Aethlon Medical Inc Q1 FY2021 Earnings Call

Thank you, operator. And good afternoon, everyone. Welcome to Aethlon Medical's first quarter 2021 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 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 fact 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, 2020 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.

Thanks, Jim. And thank you all for dialing in. I'd like to lead off with oncology. First of all, we are continuing the process of opening the clinical trial in head and neck cancer at the University of Pittsburgh. As we noted in our last call, we have IRB approval at UPMC. And the details of the trial have been posted on clinicaltrials.gov for those of you who would like more information. The last steps to open for patient accrual are in process right now. We hope to be enrolling patients shortly. This initial early feasibility study, which is the device equivalent of a Phase I study, is only the first step towards the evaluation of the Hemopurifier in head and neck cancer and also in other cancers, specifically solid tumors. We are now building the later stage development plan, as well as the quality and the manufacturing plans to support later stage development and ultimate commercialization if the Hemopurifier is successful in clinical trials. As we previously noted, we have breakthrough designations, both for oncology and for life-threatening viral infection. These designations provide us with a clear and focused communication pathway with the FDA to expedite this process, assuming favorable safety and efficacy data. This is really an ongoing dialogue with the FDA, and we can vet our plans for future development going forward. On a related front, the company announced last week that we've received in collaboration with the University of Pittsburgh and other academic institutions, a five-year, approximately $3.5 million grant from the National Institutes of Health entitled 'Depleting Exosomes to Improve Responses to Immune Therapy in Head and Neck Squamous Cell Carcinoma.' This grant on which Theresa Whiteside, one of the world's foremost authorities on exosomes in cancer, and Dr. Annette Marleau, our Senior Director of Research, are co-principal investigators, will provide support for the bench studies on exosomes in head and neck cancer using samples from our current clinical trial and may also provide some support for a follow-on clinical trial upon the successful completion of the current early feasibility study. Now to move on to infectious disease, as we previously disclosed, the FDA has approved the 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. We are now identifying and recruiting these centers. As I noted during our last call, the distribution of the pandemic is not static. We do not expect to open all 20 centers at once. We are concentrating on the areas with large numbers of affected patients. As you probably have read, the Northeast, particularly New York City and New Jersey, which along with the Pacific Northwest, were epicenters initially, have quieted down. The most severely affected areas now include Florida, Southern California, our corporate home turf. The Central United States is now beginning to be affected. We are moving away from some of the coastal population centers as the pandemic is affecting centers all over the country. While identifying clinical trial centers, obtaining IRB approval, and opening for patient accrual takes some time, there's another much faster pathway to treat individual high-need patients in an emergency situation, known as a single patient emergency use pathway, which was formerly known as compassionate use. This allows a treating physician to request an investigational product for a patient who has essentially no other viable treatment options. Under this pathway, we've recently treated one patient at the request of his attending physician with several daily Hemopurifier treatments. While we cannot say anything about efficacy based on a single case, the treatment has been uneventful to date. I'll stop there and turn it back over to Jim for the financial discussion and then we'll open up for questions. Jim?

Thanks, Tim. And good afternoon again, everyone. At June 30, 2020, we had a cash balance of approximately $15.7 million. Our operating expenses for the three months ended June 30, 2020, were approximately $1.4 million compared to approximately $1.6 million for the three months ended June 30, 2019. This decrease of approximately $200,000 or 12% in the 2020 period is due to a decrease in payroll and related expenses of approximately $170,000 and professional fees of approximately $43,000, which were partially offset by an increase in general and administrative expenses of approximately $27,000. A $170,000 decrease in payroll and related expenses was due to a combination of a $242,000 reduction in stock-based compensation expense and a $73,000 increase in our cash-based compensation expense. The cash-based compensation increase was due to additions to our headcount and salary increases. The $43,000 decrease in our professional fees was primarily due to a $22,000 decrease in our legal fees and a $22,000 decrease in our accounting fees. The $27,000 increase in general and administrative expenses was primarily due to a $26,000 increase in our clinical trial expenses as we prepare for our planned clinical trials. Other expense during the three months ended June 30, 2020, consisted of interest expense, and during the three months ended June 30, 2019, consisted of interest expense and a loss on debt extinguishment. Other expense for the three months ended June 30, 2020, was approximately $1,000 compared to other expense of approximately $501,000 for the three months ended June 30, 2019. The decrease in the 2020 period was a result of the full payment in July 2019 of our then outstanding promissory notes. As a result of the changes in revenues and expenses that I just noted, our net loss before non-controlling interest decreased to approximately $1.4 million for the three months ended June 30, 2020, or $0.15 per share, from approximately $2.1 million for the three months ended June 30, 2019, or $1.63 per share. 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 of net proceeds. We did not issue any warrants in this financing. The aggregate net proceeds to us were approximately $7.3 million. We were awarded a $1.9 million Phase II NCI contract last fall. Dr. Rodell recently noted that we won, together with the University of Pittsburgh Medical Center, a grant for studies in head and neck cancer with the National Institute for Dental and Craniofacial Research, part of the NIH. We intend to continue to apply for additional government grants and contracts as sources of non-dilutive funding. We included these earnings results and related commentary in a press release issued earlier this afternoon. That release included the balance sheet for June 30, 2020, and the statements of operations for the three-month periods ended June 30, 2020, and 2019. We will file our quarterly report on Form 10-Q following this call. Our next earnings call will coincide with the filing of our quarterly report on Form 10-Q in November. Now, Tim and I would be happy to take any questions that you may have. Operator, please open the call for questions.

