Earnings Call Transcript - AEMD Q3 2023

Operator, Operator

Good day, and welcome to the Aethlon Medical Third Quarter Fiscal 2023 Earnings and Corporate Update Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. 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.

Jim Frakes, CFO

Thank you, operator, and good afternoon, everyone. Welcome to Aethlon Medical's third quarter earnings conference call. My name is Jim Frakes, and I am Aethlon's Chief Financial Officer. At 4:15 PM Eastern Time today, Aethlon Medical released financial results for its third quarter ended December 31, 2022. 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, our Chief Medical Officer, Dr. Steven LaRosa, our Chief Business Officer, Guy Cipriani, and I 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. Chuck Fisher, our CEO, cannot join us today due to an illness, and he passes along his apologies for not being able to participate. 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 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, 2022, 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. Over the past three months, we've continued to work hard on advancing our Hemopurifier. We are working on a new clinical trial with our Hemopurifier in oncology that will include more tumor types with a goal of enabling us to build our safety database in oncology and provide data to help direct the development of our Hemopurifier as a treatment option in oncology. We recently selected NAMSA, a world-leading MedTech CRO offering global end-to-end development services, to supervise this planned oncology trial, first in Australia and then in the United States, which my colleagues will discuss shortly. We also recently hired Lee Arnold, PhD, as our new Chief Scientific Officer. Dr. Arnold is a creative scientific leader with 36 years of accomplishments in molecularly-targeted drug discovery. After an initial eight publications in biophysics and biochemistry as an undergraduate at the University of Waterloo, he earned a PhD in Organic Chemistry from the University of Alberta. Dr. Arnold began his career in pharma research at Syntex Canada, and then joined Pfizer, where he was the inventor of Tarceva for non-small cell lung cancer. During his tenure at BASF/Abbott Bioresearch center, he established medicinal and combinatorial chemistry operations and initiated and led two multinational multidisciplinary projects in angiogenesis, ultimately leading to linifanib. As Vice President of Research at OSI Pharmaceuticals, Dr. Arnold and his teams discovered four oncology development candidates. Dr. Arnold also has served as the Chief Scientific Officer in a number of innovative start-up biotechnology companies. Just prior to joining Aethlon Medical, Dr. Arnold was the CSO and co-founder of Pardes Biosciences, which was established at the start of the COVID pandemic that discovered and advanced the oral protease inhibitor, pomotrelvir, into clinical trials for SARS-CoV2 in only 17 months. Dr. Arnold's inventive and leadership contributions in drug discovery and development to date have resulted in an approved drug, and 16 additional development candidates, currently fueling eight clinical trials in oncology, immunology, and virology. These achievements are documented in over 94 published patents and applications, and more than 39 peer-reviewed publications. We are delighted to have Lee Arnold join our team and we look forward to his leadership of our research team. We would also like to thank Dr. Steven LaRosa, our Chief Medical Officer, for heading our research team as Interim Chief Scientific Officer for the past two years. And now, I would like to hand the call over to Dr. Steven LaRosa, Aethlon's Chief Medical Officer, who will provide an update on our clinical trial in infectious disease in India, and in our planned trial in cancer. Steve?

Steven LaRosa, CMO

Hi, everyone, and thanks for listening in to our presentation. I am Dr. Steven LaRosa, the Chief Medical Officer at Aethlon. First, I would like to give a brief update on our COVID-19 clinical trial in India. To refresh your memories about that trial, Medanta Medicity Hospital, a multi-specialty hospital in Delhi, India, has enrolled one patient in this trial in India and continues to actively screen patients. Our CRO, Qualtran LLC, has identified additional potential sites for the trial in India, and we are awaiting the ethics board meetings at these sites. Qualtran is also interviewing sites to hold an oncology trial with our Hemopurifier in India. We also recently entered into a material transfer agreement with the University of California, San Francisco Medical Center for the study of Post-acute Sequelae of COVID-19 infection, PASC, also known as Long COVID-19. In this study, we will receive plasma samples from patients with PASC as well as from patients with prior COVID-19 infection without PASC symptoms. The objective of this study is to perform in vitro analyses of exosomes to determine the viability of PASC as a therapeutic target for the Hemopurifier. As Jim noted, we are planning a new clinical trial in oncology that will include multiple tumor types with the goal of enabling us to build our safety database in oncology and provide data to inform the design of future efficacy trials in oncology. We recently selected NAMSA as our CRO to supervise this planned oncology study. NAMSA will oversee this planned oncology study, which will commence first in Australia and then follow on in the United States. We were impressed by the quality and experience of the personnel that NAMSA plans to dedicate to our project both in Australia and the U.S. We initiated a successful kick-off meeting last week with NAMSA. In October 2022, we launched a wholly-owned subsidiary in Australia formed to conduct clinical research, seek regulatory approvals and commercialize our Hemopurifier in that country. This subsidiary will initially focus on the oncology market in Australia.

