Aethlon Medical Inc Q4 FY2020 Earnings Call

Good afternoon, and welcome to the Aethlon Medical Fourth Quarter Fiscal 2020 Earnings Corporate Update. All participants will be in listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Dr. Jim Frakes, Chief Financial Officer. Please go ahead.

Thank you, operator, and good afternoon, everyone. Welcome to Aethlon Medical’s fourth quarter 2020 earnings conference call. My name is Jim Frakes, and I’m Aethlon’s Chief Financial Officer. At 4:15 P.M. Eastern Time today, Aethlon Medical released financial results for its fiscal year ended March 31, 2020. If you have not seen or received Aethlon Medical’s earnings release, please visit the Investors page at www.aethlonmedical.com. Following this introduction and the reading of our forward-looking statements, Aethlon’s CEO, Dr. Tim Rodell; and our Chairman, Dr. Chuck Fisher, will provide an overview of Aethlon’s strategy and recent developments. I will then make some brief remarks on Aethlon’s financials. We will then open up the call for the Q&A session. Before I hand the call over to Dr. Rodell, please note that the news release today and this call contain forward-looking statements within the meaning of the Federal Securities Act of 1933 and the Securities Exchange Act of 1934. The company cautions you that any statement that is not a statement of historical facts is a forward-looking statement. These statements are based on expectations and assumptions as of the date of this conference call. Such forward-looking statements are subject to significant risks and uncertainties, and actual results may differ materially from the results anticipated in the forward-looking statements. Factors that could cause results to differ materially from those anticipated in forward-looking statements can be found under the caption Risk Factors in the company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2019 and in the company’s other filings with the Securities and Exchange Commission. Except as may be required by law, the company does not intend nor does it undertake any duty to update this information to reflect future events or circumstances. With that, I will now turn the call over to Dr. Tim Rodell, Aethlon Medical’s CEO.

Thank you, Jim, and thanks to everybody on the line for dialing in. As you can see from our recent announcements and more to come today, we’ve had a busy and productive few months since our last call. On the oncology front, we now have IRB approval to initiate our early feasibility study, which to remind you is a device equivalent of a Phase 1 study for a drug in head and neck cancer at the Hillman Cancer Center at the University of Pittsburgh, under the direction of Dr. Dan Zandberg, who is a very bright young medical oncologist, who specializes in head and neck cancer. We expect that the trial will be open for patient enrollment within the next few weeks, and it will be listed on clinicaltrials.gov in the next day or two. Once that listing goes up on clinicaltrials.gov, we will put a link to it on our website and you will be able to see more details of the trial. In brief, the trial will enroll 10 to 12 subjects in an open-label design, combining Hemopurifier treatment with pembrolizumab, or Keytruda from Merck in patients with advanced and/or metastatic disease in the frontline setting. Pembrolizumab was approved in the frontline setting last June based on studies showing that it improved survival by several months on average. However, like other checkpoint inhibitors or immuno-oncology agents in other solid tumors, its impact is substantial but on a minority of patients. Some patients may have striking outcomes with multi-year survival in advanced disease, which was previously unheard of. However, the majority of patients show little or no improvement. Studies have shown that a major mechanism of resistance to these agents may involve tumor-derived immunosuppressive exosomes, which are subcellular particles shed from tumor cells and circulate in these patients. We’ve previously shown that a laboratory version of the Hemopurifier can clear exosomes from multiple tumor types, as described in a poster we presented at the online AACR, American Association for Cancer Research Meeting this week. You can find a link to this poster on our website. In the trial, we will treat