Aethlon Medical, Inc. (AEMD) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Aethlon Medical Second Quarter 2020 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Jim Frakes, CFO. Please go ahead, sir.

Thank you, operator, and good afternoon, everyone. Welcome to Aethlon Medical's Second Quarter 2021 Earnings Conference Call. My name is Jim Frakes, and I am Aethlon's Chief Financial Officer. At 4:15 p.m. Eastern Time today, Aethlon Medical released financial results for its second quarter ending September 30, 2020. If you have not seen or received Aethlon Medical's earnings release, please visit the Investors page at www.aethlonmedical.com. Following this introduction and the reading of our forward-looking statements, Aethlon's CEO, Dr. Tim Rodell; and our Chairman, Dr. Chuck Fisher, will provide an overview of Aethlon's strategy and recent developments. I will then make some brief remarks on Aethlon's financials, and then we will open up the call for the Q&A session. Before I hand the call over to Dr. Rodell, please note that the news release today and this call contains forward-looking statements within the meaning of the Federal Securities Act of 1933 and the Securities Exchange Act of 1934. The company cautions you that any statement that is not a statement of historical fact is a forward-looking statement. These statements are based on expectations and assumptions as of the date of this conference call. Such forward-looking statements are subject to significant risks and uncertainties, and actual results may differ materially from the results anticipated in the forward-looking statements. Factors that could cause results to differ materially from those anticipated in forward-looking statements can be found under the caption Risk Factors in the company's annual report on Form 10-K for the fiscal year ended March 31, 2020, and in the company's other filings with the Securities and Exchange Commission. Except as may be required by law, the company does not intend nor does it undertake any duty to update this information to reflect future events or circumstances. With that, I will now turn the call over to Dr. Tim Rodell, Aethlon Medical's CEO.

Thank you, Jim, and thank you, everybody, for dialing in this afternoon. I'd like to start today by talking about our oncology programs. As you know, our lead program in oncology is in head and neck cancer, and we're initially focused on an early feasibility study, or EFS, which is the device-equivalent of the Phase I study, that is being done at the University of Pittsburgh Hillman Cancer Center. We noted earlier, I think on our last call that we have Institutional Review Board approval at the University of Pittsburgh Hillman Cancer Center. And I'm happy to say today that the trial is now open for patient enrollment. You can find the details of the trial, including all of the detailed inclusion, exclusion criteria and endpoints on clinicaltrials.gov, but let me review them briefly here. In this trial, we plan to enroll 10 to 12 subjects with advanced and/or metastatic head and neck cancer who are going to receive pembrolizumab, also known as KEYTRUDA from Merck, as standard of care in the front-line setting. So these are not previously treated patients. KEYTRUDA was approved for this indication in June of last year, although it had been previously approved, as had other immuno-oncology agents, in the salvage setting prior to that, so for patients who had failed primary previous chemotherapy. The primary endpoint for this trial, is with all early stage trials, is safety with secondary endpoints, including clearance and characterization of exosomes, response rates and survival, the progression-free and overall. With respect to safety, we should remind you, however, that the Hemopurifier has been used about 150 times in humans with viral diseases with a very clean safety profile. Now what's important to recognize here is that while KEYTRUDA and similar products, known as immuno-oncology agents or checkpoint inhibitors, have dramatic effects in some patients, with patients living for over 5 years with metastatic disease, who would have only survived from months previously, and this includes patients with melanoma, with non-small cell lung cancer and patients with head and neck cancer. But unfortunately, the majority of patients don't respond. So the improvements in survival that are seen in the overall population are generally driven by a minority of patients. In head and neck cancer, in the frontline setting where we are working, only about 30% to 35% of patients respond in the frontline setting and a much lower percentage in the salvage setting. Now the literature, the medical literature suggests that a major mechanism by which case it fails to respond to these agents is mediated by immunosuppressive exosomes, which we've discussed in the past. These are subcellular particles that are shed by cancer cells. That, as you know, the Hemopurifier is designed to clear along with glycosylated viruses, which I'll get to in a minute. And as you may know, KEYTRUDA is one of the top-selling drugs in the world, and the revenues are still growing. Now there are multiple mechanisms by which exosomes are involved in advancing cancers. But this particular setting that is in combination with checkpoint inhibitors may represent one of the most significant opportunities. The story is similar for other solid tumors with KEYTRUDA and other checkpoint inhibitors, which could mean that there may be multiple opportunities beyond our first indication of head and neck cancer. So we view this as being essentially a beachhead that potentially can lead to other tumor targets. And we're now beginning to investigate some of these additional solid tumor targets. Now to move on to infectious diseases. As we previously disclosed, the FDA has proved a supplement to our existing viral investigational device exemption, to allow for the treatment with the Hemopurifier of up to 40 patients with SARS-CoV-2/COVID-19 disease, add up to 20 centers in the United States. We have now started up, we're in the process of starting up the first centers in this study, and we have IRB approval, and we're working through the final administrative details. This trial was now listed as of the couple of days ago on clinicaltrials.gov, so that you can see the details of the trial design and also the centers that are involved as they are enrolled. We're in the process of recruiting a number of other centers. Now finally, as I discussed on our last call, we have treated 1 patient so far with COVID-19 under the single-patient emergency use pathway that allows for treatment of patients who are in extremis without pre-approval from FDA. And on the last call, I think I used the term uneventful for that treatment, and it may have been misinterpreted. For privacy reasons, we can't talk about the patient's overall course, nor would one expect 1 patient to give us meaningful information about efficacy. But to give a little bit more information here, we can say that we completed with this patient, 8 6-hour Hemopurifier treatments over 9 days, successfully confirming that the Hemopurifier can be used in this setting. We remain open to treating other patients under this pathway in centers where our formal trial is not up and running. So I'll stop there. I'd like to turn it over to Chuck to comment on recent events and anything that I've said, and then we'll turn it back over to Jim for the financial discussion and then open up for questions. Chuck?

