What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-03-11 compared with 2023-03-17 · 199 added, 172 removed, 263 unchanged (59% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and the audited consolidated notes to those statements included elsewhere in this Annual Report on Form 10-K.

The following discussion of our financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and the related audited consolidated notes to those statements included elsewhere in this Annual Report on Form 10-K.

This discussion includes forward-looking statements that involve risks and uncertainties.

As a result of many factors, our actual results may differ materially from those anticipated in these forward-looking statements.

As a result of many factors, including those set forth under Item 1A., “Risk Factors” or elsewhere in this annual report, our actual results may differ materially from those anticipated in these forward-looking statements.

Company Overview

Capricor Therapeutics, Inc.

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

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.

Since our inception, we have devoted substantial resources to developing CAP-1002 and our other product candidates including our exosomes platform, developing our manufacturing processes, staffing our company and providing general and administrative support for these operations.

1 unchanged sentence

Our ability to eventually generate any product revenue sufficient to achieve profitability will depend on the successful development, approval and eventual commercialization of CAP-1002 for the treatment of DMD and our other product candidates.

If successfully developed and approved, we intend to commercialize CAP-1002 in the United States and Japan with our partner, Nippon Shinyaku, and may enter into additional licensing agreements or strategic collaborations in other markets.

If successfully developed and approved, we intend to commercialize CAP-1002 in the United States and Japan with our partner, Nippon Shinyaku Co., Ltd., a Japanese corporation (“Nippon Shinyaku”), and may enter into licensing agreements or strategic collaborations in other markets.

If we generate product sales or enter into licensing agreements or strategic collaborations, or further distribution relationships, we expect that any revenue we generate will fluctuate from quarter-to-quarter and year-to-year as a result of the timing and amount of any product sales, license fees, milestone payments and other payments.

1 unchanged sentence

A summary description of our key product candidates, is as follows:

● CAP-1002 for the treatment of DMD (Phase III):

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

● CAP-1002 for the treatment of DMD (Phase 3):

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

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.

1 unchanged sentence

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.

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

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

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

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

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

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

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

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.

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

1 unchanged sentence

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 PUL v1.2 (p=0.01) and additional positive endpoints of full PUL v2.0 (p=0.04) and a cardiac endpoint of left ventricular ejection fraction (p=0.002).

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

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 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.

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

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

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).

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 muti-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.

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

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 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.

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.

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.

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.

The regulatory pathway for CAP-1002 is supported by RMAT designation as well as orphan drug designation.

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.

Capricor has entered into two Commercialization and Distribution Agreements with Nippon Shinyaku appointing Nippon Shinyaku as its exclusive distributor of CAP-1002 in the United States and Japan.

● Exosome-Based Therapeutics and Vaccines (Preclinical):

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

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

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

In addition, if Capricor were to receive FDA marketing approval for CAP-1002 for the treatment of DMD, Capricor would be eligible to receive a Priority Review Voucher (“PRV”) based on its previous receipt of a rare pediatric disease designation.

Capricor retains full rights to the PRV, if received.

Further, Capricor has entered into two Commercialization and Distribution Agreements with Nippon Shinyaku appointing Nippon Shinyaku as its exclusive distributor of CAP-1002 in the United States and Japan.

● Exosome-Based Platform (Preclinical):

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

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.

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.

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

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

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”).

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

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

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 once the IND is approved, that NIAID plans to initiate this trial in late 2024.

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

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 enable us to bring this program into the clinic.

As of December 31, 2023, we had cash, cash equivalents, and marketable securities totaling approximately $39.5 million.

Additionally, under the terms of our Japan Distribution Agreement with Nippon Shinyaku, we expect to receive an upfront payment of $12.0 million in the first quarter of 2023 We estimate this will fund our operating expenses and capital expenditure requirements into the fourth quarter of 2024.

This expectation excludes any potential additional milestone payments under our commercialization and distribution agreements with Nippon Shinyaku.

In the fourth quarter of 2023, we announced a positive outcome of the interim futility analysis for HOPE-3, which was reviewed by the Data Safety Monitoring Board.

This resulted in a favorable recommendation to continue the HOPE-3 trial as planned, and in accordance with our U.S.

Distribution Agreement with Nippon Shinyaku , triggered a milestone payment of $10.0 million which was received in January 2024.

We estimate this will fund our operating expenses and capital expenditure requirements into the first quarter of 2025.

This expectation includes the $10.0 million milestone payment but excludes any additional potential milestone payments under our Commercialization and Distribution agreements with Nippon Shinyaku.

We have not generated any revenues from the commercial sale of products.

6 unchanged sentences

Wainwright & Co.

LLC (“Wainwright”), resulting in net proceeds of $4.8 million.

LLC (“Wainwright”) under our at-the-market offering, resulting in net proceeds of $4.1 million.

Additionally, in October 2023, we completed a registered direct offering for gross proceeds of approximately $23.0 million.

Recent Operational Developments

● 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.

● In February 2023 we entered into a Commercialization and Distribution Agreement (the “Japan Distribution Agreement”) with Nippon Shinyaku for the exclusive commercialization and distribution of CAP-1002 for DMD in Japan.

Under the terms of the Japan Distribution Agreement, we will be responsible for the development of the clinical program in Japan required to obtain manufacturing and marketing approval for CAP-1002 as well as for the manufacturing of CAP-1002.