enrolled patients with a four-hour Hemopurifier treatment immediately prior to their first two pembrolizumab administrations, which will occur every three weeks. The primary endpoint for this trial, as always in these types of early trials, is safety, with secondary endpoints including tumor response, survival, and, importantly from a mechanism of action perspective, we will investigate the clearance and characterization of exosomes and potentially understand that clearance and its relationship to improved outcomes. Now to move on to infectious disease. We announced last week that the FDA has approved a supplement to our existing viral IDE, or Investigational Device Exemption, to allow for the treatment with the Hemopurifier of up to 40 patients with SARS-CoV-2/COVID-19 disease at up to 20 centers in the United States. The supplement is very similar to the one that was approved several years ago for Ebola in both the United States and in Canada, and that supplement remains open. We previously discussed the potential use of the Hemopurifier in COVID-19, noting that we have data with multiple viruses in vitro and in humans, including a version of the MERS virus, which like SARS-CoV-2 is a beta coronavirus, showing that the Hemopurifier or a lab version of it could clear substantial quantities of virus in circulation. While at the time we posted that statement, we did not have data with SARS-CoV-2, we now have shown that we can clear a specific SARS-CoV-2 protein in the lab. We have not demonstrated clearance of the whole virus due to safety issues that would require a much higher level seclusion facility. However, given the data with other viruses we've shown and our ability to effectively clear this protein, we are confident that the Hemopurifier will trap the SARS-CoV-2/COVID-19 virus. We also noted that although the lung is frequently one of the first organs involved, this is a systemic disease that potentially affects all organ systems, with sickest patient outcomes possibly driven by other organ involvement, including cardiac disease and profound coagulopathies that characterize their courses. We’re now in the process of identifying centers to initiate the investigation of the Hemopurifier in this disease. Finally, I want to comment on a new addition to the management team. We recently recruited Tom Taccini to the position of Vice President of Manufacturing and Product Development. Tom is an industry veteran with more than 35 years of experience in medical devices and expertise in manufacturing, product development, quality systems, regulatory affairs, and program and project management. He is already in place and is having a major impact on helping to advance our manufacturing capabilities. What many observers of our industry don't recognize is the critical role that manufacturing and product development play in the process of getting to market. Clinical development gets most of the attention, but no product gets approved without reproducible, scalable, reliable, and well-characterized manufacturing processes. We are devoting substantial resources to ensure that this is not a rate-limiting factor in the development of the Hemopurifier. This is doubly important in products for life-threatening diseases, where development can move quickly. To remind you, the Hemopurifier is the subject of two breakthrough device designations by the FDA, one for viral disease and one for oncology. In this setting, the regulatory and development processes can move very quickly, so we have to be prepared for the time we’re ready to file for approval, assuming our development programs are successful. Tom is a great addition to the team, but I would also like to point out that all of what I’ve been talking about was done in a very short time with a small but incredibly talented and motivated team of scientists and development professionals to whom we are profoundly indebted. While our group is taking all appropriate precautions to protect each other during these challenging times, including working remotely wherever possible, we have continued research in our laboratories and continued our manufacturing operations to produce Hemopurifiers for our clinical trials. With that, I’d like to get Chuck’s thoughts and observations before turning it back over to Jim for the financial section of the call. Chuck?

