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

Good afternoon, everyone, and welcome to the Aethlon Medical Third Quarter Fiscal 2021 Earnings and Corporate Update Conference Call. [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.

Thank you, operator, and good afternoon, everyone. Welcome to Aethlon Medical's Third Quarter 2021 Earnings Conference Call. My name is Jim Frakes, and I'm Aethlon's Chief Financial Officer. At 4:15 p.m. Eastern Time today, Aethlon Medical released financial results for its third quarter ended December 31, 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 statement, Aethlon's CEO, 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. We will then open up the call for the Q&A session. Before I hand the call over to Dr. Fisher, 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. 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. Chuck Fisher, Aethlon Medical's Chief Executive Officer.

Thank you, Jim, and thank all of you for dialing in today. As Jim said, my name is Chuck Fisher. You may recall that I have spoken during previous earning calls in my capacity as Aethlon Medical's Chairman of the Board. At the end of October 2020, our Board of Directors asked me to take on the CEO role in an effort to accelerate the company's clinical progression. So this is my first earnings call as Aethlon Medical's CEO. I'd like to tell you about what we've accomplished in the past 3 months. I'd like to start today by talking about our oncology program. As you know, our lead oncology program is in head and neck cancer. This program is actually focused on an early feasibility study, the device equivalent of a Phase I trial in drug development, and is being conducted at the University of Pittsburgh Medical Center, UPMC, at Hillman Cancer Center. We previously reported that we had IRB approval at UPMC, and this trial is now open and actively screening patients for enrollment. You can find the details of the trial on clinicaltrials.gov. We plan to enroll 10 to 12 subjects with advanced or metastatic head and neck cancer who are going to receive pembrolizumab, which is known by its brand name of KEYTRUDA, as the approved standard of care for head and neck in the frontline setting. Patients enrolled will first be treated with our Hemopurifier for the purpose of decreasing the circulating exosome load prior to receiving their first dose of KEYTRUDA. Our first patient in this trial recently successfully completed all the required Hemopurifier treatments and KEYTRUDA infusions. KEYTRUDA was approved for frontline indication in June of 2019 and had previously been approved in the salvage setting prior to that. The primary endpoint for this trial, as with all early stage trials, is safety. The secondary endpoints including clearance of exosomes, response rate and survival. You should note again that the Hemopurifier has been used in over 150 patient exposures in humans primarily with viral diseases with a very clean safety profile. What is important to recognize here is in KEYTRUDA and similar products, both immune oncology agents or checkpoint inhibitors, may have dramatic effects with some patients living for over 5 years of metastatic disease who have only survived for months previously. A marked majority of patients don't respond to KEYTRUDA. In head and neck cancer in the frontline setting, about 30% to 35% of patients respond to KEYTRUDA with a much lower survival percentage in the salvage setting. The literature suggests the major mechanism by which patients fail to respond to these agents is mediated by immunosuppressive exosomes, which are subcellular particles shed by cancer cells. As you may know, the Aethlon Hemopurifier is designed to clear exosomes in addition to clearing glycosylated viruses. It is also worth noting that KEYTRUDA is one of the top-selling in the world and has recently been approved for frontline therapy in solid tumors, which could mean multiple opportunities lie beyond our first indication of head and neck cancer. We are now exploring multiple clinical development opportunities in some of these additional solid tumors. On the infectious disease front, as we previously disclosed, the FDA has approved a supplement to our existing viral IDE to allow for the emergency use with the Hemopurifier of up to 40 patients with SARS-CoV-2/COVID-19, add up to 20 centers in the U.S. We now have IRB approval and the first center in this study, which is now listed on clinicaltrial.gov, where you can see the details. We're actively recruiting other centers. Finally, as discussed previously on our last call, we have treated a single critically ill patient with COVID-19 under single-patient emergencies pathway. The patient had severe multi-organ failure and had a little chance of surviving. We completed 8 6-hour Hemopurifier treatments over the course of 9 days, successfully moved the patient from the ventilator in the hospital, transferred the patient to an extended care facility for rehabilitation of muscle strength and stiff joints due to the prolonged hospitalization. This patient successfully demonstrated that the Hemopurifier can be used in the critical care setting. We remain open to treating other patients under this pathway in centers where our formal trial is not up and running. In anticipation of the commencement of our multiple clinical trials, we've expanded our leadership team at Aethlon Medical. In January of 2021, we hired 2 key senior executives to expand our executive team. Steven Larosa, MD, joined team as Chief Medical Officer and has hit the ground running. He has extensive experience in successfully recruiting and running clinical trials, interacting with regulatory authorities, participating in FDA hearings and successfully -- and successful regulatory approvals. Steve worked with me on the team I led at Eli Lilly as a key frontline physician on our activated protein C, APC, severe sepsis trial, leading to their first and only drug approved for severe sepsis, Xigris was the drug's name. Steve is focused on opening up hospitals for our studies, training doctors and nurses to use our Hemopurifier and stimulating patient enrollment in our clinical trials. He has a solid academic background, having graduated from Boston University Medical School with his MD. He did his residency at the Cleveland Clinic, where we also worked together for 4 years, including his Chief Residency. He did an Infectious Disease Fellowship at Mass General Hospital for 2 years. Guy Cipriani, MBA, joined our team as Senior Vice President and Chief Business Officer. Guy's responsibilities include overseeing business development, partnerships, strategic relationships and strategic development. Guy Cipriani is an experienced biotech executive with 20 years of experience in the pharmaceutical, biotech and medical device industries. His extensive background includes corporate development, strategic development, alliance management and product development activities for companies such as Eli Lilly, TransForm Pharma, which was acquired by Johnson & Johnson for $230 million, Cascadian Therapeutics, which was acquired by the Seattle Genetics for $615 million. He has successfully completed over 25 deals of various types, including commercialization agreements, development agreements, discovery collaborations and distribution agreements across multiple therapeutic areas, including cardiovascular, infectious disease, oncology and the central nervous system. Guy and I had the privilege to work together at Cardiome Pharma among other -- and along with another colleague sold a key asset from that company to Merck for USD 800 million or at that time, it was CAD 1.2 billion, and that time was the largest deal in Canadian history at the time. In total, Guy has contributed in excess of $2 billion in deal value across all the organizations he has served. Guy's background is he did his B.S. E.E. with high honors from Rochester Institute of Technology and an MBA from the Kellogg Graduate School of Management at Northwestern University. And so, Aethlon medical executive management collectively has greater than 130 years of experience on drug and device development and regulatory approvals. This senior team has accomplished a lot in their first few months together, and I speak for all of us, when I say the team at Aethlon sees exciting potential growth of our company and to use our proprietary Hemopurifier to help patients across multiple diseases. At this point, I'll turn it back over to Jim for the financial discussion and then open up for questions.

