What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-03-26 compared with 2024-03-11 · 165 added, 196 removed, 266 unchanged (58% of the section changed)

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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.

We do not have any products approved for sale.

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 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.

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

We do not have any products approved for commercial sale.

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

If successfully developed and approved, we intend and plan to commercialize deramiocel in the United States and Japan with our partner, Nippon Shinyaku Co., Ltd., a Japanese corporation (“Nippon Shinyaku”).

Capricor may enter into licensing agreements or strategic collaborations in other markets.

If we fail to complete the development of our product candidates in a timely manner, our ability to generate future revenue, and our results of operations and financial position, would be materially adversely affected.

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

● 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.

● Deramiocel for the treatment of DMD:

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

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

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

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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.

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.

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.

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.

There is no currently approved treatment for DMD-cardiomyopathy, therefore, we believe that DMD represents a significant market opportunity for our product candidate, deramiocel.

Biologics License Application (“BLA”):

In the third quarter of 2024, we held a pre-BLA meeting with FDA where we discussed our rolling BLA submission schedule, potential label expansion, plans for commercial manufacturing as well as other topics.

Subsequent to this meeting, we held several additional meetings with FDA and announced our intent to file a BLA based on existing cardiac data from our Phase 2 HOPE-2 and HOPE-2 OLE trials compared to patient-level natural history data.

We completed the full submission of the BLA in December 2024 and in the first quarter of 2025, we were informed by the FDA, they have accepted

for review our BLA seeking full approval for deramiocel as a treatment for patients diagnosed with DMD cardiomyopathy.

Additionally, the FDA granted the BLA Priority Review with a Prescription Drug User Fee Act (“PDUFA”) target action date of August 31, 2025.

The FDA also informed us that they have not yet decided whether an Advisory Committee meeting is needed in relation to our application.

To date, we have completed two promising clinical trials investigating deramiocel 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 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.

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

deramiocel was generally safe and well-tolerated throughout the studies.

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 deramiocel.

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.

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

The study remains ongoing and the three-year data demonstrated improvements in multiple measures of cardiac function, including left ventricular ejection fraction (LVEF), as well as indexed volumes, which are considered highly relevant in terms of predicting long-term cardiac outcomes.

In order to evaluate the relevance of the data to disease progression as well as the chronic and progressive nature of DMD where cardiac function can decline year over year, a natural history data set was used to compare the trajectory of those treated with deramiocel to standard of care.

In addition to the cardiac data, patients demonstrated a statistically and clinically relevant benefit in the PUL v2.0 total score when compared to an external comparator dataset of similar DMD patients.

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

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”).

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 deramiocel 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 deramiocel or placebo every 3 months for a total of 4 doses during the first 12-months of the study.

Approximately 105 eligible study subjects are currently enrolled in the dual-cohort study (comprised of Cohorts A and B).

Cohort A uses product manufactured at our Los Angeles facility and Cohort B uses product manufactured at our San Diego facility.

Subjects are randomized to either deramiocel or placebo in a 1:1 ratio.

In the fourth quarter of 2023, we announced a positive outcome of the 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.

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.

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.

To support potential label expansion to treat DMD, we plan to provide clinical data on skeletal muscle myopathy by combining Cohorts A and B of the HOPE-3 clinical trial to serve as a post-approval study.

Furthermore, if necessary, the HOPE-3 study will also be supporting ex-U.S.

marketing authorizations.

Currently, we have initiated regulatory activities in Europe and Japan and will be working with the various health authorities to develop the most efficient path for regulatory approval of deramiocel in these regions.

The regulatory pathway for deramiocel is supported by RMAT designation as well as orphan drug designation.

In addition, if Capricor were to receive FDA marketing approval for deramiocel 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.

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

● Exosome-Based Platform (Preclinical):

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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.

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.

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.

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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, manufacturing is underway for our StealthX™ vaccine and we have submitted an Investigational New Drug Application (“IND”) to the FDA, which is currently under review.

At this time, NIAID is planning for regulatory approval in the second quarter of 2025 with the clinical study initiated soon thereafter.

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.

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

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As of December 31, 2024, we had cash, cash equivalents, and marketable securities totaling approximately $151.5 million.

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.

We will not be able to generate any product revenues until, and only if, we receive approval to sell our drug candidates from the FDA or other regulatory authorities.

In the fourth quarter of 2024, we submitted our BLA to the FDA, which triggered our second milestone pursuant to the terms of our U.S.

Distribution Agreement with Nippon Shinyaku.

In January 2025, we received the $10.0 million milestone payment.

Due to our significant research and development expenditures, and general administrative costs associated with our operations, we have generated substantial operating losses in each period since our inception.

