Aethlon Medical, Inc. (AEMD) Q4 2021 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the Aethlon Medical Fiscal 2021 Year-End Earnings and Corporate Update Conference Call. [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 Fiscal Year-end 2021 Earnings Conference Call. My name is Jim Frakes, and I am Aethlon's Chief Financial Officer. At 4:15 p.m. Eastern Time today, Aethlon Medical released financial results for its fiscal year-end -- fiscal year ended March 31, 2021. 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. 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. 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, our most recent report on 10-Q and in the company's other filings with the Securities and Exchange Commission. Except as may be required by law, the company does not intend nor does it undertake any duty to update this information to reflect future events or circumstances. With that, I will now turn the call over to Dr. Chuck Fisher, Aethlon Medical's Chief Financial Officer -- CEO.

Thank you, Jim, and thank all of you for dialing in. So depending on where you are, good morning and/or good afternoon. My name is Chuck Fisher, and I'm the CEO of Aethlon Medical. I'd like to start off with some basics. SARS-CoV-2, as almost all of you know at this point, is a causing agent for COVID-19, is a member of the coronavirus family, which includes the original SARS virus, which we worked on years ago. SARS CoV was its annotation and the MERS virus. SARS-CoV-2, like all coronaviruses, is glycosylated, that means it's sugar coated. The Aethlon Hemopurifier has been demonstrated to bind and remove from circulation glycosylated viruses, including SARS-CoV-2 removal from blood in a human patient. On June 17, 2020, the FDA approved a supplement to our open IDE for the Hemopurifier in viral disease to allow for the testing of the Hemopurifier in patients with SARS-CoV-2/COVID-19 as they're known locally in a new feasibility study. That study was designed to enroll up to 40 subjects at up to 20 centers in the U.S. Subjects will have established a laboratory diagnosis of COVID-19, be admitted to an intensive care unit or ICU and will have acute lung injury and/or severe or life-threatening disease, among other criteria. End points for this study, in addition to safety, will include reduction in circulating virus as well as clinical outcomes. This -- initial sites for this trial include Hold Memorial Hospital Presbyterian in Newport Beach and Hoag Hospital Irvine in Irvine, California and thirdly, Loma Linda Hospital in Loma Linda, California, have completed their clinical trial agreements, have received -- and have received IRB approval, in the case of Hoag Hospitals, and are preparing to open for patient enrollment. Under single-patient emergency use regulations, with -- after discussion with the FDA, we have treated 2 patients with COVID-19 with the Hemopurifier. We recently published a manuscript reviewing these case studies covering these treatments entitled: Removal of COVID-19 Spike Protein, Whole Virus, Exosomes and Exosomal microRNAs by the Hemopurifier, Lectin-Affinity Cartridge in Critically Ill patients with COVID-19 Infection. This is a major step forward. The manuscript describes the use of the Hemopurifier for a total of 9 sessions in 2 critically ill COVID-19 patients. The first case study demonstrated the improvement in the patient who was a SARS-CoV positive to COVID-19 patient at entry to the hospital with associated coagulopathy, lung injury, inflammation and tissue entry despite the assets have demonstrated COVID-19 viremia by the time we started treatment at day 22. And having previously demonstrated strong viremia early in the patient's disease cycle, suggesting that the significant removal, in our case, of exosomes contributed to the patient's recovery. The patient received 8 Hemopurifier treatments without complications and eventually was weaned from the ventilator and was discharged from the hospital. The second patient demonstrated what we believe maybe the first in vivo removal of SARS-CoV-2 virus from the bloodstream of an infected patient. This patient completed a 6-hour hemopurifier treatment without complications and subsequently was placed on continuous renal replacement therapy by the local hospital. The patient ultimately expired 3 hours after being placed on CRRT because of the advanced stage of the patient's disease and the predictive mortality running 5% at the start of the trial. In June 2020, we raised net proceeds of approximately $4.9 million through sales under our ATM agreement. $11.6 million in a registered direct financing and approximately $821,000 from the cash exercise of then outstanding warrants. In aggregate, we raised approximately $17.3 million and net proceeds in June of 2021. With that, I'll turn it back to Jim for the financial discussion, and then open up to questions.