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

We are entitled to receive an upfront payment of $12.0 million which is expected to be received in the first quarter of 2023 and have the potential to receive additional milestone payments of up to approximately $89 million, subject to foreign currency exchange rates.

● We are conducting an OLE study of the HOPE-2 trial in which 12 patients have elected to continue treatment of CAP-1002.

In June 2022, we announced positive one-year results from this ongoing OLE study.

In February 2023, we announced positive 18-month results from this ongoing OLE Study.

The one year and 18-month data from this OLE study showed statistically significant improvements on the PUL v2.0 for patients on CAP-1002 testing three different hypotheses of treatment benefit during the open label extension.

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

● In March 2022, we announced that the final one-year results from our HOPE-2, Phase II clinical trial were published in The Lancet showing that the trial met its primary efficacy endpoint of mid-level PUL v1.2 (p=0.01) and additional positive endpoints of full PUL v2.0 (p=0.04) and cardiac endpoint of ejection fraction (p=0.002).

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.

● In January 2022 we entered into the U.S.

Distribution Agreement with Nippon Shinyaku for the exclusive commercialization and distribution of CAP-1002 for DMD in the United States.

Under the terms of the U.S.

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

NS Pharma, Inc., a subsidiary of Nippon Shinyaku, will be responsible for the distribution of CAP-1002 in the United States.

Pursuant to the U.S.

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

We received an upfront payment of $30.0 million in the first quarter of 2022 and have the potential to receive additional milestone payments of up to $705.0 million.

CAP-1002 DMD Program Updates

● Enrollment has been completed for Cohort A in our Phase 3 trial which enrolled 61 subjects randomized to either CAP-1002 or placebo in a 1:1 ratio.

● Reported a positive outcome from the interim futility analysis for Cohort A which triggered the first milestone payment of $10.0 million under our U.S.

Commercialization Agreement with Nippon Shinyaku.

There is an additional $90.0 million in potential milestone payments up to the time of approval which are triggered upon certain regulatory-based achievements.

Following potential approval, there is an additional $605.0 million in potential milestones payments which may be payable to Capricor based on various sales-based targets being met.

● Next steps for Cohort A:

plan to readout top-line data in the fourth quarter of 2024.

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

● Next steps for Cohort B:

expect to complete enrollment in the second quarter of 2024.

● Announced the scale-up to expand the manufacturing capacity of CAP-1002 to our new San Diego facility, intended for commercial use, subject to regulatory approval.

This facility was designed to be a versatile and cost-effective way to bring CAP-1002 to market efficiently and it is expected that our enhanced manufacturing capacity will increase our supply capabilities and improve our margins on ultimate product sales, if any.

We are currently producing CAP-1002 doses at our San Diego facility for use in Cohort B.

● Announced a positive outcome from a Type-B meeting held with FDA in the third quarter of 2023.

In the meeting, the FDA affirmed alignment on the current HOPE-3 clinical trial design comprised of two cohorts and our plan to submit a BLA supported by results from Cohort A which uses product manufactured from our Los Angeles manufacturing facility.

● 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 an aim to expedite the approval pathway to our BLA filing.

Our ultimate goal is to transition to our San Diego manufacturing facility for commercial manufacturing as quickly as possible.

● Hosted a webinar in conjunction with Parent Project Muscular Dystrophy (PPMD) where key updates on our DMD program were outlined.

● Presented a late-breaking poster at the 28 th International Annual Congress of the World Muscle Society (WMS).

Highlights from the poster included data from the HOPE-2 OLE trial measured by the Performance of the Upper Limb (PUL 2.0) showing a delta change=4.9 points, p=0.021 after 24-months of treatment, compared with the placebo patient group.

Exosome Program

● Announced that our proprietary StealthX™ exosome-based multivalent vaccine (StealthX™ vaccine) for the prevention of SARS-CoV-2 was 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, NIAID, part of the National Institutes of Health, will conduct and fund a Phase 1 clinical trial with our StealthX™ vaccine, subject to regulatory approval.

Under the terms of the collaboration, Capricor will supply the investigational product and NIAID's Division of Microbiology and Infectious Diseases (DMID) will oversee the trial.

● Next steps for this project:

NIAID plans to initiate the Phase 1 clinical trial in late 2024, subject to regulatory approval.

● Currently, in collaboration with an undisclosed pharmaceutical company, we are also investigating the therapeutic application of our StealthX™ exosome platform.

● Presented a late-breaking poster at the WMS on the application of our StealthX™ exosome platform for the delivery of antisense oligonucleotides (ASO).

Highlights from the poster included data showing the presence of exosomes loaded with a labeled ASO in the lower limbs of mice 24 hours post-intravenous (IV) injection.

Notably, the exosomes carrying the muscle-targeting moiety were not detected in any other tissues except for the expected clearance pathways (kidney and liver) with a single dose.

Corporate Updates

● Announced receipt of our first milestone payment of $10.0 million under our U.S.

Exclusive Distribution and Commercialization Agreement with Nippon Shinyaku.

● Announced completion of a registered direct offering with participation from Nippon Shinyaku for gross proceeds of approximately $23.0 million.

As we seek to develop and commercialize CAP-1002 or any other product candidates including those related to our exosomes program, we anticipate that our expenses will increase significantly and that we will need substantial additional funding to support our continuing operations.

1 unchanged sentence

We may be unable to raise additional funds or enter into such agreements or arrangements when needed on favorable terms, if at all.

