Aethlon Medical, Inc. (AEMD) Q1 2020 Earnings Report, Transcript and Summary

Good day and welcome to the Aethlon Medical First Quarter 2020 Financial Results 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 Jim Frakes, Chief Financial Officer. Please go ahead.

Thank you, operator, and good afternoon everyone. Welcome to Aethlon Medical's first 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 June 30, 2019. 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 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 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, 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 thank you everyone for dialing in this afternoon. I’m going to make some brief remarks and updates and I’m going to ask Chuck Fisher, our Chairman to comment and then we’ll be happy to take questions. But as I think everybody on the call knows Aethlon is a development stage device company, we are developing our proprietary blood purification cartridge called the Hemopurifier, which is a single use therapeutic device first-in-class therapeutic device and that is designed to clear both circulating viruses and small subcellular particles called exosomes that are involved in the development advancement and spread of cancer as well as in another number of other processes. The Hemopurifier has been designated as a breakthrough device for the treatment of glycosylated life threatening viruses including Ebola and other hemorrhagic fever viruses. And in late 2018 was actually additionally designated was given a second breakthrough device designation by FDA for the treatment of cancer specifically advanced and metastatic cancers that are unresponsive to or intolerant of standard of care therapy. And we are advancing development programs in both of those areas. I'm going to talk predominantly today about our programs in cancer. We have talked previously about what the development process is for a new device in the treatment of cancer and what the regulatory components of that are. And over the course of the last quarter, we've been making very good progress in advancing our development plan. We have had a number of discussions and communications with the FDA during this quarter and conducted an in-person meeting in Bethesda earlier in the quarter and following that we’re now in the process of preparing an investigational device exemption application which is the application to FDA that will allow us to initiate clinical trials. Those communications with FDA have been helpful, have been profitable, have been collegial and we're looking forward to getting the IDE filed and getting authorization from the FDA to initiate clinical trials. As we've previously disclosed our initial targets in oncology are in the area of solid tumors, these include very difficult to treat tumors such as pancreas cancer, head and neck cancer, ovarian cancer and other solid tumors. All of these specific indications have been demonstrated both by us, by our collaborators and by others to be driven significantly by circulating exosomes. And so it is our belief that using the Hemopurifier to clear those tumor derived exosomes will allow for improved outcomes in patients and specifically improved responses to some of the newer chemotherapeutic and immunotherapeutic agents that are currently approved and under development. As we move forward into the development process, we’ll have more to say specifically about what tumor or tumors we're going to be targeting, what those trials are going to look like and more details. But at this point, all of our energies are focused on finishing the process of filing the investigational drug, investigational device exemption application and getting ready to move into clinical trials. Now I want to talk about a couple of other areas in a few minutes but before I do Chuck Fisher or Dr. Fisher, our Chairman has been working with me and has been heavily involved in the development of our strategy as well as our communications with FDA. So Chuck, if you you'd like to make any comments about the process as it has proceeded so far please do and then I'll come back to talk about a few other things.

Thanks Jim. And my comments will be brief but thanks to all of you who joined our call today. We appreciate your interest on an ongoing basis. Just a few comments. Basically, I'm very pleased with the quality and the content on both the discussions and meetings with the FDA particularly given the recent discussions on the breakthrough device designation for the treatment of advanced metastatic cancer associated exosomes. So what I want to do is simply say, I think the team is doing a great job in that regard, their relationships with the FDA which I've attended are very legal as Tim outlined and I think that's a good area to move forward on. So I'll stop there and maybe comment later. With that, I’ll hand it back to Tim.