Thanks, Chuck, and good afternoon, again, everyone. Following up on Chuck's commentary on the funds we've raised in June, I wanted to give you some color on the prices per share that we raised the money at. Again, we raised approximately $17.3 million in net proceeds. Breaking it down, we received net proceeds of approximately $4.9 million through sales under our ATM agreement and the price was $8.11 per share before commissions and fees. $11.6 million was raised in a registered direct financing at a price of $9 per share before commissions and fees to an institutional investor based in New York City. And as Chuck also mentioned, approximately $821,000 came in through cash exercises of then outstanding warrants. At March 31, 2021, we had a cash balance of approximately $9.9 million. Our current cash position, including the $17.3 million we raised earlier this month, sets us up very well for conducting our clinical trials and manufacturing of our Hemopurifier. Our consolidated operating expenses for the fiscal year ended March 31, 2021, were approximately $8.6 million compared to approximately $6.6 million for the fiscal year ended March 31, 2020. That was an increase of approximately $2 million. That $2 million increase was due to increases in payroll and related expenses of approximately $1.1 million and in general and administrative expenses of approximately $1 million, which were partially offset by a decrease of approximately $100,000 in professional fees. The $1.1 million increase in the fiscal year ended March 31, 2021, and our payroll and related expenses was due to an increase in cash-based compensation of $1.2 million, which was partially offset by a decrease in our stock-based compensation of about $100,000. And of that, cash-based compensation increased $400,000 related to an accrual for severance payments to our former Chief Executive Officer. The $1 million increase in fiscal year ended March 31, 2021, in our general and administrative expenses primarily arose from increases of approximately $500,000 in our clinical trial expenses and another $500,000 in laboratory supplies. And the $100,000 decrease in the fiscal year ended March 31, 2021, in our professional fees, primarily arose from decreases of approximately $300,000 in legal fees and $100,000 in accounting fees, which were partially offset by increases of $200,000 in scientific consulting fees and $100,000 in recruiting fees. Our other expense was nominal during the fiscal year ended March 31, 2021. And we recorded approximately $659,000 in government contract revenue in the fiscal year ended March 31, 2021, compared to approximately $650,000 in the fiscal year ended March 31, 2020. The government contracts are with the National Institutes of Health, in particular, in the National Cancer Institute. As a result of the changes in revenues and expenses that I just noted, our loss before noncontrolling interest increased to approximately $7.9 million for the fiscal year ended March 31, 2021, from approximately $6.4 million for the fiscal year ended March 31, 2020. We included these earnings results and related commentary in our press release issued earlier this afternoon. That release included the balance sheet for March 31, 2021, and the statements of operations for the fiscal year-end periods ending March 31, 2021 and 2020, and we will file our annual report on Form 10-K following this call. Our next earnings call for the fiscal first quarter ended June 30, will coincide with the filing of our quarterly report on Form 10-Q in late July or early August 2021. And now Chuck and I would be happy to take any questions that you may have. Operator, please open the call for questions.

[Operator Instructions] Our first question is from Marla Marin with Zacks.

I'm wondering if you can give us some update right now on the clinical trials that are currently being conducted?

This is Chuck. Where we are at present is it took us a little bit of logistics, but we have the 2 Hoag hospitals, 1 in Newport Beach and 1 and Irvine, have completed their IRB approvals and all the internal things they need to do and are setting up for enrolling patients now. We're very close with Loma Linda, which is in an area near them, and they are nearly finished with all of their things. So it feels on the far side of COVID-19 that we're getting into the space that we wanted to be in for a while. It's taken longer than we had anticipated. One of the challenges that the hospitals have run into has been there was a big surge of COVID-19 patients, and that left not much space for new trials and enrolling new patients. So we're hoping that we're now well positioned to move forward quickly in these areas. The same thing would be true for the oncology trials, because the oncology hospital was hit fairly strong by the COVID and therefore cannot enroll oncology patients. So that's the background for where we are at present. We've talked to each of the hospitals we're actively involved with and they all feel that they're moving into a space where they can start enrolling patients.

Okay. And then in terms of the oncology study, specifically. From time to time, when -- we read about an announcement that KEYTRUDA has been approved for an extended use or an additional use. Can you provide some color around there whether there are any takeaways for the Hemopurifier based on what we see for KEYTRUDA?

The way that we've set up the KEYTRUDA trial with the Hemopurifier is in after the first 5 patients, we will take a look at the overall results of the individual patients and then make some decisions. One decision might be to increase the number of Hemopurifier treatments, depending upon what the pharma companies teach us about that. It may also look at, is there an interest in the side of the oncologist to run the trials longer by using KEYTRUDA. None of those questions have been answered definitively, but that's a process that we've had a discussion on it as recently as this past week.

Next question is from Vernon Bernardino with H.C. Wainwright.