If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development or commercialization of CAP-1002 or our other product candidates.

The COVID-19 pandemic has presented a substantial public health and economic challenge around the world.

Our business operations and financial condition and results have been impacted to varying degrees, and we expect the impact will continue in future quarters particularly in connection with supply chain constraints.

For additional information on the various risks posed by the COVID-19 pandemic, refer to Part I, Item 1A.

Risk Factors of this Annual Report on Form 10-K.

If we fail to raise capital or other potential funding or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development or commercialization of CAP-1002 or our other product candidates.

Financial Operations Overview

We have no commercial product sales to date and will not have the ability to generate any commercial product revenue until after we have received approval from the FDA or equivalent foreign regulatory bodies to begin selling our pharmaceutical product candidates.

Developing pharmaceutical products is a lengthy and very expensive process.

Developing biological products is a lengthy and very expensive process.

Even if we obtain the capital necessary to continue the development of our product candidates, whether through a strategic transaction or otherwise, we do not expect to complete the development of a product candidate for several years, if ever.

2 unchanged sentences

Accordingly, our success depends not only on the safety and efficacy of our product candidates, but also on our ability to finance the development of our products and our clinical programs.

Our recent major sources of working capital have been primarily proceeds from public equity sales of securities and an upfront payment pursuant to our U.S.

Distribution Agreement with Nippon Shinyaku.

Our recent major sources of working capital have been primarily proceeds from public equity sales of securities and upfront payments pursuant to our U.S.

and Japan Distribution Agreements with Nippon Shinyaku.

While we pursue our preclinical and clinical programs, we continue to explore potential partnerships for the development of one or more of our product candidates in the US and in other territories across the world.

4 unchanged sentences

Generally, the awards vest based upon time-based conditions.

Stock-based compensation expense is included in the consolidated statements of operations under G&A or R&D expenses, as applicable.

Stock-based compensation expense is included in the consolidated statements of operations under general and administrative (“G&A”) or research and development (“R&D”) expenses, as applicable.

We expect to record additional non-cash compensation expense in the future, which may be significant.

1 unchanged sentence

Clinical Development Income.

Clinical development income for the years ended December 31, 2022 and 2021 was approximately $2.6 million and zero, respectively.

The Company started recognizing the $30.0 million upfront payment received from Nippon Shinyaku in the third quarter of 2022.

Revenue is ratably recognized using a proportional performance method in relation to the completion of the HOPE-3 clinical study.

Miscellaneous Income .

Miscellaneous income for the years ended December 31, 2022 and 2021 was zero and $0.2 million, respectively.

The miscellaneous income was related to providing CAP-1002 for investigational purposes for clinical trials sponsored by CSMC.

The decrease in miscellaneous income is due to the clinical trials sponsored by CSMC completing or ceasing enrollment in 2021.

Clinical development income for the years ended December 31, 2023 and 2022 was approximately $25.2 million and $2.6 million, respectively.

The Company began to recognize the $30.0 million upfront payment received from Nippon Shinyaku related to an Exclusive Commercialization and Distribution Agreement (the “U.S.

Distribution Agreement”) with Nippon Shinyaku in the third quarter of 2022.

The Company began to recognize the $10.0 million milestone payment in connection with the U.S.

Distribution Agreement in the fourth quarter of 2023.

Revenue is ratably recognized using a proportional performance method in relation to the completion of the HOPE-3 clinical trial (Cohort A).

Operating Expenses

Research and Development Expenses .

Research and development (“R&D”) expenses consist primarily of compensation and other related personnel costs, supplies, clinical trial costs, patient treatment costs, rent for laboratories and manufacturing facilities, consulting fees, costs of personnel and supplies for manufacturing, costs of service providers for preclinical, clinical and manufacturing, certain legal expenses resulting from intellectual property prosecution, stock-based compensation expense and other expenses relating to the design, development, testing and enhancement of our product candidates.

R&D expenses consist primarily of compensation and other related personnel costs, supplies, clinical trial costs, patient treatment costs, rent for laboratories and manufacturing facilities, consulting fees, costs of personnel and supplies for manufacturing, costs of service providers for preclinical, clinical and manufacturing, certain legal expenses resulting from intellectual property prosecution, stock-based compensation expense and other expenses relating to the design, development, testing and enhancement of our product candidates.

The following table summarizes our R&D expenses by category for each of the periods indicated:

5 unchanged sentences

Stock-based compensation

Research and other projects

Research and other

Total research and development expenses

2 unchanged sentences

● $3.8 million increase in compensation and other personnel expenses primarily due to increases in headcount;

● $3.5 million increase in DMD (CAP-1002) program primarily due to the commencement of our HOPE-3 clinical trial in 2022, continuation of our HOPE-2 OLE clinical program, and our expanded manufacturing production efforts for CAP-1002;

● $0.2 million increase in exosomes platform research primarily due to our continued development efforts;

● $0.7 million increase in facility expenses primarily due to our San Diego expansion efforts;

● $0.4 million increase in stock-based compensation expense primarily due to increases in headcount and stock price;

● $0.2 million increase in depreciation expense primarily related to increased equipment purchases and capital improvements primarily due to the San Diego manufacturing cleanroom buildout;

● $1.1 million decrease in research and other projects primarily due to the close-out of our INSPIRE program.