Thank you, Chuck and Chuck will remain on the call, so he'll be available. We’ll both be available for questions at the conclusion of our prepared remarks. The next thing, I'd like to turn to is the cross-licensing agreement that we announced on our last or discussed on our last quarterly call. We announced that we had entered into a strategic cross-licensing agreement with SeaStar Medical, another device company located here in Southern California that is developing several devices that are very complementary to what we are doing here at Aethlon in number of areas and we had actually just signed that agreement, when we last spoke. So I'd like to talk a little bit about my view of how this is going to proceed and where we are. As you know and as we previously discussed, what a Hemopurifier is capable of doing is clearing subcellular particles, including particles called exosomes which are involved in the advancement spread of cancer as well as a number of other processes. SeaStar is developing cartridges that address other potential components of both inflammatory, infectious and oncologic pathways. So we have collectively the two companies have collectively a series of devices that address multiple different synergistic components of these complex disease pathways as such putting these devices, combining these devices and investigating them in a number of indications and these can be indications in oncology, in infectious disease, in organ transplantation and rejection and in a number of other areas. So it's our belief and I think I can speak for SeaStar although I don't that putting these two sets of technologies together in various ways will allow us to address more diseases to get better activity in those diseases and incidentally to learn a great deal about exactly how those diseases work because I've said this before but having a cartridge like the Hemopurifier or like the SeaStar cartridges allows us to intervene in disease processes and better understand how those processes work. As an example of that, the experiments that we will be initiating in humans shortly looking at clearance of exosomes in patients with advanced cancer will allow us to understand better what the role of exosomes is in cancer because we've got a great deal of literature, there’s a great deal of research that's been done showing correlative relationships between the presence of exosomes and outcomes in cancer but nobody has ever previously been in a position to clear them and then see what the impact of that is on disease. Similarly the story is similar for the SeaStar cartridges. So I'm very excited about this. There will be a number of steps that we're going to be investigating as we move forward. But the first part of this is simply to start to work on how these cartridges will work together. That is how we will hook them up together. What kinds of parameters will affect how they work, how they're able to clear various particles like exosomes inflammatory mediators and other cells. So we're early on in this. We're initiating these early studies to look at combining the technologies and then as we move forward from here, we'll be using those combinations to investigate probably initially in animals and then ultimately in humans, the impact of that on human disease. Again we're early there but we've announced this recently and we're starting very aggressively to move into the development process. Finally, I'd like to make a couple of comments about our majority owned subsidiary exosome sciences about which we have talked a bit but we've always been primarily focused on the Hemopurifier and what I'd like to say is that one of the things that attracted me to this company when I joined it late last year was the combination of the therapeutic technology that the Hemopurifier brings to the table and also the potential for developing diagnostics through the exosome sciences division of the company or subsidiary of the company. When I got here, the primary focus on what most of the conversation was about was the use of these types of diagnostics in the diagnosis of chronic traumatic encephalopathy, the Neurodegenerative disease that's seen in football players and other individuals that have been subjected to repeated head trauma. And we still are maintaining our research focus there. We are aggressively collecting data in that area but one of the things that I'm actually the most excited about is that exosomes not only have an impact on how tumors progressed and we already know that and we intend to demonstrate what the impact is of removing those exosomes on the outcome of disease but they also potentially can tell us a lot about what's happening in these diseases. And that's an area that is right in the wheelhouse for exosome sciences. So we're beginning to work with other groups to identify patient populations where we may be able to develop a diagnostic and prognostic markers using exosomes to identify those patients who are at highest risk of progression and potential, it could benefit from treatment with the Hemopurifier and also be able to help physicians and their patients understand better number one where the disease is, when the disease is occurring and what the risks are with disease advancing. So we'll have more to say about that in the future but it's an area that we're now starting to pursue very aggressively. And it really represents a complementary but substantial additional value area involving the use of exosomes. So let me stop there and I'll turn it back over to Jim Frakes, our CFO to discuss our financials and then following that, we'll make a couple of closing remarks and open up for questions. Jim?

