Aethlon Medical, Inc.
Q4 2019 Earnings Call Transcript

Published: 2 Jul 2019

[Operator:]

Good afternoon everyone and welcome to the Aethlon Medical Fiscal 2019 Year-end March 31, 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 also note, today's event is being recorded.At this time, I'd like to turn the conference call over to Mr. Jim Frakes, Chief Financial Officer. Sir, please go ahead.

[Jim Frakes:]

Thank you, operator, and good afternoon everyone. Welcome to Aethlon Medical's fiscal year-end March 31, 2019 earnings conference call. My name is Jim Frakes, and I’m Aethlon's Chief Financial Officer. At 4

[Dr. Tim Rodell:]

Thank you, Jim, and thank you everybody for dialing in this afternoon. What we’d like to do is, Chuck and I are going to briefly discuss some recent events and an announcement we made this morning and then talk about our development plans for the near term, and then after that we’ll be happy to take questions from the audience dialed in.As you may have seen, this morning we announced a strategic cross-licensing deal with SeaStar Medical to support the evaluation and the development of our two product lines in a number of potential indications. While as you know, at Aethlon, we have historically developed and continue to develop the Hemopurifier for viral diseases and we’re now actively working on the development pathway for the clearance of exosomes in oncology under our recently granted break-through designation from last year.There are a number of activities where we believe the activity or number of areas -- we believe the activities of the SeaStar devices could augment the activity of the Aethlon Hemopurifier and where the Hemopurifier could potentially augment the activities with the SeaStar cartridges, pumps, and cassettes.In a minute, I’m going to ask Chuck Fisher, our Chairman to discuss the SeaStar family of devices and I think it will be clear to those listening in where the potential complementarities may lie. I think this agreement, from my perspective, represents an early step in expanding the potential of the Hemopurifier as we continue to develop our ongoing programs and viral disease and cancer.In a minute, I’ll update the status of our cancer programs, but before I do that, I’d like to ask Chuck Fisher, who is Aethlon’s Chairman but also Chair of SeaStar to take a few minutes to familiarize the audience with the SeaStar story. Chuck?

[Dr. Chuck Fisher:]

Thanks Tim. Can everybody hear me okay?

[Dr. Tim Rodell:]

I can. No one else can answer.

[Dr. Chuck Fisher:]

SeaStar evolved out of a few different companies in the last several years, and I’ve been involved with some to initiate and help turn them and find some incredible biology and then more recently to acquire some other companies that will be mentioned on the course of this call today with their devices, and a year ago we founded SeaStar with significant funding, and moving forward we now have a few [indiscernible] but are just starting out on their commercial phase, a cartridge pump and a cassette to go with that.So, our infrastructure is built around our own internal cartridges, as well as the fact that we can deliver a [indiscernible] expanding in the types of environments we want to be in primarily through oncology, et cetera. Additionally, we had a long association with Aethlon and have been very impressed with the notion of their ability to bind, capture, and to move viral particles as well as more recently demonstrating their effect on exosomes. And when we look at that, we see a number of opportunities that are really quite significant critical unmet needs and are looking together on developing [indiscernible] we see a good opportunity for both groups.I’ll stop there and could come back and answer your questions later. Tim?

[Dr. Tim Rodell:]