● $11.2 million increase in DMD (CAP-1002) program primarily due to the enrollment of our HOPE-3 clinical program, our HOPE-2 OLE clinical trial and our expanded manufacturing production efforts for CAP-1002;

● $0.4 million increase in facility expenses primarily related to increased lease expenses due to our expansion efforts of our research and manufacturing facility in San Diego;

● $1.1 million increase in stock-based compensation expense primarily due to increases in headcount and risk-free rate, which resulted in an increase in fair value of option issued;

● $0.2 million increase in depreciation expense primarily related to increased equipment purchases and capital improvements related to expansion efforts of our research and manufacturing facility in San Diego.

This increase was partially offset by a $1.5 million decrease in exosomes research primarily due to reduced expenses related to completion of certain research projects and a $0.6 million decrease in research and other primarily due to the completion of activities related to our INSPIRE clinical program in 2022.

General and Administrative Expenses .

General and administrative (“G&A”) expenses consist primarily of compensation and other related personnel expenses for executive, finance and other administrative personnel, stock-based compensation expense, accounting, legal and other professional fees, consulting expenses, rent for corporate offices, business insurance and other corporate expenses.

G&A expenses consist primarily of compensation and other related personnel expenses for executive, finance and other administrative personnel, stock-based compensation expense, accounting, legal and other professional fees, consulting expenses, rent for corporate offices, business insurance and other corporate expenses.

The following table summarizes our G&A expenses by category for each of the periods indicated:

9 unchanged sentences

● $1.8 million increase in stock-based compensation expense primarily due to increases in headcount;

● $1.0 million increase in compensation and other personnel expenses primarily due to increases in headcount;

● $0.3 million increase in professional service expenses primarily due to an increase in business insurance and investor relations expenses;

● $0.2 million increase in facility related expenses primarily due to our continuing expansion efforts;

● $0.3 million increase in other corporate expenses primarily related to accounting fees and other general corporate expenses related to increases in headcount.

● $0.4 million increase in compensation and other personnel expenses primarily due to increases in headcount and recruiting costs;

● $0.3 million increase in depreciation related to leasehold improvements to our San Diego corporate headquarters;

● $0.1 million increase in other corporate expenses primarily related to increased travel and payroll processing costs due to increased headcount.

This increase was partially offset by a $0.3 million decrease in professional service expenses primarily due to a decrease in business development related expenses.

Other Income .

Other income for the years ended December 31, 2023 and 2022 was approximately $0.1 million and $0.2 million, respectively.

Other income was related to the Employer Retention Credit under the CARES Act.

Other income in 2022 was related to the Employer Retention Credit under the CARES Act.

Investment Income .

Investment income for the years ended December 31, 2022 and 2021 was approximately $0.5 million and $57,460, respectively.

Investment income for the years ended December 31, 2023 and 2022 was approximately $1.7 million and $0.5 million, respectively.

The increase in investment income in 2023 as compared to 2022 is due to increased interest rates and the higher principal balance in our marketable securities, savings and money market fund accounts.

Products Under Active Development

CAP-1002 for the treatment of DMD – We are currently conducting our HOPE-3, Phase III study for DMD and our ongoing OLE study of HOPE-2 for which we expect to spend approximately $12.5 million to $17.5 million in 2023.

The expenses for our DMD program will include costs for personnel, clinical, regulatory and manufacturing-related expenses, including expenses related to the scale-up for potential commercial scale manufacturing.

CAP-1002 for the treatment of DMD – We are currently conducting our HOPE-3, Phase 3 study for DMD and our ongoing OLE study of the HOPE-2 trial for which we expect to spend approximately $25.0 million to $35.0 million in 2024.

Exosome-Based Therapeutics and Vaccines – Our exosome platform is in early-stage preclinical development.

We expect to spend approximately $3.0 million to $5.0 million during 2024 on development expenses related to our exosomes program, which includes personnel, preclinical studies and manufacturing related expenses for these technologies.

Our expenses for this program are primarily focused on the expansion of our engineered exosomes platform including the conduct of IND-enabling studies.

Our expenses for this program are primarily focused on the expansion of our engineered exosomes platform including the manufacturing of our StealthX™ vaccine to be used in connection with our collaboration with NIAID.

Our expenditures on current and future clinical development programs, particularly our CAP-1002 and exosomes programs, cannot be predicted with any significant degree of certainty as they are dependent on the results of our current trials and our ability to secure additional funding and a strategic partner.

9 unchanged sentences

● the costs, requirements and timing of, and the ability to secure, regulatory approvals.

● additional delays caused by the COVID-19 pandemic.

Liquidity and Capital Resources for the fiscal years ended December 31, 2023 and 2022

1 unchanged sentence

The amounts stated in the tables below are expressed in thousands.

As of December 31,

Liquidity and capital resources

December 31, 2022

December 31, 2021

Cash and cash equivalents

9 unchanged sentences

Net increase (decrease) in cash and cash equivalents

Our total cash, cash equivalents, and marketable securities as of December 31, 2022 was approximately $41.4 million compared to approximately $34.9 million as of December 31, 2021.

The increase in cash, cash equivalents and marketable securities from December 31, 2022 as compared to December 31, 2021 is primarily due to the upfront payment of $30.0 million from Nippon Shinyaku.

Our total cash, cash equivalents, and marketable securities as of December 31, 2023 were approximately $39.5 million compared to approximately $41.4 million as of December 31, 2022.