Thanks, Chuck, and good afternoon, again, everyone. At December 31, 2020, we had a cash balance of approximately $12.1 million. We recorded approximately $625,000 in government contract revenue in the 3 months ended December 31, 2020, compared to approximately $413,000 in the 3 months ended December 31, 2019. Our consolidated operating expenses for the 3 months ended December 31, 2020, were approximately $3.07 million compared to approximately $1.29 million for the 3 months ended December 31, 2019. This increase of approximately $1.78 million or 137.9% in the 2020 period was due to an increase in payroll and related expenses of approximately $1.12 million and general and administrative expenses of approximately $646,000 and in professional fees of approximately $15,000. The $1.12 million increase in payroll and related expenses was due to the combination of an $842,000 increase in our cash-based compensation expense and a $275,000 increase in stock-based compensation expense. And the largest factor in the cash-based compensation expense was the result of recording an aggregate of $593,000 related to severance costs associated with the separation agreement with our former CEO in the third quarter. Additional factors were a $125,000 increase in year-end bonus payments, increased headcount and salary increases. The $646,000 increase in our general and administrative expenses was primarily due to a $361,000 increase in clinical trial expenses, a $133,000 increase in subcontractor expenses associated with government contracts and grants, a $130,000 increase in lab supplies in connection with the ongoing effort to continue to build an inventory of Hemopurifiers for our clinical trials and to a $40,000 increase in insurance expenses. The $15,000 increase in professional fees was primarily due to a $28,000 increase in contract labor, primarily research scientists hired on a consulting basis, and a $23,000 increase in legal fees, which were partially offset by a $35,000 decrease in our accounting fees. Other expense was nominal during the 3 months ended December 31, 2020 and 2019. As a result of the changes in revenues and expenses that I just noted, our net loss before noncontrolling expenses increased to approximately $2.44 million for the 3 months ended December 31, 2020, or $0.20 per share, from approximately $821,000 for the 3 months ended December 31, 2019, or $0.28 per share. We included these earnings results and related commentary in the press release issued earlier this afternoon. That release included the balance sheet for December 31, 2020, and the statements of operations for the 3-month and 9-month periods ended December 31, 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 annual report on Form 10-K in June 2021. And now, Chuck and I would be happy to take any questions that you may have. Operator, please open the call for questions.

