Aethlon Medical, Inc. (AEMD) Q1 2016 Earnings Report, Transcript and Summary

Good afternoon. And welcome to the Aethlon Medical First Quarter Fiscal 2016 Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Brad Edwards with Brainerd Communications (sic) [Communicators]. Please go ahead, sir.

Thank you, Operator. Good afternoon, everyone. And welcome to Aethlon Medical’s fiscal 2016 first quarter conference call. Hosting the call today are Aethlon’s Chairman and CEO, Jim Joyce, as well as the company’s CFO, Jim Frakes. Mr. Joyce will provide an overview of Aethlon strategy, clinical testing status and recent developments. Mr. Frakes 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 Mr. Joyce, 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. Forward-looking statements involve risk and uncertainties that can cause actual results to differ materially from those anticipated or suggested by such forward-looking statements. Statements containing words such as, may, believe, anticipate, expect, intend, plan, project, will, projections, estimate, or similar expressions constitute forward-looking statements. Factors that may contribute to such differences include without limitation risks related to the company's ability to develop and commercialize its products, the ability to fund and complete clinical testing of the company's products, the company's ability to raise working capital if and when needed, the company's ability to protect its intellectual property, the impact of changing government regulations on biomedical devices, the ability of the company to meet the milestones contemplated in its contract with DARPA and other risk factors. The foregoing list of risks and uncertainties is illustrative, but is not exhaustive. Additional risk factors can be found under the caption Risk Factors in the company's annual report on Form 10-K for the year ended March 31, 2015 and in the company's other filings with the Securities and Exchange Commission. For a more detail discussion of the risk and uncertainties that could cause actual results to differ materially from any forward-looking statements, please see the company’s public filings, all available on Aethlon’s website. With that, I will now turn the call over to Mr. Joyce.

