Aethlon Medical, Inc.
Q2 2019 Earnings Call Transcript

Published: 7 Nov 2018

[Operator:]

Good day, and welcome to the Aethlon Medical, Inc. Second Quarter Fiscal 2019 Earnings and Corporate Update Conference Call. [Operator Instructions]. 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 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. Before I discuss our core therapeutic endeavours I want to report on Exosome Sciences which is the biomarker discovery company and is 80% owned by Aethlon Medical. In our last quarterly call we reported a 20 former NFL players have been enrolled in the Exosome Science diagnosed CTE study which is being conducted at the Translational Genomics Research Institute in Phoenix. As of last Friday 41 subjects' have now been enrolled in the study. With that said let's discuss the advancement of our hemopurifier which is the first in class therapeutic technology designed for the single use depletion of circulating viruses and cancer promoting Exosomes. As previously disclosed United States Food and Drug Administration designated our hemopurifier as a breakthrough device for the treatment of life threatening glycosylated viruses that are not addressed with an approved therapy. For those not familiar with the breakthrough device program it was recently established under the 21st century Cures Act. The intent of the program is to provide patients with more timely access to breakthrough technologies that provide a more effective treatment against life threatening diseases for which no approved or clear treatment exists. Based on the inherent challenge of conducting control of human studies against highly virulent viruses we were pleased to see the introduction of real world evidence and post market data collection provisions in the draft breakthrough device guide that was published by FDA towards the end of last year. Beyond our breakthrough device designation we are focused to align our hemopurifier to fulfill a broad spectrum treatment counter major objective established by the United States Department of Health and Human Services under the Public Health Emergency Medical Countermeasure Enterprise which is otherwise known as PHEMCE. This strategic plan sets forth the US government blueprint to enhance national health security through the procurement and effectiveness of medical countermeasures including a stated focus towards a single broad spectrum therapy that also has viable commercial markets beyond high threat bio-terror and pandemic agents. Based on real world data collection we believe our hemopurifier is a leading candidate to achieve the PHEMCE broad spectrum objective and in regards to a viable commercial market opportunities beyond bioterror and pandemic threats we have advanced a series of initiatives during the course of 2018 to expand our clinical opportunity to include the treatment of cancer. On September 25th we filed a new follow on breakthrough device submission to the United States Food and Drug Administration, in this submission we proposed a use of our hemopurifier for exosomes depletion as an adjunct therapy in patients diagnosed with metastatic cancer. Based on initial feedback we filed an amended submission back to FDA on October 23rd and are now waiting on a decision from FDA. Certainly there is no assurance that we will receive an oncology related breakthrough designation. However we do believe the candidate [ph] use of our hemopurifier to reduce the presence of tumor-derived exosomes would address a significant need in cancer care especially when considering the tumor-derived exosomes feed the creation and spread of metastasis which is associated with 90% of cancer deaths. Additionally tumor-derived exosomes promote a mean suppression and directly inhibits the t-cells you need to combat cancer. The prevalence of tumor-derived exosomes in circulation correlates with cancer progression if you don't have cancer there's not going to be the presence of the a tumor-derived exosome if you had a later stage cancer there is going to be massive quantities and at levels we normally would never see with a viral infection in terms of particles per [indiscernible]. This explains why it's so difficult to reel in a late stage cancer patient. Additionally tumor-derived exosomes are now known to promote cancer therapy resistance. This provides us a basis for partnering opportunities that didn't exist against infectious viral-pathogens and provides us a pathway into well-defined market opportunities. As it relates to promoting resistance against cancer therapies tumor-derived exosomes decoy and can directly absorb chemotherapeutic agents, they inhibit high value CAR-T therapies and I used the term high value based on the acquisition of June for $9 billion by Celgene and an acquisition of Kite for $11.9 billion by Gilead and tumor-derived exosomes also promote anti-cancer drug resistance including new class of PD-1 checkpoint inhibitors and publications now reveal that tumor-derived exosomes inhibit 7 of the 10 top selling cancer drugs in the world last year which represented about $35.2 billion in 2017 sales. This includes the three leading assets [indiscernible], two assets from J&J, GLEEVEC from Novartis and [indiscernible] that's an asset of Merck's. In regards to interest in our hemopurifier as an adjunct that can combine with cancer therapy and publication exosome removal of the therapeutic [indiscernible] cancer has now been cited in 184 journal publications. Beyond our oncology breakthrough device submission with advanced five other cancer initiatives during the course the 2018 the second initiative entitled the device strategy for selective isolation of oncosomes and non-malignant exosomes. This is the contract with the National Cancer Institute. We completed the work under this contract in June which demonstrates the isolation capture of metastatic melanoma exosomes and we are now preparing a follow-on Phase 2 contract submission valued at $2 million that will be submitted by the 25th of this month. Our third initiative is another NCI related contract, this contract is entitled hemopurifier device for target removal of breast cancer exosomes from blood circulation. This contract was awarded on September 18th and that program attempts to initiate. Fourth initiative was a clinical program with the University of California, Irvine Child Family Comprehensive Cancer Center which is been National Cancer Institute designated Comprehensive Cancer Center. This program was entitled plasma exosome concentration in cancer patients undergoing treatment this is a multi-indication of enrollment of cancer patients. Beginning in May we started receiving samples from cancer patients and from May through August we demonstrated invitro term capture of exosomes underlying breast cancer, esophageal cancer and ovarian cancer. This initiative with the Hillman Cancer Center at University of Pittsburgh Medical Center we collaborated with the Hillman Cancer Center to establish a 50 subject treatment protocol entitled pleading exosomes to improve responses to new therapy and head and neck cancer squamous cell cancer. The protocol detailed the adjunct use of our device without [indiscernible] which is a checkpoint inhibitor market by Bristol Myers Squibb. This protocol which provides the basis of a potential IDE submission to FDA was also submitted by our colleagues at University of Pittsburgh for NCI funding but was not approved at this point in time. We have not yet convened with our colleagues yet at Pittsburgh to discuss an amended resubmission back to NCI. And our sixth initiative is with the Department of Defense United States Army Breakthrough Award, we received notification of this award on October 23rd the title of the award is Isolation of Triple Negative Breast Cancer Exosomes utilizing the hemopurifier. This is a Department of Defense congressionally directed medical research program breast cancer breakthrough research award and we're now moving through the contracting process. So in conclusion we believe our hemopurifier is a leading candidate to achieve our government's broad spectrum countermeasure objective and in regards to viable commercial applications beyond bioterror and pandemic threats we have actively been advancing a series of initiatives that support the expansion of our clinical opportunities to include cancer. With that said I will now pass the baton back over to Jim Frakes who will discuss our quarterly financial results.