The decrease in cash, cash equivalents and marketable securities from December 31, 2023 as compared to December 31, 2022 is due to a net loss of approximately $22.3 million for the year ended December 31, 2023, receipt of $12.0 million upfront from Nippon Shinyaku related to the Japan Distribution Agreement in the first quarter of 2023, and approximately $23.0 million raised in October 2023 through a registered direct offering.

The net loss of approximately $22.3 million for the year ended December 31, 2023 was driven by the increased R&D expenses in connection with our clinical program in DMD.

As of December 31, 2023, we had approximately $36.1 million in total liabilities, of which approximately $24.3 million relates to deferred revenue and approximately $2.2 million related to lease liabilities in connection with our operating lease right-of-use assets.

As of December 31, 2023, we had approximately $19.6 million in net working capital.

We had a net loss of approximately $29.0 million for the year ended December 31, 2022.

Cash provided by operating activities was approximately $4.9 million and cash used in operating activities was approximately $16.8 million for the years ended December 31, 2022 and 2021, respectively.

The difference of approximately $21.7 million in cash from operating activities is primarily due to the upfront payment of $30.0 million from Nippon Shinyaku.

Furthermore, there was an increase of approximately $1.5 million in stock-based compensation and an increase in net loss of approximately $9.0 million for the year ended December 31, 2022 as compared to the same period in 2021.

Furthermore, there was a net change of approximately $0.2 million in accounts payable and accrued expenses, which includes related party accounts payable and accrued expenses, and a change of approximately $0.2 million in receivables for the year ended December 31, 2022 as compared to the same period in 2021.

To the extent we obtain sufficient capital and/or long-term debt funding and are able to continue developing our product candidates, including if we expand our technology portfolio, engage in further research and development activities, and, in particular, conduct preclinical studies and clinical trials, we expect to continue incurring substantial losses, which will generate negative net cash flows from operating activities.

We had cash flow used in investing activities of approximately $(35.1) million and $(1.2) million for the years ended December 31, 2022 and 2021, respectively.

The change in cash flow by investing activities for the year ended December 31, 2022 as compared to the same period of 2021 is primarily due to the net effect from purchases, sales, and maturities of marketable securities as well as purchases of property and equipment and leasehold improvements.

Cash used in operating activities was approximately $25.6 million for the year ended December 31, 2023 and cash provided by operating activities was approximately $4.9 million for the year ended December 31, 2022.

The net change of approximately $30.5 million in cash from operating activities is due to the milestone payment of $10.0 million from Nippon Shinyaku and deferred revenue.

Furthermore, there was an increase of approximately $2.9 million in stock-based compensation and a decrease in net loss of approximately $6.7 million for the year ended December 31, 2023 as compared to the same period in 2022.

Furthermore, there was a net change of approximately $0.1 million in accounts payable and accrued expenses, which includes related party accounts payable and accrued expenses.

To the extent we obtain sufficient capital and/or long-term debt funding and are able to continue developing our product candidates, including if we expand our platform technology portfolio, engage in further research and development activities, and, in particular, conduct preclinical studies and clinical trials, we expect to continue incurring substantial losses, which will generate negative net cash flows from operating activities.

We had cash flow provided by investing activity of approximately $5.1 million for the year ended December 31, 2023 and cash flow used in investing activities of approximately $35.1 million for the year ended December 31, 2022.

The change in cash flow by investing activities for the year ended December 31, 2023 as compared to the same period of 2022 is due to the net effect from purchases, sales, and maturities of marketable securities as well as purchases of property and equipment and leasehold improvements.

We had cash flow provided by financing activities of approximately $25.6 million and $4.9 million for the years ended December 31, 2023 and 2022, respectively.

The decrease in cash provided by financing activities for the year ended December 31, 2022 as compared to the same period of 2021 is primarily due to the net proceeds from the sale of common stock.

The increase in cash provided by financing activities for the year ended December 31, 2023 as compared to the same period of 2022 is primarily due to the net proceeds from the sale of common stock.

During 2023 we received net proceeds from the sale of stock of approximately $25.5 million compared to approximately $4.8 million over the same period of 2022.

7 unchanged sentences

We may need to obtain additional funds sooner than planned or in greater amounts than we currently anticipate.

At this time, we believe our cash resources are sufficient to fund our operations for at least the next twelve months.

actual amount of funds we will need to operate is subject to many factors, some of which are beyond our control.

The actual amount of funds we will need to operate is subject to many factors, some of which are beyond our control.

These factors include the following:

● the progress of our research activities;

● the number and scope of our research programs;

● the progress of our clinical and research activities;

● the number and scope of our clinical and research programs;

● the progress and success of our preclinical and clinical development activities;

● the progress of the development efforts of parties with whom we have entered into research and development agreements;

● our ability to successfully manufacture product for our clinical trials;

● our ability to successfully manufacture product for our clinical trials and potential commercial use;

● the availability of materials necessary to manufacture our product candidates;

4 unchanged sentences

● the costs and timing of regulatory approvals.

As a result of the spread of the COVID-19 coronavirus, uncertainties have arisen that have impacted enrollment of clinical trials, deliverables related to contract performance, payments from trial sponsors, workforce stability, supply chain disruptions or delays, timing of grant disbursements as well as other potential business operations.

While the disruption is currently expected to be temporary, there is considerable uncertainty around its expected duration.