Thanks, Tim. And follow-up on our oncology early feasibility study, as Tim mentioned, the primary implanters trial is safety with the secondary endpoint, including clearance of exosomes as he has just mentioned. Also, as Tim mentioned, the literature suggests that a major mechanism associated with failure to respond in cancer is mediated by [indiscernible] exosome, as Tim also mentioned. And with that, I'll turn it back over to Jim. Just wanted to emphasize those 2 points.

Thank you, Chuck, and good afternoon, again, everyone. At September 30, 2020, we had a cash balance of approximately $14.5 million. Our consolidated operating expenses for the 3 months ended September 30, 2020, were approximately $1.77 million compared to approximately $1.70 million for the 3 months ended September 30, 2019. This increase of approximately $70,000 or 4.1% in the 2020 period was due to an increase in general and administrative expenses of approximately $212,000, which was partially offset by decreases in professional fees of approximately $106,000 and in payroll and related expenses of approximately $37,000. The $212,000 increase in our general and administrative expenses was primarily due to a $143,000 increase in lab supplies, in connection with our ongoing efforts to continue to build an inventory of Hemopurifiers for our clinical trials that Tim Rodell and Chuck Fisher just mentioned, and also to a $54,000 increase in our clinical trial expenses themselves. The $106,000 decrease in our professional fees was primarily due to a $94,000 decrease in our legal fees and a $60,000 decrease in our accounting fees, which were partially offset by a $38,000 increase in scientific consulting expenses. The $37,000 decrease in our payroll and related expenses was due to the combination of a $159,000 reduction in stock-based compensation expense and a $122,000 increase in our cash-based compensation expense. The cash-based compensation expense was in turn due to additions to our head count and to salary increases. There was no other expense during the 3 months ended September 30, 2020. While in the 3 months ended September 30, 2019, other expense primarily consisted of approximately $4,000 of losses on share for warrant exchanges. As a result of the changes in expenses that I just noticed -- I just noted, our net loss before noncontrolling interests increased to approximately $1.77 million for the 3 months ended September 30, 2020, or $0.15 per share from approximately $1.71 million for the 3 months ended September 30, 2019, or $1.29 per share. We included these earnings results and related commentary in a press release issued earlier this afternoon. That release included the balance sheet for September 30, 2020, and the statements of operations for the 3 months and 6-month periods ended September 30, 2020, and 2019. We will file our quarterly report on Form 10-Q following this call. Our next earnings call will coincide with the filing of our quarterly report on Form 10-Q in February 2021. And now Chuck, Tim and I will be happy to take any questions that you may have. Operator, please open the call for questions.

[Operator Instructions] The first question comes from Marla Marin with Zacks.

