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

Good day, and welcome to the Aethlon Medical Clinical Third Quarter Fiscal 2023 Earnings and Corporate Update Call. [Operator Instructions]. Please note that this event is being recorded. I would now like to turn the conference over to Jim Frakes, Chief Financial Officer. Please go ahead.

Thank you, operator, and good afternoon, everyone. Welcome to Aethlon Medical's Third Quarter 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 third quarter ended December 31, 2022. 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, our Chief Medical Officer, Dr. Steven Larosa; our Chief Business Officer, Guy Cipriani and I will provide an overview of Aethlon strategy and recent developments. I will then make some brief remarks on the Athens financials. We will then open up the call for the Q&A session. Chuck Fisher, our CEO, cannot join us today due to an illness many paths along his apologies for not being able to participate. Please note that the news release today and this call contain forward-looking statements within the meaning of the Securities Act of 1933 as amended, and the Securities Exchange Act of 1934 as amended. 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. The factors that can 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, 2022, our most recent report on Form 10-Q 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. Over the past 3 months, we have continued to work hard on advancing our Hemopurifier. We are working on a new clinical trial with our Hemopurifier in oncology that will include more tumor types with the goal of enabling us to build our safety database in oncology and provide data to help direct the development of our Hemopurifier treatment option in oncology. We recently selected NAMSA, a world-leading MedTech CRO offering global end-to-end development services to supervise this planned oncology trial. First, in Australia, and then in the United States, which my colleagues will discuss shortly. We also recently hired Lee Arnold, PhD, as our new Chief Scientific Officer. Dr. Arnold is a creative scientific leader with 36 years of accomplishments in molecularly targeted drug discovery. After an initial 8 publications in biophysics and biochemistry, as an undergraduate at University of Waterloo, he earned a PhD in Organic Chemistry at the University of Alberta. Dr. Arnold began his career in pharma research at Syntex Canada and then joined Pfizer, where he was the vendor of Tarceva for non-small cell lung cancer. During his tenure at BASF/Abbott Bioresearch Center, he established medicinal and combinatorial chemistry operations and initiated and led 2 multinational multidisciplinary projects in angiogenesis, ultimately leading to linifanib. As Vice President of Research at OSI Pharmaceuticals, Dr. Arnold and his teams discovered 4 oncology development candidates. Dr. Arnold also has served as the Chief Scientific Officer in a number of innovative start-up biotechnology companies. Just prior to joining Aethlon Medical, Dr. Arnold was the CSO and Co-Founder of Pardes Biosciences, which was established at the start of the COVID pandemic, that discovered and advanced the oral protease inhibitor pomotrelvir into clinical trials for SARS-CoV2 in only 17 months. Dr. Arnold's inventive and leadership contributions in drug discovery and development to date have just resulted in an approved drug and 16 additional development candidates, currently fueling 8 clinical trials in oncology, immunology and virology. These achievements are documented in over 94 published patents and applications and more than 39 peer-reviewed publications. We are delighted to have Lee Arnold join our team, and we look forward to his leadership of our research team. We would also like to thank Dr. Steven Larosa, our Chief Scientific Officer, for heading our research team as Interim Chief Scientific Officer for the past 2 years. And now I would like to hand the call over to Dr. Steven Larosa, Aethlon's Chief Medical Officer, who will provide an update on our clinical trial in infectious disease in India and in our planned trial in cancer. Steve?

