Aethlon Medical, Inc.
Q1 2019 Earnings Call Transcript

Published: 9 Aug 2018

[Operator:]

Good day, and welcome to the Aethlon Medical First Quarter Fiscal 2019 Earnings and Corporate Update Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, today's event is being recorded. I would now like to turn the conference over to Jim Frakes, Chief Financial Officer. Please go ahead, sir.

[Jim Frakes:]

Thank you, operator and good afternoon everyone. Welcome to Aethlon Medical's first quarter fiscal year 2019 conference call. My name is Jim Frakes, and I am Aethlon's Chief Financial Officer. At 4

[Jim Joyce:]

Thank you, Jim, and good afternoon, everyone. I have three program updates which include the status of our breakthrough device designation to treat life-threatening viruses, several new disclosures related to the advancement of our Hemopurifier in cancer care, and an update on a clinical program being advanced by our Exosome Sciences diagnostics subsidiary. In regards to life-threatening viruses we have aligned our Hemopurifier to fulfill the Department of Health & Human Services objective to advance broad spectrum treatment countermeasures against life-threatening pathogens. Based on human and in-vitro study outcomes we believe our Hemopurifier is a leading candidate to fulfill the HHS's broad spectrum objective against life-threatening viral pathogens. Last September the FDA designated our Hemopurifier to an expedited access pathway program and then subsequently designated our device to the new breakthrough device program which was established as a result of the 21st Century Cures Act being signed into law. Under the breakthrough device designation the FDA allowed our proposed indication for use to be the treatment of life-threatening glycosylated viruses for which there are no approved therapies, again aligning with HHS's broad spectrum countermeasure objective. On October 25 of last year FDA published it's first draft guidance on the breakthrough device program which described the policy that FDA intended to use to implement the program by December 26 of last year. The draft guidance in related details can be accessed online at fda.gov. In recent weeks FDA has advised that the provisions that were introduced in the draft guidance document will not be formally implemented until FDA's final guidance document has been published. In the interim and based on communications with the FDA we are considering a near-term supplement submission to our existing compassionate use IDE that is already approved for the treatment of Ebola virus. The supplement would propose to expand our compassionate use indication to include other life-threatening viruses. However, we cannot provide any assurance that FDA will approve our expanded compassionate use supplement to treat other life-threatening viruses beyond Ebola. In parallel with the effort to advance our breakthrough device designation we have been conducting several studies to reinforce the candidate use of our Hemopurifier to address a defined unmet need in the highly valued cancer space, more specifically, the use of our Hemopurifier to deplete the presence of circulating tumor-derived exosomes in cancer patients. Tumor-derived exosomes have emerged to become significant therapeutic targets in cancer care, yet like many life-threatening viruses they remain beyond the reach of drug therapies. When we initiated our exosome research more than a decade ago, the medical community consensus was that exosomes were nothing more than cellular debris and had no biological function. However, we believed that tumor-derived exosomes contributed to cancer progression and as a result we were able to obtain patent protection across the spectrum of therapeutic and diagnostic opportunities. Today tumor-derived exosomes are known to play multiple roles in cancer progression including immune suppression and seeding the spread of metastases which accounts for 90% of cancer deaths. In 2012, we published a manuscript entitled exosome removal as a therapeutic adjuvant in cancer. The paper proposed to implement our Hemopurifier as a strategy to improve the benefit of cancer therapies and has since been cited by researchers in more than 150 scientific publications. When considering the tumor-derived exosomes have been implicated in treatment resistant to 19 different cancer drugs, our strategy has never been more relevant. Last year the Top 10 cancer drugs accounted for $43.7 billion in sales, of these peer-reviewed research publications implicated exosomes in contributing the treatment resistance against seven of these drugs which accounted for $35.2 billion in revenues; this includes avastin, rituxan, and herceptin which are all Roche assets and are the number 1, number 2, and number 4 top selling cancer drugs in the world. I mentioned this as on July 20 Roche announced their first exosome related deal which is a milestone driven research collaboration valued upto $1 billion with PureTech Health. As it relates to our exosome programs, we have several new disclosures. I know that many of you recall that we initiated a clinical [ph] study with the University of California Irvine Cancer Institute which is an NCI designated cancer center. I'm pleased to report that the study enrolled 17 subjects among four cancers that included breast, gastric, head and neck, and ovarian cancer. In total, we have taken delivery of 120 patient samples for clinical evaluation. So far our research team has evaluated samples from the head and neck cancer subjects and have demonstrated in-vitro that our Hemopurifier is effective in depleting exosomes. In fact in a small scale Hemopurifier study, we observed a 90% reduction in exosome levels in just 45 minutes. Related to this observation, we have collaborated with the University of Pittsburgh Hillman Cancer Center to author 50 subjects human study treatment protocol that has been submitted to the National Cancer Institute for funding. The protocol is entitled depleting exosomes to improve responses to immune therapy, and head and neck squamous cell carcinoma; the goal of the study is to determine if hemopurifier deletion of tumor-derived exosomes would prove the benefit of Nivolumab which is a checkpoint inhibitor marketed by Bristol Myers Squibb under the brand name Optivo. Also regarding the National Cancer Institute, we concluded a Phase 1 NCI contract at the end of June related to metastatic melanoma. Under this contract we collaborated with the University of Pittsburgh, Massachusetts general and Harvard researchers to demonstrate that our Hemopurifier mechanism has a high affinity to capture melanoma-derived exosomes. Based on these outcomes our NCI contract team has encouraged us to respond to a Phase 2 proposal that they will post early this fall. Regardless these results reinforce the outcomes of our early metastatic melanoma research with the MD Anderson Cancer Center. We have also demonstrated the capture of exosomes underlying breast and ovarian cancer, and have other exosome related proposals pending with the National Cancer Institute which we will disclose once or if they are awarded. As it relates to our Exosome Sciences diagnostics subsidiary, our diagnosed CTE study has now enrolled 20 former NFL players at the Translational Genomics Research Institute in Phoenix, our next enrollment date is this Friday from 9 A.M. to 1 P.M. And in that regard it seems that the industry for exosome or biomarkers to diagnose or monitor disease conditions might be starting to emerge as evidenced by Biotekna's acquisition of our industry colleagues at exosome diagnostics in late June. The value of the transaction was $575 million of which $250 million was an upfront cash payment. With that said, I will now pass the baton back over to Jim Frakes who will discuss our quarterly results.