In addition to potential impact on grant availability, there may be risks to the Company’s ability to obtain financing from other sources, due to the impact of the coronavirus.

There could be other financial impacts on our business from the coronavirus, the specifics of which are unknown at this time.

Collaborations

1 unchanged sentence

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.

4 unchanged sentences

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.

Capricor received this milestone payment from Nippon Shinyaku in January 2024.

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 will potentially receive additional development and sales-based milestone payments of up to approximately $89.0 million, subject to foreign currency exchange rates, and a meaningful double-digit share of product revenue.

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.

Financing Activities by the Company

June 2021 ATM Program

On June 21, 2021, the Company initiated an at-the-market offering under a prospectus supplement for aggregate sales proceeds of up to $75.0 million (the “June 2021 ATM Program”), with the common stock to be distributed at the market prices prevailing at the time of sale.

The June 2021 ATM Program was established under a Common Stock Sales Agreement (the “Sales Agreement”) with Wainwright, under which we may, from time to time, issue and sell shares of our common stock through Wainwright as sales agent.

October 2023 Financing

On October 3, 2023, the Company entered into Securities Purchase Agreements with its commercial partner, Nippon Shinyaku and funds associated with Highbridge Capital Management, LLC (the “Investors”), pursuant to which the Company agreed to issue and sell to the Investors, in a registered direct offering (the “Registered Direct Offering”), an aggregate of 4,935,621 shares of its common stock, par value $0.001 per share, at a price per share of $4.66 for an aggregate purchase price of approximately $23.0 million.

Each share of common stock offered was sold with a warrant to purchase one share of common stock at an exercise price of $5.70 per share.

Each warrant will be exercisable beginning six months after issuance and will expire seven years from the date of issuance.

As part of the Registered Direct Offering, the Company agreed not to issue or sell shares (subject to customary exceptions for employee stock option issuances and other customary exceptions) for a period of 30 days following the date of the prospectus supplement that was used in the Registered Direct Offering.

That prospectus was dated September 29, 2023, and the Company “lock-up” expired on October 29, 2023.

The Company’s directors and executive officers also entered into “lock-up” agreements with the placement agent in the Registered Direct Offering, which agreements expired on the 60 th day following the date of the Securities Purchase Agreements, or December 2, 2023.

On June 21, 2021, the Company initiated an at-the-market offering under a prospectus supplement for aggregate sales proceeds of up to $75.0 million (the “ATM Program”), with the common stock to be distributed at the market prices prevailing at the time of sale.

The ATM Program was established under a Common Stock Sales Agreement (the “Sales Agreement,”), with Wainwright, under which we may, from time to time, issue and sell shares of our common stock through Wainwright as sales agent.

The Sales Agreement provides that Wainwright will be entitled to compensation for its services at a commission rate of 3.0% of the gross sales price per share of common stock sold.

All shares issued pursuant to the June 2021 ATM Program were issued pursuant to our shelf registration statement on Form S-3 (File No.

All shares issued pursuant to the ATM Program were issued pursuant to our shelf registration statement on Form S-3 (File No.

333-254363), which was initially filed with the SEC on March 16, 2021, amended on June 15, 2021 and declared effective by the SEC on June 16, 2021.

From June 21, 2021 through December 31, 2022, the Company has sold an aggregate of 2,098,333 shares of common stock under the June 2021 ATM Program at an average price of approximately $5.93 per share for gross proceeds of approximately $12.4 million.

Approximately $62.6 million of common stock may still be sold pursuant to the June 2021 ATM Program.

The Company paid cash commissions on the gross proceeds, plus reimbursement of expenses to Wainwright, as well as legal and accounting fees in the aggregate amount of approximately $0.4 million.

Subsequent to December 31, 2022 and through the date of this filing, no additional shares have been sold under the June 2021 ATM Program.

May 2020 ATM Program

On May 4, 2020, the Company initiated an at-the-market offering under a prospectus supplement for aggregate sales proceeds of up to $40.0 million (the “May 2020 ATM Program”), with the common stock to be distributed at the market prices prevailing at the time of sale.

The May 2020 ATM Program was established under the Sales Agreement.

All shares issued pursuant to the May 2020 ATM Program were issued pursuant to our shelf registration statement on Form

S-3 (File No.

333-227955), which was initially filed with the SEC on October 24, 2018, amended on July 17, 2019 and declared effective by the SEC on July 18, 2019.

From May 4, 2020 through June 21, 2021, the Company sold an aggregate of 6,027,852 shares of common stock under the May 2020 ATM Program at an average price of approximately $6.15 per share for gross proceeds of approximately $37.1 million.

From June 21, 2021 through March 7, 2024, the Company sold an aggregate of 3,227,501 shares of common stock under the ATM Program at an average price of approximately $5.50 per share for gross proceeds of approximately $17.8 million.

Approximately $57.2 million of common stock may still be sold pursuant to the ATM Program.

The Company paid cash commissions on the gross proceeds, plus reimbursement of expenses to Wainwright, as well as legal and accounting fees in the aggregate amount of approximately $0.6 million.

As of June 21, 2021, the May 2020 ATM Program expired and was replaced with the June 2021 ATM Program.

CIRM Grant Award

On June 16, 2016, Capricor entered into an award (the “CIRM Award”) with the California Institute for Regenerative Medicine (“CIRM”) in the amount of approximately $3.4 million to fund, in part, Capricor’s Phase I/II HOPE-Duchenne clinical trial investigating CAP-1002 for the treatment of Duchenne muscular dystrophy-associated cardiomyopathy.