[Jim Frakes:]

Thanks Jim and good afternoon everyone. Our net loss was approximately $1.4 million or $0.08 per share for the three months ended September 30, 2018 compared to a net loss of approximately $1.3 million or $0.14 per share for the three months ended September 30, 2017. At September 30, 2018 we had a cash balance of proximately $5.1 million, consolidated operating expenses for the three months ended September 30, 2018 were approximately $1.35 million in comparison with $1.24 million for the comparable period a year ago. Its increase of approximately $110,000 is due to increases in payroll and related expenses of $54000 and general and administrative expenses of $37,000 and professional fees of $20,000. A $54,000 increase in payroll and related expenses was primarily due to a $53,000 increase in non-cash stock based compensation. The $37,000 increase in general and administrative expenses was primarily due to approximately $79,000 as [indiscernible] expenses associated with the exosome trial at the University of California, Irvine which Jim Joyce just mentioned that was partially offset by reductions in a number of additional expenses. And a $20,000 increase in our professional fees was due to a $50,000 increase in board fees due to the recent expansion of our board, a $12,000 increase in FBFIs [ph] legal fees related to patent and a $7000 increase in scientific and consulting fees and a $7000 increase in our marketing and investor relations fees. Those increases were partially offset by a $43,000 decrease in legal fees and a $13000 decrease in our accounting fees. We had other expenses of approximately $55,000 in the three months ended September 30, 2018 compared to other expenses of approximately $72,000 in the three months ended September 30, 2017. While we did not record any revenue in the September of 2018 quarter we were awarded another National Cancer Institute grant late in September. We anticipate recognizing revenue under that award in the December 2018 quarter. In terms of the cash used in our operating activities we used approximately $992,000 or $330,000 per month in the September 2018 quarter compared to approximately $1.28 million or $343,000 per month in the September 2017 period. We put out these earnings and related commentary in a press release earlier this afternoon that release included the balance sheet for September 30, 2018 and the statements of operations for the three and six month periods ended September 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]. The first question comes from Brian Marckx of Zacks Investment Research. Please go ahead.