Jim, congrats on the progress. Was there any difference in the way the Hemopurifier was used between the case 1 and case 2 patients? You mentioned with the case 2 in the press release, in vivo removal, but I thought that the Hemopurifier was both used in the same way.

So you're correct in your basic thought. The difference was, when I mentioned case 1, that patient when we were contacted and asked to evaluate her and chose to treat her, she was at day 22 of her illness. She had been viral positive up to day 6 and a patient in day 10, but not beyond then. So in her particular case, she was not actively viral positive for SARS-CoV-2. Alternatively, she had high levels of circulating exosomes, which are associated with inflammation and/or cancer and/or carrying viral loads. So in her, what we learned was -- and she was profoundly ill, had 2 notes on her chart that she would die in the near term within 6 to 12 hours. And we treated her over 8 days for 6 hours and removed a significant number of exosomes. No virus particles were found in that, and she actually demonstrated a quite dramatic improvement in her respiratory failure, her requirements for oxygen or for vasoactive means and her other organ failures. What that teaches us is that the exosomes play a significant role in the ongoing process in these patients. And so we have the first patient that's been treated, that actually had exome removal who dramatically improved. And the second patient, he was a new onset, 4 or 5 days' worth, 65 years old, had profound cardiovascular disease since childhood and was rated at about 95% mortality, had very high levels of his exosomes, -- sorry, of his viral SARS-CoV-2, and during the 6-hour treatment of him, which went very smoothly, we were able to reduce by more than half in circulating viral load. So it's a presence of what's -- it's an issue of what's present when we finally treat them. And we imagine that if both agents were present at the same time, we will remove both at the same time.

Now the case 1 patient was admitted for COVID-19 pneumonia. So therefore, not to show you exactly as it was what the paper said, I'm sorry, but I don't remember exactly, but was the viral status known at the time she was admitted?

Absolutely. She had very high viral fibers for the first many days, perhaps as long as 10. I don't remember the specifics off the top of my head, but it was somewhere between 6 and 10 days she had active viral load and active positive measle swabs, et cetera. At which point, that's when the viral load starts diminishing and it goes intracellular, and it doesn't circulate as much, but it still causes some issues. In her case, we picked her up at day 22, no circulating virus at that point, but huge amounts of circulating exosomes. We removed those exosomes and she improved dramatically.

Yes, the activity of the Hemopurifier and exosome, so exciting. Last question for me before I get back in the queue. With expectation that now what looks like a surge in cases, unfortunately, in the United States and unvaccinated geographies, are there any plans for targeting, having sites just for the clinical trial for Hemopurifier in these states?

What we're trying to do is the FDA gave us the same standard that they gave to other centers, which is 20 centers and 40 patients. We're trying to watch on a daily basis where the outbreaks are occurring and talk to those centers as quickly as possible, would they be interested in enrolling patients so that we can be where the patients are. The other thing that is implied in your question, but not asked directly, is what's the role of the variants. And we do have information that we can share at a different time regarding the variants and the role we may play there.

Yes, I can see definitely a growing interest as far as Hemopurifier evaluation in these sites.

Next question is from Anthony Vendetti with Maxim Group.

Hey Chuck and Jim, how are you doing? So these 2 patients are the first of 2 for your early feasibility study on COVID, correct?

These 2 patients are actually in an emergency use protocol. So we can have emergency use authorization, which would be via very specific protocol. Or as we worked out with the FDA, we can also have an emergency use, meaning there is no other therapy, and the request has been made by the attending physician with a consult by an equally qualified physician not involved with the patient to say there is no other therapy. Both of those patients who were enrolled and discussed with you just now were under the emergency use, not the emergency use authorization.

Not the clinical trial.

And not the clinical trial.

Right. But right now, you do have an authorization for an early feasibility study to enroll up to 40 COVID patients. Is that correct?

That's absolutely correct. Yes.

Okay. Can you give us an update on -- and I know you obviously have to -- you have to find the correct patients that fit the criteria. Can you give us an update on how that's looking? How many sites? And then also, to switch to KEYTRUDA, I know that's a 10- to 12-patient EFS. Can you give us an idea of when you expect the next patient enrollment there?

So as it relates to the protocol that we have with the FDA. I mentioned earlier that we have -- 2 of the 3 Hoag hospitals have passed their IRB and are ready to go and have finished their training. So as they see patients, they should be ready to enroll. Loma Linda is very closely behind them. Those are our 3 leaders because they all came on very quickly early on, evolving through training and are in good position. So those would probably be the places where we expect to see first, but we're also actively enrolling other sites in different geographies. And as you know, if you watch the news on a daily basis, this disease bounces around the country. So we want to be where the disease is at the time it hits with the approved protocols, whether the emergency use or the approved protocol by the FDA.

