Aethlon Medical, Inc. (AEMD) Q3 2021 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the Aethlon Medical Third Quarter 2021 Earnings and Corporate Update Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. At this time, I like to turn the conference call over to Mr. Jim Frakes, Chief Financial Officer. Sir, please go ahead.

Thank you, operator, and good afternoon, everyone. Welcome to Aethlon Medical's third 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 third quarter ending December 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, Chief Executive Officer, 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 open up the call for the Q&A session. Before I hand the call over to Dr. Fisher, 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 then 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. Chuck Fisher, Aethlon Medical's Chief Executive Officer.

Thank you, Jim, and thank all of you for dialing in today. As Jim said, my name is Chuck Fisher. You may recall that I have spoken during previous earnings calls in my capacity as Athens Medical's Chairman of Board. At the end of October 2020, our Board of Directors asked me to take on the CEO role in an effort to accelerate the Company's clinical progression. So, this is my first earnings call his Aethlon Medical's CEO. I'd like to tell you about what we've accomplished in the past three months. I'd like to start today by talking about our oncology program. As you know, our lead oncology program is in head and neck cancer. This program is actually focused on an early feasibility study. The device equivalent of a Phase 1 study trial and drug development, and is being conducted at the University of Pittsburgh Medical Center, UPMC, at Hillman Cancer Center. We previously reported that we have IRB approval at UPMC, and this trial is now open and actively screening patients for enrollment. You can find the details of the trial on clinicaltrials.gov. We plan to enroll 10 to 12 subjects with advanced or metastatic head and neck cancer, who are going to receive pembrolizumab, which is known as by its brand name of KEYTRUDA as the approved standard of care for head and neck in the front line setting. Patients enrolled will first be treated with our Hemopurifier for the purpose of decreasing the circulating exosomes load, prior to receiving their first dose of KEYTRUDA. Our first patient in this trial recently successfully completed all the required Hemopurifier treatments and KEYTRUDA infusions. KEYTRUDA was approved for frontline indication in June of 2019, and previously had been approved in the salvage setting, prior to that. The primary endpoint for this trial as with all early stage trials is safety. The secondary end points including clearance of exosomes, response rate and survival. We should note again that the Hemopurifier has been used in over 150 patient exposures in humans, primarily the viral diseases, with a very clean safety profile. What is important to recognize here is while KEYTRUDA and similar products, known as immune-oncology agents or checkpoint inhibitors may have dramatic effects with some patients surviving or living with over five years of metastatic disease would have only survived four months previously. The majority of patients don't respond to KEYTRUDA. In head and neck cancer in the frontline setting about 30% to 35% of patients respond to KEYTRUDA, with a much lower survival percentage in the salvage setting. The literature suggests the major mechanism by which patients fail to respond to these agents is mediated by immunosuppressive exosomes, which are sub-cellular particles shed by cancer cells. As you may know, the Aethlon Hemopurifier is designed to clear exosomes in addition to clearing glycosylated viruses. It's also worth noting that KEYTRUDA is one of the top selling drugs in the world and has recently been approved for frontline therapy in solid tumors, which could mean multiple opportunities like beyond our first indication of head neck cancer. We are now exploring multiple clinical opportunities in some of these additional solid tumors. On the infectious disease front, as we previously disclosed, the FDA has approved a supplement to our existing viral IDE to allow for the emergency use with the Hemopurifier of up to 40 patients with SARS-CoV-2, COVID-19 at up to 20 centers in the U.S. We now have IRB approval, and the first center in the study, just now listed on tt.gov where you can see the details. We're actively recruiting other centers. Finally, as discussed previously on our last call, we've treated a single critically ill patient with COVID-19 under the single patient emergencies pathway. The patient has severe multi-organ failure and has little chance of surviving. We completed eight, six hour Hemopurifier treatments over the course of nine days. Successfully weaning the patient from the ventilator in the hospital transferred the patient to an extended care facility for rehabilitation of muscle strength and stiff joints due to the prolonged hospitalization. This patient successfully demonstrated that the Hemopurifier can be used in the critical care setting, we mean open to treating other patients under this pathway and centers where our formal trial is not up and running. In anticipation of the commencement of our multiple clinical trials, we've expanded our leadership team at Aethlon Medical. In January of 2021, we hired two key senior executives to expand our executive team. Steven LaRosa, MD, joined our team as Chief Medical Officer and hit the ground running. Steve has extensive experience in successfully recruiting and running clinical trials, interacting with regulatory authorities, participating in FDA hearings and successful regulatory approvals. Steve worked with me on the team I led at Eli Lilly as a key frontline physician on our activated protein C, APC, severe sepsis trial, leading to the first and only drug approved for severe sepsis with Xigris was the drug to me. Steve was focused on opening up hospitals for our studies, training doctors and nurses to use our Hemopurifier and stimulating patient enrollment in our clinical trials. He has a solid academic background, having graduated from Boston University Medical School with his MD. He did his residency at the Cleveland Clinic where we also work together for four years, including his Chief Residency. He did an infectious disease fellowship at Mass General Hospital for two years. Guy Cipriani, MBA, joined our team as Senior Vice President and Chief Business Officer. Guy's responsibilities include overseeing business development, partnerships, strategic relationships, and strategic development. Guy Cipriani is an experienced biotech executive with 20 years of experience in the pharmaceutical, biotech and medical device industries. His extensive background includes corporate development, strategic development, lines management, and product development activities for companies such as Eli Lilly and Transform Pharma, which was acquired by Johnson & Johnson for 230 million, Cascadian Therapeutics, which was acquired by Seattle Genetics for 615 million. He successfully completed over 25 deals of various types including commercialization agreements, development agreements, discovery collaborations and distribution agreements across multiple therapeutic areas including cardiovascular, infectious disease, oncology and central nervous system. Guy and I had the privilege to work together at Correvio Pharma, along with another colleague, sold a key asset from that company to Merck for $800 million at U.S. at that time, it was CAD1.2 billion, at that time it was the largest deal in Canadian history at the time. In total, Guy has contributed an excess of $2 billion in deal value across all of the organizations he has served. Guy's background, he holds B.S.E.E. with High Honors from Rochester Institute of Technology and MBA from the Kellogg Graduate School of Management at Northwestern University. In sum, Aethlon Medical executive management collectively has greater than 130 years of experience in drug and device development and regulatory approvals. This senior team has accomplished a lot in our first few months together, and I speak for all of us and I see that team at Aethlon sees exciting potential growth of our company and to use our proprietary Hemopurifier general patients across multiple diseases. At this point, I'll turn it back over to Jim for the financial discussion and then open up for questions.