On June 16, 2016, Capricor entered into an award (the “CIRM Award”) with the California Institute for Regenerative Medicine (“CIRM”) in the amount of approximately $3.4 million to fund, in part, Capricor’s Phase 1/2 HOPE-Duchenne clinical trial investigating CAP-1002 for the treatment of Duchenne muscular dystrophy-associated cardiomyopathy.

Pursuant to terms of the CIRM Award, the disbursements were tied to the achievement of specified operational milestones.

In addition, the terms of the CIRM Award included a co-funding requirement pursuant to which Capricor was required to spend approximately $2.3 million of its own capital to fund the CIRM funded research project.

The CIRM Award is further subject to the conditions and requirements set forth in the CIRM Grants Administration Policy for Clinical Stage Projects.

The CIRM Award is further subject to the conditions and requirements set forth in the CIRM Grants Administration Policy

for Clinical Stage Projects.

Such requirements include, without limitation, the filing of quarterly and annual reports with CIRM, the sharing of intellectual property pursuant to Title 17, California Code of Regulations (CCR) Sections 100600-100612, and the sharing with the State of California of a fraction of licensing revenue received from a CIRM funded research project and net commercial revenue from a commercialized product which resulted from the CIRM funded research as set forth in Title 17, CCR Section 100608.

3 unchanged sentences

provided that the maturity date of the loan will not surpass the ten-year anniversary of the grant date of the CIRM Award.

Beginning on the date of the loan, the loan shall bear interest on the unpaid principal balance, plus the interest that has accrued prior to the election point according to the terms set forth in CIRM’s Loan Policy (the “New Loan Balance”) at a per annum rate equal to the LIBOR rate for a three-month deposit in U.S.

Beginning on the date of the loan, the loan shall bear interest on the unpaid principal balance, plus the interest that has accrued prior to the election point according to the terms set forth in the CIRM Loan Policy and CIRM Grants Administration Policy for Clinical Stage Projects (the “New Loan Balance”), at a per annum rate equal to the LIBOR rate for a three-month deposit in U.S.

dollars, as published by the Wall Street Journal on the loan date, plus one percent.

Interest shall be compounded annually on the outstanding New Loan Balance commencing with the loan date and the interest shall be payable, together with the New Loan Balance, upon the due date of the loan.

Depending on the timing of our election, additional funds may be owed.

If Capricor elects to convert the CIRM Award into a loan, certain requirements of the CIRM Award will no longer be applicable, including the revenue sharing requirements.

Capricor has not yet made its decision as to whether it will elect to convert the CIRM Award into a loan.

If we elect to do so, Capricor would be required to repay some or all of the amounts awarded by CIRM, therefore the Company accounts for this award as a liability rather than income.

If we elect to do so, Capricor would be required to repay the amounts awarded by CIRM, therefore the Company accounts for this award as a liability rather than income.

In 2019, Capricor completed all milestones and close-out activities associated with the CIRM Award and expended all funds received.

6 unchanged sentences

We evaluate our estimates and assumptions on an ongoing basis, including research and development and clinical trial accruals, and stock-based compensation estimates.

Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the

circumstances.

Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances.

Our actual results could differ from these estimates.

We believe the following critical accounting policies reflect the more significant judgments and estimates used in the preparation of our financial statements and accompanying notes.

ASC 842, requires lessees to recognize most leases on the balance sheet with a corresponding right-to-use (“ROU”) asset.

ASC Topic 842, Leases (“ASC 842”), requires lessees to recognize most leases on the balance sheet with a corresponding right-to-use (“ROU”) asset.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

24 unchanged sentences

The Company then allocates the transaction price to each performance obligation and recognizes the associated revenue when, or as, each performance obligation is satisfied.

The Company’s distribution agreements may entitle it to additional payments upon the achievement of milestones or royalties on sales.

The Company’s distribution agreements may entitle it to additional payments upon the achievement of milestones or shares of product revenue.

The milestones are generally categorized into three types:

development milestones, regulatory milestones and sales-based milestones.

The Company evaluates whether it is probable that the consideration associated with each milestone or royalty will not be subject to a significant reversal in the cumulative amount of revenue recognized.

The Company evaluates whether it is probable that the consideration associated with each milestone or shared revenue payments will not be subject to a significant reversal in the cumulative amount of revenue recognized.

Amounts that meet this threshold are included in the transaction price using the most likely amount method, whereas amounts that do not meet this threshold are excluded from the transaction price until they meet this threshold.

At the end of each subsequent reporting period, the Company re-evaluates the probability of a significant reversal of the cumulative

revenue recognized for its milestones and royalties, and, if necessary, adjusts its estimate of the overall transaction price.

At the end of each subsequent reporting period, the Company re-evaluates the probability of a significant reversal of the cumulative revenue recognized for its milestones and shared revenue payments, and, if necessary, adjusts its estimate of the overall transaction price.

Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and net income (loss) in the Company’s consolidated statements of operation and comprehensive loss.

Typically, milestone payments and royalties are achieved after the Company’s performance obligations associated with the distribution agreements have been completed and after the customer has assumed responsibility for the respective clinical program.

Milestones or royalties achieved after the Company’s performance obligations have been completed are recognized as revenue in the period the milestone or royalty was achieved.

