Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2025, as filed with the SEC on March 17, 2026, describes important risk factors that could cause our business, financial condition, results of operations and prospects to differ significantly from those suggested by forward-looking statements made in this Quarterly Report on Form 10-Q or otherwise presented by us from time to time. Other than the addition of, and modifications to, the risk factors listed below, there have been no material changes from the risk factors previously described under Part I, Item 1A of the Form 10-K and under Part II, Item 1A of our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2026 and June 30, 2026.
Risks Related to Our Business
The negative vote of the FDA’s Cellular, Tissue and Gene Therapies Advisory Committee is expected to have a significant impact on Deramiocel’s approvability in the U.S. for the treatment of cardiomyopathy in patients with DMD.
On July 29, 2026, the FDA convened the Ad-Com Committee to review our BLA for Deramiocel. The single voting question presented to the Ad-Com Committee asked whether the available evidence supports the effectiveness of Deramiocel for the treatment of cardiomyopathy in patients with DMD. The Ad-Com Committee voted 3 in favor and 9 against, with no abstentions. The voting question addressed a narrower indication than we had proposed and did not include a vote on the HOPE-3 primary endpoint of upper limb function or on the overall benefit-risk profile of Deramiocel. With the approval of the FDA, we submitted an amendment to our BLA, which the FDA has indicated it is willing to review; however, we do not know how long it will take for the FDA to make a decision on our BLA. The FDA may give us a CRL (rejecting our amended BLA) or further delay approval of our amended BLA if applicable regulatory criteria are not satisfied and/or the FDA requires additional testing or information. The FDA also extended the PDUFA target action date to November 22, 2026.
We may not be successful in our dispute with NS, and the dispute could result in substantial costs, diversion of resources and harm to our business.
We filed the Complaint in the Superior Court of New Jersey. The Complaint alleges that the defendants named therein, NS, failed to adequately prepare for the commercial launch of the Company’s product Deramiocel in the United States pursuant to the U.S. Distribution Agreement, and have otherwise materially breached the terms of the U.S. Distribution Agreement. In the Complaint, the Company sought rescission of the U.S. Distribution Agreement, declaratory judgment that the Company has the right to distribute Deramiocel directly or through distributors other than NS, and other equitable remedies. Capricor subsequently withdrew its application for a preliminary injunction, without prejudice, having determined that resolving this contractual dispute in arbitration following the FDA’s decision would give the parties a more complete regulatory record to work from. In the arbitration, NS filed a complaint for Breach of Contract against Capricor and demands declaratory and injunctive relief holding that Capricor breached the Distribution Agreement, that the Distribution Agreement remains in full force and effect, and requiring Capricor to perform its obligations thereunder. Capricor filed counterclaims as follows:
In the arbitration, Capricor counterclaimed for breach of contract (repudiation and failure to perform), breach of the implied covenant of good faith and fair dealing, rescission based on mutual mistake, declaration of Capricor's right to distribute Deramiocel, and unjust enrichment, reserving claims for unilateral mistake and frustration of purpose. Capricor seeks damages for NS's breaches and repudiation, declaratory and injunctive relief holding that the Distribution Agreement
has been repudiated and/or is rescinded such that Capricor is entitled to distribute, or hire another company to distribute, Deramiocel, and in the alternative Capricor seeks restitution for unjust enrichment.
It is difficult to predict the outcome of any dispute, and there can be no assurance that we will prevail in this matter or obtain the remedies we seek. The arbitration process may continue for an extended period of time, may be expensive and time-consuming, and may divert the attention and resources of management and other personnel away from our business operations and strategic objectives. An adverse outcome in the arbitration or in any counterclaims could materially and adversely affect our business, financial condition, results of operations and prospects.
If we are unsuccessful in the arbitration, we may be unable to prevent NS from engaging in activities that we believe are harmful to our business. Any unfavorable ruling could adversely affect our competitive position, reduce potential revenues, impair our ability to commercialize our products, or otherwise negatively impact the market price of our common stock.
