Aethlon Medical Inc Q1 FY2024 Earnings Call

Good afternoon, and welcome to the Aethlon Medical First Quarter Fiscal 2024 Earnings and Corporate Update Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Jim Frakes, Chief Financial Officer. Please go ahead.

Thank you, operator, and good afternoon, everyone. Welcome to Aethlon Medical's First Quarter Fiscal 2024 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 first fiscal quarter ended June 30, 2023. 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 statement, Aethlon's Chief Executive Officer, Dr. Charles J. Fisher, Jr; and our Chief Medical Officer, Dr. Steven LaRosa, 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. LaRosa, please note that the news release today and this call contain forward-looking statements within the meaning of the Securities Act of 1933 as amended and the Securities Exchange Act of 1934 as amended. 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 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, 2023, our most recent report on Form 10-Q 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. Steven LaRosa, Aethlon's Chief Medical Officer.

Thank you, Jim, and thank all of you for dialing in. Hi. This is Steven LaRosa. Due to the timing of our March 31 fiscal year, this first quarter report falls only about 5 weeks after our recent call on June 28. Aethlon Medical is continuing the research and clinical development of its Hemopurifier, a therapeutic blood filtration system that can bind and remove harmful exosomes and life-threatening viruses from the blood. These qualities of the Hemopurifier have potential applications in oncology, where cancer-associated exosomes may promote immune suppression and metastasis, as well as in life-threatening infectious diseases and the organ transplant field. Our ongoing COVID-19 trial in India for patients in the intensive care unit at Medanta Medicity Hospital remains open for enrollment with one patient treated to date. In May 2023, a second clinical site, Maulana Azad Medical College, known as MAMC, received Ethics Board approval to participate in the trial, and site activation activities are currently underway. Patients with COVID-19 infections that require hospitalization continue to occur in India, and the addition of MAMC as a second high-quality clinical site may improve the enrollment of patients who go on to require ICU care for severe infection. In the oncology indication, Aethlon Medical continues to work with its contract research organization, NAMSA, LLC, to initiate a clinical study in Australia. Specifically, this is a safety, feasibility and dose-finding trial in solid tumors failing treatment with anti-PD-1 antibodies. Aethlon Medical believes that the data generated from this trial will help inform the design of future oncology efficacy trials of the company's Hemopurifier. Ongoing activities include site identification and qualification, finalization of necessary documents for Ethics Board submission, the case report form development and selection of a Data Safety Monitoring Board. With that, I will now turn the call over to Dr. Charles J. Fisher, Aethlon's Chief Executive Officer.

Thanks, Steve, and good afternoon, everyone. Hi. My name is Chuck Fisher. We recently announced that we are investigating the use of the Hemopurifier in the organ transplant setting, initially focusing on the potential removal of harmful viruses and exosomes from recovered kidneys. Our initial objective is to confirm that the Hemopurifier in translational studies, when incorporated into a machine perfusion organ preservation circuit, can remove harmful viruses and exosomes from recovered donor kidneys. Last month, we signed a research collaboration agreement with 34 Lives, PBC, to investigate the use of our proprietary Hemopurifier in 34 Lives' organ evaluation and preservation system with the goal of increasing the supply of usable donated kidneys for human transplant. We have previously demonstrated the removal of multiple viruses and exosomes from buffer solutions in vitro utilizing a scaled-down version of our Hemopurifier. This process may potentially reduce complications following transplantation of the recovered organ, which can include viral infection, delayed graft function and rejection. We believe that this new approach could be additive to existing technologies that are currently in place to meaningfully increase the number of viable kidneys for transplant. On a personal note, as a physician and former Chief Division Chief at 3 major research hospitals, I have seen many potentially usable organs discarded, and that has always troubled me greatly. There are up to 8 potential organs that can be transplanted, and typically only 2 to 2.5 organs are actually transplanted per donor. CMS is currently applying pressure on the organ procurement organizations to increase this average. CMS is the payment source for the majority of kidney transplants because it reduces the burden on the U.S. government to cover ongoing dialysis treatments for citizens that have failed kidneys. Dialysis cost the U.S. taxpayer $120 billion in 2019, which equals 34% of Medicare's total $350 billion of outpatient services budget. Kidney transplants are cost-effective to Medicare, saving up to $250,000 per year from each recipient. With an average kidney transplant lifespan of 10 years, this becomes $2.5 million in lifetime savings per transplant. There are currently 750,000 Americans receiving dialysis of 20 or more hours per week in the U.S. 105,000 of those patients need a transplant, but the average waiting time for a kidney is 6 years. In 2020, only 17,581 patients or 17% received a transplanted kidney, while 12,293 died while waiting or became too sick to receive a transplant. In 2021, approximately 7,800 kidneys that were recovered for transplant were left unused that perhaps could have been used. Our objective is to increase the number of usable organs that can be introduced into the transplant community. In conclusion on this topic, we are excited about this addition to our focus at Aethlon and believe this could be a significant business opportunity. With that, I'll turn the call back over to Jim for the financial discussions and then open up the call for questions. Thank you.