And do you feel, just from your professional opinion as a physician, do you feel like the Delta variant, according to -- and maybe there's even another version of the Delta variant. But do you feel that these variants which seem to be taking hold here in the U.S. and particularly, California, do you feel that the cases are going to go up at a certain point in time, whether it's this summer or in the fall, which unfortunately, could mean easier access to cases for you. But what's your professional opinion, Chuck, in terms of what you're seeing out there?

What we're seeing in the countries where the -- this particular variant started is it has had a fairly rapid uptick in infecting patients. And then there's a little bit of mixed literature on, is it more severe and causing more deaths? Or is it somewhat less severe? I'd probably lean towards at least reading the cases and talking to the physicians who have taken care of the very early ones. It's probably more severe, but that's speculation on my part. In terms of the impact that we'll have. What we have been -- if we take North America for instance, even though primarily United States, we have an increasing population -- increasing vaccination population. So presumably, that will play some role. But we don't know what the variants, particularly this one that you mentioned, is it may well not be completely contained by the vaccinations that we have. And so from our perspective, we are looking at all the variants actively, with an intent of understanding their roles and see what role we may play with them. It's too early to comment since we've not treated any of them.

Okay. No, understood. That's helpful. And then in terms of the combination treatment with KEYTRUDA. Can you give us just an update, I know that that's a slower sort of uptick -- slower enrollment, but you only need 10 to 12 patients. What's your -- where are you? Are you -- have you identified the second patient? Do you feel like you'll have a couple more patients before the end of the year? What's your best prognosis there?

Well, we recently had a very good and intense discussion with our colleagues at the University of Pittsburg Medical Center. And I think some of the local logistics on either side have been resolved. So we would anticipate seeing more patients. One of the challenges they had early on was they had not been hit by the first COVID wave, and we're not open for enrolling patients for the Hemopurifier plus KEYTRUDA trial. At the time that they were finally ready to open up for that, they had their first wave of SARS-CoV-2, COVID-19 patients, and that kind of threw them off their culture a bit because they're primarily a cancer hospital, but their beds were now being used for other purpose. So we talked through that. They have also been very creative in looking where could they get patients referred to them who were outside the ones that they would normally get internally. We have a program for that, and we're working very collaborative with them, including their top leadership. So I think everybody recognizes that these other events of life played a role there. We're optimistic that they will be able to identify patients either in their own internal hospitals or their referral hospital complex, such that we can get back on track with the numbers that we've said at the beginning of the year.

Sure. University of Pittsburg Medical Center is a world-renowned center, particularly for oncology, and there's obviously a number of those, but University of Pittsburg Medical Center is 1 of the top ones. But you said that it could be through them directly or 1 of the referral programs. Is it either with UPMC directly or indirectly? Or is there another center that you're working with currently?

No, it's a single center trial in University of Pittsburgh on their own, floated the idea since they have a large referral base. If they got patients that will be appropriate for the trial and had consented for the trial, they can be brought to Pittsburgh for the Hemopurifier portion, and they could go back to their primary hospital for the KEYTRUDA treatment, which would be the standard of care. So that was a unique and creative idea on their side to try and help increase the approval of patients.

Okay. Great. That's helpful. And then just lastly, broadly, obviously, COVID is the virus in terms of the one you're focusing on now, for good reason. But the ability for the Hemopurifier to clear other pathogens or other viruses seems like it exists. What's your view if the BFS comes back positive on these 40 patients as it has come back on the first 2 that were part of the emergency use? Is it your opinion that this could have broad implications for other pathogens either currently or down the road?

Well, we know that we bind all glycosylated viruses. Everyone that we've tested, whether it's in our hands or in the hands of national laboratories or the CDC or USAMRAA and et cetera -- anything that has a sugar motif on it that's a pathogenic virus, we'll bind, including the 1918 virus that was reconstructed by the [indiscernible] and tested some years back with our Hemopurifier. So if there's a glycosylated virus, the likelihood of our ability to bind it is generally very good. The percent might vary a little bit. But so far, all the ones we've tested, which is quite a large number we should bind. The real question becomes, now that we've started seeing things like SARS-CoV-2 and this massive pandemic on a global basis, is that something that may be part of our future as much as we don't want that to be part of our future, from general health care. And in that setting, I think given what we've been learning, and we'll continue to learn and report, there may be a significant role for us, at least in certain types of those viruses because we can probably bind them in a way that others can't. It would be hard to keep changing the motif for the spike protein via antibodies on an ongoing basis for as we generally probably have a broader reach in that area. It's too soon to make that statement. We have to test them all first. But that would be kind of the way I would see us having a role. And if we were able to take out the more severe cases, then I think there will be an ongoing role for us to try and stop these pandemics before they break loose.

