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Item 1. Business

2024-03-11 compared with 2023-03-17 · 372 added, 339 removed, 408 unchanged (64% of the section changed)

Company Overview

Capricor Therapeutics, Inc.

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

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”).

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

Technology and Platforms

Cell Therapy Platform

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

DMD is a rare, monogenic, X-linked muscle disease driven by the impaired production of functional dystrophin, which normally functions as a structural protein in muscle.

The reduction of functional dystrophin in muscle cells leads to significant cell damage and ultimately causes muscle cell death and fibrotic replacement.

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

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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 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.

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)

CAP-2003 is the name of our exosomes product candidate which are derived from our CDCs.

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

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

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

Our Technologies

Cardiosphere-Derived Cells (CAP-1002)

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 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.

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

CDCs are sufficiently small that, within acceptable dose limits, they can be infused into a coronary artery or into the peripheral vasculature.

Capricor has performed clinical studies to establish the range of CDC dose levels that appear to be safe via intracoronary administration and peripheral venous access.

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 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.

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

Our preclinical data has shown that CDCs mediate most of their therapeutic activities through the secretion of extracellular vesicles.

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

Our CAP-1002 cell therapy program for the treatment of DMD is currently in Phase 3 clinical development in the United States, for which we expect to have top-line data available in the fourth quarter of 2024.

Exosomes Platform

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

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

Exosomes act as messengers to regulate the functions of neighboring or distant cells and have been shown to regulate functions such as cell survival, proliferation, inflammation and tissue regeneration.

Furthermore, preclinical research has shown that exogenously-administered exosomes can modify cellular activities, thereby supporting their therapeutic potential.

Their size, low or null immunogenicity and ability to communicate in native cellular language potentially makes them an exciting new class of therapeutic agents with the potential to expand our ability to address complex biological responses.

Because exosomes are a cell-free substance, they can be stored, handled, reconstituted and administered in similar fashion to common biopharmaceutical products such as antibodies.

The following table summarizes our active product development programs:

Product Candidate

Development Stage

(allogeneic CDCs)

Duchenne muscular dystrophy*

Phase III enrolling

Nippon Shinyaku Co., Ltd.

and Japan distribution rights)

Phase II completed**

Exosome protein-based vaccine (multivalent design)

Engineered Exosomes (RNA, protein and small molecule delivery)

CAP-2003 (CDC-exosomes)

Duchenne muscular dystrophy

IND submitted

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

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

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 and approximately 200,000 worldwide.

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

The lack of dystrophin, an important structural component of muscle cells, causes them to have increased susceptibility to damage and to progressively die.

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

In DMD patients, heart muscle cells progressively die and are replaced with scar tissue.

This cardiomyopathy eventually leads to heart failure, which is currently the leading cause of death among those with DMD.

Patients with DMD experience progressive muscle weakness and degeneration starting at an early age.

Generally, a loss of ambulation occurs after the first decade of life and eventually the patients suffer respiratory and cardiac failure.

Their lifespan is abbreviated and averages less than three decades.

Their size, low or null immunogenicity and ability to communicate in native cellular language potentially make them an exciting new class of therapeutic agents with the potential to expand our ability to address complex biological responses.

Because exosomes are cell-free substances, they can be stored, handled, reconstituted and administered in similar fashion to common biopharmaceutical products such as antibodies.

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

Our collaborations and research around exosomes include the National Institutes of Health (“NIH”), the National Institute of Allergy and Infectious Diseases (“NIAID”), Johns Hopkins University (“JHU”), the Department of Defense (“DoD”), the U.S.

Army Institute of Surgical Research (“USAISR”), and Cedars-Sinai Medical Center (“CSMC”).

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

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

Our current strategy is focused on securing partners who will provide capital and additional resources to enable us to bring this program into the clinic.

Objectives and Business Strategy

We believe that our cell therapy and exosome-based platforms can be used to develop novel therapeutics to treat a broad range of diseases.

We intend to leverage our technology, collaborations and resources to develop therapeutics for diseases with high unmet needs.

In pursuit of this objective, we intend to focus on the following activities:

● continuing the development of our CAP-1002 program for the treatment of DMD in preparation for potential commercialization, which includes streamlining our manufacturing capabilities, furthering our commercial capabilities and securing additional partners in other markets around the world for the potential launch in the U.S., Japan and in other select territories;

● advancing our exosome technology for therapeutic development, focused on internal research, strategic partnerships and collaborations;

● opportunistically evaluating strategic collaborations to accelerate development and commercialization timelines as well as potentially expand our pipeline within our core therapeutic areas.

Capricor, Inc., a wholly-owned subsidiary of Capricor Therapeutics, was founded in 2005 as a Delaware corporation based on the innovative work of its founder, Eduardo Marbán, M.D., Ph.D.

Our core cell therapy technology was first identified in the academic laboratory of Dr.

Eduardo Marbán while he was Chief of Cardiology at Johns Hopkins.

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

We began to explore the therapeutic potential of exosomes as we learned that CDCs mediate most of their therapeutic activities through the secretion of exosomes.

We have assembled a scientific advisory board with cardiology and neurology experts, including DMD specialists.

Our advisors include clinicians and researchers who are experts on DMD’s skeletal and cardiac aspects.

Moreover, some of our advisors lead clinical units at some of the leading DMD centers in the United States and are actively involved in our drug development process and programs.

Capricor became public after the completion of a merger between Capricor and a subsidiary of Nile Therapeutics, Inc., a Delaware corporation (“Nile”), in 2013, where Capricor became a wholly-owned subsidiary of Nile and Nile formally changed its name to Capricor Therapeutics, Inc.

Capricor Therapeutics was listed on the Nasdaq Capital Market shortly thereafter and currently trades under the symbol “CAPR”.

Capricor Therapeutics and Capricor have together raised approximately $145.0 million in equity capital (both privately and publicly) as well as approximately $90.0 million in non-dilutive funding from our partners including Nippon Shinyaku Co.

Ltd., a Japanese corporation (“Nippon Shinyaku”), as well as government sources such as the NIH and the California Institute for Regenerative Medicine (“CIRM”).

Core Therapeutic Areas

Duchenne muscular dystrophy (DMD):

DMD is a rare, monogenic, X-linked muscle disease with mortality at a median age of approximately 30 years.