[Jim Frakes:]

Thanks, Jim, and good afternoon again everyone. At June 30, 2018, we had a cash balance of approximately $6.1 million. The net loss was approximately $1.1 million or $0.06 per share for the three months ended June 30, 2018 compared to a net loss of approximately $1.8 million or $0.21 per share for the three months ended June 30, 2017. During the three months ended June 30, 2018 we've recorded $149,625 in revenues under our contract with the National Cancer Institute. During the three months ended June 30, 2017 new government contract revenues were recorded. Consolidated operating costs and expenses were approximately $1.247 million for the three months ended June 30, 2018 compared to $1.16 million in the three months ended June 30, 2017, an increase of approximately $87,000. The $87,000 increase was due to increases in professional fees of approximately $106,000 and in general administrative expense of approximately $800,000 which were partially offset by a reduction in payroll and related expenses of approximately $27,000. The $106,000 increase in our professional fees was due to increases in Aethlon's professional fees of $95,000 and our professional fees at Exosome Sciences of $11,000. The $95,000 increase in our professional fees was due to a $66,000 increase in scientific consulting fees which includes our payment to subcontractors under our NCI contract. A $41,500 increase in our board fees due to the addition of new board members and a $39,000 increase in our marketing and Investor Relations fees. Those increases were partially offset by a $35,000 decrease in our legal fees and smaller decreases in other professional fees. The $8,000 increase in general and administrative expenses was primarily due to an increase in our rent expense of $15,000 which was partially offset by reductions in a number of other expenses. And the $27,000 decrease in payroll and related expenses was primarily due to the combination of a $17,000 decrease in stock-based compensation, and a $10,000 decrease in cash-based payroll and related expenses into a headcount reduction. We had other expenses of approximately $55,000 in the three months ended June 30, 2018 compared to other expense of approximately $685,000 in the three months June 30, 2017. We put out these earnings and related commentary in a press release earlier this afternoon. That release included the balance sheet for June 30, 2018 and statements of operations from three month periods ended June 30, 2018 and 2017. We will file our Form 10-Q quarterly report following this call. And now Jim Joyce and I would be happy to take any questions that you may have. Operator, please open the call for questions.