Thank you, Chuck. So, to move on and talk a bit about where we’re going in development, as I think everybody who has followed the company for a while knows, the Hemopurifier device, which is Aethlon lead product has potential applications in both viral diseases and in cancer. One of the points that we think is critical for people to understand is that these are not unrelated fields.Viruses and cancer-potentiating exosomes are subcellular particles, share a common set of biophysical characteristics, mainly they are approximately the same size and both particles are enclosed by membranes that are heavily covered with a specific sugar called mannose. The leptin protein GNA, which is contained in the Hemopurifier, specifically binds two mannose molecules allowing the cartridge to clear both types of particles.Now, we continue to develop the Hemopurifier for viral indications and we are now actively developing it for cancer. One point though that’s important to make here is that in fact these two target areas not only share biophysical characteristics, size, immunoisolation of the membranes, but there are a number of different situations where patient populations in fact may be affected by both of these.Many cancer patients are chronically infected with viruses that are cleared by the Hemopurifier, and I think as we follow this sort of newly evolving area of exosome biology, we are going to find out that exosomes are critically important in infectious disease as well. So, these are not two unrelated separate indications. They are in fact biologically very closely integrated.Now, our initial focus in cancer is now in advanced solid tumors and pretty much all solid tumors are potentially targets for us, but some examples are head and neck cancer, gastrointestinal cancers which include colon cancer, pancreas cancer, and others, and breast cancers. And these are tumor areas, these are areas of oncology where the need is the greatest.We’ve done, and when I say we, I’m talking about all of those of us who are working in oncology, have done much better with the hematologic malignancy, so lymphomas and leukemias than we have with solid tumors. The greatest needs right now are in the area of solid tumors and current standard of care is suboptimal.We are now in active communication with the FDA, and that communication is enhanced by the break-through designation that we received in November of last year in preparation for the initiation of human clinical trials in one or more of these oncology targets. We hope to have more to tell you in the coming months about our progress.I’ll now turn the call back over to Jim for the financial presentation, and then we’ll move to Q&A. Jim?

[Jim Frakes:]

Thanks Tim, and good afternoon again everyone. Our net loss was approximately $6.2 million, or $0.34 per share for the fiscal year ended March 31, 2019, compared to a net loss of approximately $5.7 million, or $0.46 per share for the fiscal year ended March 31, 2019. At March 31, 2019, we had a cash balance of approximately $3.8 million.Our consolidated operating expenses for the fiscal year ended March 31, 2019 were approximately $6.2 million, in comparison with approximately $5.0 million for the prior fiscal year. This increase of approximately $1.2 million, was in part due to an accrual of approximately $517,000 to cover separation payments to be paid over calendar 2019 to our former CEO and to our former President.We recorded approximately $473,000 of that accrual as payroll and related expenses and the remaining $44,000 fell into the general and administrative expense area. Net of that $517,000 accrual, our operating expenses increased by approximately $700,000. The primary driver in that $700,000 increase was a net increase in our professional fees of approximately $639,000, largely due to increased scientific consulting fees related to ongoing studies and increased legal fees.We had other expense on non-cash of approximately $220,000 in the fiscal year ended March 31, 2019, compared to other expense of approximately $869,000 in the fiscal year ended March 31, 2018. We recorded government contract and grant revenue in the fiscal years ended March 31, 2019 and 2018. This revenue arose from work performed under our two government contracts with the NIH.In the fiscal year ended March 31, 2018, we recorded approximately $150,000 in revenue from our Melanoma Cancer contract and in fiscal year ended March 31, 2019, we recorded approximately $230,000 in aggregate revenue from the Melanoma Cancer contract and our new Breast Cancer grant.In terms of cash used in our operating activities, we used approximately $4.3 million or $358,000 per month in the fiscal year ended March 31, 2019, compared to approximately $3.9 million or $326,000 per month in the fiscal year ended March 31, 2018. This $32,000 increase in our average monthly burn rate was due to the combination of the contractually agreed severance payments through our former CEO and President over the last four months of the fiscal year, increased professional fees and increased clinical trial cost.We put out these earnings and related commentary in the press release earlier this afternoon. That release included the balance sheet for March 31, 2019 and the statements of operations for the fiscal years ended March 31, 209 and 2018. We will file our Form 10-K annual report with the SEC following this call. Our next earnings call will coincide with the filing of our quarterly report on Form 10-Q in early August. And Chuck, Tim and I will be happy to take any questions that you may have.Operator, please open the call for questions.

[Operator:]

[Operator Instructions] Our first question today comes from Brian Marckx from Zacks Investment Research. Please go ahead with your question.

[Brian Marckx:]

Hi guys, congrats on the news this morning about the SeaStar relationship. Wondering if we could start with the cancer program and in terms of your conversations with FDA, is there anything that you can talk about related to that, specifically related to anything that they’ve talked about relative to what they need to see to move forward with the cancer studies?