There is no cure for DMD, and for the vast majority of patients, there are no satisfactory symptomatic or disease-modifying treatments.

It is estimated that DMD occurs in approximately one in every 3,500 to 5,000 live male births and that the patient population is estimated to be approximately 15,000-20,000 in the United States.

DMD pathophysiology is driven by the impaired production of functional dystrophin, which normally functions as a structural protein in muscle.

The reduction of functional dystrophin in muscle cells leads to significant cell damage and ultimately causes muscle cell death and fibrotic replacement.

Due to reduced functional dystrophin protein, affected individuals generally experience the following symptoms, although disease severity and life expectancy vary:

● muscle damage characterized by inflammation and fibrosis beginning at an early age;

● muscle weakness and progressive loss of muscle function beginning in the first few years of life;

● decline of ambulation and respiratory function after the age of seven;

● total loss of ambulation in the pre-teenage or early teenage years;

● progressive loss of upper extremity function during mid- to late-teens;

● respiratory and/or cardiac failure, resulting in death before the age of 30;

● cardiomyopathy eventually leads to heart failure, which is currently the leading cause of death among those with DMD.

Glucocorticoid treatment, the current standard of care, has been shown to improve muscle strength temporarily, prolong the period of ambulation and slow the progression of DMD.

However, glucocorticoid use is associated with well-known adverse side effects, including:

severe weight gain, stunted growth, weakening of bone structure (osteoporosis) and metabolic dysfunctions, among others.

Despite recent therapeutic advances, DMD represents a significant societal and economic burden.

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

The economic burden includes costs associated with hospital admissions, medications, frequent doctor visits, assistive devices, as well as indirect costs related to productivity losses for caregivers and costs due to pain, anxiety, social handicap as well as end-of-life care expenses.

While there are many clinical initiatives in DMD, Capricor’s program is one of the very few to focus on predominantly non-ambulant patients.

These boys and young men are looking to maintain their function in their arms and hands and slow the progression of cardiomyopathy.

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

Coronaviruses are a large family of viruses that can cause illness in animals or humans.

In humans, several known coronaviruses cause respiratory infections.

These coronaviruses range from the common cold to more severe diseases such as severe acute respiratory syndrome (“SARS”), Middle East respiratory syndrome (“MERS”) and COVID-19.

SARS-CoV-2 is the novel coronavirus first identified in humans in 2019 and is the cause of COVID-19.

The risk of mortality increases with age and the risk of severe disease and mortality increases for persons with certain pre-existing diseases or comorbid conditions (e.g.

cardiovascular disease, diabetes, chronic lung disease, obesity).

Since late 2021, infections have been dominated by subvariants of the Omicron strain which continue to displace previous circulating strains by evading immunity and spreading more efficiently resulting in an increased risk of breakthrough infection among the vaccinated.

As the world pivots from the kinds of responses needed during the pandemic, vulnerable populations need a vaccine strategy to provide protective durable immunity against current and emerging variants of SARS-CoV-2 to reduce the infection and disease burden for both the public and the health care systems globally.

We therefore believe that SARS-CoV-2 represents a potential market opportunity for our exosome-based vaccine program.

Our Pipeline – Key Programs

Duchenne Muscular Dystrophy Program:

CAP-1002 is designed to slow disease progression in DMD through the immunomodulatory, anti-inflammatory, and anti-fibrotic actions of CDCs, with the goal of improving skeletal and cardiac muscle function in patients with DMD.

Phase 3 (HOPE-3) Clinical Trial :

HOPE-3 is a Phase 3, multi-center, randomized, double-blind, placebo-controlled clinical trial comprised of two cohorts evaluating the safety and efficacy of CAP-1002 in participants with DMD and impaired skeletal muscle function who are on a stable regimen of systemic glucocorticoids.

Non-ambulatory and ambulatory boys who meet eligibility criteria are randomly assigned to receive either CAP-1002 or placebo every 3 months for a total of 4 doses during the first 12-months of the study.

Approximately 102 eligible study subjects will participate in this dual-cohort study.

Enrollment has been completed for Cohort A where 61 subjects were randomized to either CAP-1002 or placebo in a 1:1 ratio and is intended to support a Biologics License Application (“BLA”) submission.

In December 2023, we announced a positive outcome of the interim futility analysis for Cohort A of HOPE-3, which was reviewed by the Data Safety Monitoring Board (“DSMB”).

This resulted in a favorable recommendation to continue the HOPE-3 trial as planned.

At this time, we expect to have topline data available from Cohort A in the fourth quarter of 2024.

Cohort A uses product manufactured at our Los Angeles facility.

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.

(CAP-1002 current DMD target population)

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

Enrollment is underway for Cohort B, which is designed to enroll approximately 44 participants randomized to either CAP-1002 or placebo in a 1:1 ratio.

A primary efficacy and safety analysis will be performed for each individual cohort at month 12, following 4 administrations of CAP-1002 or placebo.

We plan to complete enrollment for Cohort B in the second quarter of 2024.

Cohort B uses product manufactured at our San Diego facility.

The primary outcome measure of the HOPE-3 study will be the Performance of the Upper Limb (“PUL”) v2.0, a validated tool specifically designed for assessing high (shoulder), mid (elbow) and distal (wrist and hand) functions, with a conceptual framework reflecting weakness progression in upper limb function.

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

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

Phase II HOPE-2 Clinical Trial

HOPE-2 was a randomized, double-blind, placebo-controlled clinical trial which was conducted at multiple sites located in the United States.

We randomized 20 patients in our HOPE-2 clinical trial.

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

Under our RMAT designation, in the third quarter of 2023, we met with the FDA in a Type-B meeting where we discussed our manufacturing plans in anticipation of potentially submitting a BLA application.

In this meeting, we affirmed alignment with respect to our Phase 3, HOPE-3 program.

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

We plan to meet with FDA in the first quarter of 2024 to continue discussing our pathway to BLA.

In the upcoming Type-B meeting, we intend to discuss our further CMC plans for commercial launch, if approved, with the aim of expediting our BLA submission pathway.

Our ultimate goal is to file a BLA allowing for the use of CAP-1002 commercial product manufactured at our San Diego facility.

Phase 2 HOPE-2 Clinical Trial:

HOPE-2 was a randomized, double-blind, placebo-controlled clinical trial conducted at multiple sites in the United States and was completed in 2021.

