Aethlon Medical, Inc.
Q2 2020 Earnings Call Transcript

Published: 5 Nov 2019

[Operator:]

Good afternoon and welcome to the Aethlon Medical Second Quarter Fiscal 2020 Earnings and Corporate Update 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.

[Jim Frakes:]

Thank you, operator, and good afternoon, everyone.Welcome to Aethlon Medical’s second quarter 2020 earnings conference call. My name is Jim Frakes, and I am Aethlon's Chief Financial Officer. At 4

[Tim Rodell:]

Thank you, Jim, and thank you, everybody, for calling in, late on the Friday afternoon. We thought that it would be better to have the call on Friday, rather than on Halloween when some of you with school aged children would be trick-or-treating. So, we appreciate you taking time to hear this update.At Aethlon, we are continuing to develop our proprietary device, the Hemopurifier, which is the first in class therapeutic device that’s designed for the single use depletion of circulating viruses and cancer promoting exosomes. The Hemopurifier was previously designated a Breakthrough Device by the FDA for the treatment of glycosylated viruses, including Ebola, other hemorrhagic fever viruses, and virtually all viruses that affect humans. And then, in late 2018, the Hemopurifier received a second breakthrough designation for the treatment of individuals with advanced and metastatic cancer, who are either unresponsive to or intolerant of standard of care therapy, and with cancer types in which exosomes have been shown to participate in the development or the severity of the disease.So, we actually have two separate Breakthrough Device designations that were granted by different divisions at the FDA, recognizing the potential for the Hemopurifier in the treatment of multiple different diseases.Now, we've actually had a very eventful quarter. We previously announced that we were preparing for the initiation of clinical trials in patients with advanced and metastatic cancer. This work follows on a number of years of work in viral disease, representing over 400 Hemopurifier treatments in patients with various viral infections, predominantly Hepatitis C, establishing a very strong safety database for the Hemopurifier.In June of this year, our team, including me, Dr. Chuck Fisher, who has joined us this afternoon and is with me, and Lisa Boswell, our newly recruited Head of Quality Affairs and Regulatory, met with FDA in person in Bethesda to discuss our development program for the Hemopurifier in cancer. Following that meeting in September, we filed an Investigational Device Exemption or IDE application with FDA to initiate clinical trials in cancer. That IDE was approved on October 4th, less than 30 days after filing. We have to submit a final informed consent document to FDA prior to initiating trials, and that informed consent will be approved by the Institutional Review Board on at the medical center where we're going to conduct the trial.Now, I'd like to take digressed for just a minute and take a couple of minutes to comment on the review process in the context of our Breakthrough Device designation. I think that there has been somewhat of a view out there that the breakthrough designation is something that was generated by FDA to kind of convince people that they were moving quickly and provide a marketing ploy for companies, and our experience underlines the fact that this is anything but the case.In this situation, we filed our IDE in early September, and we received the first feedback from the agency three days later. During the subsequent 25 days, we received six additional rounds of comments and we filed seven amendments in 25 days. The IDE was then approved in less than the 30 days mandated after filing. Now, in my over 30 years of experience in drug and biologics of device development, this is absolutely unprecedented. Prior to the breakthrough designation in the legislation that supports it, the standard process was that you would file an IND or an IDE and you would wait patiently for 29 days and on day 29, FDA would call or email you and say either you can start your trial or you can't start your trial.So, this type of interactive back and forth, collegial communication with the agency is exactly what was intended by the legislation that supports the breakthrough designation. And the best thing I can tell you is, it works.We’re now in the process of start up a clinical trial which is the earliest trial in the device world, it’s called an Early Feasibility Study, in patients with advanced and/or metastatic cancer of the head and neck. As you may know, head and neck cancer is a deadly disease, and patients who are not candidates for definitive surgery or radiation, have very few options and very limited survival. Even patients who do have surgically or radiation amenable disease, generally recur, they can recur very quickly, they can get second primary cancer. So, this is one of the solid tumors that we’ve made the least progress in, in medicine.Recently, one of the newer immuno-oncology agents, also known checkpoint inhibitors, called ‎pembrolizumab or Keytruda from Merck was approved in the initial treatment of patients who present with disease that is not amenable to surgery or radiation. Keytruda represents a meaningful advance in the treatment of this disease. However, unfortunately, the majority of patients do not respond to this drug; and those who do respond, add only months, unfortunately not years to their life expectancy.Recent studies from collaborating laboratories that we work with and other laboratories have been indicated that one of the primary mechanisms, which tumors are resistant to Keytruda and similar drugs is through the shedding by the tumor of immunosuppressive exosomes, the exact particles that are targeted for clearance by the Hemopurifier.With this is mind, our initial trial in head and neck cancer will investigate the combination of Keytruda with a preceding treatment with the Hemopurifier to decrease a number of circulating immunosuppressive exosomes. This trial will be conducted at a major cancer center in the United States, and we will have more to discuss about the details of the trial when it is launched.I should say before briefly asking Chuck to comment that we continue to pursue the development of the Hemopurifier for viral infections, particularly life-threatening hemorrhagic fever viruses like Ebola. We will be opportunistic in treating patients with these diseases, also investigate other potential viral targets in the transplant area to increase -- improve the intake of translated solid organs. So, we by no means, abandon the viral field, we continue to developed there, but we also view cancer as being a clearer and more rapid path to potential approval for the Hemopurifier.So I’d like to stop for a minute because Chuck Fisher, Dr. Charles Fisher, our Chairman, has been imminently involved with the development program. Chuck recruited me to the Company last December in a management restructuring. Chuck and I have worked together for many years. We share a common philosophy about drug and device development and about how to run organization. So, our relationship is a clear one, very different from the relationship generally between a Chairman and a CEO, and Chuck has been a meaningful part and a trusted advisor for me during this entire process. So, Chuck do you want to make any comments on the regulatory and development process since you’ve been imminently involved in it?

