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Item 1. Business

2023-03-17 compared with 2022-03-11 · 296 added, 265 removed, 451 unchanged (55% of the section changed)

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Capricor Therapeutics, Inc.

is a clinical-stage biotechnology company focused on the development of transformative cell and exosome-based therapeutics for the treatment and prevention of a broad spectrum of diseases.

Cell Therapy (CAP-1002) Program

CAP-1002 for the treatment of Duchenne Muscular Dystrophy (“DMD”)

Our core cell therapy technology, CAP-1002, is based on cardiosphere-derived cells (“CDCs”), which has been shown in pre-clinical and clinical studies to exert potential immunomodulatory activity and is being investigated for its potential to modify the immune system’s activity to encourage cellular regeneration.

is a clinical-stage biotechnology company focused on the development of transformative cell and exosome-based therapeutics for treating Duchenne muscular dystrophy, or DMD, a rare form of muscular dystrophy which results in muscle degeneration and premature death, and other diseases with high unmet medical needs.

Cell Therapy (CAP-1002) for the Treatment of Duchenne Muscular Dystrophy (Phase III)

Our core program is focused on the development and commercialization of a cell therapy (referred herein as CAP-1002) comprised of cardiosphere-derived cells (“CDCs”), which are an endogenous population of stromal cells isolated from donated cells of healthy human hearts for the treatment of Duchenne muscular dystrophy (“DMD”).

CAP-1002 is designed to slow disease progression in DMD through the immunomodulatory, anti-inflammatory, and anti-fibrotic actions of CDCs, which are mediated by secreted exosomes laden with bioactive cargo.

Among the cargo elements known to be bioactive in CDC-exosomes are microRNAs.

Collectively, these non-coding RNA species alter gene expression in macrophages and other target cells, dialing down generalized inflammation and stimulating tissue regeneration in DMD (and in a variety of other inflammatory diseases).

This mechanism of action, which is consistent with the changes observed in clinical studies to date in circulating inflammatory biomarkers, contrasts with that of exon-skipping oligonucleotides and gene therapy approaches which aim to restore dystrophin expression.

DMD is a rare form of muscular dystrophy which results in muscle degeneration and premature death.

Additionally, the absence of dystrophin in muscle cells leads to significant cell damage and ultimately causes muscle cell death and fibrotic replacement.

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

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

To date, we have completed two promising clinical trials investigating CAP-1002 for DMD.

Data from the first trial, a Phase I/II trial named HOPE-Duchenne, suggested improvements in skeletal and cardiac endpoints.

In HOPE-2, a Phase II clinical trial in the United States, CAP-1002 was used to treat patients with late-stage DMD.

The final data for our HOPE-2 trial indicated that we met our primary efficacy endpoint of Mid-level PUL (version 1.2), our secondary endpoint of Full PUL (version 2.0) and secondary cardiac endpoints of LV Ejection Fraction, LV End-Systolic Volume (indexed) and LV End-Diastolic Volume (indexed).

The full dataset has been submitted for publication and was presented at a late breaking session of the World Muscle Society in September 2021.

We have submitted our protocol for the Phase III HOPE-3 trial to the U.S.

Food and Drug Administration (the “FDA”).

We are proceeding with the study and have initiated start-up activities.

The size of the Phase III trial is estimated to be approximately 70 patients.

In January 2022, we entered into a Commercialization and Distribution Agreement (the “NS Distribution Agreement”) with Nippon Shinyaku Co., Ltd., a Japanese pharmaceutical company listed on the TYO (US subsidiary:

NS Pharma, Inc.), for the exclusive commercialization and distribution of CAP-1002 for DMD in the United States.

Under the terms of this agreement, we expect to receive a $30.0 million upfront payment from Nippon Shinyaku which we will use to fund the HOPE-3 clinical trial.

We plan to begin treating patients in the second quarter of 2022.

CAP-1002 for the treatment of COVID-19

In 2020, under an Expanded Access (or Compassionate Use) program, seven patients hospitalized with severe COVID-19 (also referred to sometimes as SARS-CoV-2) symptoms, six of whom were ventilated, were treated with CAP-1002.

Four of the seven patients were fully discharged and three died between one- and two-months post-treatment.

Previously published data has shown that COVID-19 patients on ventilators experience higher mortality rates.

While we are unable to definitively ascertain whether CAP-1002 improved patient outcomes, by analyzing blood samples and other tests, it was determined that CAP-1002 was associated with identifiable improvements in certain patients such as a decrease in white blood cell count, a decrease in IL-6, a decrease in C-reactive protein, and/or reduced reliance on supplemental oxygen.

However, the efficacy of CAP-1002 in treating COVID-19 was not demonstrated due to the small sample size, the fact that seven patients were contemporaneously on other experimental medications, and the lack of an established control group, among other factors.

In November 2020, we initiated a clinical study called INSPIRE, of CAP-1002 in patients with severe COVID-19.

The INSPIRE trial is a Phase II, randomized, double-blind, placebo-controlled study that aimed to enroll approximately 60 patients from several trial sites in the United States.

The study enrolled patients who have a diagnosis of SARS-CoV-2 and require supplemental oxygen.

Various outcome measures will be analyzed including, but not limited to, safety, cytokine biomarkers, all-cause mortality, cardiac biomarkers and hospitalization length.

In the fourth quarter of 2021, we announced completion of enrollment whereby we randomized 63 patients for this study and we plan to have top-line data available by the end of the first quarter of 2022.

Following receipt of this Phase II data, we will determine if there is an appropriate path forward and will discuss next steps for the program with FDA.

Exosomes Platform

Exosome-Based Therapeutics and Vaccines

In HOPE-2, a Phase II clinical trial conducted in the United States, CAP-1002 was used to treat patients with late-stage DMD.

In March 2022, we announced that the final one-year results from HOPE-2 were published in The Lancet showing that the trial met its primary efficacy endpoint of the mid-level dimension of the Performance of the Upper Limb (“PUL”) v1.2 (p=0.01) and additional positive endpoints of full PUL v2.0 (p=0.04) and a cardiac endpoint of left ventricular ejection fraction (p=0.002).

CAP-1002 was generally safe and well-tolerated throughout the studies.

Additionally, we are conducting an open label extension (“OLE”) study of the HOPE-2 trial in which 12 patients have elected to continue treatment of CAP-1002.

We recently announced positive one-year and 18-month results from this ongoing OLE study.

Data from the OLE study suggests disease modification with statistically significant differences in the PUL v2.0 scale in the CAP-1002 original treatment group when compared to the original placebo group from HOPE-2.

In addition, disease progression was attenuated equally in both groups once patients began treatment in the OLE.

CAP-1002 treatment during the OLE portion of the study continues to yield a consistent safety profile and has been well-tolerated throughout the study.

We are currently enrolling the HOPE-3, Phase III clinical study investigating CAP-1002 for the treatment of late-stage DMD patients for the potential approval of CAP-1002 in the United States.

HOPE-3 is a multi-center, randomized, double-blind, placebo-controlled study currently designed to treat up to 68 subjects at approximately 15-20 investigative sites in the United States.

The primary outcome measure will be the full PUL v2.0 at one-year.

HOPE-3 will also measure various secondary endpoints including cardiac function assessments.

We have currently treated over 30% of the patients in the currently designed study and have 11 active sites.

At this time, our plans to conduct an interim analysis for sample size re-estimation and analysis of conditional power remain unchanged and we anticipate that these results will be available in the fourth quarter of this year.

Under our RMAT designation, we recently met with the FDA in a Type-B CMC meeting where we discussed our manufacturing plans in anticipation of a potential BLA application.

In the meeting, we discussed our plans with respect to commercial manufacturing activities, including our potency assay and other product release criteria to support commercialization.

We are awaiting the meeting minutes from the FDA, but at this time, we believe that we will need to

add some patients to HOPE-3 who will be treated with product manufactured at our new San Diego facility, in order to support a potential BLA application.

Our San Diego facility is designed to produce commercial-scale GMP CAP-1002 product and we believe that it will be available to manufacture CAP-1002 doses by the third quarter of 2023.

We plan to request a follow-on Type B clinical meeting with FDA and expect to have further clarity following that meeting on this topic.

Furthermore, at the request of the FDA, we have submitted the interim results from our HOPE-2 OLE for their review and we continue to discuss our pathway towards potential registration.

The regulatory pathway for CAP-1002 is supported by Regenerative Medicine Advanced Therapy (“RMAT”) designation as well as orphan drug designation.

If Capricor were to receive market approval for CAP-1002 by the U.S.

Food and Drug Administration (“FDA”), Capricor would be eligible to receive a Priority Review Voucher based on its designation as a rare pediatric disease.

Capricor has entered into two Commercialization and Distribution Agreements with Nippon Shinyaku, Co., Ltd.

(“Nippon Shinyaku”) appointing Nippon Shinyaku as its exclusive distributor of CAP-1002 in the United States and Japan.

Exosomes Platform (Preclinical)

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

Aspects of our exosomes pipeline have been supported through collaborations and alliances.

Our collaborations around exosomes include Johns Hopkins University (“JHU”), the Department of Defense (“DoD”), the U.S.

Army Institute of Surgical Research (“USAISR”), the National Institutes of Health (“NIH”) and Cedars-Sinai Medical Center (“CSMC”).

Engineered Exosome-Based Therapeutics and Vaccines

We are focused on developing a precision-engineered exosome platform technology that has the ability to deliver defined sets of effector molecules which exert their effects through defined mechanisms of action.

At this time, we are developing therapeutics and vaccines for infectious diseases, monogenic diseases and other potential indications.

This program consists of exosome-based vaccines, engineered exosomes and exosomes derived from CDCs (CAP-2003), all of which are in various stages of preclinical development.

Our current focus is on the development of exosomes loaded with nucleic acids or proteins, including mRNA, to treat a variety of diseases.

mRNA medicines are not small molecules, like traditional pharmaceutical drugs and they are not traditional biologics (such as recombinant proteins and monoclonal antibodies), which were the origins of the biotech industry.

Instead, mRNA medicines are sets of instructions, and these instructions direct cells in the body to make all the proteins required for life as well as to prevent or fight disease.

Our platform builds on advances in fundamental RNA science, targeting technology and manufacturing, providing us the opportunity to potentially build a broad pipeline of new therapeutic candidates.

In 2021, we entered into an Exclusive License Agreement (the “JHU Exosomes License Agreement”) with Johns Hopkins University (“JHU”) for its co-owned interest in certain intellectual property rights related to exosome-mRNA vaccines and therapeutics.

In collaboration with researchers at JHU, we published data demonstrating exosome-mediated delivery of mRNAs with enhanced expression and lower toxicity compared to lipid nanoparticles.

Additionally, we showed functional enzyme expression and real-time imaging of mRNA expression in live animals.

Building on this platform, we have promising data for enhanced targeting of exosomes.

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

Additionally, throughout 2020 and 2021 we have been engaged in the development of vaccine candidates targeting the potential prevention of COVID-19.

The first vaccine candidate is a multivalent exosome-mRNA vaccine designed to elicit a protective, long-lasting immune response to SARS-CoV-2 by targeting multiple structural proteins of the virus.

In 2021, we announced promising preclinical data from a study using our exosome-mRNA vaccine approach.

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

Based on the current COVID-19 vaccine landscape and global circumstances, we have decided to refrain from further development and the filing of an IND for our exosome-mRNA vaccine until we determine that doing so would be advantageous.