Thanks, Chuck, and good afternoon again, everyone. At December 31, 2020, we have a cash balance of approximately $12.1 million. We reported approximately $625,000 in government contract revenue in the three months ended December 31, 2020, compared to approximately $413,000 in the three months ended December 31, 2019. Our consolidated operating expenses for the three months ended December 31, 2020 were approximately $3.07 million compared to approximately $1.29 million for the three months ended December 31, 2019. This increase of approximately $1.78 million or 137.9% in the 2020 period was due to an increase in payroll and related expenses of approximately $1.12 million and general and administrative expenses of approximately $646,000, and in professional fees over approximately $15,000. A $1.12 million increase in payroll and related expenses is due to the combination of an $842,000 increase in our cash-based compensation expense and a $275,000 increase in stock-based compensation expense. And the largest factor in the cash-based compensation expense was the result of recording an aggregate of $593,000 related to severance costs associated with a separation agreement with our former CEO in the third quarter. Additional factors were $125,000 increase in year-end bonus payments, increased head count and salary increases. A $646,000 increase in our general and administrative expenses is primarily due to a $361,000 increase in clinical trial expenses, a $133,000 increase in subcontractor expenses associated with government contracts and grants, a $130,000 increase in lab supplies in connection with the ongoing effort to continue to build an inventory of hemopurifiers for our clinical trials and $40,000 increase in insurance expenses. A $15,000 increase in professional fees was primarily due to a $28,000 increase in contract labor, primarily research scientist hired on a consulting basis, and a $23,000 increase in legal fees, which were partially offset by a $35,000 decrease in our accounting fees. Other expense was nominal during the three months ended December 31, 2020 and 2019. As a result of the changes in revenues and expenses that I just noted, our net loss before non-controlling expenses increased to approximately $2.44 million for the three months ended December 31, 2020 or $0.20 per share from approximately $821,000 for the three months ended December 31, 2019 or $0.28 per share. We included these earnings results and related commentary in a press release issued earlier this afternoon. That release included the balance sheet for December 31, 2020 and the statements of operations for the three months and nine month periods ended December 31, 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 Annual Report on Form 10-K in June 2021. And now Chuck and I would be happy to take any questions that you may have. Operator, please open the call for questions.

Ladies and gentlemen, at this time, we will begin the question-and-answer session. [Operator instructions] And our first question today comes from Anthony Vendetti from Maxim Group. Please go ahead with your question.

Thanks. Thanks, Chuck and Jim. I just wanted to follow up on the early feasibility study. As you've mentioned, it's designed to enroll 10 to 12 subjects. In the last update, one patient had I know has been treated that was in December, you've mentioned on the call. Can you give us a little bit more color on how that patient is doing now? And how is the enrollment going for the other subjects? And is that being stalled or delayed at all by COVID-19?