[Chuck Fisher:]

Sure. Thanks very much, Tim, and good afternoon, everybody. And again, thank you for taking this call late on a Friday afternoon. We deeply appreciate it.In my own career and in Tim's career, both of us kind of saw medical first, and been successful in actually getting drugs and/or devices approved in this space. So, when we looked at making the management changes that we made, I wanted to bring in somebody that had a history of turnaround and a passion to seek medical first and do something to make a difference, and Tim, we found a real winner.To make the point that Tim just touched on this breakthrough therapy is quite dramatic from what we've seen in the past. And to have a really vibrant dialogue with the FDA, both over the phone and in person during the time of working through the submission of the IDE is as just Tim says, is extraordinarily unique and very productive.In addition to Tim, he’s brought, he’s recruited a couple of really very key and very strong people. So, we have a very small team, we're being quite financially rigorous in terms of watching where we are. But, we need key people. And I think it's worth noting that an IDE of this quality or NDA of this quality usually in a larger company, having run large companies as well as small companies, you would probably have 40 or 60 people involved and would take six to nine months. And this six-person team did it in a very short period time. So, I just want to emphasize the fact that not only have we expanded the target opportunities in this case, we think as Tim mentioned, to market on the regulatory process far way [ph] to cancer one is the one that's going to move to switch us to be able to have as we start moving into that space, to be aligned with what has become the number one in treatment of cancer. I think it also burnishes opportunity. And we hope to -- over time that proves that we have an additive effect.And thirdly, I just like to call out the team again, and in this case also Jim Frakes, which is a small team, but it's very effective. I'm very pleased and honored to serve with them.Back to you, Tim.

[Tim Rodell:]

Thanks, Chuck.Now, I'd like to spend a few minutes talking about Exosome Sciences, before I turn it over to Jim to review the financial data for the quarter. Exosome Sciences, as I think many of you know, is our majority owned subsidiary and is really the diagnostic side of our business. We’ve had two major developments in the last quarter on this side of the business. First, we announced very an important -- I think it's going to turn out to be a very important collaboration with the Precision Medicine Group, that's run by an old colleague of mine at Hoag Hospital Systems in Newport Beach, California, to identify exosomal markers in patients with and in families at risk for a number of different cancers.Hoag is a large private hospital group with a very busy genetics and oncology practice. It looks in many ways like a university center and is very heavily devoted to clinical research. Under this collaboration, we hope to advance our work in liquid biopsies that is an identifying blood-borne markers rather than requiring a surgical or a needle biopsy, identifying blood-borne markers based on exosomes that will predict the onset and the progression of various cancers. We're moving that collaboration forward, and we should have more to say about that in the reasonably near future.Perhaps more importantly, we just announced that we’ve just been awarded a $1.86 million two-year contract from the National Cancer Institute under the Small Business Innovative Research program to develop a benchtop instrument for the isolation and characterization of exosomes in cancer. This Phase 2 contract followed the successful completion of a Phase 1 contract in the same area, and demonstrates both the importance of the exosomes story to the NCI and to other scientists as well as their confidence in our team.Now, I just received in my inbox this morning an offer to buy a market study for gigantic price, but the title of the study is the exosomes market, a multibillion dollar market identifying hidden gems. And I think that shows that this is an area that now the business community and the commercial community are starting to pay attention to. But over the last 10 years, it’s become one of the most important areas of research in cancer. And if you look at the number of general articles here being published that are really meaningful in terms of understanding the mechanisms of cancer, this is probably one of the hottest areas in oncology today.We hope to have more to tell you in the coming months about our progress. So, I will stop here, we’ll happy to take questions after Jim presents the financial results for the quarter. Jim?