We plan to continue research investigating these vaccine candidates.

We recently published new preclinical data on our StealthX TM platform showing the rapid development of a recombinant protein-based vaccine for immunization and prevention against SARS-CoV-2, the virus causing COVID-19.

At this time, we are developing exosome-based vaccines and therapeutics for infectious diseases, monogenic diseases and other potential indications.

Our current strategy is focused on securing partners who will provide capital and additional resources to bring this program into the clinic, should we decide to do so.

CDC-Derived Exosomes (CAP-2003)

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We have promising preclinical data in several indications from studies done utilizing CAP-2003 in our labs as well as in collaboration with other companies and academic institutions.

In April 2020, we filed an IND with the FDA to investigate the use of CAP-2003 in patients with DMD.

The FDA has requested more information related to manufacturing for this product candidate and we are evaluating the next steps for this program.

We need to submit further information to FDA to support the potential acceptance of this IND.

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

Army Institute of Surgical Research (“USAISR”), pursuant to which we agreed to cooperate in research and development on the evaluation of our CAP-2003 for the treatment of trauma related injuries and conditions.

In 2021, in collaboration with the USAIRSR, we published a manuscript demonstrating CAP-2003 as a potential antishock therapeutic, if delivered early.

Aspects of our exosomes pipeline have been supported through collaborations and alliances.

In 2020, we entered into a Sponsored Research Agreement (the “SRA”) with JHU, pursuant to which researchers in the lab of Dr.

Stephen Gould have performed certain research activities in connection with our exosomes program and the further development of the platform.

Additional collaborations include the Department of Defense (“DoD”), the National Institutes of Health (“NIH”) and Cedars-Sinai Medical Center (“CSMC”).

In 2020, we filed an IND with the FDA to investigate the use of CAP-2003 in patients with DMD.

The FDA has requested more information related to manufacturing for this product candidate and we are evaluating the next steps for this program as we continue to further develop our exosome platform.

Our Technologies

Cardiosphere-Derived Cells (CAP-1002)

Our core cell therapy technology is based on cardiosphere-derived cells (“CDCs”), a cardiac-derived cell therapy that was first identified in the academic laboratory of Capricor’s scientific founder, Dr.

Eduardo Marbán.

Our core cell therapy technology is based on cardiosphere-derived cells, a cardiac-derived cell therapy that was first identified in the academic laboratory of Capricor’s scientific founder, Dr.

Eduardo Marbán while he was Chief of Cardiology at JHU.

Since the initial publication in 2007, CDCs have been the subject of over 100 peer-reviewed scientific publications and have been administered to over 200 human subjects across several clinical trials.

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

We have been developing allogeneic CDCs (CAP-1002) as a product candidate for the treatment of Duchenne muscular dystrophy (“DMD”) and investigating their effects on skeletal-muscular and cardiac function.

Preclinical and clinical data support the therapeutic concept of administering CDCs as a means to address conditions in which the heart or skeletal muscle has been damaged.

We have been developing allogeneic CDCs (CAP-1002) as a product candidate for the treatment of DMD and investigating their effects on skeletal-muscular and cardiac function.

Preclinical and clinical data support the therapeutic concept of administering CDCs as a means to address conditions in which the skeletal or heart muscle has been damaged.

In a variety of preclinical experimental models of heart injury, CDCs have been shown to stimulate cell proliferation and blood vessel growth and to inhibit programmed cell death and scar formation.

Published data by CSMC, which tested the effectiveness of CDCs in a mouse model of DMD, showed for the first time that the skeletal and cardiac improvements could be directly attributed to treatment with CDCs.

The data also provide further evidence of the potential of CDCs to stimulate tissue repair and regeneration by first reducing inflammation, which then enables new healthy muscle to form, as was shown in the mouse model of DMD.

The data also provide further evidence of the potential

of CDCs to stimulate tissue repair and regeneration by first reducing inflammation, which then enables new healthy muscle to form, as was shown in the mouse model of DMD.

CDCs are derived from cardiospheres (“CSps”), which are self-adherent multicellular clusters derived from the heart.

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While CDCs originate from either a deceased human donor (allogeneic source) or from heart tissue taken directly from recipient patients themselves (autologous source), the methods for manufacturing CDCs from either source are similar.

Capricor’s proprietary manufacturing methods are focused on producing therapeutic doses of CDCs to boost the regenerative capacity of the heart and skeletal muscles, with the goal of improving cardiac and skeletal muscle function.

Capricor’s proprietary manufacturing methods are focused on producing therapeutic doses of CDCs to boost the regenerative capacity of the skeletal and heart muscles, with the goal of improving skeletal and cardiac muscle function.

Capricor has exclusively licensed intellectual property covering CDCs and CSps from three academic institutions and is also pursuing its own intellectual property rights relating to CDCs as a product candidate.

Schematic summary of mechanism of action and clinical trials for CDCs (1)(2)

(1) Image adapted from HOPE-2 Lancet Publication (March 2022)

(2) The CADUCEUS, ALPHA and REGRESS studies were sponsored by academic investigators.

Extracellular vesicles, including exosomes and microvesicles, are nano-scale, membrane-enclosed vesicles which are secreted by most cells and contain characteristic lipids, proteins and nucleic acids such as mRNA and microRNAs.

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The following table summarizes our active product development programs:

Indication/Population

Product Candidate

Development Stage

(allogeneic CDCs)

Duchenne muscular dystrophy*

Phase III – initiation underway

Phase III enrolling

Nippon Shinyaku Co., Ltd.

and Japan distribution rights)

Phase II completed**

HOPE-Duchenne

Phase I/II completed***

Phase II enrollment complete

Exosome protein-based vaccine (multivalent design)

Engineered Exosomes (RNA, protein and small molecule delivery)

CDC-Exosomes (CAP-2003)

CAP-2003 (CDC-exosomes)

Duchenne muscular dystrophy

IND submitted

Food and Drug Administration, or FDA, has granted Orphan Drug, Regenerative Medicine Advanced Therapies, or RMAT, and Rare Pediatric Disease designations to CAP-1002 for the treatment of DMD.

* The FDA has granted orphan drug, RMAT, and Rare Pediatric Disease designations to CAP-1002 for the treatment of DMD.

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

***We completed an Open Label Extension, or OLE, for the usual care only comparator arm of the HOPE-Duchenne trial.

Duchenne Muscular Dystrophy Program

Background on Duchenne Muscular Dystrophy

DMD is a rare form of muscular dystrophy which results in muscle degeneration and premature death.

DMD affects approximately 1 in 3,600 male infants worldwide, and it is estimated that approximately 15,000 to 20,000 boys and young men are living with the disease in the United States.

DMD affects approximately 1 in 3,600 male infants worldwide, and it is estimated that approximately 15,000 to 20,000 boys and young men are living with the disease in the United States and approximately 200,000 worldwide.

DMD results from the lack of functional dystrophin protein caused by a gene mutation.

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

Performance of the Upper Limb (PUL entry items) (1)

(CAP-1002 current target population)

(1) Image adapted from HOPE-2 Lancet Publication (March 2022)

Phase III HOPE-3 Clinical Trial

HOPE-3 is a multi-center, randomized, double-blind, placebo-controlled study currently designed to treat up to 68 subjects at approximately 15-20 investigative sites in the United States.

The clinical trial is designed to evaluate the safety and efficacy of repeat, intravenous (“IV”) doses of CAP-1002, in boys and young men with evidence of skeletal muscle impairment regardless of ambulatory status and who are on a stable regimen of systemic glucocorticoids.

HOPE-3 participants will be randomized to either CAP-1002 or placebo in a 1:1 ratio.

The active arm of participants in the trial will receive 150 million cardiosphere-derived cells (CAP-1002) via intravenous infusion every 3 months for a total of 4 doses.

The study’s primary outcome measure will be the PUL v2.0, a validated tool specifically designed for assessing high (shoulder), mid (elbow) and distal (wrist and hand) function, with a conceptual framework reflecting weakness progression in upper limb function.

HOPE-3 will also measure various secondary endpoints including cardiac function assessments.

Enrollment is currently ongoing at 11 active clinical trial investigative sites in the United States.

Phase II HOPE-2 Clinical Trial

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

The clinical trial was designed to evaluate the safety and efficacy of repeat, intravenous, or IV, doses of CAP-1002, in boys and young men with evidence of skeletal muscle impairment regardless of ambulatory status and who are on a stable regimen of systemic glucocorticoids.

While there are many clinical initiatives in DMD, HOPE-2 was one of the very few to focus on non-ambulant patients.

These boys and young men are looking to maintain what function they have in their arms and hands, and Capricor’s previous study of a single intracoronary dose of CAP-1002 provided promising preliminary evidence on the retention or slowing of the loss of upper limb function.

The clinical trial was designed to evaluate the safety and efficacy of repeat, IV, doses of CAP-1002, in boys and young men with evidence of skeletal muscle impairment regardless of ambulatory status and who were on a stable regimen of systemic glucocorticoids.

While there are many clinical initiatives in DMD, HOPE-2 was one of the very few to focus on predominantly non-ambulant patients.

These boys and young men are looking to maintain what function they have in their arms and hands, and Capricor’s previous Phase I/II (HOPE-Duchenne) study of a single intracoronary dose of CAP-1002 provided promising preliminary evidence on the retention or slowing of the loss of upper limb function.

The primary efficacy endpoint of the HOPE-2 trial was the relative change in patients’ abilities to perform manual tasks that relate to activities of daily living and are important to their quality of life.

These abilities were measured through

the Performance of the Upper Limb (“PUL”), test.

These abilities were measured through the Performance of the Upper Limb PUL test.

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

Although the PUL 1.2 version for the mid-level was the primary endpoint established for the trial, we also conducted an analysis using the PUL 2.0 version as the FDA suggested the use of the updated PUL 2.0 version as the primary efficacy endpoint in support of a Biologics License Application (“BLA”).

Although the PUL v1.2 for the mid-level was the primary endpoint established for the trial, we also conducted an analysis using the PUL v2.0 as the FDA suggested the use of the updated PUL v2.0 as the primary efficacy endpoint in support of a Biologics License Application (“BLA”).

HOPE-2 assessed the mid-level dimension of the PUL which evaluates one’s ability to use muscles extending from the elbow to the hand, which muscles are essential for operating wheelchairs and performing other daily functions.

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In July 2019, we reported interim top-line results from a pre-specified interim analysis of 6-month data from the HOPE-2 trial which showed promising results across several independent clinical measures.

In September 2021, we reported the final 12-month results from the HOPE-2 study.

In September 2021, we reported the final 12-month results from the HOPE-2 study and subsequently, in March 2022, we announced that the results were published in The Lancet .

The final data showed improvements in upper limb and cardiac function with p-values of less than p=0.05 in multiple measures.

With the exception of steroids, preservation of function in DMD is uncommon.

The results of the placebo patients were consistent with natural history, but in the treated group, most patients were stable or improved on these endpoints throughout the one-year treatment period.

Additionally, the final data suggested global improvements in cardiac function as measured by ejection fraction and indexed volumes (LVESV, LVEDV).

Left ventricular ejection fraction (LVEF), a global measure of cardiac pump function, decreased in the placebo group over time, but improved in the CAP-1002 group, showing a 107% slowing of progression of cardiac disease (p=0.002).