Thanks, Chuck, and good afternoon, again, everyone. As of June 30, 2023, Aethlon Medical had a cash balance of approximately $12.9 million. During the first quarter ended June 30, 2023, we raised net proceeds of approximately $1.1 million under the at-the-market agreement with H.C. Wainwright. Now some of you that listened to our previous quarterly calls have gently encouraged me not to cover our expenses in such a granular basis. So I'll try to keep my remarks a bit more high level this quarter. You can find detailed expense information and financial statements attached to our earnings release that just hit the wire or in our soon-to-be filed report on 10-Q. Our consolidated operating expenses for the 3 months ended June 30, 2023, were approximately $3.4 million compared to $2.9 million for the 3 months ended June 30, 2022. This increase of approximately $0.5 million or 17.3% in the 2023 period was due to increases in general and administrative expenses of approximately $276,000, professional fees of $133,000 and in payroll and related expenses of approximately $91,000. The $276,000 increase in G&A expenses was primarily due to a combination of factors. Those factors included a $344,000 increase in the purchase of raw materials for the production of the company's Hemopurifier, a $133,000 increase related to our Australian subsidiary's activities and a $105,000 increase in depreciation and equipment maintenance associated with leasehold improvements and new equipment for manufacturing and lab facilities. Those increases were partially offset by a $160,000 decrease in clinical trial expenses and a $140,000 decrease in subcontract expense associated with our former government contracts. The $133,000 increase in professional fees was due to an increase of $123,000 in investor relations expenses associated with facilitating investor awareness and assistance with more widespread dissemination of company news, an increase of $37,000 related to accounting and legal services for our new Australian subsidiary and $86,000 of legal expenses associated with year-end filings and general corporate matters. Those increases were offset by decreases in regulatory services of $85,000 and recruiting expense of $28,000. The $91,000 increase in payroll expense was due to a $56,000 increase in salary expense related to an increase in headcount and a $35,000 increase in stock-based compensation related to employee stock option grants. As a result of the factors that I just noted, the company's net loss increased to approximately $3.3 million in the 3 months ended June 30, 2023, from approximately $2.9 million in the 3 months ended June 30, 2022. 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, 2023, and the statements of operations for the 3 months ended June 30, 2023, and 2022. We will file our quarterly report on Form 10-Q following this call. Our next earnings call for the fiscal second quarter ending September 30, 2023, will coincide with the filing of our quarterly report on Form 10-Q in November 2023. And now Chuck, Steve, and I would be happy to take any questions that you may have. Operator, please open the call for questions.

The first question is from Marla Marin with Zacks.

I'm curious if you have any idea about the potential timeline for the oncology trials in Australia that you mentioned preparing for, or is it too early to discuss that?

