Aethlon Medical, Inc.
Q2 2017 Earnings Call Transcript

Published: 11 Nov 2016

[Operator:]

Welcome to the Aethlon Medical Inc., Second Quarter Earnings Conference Call and Webcast. [Operator Instructions]. I would now like to turn the conference over to Mr. James Frakes, Chief Financial Officer. Please go ahead, sir.

[James Frakes:]

Thank you, operator, and good afternoon everyone, and welcome to Aethlon Medical’s second quarter fiscal 2017 conference call. My name is Jim Frakes and I'm Aethlon’s Chief Financial Officer. Following this introduction and the reading of our forward-looking statements statement, Aethlon's Chairman and CEO, Jim Joyce; will provide an overview of Aethlon’s strategy, clinical testing status and recent developments. I will then make some brief remarks on Aethlon’s financials. We will then open up the call for the Q&A session. Before I hand the call over to Mr. Joyce, please note that the news release today on this call contain forward-looking statements within the meaning of the Federal Securities Act of 1933, and the Securities Exchange Act of 1934. Forward-looking statements involve risks and uncertainties that can cause actual results to differ materially from those anticipated or suggested by such forward-looking statements. Statements involving words such as may, believe, anticipate, expect, intend, plan, project, estimate, or similar expressions constitute forward-looking statements. Factors that may contribute to such differences include without limitation risk related to the company’s ability to develop and commercialize its products, the ability to fund and complete clinical testing of the company’s products, the company’s ability to raise working capital if and when needed, the company’s ability to protect its intellectual property, the impact of changing government regulations on biomedical devices and other risk factors. The foregoing list of risk and uncertainties is illustrative, but is not exhaustive. Additional risk factors can be found under the caption Risk Factors in the company’s Annual Report on Form 10-K for the year ended March 31, 2016 and in the company’s other filings with the Securities and Exchange Commission. For a more detailed discussion of the risk and uncertainties that could cause actual results to differ materially from any forward-looking statements, please see the company’s public filings are all available on our website www.aethlonmedical.com. With that, I will now turn the call over to Mr. Joyce.

[Jim Joyce:]

