least six

Additionally, on September 30,

2020, California Governor Gavin Newsom signed into law Assembly Bill 979, or AB 979, which generally requires public companies

with principal executive offices in California to include specified numbers of directors from "underrepresented communities."

A director from an "underrepresented community"

means a director who self-identifies as Black, African American, Hispanic,

Latino, Asian, Pacific Islander, Native American, Native Hawaiian, Alaska Native, gay, lesbian, bisexual or transgender.

By December 31,

2021, each public company with principal executive offices in California is required to have at least one director from an underrepresented

By December 31, 2022, a public company with more than four but fewer than nine directors will be required to have

a minimum of two directors from underrepresented communities, and a public company with nine or more directors will need to have

a minimum of three directors from underrepresented communities.

Our board of directors

includes one female director, and no directors from an “underrepresented community.”

If we do not add at least one

female director and at least one director from an “underrepresented community”

to our board of directors prior to December 31,

2021, we would be out of compliance with SB 826 or AB 979, respectively.

An initial violation of either law can result in a fine

from the California Secretary of State in the amount of $100,000, with each subsequent violation resulting in a fine of $300,000.

UNRESOLVED STAFF COMMENTS

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 1A. Risk Factors