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Wainwright & Co.

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

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.

LLC (“Wainwright”) under our at-the-market offering, resulting in gross proceeds of $58.4 million.

Additionally, in September 2024, we completed a private placement for gross proceeds of approximately $15.0 million.

In October 2024, we completed an underwritten public offering for gross proceeds of approximately $86.3 million.

As we seek to develop and commercialize deramiocel 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.

Until such time when we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity financings, debt financings or other sources, which may include licensing agreements or strategic collaborations or other distribution agreements.

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 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.

We may be unable to raise additional funds or enter into such agreements or arrangements when needed on

favorable terms, if at all.

Financial Operations Overview

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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.

To date, most of our development expenses have related to our product candidates, consisting of CAP-1002 and our exosome technologies.

As we proceed with the clinical development of CAP-1002, and as we further develop our exosome technologies, our expenses will further increase.

To date, most of our development expenses have related to our product candidates, consisting of deramiocel and our exosome technologies.

As we proceed with the clinical development of deramiocel, and as we further develop our exosome technologies, our expenses will further increase.

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.

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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.

Our results have included non-cash compensation expense due to the issuance of stock options and warrants, as applicable.

We expense the fair value of stock options and warrants over their vesting period as applicable.

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 U.S.

and in other territories across the world, subject to the rights of Nippon Shinyaku.

Our results have included non-cash compensation expense due to the issuance of stock awards and warrants, as applicable.

We expense the fair value of stock awards and warrants over their vesting period as applicable.

When more precise pricing data is unavailable, we determine the fair value of stock options using the Black-Scholes option-pricing model.

The terms and vesting schedules for share-based awards vary by type of grant and the employment status of the grantee.

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

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

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.

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Clinical development income for the years ended December 31, 2024 and 2023 was approximately $22.3 million and $25.2 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).

As of December 31, 2024, the Company has fully recognized $50.0 million in development milestone payments received from Nippon Shinyaku related to the Exclusive Commercialization and Distribution Agreement (the “U.S.

Distribution Agreement”).

The upfront payment of $30.0 million and the first milestone payment of $10.0 million was ratably recognized as revenue using a proportional performance method in relation to the completion of the HOPE-3 clinical trial (Cohort A) whereas the $10.0 million related to the second milestone payment was recognized as revenue at the point in time when the BLA was submitted in December 2024.

Operating Expenses

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Compensation and other personnel expenses

Duchenne muscular dystrophy (CAP-1002)

Duchenne muscular dystrophy program (deramiocel)

Exosomes platform research

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● $5.1 million increase in compensation and other personnel expenses primarily due to increases in headcount;

● $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.

● $4.4 million increase in DMD (deramiocel) program-related expenses primarily related to our HOPE-3 clinical trial, our HOPE-2 OLE clinical trial and expanded manufacturing production efforts for deramiocel in preparation for potential commercial launch;

● $1.3 million increase in facility expenses primarily related to expanded leased space;

● $1.7 million increase in stock-based compensation expense, driven primarily by increased headcount and higher grant prices, which led to a higher fair value of granted options;

● $0.1 million increase in depreciation expense primarily related to increased equipment purchases and capital improvements related to expansion efforts of our leased space.

General and Administrative Expenses .

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● $0.7 million increase in stock-based compensation expense primarily due to increases in headcount;

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

● $0.7 million increase in compensation and other personnel expenses related to increases in headcount and recruiting costs;

● $0.2 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.

● $0.5 million increase in other corporate expenses primarily related to increased overhead costs related to travel and corporate expenses due to increased headcount.

This increase was partially offset by a $0.1 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 in 2022 was related to the Employer Retention Credit under the CARES Act.

Investment Income .

Investment income for the years ended December 31, 2024 and 2023 was approximately $2.2 million and $1.7 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.

The increase in investment income in 2024 as compared to 2023 is due to a 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 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.

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 if our CAP-1002 product is approved.

Deramiocel for the treatment of DMD – The expenses for our DMD program include costs for personnel, clinical, regulatory and manufacturing-related expenses, including expenses related to the scale-up for potential commercial scale manufacturing if our deramiocel product is approved.

In 2025, we expect to spend approximately $40.0 million to $50.0 million primarily consisting of CMC expansion, product inventory buildout, clinical, regulatory and pre-commercial expenses for our deramiocel program.

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

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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.

Our expenditures on current and future clinical development programs, particularly our deramiocel 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.

Further, we cannot predict with any significant degree of certainty the amount of time which will be required to complete our clinical trials, the costs of completing research and development projects or whether, when and to what extent we will generate revenues from the commercialization and sale of any of our product candidates.