[Dr. Tim Rodell:]

Brian it’s Tim. Thanks for the question and thanks for dialing-in. We obviously can't comment specifically on the conversations with FDA, but I would make a couple of points. The first is that our development program has to be driven by the indication for use or the label that we were granted under the breakthrough designation, which is a fairly broad label as you recall because it is for use essentially in many patients with advanced or metastatic cancer who are either resistant to or for one reason or the other are not going to get benefit from standard of care and in whom in whose tumors exosomes have been shown to play a role. I would say parenthetically that as we learn more about exosomes and about solid tumors, my guess is that’s going to include more solid tumors.So, I think that piece of it is going to be taken care by the underlying biology. But the other thing I would say is that, and I mentioned this -- you know I have said this before on the call and I think you and I have spoken about it is that, the breakthrough designation doesn't really change the primary grounds for approval for commercial approval of a device or biological drug, and that is you need to show substantial evidence of safety and efficacy in the target patient population.So, you know our conversations with the FDA will always be driven around those components, which are number one is the target patient population one that in fact is relevant to the label or the indication for use that we were granted under the breakthrough designation. And number two, what’s the fastest route to demonstrate safety and efficacy in that population. So, I think I've said this before basically, development is a fairly clear-cut process and that’s what we’re starting to move through now, and all of our conversations with the agency are entirely related to those major components.

[Brian Marckx:]

Tim, can you say that there is progress towards the ultimate goal of starting studies in cancer?

[Dr. Tim Rodell:]

Yes. I don't want to be glib, but that’s what I was brought in to do, that’s what Chuck and I are working on together, and we are moving through the development plan. Am I satisfied? I’m never satisfied, but that’s sort of a separate issue. I am, we are moving through that process and I am as comfortable as I ever get with the rate at which we’re moving. There are certain limitations to how fast you can move that had to do with the timing of regulatory submissions with response times that are mandated by the court of Federal regulations and by how fast we can move in terms of putting together regulatory documents, identifying places where we want to do clinical trials and those types of things, but yes we are moving.

[Brian Marckx:]

Okay. That’s great news. So, in terms of the SeaStar relationship, just for a little bit more clarity, is the idea that Aethlon would use SeaStar’s technology and SeaStar would use Aethlon’s technology for their own individual purposes, and then develop products individually or is the idea that you would both collaborate on -- potentially collaborate on a joint product?

[Dr. Tim Rodell:]

I'm going to bring Chuck into the conversation. Let me just say that I think the latter is probably more accurate. I think the idea here is to figure out where combining these two sets of products will give us access to markets or increase efficacy in already identified markets. So, we are very early on in the relationship, obviously, but the idea is to generate essentially using both product lines and the expertise that comes from both companies to jointly develop technology. Chuck?

[Dr. Chuck Fisher:]

Yes. Thanks, Tim. So, to flush out that question, specifically, the question mentioned earlier regarding the Hemopurifier’s ability to bind viruses and the novel ability to have a similar epitope to bind exosomes. Those are very much of interest to our lead product within the [indiscernible] in the organ transplant space. And that means that there's a lot of information at the time we bring that [indiscernible] donors and there's also a significant number of circulating exosomes.And regionally, the ability to suppress the immune system that would normally happen, it is real hard in the [indiscernible] system. These viral particles, particularly, in type C and B or other significant viruses actually release them. If we can look at just on [indiscernible] alone, probably 50% of the rejections are trying to assume the infection. So, the notion that we could clean lungs for transplantation as we are in the process of demonstrating significantly right now and then to add in an antiviral approach to the approval, reduce the chance of every rejection, things like that, you can start seeing line-up pretty nicely. And then the evolving role of exosomes not only in cancer, but it’s in transplantation that’s also attracted to assume [indiscernible].

[Brian Marckx:]

Okay, thanks for that. So back to the cancer and then SeaStar relationship, does the SeaStar relationship potentially play a role in the Breakthrough Device cancer focus?