Thanks, Tim. Thanks to all of you for joining our call today. This year has presented significant challenges to all of us. Despite working from home, the team has maintained a strong pace to move things through the regulatory process, as well as the trial design and Institutional Review Board Approvals in a timely fashion. I want to emphasize the critical importance of product development. As Tim mentioned, Tom Taccini is a strong addition to our management team and has hit the ground running. In addition to advancing product production, we are working hard on developing a stockpile of Hemopurifiers in anticipation of increased use. Further, we are updating our documentation in preparation for future filings with regulatory agencies. The Hemopurifier, as Tim mentioned, has two breakthrough designations, and we will soon be in the clinic for both COVID-19 and head/neck cancer, targeting life-threatening viral disease and exosome-associated cancer. We are now delivering on the plan we outlined a year ago. We have a strong and engaged Board of Directors, who are focused on developing goals and ensuring that we achieve them. I will now hand the call back over to Jim Frakes, our CFO, for the financial presentation.

Thanks, Chuck, and good afternoon again, everyone. Our net loss was approximately $6.4 million, or $1.87 per share for the fiscal year ended March 31, 2020, compared to a net loss of approximately $6.2 million, or $5.13 per share in the fiscal year ended March 31, 2019. We recorded government contract revenue of approximately $650,000 in the fiscal year ended March 31, 2020, resulting from work performed under our Phase 2 Melanoma Cancer Contracts with the NCI. We recorded government contract revenue of approximately $230,000 in the fiscal year ended March 31, 2019. Our operating expenses for the fiscal year ended March 31, 2020 were approximately $6.58 million, compared to $6.23 million for the fiscal year ended March 31, 2019. This increase of approximately $350,000, or 6%, in the fiscal year ended March 31, 2020 was due to increases in professional fees of $537,000 and in general and administrative expenses of $595,000, which were partially offset by a decrease of $781,000 in payroll and related expenses. The increase in professional fees was primarily due to a $694,000 increase in our legal fees and a $111,000 increase in our accounting fees, which were partially offset by decreases of $245,000 in consulting fees. The increase in legal and accounting fees related to increased activity in our registration statement filings and in intellectual property actions, among other matters. The $595,000 increase in general and administrative expenses for the fiscal year ended March 31, 2020, was primarily due to a combination of a $316,000 increase in our clinical trial expenses, a $198,000 increase in subcontracting and other costs related to our government contracts, and an increase of $87,000 in laboratory supplies. The $781,000 decrease in payroll and related expenses for the fiscal year ended March 31, 2020, was due to a combination of a decrease in our stock-based compensation of $475,000 and a decrease of $306,000 in cash-based compensation, primarily due to the termination of consulting and severance payments to our former Chief Executive Officer and former President. Other expense for the fiscal year ended March 31, 2020 consisted of a non-cash loss on debt extinguishment, interest expense and a gain on share for warrant exchanges, while in the fiscal year ended March 31, 2019, it consisted strictly of interest expense. Other expense for the fiscal year ended March 31, 2020 was approximately $450,000, compared to approximately $220,000 the previous fiscal year. At March 31, 2020, we had a cash balance of approximately $9.6 million. In June 2020, we raised additional cash through the sale of approximately 2.7 million shares of common stock under our ATM facility at an average price of $2.70 per share, resulting in aggregate net proceeds of approximately $7.3 million. The cash received from the June ATM sales puts the company in its strongest cash position in at least 12 years. We landed the large Phase 2 NCI contract last fall and we intend to continue to apply for additional government grants and contracts as sources of non-dilutive funding. We included these earnings and related commentary in a press release earlier this afternoon, which included the balance sheet for March 31, 2020 and the statements of operations for the fiscal years ended March 31, 2020 and 2019. We will file our annual report on Form 10-K following this call. Our next earnings call will coincide with the filing of our quarterly report on Form 10-Q in August. Chuck, Tim, and I would be happy to take any questions that you may have. Operator, please open the call for questions.

We will now begin the question-and-answer session. Our first question today will come from Brian Marckx with Zacks.

Hi, guys, congrats on all the developments recently. Can you hear me, OK?

We hear you fine. Thanks, Brian.

If I can start with the cancer side of the business, it sounds like you’re pretty confident that the trial is going to start – the human study is going to start. Did the ex vivo presentation – was that sort of a prerequisite to start it? Or was it – this just kind of coincidental that it came out roughly at the same time?

If you’re talking about the AACR poster, no, that poster actually is based on data that’s been generated over the last year or two by Annette Marleau, our Senior Director of Research; and Theresa Whiteside and her group at the University of Pittsburgh. A lot of that was generated under two previous grants or contracts from the NCI. So that’s kind of a summary of a number of different studies. That was really not part of the review process for the oncology IDE. Obviously, all of those data were available to the FDA. But no, we were not waiting for those data for the trial to start. Let me make a comment, though, about trial startup. As you undoubtedly know, when you’re doing trials in large cancer centers, it’s generally a multi-step process for a trial to open and run. Some of the larger cancer centers actually didn’t get IRB approval and open until the trial was virtually completely enrolled. One of the advantages is we have a huge amount of expertise there and a very large patient population, but it is a big institution with multiple levels of review. That potentially raises the question of whether the COVID-19 pandemic slowed us down, and I actually don’t think it did. While some clinical research in less life-threatening areas may have been slowed down, the review process at Pittsburgh at UPMC continued on during this. The startup of that trial is reasonably imminent. We’re putting the final touches on getting it open for enrollment.

Okay. And Tim, remind me if this is just a single site study. Is that right?

It’s a single site study, yes. This is very typical for what would be a Phase 1 study. The protocol for this trial was a joint collaboration between Aethlon and the head and neck group at the University of Pittsburgh. So there really is very much joint ownership of the trial. The other thing I would say, however, is that if you’re familiar with Hillman, it’s a stunningly good oncology center; Pittsburgh is a terrific institution and that’s a very busy practice. In terms of available patients, it’s as good a place as any for us to be.

Tim, relative to the recent presentation, the ex vivo study, is there anything that you can draw from that regarding the data you got from that relative to collection of tumor-derived exosomes, the quantity? And what that may translate into in terms of outcomes in patients with cancer, or is that too big of a leap?