Additionally, the final data suggested global improvements in cardiac function as measured by indexed volumes (LVESV, LVEDV).

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

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To our knowledge, this is the first clinical study in DMD that correlates cardiac functional stabilization with a reduction of a biomarker of cell damage.

Study Results

12-Month Final Efficacy Data:

With the exception of steroids, preservation of function in DMD is uncommon.

The results of the placebo patients were consistent with natural history, but in the treated group, most patients were stable or improved on these endpoints throughout the one-year treatment period.

Study Results - 12-Month Final Efficacy Data

12-Month Difference in Change from Baseline†

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Skeletal-Muscle (Upper Limb Function)

Mid-level PUL (version 1.2)

Shoulder + Mid + Distal PUL (version 1.2)

Shoulder + Mid + Distal PUL (version 2.0)

Mid-level PUL (v1.2)*

Shoulder + Mid + Distal PUL (v1.2)

Shoulder + Mid + Distal PUL (v2.0)

Cardiac Function

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Creatine Kinase-MB (% of total CK)

ITT (intent to treat) population shown

†Non-parametric mixed model repeated measures analysis with percentile ranked baseline, treatment, visit, visit-by-treatment interaction, PUL entry-item score at stratification, and site as model effects.

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‡Negative value favors CAP-1002

ITT (intent to treat) population shown

Additionally, we are conducting an open-label extension available to all patients who participated in the HOPE-2 study which includes those patients who received placebo.

*Graphed figures below

PUL v1.2 mid-level dimension (1)

Left ventricular ejection fraction % (LVEF) (1)

(1) Images adapted from HOPE-2 Lancet Publication (March 2022)

CAP-1002 was generally safe and well tolerated throughout the study.

With the exception of hypersensitivity reactions which were mitigated with a common pre-medication regimen, no safety signals were identified in the HOPE-2 trial.

With the exception of hypersensitivity reactions early in the clinical trial, which were mitigated with a common pre-medication regimen, there were no serious safety signals identified by the HOPE-2 Data and Safety Monitoring Board (“DSMB”).

Open Label Extension (OLE) HOPE-2 Clinical Trial

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

After the completion of the HOPE-2 study, all patients stopped treatment for approximately 392 days, which is referred to as the gap phase.

Then all eligible patients who wished to remain on treatment re-entered the OLE study where they received CAP-1002 (150 million cells per infusion) every three months.

Patients in the ongoing study are being evaluated using the PUL v2.0 as well as cardiac assessments at certain time-points.

We recently announced positive one-year and 18-month results from this ongoing OLE study.

Data from the OLE study continues to show evidence for disease modification with statistically significant differences in the PUL v2.0 scale in the CAP-1002 original treatment group when compared to the original placebo group from HOPE-2.

CAP-1002 treatment during the OLE portion of the study continues to yield a consistent safety profile and has been well-tolerated throughout the study.

We plan to report the 24-month OLE data in the second quarter of this year.

Phase I/II HOPE-Duchenne Clinical Trial

We completed the randomized, controlled, multi-center Phase I/II HOPE-Duchenne clinical trial which was designed to evaluate the safety and exploratory efficacy of CAP-1002 in patients with cardiomyopathy associated with DMD.

In 2017, we completed the randomized, controlled, multi-center Phase I/II HOPE-Duchenne clinical trial which was designed to evaluate the safety and exploratory efficacy of CAP-1002 in patients with cardiomyopathy associated with DMD.

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

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In July 2017, the FDA granted Rare Pediatric Disease Designation to CAP-1002 for the treatment of DMD.

The FDA defines a “rare pediatric disease” as a serious or life-threatening disease in which the serious or life-threatening manifestations primarily affect individuals aged from birth to 18 years and that affects fewer than 200,000 individuals in the United States, or a disease or condition that affects more than 200,000 people in the United States and for which there is no reasonable expectation that the cost of developing and making available in the United States a drug for this type of disease or condition will be recovered from sales in the United States for that drug.

Under the FDA's Rare Pediatric Disease Priority Review Voucher program, upon the approval of a qualifying New Drug Application, or NDA, or BLA for the treatment of a rare pediatric disease, the sponsor of such application would be eligible for a Rare Pediatric Disease Priority Review Voucher that can be used to obtain priority review for a subsequent NDA or BLA.

disease or condition will be recovered from sales in the United States for that drug.

Under the FDA's Rare Pediatric Disease Priority Review Voucher program, upon the approval of a qualifying New Drug Application (“NDA”) or BLA for the treatment of a rare pediatric disease, the sponsor of such application would be eligible for a Rare Pediatric Disease Priority Review Voucher that can be used to obtain priority review for a subsequent NDA or BLA.

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

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The RMAT designation makes therapies eligible for the same actions to expedite the development and review of a marketing application that are available to drugs that receive fast track or breakthrough therapy designation – including increased meeting opportunities, early interactions to discuss any potential surrogate or intermediate endpoints and the potential to support accelerated approval.

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

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

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

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

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

These targets include pro-inflammatory pathways (TNF-α, interferon γ, IL-1, and IL-6) and anti-inflammatory pathways (regulatory T cells and IL-10) that have been explored with CAP-1002 in preclinical models of myocardial ischemia, myocarditis, heart failure, Duchenne muscular dystrophy and pulmonary hypertension.

Given that CAP-1002 polarizes macrophages to an anti-inflammatory (healing) immunomodulatory phenotype, CAP-1002 may subsequently attenuate the cytokine storm associated with SARS-CoV-2.

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

We have completed enrollment in the INSPIRE Phase II clinical trial in patients with a diagnosis of SARS-CoV-2.

We plan to have top-line data available by the end of the first quarter of 2022.

CAP-1002 for the Treatment of Cardiac Conditions:

In previous years, we completed several trials investigating the use of CAP-1002 for the treatment of various cardiac conditions, including heart failure (the DYNAMIC Trial) and post myocardial infarction (MI) with cardiac dysfunction (the ALLSTAR trial).

Because of our decision to focus our efforts on DMD, we have decided not to pursue those indications at this time, nor do we have any plans to continue with the development of these programs.

We expect no further material expenses in connection with these programs.

Collaboration Agreements

To accelerate the advancement of our technologies, we have entered into, and intend to seek other opportunities to form collaborations with a diverse group of strategic partners.

We have forged productive collaborations with pharmaceutical and biotechnology companies, government agencies, academic laboratories, and research institutes with diverse area expertise and resources in as effort to advance our programs.

Commercialization and Distribution Agreement with Nippon Shinyaku (Territory:

United States)

On January 24, 2022, Capricor entered into an Exclusive Commercialization and Distribution Agreement (the “U.S.

Distribution Agreement”) with Nippon Shinyaku, a Japanese corporation.

Under the terms of the U.S.

Distribution Agreement, Capricor appointed Nippon Shinyaku as its exclusive distributor in the United States of CAP-1002 for the treatment of DMD.

Under the terms of the U.S.

Distribution Agreement, Capricor will be responsible for the conduct of the HOPE-3 trial as well as the manufacturing of CAP-1002.

Nippon Shinyaku will be responsible for the distribution of CAP-1002 in the United States.

Pursuant to the U.S.

Distribution Agreement, Capricor has the obligation to sell commercial product to Nippon Shinyaku, subject to regulatory approval, and in addition Capricor will have the right to receive a meaningful, double-digit share of product revenue and additional development and sales-based milestone payments, if achieved.

In the first quarter of 2022, Capricor received an upfront payment of $30.0 million.

Pursuant to the terms of the U.S.

Distribution Agreement, there are potential additional sales and development milestone payments of up to $705.0 million.

Commercialization and Distribution Agreement with Nippon Shinyaku (Territory:

On February 10, 2023, Capricor entered into an Exclusive Commercialization and Distribution Agreement (the “Japan Distribution Agreement”) with Nippon Shinyaku.

Under the terms of the Japan Distribution Agreement, Capricor appointed Nippon Shinyaku as its exclusive distributor in Japan of CAP-1002 for the treatment of DMD.

Under the terms of the Japan Distribution Agreement, Capricor expects to receive an upfront payment of $12 million and in addition, Capricor will potentially receive additional development and sales-based milestone payments of up to approximately $89 million, subject to foreign currency exchange rates, and a meaningful double-digit share of product revenue.

Nippon Shinyaku will be responsible for the distribution of CAP-1002 in Japan.

Capricor will be responsible for the conduct of clinical development in Japan, as may be required, as well as the manufacturing of CAP-1002.

Capricor will sell commercial product to Nippon Shinyaku.

In addition, Capricor or its designee will hold the Marketing Authorization in Japan if the product is approved in that territory.

Cooperative Research and Development Agreement with the U.S.

Army Institute of Surgical Research

In 2018, we entered into a Cooperative Research and Development Agreement with the USAISR, pursuant to which we agreed to cooperate in research and development on the evaluation of our CAP-2003 for the treatment of trauma

related injuries and conditions.

In 2021, in collaboration with the USAISR, we published a manuscript demonstrating CAP-2003 as a potential antishock therapeutic, if delivered early.

Other CAP-1002 Programs

CAP-1002 - Investigator Sponsored Clinical Trials

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These cells were developed as part of the Company’s past research and development efforts.

The first trial is known as “Regression of Fibrosis and Reversal of Diastolic Dysfunction in HFpEF Patients Treated with Allogeneic CDCs, or the REGRESS trial.

The first trial is known as “Regression of Fibrosis and Reversal of Diastolic Dysfunction in HFpEF Patients Treated with Allogeneic CDCs (the “REGRESS trial”).

Eduardo Marbán is the named principal investigator under the study.

The second trial is known as “Pulmonary Arterial Hypertension treated with Cardiosphere-derived Allogeneic Stem Cells, or the ALPHA trial.

The second trial is known as “Pulmonary Arterial Hypertension treated with Cardiosphere-derived Allogeneic Stem Cells (the “ALPHA trial”).

In this trial, the investigational product was infused into the venous system via catheter into the right atrium.

CSMC informed us that the enrollment of the REGRESS and ALPHA studies have been completed and as a result, we do not expect to receive any further material revenues from these trials.

CSMC informed us that the enrollment of the REGRESS and ALPHA trials have been completed and as a result, we do not expect to receive any further material revenues from these trials.

CAP-1002 for the Treatment of Cardiac Conditions

In previous years, we completed several trials investigating the use of CAP-1002 for the treatment of various cardiac conditions, including heart failure (the “DYNAMIC Trial”) and post myocardial infarction (“MI”) with cardiac dysfunction (the “ALLSTAR trial”).

Because of our decision to focus our efforts on DMD, we have decided not to pursue those indications at this time, nor do we have any plans to continue with the development of these programs.

We expect no further material expenses in connection with these programs.

Engineered Exosome Platform

StealthX TM Platform

The data explored the therapeutic potential of Capricor’s proprietary StealthX™ platform, which generated two vaccine candidates (STX-S and STX-N), that independently, and in combination (STX-S+N), induced a strong immune response against two SARS-CoV-2 proteins, spike and nucleocapsid.

Results showed that this multivalent, protein-based vaccine candidate has the potential to achieve potent, longer lasting immunization, broaden reactivity and improve T-cell response with only nanograms of protein without any adjuvant.

The data from this study suggests that StealthX™ could potentially deliver a more potent vaccine with broader immunity than is currently available, by combining the advantages of both mRNA and recombinant protein vaccines into a potentially superior, rapidly generated, low-dose vaccine.