[Operator:]

[Operator Instructions] Today's first question comes from Brian Marckx of Zacks Investment Research.

[Brian Marckx:]

Jim, I didn't quite grasp what the status was of the breakthrough device designation pathway discussions with FDA. Can you talk about that?

[Jim Joyce:]

Sure. Well, we've been benefiting from the designation as it relates to the original intent, the expedited access pathway, which provides us the ability to have rapid and ongoing communications with FDA which we've truly appreciated. The provisions that have been established in the breakthrough device designation as you may recall at our previous discussions and what we've published, they are specifically related to the clinical advancement of new products to provide patients to earlier access to therapies, and as it relates to issues such as viral pathogens that are highly virulent, not addressed with other drugs therapies -- as you know and many others know, it's very difficult to run controlled clinical studies against such threats. So in the breakthrough device legislation and published in the draft guidance are new programs related to post-approval data collection, real world collection of data in clinical trials. There is a lot of provision specific to how people can be provided earlier access to life saving therapies, especially in the cases where there is no approved product. What has occurred is that FDA has not yet published their final guidance document so while we are formally being advanced through the breakthrough device designation program, the formal implementation of the programs provisions, at least the new provisions specific to the breakthrough device program cannot be implemented until FDA publishes their final documentation on the program; and we like others are waiting for that to occur and at this point in time FDA has not been able to identify when they will publish their final documentation or their final guidance results but as I mentioned the intent was to have the guidance published in October 25 implemented by December 26 of last year. So we're hoping it will occur in the near-term in the interim based on our dialogue with FDA. We believe there is a potential pathway to expand through a supplement, our IDE compassionate use approval to treat Ebola to include other viruses, and that's something that we plan to pursue.

[Brian Marckx:]

So was publishing of the new draft guidance -- the final guidance, has that always been a gating factor? It was supposed to be published at the end of 2017. I think you said certainly August?

[Jim Joyce:]

Yes, we were aware that it was a gating factor because we believe based on communications we were operating under the guidance documents in the draft publication. But today we've learned that FDA to formally implement the new provisions introduced through the breakthrough device program established under the 21st Century Cures Act that they now have to have their final guidance documents published.

[Brian Marckx:]

So essentially those discussions under your breakthrough device designation are -- right now are essentially kind of on hold I guess; is that a fair characterization of where they stand?

[Jim Joyce:]

We're still actively in communications with FDA on a number of matters, so the benefit of the expedited access pathway component of the breakthrough device division is in effect, and we believe we're benefiting from very broad guidance we're getting but FDA has indicated they can't implement the provisions of the breakthrough device program until final guidance documents are published. And as an example, I mean this is just an example because we have other potential opportunities that we would consider a possible submission of a breakthrough device submission for other indications maybe such as cancer. And I think it was through some of that consideration that we discovered that even though people that were operating under an expedited access pathway program submission got transition to the breakthrough device program that if somebody was trying to -- try to pursue a breakthrough device submission today that submission doesn't exist, they'd actually have to submit for an expedited access pathway submission which would then be transitioned to the breakthrough device program which is waiting for final guidance from FDA to be published. So it may sound confusing and it is but it's something that we're navigating through right now.

[Brian Marckx:]

And then in terms of the supplement to compassionate use for beyond Ebola, do you have kind of a timeline for when you think you may have the submission [indiscernible] and submitted? And then in terms of what kind of support do you expect to include in the filing to support the approval for the supplement?

[Jim Joyce:]

This is not a highly complex submission because it's just the supplement to a compassionate use approval we already have for treating Ebola. And we're looking to expand the number of site locations and increase the number of life-threatening viruses within the submission. Based on our communications it's something that could be submitted in the next week to 10 days. And the turnaround should be should be quite quick but again, as referenced during the call, there is no assurance that if we submit this that FDA will expand our compassionate use treatment but right now what we think is important is that the supplement to the IDE program would put us in a position to be able to treat other life-threatening viruses which is an objective of the breakthrough device program which is to provide active means to be able to collect data against these threats. So we're optimistic but we also are cognizant of the timelines that have occurred in the breakthrough device program that we've been challenged by, and so we're -- I guess you could say we're cautiously optimistic.