Regardless of the outcome, arbitration may generate negative publicity, create uncertainty among customers, distributors, suppliers or collaboration partners, and adversely affect our ability to enter into strategic transactions or obtain financing on favorable terms.
We have a history of net losses, and we expect losses to continue for the foreseeable future. In addition, a number of factors may cause our operating results to fluctuate on a quarterly and annual basis, which may make it difficult to predict our future performance.
We have a history of net losses, expect to continue to incur substantial net losses for the foreseeable future, and may never achieve or maintain profitability. Our operations to date have been primarily limited to organizing and staffing our company, developing our technology, undertaking preclinical studies and clinical trials of our product candidates, and developing and expanding our manufacturing capabilities for our product candidates. We have not yet obtained regulatory approval for any of our product candidates. Specifically, our financial condition and operating results have varied significantly in the past and will continue to fluctuate from quarter-to-quarter and year-to-year in the future due to a variety of factors, many of which are beyond our control. In particular, our expenditures on the commercialization of Deramiocel, if approved, will heavily depend on the outcome of our dispute with NS and, if we are successful in such dispute, whether we commercialize Deramiocel in the United States directly or through one or more distributors. Other factors relating to our business that may contribute to these fluctuations include the following factors:
| ● | our need for additional capital to fund our trials and development programs; |
| ● | delays in the commencement, enrollment, and timing of clinical testing; |
| ● | the viability of Deramiocel as a potential product candidate and its development through all stages of clinical development; |
| ● | the viability of our exosome technologies as potential product candidates and the advancement of our exosome technologies through all stages of their preclinical and clinical development; |
| ● | any delays in regulatory review and approval of our product candidates in clinical development; |
| ● | our ability to receive regulatory approval or commercialize our product candidates, within and outside the United States; |
| ● | potential side effects of our current or future products and product candidates that could delay or prevent commercialization or cause an approved treatment to be taken off the market; |
| ● | market acceptance of our product candidates; |
| ● | our ability to establish an effective sales and marketing infrastructure once our products are commercialized, as necessary or to establish partnerships with other companies who have greater sales and marketing capabilities; |
| ● | the ability of the Company, Nippon Shinyaku, or another distribution partner, to successfully market and sell our Deramiocel product if and to the extent it is approved; |
| ● | our ability to establish or maintain collaborations, licensing or other arrangements, including strategic partnerships for Deramiocel outside of DMD and our exosome technologies; |
| ● | our ability and third parties’ abilities to obtain and protect intellectual property rights; |
| ● | guidelines and recommendations of therapies published by various organizations; |
| ● | the ability of patients to obtain coverage of, or sufficient reimbursement for, our product candidates; |
| ● | our ability to maintain adequate insurance policies; |
| ● | our ability to successfully manufacture our product candidates in sufficient quantities and on a timely basis to meet clinical trial and potential commercial demand; |
| ● | our dependency on third parties to formulate and manufacture our product candidates, as necessary; |
| ● | our ability to maintain and staff our current manufacturing facilities; |
| ● | our ability to build or secure new manufacturing facilities, if necessary, and achieve and maintain compliance with current Good Manufacturing Practices and obtain required certifications as required; |
| ● | costs related to and outcomes of potential intellectual property litigation, including the recent claim brought against us by Mesoblast; |
| ● | compliance with obligations under intellectual property licenses with third parties; |
| ● | our ability to implement additional internal systems and infrastructure; |
| ● | our ability to adequately support future growth; |
| ● | if our products are approved for commercial sale, the ability to secure adequate reimbursement levels for our products; |
| ● | our ability to attract and retain key personnel to manage our business effectively; and |
| ● | the ability of members of our senior management to manage our business and operations. |
If we achieve our near-term product development milestones, we may not be able to manage any subsequent growth.