Hi, everyone, and thanks for listening into our presentation. I am Dr. Steven Larosa, the Chief Medical Officer at Aethlon. First, I would like to give a brief update on our COVID-19 clinical trial in India. To refresh your memories about that trial, Medanta Medicity Hospital, a multi-specialty hospital in Delhi, India has enrolled with 1 patient in this trial in India and continues to actively screen patients. Our CRO, Qualtran LLC, has identified additional potential sites for the trial in India, and we are awaiting the ethics Board meetings at these sites. Qualtran is also interviewing sites to hold an oncology trial with our Hemopurifier in India. We also recently entered into a material transfer agreement with the University of California San Francisco Medical Center for the study of Post-acute Sequelae of COVID-19 infection, PASC, also known as on Long COVID-19. In this study, we will receive plasma samples from patients with PASC as well as patients with prior COVID-19 infection without PASC symptoms. The objective of this study is to perform in vitro analysis of exosomes to determine the viability of PASC as a therapeutic target for the Hemopurifier. As Jim noted, we are planning a new clinical trial in oncology that will include multiple tumor types with the goal of enabling us to build our safety database in oncology and provide data to inform the design of future efficacy trials in oncology. We recently selected NAMSA as our CRO to supervise this planned oncology study. NAMSA will oversee our -- this planned oncology study, which will commence first in Australia and then follow on in the United States. We were impressed by the quality and experience of the personnel that NAMSA plans to dedicate to our project, both in Australia and in the U.S. We initiated a successful kickoff meeting last week with NAMSA. In October 2022, we launched a wholly owned subsidiary in Australia formed to conduct clinical research, seek regulatory approval and commercialize our Hemopurifier in that country. This subsidiary will initially focus on the oncology market in Australia. Now I would like to introduce Guy Cipriani, our Chief Business Officer. Guy worked with Chuck and me at Eli Lilly as a member of Lilly's corporate business development team, where we completed multiple in-licensing and out-licensing transactions for commercial, clinical and preclinical assets. He also works with Chuck as VP of Clinical Business Development at Cardiome Pharma Corporation.

Thank you, Steve, and good afternoon. As Jim noted, I'm pleased to share that we have recently established an Aethlon subsidiary in Australia to take advantage of the relatively favorable development environment in that country and the R&D tax incentive program offered by the Australian government. Australia's research and development tax incentive program allows companies to receive a tax rebate of up to 43.5% on clinical trial-related costs for those activities conducted in that country. The program offers companies the opportunity to significantly reduce costs, lower risk and accelerate time to market. Australia provides a globally competitive research landscape, including in oncology and historically, data generated in Australia as typically accepted by the FDA. The quality of the science clinical infrastructure, availability of patients and favorable economic incentives make conducting clinical trials in Australia very attractive to Aethlon. We hope to share more developments over time as we execute on this strategy. With that, I'll turn the call back over to Jim for the financial discussion and then open up for questions.

Thanks, Guy, and good afternoon again, everyone. As of December 31, 2022, Aethlon Medical had a cash balance of approximately $17.5 million. Our consolidated operating expenses for the 3 months ended December 31, 2022, were approximately $2.85 million compared to $2.545 million for the 3 months ended December 31, 2021. This increase of approximately $305,000 or 12% in the 2022 period was due to increases in our professional fees, of $296,000 and in our payroll and related expenses of $49,000, which were offset by a decrease in our general and administrative expenses of approximately $40,000. The $296,000 increase in our professional fees was primarily due to the combination of a $145,000 increase in contract labor expense associated with product development and scientific analytical services, a $73,000 increase in scientific consulting expense, a $71,000 increase in legal fees and a $22,000 increase associated with recruiting. These expenses were partially offset by a $14,000 decrease in our accounting expenses. The $49,000 increase in our payroll and related expenses was due to an increase of $167,000 in salary expense and an increase of $62,000 of stock-based compensation expense. Those were related to increased headcount and were partially offset by a decrease of $180,000 in relocation expense. And the $40,000 decrease in our administrative expenses was primarily due to a $75,000 decrease in clinical trial expenses, a $19,000 decrease in rent expense and a $20,000 decrease in licenses and permits, which was partially offset by a $60,000 increase in depreciation expense. We did not record government contract revenue in the 3 months ended December 31, 2022. We recorded approximately $17,000 in government contract revenue in the 3 months ended December 31, 2021. As of December 31, 2022, we had approximately $574,000 of deferred revenue related to those contracts as a result of not achieving certain milestones in those contracts. The NIH award contract ended on September 15, 2022, and we presented the required final report to the National Cancer Institute. Once the NCI completes the closeout review of the contract, we expect to recognize this revenue to $574,000, currently recorded as deferred revenue on our December 31, 2022 balance sheet. As a result of the changes in revenues and expenses that I just noted, our net loss increased to approximately $2.85 million in the 3 months ended December 31, 2022, from approximately $2.5 million in the 3 months ended December 31, 2021. During the 9 months ended December 31, 2022, we raised approximately $8.9 million in net proceeds under our ATM agreement with H.C. Wainwright, pursuant to sales of our common stock. We included these earnings results and related commentary in a press release issued earlier this afternoon. That release included the balance sheet for December 31, 2022, and the statements of operations for the 3 and 9 months ended December 31, 2022 and 2021. We will file our quarterly report on Form 10-Q following this call. Our next earnings call for the fiscal fourth quarter ending March 31, 2023, will coincide with the filing of our annual report on Form 10-K in mid to late June 2023. And now we would be happy to take any questions that you may have. Operator, please open the call for questions.

