Aethlon Medical, Inc.
Q2 2016 Earnings Call Transcript

Published: 17 Nov 2015

[Operator:]

Welcome to the Aethlon Medical Second Quarter Fiscal 2016 Conference Call. [Operator Instructions]. I would now like to turn the conference over to Brad Edwards of Brainerd Communicators. Please go ahead, sir.

[Brad Edwards:]

Thank you, Operator. Good afternoon, everyone. And welcome to Aethlon Medical’s fiscal 2016 second quarter conference call. Hosting the call today are Aethlon’s Chairman and CEO, Jim Joyce, as well as the company’s CFO, Jim Frakes. Mr. Joyce will provide an overview of Aethlon strategy, clinical testing status and recent developments. Mr. Frakes will then make some brief remarks on Aethlon’s financials. After that 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 and 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 risk and uncertainties that can cause actual results to differ materially from those anticipated or suggested by such forward-looking statements. Statements containing words such as, may, believe, anticipate, expect, intend, plan, project, or will, estimate, or similar expressions constitute forward-looking statements. Factors that may contribute to such differences include without limitation risks 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, the ability of the company to meet the milestones contemplated in its contract with DARPA and other risk factors. The foregoing list of risks 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, 2015, 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, all available on Aethlon’s website. With that, I will now turn the call over to Mr. Joyce.

[Jim Joyce:]

Thank you, Brad, and good afternoon everyone. Before I get started, I want to point out that we will be disclosing several material events during today's call. As a result, respective supplements will be filed with the SEC to maintain the effectiveness of shares placed in previous financing. I want to clarify that these supplements are not related to the issuance of any new Aethlon Medical shares. With that said let's get started. During our last quarterly call, we referenced that our uplisting to NASDAQ increased access to the broader capital markets and strengthened our ability to execute long term clinical strategies. We also set forth five short-term corporate objectives. These included number one, the formal completion of our principal investigator transition at our FDA approved study at the DaVita Med Center Dialysis in Houston. Number two, to secure year 5 approval our primary DARPA contract to create an extracorporeal device to treat sepsis. Number three, we indicated the intent to initiate new clinical or research collaborations. Number four, we targeted to initiate an IRB approved multi-indication cancer study at UC Irvine Medical Center, and number five we shared a plan to submit a manuscript for publication in collaboration with colleagues at the Boston University CTE Center. This submission would report on our discovery of a candidate biomarker that could detect and monitor CTE in living individuals and as part of the NFL detect study being conducted in former NFL players. If you were watching 60 Minutes last night, you would have seen our collaborator Dr. Robert Stern, referenced his optimism for such a test in the future. This research is being advanced by our Exosome Sciences subsidiary. With that said, I am pleased to report that we achieved each of the five corporate objectives stated during our last quarterly call. Additionally, we made material advancements that were not previously discussed. Related to our clinical study in Houston, we executed an agreement with Dr. Ronald Ralph to take over as principal investigator. Dr. Ralph was highly recommended by our colleagues at DaVita Clinical Research and has previously been a principal investigator of seven different clinical studies. Additionally, we will be adding two sub-principal investigators as a means to accelerate our clinical progress. We plan to train our new clinical team sometime after the Thanksgiving holiday and anticipate the process of initiating new patient accrual will begin in January. In regards to our DARPA program, we successfully secured year-five approval of our primary contract. We have since billed for the completion of a $186,000 milestone and are now preparing to build our next milestone achievement which will pay us $297,000. As it relates to new clinical or research collaborations, we initiated a collaboration with the Government of India's National Institute of Virology to validate Hemopurifier capture of chikungunya virus, which is a globally prevalent disease not addressed with a proven drug or vaccine therapy. We also initiated a research endeavor with the National Center for Biodefense and Infectious Diseases to validate Hemopurifier capture of Venezuelan equine encephalitis which represents another virus that is not addressed with proven drug or vaccine therapies. Beyond providing data to support the candidate use of the Hemopurifier in these indications, these studies will expand our overall dataset to further reinforce that Hemopurifier therapy as a leading broad spectrum countermeasure against bio-terror and pandemic threat. In regards to our proposed multi-indication oncology study, we did initiate a study of UC Irvine Medical Center and have since been updated by a principal investigator Dr. Edward Nelson that three patients have been accrued to-date. As previously referenced, this study is designed to assist us in determining a lead indication to pursue in the future treatment of cancer. And in regards to the final milestone targeted in our last quarterly call, we did submit a manuscript for publication with our colleagues at the Boston University CTE Center. Beyond optimism that our tausome biomarker discovery will lead to a test that could detect and monitor CTE in living individuals. I'm unable to share details that would preclude the near term publication of our data in a peer review journal. However, once this data has been published, you can expect that our communications on this front will increase significantly. Now I want to share some advances that were not discussed during our last quarterly call. Last week, we introduced that partnering Initiative at the IN3 Medical Device Summit in San Francisco. The purpose of this initiative is to leverage our Aethlon ADAPT platform to create a pipeline of affinity bio-filtration devices that address new disease indications while we clinically advance Hemopurifier therapy toward the marketplace. As you may recall, we previously leveraged our ADAPT platform as a basis to win our DARPA contract to develop a sepsis treatment device. Additionally, we have been quietly building what I call the engine room for our long-term endeavors. More specifically, we have been working to establish internal standards and capabilities to support future manufacturing requirements. In this regard, we established quality assurance and quality control over site positions and also [indiscernible] full time document control person within our organization. Perhaps the most pertinent manufacturing advances related to the scalability of galanthus nivalis agglutinin otherwise known as GNA. GNA is an active component mobilized within our Hemopurifier and has an affinity to find infectious viruses and tumor secreted exosomes. At present, GNA is by far the most expensive component of our Hemopurifier. For several years, we attempted to establish an inexpensive large scale production model for GNA that could replace the high cost, low production reality of GNA when it is purified from its natural source. Unfortunately, our previous attempts did not produce GNA that would meet our activity level requirements, however, I'm now pleased to report that we initiated a collaboration that has demonstrated for the first time that GNA with activity levels that meet or exceed our requirements can be grown up in a tobacco model to support future large scale production. From an economic viability perspective, the importance of this achievement cannot be understated. Now before I hand the call off to our CFO, I want to point out that beyond our clinical progression focus, we intend to increase the capabilities of our internal team over the next quarter. We plan to reduce our reliance on external consultants and add key employees as a means to improve productivity and leverage opportunities that currently are not being pursued. We are building a team that will translate our therapeutic visions in the products that saves lives. And now, I would like to turn the call over to Jim Frakes for some brief remarks on our financials.