Guy Cipriani, CBO

Thank you, Steve, and good afternoon. As Jim noted, I'm pleased to share that we have recently established an Aethlon subsidiary in Australia to take advantage of the relatively favorable development environment in that country and the R&D tax incentive program offered by the Australian government. Australia's research and development tax incentive program allows companies to receive a tax rebate of up to 43.5% on clinical trial-related costs for those activities conducted in that country. The program offers companies the opportunity to significantly reduce costs, lower risk and accelerate time to market. Australia provides a globally competitive research landscape, including in oncology, and historically, data generated in Australia is typically accepted by the FDA. The quality of the science, clinical infrastructure, availability of patients, and favorable economic incentives make conducting clinical trials in Australia very attractive to Aethlon. We hope to share more developments over time as we execute on this strategy. With that, I'll turn the call back over to Jim for the financial discussion and then open up for questions.

Jim Frakes, CFO

Thanks, Guy, and good afternoon, again, everyone. As of December 31, 2022, Aethlon Medical had a cash balance of approximately $17.5 million. Our consolidated operating expenses for the three months ended December 31, 2022 were approximately $2.85 million compared to $2.545 million for the three months ended December 31, 2021. This increase of approximately $305,000, or 12%, in the 2022 period was due to increases in our professional fees of $296,000 and in our payroll and related expenses of $49,000, which were offset by a decrease in our general and administrative expenses of $40,000. The $296,000 increase in our professional fees was primarily due to the combination of a $145,000 increase in contract labor expense associated with product development and scientific analytical services, a $73,000 increase in scientific consulting expense, a $71,000 increase in legal fees, and a $22,000 increase associated with recruiting. These expenses were partially offset by a $14,000 decrease in our accounting expenses. The $49,000 increase in our payroll and related expenses was due to an increase of $167,000 in salary expense and an increase of $62,000 of stock-based compensation expense. Those were related to increased headcount, and were partially offset by a decrease of $180,000 in relocation expense. And the $40,000 decrease in our administrative expenses was primarily due to a $75,000 decrease in clinical trial expenses, a $19,000 decrease in rent expense, and a $20,000 decrease in licenses and permits, which was partially offset by a $60,000 increase in depreciation expense. We did not record government contract revenue in the three months ended December 31, 2022. We recorded approximately $17,000 in government contract revenue in the three months ended December 31, 2021. As of December 31, 2022, we had approximately $574,000 of deferred revenue related to those contracts as a result of not achieving certain milestones in those contracts. The NIH award contract ended on September 15, 2022, and we presented the required final report to the National Cancer Institute. Once the NCI completes the closeout review of the contract, we expect to recognize as revenue the $574,000 currently recorded as deferred revenue on our December 31, 2022 balance sheet. As a result of the changes in revenues and expenses that I just noted, our net loss increased to approximately $2.85 million in the three months ended December 31, 2022, from approximately $2.5 million in the three months ended December 31, 2021. During the nine months ended December 31, 2022, we raised approximately $8.9 million in net proceeds under our ATM agreement with H.C. Wainwright, pursuant to sales of our common stock. We included these earnings results and related commentary in our press release issued earlier this afternoon. That release included the balance sheet for December 31, 2022 and the statements of operations for the three and nine months ended December 31, 2022 and 2021. We will file our quarterly report on Form 10-Q following this call. Our next earnings call for the fiscal fourth quarter ending March 31, 2023 will coincide with the filing of our annual report on Form 10-K in mid to late June 2023. And now, we would be happy to take any questions that you may have. Operator, please open the call for questions.

Operator, Operator

Thank you. We will now begin the question-and-answer session. Our first question comes from Marla Marin with Zacks. Please go ahead.

Marla Marin, Analyst

Thank you. I believe the first question is for Steve. Could you provide some insight on your decision to start the clinical trials first in Australia and then in the U.S.? Do you have an internal timeline for this? Will you wait to review the initial top line data from Australia before making any decisions? Can you share what that timeline might look like?