The current study used engineered exosomes to express either SARS-CoV-2 spike (StealthX-Spike, STX-S) or nucleocapsid (StealthX-Nucleocapsid, STX-N) protein on the exosome surface rapidly, a timeframe similar to mRNA vaccines.

When administered as a single product, both STX-S and STX-N induced strong immunization with the production of a potent humoral and cellular immune response simultaneously.

These effects were obtained with administration of only nanograms of protein without the use of any adjuvant or lipid nanoparticles which further supports the potential safety profile of this product candidate.

The study also investigated the combination of STX-S and STX-N, namely STX-S+N, in two independent animal models.

Administration of this multivalent, low dose protein-based vaccine resulted in increased, persistent antibody production, potent neutralizing antibodies with cross-reactivity to other variants of concern, and strong T-cell response.

The results show efficacy of this multivalent protein-based vaccine for SARS-CoV-2 in model systems and suggests that other vaccines or therapeutics could potentially be rapidly developed using the same StealthX™ platform.

At this time, we are developing exosome-based vaccines and therapeutics for infectious diseases, monogenic diseases and other potential indications.

Our platform builds on advances in fundamental RNA and protein science, targeting technology and manufacturing, providing us the opportunity to potentially build a broad pipeline of new therapeutic candidates.

We plan to continue research investigating these vaccine candidates including conducting IND-enabling studies.

These programs represent our core technology and products.

Intellectual Property and Proprietary Know-How

Our goal is to obtain, maintain and enforce patent rights for our products, formulations, processes, methods of use and other proprietary technologies, preserve our trade secrets, and operate without infringing on the proprietary rights of other parties, both in the United States and abroad.

Our goal is to obtain, maintain and enforce patent rights for our products, formulations, processes, methods of use and other proprietary technologies, preserve our trade secrets, and operate without knowingly infringing on the valid and enforceable proprietary rights of other parties, both in the United States and abroad.

Our policy is to actively seek to obtain, where appropriate, the broadest intellectual property protection possible for our current product candidates and any future product candidates, proprietary information and proprietary technology through a combination of contractual arrangements and patents, both in the United States and abroad.

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To this end, we require all of our employees, consultants, advisors and other contractors to enter into confidentiality agreements that prohibit the disclosure and use of confidential information and, where applicable, require disclosure and assignment to us of the ideas, developments, discoveries and inventions relevant to our technologies and important to our business.

The development of complex biotechnology products such as ours typically includes the early discovery of a technology platform – often in an academic institution – followed by increasingly focused development around a product opportunity, including identification and definition of a specific product candidate and development of scalable manufacturing processes, formulations, delivery and dosage regimens.

As a result, biotechnology products are often protected by several families of patent filings that are made at different times in the development cycle and cover different aspects of the product.

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Patent expirations on products may therefore span several years and vary from country to country based on the scope of available coverage.

Our patents, or patent applications, if issued and upon payment of patent maintenance fees,

would expire as early as 2024 and as late as 2042.

Our patents, or patent applications, if issued and upon payment of patent maintenance fees, would expire as early as 2024 and as late as 2043 or beyond depending on any patent term adjustment or patent term extension.

There are also limited opportunities to obtain extensions of patent terms in certain countries.

Intellectual Property Rights for Capricor’s Technology - CAP-1002 and Exosomes

Capricor has entered into exclusive license agreements for intellectual property rights related to certain cardiac-derived cells with Università Degli Studi Di Roma La Sapienza, or the University of Rome, JHU and CSMC.

Capricor has also entered into an exclusive license agreement for intellectual property rights related to exosomes with CSMC and JHU as well as a non-exclusive license agreement with JHU related to the imaging-based serology technology for COVID-19.

Capricor has also entered into an exclusive license agreement for intellectual property rights related to exosomes with CSMC and JHU.

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

University of Rome License Agreement

Capricor and the University of Rome entered into a License Agreement, dated June 21, 2006, or the Rome License Agreement, which provides for the grant of an exclusive, world-wide, royalty-bearing license by the University of Rome to Capricor (with the right to sublicense) to develop and commercialize licensed products under the licensed patent rights in all fields.

Capricor has a right of first negotiation, for a certain period of time, to obtain a license to any new and separate patent applications owned by the University of Rome utilizing cardiac stem cells in cardiac care.

Capricor and the University of Rome entered into a License Agreement, dated June 21, 2006 (the “Rome License Agreement”), which provides for the grant of an exclusive, world-wide, royalty-bearing license by the University of Rome to Capricor (with the right to sublicense) to develop and commercialize licensed products under the licensed patent rights in all fields.

Pursuant to the Rome License Agreement, Capricor paid the University of Rome a license issue fee, is currently paying minimum annual royalties in the amount of 20,000 Euros per year, and is obligated to pay a lower-end of a mid-range double-digit percentage on all royalties received as a result of sublicenses granted, which are net of any royalties paid to third parties under a license agreement from such third party to Capricor.

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License Agreement for CDCs

Capricor and JHU entered into an Exclusive License Agreement, effective June 22, 2006, or the JHU License Agreement, which provides for the grant of an exclusive, world-wide, royalty-bearing license by JHU to Capricor (with the right to sublicense) to develop and commercialize licensed products and licensed services under the licensed patent rights in all fields and a nonexclusive right to the know-how.

In May 2009, the JHU License Agreement was amended to add additional patent rights to the JHU License Agreement in consideration of a payment to JHU and reimbursement of patent costs.

Capricor and JHU executed a Second Amendment to the JHU License Agreement, effective as of December 20, 2013, pursuant to which, among other things, certain definitions were added or amended, the timing of certain obligations was revised and other obligations of the parties were clarified.

Capricor and JHU entered into an Exclusive License Agreement, effective June 22, 2006 (the “JHU License Agreement”), which provides for the grant of an exclusive, world-wide, royalty-bearing license by JHU to Capricor (with the right to sublicense) to develop and commercialize licensed products and licensed services under the licensed patent rights in all fields and a nonexclusive right to the know-how.

Various amendments were entered into to revise certain provisions of the JHU License Agreement.

Under the JHU License Agreement, Capricor is required to exercise commercially reasonable and diligent efforts to develop and commercialize licensed products covered by the licenses from JHU.

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The minimum annual royalties are creditable against a low single-digit running royalty on net sales of products and net service revenues, which Capricor is also required to pay under the JHU License Agreement, which running royalty may be subject to further reduction in the event that Capricor is required to pay royalties on any patent rights to third parties in order to make or sell a licensed product.

In addition, Capricor is required to pay a low double-digit percentage of the consideration received by it from sublicenses granted and is required to pay JHU certain defined development milestone payments upon the successful completion of certain phases of its clinical studies and upon receiving approval from the U.S.

Food and Drug Administration, or the FDA.

The development milestones range from $100,000 upon successful completion of a full Phase I clinical study to $1,000,000 upon full FDA market approval and are fully creditable against payments owed by Capricor

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

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

In May 2015, Capricor paid the development milestone related to the Phase I study that was owed to JHU pursuant to the terms of the JHU License Agreement.

The Company recorded the $250,000 milestone payment for successful completion of a Phase II study in accounts payable and accrued expenses as of December 31, 2021.

Payment of this milestone is expected to be made in the first quarter of 2022.

In March 2022, Capricor paid the $250,000 development milestone related to the Phase II study pursuant to the terms of the JHU License Agreement.

The next milestone is triggered upon successful completion of a full Phase III study for which a payment of $500,000 will be due.

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In addition, Capricor may terminate for any reason upon 60 days’ written notice.

License Agreement for Serology Diagnostic

Capricor and JHU entered into a Nonexclusive License Agreement, or the JHU Serology License Agreement, effective January 6, 2021, which provides for the grant of a non-exclusive, world-wide, non-royalty-bearing license by JHU to Capricor to develop and commercialize licensed products under the licensed patent rights for COVID-19.

The JHU Serology License Agreement is due to expire July 2022 and at this time, Capricor does not intend to convert it to an exclusive license or extend the JHU Serology License Agreement.

License Agreement for Exosome-based Vaccines and Therapeutics

Capricor and JHU entered into an Exclusive License Agreement, or the JHU Exosome License Agreement, effective April 28, 2021 for its co-owned interest in certain intellectual property rights related to exosome-mRNA vaccines and therapeutics.

Capricor and JHU entered into an Exclusive License Agreement (the “JHU Exosome License Agreement”), effective April 28, 2021 for its co-owned interest in certain intellectual property rights related to exosome-mRNA vaccines and therapeutics.

The JHU Exosome License Agreement provides for the grant of an exclusive, world-wide, royalty-bearing license of JHU’s co-owned rights by JHU to Capricor, with the right to sublicense, in order to conduct research using the patent rights and know-how and to develop and commercialize products in the field using the patent rights and know-how.

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The JHU Exosome License Agreement may be terminated by Capricor upon 90 days’ written notice in its discretion and with 60 days’ notice with respect to any particular patent or application or as to any particular licensed product.

The JHU Exosome License Agreement may also be terminated by either party if it fails to perform or otherwise breaches any of its obligations and fails to cure such breach within a 60-day cure period commencing upon notice.

The JHU Exosome License Agreement may also be terminated by either party if the other party fails to perform or otherwise

breaches any of its obligations and fails to cure such breach within a 60-day cure period commencing upon notice.

A material breach by Capricor may include (a) a delinquency with respect to payment or reporting;

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License Agreement for CDCs

On January 4, 2010, Capricor entered into an Exclusive License Agreement with CSMC, or the Original CSMC License Agreement, for certain intellectual property related to its CDC technology.

On January 4, 2010, Capricor entered into an Exclusive License Agreement with CSMC (the “Original CSMC License Agreement”), for certain intellectual property related to its CDC technology.

In 2013, the Original CSMC License Agreement was amended twice resulting in, among other things, a reduction in the percentage of sublicense fees which would have been payable to CSMC.

Effective December 30, 2013, Capricor entered into an Amended and Restated Exclusive License Agreement with CSMC, or the Amended CSMC License Agreement, which amended, restated, and superseded the Original CSMC License Agreement, pursuant to which, among other things, certain definitions were added or amended, the timing of certain obligations was revised and other obligations of the parties were clarified.

Effective December 30, 2013, Capricor entered into an Amended and Restated Exclusive License Agreement with CSMC (the “Amended CSMC License Agreement”), which amended, restated, and superseded the Original CSMC License Agreement, pursuant to which, among other things, certain definitions were added or amended, the timing of certain obligations was revised and other obligations of the parties were clarified.

The Amended CSMC License Agreement provides for the grant of an exclusive, world-wide, royalty-bearing license by CSMC to Capricor (with the right to sublicense) to conduct research using the patent rights and know-how and develop and commercialize products in the field using the patent rights and know-how.

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The above-mentioned royalties are subject to reduction in the event Capricor becomes obligated to obtain a license from a third party for patent rights in connection with the royalty-bearing product.

In 2010, Capricor discontinued its research under some of the patents.

The Amended CSMC License Agreement will, unless sooner terminated, continue in effect on a country by country basis until the last to expire of the patents covering the patent rights or future patent rights.

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License Agreement for Exosomes

On May 5, 2014, Capricor entered into an Exclusive License Agreement with CSMC, or the Exosomes License Agreement, for certain intellectual property rights related to exosomes technology.