[Jim Frakes:]

Thanks, Tim, and good afternoon, again, everybody.Our net loss was approximately $1.7 million or $1.29 per share for the second quarter ended September 30, 2019 compared to a net loss of approximately $1.4 million or $1.17 per share for the quarter ended September 30, 2018. Our consolidated operating expenses for the quarter ended September 30, 2019 were approximately $1.7 million compared to approximately $1.35 million for the quarter ended September 30, 2018. This increase of approximately $350,000 in 2019 was due to increases in professional fees of $360,000 and in general and administrative expenses of $71,000, which were partially offset by a decrease in payroll and related expenses of $75,000.The $360,000 increase in professional fees in 2019 was primarily due to a $279,000 increase in legal fees, a $69,000 increase in accounting fees and a $65,000 payment to the University of Pittsburgh, a subcontractor on our SBIR breast cancer grant related to their work on that grant. The increase in legal and accounting fees related to increased activity in our registration statement filings and in intellectual property actions, among other matters.The $71,000 increase in general and administrative expenses in 2019 was primarily due to the combination of a $21,000 increase in our clinical trial expense, primarily costs associated with the manufacturing of Hemopurifiers for an expected clinical trial in the cancer space, and a $45,000 increase in our lab supplies expense, primarily related to the SBIR breast cancer grant and lab work related to the IDE application.The $75,000 decrease in payroll and related expenses in the quarter ended September 30, 2019 was due to the combination of a $65,000 reduction in our cash-based compensation expense and a $10,000 decrease in stock-based compensation compared with the same period in 2018.Other expense during the three months ended September 30, 2019 consisted of interest expense and a loss on share for warrant exchanges and during the three months ended September 30, 2018, consisted of interest expense only. Other expense for the three months ended September 30, 2019 was approximately $4,000, in comparison with other expense of approximately $55,000 for the three months ended September 30, 2018.At September 30, 2019, we had a cash balance of approximately $800,000. Since September 30, we have raised approximately $473,000 under our at-the-market facility and we billed the National Cancer Institute or NCI for approximately $207,000 under our Phase 2 melanoma cancer contract with the NCI.In July 2019, we paid off the remaining principal balance and accrued interest on our outstanding convertible notes in 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 June 20 19 quarter.Now, during our last earnings call on August 14th, I provided an update on our listing situation with NASDAQ. At that point in time, we had two issues with the stock exchange. The first issue related to our share price falling below the minimum continued listing threshold of $1 per share. We had until October 29, 2019 to regain compliance with this requirement by trading at or above the $1 per share price for 10 consecutive trading days. We were able to achieve that goal as the majority of our shares outstanding voted in favor of a reverse stock split at our annual meeting on October 14, 2019, our Board of Directors then approved 15

[Operator:]

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Brian Marckx with Zacks Investment Research. Please go ahead.

[Brian Marckx:]

Hi, guys. Congrats on all the progress. Wonder if you guys can talk a little bit more about the EFS study and things like -- do you the -- I assume you have the site identified or has that not happened?