Steven LaRosa, CMO

As I mentioned, we started our kick-off meeting with our Chief Regulatory Officer last week. They are currently looking for sites in Australia. The process there involves obtaining approval from the ethics board before submitting to the Therapeutic Goods Administration, which is the regulatory authority in Australia. In the U.S., once we receive approval to use devices from our new supplier, we will submit the same protocol for the same trial and then begin the process of bringing sites on board. Therefore, the pathway will be Australia first, followed by the U.S. sites as the regulatory process permits.

Marla Marin, Analyst

Okay. Thank you. And then, this question is for Jim. In terms of materials transfer agreement that you just formulated, maybe you can give us a sense of what the economic sale will involve? And then, also this question is sort of rolled in to the same question. It's apparent I think at this point that COVID was not a one-time thing, that it's probably here just the way the flu is, and it's something that we'll be talking about for a long time. Given that and given that you'll be doing some research now on Long COVID, what kind of prospects are you thinking about in terms of obtaining some government funding to help finance some of that research, if you are thinking about that?

Guy Cipriani, CBO

Hi, Marla. This is Guy. I can answer the question about MTA specifically. So, it's material transfer agreement. The terms essentially are we pay per sample. There's no other strings attached to that. So that's very workable for us. We can then analyze the samples and determine the utility of our device and actually being a treatment option for that disease. So, there's a lot of science, obviously, that goes behind that. But I think the upfront agreement is one that works very well for us, and frankly, it's one, I think, we'll look to structure similarly with other diseases as we get to them. With respect to government grants or government money available for the type of work we want to do in Long COVID, we're always curious to find those sorts of funds. We certainly were very alert about the availability of some of those funds on the COVID side. It was available and maintained for a while, and then it dried up as the disease progressed. Well, we will keep a keen eye and see what types of government programs we might qualify for Long COVID. Right now at this time, we don't have any in our sights.

Marla Marin, Analyst

Okay. Thank you very much. I'll step out of the queue.

Jim Frakes, CFO

Thank you, Marla.

Operator, Operator

Our next question comes from Anthony Vendetti with Maxim Group. Please go ahead.

Anthony Vendetti, Analyst

Sure. Thanks. First, I wanted to just start with a general question and drill down a little more on a couple of the opportunities here. In terms of oncology, the original focus was the opportunity with KEYTRUDA and to improve the efficacy of that huge checkpoint inhibitor, right? I mean, in terms of dollars, I believe Merck generates over $20 billion in annual revenue there. I know there was difficulty in enrolling patients. Is that why you shifted strategy? And if so, can you just talk about how you look at the oncology opportunity now with outside of KEYTRUDA?

Steven LaRosa, CMO

Thanks, Anthony. This is Steve LaRosa. I'll try to answer your question. So, the initial trial was a single-center study at University of Pittsburgh and the tumor types being treated were not indicated by the trial. The patients were getting on Hemopurifier treatment upfront before their first dose of the checkpoint inhibitor pembrolizumab. And as you mentioned, the University of Pittsburgh was not successful at enrolling, so the trial was stopped. So, we've taken the opportunity to actually design a new trial where we're still going to focus on patients who have had a lead-in period with a checkpoint inhibitor, but either have stable disease or progressive disease, and it will be a basket type of trial, which means there are many tumor types for which checkpoint inhibitors are used. And so, this trial will afford us the ability to gain data in multiple tumor types and look at what the Hemopurifier does to both the exosome level and immune response to tumor. So, we'll gain data in a variety of tumor types that will help us pick a strategy going forward for an efficacy trial. Additionally, in this study, there are multiple dosing intervals being looked at or examined, which was not a feature of the initial trials, which will really inform us about the dosing strategy of the Hemopurifier, i.e., how often you have to administer it. So, it still is looking at the ability of the Hemopurifier to augment immune response to checkpoint inhibitors. But it's just going to let us look at multiple tumor types and multiple dosing intervals, so it will give us much more data going forward.

Anthony Vendetti, Analyst

Okay. I just want to confirm my understanding. From what I know from previous studies, the Hemopurifier is quite safe, and there haven't been any adverse events in the earlier trials. If you're conducting a safety study now, what makes you feel that it's necessary or required?