[Jim Frakes:]

Thanks, Jim. Given our strategy and the stage of our development as a U.S. clinical progression story, we’re not focused on the generation of revenues at this time. However, with that said, in the second quarter we generated revenue of approximately $188,000 which was related to work performed under our government contracts with DARPA, and for the six months ended September 30, 2015, we generated revenue of approximately $381,000. We have worked with DARPA since September 2011, and our agreement runs through September 2016 now that DARPA exercised its option to extend the contract through the final year. Our operating expenses in the quarter were approximately $1.3 million compared to $1.1 million in the September 2014 quarter. This increase of approximately $200,000 or 22% was due to increases in general and administrative expenses of $99,000 and professional fees of $80,000 and in payroll and related expenses of $53,000. The primary factor in the increase in our G&A expenses was a $115,000 increase in the cost of our U.S. clinical trial compared to the September 2014 quarter. The increase in our professional fees was due to increases in legal fees and accounting fees primarily related to work on several registration statements related to our financings. And 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 will file later on today. As Jim Joyce noted earlier we had a number of questions from our shareholders about the prospective supplements that we file as a result of every material filing we do with the SEC. We filed two S1 registration statements with the SEC to register the securities that we sold in our December 2014 and June 2015 equity offering. These prospective supplement filings are not related to any current fund raising or insider sales. They are merely a cover sheet on top of whatever material filing that we have made. We’re 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 which are cover sheets for today's 10Q filing. And finally as of September 30, 2015 we have $3.7 million of working capital and $4.2 million in cash. Our cash position reflects the successful financing we completed in June. We continue to believe we have sufficient cash and expected revenues to fund our operations including current clinical trials through fiscal 2016. And now Jim, Joyce, and I would be happy to take any questions that you may have.

[Operator:]

[Operator Instructions]. And our first question will come from Brian Marckx of Zacks Equity Research.

[Brian Marckx:]

And so, I did see it is 60 Minutes piece on CTE and the NFL and that was pretty exciting. I was wondering if you can talk a little bit more about what Exosome Sciences role is in the research that's being done there. And then kind of you know how significant should we think about this? How big of a deal I guess could this be for Aethlon and Exosome Sciences assuming that everything kind of comes out the way that you're hoping that you know a test can be developed to diagnose CTE in living individuals?