So Anthony thanks for the excellent question. During my commentary I made mentioned to the fact that the first patient treated had completed his treatment of both the cycles of the Hemopurifier as well as the KEYTRUDA. That patient has completed the therapy per the protocol and will be -- he absolutely continued to be followed, but he's already completed that. In terms of the activity group, we're working with the University of Pittsburgh Medical Center, the Woman Cancer Center, are very keen in this trial. They have screened numerous patients for us, unfortunately two dropped out after their initial screening as other factors are known that would then exclude them from it. But they're very active and are keen to continue to find good patients for us and are very pleased with the first patient.

And just on the last part of my question that I know, I'm sorry, it's a multi part question there. But is COVID-19 delaying any enrollment? Or is it the screening process to make sure it's the right the right patient before you can get to those 10 to 12 subjects?

So, COVID-19 when it hit this particular hospital group, how they -- somehow they missed the first cycle. So initially, it was a bit difficult on them just for all the infrastructure issues. But as it relates to the cancer patients, they try to come through a different cycle and come to the oncology environment, screen there, and then if they meet the criteria have consented up on the system in advance then they would be taken to dialysis. The only effect that we've seen, tension effect is, if a lot of patients are getting dialysis for the COVID-19 is that other devices available. We're not seeing the shortage of effort to try and get these patients done. And patients we have treated, they did go directly to, so I think they've worked out something with the dialysis people to have somebody scheduled. They try and really get them through.

And then just shifting gears on the COVID-19 patient is based on your description, it sounds like that, that particular patient was in pretty bad shape, severe multi-organ failure. And they received eight, six hour treatments over nine days and have recovered. How is that patient doing at this point? Is that patient still in rehabilitation? Or has that patient been discharged?

I don't know specific status of whether that patient has been discharged from the rehabilitation because sometimes it's done inpatient and then you migrate to inpatient, outpatient, and go back and forth. So, I don't know the specifics to this moment. We'll try and find that answer for you.

Okay. And if that trial with 40 patients goes well, what's the potential for the Hemopurifier, whether that's with COVID-19 treatments or with other viruses going forward?

So, I think there is a number of possibilities for us here, which I view all is positive. The key is we have demonstrated in the past and continued to demonstrate that we bind all glycosylated viruses and that also raises the spectrum with these, some of the newer mutants coming out, might we have continued binding capability with them because our process is not based upon specific antibody to specific target. It's based on the adhesive effect of our [indiscernible], which theoretically combine a variety of different mutants. We don't know that yet. That's kind of what our thinking is at this point.

Okay, great. I'll hop back in the queue. Thanks so much.

Thank you.

And our next question comes from Marla Marin from Zacks. Please go ahead with your question.

Thank you. So just building on what you just said in terms of the COVID study, it's the Hemopurifier is not specifically designed for COVID per se, but for treating -- purifying and treating, and it's not a specific strain. So with the new strain that we're starting to see in U.S., is there to be any kind of impact on the study going forward?

Well, I didn't get the last part of your question, Marla. Could you just restate it please? It's kind of broken up.

Yes. So, we're starting to see new strain of COVID in the U.S. given what you just said, and the take away from what you just said is that there will not likely be an impact on the study baked on the new strain of COVID that we are starting to see. So I was hoping to get a color from you.

Right. So, there’s a couple things to consider here. One, not only do we bind glycosolated viruses, we also bind exosomes, which are also present in these patients and may contribute to some of their organ failures and most likely do particularly later in the disease. So, that's -- we kind of have a two-part piece here. We're not just blocking the virus. We're actually blocking some of inflammatory processes that occur in those patients. That’s one piece. My other commentary was and it's a forward-looking statements. So I want to be clear about that, that if we had the opportunity to examine a variety of spike proteins in the mutants, we might find them reminding them because our binding process is different than the antibody binding process.

Okay. Thank you. And then, [indiscernible] about KEYTRUDA, I think KEYTRUDA received expanded approval in the EU for lymphoma. I mean, looking at that the expansion for KEYTRUDA, are there any takeaways that we can look at in terms of the potential of the Hemopurifier?

Most of the disease stage the KEYTRUDA is treated. It's used as a coronary agent and also have circulating exosomes sometimes in the many millions. So, they would become potentially attractive to us, because we can take those exosomes out. And as we mentioned earlier, currently the data says roughly 30% to 35% of the patients treated respond to KEYTRUDA. So, there is a pretty vast opening for other opportunities. If we can like taking on exosomes, make those patients more responsive to KEYTRUDA, that would be a big plus for the patients and for those that are treating the patients, and we look at that space and saying, that's a significant opportunity for us.

Okay. Thank you.

Our next question comes from Dave Lavigne from Trickle Research. Please go ahead with your question.