Thanks, Jim. Before I share our clinical progress in other quarterly advances I would like to respond share our request in our institutional and mutual fund ownership especially at some financial portals including Yahoo Finance, they report such ownership of being below 1% of our company. As some may recall I referenced in the trading call [ph] that [indiscernible] in the NASDAQ inclusion lots of microcap index will increase our stature amongst institutional investors. In this regard I want to provide clarity that reports to institutional and mutual fund ownership in our company has increased over 22% with more than 25 sets amenities among our 7500 plus shareholders. Sachs Investment Group has increased their ownership to 15.54% and other holders include name such as Fidelity, Blackrock, [indiscernible] Royal Bank of Canada and Vanguard. Additionally Jim Frakes will review on further detail we’re proud that we have continued demand on monthly burn of $300,000 which is considerable clinical stage therapeutic company and we have more than $12 million of our $12.5 million at the market financing facility available which allows us to access capital on prevalent market prices. With that said I would like to update you on the clinical progress of our Hemopurifier which we believe to be the first and only medical technology being advanced and FDA approved studies as a broad spectrum counter measure against infectious pathogens. As a broad spectrum [indiscernible] of Hemopurifier has been demonstrated in human and in-vitro studies to provide rapid real time capture of different strands, species and viruses. We provide as an adjunct to improve the benefit of conventional anti-viral drugs and also serves as first line counter measure to address bio-pathogens that are not treatable with the anti-viral drugs. If you’re looking for a public market comparable there is none. Our Hemopurifier is first in class medical technology that is developed in-house and is broadly patented in infectious disease and cancer field. Our primary focus is to fulfill the broad spectrum of medical counter measure goal of the department of health and human services 2015 public health emergency medical countermeasure enterprise otherwise known as MC. MC includes the participation and support of the center for disease control, a full drug administration and National Institute of Health, The Department of Defense, U.S. Department of External Affairs and Department of Homeland Security. The achievement of [indiscernible] broad spectrum goal will resolve a major unmet need in healthcare as the majority of virus has been infectious demand are not addressed to the specific drug to vaccines. It would also position our Hemopurifier to be candidate that is strategic national buyout to protect U.S. citizens from future pathogen outbreaks that will not be treatable, drug and vaccine therapies. In this regard, I'm pleased to report from a clinical perspective that we’re making progress in achieving this goal. As it relates to the [indiscernible] building study of Hemopurifier therapy that’s been conducted in the DaVita Medical Center in Houston. DaVita clinical retakes has advised the are down to identifying the final two patients necessary to round-off the completion of their study. As we have closed on this clinical milestone we can share guidance related to our 2017 U.S. clinical progression objectives. Number one, upon the success of completion of our feasibility study we plan to submit a pivotal study IDE to FDA related to the treatment of a bio-indication where it's feasible to conduct, control clinical studies. The indication will be [indiscernible] with FDA and infectious disease thought leaders. It is anticipated that successful completion of the pivotal study will lead to market clearance for the significant indication. Number two, we will submit for emergency use authorization to address emerging pandemic outbreaks through bio-terror events that are declared emergency by the Secretary of Health and Human Services. We previously received and maintain such approval for the treatment of Ebola virus in the United States and Canada. Number three, we will submit one or more humanitarian used device applications or life threatening indications that we previously validated through in-vitro studies yet remain not addressed and proven anti-viral drugs. If you’re not familiar with the humanitarian used device pathway it is intended for the treatment of a disease or condition that effects fewer than 4000 individuals in the United States each year. Once the humanitarian [indiscernible] designated by the FDA a submission for humanitarian device exemption marketing approvals permitted. Candidate indications that we previously validated through in-vitro studies include H1N1 swine flu virus, the H5N1 bird flu virus, lots of virus, Chikungunya virus, dengue virus, [indiscernible] virus, in-vitro virus which we validated during the last quarter and have more data on the way. Most recently we also validated the capture of the middle-east respiratory syndrome corolla virus also known as MERS-CoV. MERS-CoV was first reported in 2012 and it has about a 35% mortality rate and like most virus there is no anti-viral drug or vaccine. The study was conducted with the Department of Defense contract and in this contract we achieved 29 out of 29 milestone opportunities and generated approximately $5.9 million in revenues. As proven in the Department of Defense performance [ph] I'm pleased to report that we have now responded to two new Department of Infectious Disease contract opportunities and have additionally responded a National Cancer Institute program related directly to tumor-derived exosomes. In regard to tumor-derived exosomes the completion of our feasibility study at the DaVita Medical Center will also trigger our discussions with FDA maybe for treating cancer patients. We initiated our exosomes research more than a decade ago. At the time the medical community considered tumor-derived exosomes to be nothing more than [indiscernible] degree with more biological function. Today tumor-derived exosomes are considered to be a significant therapeutic target in oncology. It has been discovered to be the scenes in the past disease [ph] which contribute to more than 90%, of cancer deaths and tumor-derived exosomes also promote immune-suppression angiogenesis, resistance to chemotherapeutic agents and resistance to immuno-oncology drugs. By reducing the presence of circulating tumor-derived exosomes we believe the Hemopurifier to improve the benefit of established cancer therapies including a new oncology drug and chemotherapeutic regimens. As you may have noticed we have [indiscernible] foundation for our Hemopurifier to address significant unmet need in healthcare. In a most conventional disease specific therapies we have many shot on goal across the wide spectrum of disease indications. Regardless without resting on our laurels, we’ve introduced in-vitro study whose goal will be to expand the prospect and take [indiscernible] of our Hemopurifier to include new suppressed [indiscernible] and organ transplant patients. Additionally we will introduce a prototype cerebral spinal fluid therapeutic platform that leverages our proprietary pathogen isolation techniques to establish candidate strategy to address CSF related viral, neurological and central nervous system disorders. And finally as it relates to our exosomes diagnostics array, I'm pleased to report that the recruitment of former NFL players which is been supported by a $16 million NIH grant award through our collaborated with the Balkan University CTE Center has begun. An objective with this clinical program is to advance the test that could diagnose CPE, Chronic Traumatic Encephalopathy in living individuals. We previously traveled with the Balkan University team to discover biomarker known as Calzone which is believed to be the first candidate to diagnose and potentially monitor CTE in living individuals. In the previous 94 [ph] study we major Calzone levels to be approximately nine times higher on average and for the NFL players as compared to same age group controls. We are also exploring the advancement of the Calzone studies and other neurological conditions including Alzheimer's disease. So before closing my presentation, I want to thank long term shareholder, Chris Wesel [ph] for his perseverance -- he emailed me this morning. Chris as you know our perseverance is here by the vision of saving lives. With that said I will hand the baton back over to our CFO, Jim Frakes.