[Tim Rodell:]

Yes. Thanks for the question, Brian, and thanks for calling in. So, the site is identified. We’ve been very closely working with them actually for the entire time that I’ve been at the Company. And they have were heavily involved in developing the clinical protocol that we filed with the IDE. We haven’t disclosed the name of the site, because like all large academic centers, they also have PR groups that need to approve things. So, the way that we wanted to do it was to announce the approval of the IDE and the indication. And then, as we start up the study, we’ll talk more about where we’re doing it, why we’re doing it there and more about the study design.What I didn’t say in my initial remarks is a little bit more of a detail of the study. Like all early studies of Phase 1 study with a drug or biological, in this case, an early feasibility study, with the device, the primary consideration initially is safety. Now, we don’t have any major concerns about safety. Obviously, you’re always paying attention to that, and this is the primary thing that both FDA and we as physicians and clinicians are concerned about. But, because of our previous history in viral disease and the multiple times the Hemopurifier has been used, we don’t have any reason to think that safety in this particular patient population will be an issue in a different way than it has been with viral disease.We’re also going to be looking at the clinic of exosomes, both the kinetics and the characterization of the exosomes that are being cleared by the Hemopurifier. And we’ll be looking at clinical outcomes, like response to therapy, progression-free and overall survival. But, like any early study in a new indication, this is going to be a small trial; it will be 10 to 12 subjects, all of them with either advanced or metastatic cancer of the head and neck who are candidates for first line Keytruda or pembrolizumab treatment. So, the idea here is that if we are able to clear immunosuppressive tumor derived exosomes in these patients, prior to the administration of pembrolizumab, it at least would make sense, theoretically, that we would increase both, the percentage of patients who are able to respond to pembrolizumab, which as it stands, even though it's very active, only about 30% of patients respond. So, we hope to increase both, the percentage of patients who are able to respond and also the duration of those responses.So, again, we will talk in a lot more detail as we get moving. But, we thought it was important initially to let folks know that the FDA had signed off on this and we're now -- our number one job right now is to get this trial moving as quickly as we can. Obviously, like any clinical trial, it has to be approved by various groups at the trial site and ultimately the Institutional Review Board before we can start enrolling patients, but we're well on the way towards that.

[Brian Marckx:]

And maybe this is an obvious answer to this question, but just for clarity. So, assuming this EFS study is “successful”, should we assume that you would be looking to move to a formal regulatory program in this indication?

[Tim Rodell:]

I think, that's a fair assumption. But, I think that the answer is much broader than that. So, we selected head and neck as the kind of pilot setting in which to study the drug for a couple of reasons. The first is that head neck cancer is an incredibly high need area. If you look at diseases like melanoma, like non-small cell lung cancer, there has been a lot of progress. They are still awful diseases, but in patients with melanoma or with lung cancer who respond for instance to drugs like pembrolizumab, some of those patients are alive at five years, and that's almost unheard of. But, in head and neck, it really is not that good. So, even the patients who respond, still don't do that well. They may live three months longer, but they don't live long term. So, it's a very high need area.Secondly, both, laboratories that we collaborate with and other labs have demonstrated that the immunosuppression in head and neck cancer is a critical component of the reason that disease is so deadly. These patients have profoundly suppressed immune systems and there are good data out there demonstrating that a major component of that immune suppression is mediated by exosomes. So, it's a perfect target area for us to start out in.But data from this trial showing that we can clear exosomes obviously supported safety data and hopefully some kind of a squint at whether we're having a clinical impact. Although, as you know, 10 patients is not enough to really develop any kind of meaningful confidence about ultimate clinical efficacy. But, this is a pilot trial, not only for head and neck, but also for multiple other solid tumors. So, we view this as being the beginning of a process. Over the course of the next year, we plan to review with FDA our overall data development program, not only in head and neck cancer but also in other solid tumors. So, this is kind of the first shot, but it can lead to -- assuming a successful trial, it can lead to multiple pivotal programs in other tumor types.Chuck, do you want to comment on that at all? Sorry, Chuck may be on mute.

[Chuck Fisher:]

I was on mute. The only thing I’d just like to emphasize what Tim just mentioned is, since it's a small trial, I don't think, we should look for anything other than the safety side of it. We always look for signals, we will look at the degree of exosomes recapture things like that, that can help us further characterize it going forward, but the number is small. However, this is a critical first step because as Tim just mentioned, it then opens the door going broader after dialogue with the FDA and laying out our data development plan.

[Brian Marckx:]

Okay.

[Tim Rodell:]

Thanks Chuck.

[Brian Marckx:]

Just kind of curious about how much is known about exosomes in cancer, and if it’s homogenous, I don’t know if that's the right word to use. But, if it's similar to way that they act in head and neck, would they act the same way in say melanoma for example or a different type of cancer? So, could you potentially -- what you learned from this study, would it have potential crossover to other tumors?