[Brian Marckx:]

And then in the supplement, do you risk the particular targets or is it just sort of a broad highly glycosylated target?

[Jim Joyce:]

Yes, we will list the specific targets and they will be targets that are among viruses that we've already demonstrated at a minimum in-vitro the ability to capture.

[Brian Marckx:]

And then on the [indiscernible] study, you said there was 20 people enrolled today and the target is still 200, is that right?

[Jim Joyce:]

The target is 200, the Translational Genomics Research Institute, our first site location kind of using that to kind of get out all the kinks we know on how to enroll people and how to get players out. We've had great support from the local player community there in Phoenix, we think Friday should be a good day, CBS sportscaster saw the Wilcox will be out to do a filming of himself participating in the study and we expect pretty good participation. I think we've had three enrolments days already, so it's moving along pretty nicely.

[Brian Marckx:]

And do you expect or hope to have additional sites come online or is it just the one site that's going to be involved in the study?

[Jim Joyce:]

No, we hope to have other sites come online and sites that would be strategically located in cities where there is high concentration of former players. The other thing I would add just to provide some color, when we talk about our Exosome Sciences diagnostics subsidiary, we talk about exosomal biomarkers, and we started in this by looking at biomarkers in cancer and neurological disorders. And so the current study is looking at a biomarker that we think is associated with talopathy [ph] which is inclusive of Alzheimer's disease, CTE, certain types of Parkinson's; so this is much more expansive than trying to identify and monitor CTE in living individuals. But I bring this up because one of the goals of our -- or our objectives of our Exosome Sciences subsidiary is to target biomarkers that we think might also be therapeutic targets. And while we know tumor-derived exosomes are significant therapeutic targets in cancer, we've never really seen published evidence that exosomes expressing amyloid beta [ph] or tal protein might be a therapeutic target until about three weeks ago when a group in Sweden published a manuscript that pointed out that exosomes transporting these proteins might be a significant or primary cause of Alzheimer's disease and it was a small study and equals 10 but it does show an initial observation that these biomarkers much like in cancer might also be therapeutic targets.

[Operator:]

Our next question comes from Yi Chen of H.C. Wainwright.

[Yi Chen:]

My first question; so once you submit the supplement IDE for compassionate use, how much units of Hemopurifier do you expect to be used in the -- let's say coming quarters or coming year?

[Jim Joyce:]

We don't have a projection on that Yi and a lot of it is driven by the historical challenge you have of predicting the outbreaks of life-threatening viruses for which there is no proven therapy; so we don't have a projection. What we do know is that there is much larger number of centers that are high containment centers available here in the U.S. to be able to treat life-threatening viruses but again these viruses -- we can't predict when there is an outbreak, as we know there is another outbreak in the Republic of Congo related to Ebola; but back here in the States, the most recent outbreak that's ongoing now is West Nile virus which I think has now spread to 33 states and there is now 55 high containment facilities in the U.S. that are designated by CDC to treat people infected with high-threat pathogens that require containment. But we just -- we can't project at this point in time.

[Yi Chen:]

Aethlon Medical will generate revenue if one or more units of Hemopurifier are used in those high containment facilities, is that correct?

[Jim Joyce:]

It's our understanding that under compassionate use programs we can certainly generate revenues if we choose but we're also focused on collecting data. So at this point in time, again -- there is no upside to us projecting revenues from these [indiscernible].

[Yi Chen:]

And also regarding FDA's final guidance documentation, I guess based on what you've said although there is -- we can't -- you probably cannot say when that will happen but it is reasonable to expect that to happen by the end of 2018?

[Jim Joyce:]

We have regular dialogue with FDA and have asked the question when they expect the final guidance to be published. And the answer has been -- at least with the folks we've spoken to -- they don't know. It's obviously been expected to have been published long before now, so we're just waiting. But it explains a lot in our communications whereas a lot of our dialogue with the FDA was very much focused on the provisions of the expedited access pathway; it seem like not everybody is upto speed on the expansive clinical provisions to provide early access to therapies under the breakthrough device program, and it's those provisions that we believe that will most benefit from.