Steven LaRosa, CMO

Each patient population is unique. We have only treated two patients in oncology, making it vital from a regulatory standpoint to establish safety and feasibility in that group. This aspect remains essential to the trial, even though we have already conducted more than 160 sessions with the Hemopurifier, showing a relatively benign safety profile. However, it remains crucial to assess safety and feasibility specifically for the oncology population. Beyond safety and feasibility, the trial aims to investigate exosome removal, dosing, and the effects on the immune system, encompassing a lot of different factors within the study.

Anthony Vendetti, Analyst

Okay. And then lastly, the partnership with NAMSA, can you talk about how that's going to work from a cost structure or cost-sharing as you move that partnership forward?

Guy Cipriani, CBO

Hi, Anthony. This is Guy. I'll just kind of lead off and say it's really a fee-for-service relationship. So, they're providing service for us, we're paying a fee. And it's fairly typical of what you might expect for a contract research organization. So, we obviously looked at multiple firms. We picked NAMSA because they sit operationally and from an expertise standpoint with what we wanted to do. And frankly, the cost was in a range that we felt was very acceptable for this service. So, other than that, I don't know, Jim, do you have anything to add?

Jim Frakes, CFO

The only other point is that for the work to be conducted in Australia, the Australian government could change the rules, and there are many scenarios to consider. However, assuming their guidelines remain unchanged, we should be able to recoup 43.5% of the money spent on R&D in Australia. Thus, that portion of the NAMSA fees may contribute to our recoupment.

Anthony Vendetti, Analyst

Okay. That's helpful.

Jim Frakes, CFO

And then, on the choice of NAMSA, so we did an exhaustive review. They have a footprint in Australia where they know the investigators quite well, those who've done the clinical trials, they have a keen understanding of the regulatory process, and they also have particularly in their leadership, expertise, not only in devices but in oncology and the combination thereof. So, we thought it was going to be the best team that would be a CRO for this kind of trial.

Anthony Vendetti, Analyst

Yes, based on everything you mentioned, it looks like a great choice. Lastly, regarding COVID, I think you mentioned you have one trial enrolled in India. At this point, considering the need to control costs, do you believe it is still worthwhile to continue that trial? Or will there come a point when you might feel that resources would be better utilized elsewhere? Please provide a timeline for when a decision will be made about continuing or discontinuing that trial.

Jim Frakes, CFO

This is Jim again, Anthony. The Indian trial is not cost prohibitive. We have a very reasonable relationship financially with the CRO. We may pull the plug at some point, but they are looking at additional hospitals. They do have a billion people there. And if the variants do become harsh in the future, it may make sense. We're excited about the possibility. There's no assurance we'll find the right PI and center to do a similar oncology trial in India, but that's pretty exciting to us. So, it's a very low-cost option that we have there with that COVID trial going on in India.

Anthony Vendetti, Analyst

Okay. Thanks. All right, I appreciate the update. I'll hop back in the queue. Thanks.

Jim Frakes, CFO

Okay. Thank you.

Operator, Operator

Our next question comes from Vernon Bernardino with H.C. Wainwright. Please go ahead.

Unidentified Analyst, Analyst

Hello, everyone. This is Leo calling in for Vernon. Thank you for taking our question. Can you help us understand the current COVID landscape in relation to the opportunities for further advancing the Hemopurifier? If priorities were to shift, what do you think would be necessary to continue its development?

Steven LaRosa, CMO

Yes, thanks. This is Steve LaRosa. I'll try to answer your question. So, as you probably know, although there are still a number of COVID cases, the incidence of severe COVID requiring hospitalization and ICU stay has dropped dramatically, making it not a feasible population to conduct a trial in acute COVID. But as I mentioned, there is now evolving data about the role of exosomes in patients with this PASC, this Long COVID protracted symptoms for which there aren't good therapies. A lot of this data came out of the University of California San Francisco and they have a file repository, which stores patient samples, where we're now actually able to look at, are there specific features of those exosomes, and are those exosomes amenable to removal by our device? So, the potential exists that we'll learn something that will inform us and provide us with the translational data to justify perhaps a potential clinical trial in Long COVID. So, I think that's still an area that needs to be explored and we're going to do that.

Unidentified Analyst, Analyst

Thank you so much for taking our call.

Jim Frakes, CFO

Thank you.

Operator, Operator

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

Jim Frakes, CFO

I'd like to thank you again for joining us today to discuss our Q3 results, and we look forward to keeping you up to date on future calls. Thank you.

Operator, Operator

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