[Brian Marckx:]

Hi guys. Congrats on the progress. Sounds like you have a lot going on particularly there in cancer. Jim just to start off can you talk about the status of the initial breakthrough device designation and where that stands?

[Jim Joyce:]

Yes, we've been trying to catch up. We had active interaction with the FDA. Their initial guidance documents went into place on the 25th of October of last year those guidance documents provided for expedited access provisions to more actively dialogue with FDA that's been very beneficial to us. But new provisions that were introduced under the breakthrough device programs through that draft guidance documents that are important to our endeavors are related to the real world evidence and in post market data collection provisions specially in the case of addressing life threatening disease conditions that are highly virulent and difficult to run controlled human studies. And in this case there are provisions for allowing the ability to conduct studies in the post market environment versus pre-marketing environment which we think would make data collection a lot more efficient and also provide us a clear pathway to market for high threat bioterror and pandemic threats. With final guidance in terms of the breakthrough provisions from FDA has not been published however in the meantime we have interacted with FDA in taking advantage of the opportunity to work on expanding our potential target market opportunity through FDA and that's the rationale for the amount of work we have been doing in oncology. I think initially we've always considered the pace of our endeavors to be such that we would execute on the life threatening virus opportunity on a more rapid pace than what was anticipated and that will transition to opportunities in oncology but the opportunities in oncology continue to present themselves at the tumor-derived exosomes field has become a very significant opportunity for us. So it's something that we are accelerating our work in that area right now.

[Brian Marckx:]

Is it your position that you believe that the draft guidance needs to be finalized before? You can make any additional headway or progress or substantive decisions relative to the initial breakthrough device designation and the question really is in the context of you know I am aware that FDA doesn't necessarily finalize their draft guidance on unrelated topics to this sometimes they can sit for years and sometimes it doesn't actually even get finalized. So I guess just a little bit more in terms of if it doesn't get finalized or is there progress I guess is what I should ask is there progress that can be made without it actually being in finalized form?

[Jim Joyce:]

We think there is significant progress that can be made, Brian. However you know specific to your question the breakthrough device program is active and it's in place and we have enjoyed the benefits of most of the provisions of that program however we've been advised that provisions that have been originated in the breakthrough device program and specifically was the real world evidence in post market data collection provisions they do seem to require final guidance documents to be published or at least that's the guidance we have received back from FDA that is something we are waiting for. If you go to FDAs website, the link through their breakthrough device program you will see that they published a draft guidance on October 25th of last year and their state of intent in their own publication is they have final of the program a final guidance fully implemented around year-end which just hasn't happened and I recognize as you point out that oftentimes transitioning from draft guidance to final guidance sometimes takes more time than what anybody anticipates.

[Brian Marckx:]

And so then in terms of the cancer breakthrough device application that you made I was writing so I apologize I didn't get everything, I think you said that you submitted it in September and you got a response in October is that right?

[Jim Joyce:]

Yes, we submitted on September 25th. We received a response back within 30 days from FDA. They had some suggestions there were some things we thought they thought we should consider based on those suggestions we submitted an amendment breakthrough device submission on the 23rd of October and we would expect to hear something back from FDA by the end of this month.

[Brian Marckx:]

Okay. And was that - did you need to specify a particular cancer or is it going to be more general?

[Jim Joyce:]

At this point in time we need to specify a specific cancer. We do need anticipate that we will need to specify a specific cancer whether or not we receive the breakthrough designation, the opportunity for us to advance our cancer programs. You know that occurs that has we have the opportunity to do that regardless of whether or not we've received the breakthrough device program but the fact is we hope to proceed that designation because that allows us to interact on a more regular basis with FDA which we think in terms of the objective of the program to provide patients with earlier access to therapies but that is very important and minimum backdrop of all this I don't know we have been in discussions with other companies that have looked to leverage the right to try provision that was signed into law earlier this year but that's another factor that comes into play with these programs as well as how we implement the right to try for patients that are addressed are facing a life threatening condition for which there's no approved therapy and that's a whole new market segment that FDA needs to deal with in addition to the breakthrough device programs.