The clinical trial was designed to evaluate the safety and efficacy of repeated, intravenous doses of CAP-1002, in boys and young men with evidence of skeletal muscle impairment regardless of ambulatory status.

Approximately 90% of the patients in the study were non-ambulant and all patients were on a stable regimen of steroids.

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

The 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.

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

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.

In HOPE-2, additional secondary and exploratory endpoints such as cardiac function, pulmonary function, quality of life and additional measures were included.

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

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.

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.

The final one-year results from HOPE-2 were published in The Lancet in March 2022, showing that the trial met its primary efficacy endpoint of the mid-level dimension of the PUL v1.2 (p=0.01) and additional positive endpoints of full PUL v2.0 (p=0.04).

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

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

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

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It is well accepted that continuous muscle cell damage in DMD leads to pathologically high enzyme levels associated with cardiac muscle cell loss.

In HOPE-2, treatment with CAP-1002 was associated with a reduction in CK-MB levels as compared to placebo.

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.

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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

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

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 DSMB.

HOPE-2 Study Results - 12-Month Efficacy Data

12-Month Difference in Change from Baseline†

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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 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.

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

Phase 2 HOPE-2-Open Label Extension (“OLE”) Clinical Trial :

We are currently conducting an OLE clinical trial available to all patients who participated in the HOPE-2 study which includes those patients who received placebo.

12 patients elected to continue treatment.

We announced positive one-year and two-year results from this ongoing OLE study.

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

The HOPE-2-OLE study previously met its primary endpoint at the one-year timepoint on the PUL v2.0 scale (p=0.02).

At the two-year timepoint, data showed statistically significant differences in the PUL v2.0 in the OLE treatment group when compared to the original rate of decline of the placebo group from HOPE-2 after one-year (p=0.021).

LVEF was measured using cardiac magnetic resonance imaging (cMRI) and six of nine patients showed improvements in heart function with CAP-1002 treatment compared to their final assessment at the end of the HOPE-2 study.

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

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

Phase I/II HOPE-Duchenne Clinical Trial

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

At this time, we expect to have three-year data available from this OLE study in the second quarter of 2024.

Phase 1/2 HOPE-Duchenne Clinical Trial :

HOPE-Duchenne was a randomized, controlled, multi-center Phase 1/2 clinical trial which was designed to evaluate the safety and exploratory efficacy of CAP-1002 in patients with cardiomyopathy associated with DMD.

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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Efficacy was evaluated according to several exploratory outcome measures.

This study was funded in part through a grant award (the “CIRM Award”) from the California Institute for Regenerative Medicine (“CIRM”).

In January 2019, this study was published in the online issue of Neurology , the medical journal of the American Academy of Neurology.

We reported our 12-month data from the HOPE-Duchenne trial at a Late-Breaking Science session of the American Heart Association Scientific Sessions 2017.

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

In 2019, this study was published in Neurology, the medical journal of the American Academy of Neurology.

As shoulder function had already been lost in most of the HOPE-Duchenne participants, investigators used the combined mid-distal PUL subscales to assess changes in skeletal muscle function and found significant improvement in those treated with CAP-1002 in a defined post-hoc analysis.

Among the lower-functioning patients, defined as patients with a baseline mid-distal PUL score < 55 out of 58, investigators reported sustained or improved motor function at 12 months in 8 of 9 (89%) patients treated with CAP-1002 as compared to none (0%) of the usual care participants (p=0.007).

Additionally, we reported improvements in systolic thickening of the left ventricular wall as well as reduction in scarring of the heart muscle among those treated with CAP-1002 decreased relative to the control group.

CAP-1002 was generally safe and well-tolerated in the HOPE-Duchenne trial.

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There were no early study discontinuations due to adverse events.

Regulatory Designations for CAP-1002 for the treatment of DMD

In April 2015, the FDA granted orphan drug designation to CAP-1002 for the treatment of DMD.

Orphan drug designation is granted by the FDA’s Office of Orphan Drug Products to drugs intended to treat a rare disease or condition affecting fewer than 200,000 people in the United States or a disease or condition that affects more than 200,000 people in the United States and for which there is no reasonable expectation that the cost of developing and making available in the United States a drug for this type of disease or condition will be recovered from sales in the United States for that drug.

This designation confers special incentives to the drug developer, including tax credits on the clinical development costs and prescription drug user fee waivers and may allow for a seven-year period of market exclusivity in the United States upon FDA approval.

In 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 (“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.

In February 2018, we were notified by the FDA Office of Tissues and Advanced Therapies, that we were granted the RMAT designation for CAP-1002 for the treatment of DMD.

The FDA grants the RMAT designation to regenerative medicine therapies intended to treat, modify, reverse, or cure a serious or life-threatening disease or condition and for which preliminary clinical evidence indicates a potential to address unmet medical needs for that condition.

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

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

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

Collaboration Agreements

CAP-1002 - Investigator Sponsored Clinical Trials :

Capricor provided CAP-1002 for investigational purposes in two clinical trials sponsored by CSMC.

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

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

Eduardo Marbán is the named principal investigator under the study.

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

Enrollment of the REGRESS and ALPHA trials have been completed.

In December 2023, the results from the ALPHA study were published in the peer-reviewed journal, eBioMedicine , a Lancet journal.

The Phase 1 results were shown to be safe, with no short-term clinical safety adverse events related to the investigational product, which was the primary outcome measure of the study.

Although this study was only designed to assess the safety of the CAP-1002 infusions, investigators observed encouraging changes that might indicate the 16 patients who received CAP-1002 infusions had improved cardiopulmonary health.

Exosome Platform :

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

Exosome Platform:

Engineered Exosome-Based Vaccines :

The StealthX™ vaccine is a proprietary vaccine developed internally by Capricor utilizing exosomes that were engineered to express either spike or nucleocapsid proteins on the surface.

Preclinical results from murine and rabbit models published in the peer-reviewed journal, Microbiology Spectrum , showed the StealthX™ vaccine, resulted in robust antibody production, potent neutralizing antibodies, a strong T-cell response and a favorable safety profile.

These effects were obtained with administration of only nanogram amounts of protein and without adjuvant or synthetic lipid nanoparticles.

Exosomes offer a new antigen delivery system that could potentially be utilized to rapidly generate multivalent protein-based vaccines.