Thanks Tim and good afternoon again everyone. Our net loss was approximately $2.1 million or $0.11 per share for the first quarter ended June 30, 2019 compared to a net loss of approximately $1.1 million or $0.06 per share for the quarter ended June 30, 2018. At June 30, 2019 we’ve had a cash balance of approximately $2.5 million. Our consolidated operating expenses for the quarter ended June 30, 2019 were approximately $1.6 million compared to $1.25 million for the quarter ended June 30, 2018. The increase of approximately $350,000 in 2019 was due to increases in general and administrative expenses of approximately $188,000, professional fees of approximately $158,000 and payroll and related expenses of approximately $3,000. The $188,000 increase in general and administrative expenses in 2019 was primarily due to a combination of $120,000 increase in our clinical trial expense largely due to costs associated with the manufacturing of Hemopurifier’s or an expected clinical trial in the cancer space, a $39,000 increase in our lab supplies expense primarily related to our breast cancer grant and the $39,000 increase in travel expense. The $158,000 increase in our professional fees in 2019 was primarily due to $153,000 increase in our legal fees. Our other expense during the quarter ended June 30, 2019 consisted of interest expense and non-cash loss on debt extinguishment and during the quarter ended June 30, 2018 consisted of interest expense only. Other expenses for the June 2019 quarter was approximately $501,000 in comparison with other expense of approximately $55,000 for the June 2018 quarter. We recorded government contracting grant revenue in the first quarters ended June 30, 2019 and 2018. This revenue arose from work performed under two government contracts with the National Institute of Health or NIH. In the quarter ended June 30, 2019 we recorded $30,000 in aggregate revenue from our breast cancer grant and in the quarter ended June 30, 2018 we recorded approximately $150,000 in revenue from our melanoma cancer contract with the NIH. Subsequent to June 30, 2019. We paid-off the remaining principal balance and accrued interest on our outstanding convertible promissory notes and the aggregate amount of approximately $904,000. So that amount is now removed from our balance sheet and capitalization table. We have previously paid-off $100,000 of the outstanding balance on the notes during the quarter ended June 30, 2019. Now in terms of cash used in our operating activities, we used approximately $1,248,000 or $416,000 per month in the June 2019 quarter compared to approximately $818,000 or $273,000 per month in the June 2018 quarter. The $143,000 increase in our average monthly burn rate in 2019 was due to the combination of contractually agreed severance payments to our former CEO and President, increased professional fees and increased clinical trial costs. Now let me provide an update on our listing situation with Nasdaq, we currently have two issues with the stock exchange, the first issue was with meeting Nasdaq's continued listing requirement of maintaining a minimum stockholders equity of $2.5 million, we fell slightly below that threshold on our March 31, 2019 10-K that we filed on July 1st and fell further below that number with a report on Form 10-Q that we are filing today. Nasdaq initially required a copy filed by August 19, 2019 plan to regain compliance with that requirement. And Nasdaq recently provided us a one-week extension to that. So our response is now due by August 26, 2019. We’re currently working on our response which will include a plan to raise additional capital through sales of our common stock in order to meet the minimum stockholders equity requirement. If Nasdaq accepts our plan, then Nasdaq will grant an extension of 180 calendar days from the date of their July 5, 2019 get letter to evidence compliance. The second issue relates to our share price falling below the minimum continued listing threshold of $1 per share. We have until August 29 -- excuse me October 29 -- 2019 to regain compliance with this requirement by trading at or above $1 per share for 10 consecutive trading days. It is possible that we can regain $1 or higher share price as we get the milestones that Tim Rodell has noted earlier. However there is no assurance that would be the case, the company is also evaluating its alternatives to achieve this if the price does not recover organically. We included these earnings and related commentary in a press release earlier this afternoon. That release included the balance sheet for June 30, 2019 and statements of operations for the quarters ended June 30, 2019 to 2018, while our report on Form 10-Q following this call. Our next earnings call will coincide with the filing of our quarterly report Form 10-Q in early November and now 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. [Operator Instructions] The first question comes from Brian Marckx of Zacks Investment Research. Please go ahead.

Hi guys. Can you hear me, okay?

Yes.

Hi Brian.

Hi, I was jumping between two different calls, so I apologize if I missed anything that relates directly to my questions but I did hear you mention that you plan to file an IND. So congratulations on that. Just wondering in terms of timelines, do you have any idea of when you think you may have it filed?

Yes, thank you for that question, Brian. Let me just modify that slightly, the application that we will be filing because this is a device is an IDE, an investigational device exemption but it's the device equivalent of an investigation or new drug application. As you probably know these documents are huge, they contain massive amounts of preclinical data, manufacturing information, quality information and clinical trials plans. So they're quite a project, we are very far along in that, I'm not going to say exactly when we're going to file. But I will say that it's fairly imminent. So we're talking about weeks not months or years.

Okay, okay great. Yes and I apologize, I meant IDE not IND. Is it your sense that given the safety data that you have not necessarily although in cancer but you have a reasonable amount of human data, that it is approved that you can go straight to a larger study than Phase 1. Could you start with Phase 2?

I would say the answer to that is theoretically yes but I think from a development perspective, it would be inadvisable. And the reason I say that is that while as a physician, I've reviewed all of the data from the previous viral studies and it gives me a great deal of confidence about the overall safety of the device. We are moving into a new patient population, into a new clinical setting with different patients, with different susceptibilities and in different physical settings, hospital type settings than we've treated in the past. And that brings additional complexity number one to the equation. The second thing is that, as I mentioned earlier we're intervening in a process that no one's ever intervened in before and that doesn't generate particularly for me safety questions. And the reason, I say that is because even though we've been removing viruses with the Hemopurifier, it's the same device and we've presumably been removing exosomes from these same patients. We just haven't been looking at that but so I don't have a particular new safety novel safety concerns although the populations are different. But we're going to learn a lot from the first few patients and one of the things I think it's critical for people to understand is that what we need to understand first is not only safety but we also need to understand, what percentage of exosomes we can clear, which are the important exosomes and what the targets should be for clearing exosomes in order to make sure that when we do the kind of larger trial, you're talking about, we're getting the effect that we need to get in order to see therapeutic benefit. So I think from a sort of generic question, we could jump to a larger trial but I think the right thing to do, the smart thing to do and the way that we and others who do this have always operated is to initially get some experience of a small number of patients learn, how they're managed, learn how the device impacts with their clinical situation and then based on what we learned there to move as quickly as possible to larger trials.