[Brian Marckx:]

It sounds like the cancer application could lend itself well to potential collaborators, is that on the - potentially on the list of things to investigate?

[Jim Joyce:]

That's a very high priority and this is an area where the concept of a medical device that can deplete the presence of tumor-derived exosomes without adding drug toxicity of the therapies we think that is something that I think - I think that's a strategy that is very clearly you know provide not just you know a single strategy but a broad strategy to improve the benefit of different classes of cancer therapy, so you know as I mentioned this provides opportunities you know - I mean if we are partnering that we haven't previously seen before in an infectious disease environment because an infectious disease we were normally addressing viral pathogens that are not addressed with the group therapies. So there was no one for us to really you know we can have any level of significant importance to larger players whereas within cancer most of your leading therapies are inhibited by tumor-derived exosomes so yes the opportunity for partnering we think is really quite significant and we think the value component in the oncology space is certainly if we can execute certainly provides for a much more significant target from a value perspective.

[Brian Marckx:]

Jim, do you expect any data points, anything that we can sink our teeth into in the near term relative to how hemopurifier looks in cancer? I know you've done some things in the past but is there anything kind of upcoming that we can look forward to on that front?

[Jim Joyce:]

Yes. So we have assembled quite the collection of data that we would like to incorporate into a publication and that we don't control over when such a candid publication might hit but if that does successfully get published we would certainly leverage that to talk about the data we've been collecting with our device and again the nice thing about advancing our product in the design of our product is as it relates to cancer is that we've already have 150 treatment experiences in humans with this device. So it's not as if it's in the early stage clinical program, we have treatment experience that demonstrated that our device is well tolerated in very health comprised individuals infected with viral pathogen. So you know that gives us a real advantage as well.

[Operator:]

The next question comes from Yi Chen of H.C. Wainwright. Please go ahead.

[Yi Chen:]

Just to clarify so if you do get the breakthrough device designation for oncology use you still have to wait for the FDA finalization of the breakthrough device program to advance the program further, is that correct?

[Jim Joyce:]

In oncology we foresee somewhat of a different pathway as compared to addressing a life threatening viruses that are considered to be bioterror and pandemic threats. It's extremely challenging in many cases not feasible to collect data and control studies against viral threats that are underlying the breakthrough device designation, that's why there is such a reliance on this real world evidence post market data collection provisions being implemented whereas in cancer clinical studies they are much more straightforward I shouldn't say they're not complex but there is an availability to enrol patients to treat them and control in a controlled clinical environment so those provisions that we're looking to leverage in the breakthrough device program related to viral pathogens at present we don't see those as been an issue for us in oncology.

[Yi Chen:]

Okay, but don't you agree that the cost for a life threatening infectious diseases it's hard to get controlled data. The FDA might allow the hemopurifier to be market in those extreme conditions and then you just need to collect post-marketing data for it. In other word were those indications the hemopurifier has a chance to reach the market first?

[Jim Joyce:]

Right. So I think in cancer the new right to try provisions are something that you know we are, we will be working to leverage but as it relates to the Post market data collection provisions in oncology as compared to infectious viral pathogens we don't see there being an advantage based on the fact that we can enrol oncology patients quite feasibly and treat them prior to their initiation, new checkpoint inhibitors or whatever the therapy might be to deplete the presence of circulating exosomes, improve the benefit of those therapies. Those studies are quite feasible to run whereas it's been very challenging to recruit first off its challenging to predict and then try to respond and recruit subjects' in a controlled environment with a virulent viral pathogen.

[Yi Chen:]

Right. So do you still expect FDA to provide some sort of update on the draft in the coming months let's say late 2018 or early 2019?

[Jim Joyce:]

We have expected this based on FDA guidance to be in place for some time now so based on FDAs advancement or lack thereof to get to established in the final breakthrough guidance published we have decided that we're going to hear what we can do to maximize our clinical opportunities and we think we have work done work to significantly expand our opportunities that exist.

[Operator:]

This concludes our question and answer session. I would like to turn the conference back over to James Joyce, Founder and Chief Executive Officer for any closing remarks.

[Jim Joyce:]

Thank you very much. Both Jim Frakes and myself we appreciate everyone's participation today. We hope to be able to speak with you again on our next quarterly call and hope you continue to follow our endeavours. We appreciate your support and have a nice afternoon. Take care.

[Operator:]

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