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

As of December 31,

We estimate our current cash, cash equivalents, and marketable securities will be sufficient to fund our operating expenses and capital expenditure requirements into 2027.

Liquidity and capital resources

December 31, 2024

December 31, 2023

Cash and cash equivalents

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Our total cash, cash equivalents, and marketable securities as of December 31, 2024 were approximately $151.5 million compared to approximately $39.5 million as of December 31, 2023.

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.

The increase in cash, cash equivalents and marketable securities from December 31, 2024 as compared to December 31, 2023 is primarily due to an underwritten public offering in October 2024, equity financings through our at-the-market offering and a $15.0 million private placement with Nippon Shinyaku, which is partially offset by our net loss of approximately $40.5 million.

The net loss for the year ended December 31, 2024 was driven by the increased R&D expenses in connection with our clinical program in DMD.

As of December 31, 2024, we had approximately $25.0 million in total liabilities, of which approximately $12.0 million relates to deferred revenue and approximately $1.5 million related to lease liabilities in connection with our operating lease right-of-use assets.

As of December 31, 2024, we had approximately $142.4 million in net working capital.

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.

Cash used in operating activities was approximately $40.0 million and $25.6 million for the years ended December 31, 2024 and 2023, respectively.

The net change of approximately $14.4 million in cash from operating activities is due to the milestone payment of $10.0 million from Nippon Shinyaku and reduction of deferred revenue.

Furthermore, there was an increase of approximately $2.4 million in stock-based compensation and an increase in net loss of approximately $18.2 million for the year ended December 31, 2024 as compared to the same period in 2023.

Furthermore, there was a net change of approximately $0.6 million in 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.

We had cash flow used in investing activity of approximately $116.2 million for the year ended December 31, 2024 and cash flow provided by investing activities of approximately $5.1 million for the year ended December 31, 2023.

The change in cash flow by investing activities for the year ended December 31, 2024 as compared to the same period of 2023 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.

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● the costs involved in prosecuting and enforcing patent claims and other intellectual property rights;

● the costs and timing of regulatory approvals.

● the costs and timing of obtaining marketing approval both in the United States and in countries outside of the United States.

Collaborations

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Under the terms of the U.S.

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

Under the terms of the U.S.

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

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

Pursuant to the U.S Distribution Agreement, Capricor 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.

Distribution Agreement, Capricor will be responsible for the clinical development and manufacturing of deramiocel.

Nippon Shinyaku and NS Pharma, Inc.

(its wholly-owned U.S.

subsidiary) will be responsible for the distribution of deramiocel in the United States.

Pursuant to the U.S.

Distribution Agreement, Capricor received an upfront payment of $30.0 million in 2022.

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

The second milestone payment of $10.0 million was triggered in December 2024 upon submission of the BLA to the FDA seeking marketing approval of deramiocel in the United States.

Additionally, there is another potential milestone of $80.0 million due to Capricor upon receipt of marketing approval.

The foregoing milestones are considered development milestones under the terms of the U.S.

Distribution Agreement.

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

Subject to regulatory approval, Capricor will have the right to receive a share of product revenue which falls between 30 and 50 percent.

Commercialization and Distribution Agreement with Nippon Shinyaku (Territory:

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 appointed Nippon Shinyaku as its exclusive distributor in Japan of deramiocel for the treatment of DMD.

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.

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.

Nippon Shinyaku will be responsible for the distribution of deramiocel in Japan.

Capricor will be responsible for the conduct of clinical development and regulatory approval in Japan, as may be required, as well as the manufacturing of deramiocel.

Subject to regulatory approval, Capricor or its designee will hold the Marketing Authorization in Japan if the product is approved in that territory.

Binding Term Sheet with Nippon Shinyaku (Territory:

On September 16, 2024, Capricor entered into a Binding Term Sheet (the “Term Sheet”) with Nippon Shinyaku for the commercialization and distribution of deramiocel for the treatment of DMD in the European region, as defined in the Term Sheet.

Subject to finalization of a definitive agreement, under the terms of the Term Sheet, Capricor would be responsible for the development and manufacturing of deramiocel for potential approval in the European region.

Nippon Shinyaku would be responsible for the sales and distribution of deramiocel in the European region.

Subject to regulatory approval, Capricor would receive a double-digit share of product revenue and additional development and sales-based milestone payments.

If the definitive agreement is entered into on the same economic terms as the term sheet, Capricor will receive an upfront payment of $20.0 million upon execution of the definitive agreement, with potential additional development and sales-based milestone payments of up to $715.0 million.