[Tim Rodell:]

Yes. It's a great question, and thank you. And without going into too much depth, what I will say is first of all, there is malignancy that has not been -- that has been described that is not at least currently characterized by the shedding of tumor-derived exosomes. So, head and neck is simply an example of a process that happens in all malignancies, including hematologic malignancies, like leukemias and lymphomas. We actually have done a great deal of work in other areas in preclinical studies. We finished about a year ago another NCI-funded grant, looking at exosomes in melanoma and demonstrated not only that melanoma sheds gigantic quantities of exosomes, but also that benchtop devices that are essentially small versions of the Hemopurifier can trap those exosomes. And we're currently working on another NCI-funded study in triple negative breast cancer.So, the short answer is, they're everywhere. Exactly how, what they do in different cancers, may be somewhat different. We focused on head and neck because of the immunosuppression and because of a prominent role of exosomes in generating that immunosuppression, but exosomes in other tumors have been shown immediate resistance to chemotherapy, resistance to targeted agents and metastasis. They actually contain fragments of the tumor proteins and nucleic acids that can move through the circulation, be taken up by normal cells and transform those normal cells to metastatic cancer cells. So, they’re an agent of metastasis. So, I think the bottom line is if we are able share that we can capture them in had a knack and that that has a meaningful impact that pretty much opens up all of oncology to development of the Hemopurifier. It’s a really good question and I appreciate it.

[Brian Marckx:]

Yes. I appreciate that. Thanks, Tim. Just one last one, I don’t want to take all the Q&A time here. Is there anybody else that is -- any other organization that's involved in this EFA study or is it all Aethlon?

[Tim Rodell:]

Well, I would say, it is Aethlon and it is our academic collaborators, both, bench collaborators, bench researchers and clinical collaborators who are actually taking care of these patients. Those are the primary groups that are involved. We have lots of other people that are involved at the scientific level, developing antibodies that are able to characterize exosomes and other institutions. So, I mean, it's a very broad-reaching effort, but it's primarily the relationship between Aethlon and a couple of related academic institutions.

[Operator:]

[Operator instructions] The next question is from Ken Seel, [ph] a private investor. Please go ahead.

[Unidentified Analyst:]

Yes. There's been a lot of public writings lately about the mosquito borne virus that has killed several people. I think, it's the EE virus is what I want to say. Was Hemopurifier considered for any type of treatment in those circumstances?

[Tim Rodell:]

It’s a great question, Ken. Thank you for asking. And the virus you're referring to is EEE, which Eastern Equine Encephalitis virus that's killed a number of people, predominantly kids. And we have been paying very close attention to that. Whether the Hemopurifier could be used in that indication, we don't absolutely know. We have looked at it with other very closely related viruses, but not with EEE. And the other issue that we would have to deal with from a practical perspective is that by the time patients exhibit life-threatening manifestations of encephalitis with that virus, the virus is already in their brain, and the Hemopurifier may or may not be able to help clear it. And so, it's potentially a target and it's an area where we could get involved. But, we don't have adequate data quite yet to be able to say that. But, I think that it’s an important consideration because, as I said earlier, virtually all of the viruses that affect humans, and I'm not just talking about Ebola and viruses like EEE but also influenza and a number of those viruses as well as chronic viral infections, those viruses have surface [ph] on their surface and therefore should be capable of being trapped by the Hemopurifier. But, Chuck alluded earlier that part of the issue is -- part of the reason cancer is a faster pathway for us is because we can identify a fairly large target patient population that we can get to quickly. Whereas trying to intervene in individual viral infections with multiple different viruses, it's a little bit more complicated but it's one we're looking at. So, it could be a potential target, we don't have enough data quite yet to say so.

[Operator:]

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

[Tim Rodell:]

Thank you, Gary. And let me just say once again, we very much appreciate all of you calling in and staying up to date on the Company. We think that we've made a lot of progress over the course of the last year. We are happy with our progress but not satisfied. We have a lot of work to do and we hope to have a lot more to say over the course of the next few months. I've said this before, but I'll say it again, if you have questions that you didn't get a chance to ask or that you think of after the call, we're very receptive to emails and phone calls, and we’ll be happy to discuss things in the future. As Jim said, I think, we file our next 10-Q in February. So, we'll talk to you then, if not before. And we hope everybody has a great holiday season. Thanks again for calling in.

[Operator:]

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