Recently, we were selected to be part of Project NextGen, an initiative by the U.S.

Department of Health and Human Services to advance a pipeline of new, innovative vaccines providing broader and more durable protection for COVID-19.

As part of Project NextGen, the National Institute of Allergy and Infectious Diseases, part of the National Institutes of Health, will conduct a Phase 1 clinical study with our StealthX™ vaccine, subject to regulatory approval.

At this time, we have submitted an Investigational New Drug Application (“IND”) to the FDA for our StealthX™ vaccine, which is currently under review and we anticipate that if the IND is approved, that NIAID plans to initiate this trial in late 2024.

NIAID's Division of

Microbiology and Infectious Diseases (DMID) would oversee the study.

If NIAID finds that our StealthX™ vaccine meets its criteria for safety and efficacy, they may consider our program for a funded Phase 2.

Exosome Platform:

Engineered Exosome-Based Therapeutics :

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

At this time, we are exploring the use of our proprietary StealthX™ exosome platform for a broad range of therapeutic applications including targeted RNA, protein and small molecule therapeutics to treat or prevent a variety of diseases.

Exosome Platform:

CDC-Derived Exosomes (CAP-2003) :

CAP-2003 is the name of our exosomes product candidate which are derived from CDCs.

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

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

These programs represent our core technology and products.

The following table summarizes our active product development programs:

Product Candidate

Development Stage

Distributor/Partner/Collaborator

(allogeneic CDCs)

Duchenne muscular dystrophy*

Phase 3 (HOPE-3)

enrollment complete

Phase 2 (HOPE-2) completed**

Nippon Shinyaku Co., Ltd.

and Japan rights)

Exosome protein-based vaccine (multivalent design)

IND submitted

Collaboration with National Institute of Allergy and Infectious Diseases

Engineered Exosomes (RNA, protein and small molecule delivery)

CAP-2003 (CDC-exosomes)

Duchenne muscular dystrophy

IND submitted

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

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

Manufacturing, Supply and Distribution

We have developed proprietary Chemistry, Manufacturing and Controls (“CMC”) and manufacturing capabilities that allow manufacturing and testing of our product candidates to support both clinical development as well as potential commercialization.

Manufacturing is subject to extensive regulations that impose procedural and documentation requirements.

These regulations govern record keeping, manufacturing processes and controls, personnel, quality control and quality assurance.

We continue to enhance, refine and optimize our manufacturing processes.

We currently maintain two manufacturing facilities for the production of CAP-1002.

In 2022, we completed construction of our San Diego Research and Development Facility (GMP pilot manufacturing facility) as we prepare for potential commercial launch, subject to FDA approval.

This facility was designed to be compliant with U.S.

and European Medicines Agency (“EMA”) standards.

This facility is currently producing CAP-1002 product for clinical use in Cohort B of our HOPE-3 trial and supporting our OLE trials.

We are preparing for a potential commercial launch, subject to FDA approval, from the San Diego facility.

It is to be determined whether the FDA will ultimately approve commercial manufacturing at this facility.

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

In that portion of the leased premises where we manufacture CAP-1002 and may manufacture our exosome products for potential clinical use, we believe that we follow, current good manufacturing practices to the extent that they are applicable to the stage of our clinical programs although our facility at CSMC is not current Good Manufacturing Practices (“cGMP”) qualified for commercial at this time.

Capricor manufactured CAP-1002

in this facility for our current and previous studies including Cohort A of the HOPE-3 trial.

Our Facilities Lease at CSMC has an expiration date of July 31, 2026.

In the third quarter of 2023, we met with the FDA, where we affirmed alignment with respect to our Phase 3, HOPE-3 program where the FDA agreed to allow us to submit a BLA supported by results using product manufactured at our Los Angeles manufacturing site.

At this time, we are planning on utilizing such data for the submission of a BLA, but it is to be determined whether the FDA will ultimately approve commercial manufacturing at this facility.

The sale of commercial product produced in our Los Angeles facility may require the consent of CSMC.

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

At this time, we have a Drug Manufacturing License issued from the State of California for both our San Diego and CSMC facilities.

We are currently applying for a Tissue Bank License from the State of California for both of our facilities.

Additionally, in February 2024, we entered into a License and Services Agreement with Azzur Cleanrooms-on-Demand – San Diego, LLC (the “Azzur License Agreement”) pursuant to which we have been granted an exclusive license to use certain space and the non-exclusive right to use certain equipment and property for our early phase clinical and/or pre-clinical manufacturing purposes.

We are planning to use this facility to manufacture our exosome-based vaccine for potential clinical use to support our collaboration with NIAID.

Manufacturing Process for CAP-1002

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

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

After expanding, processing, release testing and quality review, the CAP-1002 product becomes available for administration to patients participating in clinical trials.

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

Manufacturing Process for Engineered-Exosome Technologies

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

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

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

Manufacturing Process for CDC-Exosomes (CAP-2003)

The process for manufacturing CAP-2003 starts with the proprietary process of creating a cell bank from donor heart tissue through the expansion of CDCs.

Afterwards, exosomes are isolated from the expanded CDCs.

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

Material Agreements, License Agreements & Collaborations

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

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United States)

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

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

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

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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.

Pursuant to the U.S Distribution Agreement, Capricor received an upfront payment of $30.0 million in the first quarter of 2022.

The first milestone payment of $10.0 million was paid upon completion of the interim futility analysis of the HOPE-3 trial whereby the outcome was determined to be not futile.

Additionally, there are potential milestones totaling up to $90.0 million leading up to and including the BLA approval.

Further, there are various potential sales-based milestones, if commercialized, tied to the achievement of certain sales thresholds for annual net sales of CAP-1002 of up to $605.0 million.

Further, pursuant to the U.S.

Distribution Agreement, Capricor has the obligation to sell commercial product to Nippon Shinyaku, subject to regulatory approval, and Capricor will have the right to receive a meaningful mid-range double-digit share of product revenue.

Commercialization and Distribution Agreement with Nippon Shinyaku (Territory:

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

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

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

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

Under the terms of the Japan Distribution Agreement, Capricor received an upfront payment of $12.0 million in the first quarter of 2023 and in addition, Capricor may potentially receive additional development and sales-based milestone payments of up to approximately $89.0 million, subject to foreign currency exchange rates, and a meaningful double-digit share of product revenue.