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

I think the first question is probably for Steve. Can you give us a sense of you're initiating the clinical trial first in Australia and then in the U.S. Do you have -- internally, do you have a time line? Are you going to wait until you see the initial top line data out of Australia before making a decision? Can you give us some sense of what that could be?

So as I mentioned -- thanks, Marla. As I mentioned on the call, we started our kickoff meeting with our CRO last week. They are currently now looking for sites within Australia. The process in Australia is such that the sites will first get approval with their ethics board and then submit to the TGA, the regulatory authority in Australia. In the U.S., once we have approval to use devices with our new supplier of devices, we would then start to -- we would then submit the protocol -- the same protocol for the same trial within the U.S. and then go through the process of bringing these sites up. So it's -- the pathway will be Australia and then the U.S. sites as the regulatory process allows.

Okay. And then this question is for Jim. In terms of the material transfer agreement that you just formulated, you can give us a sense of what the economics there will involve? And then also this question is sort of rolled into the same question. It's a time, I think, at this point, that COVID was not a onetime thing, and it's probably here, just the way the flu is, it's something that we'll be talking about for a long time. Given that and given that you'll be doing some research now on Long COVID what kind of prospects are you thinking about in terms of obtaining some government funding to help finance some of that research, if you are thinking about that?

Marla, this is Guy. I can answer the question about the MTA specifically. So it's a material transfer agreement. The terms essentially are -- we pay per sample. There's no other strings attached to that. So that's very workable for us. We can then analyze the samples and determine the utility of our device and actually being a treatment option for that disease. So there's a lot of science, obviously, that goes in behind that, but I think the upfront agreement is one that works very well for us. And frankly, it's one I think we'll look to boilerplate with other diseases as we get to them. With respect to government grants or government money available for the type of work we want to do in Long COVID. We're always curious to find those sorts of funds. We certainly were very alert about the availability of some of those monies on the COVID side. It was there. It was maintained for a while, and then it dried up as we progressed. We will keep keen eye to see what types of government programs you might qualify for on long COVID. Right now, at this time, we don't have any in our sites.

Our next question comes from Anthony Vendetti with Maxim Group.

First, I'd like to just start with a general question and then drill down a little more on a couple of the opportunities here. In terms of oncology, the original focus was the opportunity with KEYTRUDA and to improve the efficacy of that huge checkpoint inhibitor, right? I mean, in terms of dollars, I believe Merck generates over $20 billion in annual revenue there. And I know there was difficulty in enrolling patients. Is that why you shifted strategy? And if so, can you just talk about how you look at the oncology opportunity now with -- outside of KEYTRUDA?

Thanks, Anthony. This is Steve Larosa. I'll try to answer your question. So the initial trial was a single center study at University of Pittsburgh in head and neck cancer, where the patients were getting on Hemopurifier treatment upfront before their first dose of their -- the checkpoint inhibitor pembrolizumab. And as you mentioned, they had -- University of Pittsburgh was not successful at enrolling. So the trial will stop. So we've taken the opportunity to actually design a new trial where we're still going to focus on patients who have had a lead-in period with a checkpoint inhibitor, but either have stable disease or progressive disease. And it will be a basket type of trial, which means there's many tumor types for which checkpoint inhibitors are used. And so this trial will afford us the ability to gain data in multiple tumor types and look at what the Hemopurifier does to both the exosome levels and the immune response to tumors. So we'll gain data in a variety of tumor types that will help us pick our strategy going forward for an efficacy trial. Additionally, in this study, there's multiple dosing intervals being looked at or examined, which was not a feature of the initial trial. So what really inform us about the dosing strategy of the Hemopurifier, i.e., how often you have to -- how often you have to administer it. So it still is looking at the ability of the Hemopurifier to augment or resuscitate the response to checkpoint inhibitors. But it's just going to let us look at multiple tumor types and multiple dosing intervals. So it's -- it will give us much more data going forward.

Okay. And then I just want to make sure I understood correctly. Are you -- I mean, from what I understand from prior studies, the Hemopurifier is pretty safe. There haven't been any adverse events in any of the prior trials. So if you're running a safety study now -- is there any reason that, that you feel that, that is necessary or required?