Okay, great, that's all I have. Thanks Tim.

Thank you, Brian.

The next question comes from Darrell Patrick of S J Wolfe Investments. Please go ahead.

Hello. Is the Hemopurifier, is that very similar to what they would use in kidney dialysis?

It’s good question, Darrell and thank you for dialing in and thanks for the question. It is if you were to stand in a room and look at the two devices, look at the two cartridges, Hemodialysis cartridge and a Hemopurifier cartridge, they would look similar that is their large plastic cartridges to which you can filter blood. But what the Hemopurifier does is categorically different from what a dialysis cartridge does, a dialysis cartridge is capable of taking off fluid and is capable of taking out toxins in patients who are in renal failure, what the Hemopurifier is doing is actually taking blood and passing it over a matrix with a protein that binds to viruses and exosomes. So physically they are similar pieces of equipment but what they're doing is very different.

Okay. Then the secret sauce is what's in the capsule as opposed to the capsule itself?

I think that's a fair statement. Yes, yes, the actual piece of plastic that we're using is used in a number of other applications. So yes, the secret sauce is what we put into that cartridge that allows it to clear out viruses and exosomes.

Okay. How long does an individual have to be on that system?

Well, we're going to really learn a lot about that once we start using it in the clinic. But basically on the order of four to six hours.

Okay. And then you haven't determined exactly how often they'll have to do it. It's an everyday thing?

No, it's not an everyday thing. And initially what we're looking at is combining clearance of exosomes using the Hemopurifier with other drugs that are used in cancer patients. So it would be used, if you're familiar, if you've ever had a family member who has had cancer and has had to have chemotherapy, patients go into an outpatient infusion center, they're hooked up and they have drugs administered in this setting. What we'll be doing is diffusing the Hemopurifier prior to the administration of one or more drugs, so it would happen sort of on the same kind of schedule as chemotherapy is generally used.

You mentioned, I believe it could be used. I think you said in transplant patients?

Well, there are a number of different areas where it could be used and where exosomes could be involved in outcome. One of the areas that we are the most interested in is the role of viruses in organ transplant. As you're probably aware, a number of patients who would otherwise be organ donors may be infected with viruses like Hepatitis C up until fairly recently that was a contra-indication to transplanting their organs. Now that there are good drugs for Hepatitis C, those organs are sometimes transplanted that the costs of those drugs can be well over $100,000. So one of the areas that we're interested in is looking at the Hemopurifier for clearing Hepatitis C in organ donors and subsequently potentially in organ transplant recipients. Another area where it could be very important is that one of the most common causes of transplant failure that is of the failure of a transplanted organ to work in the recipient is a virus that we're all infected with, that we don't really know about and generally doesn't cause problems called Cytomegalovirus or CMV, it's a member of the Herpes virus family and we actually have data showing that the Hemopurifier can clear Cytomegalovirus. So this is another area that we're looking at for investigation. Can we improve the outcome of transplanted organs either by clearing Hepatitis C from the donor or by clearing viruses like Cytomegalovirus and potentially others in the recipient at the time of the transplant.

Okay, you mentioned NASH, the intention here to use this before an operation or a transplant or afterwards?

Well, there are a number of different areas again where it could be used, it could be used to cleanse the blood of a brain dead organ donor and that incidentally is an area that SeaStar is involved in and it could also be used in the recipient at the time of transplant. But again these are early concepts. There are potential areas that we intend to develop but our primary focus right now is on initiating trials with the Hemopurifier in solid tumors and cancer.

Okay and on encephalopathy, you mentioned in the reports that a large number of people who suffer with that are former football players, who get smacked on the head a lot of times and but there are other reasons for encephalopathy. Would the Hemopurifier be just as effective that way in that situation?

Well to be clear, our current focus in chronic traumatic encephalopathy isn't the diagnosis of the disease using exosomes as markers, whether the Hemopurifier could be used therapeutically in that setting or in other encephalopathies including diseases like Alzheimer's and Parkinson's. We don't know it's possible but that would be an area for fairly far distant future research.

Okay. Thank you very much.

Thank you.

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

Thank you, Andrew. I would just say in closing, thank you everyone again for dialing in. We appreciate your continued interest and look forward to keeping you up to speed as we move our development programs forward. I think that from my perspective, there's a huge amount going on in the company today that I'm very excited about and look forward to telling you more about what we're doing as we've progressed through our development plan. So thanks again for dialing in and we look forward to continuing the conversation.

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