Okay. Great. And just maybe, this is more for Jim, but Chuck, feel free to weigh in on this as well. With the recent raises, capital raises, has that given you more flexibility to expedite any of these programs? Or are you really pretty much at the mercy of the centers you're working with to enroll them? Is there anything that the increased capital has been to expedite any of these programs or anything that you're considering working on, going forward?

Right. Well, I think it's got a couple of positives. We can hire more senior people to call on the hospitals and then supervise the treatments. So we're thinking of bringing in some very experienced, solid, good people to do that. So we had such a small head count that it would have been difficult to supervise multiple treatments across the country, and we need to be in a position to do that. We hope and we believe. Secondly, we can step up our manufacturing efforts to keep back while we have enough Hemopurifiers for the clinical trials. We need to step up manufacturing to deal with success. So we're investigating some steps to take that in-house and really step up our manufacturing efforts. So in those ways, I see a direct correlation.

The next question is from Dave Lavigne with Trickle Research.

So I just want to -- I don't think -- I think I misunderstood this. So patient 1 is actually the original patient that you kind of discussed briefly in some prior calls, right? Is that right?

Yes. That patient was an emergency use patient. And as I mentioned earlier in the discussion with Anthony is, she has -- she clearly had a very high level of SARS-CoV-2 virus early on, and then cleared it by the time we were asked to see her after a variety of things have been tried and nothing has worked, and she was basically moribund. At that point, she had no circulating virus. My thought at the point -- at that point was, well, we are known to bind exosomes and is there a high likelihood that after such a big inflammatory disease with so much organ failure, she might have circulating exosomes, which, in fact, she did. And by clearing those exosomes, she actually cleared her disease and was able to get cured and go home.

So the trial will -- I guess it's possible that you may have people who end up in the trial that maybe don't have, that are advanced enough or maybe they don't have particularly in the high viral loads at that point, if I'm sort of understanding the difference between the 2 patients, for instance. And so -- but I'm assuming that in the end, we're still going to collect the same information. We're going to look at how it reduced viral load, but we're also going to look at exosome capture and things like that as well, right? I mean it's -- I'm sort of looking at the trial and it sort of seems focused a little bit on viral load, but the exosome thing is still sort of front and center here, right?

Well, the exosomes play a major role in inflammation and advancing cancer and that's why we're pursuing it in the oncology indication. I think what we're learning and others have been learning also, that the circulating viral load diminishes over time in the -- has -- in those that have circulating viral loads, usually, by day 6 to 10, they're diminishing. And so there's not as much of a circulating viral load. It doesn't mean they don't have virus in the body, but it's mostly probably intracellular. Alternatively, that same group of patients will have significant circulating exosomes. And since we're binding both, we're currently in a unique position of either taking it out at the beginning. For instance, if we -- if the FDA gave us the opportunity to be first treatment to kind of decrease circulating virus, it would probably put in a significant role. What they gave us was very ill patients with multi-organ failure, that's the start of where we are. And in this particular patient, she went through that before we were able to treat her. By the time we treated her she was profoundly ill and actually turned around. So I think there's a dynamic in there that's just becoming an early understanding that the virus and the exosome is just playing a role together that we should not ignore.

Okay. So we don't really know, obviously, then kind of what -- where these patients will be in terms of that progression, right? I mean you're going to kind of have to take them as they come. And there may be some who are further along than others. Is that right?

It's right to a certain degree, but we are hand pacing our ability to actually assess whether it's virus or exosomes and/or inflammatory parts associated with exosomes, that's all suddenly fit in, to further ongoing work in a novel IP.

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

Thank you, Gary. We'd like to thank everybody who joined the call today. We had a surge of excellent questions. As you've seen, we've made some fairly significant changes since roughly November to now in terms of personnel, capability, scientific capability and the ability to really get at a very desperate disease or group of diseases that interface. We appreciate your time and interest, and we hope you continue to follow us because I think you'll see more and more things coming from us that you like.

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