Should we achieve our near-term product development milestones, of which no assurance can be given, our long-term viability will depend upon the expansion of our operations and the effective management of our growth, which will place a significant strain on our management and on our administrative, operational and financial resources, especially if we expand our business and operations internationally. The extent of our need to expand our operations, particularly with respect to a commercial sales organization, will heavily depend on the outcome of our dispute with NS and, if we are successful in such dispute, whether we commercialize Deramiocel in the United States directly or through one or more distributors. To manage this growth, we will need to expand our facilities, augment our operational, financial and management systems and hire and train additional qualified personnel, including people and companies with expertise in commercialization activities, some of whom may be outside consultants who are not our full-time employees. If we are unable to manage our growth effectively, our business would be harmed.
Risks Related to Clinical and Commercialization Activities
We have no experience commercializing and marketing products, and we may be unable to successfully launch, market and sell our products including Deramiocel.
We currently have no FDA approved products and so do not have experience in the commercialization, marketing, sale or distribution of pharmaceutical products on a commercial scale. As a result, even if we are successful in our dispute with NS, we may encounter significant difficulties or delays in successfully launching and commercializing any product candidates for which we obtain regulatory approval.
To successfully commercialize our products, we must develop and implement sales, marketing, market access, distribution, reimbursement and other commercial capabilities, either alone or in collaboration with third parties. We may be unable to effectively recruit, train and retain qualified personnel, establish appropriate distribution relationships, secure adequate reimbursement from government and private payors, or develop sufficient market acceptance among physicians, patients and healthcare providers. In addition, we may face substantial competition from companies with significantly greater commercial infrastructure, financial resources, marketing capabilities and established relationships with customers and payors.
Even if we are able to successfully establish commercial operations, such efforts may be more costly and time-consuming than we anticipate and may not result in meaningful product sales or profitability. We also may encounter operational, logistical, supply chain, customer support and regulatory compliance challenges associated with commercializing products for the first time. If we are unable to successfully commercialize our products, our ability to generate revenue and achieve profitability would be materially adversely affected.
We may also choose to rely on third parties to perform certain commercialization functions, including sales, marketing, distribution and market access activities. Our dependence on third parties may reduce our control over the commercialization process, and such third parties may fail to devote sufficient resources to the marketing and sale of our products or otherwise fail to perform as expected. Any failure to successfully commercialize our products could materially adversely affect our business, financial condition, results of operations and prospects.
Even if any of our product candidates receive marketing approval, they may fail to achieve the degree of market acceptance by physicians, patients, healthcare payors and others in the medical community necessary for commercial success.
If any of our product candidates receive marketing approval, they may nonetheless fail to gain sufficient market acceptance by physicians, patients, healthcare payors and others in the medical community. If our product candidates do not achieve an adequate level of acceptance, we may not generate sufficient revenues from sales of drugs to cover our costs and we may not become profitable. The degree of market acceptance of our product candidates, if approved for commercial sale, will depend on a number of factors, including:
| ● | the efficacy and safety of the product; |
| ● | the potential advantages of the product compared to alternative therapies; |
| ● | whether the product is designated under physician and other provider treatment guidelines as a first-, second- or third-line therapy; |
| ● | the product’s convenience and ease of administration for patients and healthcare practitioners compared to alternative treatments; |
| ● | site-of-care requirements, infusion logistics, and the ability of treatment centers and payors to support administration and access on a timely basis; |
| ● | limitations or warnings, including distribution or use restrictions and safety information contained in the product’s approved labeling; |
| ● | the performance of third-party distributors, if any; |
| ● | the availability of coverage by, and the amount of reimbursement from, government payors, managed care plans and other third-party payors. |
We are building commercial capabilities and a corporate compliance program in preparation for the potential launch of Deramiocel, and we may be unable to do so effectively, on a timely basis or at all.