Marla, it's Steve LaRosa. Thanks for the question. So currently, we're working with NAMSA, and we have interviewed a number of sites. We have 4 that are now interested and we have to engage in the Ethics Board submission and we're filing those documents. And then we'll have to go through their questions there. We're planning to do this all by the end of this year.

Okay. Is there still a possibility of expanding trials in India and moving into the oncology space, as you have mentioned in the past?

Yes. So we're working with Qualtran LLC, our CRO in India, and they have identified Medanta Medicity as a hospital that's interested. And again, we'd have to go through the same process I articulated for Australia.

Got it. Okay. And then last question is on the organ transplant side. So you're going to be starting looking at translational transplants, I guess, of kidneys. And I think I read that kidneys are the most frequently transplanted organs. Will the results that you get from these first studies, will they be telling of what the potential would be for the Hemopurifier in other transplantation of other organs?

This is Chuck Fisher. Good question. The first aspect of our translational research is to confirm that we can extract from organs we have been working with, as well as from human organs that have been rejected but sent to our partner for perfusion. From there, we obtain the perfusate and test it with our devices at Aethlon Medical to determine what we can remove. This process has recently begun, and we expect to see some results in the near future, which will help us better understand how to characterize it. Regarding organs from different parts of the body later in the process, some may have more inflammatory mediators, while others may have less, but this remains an unknown scientific area we aim to explore. Our goal is to impact as many recovered organs from donors as possible. These donors are not living related but are brain-dead individuals with beating hearts. In this context, we anticipate that we might identify several of the same inflammatory mediators.

The next question comes from Vernon Bernardino with H.C. Wainwright.

I wanted to follow up on the previous question about the potential application of the Hemopurifier in organ transplants. Specifically, I understand that it may help increase the number of viable kidneys available for transplantation. However, as you mentioned in your press release, it could also reduce complications after the transplantation of the recovered organ. Though it’s the same type of transplant and the same procedure, it seems like there could be two distinct uses for the Hemopurifier. Please let me know if I am mistaken. Regarding clinical trials, would that require two separate trials, or could it all be included in one trial with the same patients?

Thank you for the question. This is Chuck. I believe it's a good question. Initially, we will assess delayed graft function, which generally indicates a problem if the kidney isn't producing urine within the first seven days. This will be our key focus regarding the kidneys. As time progresses, particularly at the six-month and one-year marks, we will continue to evaluate the kidney's performance. If the kidneys are functioning well, we will likely have our answers. However, we might also anticipate some instances of delayed graft function or kidney dysfunction over time, at which point we can revisit the situation. For now, our study will primarily focus on initial outcomes until we gather sufficient information to decide if a follow-up study is necessary.

Terrific. And onto a different part of your announcements today. Regarding the trial in India, one patient treated to date. What would be the potential for any acceleration in patient enrollment and treatment this year?

Vernon, this is Steven LaRosa. We have communicated with Medanta and confirmed that there are COVID patients being hospitalized currently. However, the patients needed for the study must be in the ICU, presenting a possibility for enrollment. Additionally, the second site is a large facility also experiencing COVID admissions, which we believe could assist with enrollment. Ultimately, we remain dependent on the virus's evolution, as it will determine whether there will be severe cases eligible for the study in the future.

Do you have any indication that they are observing some of the same trends we are experiencing here, such as increased infections and increased hospitalizations due to the variant of interest, EG.5?

Yes, we're hearing the same thing, that the case numbers are still up and there are still hospitalizations. But they haven't seen as many ICU patients.

This concludes our question-and-answer session. I would like to turn the conference back over to Chuck Fisher for any closing remarks.

Thank you, operator, and thanks, everybody, for listening and asking very good questions. We'd like to thank all of you for joining us today, and I'll be here to discuss our quarterly results. And we look forward to keeping you up to date on the future calls. I wish everybody a good day, and thanks again for joining.

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