The Exosomes License Agreement provides for the grant of an exclusive, world-wide, royalty-bearing license by CSMC to Capricor (with the right to sublicense) in order to conduct research using the patent rights and know-how and to develop and commercialize products in the field using the patent rights and know-how.

On May 5, 2014, Capricor entered into an Exclusive License Agreement with CSMC (the “Exosomes License Agreement”), for certain intellectual property rights related to CDC-derived exosomes technology.

The Exosomes License

Agreement provides for the grant of an exclusive, world-wide, royalty-bearing license by CSMC to Capricor (with the right to sublicense) in order to conduct research using the patent rights and know-how and to develop and commercialize products in the field using the patent rights and know-how.

In addition, Capricor has the exclusive right to negotiate for an exclusive license to any future rights arising from related work conducted by or under the direction of Dr.

Eduardo Marbán on behalf

Eduardo Marbán on behalf of CSMC.

In the event the parties fail to agree upon the terms of an exclusive license, Capricor shall have a non-exclusive license to such future rights, subject to royalty obligations.

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Sponsored Research Agreement with Johns Hopkins University

On April 1, 2020 we entered into a Sponsored Research Agreement, or the SRA, with JHU pursuant to which researchers in the lab of Dr.

Stephen Gould are performing certain research activities in connection with our exosomes program.

Pursuant to the SRA, we are funding certain research activities and have the right to negotiate for exclusive or non-exclusive rights to intellectual property that may result from such research activities.

Unless renewed, the SRA is scheduled to expire on March 31, 2022.

Commercialization and Distribution Agreement with Nippon Shinyaku Co., Ltd.

On January 24, 2022, we entered into an Exclusive Commercialization and Distribution Agreement (the “NS Distribution Agreement”) with Nippon Shinyaku Co., Ltd., a Japanese corporation (“Nippon Shinyaku”).

Under the terms of the NS Distribution Agreement, Capricor appointed Nippon Shinyaku as its exclusive distributor in the United States of CAP-1002 for the treatment of DMD.

Under the terms of the NS Distribution Agreement, we will be responsible for the conduct of the HOPE-3 trial as well as for the manufacturing of CAP-1002.

Nippon Shinyaku will be responsible for the distribution of CAP-1002 in the United States.

We will sell commercial product to Nippon Shinyaku and in addition will receive a meaningful, double-digit share of product revenue and additional development and sales-based milestone payments.

We expect to receive an upfront payment of $30.0 million with potential additional milestone payments of up to $705.0 million.

Nippon Shinyaku has the right to negotiate with us for distribution rights for CAP-1002 in additional territories under the NS Distribution Agreement.

On April 1, 2020 we entered into a Sponsored Research Agreement (the “SRA”) with JHU pursuant to which researchers in the lab of Dr.

Stephen Gould performed certain research activities in connection with our engineered exosomes program.

Pursuant to the SRA, we funded certain research activities.

This SRA expired in accordance with its terms on March 31, 2022.

Cell Line License Agreement with Life Technologies

On March 7, 2022, Capricor entered into a non-exclusive cell line license agreement with Life Technologies Corporation, a subsidiary of Thermo Fisher Scientific, Inc., for the supply of certain cells which we will use in connection with the development of our exosomes platform.

An initial license fee payment was made in the first quarter of 2022 and additional milestone fees may become due on the progress of our development program.

Manufacturing

Capricor presently maintains a laboratory and research and manufacturing facilities in leased premises located at CSMC pursuant to a Facilities Lease.

In that portion of the leased premises where we manufacture CAP-1002 and may manufacture our exosome products for potential clinical use, we believe that we follow, current good manufacturing practices, to the extent that they are applicable to the stage of our clinical programs although our current facility does not meet commercial cGMP standards.

This manufacturing facility is licensed by the California Department of Public Health Food and Drug Branch to manufacture drugs.

Capricor manufactured CAP-1002 in this facility for our previous studies.

At this time, we intend to commence the HOPE-3 trial with product manufactured in our facility located at CSMC.

Capricor currently maintains two manufacturing facilities.

We recently completed construction in our San Diego Research and Development Facility of a new GMP pilot manufacturing facility as we prepare for potential commercial launch.

This facility is being designed to be compliant with U.S., European Medicines Agency (“EMA”), and other

international standards.

This facility is designed to produce commercial-scale GMP CAP-1002 product for further clinical and potential commercial use.

Our second manufacturing facility is located within our laboratory and research and manufacturing facilities located at CSMC pursuant to a Facilities Lease.

The CSMC manufacturing facility is licensed by the California Department of Public Health Food and Drug Branch to manufacture drugs.

Capricor has been manufacturing CAP-1002 in this facility for our current and previous studies including the HOPE-3 trial, although we are planning to potentially use product from our San Diego facility to support the ongoing HOPE-3 trial.

Our Facilities Lease has an expiration date of July 31, 2024.

If we are unable to extend the term of our Facilities Lease at CSMC, Capricor would have to secure alternative facilities in which to manufacture its products which would involve a significant monetary investment and would negatively impact the progress of our planned clinical trials and regulatory approvals.

For commercial scale production of CAP-1002 or exosomes, we would have to establish a collaboration agreement with a third-party or build out our own manufacturing facility.

At this time, we are evaluating multiple options as we proceed through clinical development of our product candidates as well as the possible extension of our current Facilities Lease.

Furthermore, we have initiated a technology transfer with Lonza Houston, Inc., a leading global contract manufacturing organization to prepare for commercial or possibly for late-stage clinical manufacturing of CAP-1002.

The current activities with Lonza are focused on process development services for the manufacturing processes and related other activities necessary for potential cGMP readiness.

At this time, we are considering the possible extension of our current Facilities Lease.

We are required to obtain and maintain other certain licenses in connection with our manufacturing facilities and activities.

We have also been issued a Manufacturing License and a Tissue Bank License from the State of California.

Additionally, we initiated a technology transfer with Lonza Houston, Inc., a leading global contract manufacturing organization to prepare for the possibility of commercial launch to support product demand, as needed, for manufacturing of CAP-1002.

Process development and cGMP readiness have been the focus of the work done by Lonza to date.

We are evaluating whether it would be in our best interests to have Lonza move forward to complete the technology transfer process at this time.

The next steps will be based on many factors, including our ability to produce GMP CAP-1002 product from our facility in San Diego as well as our discussions with regulatory agencies.

Manufacturing Process for CAP-1002

The manufacturing process for CAP-1002 begins with material from an entire heart from a donor that was collected from an organ procurement organization, or OPO.

The manufacturing process for CAP-1002 begins with material from an entire heart from a donor that was collected from an organ procurement organization (“OPO”).

This tissue is then taken to the lab where the cells are isolated, expanded, and processed through a series of proprietary unit operations.

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CAP-1002 is cryo-preserved, enabling us to produce large lots that can be frozen and then administered to patients as needed.

Manufacturing Process for Engineered-Exosome Technologies

We have also made significant progress planning the next steps for the manufacturing process for our exosome product candidates.

We believe these developments will enable us to scale up our manufacturing capabilities and allow us to manufacture enough material for early-stage clinical development.

We are exploring the use of various cell sources to generate our exosomes for preclinical and potential clinical use.

Manufacturing Process for CDC-Exosomes (CAP-2003)

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After these exosomes are prepared, formulated, filled, tested, and validated, the exosomes product becomes available for clinical investigation, subject to regulatory approval.

We believe that the allogeneic, acellular nature of exosomes would potentially enable us to create a scalable cell-derived product.

Manufacturing Processes for Other Exosome Technologies

We have also made significant progress planning the next steps for the manufacturing process for our exosome product candidates.

We believe these developments will enable us to scale up our manufacturing capabilities and allow us to manufacture enough material for early-stage clinical development.

We are exploring the use of various cell sources to generate our exosomes for preclinical and potential clinical use.

Research and Development

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We are engaged in fields that are characterized by extensive worldwide research and competition by pharmaceutical companies, medical device companies, specialized biotechnology companies, hospitals, physicians and academic institutions, both in the United States and abroad.

This competition is particularly intense for products involving the treatment of diseases associated with COVID-19.

This competition is particularly intense for products involving the treatment or prevention of diseases associated with COVID-19.

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

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The research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, recordkeeping, serialization and tracking, promotion, advertising, distribution and marketing, post-approval monitoring and reporting, and export and import, among other things, of our product candidates are extensively regulated by governmental authorities in the United States and other countries.

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

In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act (the “FDCA”), and its implementing regulations.

Failure to comply with the applicable U.S.

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

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

● compliance with any post-approval requirements, including the potential requirement to implement a Risk Evaluation and Mitigation Strategy (“REMS”), and the potential requirement to conduct post-approval studies.

Sponsors submit NDAs in order to obtain marketing approval for drugs.

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The results of preclinical testing, which include laboratory evaluation of product chemistry, formulation, toxicity and carcinogenicity animal studies to assess the potential safety and efficacy of the product and its formulations, details concerning the drug manufacturing process and its controls, and a proposed clinical trial protocol and other information must be submitted to the FDA as part of an IND that must be reviewed and become effective before clinical testing can begin.

The study protocol and informed consent information for patients in clinical trials must also be submitted to an independent Institutional Review Board, or IRB, for approval covering each institution at which the clinical trial will be conducted.

The study protocol and informed consent information for patients in clinical trials must also be submitted to an independent Institutional Review Board (“IRB”) for approval covering each institution at which the clinical trial will be conducted.

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

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

If applicable, our preclinical and clinical studies must conform to the FDA’s Good Laboratory Practice, or GLP, and Good Clinical Practice, or GCP, requirements, respectively, which are designed to ensure the quality and integrity of submitted data and protect the rights and well-being of study patients.

If applicable, our preclinical and clinical studies must conform to the FDA’s Good Laboratory Practice (“GLP”), and Good Clinical Practice (“GCP”) requirements, respectively, which are designed to ensure the quality and integrity of submitted data and protect the rights and well-being of study patients.

Information for certain clinical trials also must be publicly disclosed within certain time limits on the clinical trial registry and results databank maintained by the NIH.

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A therapeutic product candidate being studied in clinical trials may be made available for treatment of individual patients, intermediate-size patient populations, or for widespread treatment use under an expanded access protocol, under certain circumstances.

Pursuant to the 21st Century Cures Act (Cures Act), which was signed into law in December 2016, the manufacturer of one or more investigational products for the diagnosis, monitoring, or treatment of one or more serious diseases or conditions is required to make available, such as by posting on its website, its policy on evaluating and responding to requests for individual patient access to such investigational product.

Pursuant to the 21st Century Cures Act (the “Cures Act”), which was signed into law in December 2016, the manufacturer of one or more investigational products for the diagnosis, monitoring, or treatment of one or more serious diseases or conditions is required to make available, such as by posting on its website, its policy on evaluating and responding to requests for individual patient access to such investigational product.

Additionally, on May 30, 2018, the Trickett Wendler, Frank Mongiello, Jordan McLinn, and Matthew Bellina Right to Try Act of 2017 was signed into law.

The law, among other things, provides a federal framework for certain patients to access certain investigational new drug products that have completed a Phase 1 clinical trial and that are undergoing investigation for FDA approval.

Under certain circumstances, eligible patients can seek treatment without

enrolling in clinical trials and without obtaining FDA authorization under an FDA expanded access program;

The law, among other things, provides a federal framework for certain patients to access certain investigational new drug products that have completed a Phase 1 clinical trial and that are

undergoing investigation for FDA approval.

Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining FDA authorization under an FDA expanded access program;

however, manufacturers are not obligated to provide investigational new drug products under the current federal right to try law.

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Once the submission is accepted for filing, the FDA begins an in-depth substantive review of the application.

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

In responding to an NDA or BLA, the FDA may grant marketing approval, or issue a Complete Response Letter (“CRL”).

A CRL generally contains a statement of specific conditions that must be met in order to secure final approval of an NDA or BLA and may require substantial additional testing or information.

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In addition, as the FDA has interpreted the Orphan Drug Act, even if a previously approved same drug does not have unexpired orphan exclusivity, a demonstration of clinical superiority is required for a subsequent marketing application for the same orphan-designated drug for the same disease or condition to be awarded a 7-year period of orphan exclusivity upon marketing approval.

In recent years, there have been multiple legal challenges to this FDA interpretation, and in August 2017, Congress amended the orphan drug provisions of the FDCA through enactment of the FDA

Reauthorization Act of 2017 to codify FDA’s longstanding interpretation.

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

and in August 2017, Congress amended the orphan drug provisions of the FDCA through enactment of the FDA Reauthorization Act of 2017 to codify FDA’s longstanding interpretation.

Section 527 of the FDCA now expressly provides that if a sponsor of an orphan-designated drug that is otherwise the same as an already approved drug for the same rare disease or condition is seeking orphan exclusivity, FDA shall require such sponsor to demonstrate that such drug is clinically superior to any already approved or licensed drug that is the same drug in order to obtain orphan drug exclusivity.

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Regenerative Medicine Advanced Therapies (RMAT) Designation

The FDA has established a Regenerative Medicine Advanced Therapy (RMAT) designation as part of its implementation of the 21st Century Cures Act, or Cures Act.

The FDA has established a Regenerative Medicine Advanced Therapy (“RMAT”) designation as part of its implementation of the Cures Act.

The RMAT designation program is intended to fulfill the Cures Act requirement that the FDA facilitate an efficient development program for, and expedite review of, any drug that meets the following criteria:

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Like breakthrough therapy designation, RMAT designation provides potential benefits that include more frequent meetings with FDA to discuss the development plan for the product candidate, and eligibility for rolling review and priority review.

Products granted RMAT designation may also be eligible for accelerated approval on the basis of a

surrogate or intermediate endpoint reasonably likely to predict long-term clinical benefit, or reliance upon data obtained from a meaningful number of sites, including through expansion to additional sites.

Products granted RMAT

designation may also be eligible for accelerated approval on the basis of a surrogate or intermediate endpoint reasonably likely to predict long-term clinical benefit, or reliance upon data obtained from a meaningful number of sites, including through expansion to additional sites.

RMAT-designated products that receive accelerated approval may, as appropriate, fulfill their post-approval requirements through the submission of clinical evidence, clinical studies, patient registries, or other sources of real-world evidence (such as electronic health records);

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Congress has only authorized the rare pediatric disease priority review voucher program until September 30, 2024.

However, if a drug candidate receives RPD designation before September 30, 2024, it is eligible to receive a voucher if it is approved before September 30, 2026.

FDA Emergency Use Authorization

Section 564 of the FDCA allows the FDA to authorize the shipment of drugs, biological products (including vaccines), or medical devices that either lack required approval, licensure, or clearance (unapproved products), or are approved but are to be used for unapproved ways to diagnose, treat, or prevent serious diseases or conditions in the event of an emergency declaration by the HHS Secretary.

On February 4, 2020, HHS Secretary Alex M.

Azar II declared a public health emergency for COVID-19, under 21 U.S.C.

§ 360bbb-3(b)(1), justifying the authorization of emergency use of IVDs for detection and/or diagnosis of COVID-19.

This determination was published in the Federal Register on February 7, 2020.

While this emergency declaration is effective, the FDA may authorize the use of an unapproved product or an unapproved use of an approved product if it concludes that:

● an agent referred to in the emergency declaration could cause a serious or life-threatening disease or condition;

● it is reasonable to believe that the authorized product may be effective in diagnosing, treating, or preventing that disease or condition or a serious or life-threatening disease or condition caused by an approved product or a product marketed under an EUA;

● the known and potential benefits of the authorized product, when used for that disease or condition, outweigh known and potential risks, taking into consideration the material threat of agents identified in the emergency declaration;

● there is no adequate, approved, and available alternative to the authorized product for diagnosing, preventing, or treating the relevant disease or condition;

● any other criteria prescribed by the FDA is satisfied.

Medical products that are granted an EUA are only permitted to commercialize their products under the terms and conditions provided in the authorization.

The FDCA authorizes FDA to impose such conditions on an EUA as may be necessary to protect the public health.

Consequently, postmarketing requirements will vary across EUAs.

In addition, FDA has, on occasion, waived requirements for drugs marketed under an EUA.

Generally, EUAs for unapproved products or unapproved uses of approved products require that manufacturers distribute factsheets for healthcare providers, addressing significant known and potential benefits and risk, and the extent to which benefits and risks are unknown, and the fact that FDA has authorized emergency use;

and, distribution of factsheets for recipients of the product, addressing significant known and potential benefits and risk, and the extent to which benefits and risks are unknown, the option to accept or refuse the product, the consequences of refusing, available alternatives, and the fact that FDA has authorized emergency use.

Generally, EUAs for unapproved products and, per FDA’s discretion, EUAs for unapproved uses of approved products, include requirements for adverse event monitoring and reporting, and other recordkeeping and reporting requirements.

Note, however, that approved products are already subject to equivalent requirements.

In addition, FDA may include various requirements in an EUA as a matter of discretion as deemed necessary to protect the public health, including restrictions on which entities may distribute the product, and how to perform distribution (including requiring that distribution be limited to government entities), restrictions on who may administer the product, requirements for collection and analysis of safety and effectiveness data, waivers of cGMP, and restrictions applicable to prescription drugs or restricted devices (including advertising and promotion restrictions).

The FDA may revoke an EUA where it is determined that the underlying health emergency no longer exists or warrants such authorization, if the conditions for the issuance of the EUA are no longer met, or if other circumstances make revocation appropriate to protect the public health or safety.

However, if a drug candidate receives Rare Pediatric Disease designation before September 30, 2024, it is eligible to receive a voucher if it is approved before September 30, 2026.

Post-Approval Requirements

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Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market.

Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information;

Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing

processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information;

imposition of post-market studies or clinical trials to assess new safety risks;

or imposition of distribution or other restrictions under a REMS program.

or imposition of distribution or other restrictions under an REMS program.

Other potential consequences include, among other things:

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Sales of pharmaceutical products depend, in part, on the availability of sufficient coverage and adequate reimbursement from third-party payors, which include government health programs, such as Medicare, Medicaid, TRICARE, and the Veterans Administration, as well as commercial insurance, and managed healthcare organizations.

Prices at which we or our customers seek reimbursement for our therapeutic product candidates can be subject to challenge, reduction, or denial by payors.

Prices at which we or our customers seek reimbursement for our therapeutic product candidates may be subject to challenge, reduction, or denial by payors.

Third-party payors may limit coverage to specific products on an approved list or formulary, which might not include all of the FDA-approved products for a particular indication.

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Third-party payors are increasingly challenging the prices charged for medical products and services.

Additionally, the containment of healthcare costs has become a priority of federal and state governments, and the prices of drugs have been a focus in this effort.

government, state legislatures and foreign governments have shown significant interest in implementing cost-containment programs, including price controls, restrictions on reimbursement and requirements for substitution of generic products.

The process for determining whether a payor will provide coverage for a product is typically separate from the process for setting the reimbursement rate that the payor will pay for the product.

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If coverage and adequate reimbursement are not available, or are available only at limited levels, successful commercialization of, and obtaining a satisfactory financial return on, any product we develop may not be possible.

Third-party payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy.

Third-party payors are increasingly challenging the prices and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy.

In order to obtain coverage and reimbursement for any product that might be approved for marketing, we may need to conduct expensive studies in order to demonstrate the medical necessity and cost-effectiveness of any products, which would be in addition to the costs expended to obtain regulatory approvals.

Third-party payors may not consider our product candidates to be medically necessary or cost-effective compared to other available therapies, or payor negotiations may not enable us to maintain price levels sufficient to realize an appropriate return on our investment in drug development.

If these third-party payors do not consider our products to be cost-effective compared to other therapies, they may not cover our products once approved as a benefit under their plans or, if they do, the level of reimbursement may not be sufficient to allow us to sell

our products on a profitable basis.

If these third-party payors do not consider our products to be cost-effective compared to other therapies, they may not cover our products once

approved as a benefit under their plans or, if they do, the level of reimbursement may not be sufficient to allow us to sell our products on a profitable basis.

Decreases in third-party reimbursement for our products once approved or a decision by a third-party payor to not cover our products could reduce or eliminate utilization of our products and have an adverse effect on our sales, results of operations, and financial condition.

Additionally, efforts to contain healthcare costs (including drug prices) has become a priority of federal and state governments.

Additionally, efforts to contain healthcare costs (including drug prices) have become a priority of federal and state governments.

government, state legislatures, and foreign governments have shown significant interest in implementing cost-containment programs, including price controls, restrictions on reimbursement, and requirements for substitution by generic products.

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Some of our pre-commercial activities also may be subject to some of these laws.

The federal Anti-Kickback Statute prohibits, among other things, any person or entity, including a prescription drug manufacturer or a party acting on its behalf, from knowingly and willfully offering, paying, soliciting or receiving any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or in return for purchasing, leasing, ordering or arranging for the purchase, lease or order of any item or service reimbursable, in whole or in part, under Medicare, Medicaid or other federal healthcare programs.

federal Anti-Kickback Statute prohibits, among other things, any person or entity, including a prescription drug manufacturer or a party acting on its behalf, from knowingly and willfully offering, paying, soliciting or receiving any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or in return for purchasing, leasing, ordering or arranging for the purchase, lease or order of any item or service reimbursable, in whole or in part, under Medicare, Medicaid or other federal healthcare programs.

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

The Anti-Kickback Statute has been interpreted to apply to arrangements between therapeutic product manufacturers on one hand and prescribers, purchasers, and formulary managers on the other.

There are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution.

The exceptions and safe harbors are drawn narrowly and practices that involve remuneration that may be alleged to be intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exception or safe harbor.

The Anti-Kickback Statute has been interpreted to apply to arrangements between therapeutic product manufacturers on one hand and prescribers, purchasers, and formulary managers, among others, on the other.

There are a number of statutory exceptions and regulatory safe harbors protecting some common business activities from prosecution under the Anti-Kickback Statute.

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 of products or services reimbursable under federal healthcare programs 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.

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Several courts have interpreted the statute’s intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federal healthcare covered business, the Anti-Kickback Statute has been violated.

Additionally, the intent standard under the Anti-Kickback Statute was amended by the ACA to a stricter standard such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.

In addition, the ACA codified case law that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act, or FCA.

Violations of the federal Anti-Kickback Statute may result in civil monetary penalties up to $100,000 for each violation, plus up to three times the remuneration involved.

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

False Claims Act.

Violations can also result in criminal penalties, including criminal fines of up to $100,000 and imprisonment of up to 10 years.

Similarly, violations can result in exclusion from participation in federal and state healthcare programs, including Medicare and Medicaid.