[Jim Joyce:]

First off, this research was initiated by Exosomes Sciences which we formed to focus on some of our opportunities in diagnostics. We did not want to cloud our therapeutic vision within Aethlon Medical, but our objective is to create Exosome Sciences as a significant asset for our company. In regards to the potential opportunity and diagnosing and monitoring CTE, we think it's a very significant opportunity, we had the very good fortune of having access to a unique patient population. The Former NFL players being rolled in this study as part of the DETECT study in Boston University, if you come up with the literature you will know that our team at Boston University holds the primary brain bank of former NFL players and in conjunction with the VA they've identified CTE at autopsy of 87 out of 91 former players. Obviously, this is evolving to become a very significant issue as a better understanding of the disease involved. I will share information that was previously shared at a conference last summer at the Alzheimer's Conference in D.C. I will share that to-date or at that point in time, our study indicated that former NFL players as compared to controls have significantly higher tausome levels than those of controls, but just as remarkable what the fact that it seems as if tausome levels corresponds with cognitive decline, so we're excited to get data out into the public domain so we can talk further about this. Then we'll talk about what follow-on testing needs to be conducted, but we expect to have a very long term opportunity as part of the NFL DETECT study and expect to be able to expand our opportunities to provide tausome testing procedures.

[Brian Marckx:]

Jim, any idea on when the manuscript may be published?

[Jim Joyce:]

At this point in time, we believe sometime in the next 60 days. And I would also will point out Brian that there is going to be a ramp up and interest in this area based on the December 25th release of the upcoming concussion movie.

[Brian Marckx:]

Okay. What if you can talk a little bit more about the Aethlon ADAPT program that you alluded to in your prepared remarks and more specifics in terms of what that encompasses and how do you envision, I guess kind of structuring this with partners or potential partners?

[Jim Joyce:]

We haven't officially leveraged our Aethlon ADAPT platform. ADAPT is an acronym for adaptive dialysis like affinity platform technology and our leap product from the ADAPT system is our Hemopurifier. But the ADAPT system allows us to incorporate a variety of affinity agents in combination with advanced plasma membrane technology to create a single or multiple mechanisms for having an affinity to eliminate disease promoting targets of circulation. In the case of the Hemopurifier, you could envision that the use of mobilized galanthus nivalis agglutinin mobilized outside of our hollow fibers that provides our capability to capture a wide range of infectious viruses and as we've recently learned tumor secreted exosomes. But one could envision that we can interchange affinity agents in that extra lumen space and start to go after different disease conditions. In this case, we'd like to do this through partnering relationships either with industry, academic institutes, or organizations that have already developed or initiated commercialization affinity agents that inhibit are bind to other targets underlying other disease conditions. And our goal is to create a pipeline of products that are funded outside of the bank account of Aethlon Medical.

[Brian Marckx:]

So essentially a derisking potential opportunity to expand the utility and indicated uses -- eventually indicated uses for the technology, I guess?

[Jim Joyce:]

That's correct. And I think your derisking term is appropriate. We firmly believe that affinity bio-filtration mechanisms can be applied in multiple disease conditions, not just as a potential monotherapy or extracorporeal cocktail treatment, but as a therapy that can combine easily with other drug regimens without adding additional drug toxicity and that's kind of the beauty of the extracorporeal program.

[Brian Marckx:]

Jim, you talked about the difficulty in sourcing GNA matter, I guess a reasonable cost and that you’ve kind of now figured that out through a different supplier, I guess. Had the difficulty in the past, had that had any impediment in moving the cancer and the hep-c. trials along?

[Jim Joyce:]

No, it didn't hinder our abilities to advance those studies. However, it made the manufacturing of our cartridges quite expensive which is often times expected for early stage clinical studies regardless if it's a device or some other type of biologic. But this is a very important advancement for our company. We have worked to try to grow up GNA in a variety of vectors, tried to clone it, and while we've been successful in being able to purify it we just haven't been able to do in the manner that provides us with the activity levels that we expect. So in a recent collaboration, we've finally achieved the ability to grow up GNA in a tobacco model in a manner that should be able to provide for high production at very low cost, and we're seeing the affinity outcomes equal to or greater than we normally have with GNA that's extracted from its natural source.

[Brian Marckx:]

So it does what you have now is that something that you think is I guess good to go for lack of a better description going forward that you won't have to refine this again to get it to where -- when this is ready to be commercialized, you have got it where you can source it now from what you've got?

[Jim Joyce:]

That's correct. We have an extremely scalable technique at this point in time. It seems as if we have a capable business partner and we now have the vector mechanism design where we can incorporate it not just into the [indiscernible] but believe we can incorporate it into other types of planned vectors for large scale production as well. So it's a very, very important advancement for our company.

[Brian Marckx:]

And just a couple more if I could. Can you give us the expected timelines in terms of full enrollment on both the cancer study and then the U.S. hep-c study?