[Operator Instructions] And our first question today comes from Anthony Vendetti from Maxim Group.

Chuck and Jim, I just wanted to follow-up on the early feasibility study. As you've mentioned, it's designed to enroll 10 to 12 subjects. In the last update, 1 patient that I know has been treated, that was in December, you mentioned on the call. Can you give a little bit more color on how that patient is doing now? And how is the enrollment going for the other subjects? And is that being stalled or delayed at all by COVID-19?

So Anthony, thanks for your excellent question. During my commentary, I made mention to the fact that the first patient treated had completed his treatment of both the cycles of the Hemopurifier as well as the KEYTRUDA. So that patient has completed the therapy per the protocol and will be -- obviously will continue to be followed, but has already completed that. In terms of the activity with group we're working with at University of Pittsburgh Medical Center at the Hillman Cancer Center are very keen in this trial. They have screened numerous patients for us. Unfortunately, 2 dropped out after their initial screening as other factors were known that would then exclude them from it. But they're very active and our team to continue to find good patients for us and are very pleased with the first patient.

And just on the last part of my question, I know I'm sorry, it was a multipart question there. But is COVID-19 delaying any enrollment? Or is it the screening process to make sure it's the right patient before you can get to those 10 to 12 subjects?

So COVID-19, when it hit this particular hospital group, they somehow missed the first cycle. So initially, it was a bit difficult on them just for all the infrastructure issues. But as it relates to the cancer patients, they kind of come through a different cycle and come to the oncology environment are screened there. And then if they meet the criteria and have consented, usually all this is done in advance, then they would be taken to dialysis. The only effect that we've seen potentially, in fact, is if a lot of patients are getting dialysis for the COVID-19, is -- are the devices available. We've not seen a shortage of effort to try and get these patients done and patients we have treated, they did go directly, too. So I think they worked out something with the dialysis people if they have somebody scheduled that they try and really get them through.

Okay. And then just shifting gears on the COVID-19 patient. Based on your description, it sounds like that, that particular patient was in pretty bad shape. You said severe multi-organ failure, and they received 8 6-hour treatments over 9 days and have recovered. How is that patient doing at this point? Is that patient still in rehabilitation? Or has that patient been discharged?

I don't know the specific status of whether that patient has been discharged from the rehabilitation because sometimes it's done inpatient and then you migrate to inpatient, outpatient and go back and forth. So I don't know the specific at this moment. We'll try and find that answer for you.

Okay. And if that trial with 40 patients goes well, what's the potential for the Hemopurifier, whether that's with COVID-19 treatments or with other viruses going forward?

Well, I think there's a number of possibilities for us here that I view always positive. The key is that we have demonstrated in the past and continue to demonstrate that we bind all glycosylated viruses. And that also raises the sector with some of the newer mutants coming out, might we have continuing binding capability with them because our process is not based upon specific antibodies at specific target. It's based on the adhesive effect of our lectin, which theoretically combined a variety of different mutants. We don't know that yet. But that's kind of what our thinking is at this point.

And our next question comes from Marla Marin from Zacks.

So just building on what you just said in terms of the COVID study, if the Hemopurifier is not specifically designed for COVID per se, but for treating -- purifying and treating and it's not a specific treatment. With the new strains that we're starting to see in U.S., is there to be any kind of impact on the study going forward?

I didn't get the last part of your question, Marla. Can you just restate it, please? It's kind of broken up.

Yes. So we're starting to see new strands of COVID in the U.S. Given what you just said, I'm -- my takeaway from what you just said is that there will not likely be an impact on the study based on the new strains of COVID that we are starting to see. I was hoping to get color from you.