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

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

Capricor will sell commercial product to Nippon Shinyaku.

Subject to regulatory approval, Capricor will sell commercial product to Nippon Shinyaku in Japan.

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

Collaboration Agreement with NIH

In 2023, we were notified by the NIH that we had been selected to be part of Project NextGen, an initiative by the U.S.

Department of Health and Human Services to advance a pipeline of new, innovative vaccines providing broader and more durable protection for COVID-19.

NIAID's Division of Microbiology and Infectious Diseases (DMID) will oversee the study.

Under the terms of the collaboration, Capricor will be responsible for supplying investigational product for the trial.

Cooperative Research and Development Agreement with the U.S.

Army Institute of Surgical Research

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

related injuries and conditions.

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

Other CAP-1002 Programs

CAP-1002 - Investigator Sponsored Clinical Trials

Capricor provided CAP-1002 for investigational purposes in two clinical trials sponsored by CSMC.

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

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

Eduardo Marbán is the named principal investigator under the study.

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

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 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.

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 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.

Even patent protection, however, may not always afford us with complete protection against competitors who seek to circumvent our patents.

If we fail to adequately protect or enforce our intellectual property rights or secure rights to patents of others, the value of our intellectual property rights would diminish.

To this end, we require all of our employees, consultants, advisors and 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, patient selection and treatment regimes, and delivery and dosage regimens.

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

Earlier filed broad patent applications directed to the discovery of the platform technology thus usually expire ahead of patents covering later developments such as scalable manufacturing processes and dosing regimens.

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

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

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

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

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

In March 2022, Capricor paid the $250,000 development milestone related to the Phase 2 study pursuant to the terms of the JHU License Agreement.

The next milestone is triggered upon successful completion of a full Phase 3 study for which a payment of $500,000 will be due.

The JHU License Agreement will, unless sooner terminated, continue in effect in each applicable country until the date of expiration of the last to expire patent within the patent rights, or, if no patents are issued, then for twenty years from the effective date.

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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.

Pursuant to the JHU Exosome License Agreement, JHU was paid an upfront license fee of $10,000 and Capricor has agreed to reimburse JHU for certain fees and costs incurred in connection with the prosecution of certain patent rights.

Additionally, Capricor is required to meet certain development milestones for which a milestone payment fee shall be due and is obligated to pay low single-digit royalties on sales of royalty-bearing products as well as a double-digit percentage of any non-royalty consideration received from any sublicenses, subject to certain exclusions.

The above-mentioned royalties are subject to reduction in the event Capricor becomes obligated to pay royalties on one or more third party patents as a requirement to make or sell a licensed product.

In addition, Capricor will, beginning with the third year of the JHU Exosome License Agreement, be obligated to pay JHU a minimum annual royalty which is non-refundable but will be credited against royalties incurred by Capricor for the year in which the minimum annual royalty becomes due.

The JHU Exosome License Agreement will, unless sooner terminated, continue in each country until the date of expiration of the last to expire patent included within the patent rights in that country, or if no patents issue, then for 20 years.

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 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;

(b) the failure by Capricor to timely achieve a specified milestone or otherwise failing to diligently develop, commercialize, and sell licensed products throughout the term of the JHU Exosome License Agreement;

(d) voluntary bankruptcy or insolvency of Capricor;

and (e) non-compliance with Capricor’s insurance obligations.

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

The JHU Exosome License Agreement was terminated by Capricor on December 15, 2023.

Cedars-Sinai Medical Center License Agreements

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

On March 20, 2015, August 5, 2016, December 26, 2017, June 20, 2018, and July 27, 2021, Capricor and CSMC entered into a number of amendments to the Amended CSMC License Agreement, pursuant to which the parties agreed to add and delete certain patent applications from the list of scheduled patents, among other things.

Capricor and CSMC have entered into several amendments to the Amended CSMC License Agreement, pursuant to which the parties agreed to add and delete certain patent applications from the list of scheduled patents and extend the timing of certain development milestones, among other things.

Capricor reimbursed CSMC for certain attorneys’ fees and filing fees incurred in connection with the additional patent applications.

We recently received a letter from CSMC alleging that pursuant to the Amended CSMC License Agreement between CSMC and Capricor, Capricor has certain overdue payment obligations to CSMC arising out of a milestone payment received by Capricor pursuant to the U.S.

Distribution Agreement entered into between Capricor and Nippon Shinyaku.

The notice letter requests that Capricor cure the alleged breaches of the Amended CSMC License Agreement, and reserves CMSC’s purported right to terminate the Amended CSMC License Agreement if such alleged breaches are not cured.

We dispute the allegations in the letter from CSMC and intend to vigorously defend our position and pursue all available remedies, but there is no guarantee that any disputes that we have with CSMC will be resolved or if resolved, will not result in our incurring certain payment and other obligations.

License Agreement for Exosomes

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

The Exosomes License

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

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.

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

On February 27, 2015, June 10, 2015, August 5, 2016, December 26, 2017, June 20, 2018, September 25, 2018, August 19, 2020, August 28, 2020, and March 19, 2021, Capricor and CSMC entered into a number of amendments to the Exosomes License Agreement.

Collectively, these amendments added additional patent applications and patent families to the Exosomes License Agreement, added certain defined product development milestone payments, modified certain milestone deadlines, and added certain performance milestones with respect to product candidates covered by certain future patent rights in order to maintain an exclusive license to those future patent rights;

failure to meet those milestones would cause CSMC to have the right to convert the license from exclusive to non-exclusive or co-exclusive, or to terminate the license, subject to Capricor’s right to license such patent rights for internal research purposes on a non-exclusive basis.

Capricor and CSMC have entered into several amendments to the Exosomes License Agreement.

Collectively, these amendments added additional patent applications and patent families to the Exosomes License Agreement, added certain defined product development milestone payments, modified certain milestone deadlines, added certain performance milestones with respect to product candidates covered by certain future patent rights in order to maintain an exclusive license to those future patent rights, and converted certain exclusive rights to co-exclusive rights.

These amendments also obligated Capricor to reimburse CSMC for certain attorneys’ fees and filing fees in connection with the additional patent applications and patent families.

Sponsored Research Agreement with Johns Hopkins University

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 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.

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

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.

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 (“OPO”).

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

After expanding, processing, release testing and quality review, the CAP-1002 product becomes available for administration to patients participating in clinical trials.