So I have a few questions, which is, we're all reading about what's going on right now in terms of spikes in COVID cases. So can you talk a little bit about how, if at all, you see that impacting your time line on the clinical trial?

This is Tim, and thanks for the question, Marla. It's a great question. I think that you've seen or you read a lot about the impact of the pandemic on the conduct of clinical trials, particularly in international trials. But I think that the answer is somewhat different for the 2 indications. First of all, with respect to the cancer trial, we don't see it having any impact on that. And the reason for that is that patients with advanced head and neck cancer can't really wait to be treated. So they're going to continue to be coming into the clinic and be treated with in the case of our study with KEYTRUDA. So I don't think it's going to change how things will happen with respect to that. With respect to the COVID-19 trial, it means that a lot of centers are going to get -- are already getting very busy and are seeing a lot of patients. As you know, the pandemic is moving around that we said on the last call. But part of the reason we wanted to have 20 sites available is so that we could be in a position to open up where the patients are. We're now seeing a second wave on starting up in the Northeast, but one of the major areas where patients are starting to be seen is in the Midwest. California, in our neighborhood, including Orange County, where our first trial site for COVID has opened, remains very busy. And I think that we're going to continue to see a lot of patients there. The other point I would make is and I think everybody is aware that there are hundreds if not thousands of different trials going on using vaccines, using drugs, using therapeutic antibodies. But if you actually look at our trial design and the patients that are going to qualify for our trial, in fact, are the sicker of the patients, say, will be in the ICU, but many of them will be on ventilators. And so I don't see us competing with most of the other things that are going on out there for patients. So it's an important question. But I think we're well positioned to manage it.

Okay. Now also you mentioned during your prepared remarks, you talked about additions to head count. Can you just give us a little bit more color on that? Is that primarily to support the clinical trials?

It's to support a number of things. The part of this that people tend to forget is that in order to run clinical trials and develop products, you need a product, and you actually need the drug or, in our case, we need Hemopurifiers, which we're currently manufacturing under GMP conditions to support our clinical trials. And one of the major things that we have to be in a position to do is to scale up manufacturing and to advance it so that we have a product that potentially could be a commercial product if and when we get approval. So we are adding head count, not huge numbers, but we announced earlier that we hired a very experienced Vice President of Product Development and Manufacturing, Tom Taccini, who was already making substantial contributions. We do need additional people to work on the manufacturing side. But in addition, earlier this year before the pandemic really struck, our primary clinical program, which is the program at the University of Pittsburgh, which is a single center trial on enrolling 10 to 12 patients, and that doesn't require a huge amount of head count or operational staff. But now that we're running or initiating a multicenter trial in up to 20 centers, we do need additional clinical operations personnel, and those are the 2 primary places where we're increasing head count. And again, that's not going to be huge numbers of people, but we do need adequate resources to address both of those areas.

Okay. And my last question. You have a sizable cash balance at the end of the quarter. Could you just remind us of your thinking in terms of everything that you're currently involved with? If you could give us some color on where you see that taking forward?

Yes. Let me hand that to Jim because that's his [ daily look ]. Jim?

Sure. That's a good question, Marla, that we focus on quite a bit. Historically, we've burned about $1.3 million in cash a quarter. That was the case in the June quarter and in the previous June quarter. And in fact, our cash only went down by $1.2 million from $15.7 million to $14.5 million in the September quarter. But I think we've been pretty clear that we are modestly expanding our head count. We're investing a lot of money for our little company into building Hemopurifier cartridges for the clinical trials. So our burn rate will increase on purpose, but not extensively. So I wouldn't want anybody to take the $14.5 million we have right now and divide by $1.3 million and see we had 3 years of cash because our burn rate is going to increase. But on the other hand, these initial safety trials are not small numbers of patients, not there many treatments for patients. So they're manageable. So we're not in a position where we have to raise cash as this horrible term. So if we -- if and when we raise cash, it may be with a strategic investor. Or in more opportunistic terms, we hope to be in a stronger position than we've been in the past from the fundraising front. Sorry, I can't be more specific.

This concludes our question-and-answer session. I'd like to turn the conference back over to Tim Rodell, CEO, for any closing remarks.

Yes. Thank you, Greg. So just once again, thank you all for dialing in. Thank you for your continued interest and support, and we look forward to talking to you at the end of the next quarterly call. And between now and then, stay safe and be well. Thank you.

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