Thank you, Brad, and good afternoon, everyone. It’s been a busy summer, so let’s get started by recapping some recent corporate milestones. On June 25th, we reported a completion of the $6 million financing, the following day we incorporated the net proceeds of this offering into a pro forma balance sheet that was submitted to the SEC through our annual 10-K report. The pro forma balance sheet reported that the proceeds and offering contributed to an overall $21 million positive shift in our shareholders equity as compared to our previous 3/31/14 fiscal year end report. More importantly, the proceeds allowed us to meet the final threshold requirement to list our securities on the Nasdaq Capital Market. Nasdaq approved our listing on July 8th, on July 13th our shares began formal trading on Nasdaq and on July 24th, we rang the Nasdaq closing bells as part of the ceremony to celebrate this milestone event. I want to thank the members of our team, our Board, and long-term shareholders, who are all instrumental on this achievement. As a result of the financing, we secured the necessary capital resources to advance the FDA-approved feasibility study of Hemopurifier therapy that we previously initiated to support a broad spectrum of viral indications. And by listing on Nasdaq, we broaden our assets to the capital market. More specifically, we are now able to list the support of institutional healthcare investors that previously restricted from owning our shares. We believe that our graduation in Nasdaq will also strengthen our profile within the medical community and with candidate partners. In culmination, these factors provide a realistic backdrop for us to expand our therapeutic pipeline to include clinical opportunities to treat cancer, which could become a contributor of the long-term value and partnering opportunities. Going forward, our primary focus will be strategically directed towards clinical advancement of the Hemopurifier in the United States. As a clinical-stage therapeutic organization, we seek to optimize the value of our technology and underlying intellectual property by addressing unmet needs in infectious disease and cancer. As a quick refresher, the Hemopurifier is a therapeutic biofiltration device designed for the single-use removal of viruses and cancer-promoting exosomes from the circulatory system of afflicted individuals. From a mechanism standpoint, Hemopurifier captures the viruses and exosomes through affinity attachment through unique structure that resides on their surface. We hypothesized that viruses and tumor-secreted exosomes co-op this structure from host cells as an evolutionary strategy to evade surveillance of the host immune system and promote disease progression. To allow for widespread implementation, we designed the Hemopurifier for deployment on the established infrastructure of dialysis and CRRT machines already located in hospitals and clinics throughout the United States. In studies previously conducted overseas, the Hemopurifier has been administered to individuals infected with HIV, Hepatitis C and Ebola virus. In each of these viral indications, the Hemopurifier was demonstrated to be well tolerated. In the treatment of an HIV infected AIDS patient, we demonstrated that the Hemopurifier could suppress viral load and improve an immune response indicator in the absence of antiviral drug therapy. In Hepatitis C treatment study, we demonstrated that Hemopurifier therapy could synergistically combine with interferon-based drug regimens to accelerate viral load depletion. During these studies, we also created an assay at the request of FDA to quantify viral capture. In one examined cartridge, the resulting assay determined that the Hemopurifier captured as many as 300 billion copies of Hepatitis C virus during one six-hour treatment. And in our most recent clinical experience overseas, our viral load reduction of approximately 99% was reported in the Ebola patient who received a single 6.5 hour administration of Hemopurifier therapy at Frankfurt University Hospital in Germany. The patient will go on to make a full recovery and return home to his wife and children. However, at the time, he received Hemopurifier therapy, the patient was comatose with multiple organ failure. Subsequently, the Ebola treatment result contributed to treatment protocols being approved by both the FDA and Health Canada as a means to ensure that we are clinically prepared and have the regulatory clearance to respond to future Ebola virus outbreaks. The Ebola treatment result also contributed to increased media visibility, which included the Time Magazine naming the Hemopurifier as one of the top 25 best inventions and one of the 11th most remarkable advances in health care in 2014. Regardless of these accolades, our Ebola treatment experience serves as the model that demonstrates the ability of the Hemopurifier to treat an extremely health compromised patient infected with one of the most deadly pathogens known to men. Building on our previous human treatment experiences, our expensive opportunity in infectious disease is driven by the fact that of the hundreds of viruses that are known to be infectious to men, only a few are treatable with antiviral drug agents. This therapeutic void necessitates the testing of new paradigms to address bioterror and pandemic threats, neglected tropical viruses in late viral blooms that increase mortality in sepsis and organ transplant patients. In the case of viral pathogens that are treatable with antiviral agents, the Hemopurifier provides strategy to address antiviral drug resistance. In this regard, we believe our largest opportunities exist in HIV and Hepatitis C infection. As previously reported, we initiated our first FDA-approved feasibility study at DaVita MedCenter Dialysis in Houston, which is one of the largest single site dialysis centers in the country. The aim of this study is to demonstrate safety of Hemopurifier therapy in 10 end stage renal disease patients who are infected with Hepatitis C virus. The study protocol is quite similar to that of a study we previously conducted with success overseas. Protocol provides an opportunity to demonstrate that Hemopurifier therapy is well tolerated in health compromised individuals who also happen to be infected with a viral pathogen. Successful completion of this study provides a gateway to pivotal study, which are required for market approval against viruses where it is clinically feasible to conduct, control human studies. When we established our clinical site location in Houston, a contributing factor was the adjacent presence of the Texas Medical Center and the potential role it might play, should we be in a position to expand our therapeutic vision to include oncology. If you are not familiar with the Texas Medical Center, it’s the world’s largest medical complex with 21 hospitals, 8 epidemic and research institutes, 3 medical schools and 2 universities. With more than 7 million patients encountered each year, we believe that maintaining a clinical site nearby puts strategically enhance patient accrual in future studies. One of the Texas Medical Center institutes that we are targeting to work with is MD Anderson, which U.S. News & World Report has ranked this one of the top hospitals in the nation for cancer care and 10 -- has named it the top hospital in 10 of the previous 12 years. As some of you may recall, we previously gave a presentation to MD Anderson entitled the extracorporeal removal of tumor-secreted exosomes: An adjunct strategy to reverse immune suppression and inhibit metastases in melanoma. When we initiated our tumor-secreted exosomes research, the medical community consensus was that this product was just cellular debris and had no biological function. We thought otherwise. Today, tumor-secreted exosomes are recognized to be a significant yet unaddressed therapeutic targeting cancer. Researchers now report that these particles trigger programs cell DEP that immune cells needed to combat cancer. They contribute to drug and chemotherapy resistance and they promote angiogenesis and have been discovered to see the spread of metastasis. A circulating exosome load also correlates with cancer progression. We believe a strategy to reduce the presence of these particles could contribute to shutting down tumor associated immune suppression and cancer growth pathways at their source. Our long-term goal in cancer is to advance the Hemopurifier as an adjunct therapeutic candidate that synergistically combines the traditional and emerging immuno-oncology drugs to improve patients’ survival by reducing the presence of tumor-secreted exosomes. Moving forward, we are taking decisive steps to advance clinical testing of Hemopurifier therapy in both infectious disease and cancer. In this regard, Dr. Stephen Fadem, the Principal Investigator of our virus feasibility study will be transitioning to a Medical Advisory Role where he will focus on coordinating potential clinical activities with members of oncology community at the Texas Medical Center. As a cancer survivor himself, Steve is quite passion about the advancement of our technology in cancer care. Prior to this transition, Steve will assist in training a new Principal Investigator that is gong to identify to advance our viral pathogen study. The ongoing task to bring our current study to conclusion, the new investigator will obtain clinical treatment experience that should prove to be valuable in follow-on clinical studies, whether they be viral or cancer indications. Looking ahead, we will be hosting these quarterly calls to keep our shareholders informed and to introduce our endeavors to new investors. The update we provide in these calls should assist you in assessing our progress. In that regard, I would like to share five near-term objectives that we will revisit on future calls. Number one, we are proven performer in the Department of Defense contractor, DARPA, which is related to the advancement of an extracorporeal device to treat sepsis. To-date, we have built and collected approximately $4.9 million based solely on milestone achievements over the past four years. We anticipate that DARPA will approve year five of our contract program and in the immediate near term, we expect to build and collect almost $200,000 related to a manufacturing milestone that we just achieved. Number two, we also maintained majority ownership of a diagnostic entity known as Exosome Sciences. A manuscript related to collaboration with Boston University Center for the study of Chronic Traumatic Encephalopathy will soon be submitted for publication. The publication will report data collected as part of the NFL DETECT study to discover a biomarker that could identify CTE in living individuals. Number three, we expect to initiate cancer patient accrual in a study with the University of California, Irvine Medical Center that will monitor changes in exosome levels in patients receiving cancer therapy. The resultant data is anticipated to help prioritize oncology indications for a Hemopurifier in the future. Number four, we expect to advance clinical collaborations to further reinforce the broad spectrum utility of our Hemopurifier in oncology and infectious disease. And five, we expect to complete the principal investigator transition and then accelerate patient accrual of the feasibility study that we initiated at DaVita Med Center Dialysis in Houston. In summary, I want to point out that we have never been better positioned to translate our therapeutic vision in the life-saving products. However in the clinical stage therapeutic organization, we also remain grounded as we are not naïve to the daunting clinical and execution and regulatory navigation challenges that we must face to accomplish our mission to save lives. And now, I would like to turn the call over to our Chief Financial Officer, Jim Frakes for some brief remarks on our financials.