[Yi Chen:]

And for the use of Hemopurifier in cancer you mentioned the UCLA study; is that a investigator-sponsored study or…

[Jim Joyce:]

It is. It was investigator-sponsored study, the principal investigator is Dr.Edward Nelson. And this is a study where we had the good fortune -- we're not only looking at capture but we want to look at changes in exosome levels amongst different patients before they initiated therapy after therapy as a means to monitor response to therapies. We believe -- we look at tumor-derived exosomes as potentially being a correlate to viral load and infectious disease where the quantity of circulating tumor-derived exosomes would correlate with disease progression of cancer and what we do know is if you don't have cancer there is not going to be a presence of tumor-derived exosomes in the circulatory system. If you have late late-stage cancer, the quantities in circulation can be monumental which kind of explains why it's so difficult to reel-in late-stage cancer patients. But again, it's the same Hemopurifier that we've advanced in infectious disease, we looked at exosomes more than a decade ago because we saw that same glycosylated structure and we predicted that cancer was sharing an evolutionary mechanism with viruses to help them evade the surveillance of the immune system, and we did this at a time when the medical community consensus was that exosomes were just cellular debris with no biological function, and our prediction was right and it gave us a good period of time to collect expansive data across the spectrum of therapeutics, diagnostics and even potentially harvesting exosomes to be repurposed for drug delivery. I don't know if you're following any companies yet that are talking about using exosomes to deliver therapeutic payloads in cancer and neurological condition when it's a very very growing field.

[Yi Chen:]

Do you happen to know the enrollment target of the UCR study? And when we'll be likely report results from this study?

[Jim Joyce:]

We've completed the enrollment, we've ended the study at this point in time based on meeting our objectives for collecting sufficient samples under four different types of cancer; so now we're working on evaluating those samples to further quantify the ability of the Hemopurifier to capture tumor-derived exosomes and looking at exosomes in terms of changing levels based on different stages of cancer or a point in time during receipt of therapy in these patients. But we have other proposals that we higher priority focus on at this point in time in cancer that we're advancing but the one thing we did leverage so far out of the UCI study was the validation of the head and neck cancer which helped provide the corresponding in-vitro data support the collaboration that's been advanced with their colleagues at University of Pittsburgh Hillman Cancer Center related to a clinical study protocol that was submitted to NCI for funding.

[Yi Chen:]

Just to confirm some of the numbers you mentioned in your prepared remarks. Did you just mention that 17 subjects were enrolled in this study untreated and in 98% exosome reduction was achieved in 45 minutes?

[Jim Joyce:]

Yes, so we had 17 subjects enrolled that provided us approximately 120 for evaluation and so far the head and neck cancer patients what we do is we initially do a study to demonstrate that our affinity risen captures the tumor-derived exosomes and we demonstrated that resin are likely to face resin with very effective in capturing. Once we have that validation we then move into a small scale closed loop set up where we look to demonstrate the rate of depletion with a small scale Hemopurifier and it was in those studies that we demonstrated a 90% reduction of exosome levels in a 45-minute timeframe.

[Yi Chen:]

And final question regarding the CTE study; when do you expect to complete the enrollment of 200 subjects?

[Jim Joyce:]

We are -- we can't predict that, we know we're going to have a pickup in enrollment as we move past the summer at the TJ location in Phoenix but we look to complete the enrollment, we probably will need to add at least two more sites but that's ongoing, and I think we've figured out the different challenges of enrolling subjects but we've received very good support from members of the NFL Alumni Association and the media there in Phoenix and have really kind of -- I think dialed in how to make these programs more efficient in terms of enrollment.

[Operator:]

And our next question for a house from Marc Robins with Catalyst Research.

[Marc Robins:]

Jim, don't I remember a situation where a certain -- I'm not sure if it was a device or drug was given approval or allowed commercialization and this was for concussions, and they couldn't really test the patients, the subjects because that would essentially require the patients to receive a knock on the head with a baseball bat if you will. Didn't that get through the expedited or not expedited access but rather breakthrough device technology program?