In preparation for the potential approval of Deramiocel, we are building sales, marketing, market access and patient support capabilities, together with a corporate compliance program designed to address the federal Anti-Kickback Statute, the federal civil False Claims Act, the Physician Payments Sunshine Act and analogous state laws that govern the commercial activities of biopharmaceutical companies. We have not previously conducted these activities, and the scope, timing and cost of this effort remain uncertain. Our BLA for Deramiocel remains under FDA review, with a PDUFA target action date of November 22, 2026. In addition, whether we commercialize Deramiocel in the United States directly or through NS or another distributor will depend on the outcome of our arbitration with NS. As a result, we may incur commercial and compliance expenses prematurely or unnecessarily, or we may be unable to complete these capabilities in time to support a timely launch. Although effective compliance programs can mitigate the risk of investigation and
prosecution for violations of healthcare laws, these risks cannot be entirely eliminated. Our compliance program may not prevent our employees, consultants, contractors or distribution partners from engaging in misconduct. Any of these outcomes could materially adversely affect our business.
We may depend on distributors for the commercial sale of Deramiocel in certain territories, if regulatory approval is obtained.
If we are unsuccessful in our dispute with NS, a substantial portion of our potential revenue for the foreseeable future would depend on milestone, revenue sharing and other payments received from Nippon Shinyaku under our distribution agreements, pursuant to which Nippon Shinyaku has exclusive distribution rights for Deramiocel in the United States and Japan for a significant period of time, with only limited rights of either party to terminate these agreements. In that event, if Nippon Shinyaku failed to successfully commercialize Deramiocel in the United States or Japan, whether due to strategic priorities, financial constraints, insufficient commercial resources, inadequate performance or other factors, our ability to generate revenue from Deramiocel in those territories would be materially limited, which would adversely affect our business, financial condition and results of operations. Even if we are successful in our dispute with NS, we may ultimately partner with one or more distribution partners for the commercialization of Deramiocel in the United States or other territories, and in that event we would depend upon the performance of those distribution partners. The failure of any such distribution partner to successfully commercialize Deramiocel could adversely affect our business, financial condition and results of operations.
If we enter into strategic partnerships, we may be required to relinquish important rights to and control over the development of our product candidates or otherwise be subject to terms unfavorable to us.
We are actively looking into potential additional strategic partnerships for our product candidates, particularly for Deramiocel in the United States and additional territories outside the United States and Japan, and for our exosomes product candidates. To the extent that we are successful in our dispute against NS, we may also explore strategic partnerships for the commercialization of Deramiocel in the United States. If we do not establish strategic partnerships, we potentially will have to undertake development and commercialization efforts with respect to our product candidates on our own, which would be costly and adversely impact our ability to commercialize any future products or product candidates. If we enter into any strategic partnerships with pharmaceutical, biotechnology or other life science companies, we will be subject to a number of risks, including:
| ● | we may not be able to control the amount and timing of resources that our strategic partners devote to the development or commercialization of product candidates; |
| ● | strategic partners may delay clinical trials, provide insufficient funding, terminate a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new version of a product candidate for clinical testing; |
| ● | strategic partners may not pursue further development and commercialization of products resulting from the strategic partnering arrangement or may elect to discontinue research and development programs; |
| ● | strategic partners may not commit adequate resources to necessary pre-launch activities or the marketing and distribution of any future products, limiting our potential revenues from these products; |
| ● | disputes may arise between us and our strategic partners, such as our dispute with NS, that result in the delay or termination of the research, development or commercialization of our product candidates or that result in costly litigation or arbitration that diverts management’s attention and consumes resources; |
| ● | strategic partners may experience financial difficulties; |
| ● | strategic partners may not properly maintain or defend our intellectual property rights or may use our proprietary information in a manner that could jeopardize or invalidate our proprietary information or expose us to potential litigation; |
| ● | business combinations or significant changes in a strategic partner’s business strategy may also adversely affect a strategic partner’s willingness or ability to complete its obligations under any arrangement; and |
| ● | strategic partners could independently move forward with a competing product candidate developed either independently or in collaboration with others, including our competitors. |