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

Manufacturing Process for Engineered-Exosome Technologies

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

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

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)

The process for manufacturing CAP-2003 starts with the proprietary process of creating a cell bank from donor heart tissue through the expansion of CDCs.

Afterwards, exosomes are isolated from the expanded CDCs.

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

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

Patents and Proprietary Rights

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

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

Even patent protection, however, may not always afford us with complete protection against competitors who seek to circumvent our patents.

If we fail to adequately protect or enforce our intellectual property rights or secure rights to patents of others, the value of our intellectual property rights would diminish.

To this end, we require all of our employees, consultants, advisors and

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

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

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

Earlier filed broad patent applications directed to the discovery of the platform technology thus usually expire ahead of patents covering later developments such as manufacturing processes, specific formulations, additional indications and dosing regimens.

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

Our patents, or patent applications, if issued and upon payment of patent maintenance fees, would expire as early as 2024 and as late as 2044 or beyond depending on any patent term adjustment or patent term extension.

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

The earlier expiring patents are generally directed to precursor cell populations or early non-DMD indications and administration methods.

We have patents directed to CAP-1002 for the treatment of DMD that expire in 2038 unless otherwise extended under Hatch-Waxman.

We continue to file patents on processes, indications, dosage forms and formulations directed to extend the patent portfolio related to CAP-1002 and our exosome technologies as our technology progresses.

Our product candidates and our technologies are primarily protected by composition of matter and process (methods of use and methods of making) patents and patent applications as well as trade secrets.

As of the date of this filing, we have 46 granted patents and 15 pending patent applications covering processes and compositions of matter related to our CDC (CAP-1002) technology and 37 granted patents and 43 pending patent applications covering processes and compositions of matter related to our exosome technology.

Regulatory Designations

Regulatory Designations for CAP-1002 for the treatment of DMD

In 2015, the FDA granted orphan drug designation to CAP-1002 for the treatment of DMD.

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

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

If Capricor were to receive market approval for CAP-1002 by the FDA, Capricor would be eligible to receive a Priority Review Voucher based on its designation as a rare pediatric disease.

In 2018, we were granted the Regenerative Medicine Advanced Therapy (“RMAT”) designation for CAP-1002 for the treatment of DMD.

The 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 late-stage patients with DMD.

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

Our trademarks are generally filed to protect our corporate brand, our products and our platform technologies.

We typically file trademark applications and pursue their registration in the U.S., Europe and other markets in which we anticipate using such trademarks.

We are the owner of several common law, and federal trademark registrations or applications in the U.S.

including, but not limited to, Capricor®, Capricor Therapeutics, STEALTHX™ and the Capricor logo.

Trademark protection varies in accordance with local law, and continues in some countries as long as the trademark is used and in other countries as long as the trademark is registered.

Trademark registrations generally are for fixed but renewable terms.

Research and Development

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Our ongoing research and development activities primarily concern CDCs and exosomes and are focused on the characterization of their composition and actions, the evaluation of their therapeutic potential in selected disease settings, the development of next generation product candidates, and the identification of new technologies and indications.

We are engaged in fields 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 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.

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

There are many pharmaceutical companies, biotechnology companies, public and private universities, government agencies and research organizations that compete with us in developing various approaches to the treatment of DMD, which includes competitors both in the United States and internationally.

With CAP-1002, we expect to face competition from existing products and products in development.

In addition, at this time, there are four FDA conditionally approved exon skipping drugs:

EXONDYS 51 (eteplirsen), AMONDYS 45 (casimersen) and VYONDYS 53 (golodirsen), which are phosphorodiamidate Morpholino oligomers (PMOs) approved for the treatment of DMD patients amenable to Exon 51, Exon 45 and Exon 53 skipping, respectively, and are marketed by Sarepta Therapeutics, Inc., and VILTEPSO (vitolarsen), a PMO approved for the treatment of DMD patients amenable to Exon 53 skipping, which is marketed by Nippon Shinyaku (U.S.

NS Pharma, Inc.).

In June 2023, the FDA approved Sarepta’s BLA application seeking accelerated approval of Elevidys (delandistrogene moxeparvovec), its microdystrophin gene therapy, for the treatment of ambulant individuals with Duchenne.

There are multiple other companies focused on developing genetic based therapies that target dystrophin mechanisms and non-dystrophin mechanisms for the treatment of DMD.

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

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

Many of the organizations competing with us have substantially greater financial resources, larger research and development staffs and facilities, longer drug development history in obtaining regulatory approvals, and greater manufacturing and marketing capabilities than we do.

There are many pharmaceutical companies, biotechnology companies, public and private universities, government agencies, and research organizations actively engaged in research and development of products which may target the same indications as our product candidates.

We expect any future products and product candidates we develop to compete on the basis of, among other things, product efficacy and safety, time to market, price, extent of adverse side effects, and convenience of treatment procedures.

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There can be no assurance that existing or future therapies developed by others will not render our potential products obsolete or noncompetitive.

In addition, companies pursuing different but related fields represent substantial competition.

In addition, companies pursuing

different but related fields represent substantial competition.

These organizations also compete with us to attract patients for clinical trials, qualified personnel and parties for acquisitions, joint ventures, or other collaborations.

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

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

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

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

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Various laws and regulations govern or influence the research and development, non-clinical and clinical testing, manufacturing, processing, packaging, validation, safety, labeling, storage, record keeping, registration, listing, distribution, advertising, sale, marketing and post-marketing commitments of our products.

The lengthy process of seeking these approvals, and the subsequent compliance with applicable laws and regulations, require expending substantial resources.

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 lengthy process of seeking these approvals, and compliance with applicable laws and regulations, require expending substantial resources.

concerning the drug manufacturing process and its controls, and a proposed clinical trial protocol and other information must be submitted to the FDA as part of an IND that must be reviewed and become effective before clinical testing can begin.