No, I don’t think it’s a big leap and it’s a great question. The quantitative part of it is going to be a little challenging until we get clinical data. What we showed in those ex vivo studies is that we can clear or at least the mini version of the Hemopurifier, which runs on the bench, can clear exosomes from various tumor types, including breast, melanoma, and others. We know that the mechanism of the Hemopurifier is capable of doing this. What quantitatively needs to happen to allow more patients to respond to checkpoint inhibitors is a question we're expecting to answer in this study. The levels of circulating tumor-derived exosomes in these patients can vary significantly, so they may have anywhere from 10 to the 9th to 10 to the 12th exosomes per milliliter of circulating blood. The Hemopurifier is capable theoretically of clearing high quantities. Until we connect a patient with head and neck cancer and look at the quantity of exosomes, we won’t be able to answer that question. We’re probably the only people who can answer it. One advantage of this open-label trial is that we will get data in real-time on the quantities of exosomes we’re clearing, and will be able to quantify and characterize them.

Tim, with the new IDE supplement for COVID for that study, now that you’ve got two potential human studies ongoing, do you have concerns about your resources to conduct both studies simultaneously?

It’s a good question. We pay a lot of attention to that. I’m very confident that we have the resources available and mostly in place already. We are very small, as you know. I think I was employee #6, and we have eight full-time employees right now. However, we use contractors and consultants to expand our resources. We have a group in Colorado made up of experienced clinical research and regulatory people. I’m confident that based on what we have on our plates right now, we’re appropriately resourced.

That’s great. So relative to the COVID study, congrats on the IDE supplement. Can you provide a big picture view of your ability to find appropriate patients? What does the patient profile look like in terms of COVID patients that would be tested positive?

Yes. Let me address the second part first. The 20 sites won’t be opened simultaneously. The number of cases is going up in some places and going down in others. This disease is going to be with us for a while. We proposed a large number of sites for a trial like this not to open them all at once, but if we open a site in New York and things go down, we want to be ready to go where the disease is. Therefore, we’ll be opening a reasonable number as quickly as possible. Several sites are in the process of having their documentation put in place. Regarding the patient profile, we won't use an extracorporeal circulation process on patients who are not pretty sick. The target population is the patients who have circulating virus. The literature indicates that these patients, those in the ICU exhibiting signs of acute kidney injury, have higher mortality risks and longer ventilator times. Many may already be on dialysis or continuous renal replacement therapy, which is one of the inclusion criteria. Everyone out there is working on both vaccines and treatments. Remdesivir has an open emergency use authorization and is expected to transition to commercialization approval quickly. Interestingly, this drug's effects are mostly limited to early-stage patients.

Do you have insights on how long it might take to enroll 40 patients, considering the recent spike in COVID cases?

It’s too early for me to predict. Until we have sites open and look at how patients are screened, it’s hard to say. Unfortunately, I don't think this is going to be over before we get the patients in. It will be ongoing even if there’s a vaccine that’s still a ways away. I wish I could provide a timeframe for getting 40 patients, but that's risky.

Is there certain data you’ll collect that might support a formal FDA filing?

It's a great question. Comparing this trial to what we’re doing in cancer with exosomes, this product allows us to look at mechanisms quickly. We’ll be examining quantitative PCR before and after treatment. The literature on quantitative PCR for these patients is limited, mostly focusing on whether a virus is present or not. We will quantify how much virus we’re actually clearing. These will provide solid mechanistic points. While this will be a small study, I believe we’ll gain insight into what we’re doing. We’ll examine earlier time points to gather data suggestive of larger controlled trials, potentially serving as a basis for commercialization.

All right, great. Thanks a lot.

Brian. Thanks. Good to hear your voice. Thanks.

This concludes our question-and-answer session. I would like to turn the call back over to Tim Rodell for any closing remarks.

Thank you. First of all, we appreciate everybody who dialed in. It’s a large and good group. We appreciate your continuing interest in what we’re doing. We’re delighted to offer evidence today of the progress we’ve made. I know there have been times when people thought we’ve been a little silent. But it’s not because we haven’t been active. A huge amount has been going on and we’re very excited about what’s happened and what’s coming up in the future. So again, thank you all for your time. Thanks for dialing in. We hope that you stay safe and well, and we’ll talk to you next quarter. Thanks very much.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.