The federal civil False Claims Act, prohibits, among other things, any person or entity from knowingly presenting, or causing to be presented, for payment to, or approval by, federal programs, including Medicare and Medicaid, claims for items or services, including drugs, that are false or fraudulent or not provided as claimed.

Additionally, the intent standard under the Anti-Kickback Statute was amended by the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “Affordable Care Act” or the “ACA”), to a stricter standard such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.

the ACA codified case law that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act.

Violations of the federal Anti-Kickback Statute may result in civil monetary penalties up to $100,000 (adjusted for inflation) for each violation, plus up to three times the total amount of remuneration between the parties to the arrangement.

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

Violations can also result in criminal penalties, including criminal fines of up to $100,000 (adjusted for inflation) and imprisonment of up to 10 years.

Similarly, violations can result in exclusion from participation or suspension from future participation in federal and state healthcare programs, including Medicare and Medicaid.

federal civil False Claims Act, prohibits, among other things, any person or entity from knowingly presenting, or causing to be presented, for payment to, or approval by, federal programs, including Medicare and Medicaid, claims for items or services, including drugs, that are false or fraudulent or not provided as claimed.

Persons and entities can be held liable under these laws if they are deemed to “cause” the submission of false or fraudulent claims by, for example, providing inaccurate billing or coding information to customers or promoting a product off-label.

In addition, certain of our future activities relating to the reporting of wholesaler or estimated retail prices for our products, the reporting of prices used to calculate Medicaid rebate information, and other information affecting federal, state, and third-party reimbursement for our products, and the sale and marketing of our products, are subject to scrutiny under this law.

Penalties for federal civil False Claims Act violations may include up to three times the actual damages sustained by the government, plus mandatory civil penalties of between $11,803 and $23,607 for each separate false claim per false claim or statement for penalties assessed after December 13, 2021 with respect to violations occurring after November 2, 2015 (and penalties of between $5,500 and $11,000 per claim or statement with respect to violations occurring before that date).

Penalties for federal civil False Claims Act violations may include up to three times the actual damages sustained by the government, plus mandatory civil penalties of between $13,508 and $27,018 for each separate false claim per false claim or statement for penalties assessed after January 30, 2023 with respect to violations occurring after November 2, 2015 (and penalties of between $5,500 and $11,000 per claim or statement with respect to violations occurring before that date).

Other penalties include the potential for exclusion from participation in federal healthcare programs.

Additionally, although the federal False Claims Act is a civil statute, False Claims Act violations may also implicate various federal criminal statutes.

There is also the federal criminal False Claims Act, which is similar to the federal civil False Claims Act and imposes criminal liability on those that make or present a false, fictitious or fraudulent claim to the federal government.

There is also the U.S.

federal criminal False Claims Act, which is similar to the federal civil False Claims Act and imposes criminal liability on those that make or present a false, fictitious or fraudulent claim to the federal government.

The Federal Criminal Statute on False Statements Relating to Health Care Matters makes it a crime to knowingly and willfully falsify, conceal, or cover up a material fact, make any materially false, fictitious, or fraudulent statements or representations, or make or use any materially false writing or document knowing the same to contain any materially false, fictitious, or fraudulent statement or entry in connection with the delivery of or payment for healthcare benefits, items, or services.

The Federal Civil Monetary Penalties Law, or the CMPL, authorizes the imposition of substantial monetary penalties against an entity, such as a pharmaceutical manufacturer, that engaged in activities including, among others (1) knowingly presenting, or causing to be presented, a claim for services not provided as claimed or that is otherwise false or fraudulent in any way;

Federal Civil Monetary Penalties Law (the “CMPL") authorizes the imposition of substantial monetary penalties against an entity, such as a pharmaceutical manufacturer, that engaged in activities including, among others (1) knowingly presenting, or causing to be presented, a claim for services not provided as claimed or that is otherwise false or fraudulent in any way;

(2) arranging for or contracting with an individual or entity that is excluded from participation in federal health care programs to provide items or services reimbursable by a federal health care program;

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or (4) failing to report and return a known overpayment.

HIPAA created additional federal criminal statutes that prohibit, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud or to obtain, by means of false or fraudulent pretenses, representations or promises, any money or property owned by, or under the control or custody of, any healthcare benefit program, including private third-party payors, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up by trick, scheme or device, a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services.

The federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) created additional federal criminal statutes that prohibit, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud or to obtain, by means of false or fraudulent pretenses, representations or promises, any money or property owned by, or under the control or custody of, any healthcare benefit program, including private third-party payors, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up by trick, scheme or device, a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services.

Like the Anti-Kickback Statute, the ACA amended the intent standard for certain healthcare fraud statutes under HIPAA such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.

We may be subject to data privacy and security regulations by both the federal government and the states in which we conduct our business.

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and its implementing regulations, imposes requirements relating to the privacy, security and transmission of individually identifiable health information.

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”), and its implementing regulations, imposes requirements relating to the privacy, security and transmission of individually identifiable health information.

Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable to business associates, independent contractors, or agents of covered entities that receive or obtain protected health information in connection with providing a service on behalf of a covered entity.

HITECH also created four new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce HIPAA and seek attorneys’ fees and costs associated with pursuing federal civil actions.

or injunctions in federal courts to enforce HIPAA and seek attorneys’ fees and costs associated with pursuing federal civil actions.

Regulatory guidance and obligations continue to evolve.

For example, on December 10, 2020, the Office for Civil Rights issued a proposed rule aimed at reducing regulatory burdens that may exist in discouraging coordination of care, among other changes.

For example, on December 10, 2020, the Office for Civil Rights (“OCR”) issued a proposed rule aimed at reducing regulatory burdens that may exist in discouraging coordination of care, among other changes.

Finally, pursuant to legislation passed in 2021, OCR recently issued guidance on recognized security practices for covered entities and business associates.

OCR indicated that recognized security practices will not be an aggravating factor in OCR investigations, but that implementation of recognized security practices strengthen an organization’s cybersecurity and regulatory posture, as well as possibly lessening enforcement penalties in a potential regulatory enforcement.

As HIPAA requirements evolve, we may be required to update our compliance strategies or modify our business processes to comply.

The Federal Trade Commission (“FTC”) and many state attorneys general are interpreting existing federal and state consumer protection laws to impose evolving standards for the collection, use, dissemination and security of health-related and other personal information.

Privacy laws require us to publish statements that describe how we handle personal information and choices individuals may have about the way we handle their personal information.

Violating individuals’ privacy rights, publishing false or misleading information about security practices, or failing to take appropriate steps to keep individuals’ personal information secure may constitute unfair or deceptive acts or practices in violation of Section 5 of the FTC Act.

Additionally, the FTC recently published an advance notice of proposed rule making on “commercial surveillance” and data security, and is seeking comment on whether it should implement new trade regulation rules or other regulatory alternatives concerning the ways in which companies (1) collect, aggregate, protect, use, analyze, and retain consumer data, as well as (2) transfer, share, sell, or otherwise monetize that data in ways that are unfair or deceptive.

Federal regulators, state attorneys general and plaintiffs’ attorneys have been and will likely continue to be active in this space, and if we do not comply with existing or new laws and regulations related to patient health information, we could be subject to criminal or civil sanctions.

In addition, many state laws govern the privacy and security of health information in specified circumstances, many of which differ from each other in significant ways, are often not pre-empted by HIPAA, and may have a more prohibitive effect than HIPAA, thus complicating compliance efforts.

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Although there are limited exemptions for PHI and certain clinical trial data, the CCPA’s implementation standards and enforcement practices may increase our compliance costs and legal risks.

Additionally, the California Privacy Rights Act (CPRA) was passed in November 2020 and will amend the CCPA beginning in 2023.

The CPRA will impose additional data protection obligations on companies doing business in California, including additional consumer rights processes, limitations on data uses, new audit requirements for higher risk data, and opt outs for certain uses of sensitive data.

It will also create a new California data protection agency authorized to issue substantive regulations and could result in increased privacy and information security enforcement.

Additional state laws are being proposed, and new obligations may continue to arise.

Additionally, the California Privacy Rights Act (“CPRA”) was passed in November 2020 and amended the CCPA beginning in 2023.

The CPRA imposes additional data protection obligations on companies doing business in California, including additional consumer rights processes, limitations on data uses, new audit requirements for higher risk data, and opt outs for certain uses of sensitive data.

It also created a new California data protection agency authorized to issue substantive regulations and could result in increased privacy and information security enforcement.

Similar laws have been adopted in other states or proposed in other states and at the federal level, and if passed, such laws may have potentially conflicting requirements that would make compliance challenging.

For example, the Nevada Privacy of Information Collected on the Internet from Consumers Act went into effect on October 1, 2021, the Virginia Consumer Data Protection Act went into effect on January 1, 2023, the Colorado Privacy Act goes into effect on July 1, 2023, the Connecticut Data Privacy Act goes into effect July 1, 2023, and the Utah Consumer Privacy Act goes into effect December 31, 2023.

Additional compliance investment and potential business process changes may be required to respond to these rapidly changing privacy law landscape.

If we fail to comply with existing or new privacy laws and regulations, we could face legal liability from regulatory actions or litigation, as well as reputational damage.

Additionally, the federal Physician Payments Sunshine Act, or the Sunshine Act, created under the ACA, and its implementing regulations, require that certain manufacturers of drugs, devices, biological and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) report annually to CMS information related to certain payments or other transfers of value made or distributed to physicians and teaching hospitals, or to entities or individuals at the request of, or designated on behalf of, the physicians and teaching hospitals and to report annually certain ownership and investment interests held by physicians and their immediate family members.

Effective January 1, 2022, these reporting obligations extend to include transfer of value made in the previous year to certain non-physician providers such as physician assistants, nurse practitioners, clinical nurse specialists, anesthesiologist assistant, certified nurse anesthetists, and certified nurse-midwives.

Failure to submit timely, accurately and completely the required information for all payments, transfers of value and ownership or investment interests may result in civil monetary penalties of up to an aggregate of $178,581 per year and up to an aggregate of $1,190,546 per year for “knowing failures.” Covered manufacturers are required to submit reports on aggregate payment data to the Secretary of the U.S.

Additionally, the U.S.

federal Physician Payments Sunshine Act (the “Sunshine Act”), created under the ACA, and its implementing regulations, require that certain manufacturers of drugs, devices, biological and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) report annually to CMS information related to certain payments or other transfers of value made or distributed to physicians and teaching hospitals, or to entities or individuals at the request of, or designated on behalf of, the physicians, physician assistants, nurse practitioners, clinical nurse specialists, anesthesiologist assistants, certified nurse anesthetists, certified nurse-midwives and teaching hospitals and to report annually certain ownership and investment interests held by physicians and their immediate family members.

Failure to submit timely, accurately and completely the required information for all payments, transfers of value and ownership or investment interests may result in civil monetary penalties of up to an aggregate of $150,000 (adjusted annually for inflation) per year and up to an aggregate of $1,000,000 (adjusted annually for inflation) per year for “knowing failures.” Covered manufacturers are required to submit reports on aggregate payment data to the Secretary of the U.S.

Department of Health and Human Services on an annual basis.

In addition, many states also govern the reporting of payments or other transfers of value, many of which differ from each other in significant ways, are often not pre-empted, and may have a more prohibitive effect than the Sunshine Act, thus further complicating compliance efforts.