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

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however, the phases may overlap or be combined:

● Phase I clinical trials typically are conducted in a small number of volunteers or patients to assess the early tolerability and safety profile, the pattern of drug absorption, distribution and metabolism, the mechanism of action in humans, and may include studies where investigational drugs are used as research to explore biological phenomena or disease processes;

● Phase II clinical trials typically are conducted in a limited patient population with a specific disease in order to assess appropriate dosages and dose regimens, expand evidence of the safety profile and evaluate preliminary efficacy;

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

● Phase 1 clinical trials typically are conducted in a small number of volunteers or patients to assess the early tolerability and safety profile, the pattern of drug absorption, distribution and metabolism, the mechanism of action in humans, and may include studies where investigational drugs are used as research to explore biological phenomena or disease processes;

● Phase 2 clinical trials typically are conducted in a limited patient population with a specific disease in order to assess appropriate dosages and dose regimens, expand evidence of the safety profile and evaluate preliminary efficacy;

● Phase 3 clinical trials typically are larger scale, multicenter, well-controlled trials conducted on patients with a specific disease to generate enough data to statistically evaluate the efficacy and safety of the product, to establish the overall benefit-risk relationship of the drug and to provide adequate information for the labeling of the drug.

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

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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.

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;

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

If and when those conditions have been met to the FDA’s satisfaction, the FDA will typically issue an approval letter, which authorizes commercial marketing of the product with specific prescribing information for specific indications, and sometimes with specified post-marketing commitments and/or distribution and use restrictions imposed under a Risk Evaluation and Mitigation Strategy program.

under a Risk Evaluation and Mitigation Strategy program.

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

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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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The sponsor of a new drug or biologic may request the FDA to designate the drug or biologic as a Fast Track product at any time during the clinical development of the product.

Unique to a Fast Track product, the FDA may consider for review sections of the marketing application on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the application, the FDA agrees to accept sections of the application and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the application FDA may revoke the Fast Track designation if it believes that the designation is no longer supported by data emerging in the clinical trial process.

Unique to a Fast Track product, the FDA may consider for review sections of the marketing application on a rolling basis before the

complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the application, the FDA agrees to accept sections of the application and determines that the schedule is acceptable, and the sponsor pays any required user fees.

Upon submission of the first section of the application FDA may revoke the Fast Track designation if it believes that the designation is no longer supported by data emerging in the clinical trial process.

Products may also be eligible for other types of FDA programs intended to expedite development and review, such as Breakthrough Therapy designation, priority review and accelerated approval.

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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 Cures Act.

The FDA has established a RMAT designation as part of its implementation of the Cures Act.

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

(1) it qualifies as a RMAT, which is defined as a cell therapy, therapeutic tissue engineering product, human cell and tissue product, or any combination product using such therapies or products, with limited exceptions;

(1) it qualifies as an RMAT, which is defined as a cell therapy, therapeutic tissue engineering product, human cell and tissue product, or any combination product using such therapies or products, with limited exceptions;

(2) it is intended to treat, modify, reverse, or cure a serious or life-threatening disease or condition;

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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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Following approval of the NDA or BLA, we and our manufacturers will remain subject to periodic inspections by the FDA to assess compliance with cGMP requirements and the conditions of approval.

We will also face similar inspections coordinated by foreign regulatory authorities.

We will also face similar inspections coordinated by foreign regulatory authorities if we are selling or manufacturing in foreign countries.

The FDA periodically inspects the sponsor’s records related to safety reporting and/or manufacturing facilities;

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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;

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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.

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There has also been heightened governmental scrutiny recently over the manner in which drug manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products.

Several federal healthcare reform efforts have been adopted in recent years which aim to restrict drug product pricing and limit reimbursement.

For further details, See Part I, Item 1- Healthcare Reform.

We anticipate additional state and federal healthcare reform measures will be adopted in the future.

These may include price controls and cost-containment measures, or more restrictive policies in jurisdictions with existing controls and measures, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, and potentially could reduce demand for our products once approved, create additional pricing pressures, or ultimately limit our net revenue and results.

and services, and potentially could reduce demand for our products once approved, create additional pricing pressures, or ultimately limit our net revenue and results.

In addition, in some non-U.S.

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and generally tend to have price structures that are significantly lower.

In Japan, almost all medical-use drugs that have been approved (i.e., whose efficacy and safety have been confirmed) under the Pharmaceuticals and Medical Devices Act may be covered by the National Health Insurance (“NHI”).

In order to be covered by the NHI, a drug must be listed on the NHI drug price standard within 60 or 90 days after approval for marketing.

After the NHI drug price is listed, the NHI price, which is the official price of drugs, will be reviewed and updated on a regular basis.

In principle, NHI price revisions are conducted once every two years in conjunction with the April revision of medical fees.

When NHI drug prices are revised, most drugs will be priced lower than before the revision.

The reason for this is that between pharmaceutical wholesalers and medical institutions and pharmacies, drugs are sold at prices lower than the NHI price, and the basic principle of NHI price revision is to reduce the NHI price in line with the prevailing market price.

Accordingly, the NHI drug price revisions every two years may lead to the cut of the drug price in Japan.

Other Healthcare Fraud and Abuse Laws

Although we currently do not have any products on the market, our activities, including current and future arrangements with investigators, healthcare professionals, consultants, third-party payors and customers, may be subject to additional healthcare laws, regulations and enforcement by the federal government and by authorities in the states and foreign jurisdictions in which we conduct our business.

Although we currently do not have any products on the market and do not make patient referrals or bill Medicare, Medicaid, or other government or commercial third-party payors, our activities, including current and future arrangements with investigators, healthcare professionals, consultants, third-party payors and customers, may be subject to additional healthcare laws, regulations and enforcement by the federal government and by authorities in the states and foreign jurisdictions in which we conduct our business.

Such laws include, without limitation, state and federal anti-kickback, fraud and abuse, false claims, privacy and security, price reporting, and physician sunshine laws.

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

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 that may be reimbursable, in whole or in part, under Medicare, Medicaid or other federal healthcare programs.

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

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.

Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all of its facts and circumstances.

The Anti-Kickback Statute has been interpreted to apply to arrangements between therapeutic product manufacturers on one hand and prescribers, purchasers, and formulary managers, among others, on the other, including, for example, arrangements relating to consulting/speaking arrangements, discount and rebate offers, grants, charitable contributions, and patient support offerings.

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

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

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

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.

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

A violation of the federal Anti-Kickback Statue includes per violation civil monetary penalties and significant criminal fines under the statute, additional civil penalties and treble damages under the False Claims Act, as discussed in more detail below, possible imprisonment, and mandatory exclusion from participation in the federal healthcare programs, meaning that federal healthcare programs would no longer reimburse (directly or indirectly) for products or services furnished by the excluded entity or individuals.