[James Frakes:]

Thanks, Jim. Given our strategy of driving the U.S. clinical progression we’re not focused on the generation of revenues at this time. However we did complete the final two milestones of our DARPA contract in the September 2016 quarter. As a result of achieving those two milestones we have recorded revenues of 387,000 from our government contracts in the second quarter of fiscal 2017 compared to 188,000 in the second quarter of fiscal 2016. We achieved one milestone in the prior year period. As Jim Joyce noted we have applied for three new government research contracts and are considering applying for additional contracts as well landing one and all of these new contracts may provide revenue opportunities for U.S. in the future. At September 30, 2016 we had a cash balance of approximately $556,000 that cash position combined with capital generated under our $12.5 million capital market financing agreement we will continue to be used to fund our FDA approved feasibility study in the U.S. and our operations. This arrangement won't allow us to access capital at our discretion at prevailing market crisis. We raised approximately $267,000 in the September quarter to the aftermarket financing arrangement and we’re continuing to use it discretely. Our consolidating operating expenses were $2.6 million in the second quarter of fiscal 2017 compared to $1.3 million in the prior year period. This increase was approximately 1.3 million was due to increases in payroll and related expenses of $1.2 million and the professional fees of $122,000 which were partially offset by a reduction in general and administrative expenses of $36,000. The $1.2 million increase in payroll and related expenses was due to a $1.5 million increase in non-cash stock based compensation which was partially offset by a $257,000 decrease in cash based compensation. The increase in stock based compensation was the result of restricted stock unit or RSU, to officers and directors in the three months ended September 30, 2016. The expense related to the RSC was offset by an increase in our equity. The company had other expenses of $37,000 in the second quarter of fiscal 2017 compared to $127,000 in the prior year period. A decrease of $90,000. All of our other expenses in both periods was interest expense. Overall the net loss for the second quarter of fiscal 2017 was 2.3 million or $0.29 per share compared to a net loss of $1.2 million or $0.16 per share in the prior year period. For a more detailed review of the movements in our operating expenses and in our balance sheet, I would like to refer you to the earnings release that we put out after the close today or to our Form-10Q which we file later on today. In that 10Q on our statements of cash flow you will see that the case used in our operations increased by approximately $475,000 so in the six months ended September 30 2016 and the comparable 2015 period. As we continue to monitor our expenses closely. We had a number of questions from our shareholders about the prospective settlements that we filed once the resolved of every material filing we are doing with the SEC. We filed two S1 registration statements with the SEC for register in the security that we sold in our December 2014 and June 2015 equity offerings. These prospective supplement filings are not related to any fund raising or insider sales. Primarily a cover sheet on top of whatever material fiber that we have made. We required to update those registration statements whenever we have a material development or filing. So you will see two prospective supplements go out later on this afternoon or tomorrow which are cover sheets for today's 10Q filing. Now Jim Joyce and I will be happy to take any questions that you may have.

[Operator:]

[Operator Instructions]. Our first question comes from Yi Chen with Rodman Renshaw. Please go ahead.

[Yi Chen:]

Can you give us some additional color, how the results of the ongoing feasibility study will impact the future trials of exosome based trials that’s targeting cancer? Thank you.

[Jim Joyce:]

In regards to our feasibility study the completion of that study unlike our ability as I referenced to move forward with different indications and infectious RO pathogens but it's also been a gaining factor for us to sit down with FDA and discuss a similar feasibility study in oncology related to the removal of tumor derived exosomes. Over the years we have collected data indicating our ability to capture tumor derived exosomes under a variety of different oncology indications but internally complete the feasibility study, it is more than possible to sit down with FDA and ask for another feasibility study related to oncology. So with the completion of this study that’s the pathway that we will now venture into that should complement what we’re doing in infectious disease.

[Yi Chen:]

So you still anticipate to receive the results from a current feasibility study by the end of the year and with that results you will have a clear pathway going forward regarding which indication to present, talking about infectious disease which indication to pursue and what the next steps will be is that correct?

[Jim Joyce:]

That’s correct. We have a good idea of the indication that will pursue through humanitarian news device pathways, but in terms of a larger clinical study or pivotal study required for approval into a large disease condition we have not chosen the final indication and there hasn’t been need for us to do so at this point in time. So we will share that indication and provide further guidance in the near future.

[Operator:]

[Operator Instructions]. And at this time I'm showing no further questions. I would like to turn the conference back over to Mr. Jim Joyce for any closing remarks.

[Jim Joyce:]

Okay. I appreciate everyone's participation today. As there are no more questions we are complete and close out our second quarter 2017 call. I appreciate your participation and invite you to participate again on our next call which should be in early February. Take care and again thank you.

[Operator:]

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