At this time, Capricor and Nippon Shinyaku have entered into various amendments to the Term Sheet, pursuant to which the parties agreed to extend the date during which the parties shall negotiate the definitive agreement to April 30, 2025.

Financing Activities by the Company

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.

October 2024 Underwritten Public Offering

On October 16, 2024, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Piper Sandler and Oppenheimer as representatives of the underwriters (the “Underwriters”), pursuant to which the Company agreed to sell and issue, in a public offering, an aggregate of 5,073,800 shares of common stock, including the exercise in full of the underwriters’ option to purchase additional shares to cover over allotments, at a public offering price of $17.00 per share for total gross proceeds of approximately $86.3 million, before deducting underwriting commissions and other offering expenses payable by the Company.

The Company paid cash commissions on the gross proceeds, plus reimbursement of expenses to the Underwriters, as well as legal and accounting fees in the aggregate amount of approximately $5.4 million.

September 2024 Private Placement

On September 16, 2024, the Company entered into a Subscription Agreement with Nippon Shinyaku pursuant to which the Company agreed to issue and sell to Nippon Shinyaku in a private placement (the “Private Placement”), an aggregate of 2,798,507 shares of the common stock of the Company at a price per Share of $5.36, which was issued at a 20% premium to the 60-day volume-weighted average price, for an aggregate purchase price of approximately $15.0 million.

The Subscription Agreement also includes lock-up provisions restricting Nippon Shinyaku from selling or otherwise disposing of shares of Common Stock until the six-month anniversary of the Closing Date.

In connection with the Private Placement, the Company also entered into a Registration Rights Agreement with Nippon Shinyaku on September 16, 2024 (the “Registration Rights Agreement”).

Pursuant to the terms of the Registration Rights Agreement, the Company has filed with the SEC a registration statement to register for resale the shares sold in the Private Placement, which registration statement was declared effective on November 8, 2024.

September 2023 Financing

On September 29, 2023, the Company entered into Securities Purchase Agreements, pursuant to which the Company agreed to issue and sell, 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.

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

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.

The ATM Program was established under a Common Stock Sales Agreement (the “Sales Agreement,”), with H.C.

Wainwright & Co.

LLC (“Wainwright”), under which the Company issued and sold shares of our common stock through Wainwright as sales agent.

The Sales Agreement provided that Wainwright would 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 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 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.

333-254363), which was initially filed with the Securities and Exchange Commission (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 October 1, 2024, the Company sold an aggregate of 9,228,383 shares of common stock under the ATM Program at an average price of approximately $8.13 per share for gross proceeds of approximately $75.0 million which represents all amounts that were available to be sold.

Effective October 1, 2024, the ATM Program was closed and terminated.

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 $2.4 million.

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 1/2 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 I/II HOPE-Duchenne clinical trial investigating deramiocel 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.

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

The maximum royalty on net commercial revenue that Capricor may be required to pay to CIRM is equal to nine times the total amount awarded and paid to Capricor.

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 potentially 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, California Code of Regulations Section 100608.

The maximum royalty on net commercial revenue that Capricor could have been required to pay to CIRM was equal to nine times the total amount awarded and paid to Capricor.

After completing the CIRM funded research project and at any time after the award period end date (but no later than the ten-year anniversary of the date of the award), Capricor has the right to convert the CIRM Award into a loan, the terms of which will be determined based on various factors, including the stage of the research and development of the program at the time the election is made.

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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 the amounts awarded by CIRM, therefore the Company accounts for this award as a liability rather than income.

Depending on the timing of Capricor’s election, additional funds may be owed.

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

As of December 31, 2023, Capricor’s liability balance for the CIRM Award was approximately $3.4 million.

The Company accounts for this award as a liability rather than income.

As of December 31, 2024, Capricor’s principal liability balance for the CIRM Award was approximately $3.4 million, excluding any accrued interest as the Company had not elected to convert the CIRM Award into a loan.

Subsequently, on February 26, 2025, Capricor notified CIRM of its election to convert the CIRM Award into a loan.

As a result, certain requirements of the CIRM Award will no longer be applicable, including the revenue sharing requirements.

The terms of the loan agreement are currently under discussion with CIRM.

Depending on these discussions, accrued interest on the CIRM Award could range from zero to approximately $7.1 million, and will continue to accrue over time until the final payout, if it is determined that interest is due.

Off-Balance Sheet Arrangements

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

Accounting Standards Codification (“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.

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Revenue Recognition

The Company applies ASU 606, Revenue for Contracts from Customers , which amended revenue recognition principles and provides a single, comprehensive set of criteria for revenue recognition within and across all industries.