Many states have similar statutes or regulations to the above federal laws that may be broader in scope and may apply regardless of payor.

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These laws may differ from each other in significant ways and may not have the same effect, further complicating compliance efforts.

Additionally, to the extent that we have business operations in foreign countries or sell any of our products in foreign countries and jurisdictions, including Japan or the European Union, we may be subject to additional regulation.

Although we do not currently have any products on the market, once our product candidates or clinical trials are covered by federal health care programs, we will be subject to additional healthcare statutory and regulatory requirements and enforcement by the federal and state governments of the jurisdictions in which we conduct our business.

Because we intend to commercialize products that could be reimbursed under a federal healthcare program and other governmental healthcare programs, we intend to develop a comprehensive compliance program that establishes internal controls to facilitate adherence to the rules and program requirements to which we will or may become subject.

Although the development and implementation of compliance programs designed to establish internal control and facilitate compliance can mitigate the risk of violating these laws, and the subsequent investigation, prosecution, and penalties assessed for violations of these laws, the risks cannot be entirely eliminated.

If our operations are found to be in violation of any of such laws or any other governmental regulations that apply to us, we may be subject, without limitation, to significant civil, criminal and administrative penalties, damages, fines, individual imprisonment, disgorgement, exclusion from participation in federal and state healthcare programs, reputational harm, diminished profits and future earnings, additional oversight and reporting obligations pursuant to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with applicable laws and regulations,

and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our financial results.

Although the development and implementation of compliance programs can mitigate the risk of violating these laws, and the subsequent investigation, prosecution, and penalties assessed for violations of these laws, the risks cannot be entirely eliminated.

Additionally, we expect our products, if and when approved, may be eligible for coverage under Medicare, the federal health care program that provides health care benefits to the aged and disabled, and covers outpatient services and supplies, including certain pharmaceutical products, that are medically necessary to treat a beneficiary’s health condition.

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The Medicaid Drug Rebate Program requires pharmaceutical manufacturers to enter into and have in effect a national rebate agreement with the Secretary of the Department of Health and Human Services as a condition for states to receive federal matching funds for the manufacturer’s outpatient drugs furnished to Medicaid patients.

Under the 340B Drug Pricing Program, the manufacturer must extend discounts to entities that participate in the program.

As part of the requirements to participate in certain government programs, many pharmaceutical manufacturers must calculate and report certain price reporting metrics to the government, such as average manufacturer price, or AMP, and best price.

Under the 340B Drug Pricing Program, the manufacturer must extend discounts to statutorily defined covered entities that participate in the program.

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

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In the United States and foreign jurisdictions, there have been, and we expect there will continue to be, a number of legislative and regulatory changes to healthcare systems that could affect our future results of operations.

There have been, and we expect there will continue to be, a number of initiatives at the United States federal and state levels that seek to promote changes in the healthcare system with the stated goals of reducing healthcare costs, improving quality of care, and expanding access.

In the United States, the pharmaceutical industry has been a particular focus of healthcare reform efforts and has been significantly affected by major legislative and regulatory initiatives, including the ACA, which has had, and is expected to continue to have, a significant impact on the healthcare industry.

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Substantial new provisions affecting compliance have also been enacted, which may affect our business practices with healthcare providers and entities.

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

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

While Congress has not passed legislation to comprehensively repeal the ACA, the Tax Cuts and Jobs Act included a provision that, effective January 1, 2019, changed to $0 the tax-based shared responsibility payment imposed by ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year, which is commonly referred to as the “individual mandate.”

There have been numerous historical challenges and amendments to certain aspects of the ACA.

On June 17, 2021, the U.S.

Additionally, there have been executive, judicial, and legislative challenges to certain aspects of the ACA.

For example, while Congress has not passed legislation to comprehensively repeal the ACA, the Tax Cuts and Jobs Act included a provision that, effective January 1, 2019, changed to $0 the tax-based shared responsibility payment imposed by ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year, which is commonly referred to as the “individual mandate.” Additionally, in March 2021, Congress enacted the American Rescue Plan Act of 2021, which included among its provisions a temporary increase in premium tax credit assistance for individuals eligible to receive qualified health plan premium subsidies for 2021 and 2022 and temporarily removed the 400% federal poverty level limit that otherwise applies for purposes of eligibility to receive premium such tax credits.

The Inflation Reduction Act of 2022 (“IRA”) extended this increased tax credit assistance and removal of the 400% federal poverty limit through 2025.

Moreover, on June 17, 2021, the U.S.

Supreme Court dismissed the most recent judicial challenge to the ACA brought by several states without specifically ruling on the constitutionality of the ACA.

Prior to the Supreme Court’s decision on January 28, 2021, President Biden issued an executive order to initiate a special enrollment period for purposes of obtaining health insurance coverage through the ACA marketplace, which remained open from February 15, 2021 through August 15, 2021.

The executive order also instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA.

In addition, in March 2021, Congress enacted the American Rescue Plan Act of 2021, which included among its provisions a temporary increase in premium tax credit assistance for individuals eligible to receive qualified health plan premium subsidies for 2021 and 2022 and temporarily removed the 400% federal poverty level limit that otherwise applies for purposes of eligibility to receive premium such tax credits.

Legislation has been proposed to extend the duration of certain health coverage provisions of the American Rescue Plan until 2025, but whether Congress will enact such legislation remains uncertain.

Prior to the Supreme Court’s decision, President Biden had issued an executive order that instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, policies that create barriers to obtaining access to health insurance coverage through the ACA marketplaces.

We cannot predict what effect the healthcare reform measures of the Biden administration or other efforts, if any, to challenge, repeal, amend or replace the ACA would have on our business.

Other legislative changes have been proposed and adopted since the ACA was enacted.

Pursuant to the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, as well as subsequent legislation, these reductions have been suspended from May 1, 2020 through March 31, 2022 due to COVID-19 pandemic, with a subsequent phase-in period of a 1% reduction through June 30, 2022.

For example, the Budget Control Act of 2011 included reductions to Medicare payments to providers of up to 2% per fiscal year, which went into effect on April 1, 2013 and, due to subsequent legislation, will stay in effect into 2031 (with the exception of a temporary suspension due to the COVID-19 pandemic from May 1, 2020 through March 31, 2022 and a subsequent reduction to 1% from April 1, 2022 until June 30, 2022).

To offset the temporary suspension during the COVID-19 pandemic, in 2030, reductions in Medicare payments will be 2.25% for the first half of the year, and 3% in the second half of the year.

Additionally, the American Taxpayer Relief Act of 2012, among other things, further reduced Medicare payments to several providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

Further, effective January 1, 2019, the Bipartisan Budget Act of 2018, among other things, further amended portions of the Social Security Act implemented as part of the ACA to increase from 50% to 70% the point-of-sale discount off negotiated prices of applicable brand drugs that pharmaceutical manufacturers participating in the Coverage Gap Discount Program must provide to eligible Medicare Part D beneficiaries during the coverage gap phase of the Part D benefit, commonly referred to as the “donut hole,” and to reduce standard beneficiary cost sharing in the coverage gap from 30% to 25% in most Medicare Part D plans.

In the future, there may be additional challenges and/or amendments to the ACA.

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coronavirus relief and government appropriations legislation, the Consolidated Appropriations Act of 2021, which contains several important new drug price reporting and transparency measures that could result in additional transparency with respect to manufacturers’ prescription drug prices.

Among other things, the Act includes provisions requiring Medicare Part D prescription drug plan, or the PDP, sponsors and Medicare Advantage organizations, or MAOs, to implement tools to display Medicare Part D prescription drug benefit information in real time and provisions requiring group and health insurance issuers offering health insurance coverage to report information on certain pharmacy benefit and drug costs to the Secretaries of HHS, Labor, and the Treasury.

Among other things, the Act includes provisions requiring Medicare Part D prescription drug plan (the “PDP”) sponsors and Medicare Advantage organizations (“MAOs”) to implement tools to display Medicare Part D prescription drug benefit information in real time and provisions requiring group and health insurance issuers offering health insurance coverage to report information on certain pharmacy benefit and drug costs to the Secretaries of HHS, Labor, and the Treasury.

Further, the Biden Administration and Congress have each indicated that it will continue to pursue new legislative and administrative measures to control drug costs.

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Under the ACA, manufacturers’ rebate liability was capped at 100% of the average manufacturer price for a covered outpatient drug.

Effective January 1, 2024, manufacturers’ Medicaid Drug Rebate Program rebate liability will no longer be capped, potentially resulting in a manufacturer paying more in Medicaid Drug Rebate Program rebates than it receives on the sale of certain covered outpatient drugs.

Further, on July 9, 2021, President Biden issued an Executive Order to promote competition in the U.S.

economy that included several initiatives addressing prescription drugs.

Among other provisions, the Executive Order stated that the Biden administration will “support aggressive legislative reforms that would lower prescription drug prices, including by allowing Medicare to negotiate drug prices, by imposing inflation caps, and through other related reforms.” In response to the Executive Order, on September 9, 2021, HHS issued a Comprehensive Plan for Addressing High Drug Prices that identified potential legislative policies and administrative tools that Congress and the agency can pursue in order to make drug prices more affordable and equitable, improve and promote competition throughout the prescription drug industry, and foster scientific innovation.

However, effective January 1, 2024, manufacturers’ Medicaid Drug Rebate Program rebate liability will no longer be capped, potentially resulting in a manufacturer paying more in Medicaid Drug Rebate Program rebates than it receives on the sale of certain covered outpatient drugs.

Further, in August 2022, President Biden signed into law IRA, which implements substantial changes to the Medicare program, including drug pricing reforms and the creation of new Medicare inflation rebates.

Namely, the IRA imposes inflation rebates on drug manufacturers for products reimbursed under Medicare Parts B and D if the prices of those products increase faster than inflation;

implements changes to the Medicare Part D benefit that, beginning in 2025, will cap beneficiary annual out-of-pocket spending at $2,000, while imposing new discount obligations for pharmaceutical manufacturers;

and, beginning in 2026, establishes a “maximum fair price” for a fixed number of high expenditure pharmaceutical and biological products covered under

Medicare Parts B and D following a price negotiation process with the Centers for Medicare and Medicaid Services.

Furthermore, the Biden administration continues to direct the Department of Health and Human Services HHS to consider new healthcare payment and delivery models that would lower drug costs and promote access to innovative therapies for beneficiaries enrolled in the Medicare and Medicaid programs.

We cannot predict how, or to what extent, the Biden administration’s drug pricing policies will affect our products.

We cannot predict what other healthcare reforms will ultimately be implemented at the federal or state level or the effect of any future legislation or regulation.

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In addition to new legislation, FDA regulations and policies are often revised or interpreted by the agency in ways that may significantly affect our business and our products.

It is impossible to predict whether further legislative changes will be

enacted or whether FDA regulations, guidance, policies or interpretations will be changed or what the effect of such changes, if any, may be.

It is impossible to predict whether further legislative changes will be enacted or whether FDA regulations, guidance, policies or interpretations will be changed or what the effect of such changes, if any, may be.

Corporate Information

Our corporate headquarters were relocated to 10865 Road to the Cure, Suite 150, San Diego, California 92121.

Our corporate and research headquarters are located at 10865 Road to the Cure, Suite 150, San Diego, California 92121.

Our telephone number is (858) 727-1755 and our internet address is www.capricor.com .

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business