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.

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

Penalties for federal civil False Claims Act violations may include up to three times the actual damages sustained by the government, plus mandatory civil penalties of between $13,508 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.

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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.

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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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.

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

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

Regulatory guidance and obligations continue to evolve.

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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.

As HIPAA and HITECH 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.

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

For instance, the California Consumer Privacy Act (“CCPA”) became effective on January 1, 2020, giving California residents expanded privacy rights, and requiring businesses provide detailed information about their data practices.

For instance, the California Consumer Privacy Act (“CCPA”) became effective on January 1, 2020, giving California residents expanded privacy rights, and requiring businesses to provide detailed information about their data practices.

The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation.

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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.

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

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

Additionally, the U.S.

federal Physician Payments Sunshine Act (the “Sunshine Act”), created under the ACA, and its implementing regulations, require that certain manufacturers of drugs, devices, biological and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) report annually to 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.

federal Physician Payments Sunshine Act (the “Sunshine Act”), created under the ACA, and its implementing regulations, require that certain manufacturers of drugs, devices, biological and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) report annually to Centers for Medicare and Medicaid Services (“CMS”) information related to certain payments or other transfers of value made or distributed to physicians (defined to include doctors, dentists, optometrists, podiatrists, and licensed chiropractors), physician assistants, nurse practitioners, clinical nurse specialists, anesthesiologist assistants, certified nurse anesthetists, certified nurse-midwives and U.S.

teaching hospitals and to report annually certain ownership and investment interests held by physicians and their immediate family members.

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

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

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

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.

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

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

Prior to the Supreme Court’s decision, President Biden had issued an executive order that instructed certain governmental agencies to review and

reconsider their existing policies and rules that limit access to healthcare, including among others, policies that create barriers to obtaining access to health insurance coverage through the ACA marketplaces.

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

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

For example, the Budget Control Act of 2011 included reductions to Medicare payments to providers of up to 2% per fiscal year, which went into effect on April 1, 2013 and, due to subsequent legislation, will stay in effect into 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.

For example, the Budget Control Act of 2011 included reductions to Medicare payments to providers of up to 2% per fiscal year, which went into effect on April 1, 2013 and, due to subsequent legislation, will stay in effect into through the first six months of the fiscal year 2032 sequestration order (with the exception of a temporary suspension due to the COVID-19 pandemic from May 1, 2020 through March 31, 2022 and a subsequent reduction to 1% from April 1, 2022 until June 30, 2022).

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

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

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

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

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.

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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.

and, beginning in 2026, establishes a “maximum fair price” for a fixed number of high expenditure pharmaceutical and biological products covered under Medicare Parts B and D following a price negotiation process with the CMS.

Since its enactment, CMS has taken steps to implement various drug pricing provisions of the IRA.

This includes, without limitation, issuing guidance on June 30, 2023 detailing the requirements and parameters of the first round of price negotiations, to take place during 2023 and 2024, for products subject to the “maximum fair price” provision that would become effective in 2026;

on August 29, 2023, releasing the initial list of 10 drugs subject to price negotiations;

and on December 14, 2023 releasing a list of 48 Medicare Part B products that had adjusted coinsurance rates based on the inflationary rebate provisions of the IRA for the time period of January 1, 2024 to March 31, 2024.

Several pharmaceutical manufacturers and other industry stakeholders have challenged the law, including through lawsuits brought against the Department of Health and Human Services, the Secretary of the Department of Health and Human Services, CMS, and the CMS Administrator challenging the constitutionality and administrative implementation of the IRA’s drug price negotiation provisions.

We cannot predict whether the IRA, or any of its component parts, will be overturned, repealed, replaced, or amended nor can we predict the likelihood, nature, or extent of other health reform initiatives that may arise from future legislation, administrative, or other action.

However, we expect these initiatives to increase pressure on drug pricing.

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

For example, on October 14, 2022 President Biden issued an Executive Order on Lowering Prescription Drug Costs for Americans, which instructed the Secretary of the Department of Health and Human Services to consider whether to select for testing by the CMS Innovation Center new health care payment and delivery models that would lower drug costs and promote access to innovative drug therapies for beneficiaries enrolled in the Medicare and Medicaid programs.

On February 14, 2023, the Department of Health and Human Services issued a report in response to the October 14, 2022 Executive Order, which, among other things, selects three potential drug affordability and accessibility models to be tested by the CMS Innovation Center.

Specifically, the report addresses:

(1) a model that would allow Part D Sponsors to establish a “high-value drug list” setting the maximum co-payment amount for certain common generic drugs at $2;

(2) a Medicaid-focused model that would establish a partnership between CMS, manufacturers, and state Medicaid agencies that would result in multi-state outcomes-based agreements for certain cell and gene therapy drugs;

and (3) a model that would adjust Medicare Part B payment amounts for Accelerated Approval Program drugs to advance the developments of novel treatments.

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

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At the state level, legislatures are increasingly passing legislation and implementing regulations designed to control biopharmaceutical and biologic product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.

The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize any product that is ultimately approved, if approved.

In addition, several recently passed state laws require disclosures related to state agencies and/or commercial purchasers with respect to certain price increases that exceed a certain level as identified in the relevant statutes.

Another emerging trend at the state level is the establishment of prescription drug affordability boards, some of which will prospectively permit certain states to establish upper payment limits for drugs that the state has determined to be “high-cost.” Some of these laws and regulations contain ambiguous requirements that government officials have not yet clarified.

Given the lack of clarity in the laws and their implementation, our future reporting actions could be subject to the penalty provisions of the pertinent federal and state laws and regulations.

From time to time, legislation is drafted, introduced and passed in Congress that could significantly change the statutory provisions governing the testing, approval, manufacturing and marketing of products regulated by the FDA.

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

The information on, or accessible through, our website is not part of this Annual Report on Form 10-K.

The information on, or accessible through, our website is not incorporated into this Annual Report on Form 10-K or any other filings we make with the U.S.

Securities and Exchange Commission (the “SEC”).

We have included our website address in this Annual Report on Form 10-K solely as an inactive textual reference.

Currently, we have 74 full-time employees.

As of December 31, 2023, we had 102 employees, of whom 101 are full-time employees with 34 holding advanced degrees.

None of our employees are covered by a collective bargaining agreement.

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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