So, I'm kind of -- you kind of got to some of my questions with some of the others, but just want to make sure that I understand. I mean, you have -- on the cancer side, certainly the focus is on exosome removal. And I'm wondering if this initial COVID patient, if you're going to be able to gather things from the study of what you gathered from them, that may help you determine how maybe exosomes impact other disease outside of cancer what, like, COVID, for example. And I guess, by extension, could we learn something from that patient that would that would help us understand better, maybe, how -- what role exosomes do play in viruses and things outside of cancer? I mean, is that a path that's likely to provide some visibility with that when you learn something more about what you gathered from that patient, and other patients for that matter as you go forward?

So, I think your point is an excellent one. And, again, we need to get the data before we can make core statements, but your hypothesis that if we're able to move exosomes carrying inflammatory packets of information and/or infectious packets of information, that should work in patient favor and that would be rather broad. It's also worth noting in some of the cancer patients we're treating, some cancers aren't associated with kind of viral on it to them. We may be able to help remove the viral element as well as the exosomes in addition to what's affecting others, in this case, KEYTRUDA might have. But I think there is some good opportunities assumed to make a statement, but I think, we're trying to answer your hypothetical question.

Yes. So, is it reasonable to think that, I mean, because I think as we look back sort of over the history of the Hemopurifier. I mean, I think one of the things that's always been a challenge is just the clinical process to begin with. But I think there's also this issue of, if it's determined that Hemopurifier is helpful, there's still this question of, when is it most helpful, right, I mean, is it most helpful at the front end of disease or most helpful at the end of disease, as they progressed, or somewhere in between? And I guess I'm thinking that with respect to Hemopurifier ability to bind to the lectins that's one advantage of it. But then it's also extracting exosomes, it may be that that because the combination of the two, it may be effective on across the spectrum of that progression of that disease, is that reasonable?

One way you can make reason out of that is, if we take the COVID more often and not the viral phase earlier on becoming cellular. And later phase, that's probably more of an inflammatory process. It's made stimulated by the virus also recognized and extending exosomes. That's how I put those two pieces of information together on your hypothetical.

Okay, so let me just switch gears to the cancer side a little bit, I think you made reference to KEYTRUDA being used more in the first line. Did I get that right?

Yes, it's been approved for frontline therapy in solid tumors.

Okay. Can you give me a sense of how that sort of impacts? We're starting to see a lot of combination therapies, obviously, around KEYTRUDA and other checkpoint inhibitors, which sort of makes sense from a, I guess, an ethical perspective. But can you -- is there anything to gather from the fact that you're KEYTRUDA being used in the first line and how that may impact the success or maybe the ultimate approval of some of those other combination therapies, if they're allowed to be used in combination with KEYTRUDA in the first line? And I guess what I'm getting to is that same idea of things being more effective may be in the front end of disease progression as opposed to the back end of the worst portion of the progression? I mean, that seems really like advantages for some of those combination therapies that are allowed to be used in the first line with KEYTRUDA?

That's a reasonable question. I think it's worth noting that in the current early feasibility trial, we're doing interaction using the Hemopurifier, pre-circulating exosomes prior to the first dose of KEYTRUDA. So, we're nothing in front of the line that anybody can be. And that would the idea there is, if we can reduce the circulating exosomes that potentially improve only for KEYTRUDA would have a higher rate on patients, lower exosomes load. That would fit conceptually with what you're saying. I can't speak to the other out combinations specifically and inappropriately comment on them given.

I mean, conceptually it's certainly conceivable that Hemopurifier could help somebody in combination with KEYTRUDA much more at the front end than at the back end, not necessarily, but certainly that's a potential that, that could potentially be true, right?

Well, the first part can be potentially true, but I wouldn't say that there's not an effect by continuing to move exosomes later on. There's a cycle of time between each dose and you want to keep circulating exosomes at a lower level. So, early on it makes it good. I think it carries throughout. If you actually read this feasibility study, cultured it, having an answer to your specific question.

Great, Thank you.

Thank you, Dave.

Thanks, Dave.

And ladies and gentlemen, at this time, we'll end today's question-and-answer session. I'd like to turn the conference call back over to management for any closing remarks.

This is Chuck. I just want to thank you again, all of you, for joining us today to discuss our Q3 results. We are looking forward to keeping up-to-date on future calls. During the fourth quarter, we will also participate in several investor events, including the Maximum Securities 2021 Merchant Growth Virtual Conference and the H. C. Wainwright Global Healthcare Conference, both in March. Thank you all for joining the call and we very much appreciate your excellent questions. Thank you.

Ladies and gentlemen, with that, we'll conclude today's conference call. We do thank you for attending. You may now disconnect your lines.