[Dr. Tim Rodell:]

Well, the Breakthrough Device – this is the Tim. The Breakthrough Device was specifically granted to the Hemopurifier to Aethlon for the indication that we talked about a minute ago.To the extent, we working with SeaStar can identify other ways that we can approach some of the cancers that we're talking about working together, that’s certainly a possibility, but that is not anything that is currently included in the breakthrough designation.So, how we would deal with that would probably involve a detailed conversation with FDA, among other things, and could even involve another Breakthrough. And I'm not predicting or saying anything in terms of forward-looking stuff but could potentially involve another breakthrough designation. The breakthrough designation that we currently have is specific to Aethlon and specific to the Hemopurifier.

[Brian Marckx:]

Okay. So, the SeaStar/Aethlon relationship in terms of a potential joint product, can you give us an idea of timelines or milestones or anything that we should be looking forward to, that would kind of indicate where you guys are in terms of what you're working on?

[Dr. Tim Rodell:]

I think it's a little early for that. Number one was getting figuring out conceptually whether this made sense and getting it done. And then number two is really figuring out what the appropriate path forward is. So, I think it's a little early to start identifying those kinds of milestones. But as we promised before, as soon as we know something, we’ll let you know.

[Brian Marckx:]

Okay. All right. Thanks a lot, guys. I appreciate it.

[Dr. Tim Rodell:]

Thank you.

[Operator:]

And our next question comes from Yi Chen from H.C. Wainwright. Please go ahead with your question.

[Yi Chen:]

Hi. Thank you for taking my question. Just to clarify, the device that's going into the – going to be evaluating the clinical trial and solid tumor, is it going to be Hemopurifier alone, or is it going to be the joint product between Aethlon and SeaStar?

[Dr. Tim Rodell:]

They would initially be the Hemopurifier alone.

[Yi Chen:]

Okay. So, would you – do you plan to initiate a single solid tumor trial or you plan to initiate multiple trials for different kinds of solid tumors?

[Dr. Tim Rodell:]

I can't talk in detail about that at this point. What I will say and incidentally, thank you for the question and thank you for calling in. What I will say is that, generally moving into a new area and oncology for the Hemopurifier is a new area involves generally starting in one specific population in a small trial to get safety and mechanism data.Following that, then based on obviously an adequate safety profile and a better understanding of mechanism and where it's operative. Then I think you can start to branch out into multiple different areas, and we're spending a lot of time right now talking to our oncology colleagues, with expertise in different areas of solid tumor biology.So, I would say initially, the way that one generically does this is to look in a small number of patients and get initial safety data and then move in multiple different directions. Now, the rate at which Merck can move in multiple directions versus the rate at which Aethlon can move in multiple different directions maybe somewhat different, but we're being very open minded right now with respect to the ultimate target areas.

[Yi Chen:]

Got it. So, the press release today suggest that you could choose between heading head and neck cancer, gastrointestinal cancer, or maybe some other type of cancer, right?

[Dr. Tim Rodell:]

Yes, that's correct, and we're not being specific at this point, because we don't have, as I, again, we're trying to be very careful until we have something to announce in terms of a trial design, start date, all those kinds of things, we're not going to talk about it. But all of those tumors are areas in which exosomes have been shown to be very important. They're high need areas. And so, any one of those would be an appropriate place to start exactly where we're planning on starting, I can't say at this point, but we hope to shortly.

[Yi Chen:]

Okay. Do you need to do additional preclinical work before starting the clinical trial, or you're simply preparing the limitation and waiting for the decision from the FDA?

[Dr. Tim Rodell:]

I can't speak exactly to that. What I will say is, number one, we have a great deal of preclinical data in the exosome space with multiple different tumor types, number one. And number two, as we discussed before, we have something that is much more valuable than preclinical data with respect to safety, and actually over 40 patients with viral disease that we've treated with the Hemopurifier.So, until we got an active IDE and we can talk more in detail about that, I can't really say much more than that, other than to say we've got a lot of data and we've got safety data in humans and nothing trump safety data in humans.