Thanks, Jim. Given our strategy and the stage of our development as a US clinical progression story, we are not focused on the generation of revenues at this time. However, with that said, in the first quarter we generated revenue of approximately $193,000, which was related to work performed under our government contracts with DARPA. We have worked with DARPA since September 2011 and our agreement runs through September 2015, with DARPA holding an option to extend it to September 2016. We have an excellent relationship with DARPA over the past four years and are pleased with discussions for DARPA to pick up the option for the final year of the contract. Our operating expenses in the quarter were approximately $1.3 million, compared to $1.2 million in the June 2014 quarter. This increase of approximately $60,000, or 4.8%, was due to increases in professional fees of $136,000 and in general and administration expenses of $85,000, which were partially offset by a decrease in payroll and related expenses of $163,000. The increase in professional fees was due to increases in legal fees and accounting fees, primarily related to work on several registration statements in turn related to our financings. For a more detailed review of the movements in our operating expenses, I’d like to refer you to the earnings release that we put out after the close today or to our Form 10-Q, which we expect to file later on today. And finally, as of June 30, 2015, we have $4.9 million of working capital and $5.6 million of cash. Our cash position reflects the successful financing we completed in June which raised over $5.6 million in net proceeds, and we continue to believe we have sufficient cash and expected revenues to fund our operations, including current clinical trials through fiscal 2016. And now Jim Joyce and I would be happy to take any questions that you may have.

[Operator Instructions] And our first question will come from Marc Robins of Catalyst Research.

Hey, thank you. Jim, Jim, congratulations on your first conference call.

Thank you, Marc.

Help me to understand a little more about your objective, number one. You said that you have a proven performance with DARPA and the focus has been sepsis that we understand. You build and received $4.9 million of revenues. You hope that -- you’ve got another $200,000 to collect. You hope they approve year five of the sepsis project. They also allowed you to shift about $1.5 million from research activity to production activity. And I was just wondering is there an opportunity to here where DARPA might be interested in expanding their research development efforts into other areas that would benefit the company?

Mark, I appreciate your question. The DARPA program -- first, I want to point out that the goal of the DARPA program is to complete the development of the device through a combination of multiple team players that is ready to be submitted through an IDE to FDA at the end of year five. Along the way, different performers have achieved different milestones. Along the way in our case, we have collected human data which is very valuable. I think as a result of our increasing collection of human data and the increasing knowledge that latent viral pathogens contribute primarily to mortality in sepsis patients. There is the possibility that we could rearrange some of our milestone developments. And certainly, we’d like to talk to DARPA about other programs in the future. But we've appreciated their ability to rearrange revenues to help support our manufacturing. Some of that support actually contributed to a most recent GMP manufacturing run of Hemopurifiers that were shipped to our clinical site in Houston. So, I appreciate the question. We’ve enjoyed our relationship with DARPA and other participants in the program.

Thank you.

Thank you.

And this concludes our question-and-answer Session. I would like to turn the conference back over to management for any cleansing remarks.

I appreciate everyone's participation. I hope everybody will tune-in in approximately 90 days when we have our next quarterly call. And we’ll discuss the milestone objectives that we laid out and assess our progress.

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