The Company applies Accounting Standards Update (“ASU”) 606, Revenue for Contracts from Customers , which amended revenue recognition principles and provides a single, comprehensive set of criteria for revenue recognition within and across all industries.

The Company has not yet achieved commercial sales of its drug candidates to date, however, the new standard is applicable to its distribution agreements.

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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 milestones are generally categorized into two types:

development milestones and sales-based milestones.

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.

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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.

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.

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

CIRM Grant Award

Capricor accounts for the disbursements under its CIRM Award as long-term liabilities.

Capricor recognizes the CIRM grant disbursements as a liability as the principal is disbursed rather than recognizing the full amount of the grant award.

After completing the CIRM funded research project and after the award period end date, Capricor has the right to convert the CIRM Award into a loan, the terms of which will be determined based on various factors, including the stage of the research and the stage of development at the time the election is made.

In June, 2016, Capricor entered into a Loan Election Agreement with CIRM whereby, among other things, CIRM and Capricor agreed that if Capricor elects to convert the grant into a loan, the term of the loan could be up to five years from the date of execution of the applicable loan agreement;

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

Since Capricor may be required to repay some or all of the amounts awarded by CIRM, the Company accounts for this award as a liability rather than income.

Research and Development Expenses and Accruals

R&D expenses consist primarily of salaries and 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, and certain legal expenses resulting from intellectual property prosecution, stock compensation expense and other expenses relating to the design, development, testing and enhancement of our product candidates.

R&D expenses consist primarily of salaries and 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, manufacturing and commercial activities, and certain legal expenses resulting from intellectual property prosecution, stock compensation expense and other expenses relating to the design, development, testing and enhancement of our product candidates.

Except for certain capitalized intangible assets, R&D costs are expensed as incurred.

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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.

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All estimates may differ significantly from the actual amount subsequently invoiced, which may occur several months after the related services were performed.

In the normal course of business, we contract with third parties to perform various R&D activities in the on-going development of our product candidates.

In the normal course of business, we contract with third parties to perform various R&D activities in the ongoing development of our product candidates.

The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows.

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Stock-Based Compensation

Our results include non-cash compensation expense as a result of the issuance of stock, stock options and warrants, as applicable.

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

Our results include non-cash compensation expense as a result of the issuance of stock options and restricted stock awards, as applicable.

We have issued stock options and restricted stock awards 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) (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.

At this time, the Company only issues stock options and restricted stock awards under the 2020 Plan and the 2021 Plan and no longer issues stock awards 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.

When more precise pricing data is unavailable, we determine the fair value of stock options using the Black-Scholes option-pricing model.

For stock options, when more precise pricing data is unavailable, we determine the fair value using the Black-Scholes option-pricing model.

This valuation model requires us to make assumptions and judgments about the variables used in the calculation.

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We account for forfeitures upon occurrence.

Stock options or other equity instruments to non-employees (including consultants) issued as consideration for goods or services received by us are accounted for based on the fair value of the equity instruments issued.

The fair value of stock options is determined using the Black-Scholes option-pricing model.

The Company calculates the fair value for non-qualified options as of the date of grant and expenses over the applicable vesting periods.

For restricted stock awards, we determine the fair value using the Company’s stock price at the grant date.

The terms and vesting schedules for share-based awards vary by type of grant and the employment status of the grantee.

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The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to us under such contracts.

Our objective is to reflect the appropriate clinical trial expenses in our consolidated financial statements by matching the appropriate expenses with the period in which services are provided and efforts are expended.

objective is to reflect the appropriate clinical trial expenses in our consolidated financial statements by matching the appropriate expenses with the period in which services are provided and efforts are expended.

We account for these expenses according to the progress of the trial as measured by patient progression and the timing of various aspects of the trial.

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

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.

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.

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.

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Recently Issued or Newly Adopted Accounting Pronouncements

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.

In November 2024, the FASB issued ASU No.

2024-03, Disaggregation of Income Statement Expenses (Subtopic 220-40) .

The ASU requires the disaggregated disclosure of specific expense categories, including purchases of inventory, employee compensation, depreciation, and amortization, within relevant income statement captions.

This ASU also requires disclosure of the total amount of selling expenses along with the definition of selling expenses.

The ASU is effective for annual periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027.

Adoption of this ASU can either be applied prospectively to consolidated financial statements issued for reporting periods after the effective date of this ASU or retrospectively to any or all prior periods presented in the consolidated financial statements.

Early adoption is also permitted.

This ASU will likely result in the required additional disclosures being included in our consolidated financial statements, once adopted.

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

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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 7. Management’s Discussion and Analysis