Typically, milestone payments and shared revenue payments are achieved after the Company’s performance obligations associated with the distribution agreements have been completed and after the customer has assumed responsibility for the respective clinical program.

Milestones or shared revenue payments achieved after the Company’s performance obligations have been completed are recognized as revenue in the period the milestone or shared revenue payments was achieved.

If a milestone payment is achieved during the performance period, the milestone payment would be recognized as revenue to the extent performance had been completed at that point, and the remaining balance would be recorded as deferred revenue.

1 unchanged sentence

The Company performs this assessment at the onset of its distribution agreements.

Typically, a significant financing component does not exist because the customer is paying for services in advance with an upfront payment.

Additionally, future royalty payments are not substantially within the control of the Company or the customer.

Typically, a significant financing component does not exist because the customer is paying for services in advance with

an upfront payment.

Additionally, future shared revenue payments are not substantially within the control of the Company or the customer.

Whenever the Company determines that goods or services promised in a contract should be accounted for as a combined performance obligation over time, the Company determines the period over which the performance obligations will be performed and revenue will be recognized.

11 unchanged sentences

The transaction price varies for grant income based on the expenses incurred under the awards.

Miscellaneous Income

Revenue is recognized in connection with the delivery of doses which were developed as part of our past R&D efforts.

Income is recorded when the Company has satisfied the obligations as identified in the contracts with the customer.

Miscellaneous income is due upon billing.

Miscellaneous income is based on contracts with fixed transaction prices.

CIRM Grant Award

11 unchanged sentences

Activity levels are monitored through close communication with the CROs and other clinical trial vendors, including detailed invoice and task completion review, analysis of expenses against budgeted amounts, analysis of work performed against approved contract budgets and payment schedules, and recognition of any changes in scope of the services to be performed.

Certain CRO and significant clinical trial vendors provide an estimate of costs incurred but not invoiced at the end of each quarter for each individual trial.

Certain CRO and significant clinical trial vendors provide an estimate of costs incurred but not invoiced at the end of each quarter

for each individual trial.

These estimates are reviewed and discussed with the CRO or vendor as necessary, and are included in R&D expenses for the related period.

10 unchanged sentences

We have issued stock options to employees, directors and consultants under our five stock option plans:

(i) the 2006 Stock Option Plan, (ii) the 2012 Restated Equity Incentive Plan (which superseded the 2006 Stock Option Plan), (iii) the 2012 Non-Employee Director Stock Option Plan, (iv) the 2020 Equity Incentive Plan, and (v) the 2021 Equity Incentive Plan.

At this time, the Company only issues options under the 2020 Plan and the 2021 Plan.

(i) the 2006 Stock Option Plan, (ii) the 2012 Restated Equity Incentive Plan (which superseded the 2006 Stock Option Plan) (the “2012 Plan”), (iii) the 2012 Non-Employee Director Stock Option Plan (the “2012 Non-Employee Director Plan”), (iv) the 2020 Equity Incentive Plan (the “2020 Plan”), and (v) the 2021 Equity Incentive Plan (the “2021 Plan”).

At this time, the Company only issues options under the 2020 Plan and the 2021 Plan and no longer issues options under the 2006 Stock Option Plan, the 2012 Plan, or the 2012 Non-Employee Director Plan.

We expense the fair value of stock-based compensation over the vesting period.

8 unchanged sentences

Generally, the awards vest based upon time-based conditions.

Stock-based compensation expense is included in general and administrative expense or research and development expense, as applicable, in the Statements of Operations

and Comprehensive Income (Loss).

Stock-based compensation expense is included in general and administrative expense or research and development expense, as applicable, in the Statements of Operations and Comprehensive Income (Loss).

We expect to record additional non-cash compensation expense in the future, which may be significant.

7 unchanged sentences

During the course of a clinical trial, we adjust our clinical expense recognition if actual results differ from our estimates.

We make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on the facts and circumstances known to us at that time.

estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on the facts and circumstances known to us at that time.

Our clinical trial accrual and prepaid assets are dependent, in part, upon the receipt of timely and accurate reporting from CROs and other third-party vendors.

1 unchanged sentence

Recently Issued or Newly Adopted Accounting Pronouncements

In November 2021, the Financial Accounting Standards Board (“FASB”) issued ASU 2021-10, Government Assistance (Topic 832) , which requires business entities to disclose information about transactions with a government entity that are accounted for by applying a grant or contribution model by analogy.

For transactions within scope, the new standard requires the disclosure of information about the nature of the transaction, including significant terms and conditions, as well as the amounts and specific financial statement line items affected by the transaction.

The new guidance is effective for annual reporting periods beginning after December 15, 2021.

The Company adopted ASU 2021-10 in the first quarter of 2022.

The adoption of this update did not have a material impact on the Company’s financial statements and footnote disclosures.

Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC, did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statement presentation or disclosures.

In October 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-06, Disclosure Improvements:

Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative .

This standard was issued in response to the SEC’s disclosure update and simplification initiative, which affects a variety of topics within the Accounting Standards Codification.

The amendments apply to all reporting entities within the scope of the affected topics unless otherwise indicated.

The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited.

The Company is currently evaluating the impact this guidance will have on its financial statement disclosures.

Other recent accounting pronouncements issued by the Financial Accounting Standards Board, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC, did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statement presentation or disclosures.

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 7. Management’s Discussion and Analysis