[Jim Joyce:]

Yes I’ve a better grasp on the cancer study in the coming months in terms of the different types of indications, in terms of our study at DaVita Med Center Dialysis in Houston. We expect that study to get back up and running with our recently appointed principle investigator Dr. Ralph and expect that to get back on schedule very quickly. Again we're going to have not just a new principal investigator, we're going to have two-sub principal investigators to accelerate enrollment but this is an area I think as everybody is familiar where we haven't been keeping pace at the rate that we had expected. We had slower patient accrual, we had patients that were being recruited that didn't meet the exact inclusion exclusion criteria. We had a couple deviations in our manufacturing processes that needed to be adjusted. And we had some protocol modifications at the front end that had to go back for IRB approval. So we feel like we vetted all of these things out and are going to be able to effectively and efficiently move the study forward now.

[Operator:]

And our next question comes from Marc Robins of Catalyst Research.

[Marc Robins:]

Jim, is there any other work going on in Exosome Sciences in other diagnostic tests? Or just not focused on CTE?

[Jim Joyce:]

Right now we’re very focused on CTE, and if you can envision Marc, if the data is released in the form that we expect -- we think it will be very meaningful. But you could envision our ability to isolate this tausome biomarker and to demonstrate that it could possibly correlate with cognitive decline that it's in the higher levels in former NFL player that’s compared to controls, I think one might extrapolate where we would go next beyond CTE and it would probably be into other neurological disorders such as Alzheimer's disease.

[Marc Robins:]

That makes a lot of sense because I know we've chatted about tausome and Alzheimer's in the past.

[Marc Robins:]

And we have opportunities to advance testing programs at Alzheimer's, we had those actually in advance of our CTE testing. But we thought that if we can get a hit with CTE people will really pay attention to what the possibility could be in Alzheimer's versus us just being another one of the hundreds of companies looking to develop an Alzheimer's assay.

[Marc Robins:]

When you're talking about adding to the team, could you give us an indication on some of the folks that you're looking to hire?

[Jim Joyce:]

Sure. Well right now I feel that we're fragmented in some areas where we rely on outside consultant, individuals that aren't sometimes local, aren't in office that we don't see on a regular basis. We're kind at a pivotal point where we need to start incorporating those roles in house. In some of the areas I think people will be surprised that you know we're not a large organization and so for example talking about the different opportunities to leverage the ADAPT system. We would have vision that we would established a business development arm that currently doesn't exist and then there's other roles outside that we’ve been relying on outside expertise such as manufacturing that we've been bringing in house. So there's a multitude of things. We'd like to establish in-house communications department, to manage our endeavors to communicate what we're doing both on the Exosome Sciences front as well as internally at Aethlon. I think you know Marc, members of management wear a multitude of different hats. And we're going to be much more effective and efficient when we can take off some of those hats and put them in the hands of people that are true experts in certain areas.

[Marc Robins:]

Yes focus is always important at this stage.

[Jim Joyce:]

I concur.

[Marc Robins:]

Help me understand the situation with the DARPA sepsis device. Sounds to me like we should have the product all set to place on the front door of FDA at September sometime of 2016. Is that about right?

[Jim Joyce:]

Well that's the goal of the DARPA plan, that’s DARPA plan or objective. I can't provide any assurance that that's going to occur but I do want to point out that when we first initiated this program with DARPA, our mindset was very similar to that of others in industry that the primary focus of sepsis treatment should be addressed towards modulating down this pro-inflammatory cytokine storm that occurs at the very front end or outset of sepsis and since the initiation of our DARPA program it's become quite clear that actually most people that die from sepsis don't die from cytokine storm or increased pro-inflammatory response that in fact there is a point in time not long after that pro-inflammatory response where instead of an over production of cytokines there is immune suppression that occurs and as this suppression continues there's an activation of latent viral pathogens and this is an area where we have real interest and it's very much an underappreciated, but the reality is most people don't die from hyperactive [indiscernible] of the immune system. Most people that die from sepsis die from the exact opposite scenario, immune suppression and during that immune suppression the immune system is basically overwhelmed by the activation of latent viral pathogen such as Epstein Barr cytomegalovirus or the simplex virus. There's a whole multitude of viruses. So an underappreciated area where we think we can play a significant role is they have a mechanism that can simultaneously eliminate multiple latent viral pathogens. [Technical Difficulty]

[Jim Joyce:]

So with that I don’t think we have any other callers today. Marc, if you want to reach out to me here at the office, please do so. But I appreciate everybody's time on the call today. And I look forward to talking to you again on our next quarterly call.

[Operator:]

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