[Jim Joyce:]

Yes, that was some known [ph] biomarkers and that was a concussion test based on blood biomarker, actually it's based on two blood biomarkers looking at changing levels of those biomarkers and their movement into the blood. That was a clinical program that had been ongoing for I believe about eight years in a human study and was moving towards conclusion at the point in time they had moved into an expedited access pathway program which then all the expedited access pathway program designees -- their transition to the breakthrough program of which -- about the time they were getting approval they then became part of the breakthrough program. But again, that's diagnostics and at present the provisions that have been introduced and I encourage everybody to really -- I mean, if you want to understand why we were excited about the breakthrough device provisions, just go to fda.gov in Google, breakthrough device program and you read about the expansive clinical provisions to provide patients to earlier access to life-threatening therapies which corresponds with the new FDA's commissioners policy, as well as the commissioner of CDRH which is the division that provides oversight for our programs. The goal is to provide patients with earlier access to therapies, FDA just need to get these programs implemented but I do encourage people to search fda.gov for the breakthrough device program, read the draft guidance published on October 25 of last year and you'll see why we were excited and very optimistic about these programs. And hopefully we'll see the final guidance documents published soon. But as I mentioned Marc going back to a company, if they wanted to pursue -- somebody said today I want to pursue a breakthrough device designation, surprisingly even though expedited access pathway designees have been to the breakthrough device program. To get a breakthrough device designation today you still have to file an expedited access pathway submission; so it's very convoluted and this final guidance document has kind of clogged up the pathway for any therapeutic that's trying to leverage the provisions that were introduced to the breakthrough device guidance documents.

[Marc Robins:]

Well, I just don't know where to begin because it seems to me from the FDA's point of view or from my point of view of looking at the FDA, we're doing nothing more than getting ready to get ready, and every time we turnaround there is some other roadblock why we can't do -- why we can't go out, and actually either commercialize or license this product. And it seems to me like if West Nile Virus is the only virus we cannot contend with here in The United States at this point in time why wouldn't we want to go and work with the NIV which I know we have relationship and dealings with in the past to work with dengue, and why couldn't we go and figure out a way to work but WHO since we saved one of their doctors to work with Ebola in the Congo, it just -- it seems like every time we turn I feel like the mouse and the maze that's just getting nowhere.

[Jim Joyce:]

And I think the best way we know [indiscernible] if you believe that the breakthrough device program provides a pathway to provide earlier access to patients to treat these life-threatening pathogens, then it's our belief that we would stick to that pathway to perhaps get some type of designation or a pathway towards market which improves our likelihood to be able to treat in other areas around the world…

[Marc Robins:]

But aren't you considered safe at this time by the FDA?

[Jim Joyce:]

I can't speak for the FDA.

[Marc Robins:]

I mean isn't that essentially what they said when they agreed to take your 8 patient trial for safety out of Houston and recognized it as being -- it looks like it's safe to us?

[Jim Joyce:]

No, FDA has stated that we published a final report submission to FDA after that study, there were no questions or comments to the report, they accepted the report as it was. They then provided us with an expedited access pathway designation and then subsequently transitioned through a breakthrough device program designation of which the final guidance documents for that program for any therapeutic -- unless you're already in a clinical program for any therapeutic -- if you try to navigate to the next phase under the provisions introduced in the breakthrough device program, you're somewhat stalled until final guidance is published.

[Marc Robins:]

I hope we can continue to stay around that long. Thank you.

[Operator:]

And ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to the management team for any closing remarks.

[Jim Joyce:]

We appreciate everyone's participation today. We're continuing to work with FDA to advance our product on the breakthrough device designation, we're extremely excited about the programs that have emerged under exosomes as a target in cancer therapy and recognize that this is an area where there is a lot of partnering capabilities based on the premise of being able to improve the potential benefit of drug therapies of which many of your best-selling cancer drugs are now known to be inhibited by the presence of tumor-derived exosomes of which there is no approved therapy to address these particles, and obviously a very high value market. And we continue to advance our program at exosome diagnostics, and as referenced, both the exosome therapeutic field and the exosome diagnostic field are starting to see their first deals done which we think are significant value drivers.

[Operator:]

Thank you, sir. Today's conference has now concluded and we thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful evening.