So, Tim, I kind of didn't hear what you were referring to on the compassionate use cases. You said that the outcome is uneventful. Was that what you said?

I think that's the term I used. Yeah.

I assume that they are – is the person – are they still alive? Do I ask you that question?

I can't really give you any more detail about it. What I can say is pretty much what I said. First of all, let me point out that under the federal regulations, the kinds of patients who are eligible for this type of emergency use are the sickest patients out there. What I can say is that we completed a number of Hemopurifier treatments of the patient. It really doesn't make sense for me to go much beyond that. What I will say, however, is that this gives us – obviously, the critical data for us to get are from the control trial and get explorable sites open. But what this does do is give us an opportunity, number one, to hopefully help somebody who is very sick. Secondly, it gives us a good experience with the Hemopurifier in this particular patient population and a look at whether it can be safely deployed. But beyond that, it wouldn't be appropriate for me to comment any further.

Can you just describe a little bit – or maybe you don't know the answer to it, specifically. But can you describe how the rollout of the trials will go? Are you going to – will most of these people be treated in a relatively short period of time? Do you think it will be over sort of an extended period of time where you'll get a couple of people here and a couple of people there or do you even really know the answer to that yet?

Well, it's early for me to say. What I will say is that in the places where this virus is active, in locations such as New York and Seattle, patients are filling out the ICUs. Some of the centers that we're talking to are not large hospitals that are taking care of the majority of patients. They just happen to be in the way of the pandemic. Many of them have completely devoted their ICUs to COVID-19 patients. Many have open secondary ICUs in other areas. I think once we get open in a couple of these busy areas, and we are in a position to open multiple sites depending on where the pandemic goes, there will unfortunately be many available patients for treatment. So, the easiest answer, again, it’s hard to predict until we're open, is that there will be no shortage of patients in the areas that are most heavily affected, which I've named. Florida has clearly been hit hard. Unfortunately, Southern California, our home turf, is also very heavily affected. Many patients are coming into the area from the Imperial Valley, from the agricultural workers there. Some of these hospitals are literally getting overwhelmed. So, again, I think once we get open, it won't be a trickle of patients. It will likely be substantial numbers. But again, we will have to get open and see how that plays out.

Can you give us any sense of sort of the protocol of this? Because I guess what I'm wondering is – I've sort of always felt like, on this side, on the infectious disease side of this, that there might be more benefit derived to somebody who maybe isn't sick, obviously, if you could decrease their viral load before they get sicker and sicker. There may be more benefit. Will this generally in this particular trial be focused largely on people who are already sick, or will they maybe potentially ever use this on somebody who's a little bit earlier in the process?

It's a great question. The short answer is that the current trial that's been approved by the FDA under our viral IDE is restricted to patients who are in the ICU and are quite sick. Most of them will be on ventilators. Many will have acute kidney injury. So, initially, we'll be focused on the sicker population. But I think you're absolutely right that the largest benefit could be readily observed in patients who are a bit earlier on, who are requiring large amounts of supplemental oxygen but who may have large amounts of circulating virus. I think, ideally, we would want to get a cross section. But initially, we're being conservative. As you can imagine, the FDA is also being conservative. The data we gather from that trial, along with occasional emergency use, will help us make that kind of argument.

Will there be instances – I won't ask you that. You can't answer that. But let me ask you a question on the oncology side. As we sort of move forward and you're designing additional clinical trials, will those trials focus on sort of when Hemopurifier treatment is applied in a patient's disease progression?

It's a good question. The answer is, it's an iterative process. When we talk about the oncology trial that is starting up right now, one of the most important characteristics is that because of the approval of KEYTRUDA in the frontline setting as standard of care, we're treating patients who are going to be started on KEYTRUDA with the Hemopurifier prior to administration to clear the immunosuppressive exosomes and hopefully increase the percentage of patients who respond. In this particular disease in head and neck cancer, patients who have already failed several lines of therapy are very sick and have a very low life expectancy. We're comfortable that we're in the right patient population. In terms of the right time to treat with the Hemopurifier, we expect to learn from this initial early feasibility study. We will be designing later stage studies based on what we've learned. Some of this large grant awarded to us in combination with Pittsburgh is intended for a follow-on trial. The NIH has already reviewed this, and we will be refining the design of that trial as we learn from the ongoing early feasibility study.

Just so I understand, though, in terms of this possibly being more of a systemic therapy, is it wrong for me to think that maybe someday you'll conduct trials that might show the best use of this as something for cancer maintenance? Would it make sense to treat patients who are simply being observed?

It's a way off, but it's a great question. We will be looking at different patient populations in different solid tumors. There are situations where patients have received definitive therapy and are simply being observed. We know that there's a subset of those patients—particularly in colorectal cancer, in patients with advanced stage two and three disease. We are analyzing exosomal markers to predict which of those patients are likely to relapse. If we can predict which ones will relapse, then it could make sense to treat them prophylactically with the Hemopurifier to see if we can delay or prevent that relapse. But again, that's a couple of steps down the road.

This will conclude our question-and-answer session. I'd like to turn the conference back over to Dr. Tim Rodell for any closing remarks.

Okay. Thank you, operator. Thank you all for dialing in. We appreciate you continuing to follow the story. We remain very excited about what we're doing both on the oncology side and on the infectious disease side. It's good to get into the game in COVID-19, and we sincerely hope that we'll be in a position to help some of these patients. So again, thank you all for dialing in and stay safe.

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