[Yi Chen:]

Okay, got it. And my final question is, in the future, when you have a joint product, based on the technology from both Aethlon and SeaStar. Is that product potentially going to replace Hemopurifier alone?

[Dr. Tim Rodell:]

I think it's early to say anything with respect to that other than Aethlon is currently pursuing applications of the Hemopurifier independently, SeaStar is pursuing its own development programs. And where things come out after that will be as it always should be will be data-driven. So, I can't really say much more than that at this point other than that, Chuck and his team and the Aethlon team are planning on doing the best science we possibly can together. And I think value will come out of that and we'll see where it takes us. Chuck?

[Dr. Chuck Fisher:]

[Indiscernible] the way the deal structure is [indiscernible] describing it, but it offers you an opportunity to really small, but excellent teams working together to explore these possibilities. And we expect that there will be potential novel [ideas and everything] to come out of it and then there may be products to come out of that [indiscernible].

[Yi Chen:]

Okay, got it. Thank you.

[Dr. Tim Rodell:]

Thank you, Yi.

[Operator:]

Our next question comes from Roger Fitzpatrick [ph] from Lincoln Douglas. Please go ahead with your question.

[Unidentified Analyst:]

Thank you for the update and good luck on going forward. But documented about your cash on hand, your burn rate and what your plans are for the next money raising?

[Dr. Tim Rodell:]

Jim, do you want to take that?

[Jim Frakes:]

Sure. Hi, Roger. It’s Jim Frakes here.

[Unidentified Analyst:]

Hi, Jim.

[Jim Frakes:]

What we – we ended the fiscal year with about $3.8 million in cash. As I mentioned, our monthly burn rates up in the 330,000 to 350,000, not millions. So, the burn is a little over 1 million a quarter at the moment. The clinical – the safety trial that Tim and Chuck were talking about in cancer, we're looking at a fairly inexpensive trial relatively small number of patients, it might cost mid niche six figures over 12 to 18 months, so not a huge amount of money.Like all development stage life science companies, we will need to raise money. And probably in the second-half of this year after we've achieved a few more things on the cancer front where we’re standing.

[Unidentified Analyst:]

Okay. Thank you very much. I appreciate it.

[Jim Frakes:]

Sure.

[Operator:]

And our next question comes from Darren Evans from PLC Capital. Please go ahead with your question.

[Darren Evans:]

Hey, Tim, how are you?

[Dr. Tim Rodell:]

Hey, Darren.

[Darren Evans:]

Just curious on SeaStar combo seems interesting, is it? Do you guys consider a merger with these guys seems like the – again, with the merger products?

[Dr. Tim Rodell:]

All right. I was waiting for that and thanks for the question. As I think, I've been in a number of different public companies, which means I'd been beaten by a lot of securities attorneys. And the answer to that question has to be, if we had something to say about that, we'd say it, but we don't comment on any other future strategic plans. So that's not a no comment. That's – there's no answer that we can make from that.

[Darren Evans:]

Got it. Okay, perfect. Thanks.

[Dr. Tim Rodell:]

Thank you.

[Operator:]

And ladies and gentlemen, at this time, I'm showing no additional questions. And I would like to turn the conference call back over for any final comments.

[Dr. Tim Rodell:]

So, this is Tim. First of all, thank you all, again, for dialing in. We appreciate your continuing interest, and we hope to have – we plan to have a lot more to talk about as the next few months go by. We're, I think, very excited by our progress. We have a long way to go. And as I said earlier, I'm never satisfied with the speed at which we're moving, but we're moving pretty fast. Chuck?

[Dr. Chuck Fisher:]

So, I would agree with that and the comment you made about the combination companies are working together and collaborating. I see that as a very positive interaction merging perhaps really advanced medicine in a significant way. The products line of state in the current companies are to some extent. So, who knows what will happen as we work together, and we see a good opportunity there, I think, we bought the other joint interesting science and we're making a difference in patients and bringing it to a different product to get into the market. We have some things in market at present and we think those should be good fit. So, try and get some hard demos by transplant. Thanks everybody for the questions and joining the call here.

[Operator:]

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