Aethlon Medical, Inc. (NASDAQ:AEMD) Q2 2024 Earnings Call Transcript

Aethlon Medical, Inc. (NASDAQ:AEMD) Q2 2024 Earnings Call Transcript November 14, 2023

Operator: Good day, and welcome to the Aethlon Medical Second Quarter Fiscal 2024 Earnings and Corporate Update Call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Mr. Michael Miller with Rx Communications. Please go ahead, sir.

Michael Miller: Thank you, operator, and good afternoon, everyone. Welcome to Aethlon Medical’s second quarter fiscal 2024 earnings conference call. My name is Michael Miller with Rx Communications. At 4:15 p.m. Eastern Time today, Aethlon Medical released financial results for its second fiscal quarter ended September 30, 2023. If you have not seen or received Aethlon Medical’s earnings release, please visit the Investor page at www.aethlonmedical.com. Following this introduction and the reading of the company’s forward-looking statement, Aethlon’s Interim Chief Executive Officer and Chief Financial Officer, James Frakes; and Aethlon’s Chief Medical Officer, Dr. Steven LaRosa, will provide an overview of Aethlon’s strategy and recent developments.

A scientist holding a vial of the cancer-fighting drug developed by the biotechnology company.

Mr. Frakes 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. Frakes, please note 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.

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, 2023. The company’s 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. With that, I will now turn the call over to Mr. James Frakes, Aethlon’s Interim Chief Executive Officer and Chief Financial Officer.

Jim Frakes: Thank you, Mike, and I would like to thank all of you for dialing in. This is Jim Frakes, many of you know me as the long-time CFO of Aethlon Medical. Last Tuesday, November 7, our Board of Directors made the decision to make a change in the company’s leadership and they named me as the Interim Chief Executive Officer, replacing Dr. Charles Fisher, Jr. On behalf of everyone at Aethlon Medical, we would like to thank Dr. Fisher for his service to the company as our CEO and as a member of our Board of Directors. I’m grateful for our board’s confidence in me. I’m deeply committed to Aethlon’s shareholders and employees and plan to work tirelessly to help the company succeed. I look forward to continuing the development of the Hemopurifier and initiating in both India and Australia, a potential Phase I clinical trial in oncology in area where we see great promise and ongoing emphasis.

We received clearance in October from the Drug Controller General of India, or DCGI, the Central Drug Authority in India for our planned oncology trial. We expect this trial to begin following completion of an internal in vitro binding study of relevant targets and subsequent approval by the respective ethics boards of interested sites in India. We previously reported a disruption in our Hemopurifier supply for domestic trials in use and that our intended transition to a new supplier for the Galanthus nivalis agglutinin for GNA, a component of our Hemopurifier was delayed because we worked with the FDA for approval of the supplement to our IDE which is required to make this manufacturing change. While we continue to work with the FDA to qualify the second supplier of GNA, I’m pleased to note we’re also in the process of completing final testing to begin manufacturing Hemopurifiers at our new manufacturing facility here in San Diego for U.S. clinical trials, using GNA from our original GNA supplier.

We do have sufficient supply of Hemopurifier for use in our planned oncology trial in Australia and India. With that, I will now turn the call over to Dr. Steven LaRosa, Aethlon’s Chief Medical Officer.

Steven LaRosa: Thank you, Jim, and I look forward to continuing to work with you closely in your new role as the Interim CEO at Aethlon Medical. We continue to work towards studying the Hemopurifier as an adjuvant treatment to anti-PD-1 antibodies, such as Keytruda and Opdivo in the treatment of solid tumors. Anti-PD-1 antibodies act to neutralize programmed death-ligand 1, or PD-L1, a ligand released by tumors that blocks the ability of one zone immune system specifically T cells to fight tumors. These agents have been revolutionary in the field of clinical oncology in a number of tumor types. But unfortunately, only approximately 30% of patients will have a lasting response. The leading theory of why this resistance occurs to these agents is that tumors release extracellular vesicles containing PD-L1 that service decoy molecules, in essence, distracting the antibodies from reinvigorating the body T cells to fight the tumors.

Unchanged or increasing levels of extracellular vesicles containing PD-L1 have been associated with progressive disease during anti-PD-1 antibody treatment. The hypothesis exist that if we can decrease or debulk extracellular vesicles containing PD-L1 with the Hemopurifier and we can resuscitate the ability of the anti-PD-1 antibodies to reinvigorate the T cell response to tumors. In vitro, we have previously shown that the affinity resin within the Aethlon Hemopurifier combined tumor-derived extracellular vesicles from a number of cancer types. In a patient with severe COVID-19 infection, we demonstrated in vivo a decrease in extracellular vesicles during Hemopurifier treatment. We are currently working on in vitro experiments to specifically address the ability of the Hemopurifier to decrease extracellular vesicles containing PD-L1.

If this is confirmed, as we expect, we plan to seek approval of a clinical trial of the Hemopurifier by Ethics Board committees at interested sites in Australia and India. The planned clinical trial is designed as a basket trial, meaning encompassing multiple tumor types for which anti-PD-1 antibodies are considered standard of care. In this trial, patients want to go a run-in period where they received two months of initial anti-PD-1 therapy, during which total extracellular vesicle concentrations as well as extracellular vesicles containing PD-L1 concentrations will be measured. We’ll also be measuring markers of immune function. Patients who have stable or progressive disease after this 2-month run-in period of anti-PD-1 therapy will go on to the Hemopurifier phase of the study where different intervals of Hemopurifier treatment will be examined.

As such, each patient will be serving as their own control. This design is expected to help us answer a number of important questions, including, is the Hemopurifier treatment safe and feasible in patients with solid tumors? Does the Hemopurifier have the same effect on removal of extracellular vesicles in the immune system regardless of tumor type? How often do you need to treat with the Hemopurifier to have sustained decreases in extracellular vesicle levels? And do decreasing extracellular vesicles containing PD-L1 lead to improvement in antitumor T cell functions? The answers to all of these questions will inform the development of future efficacy trials with the Hemopurifier in oncology. With that, I’ll turn the call back over to Jim for the financial discussion, and then we will open it up for questions.

Jim Frakes: Thanks, Steve, and good afternoon again, everyone. As of September 30, 2023, Aethlon Medical had a cash balance of approximately $10.2 million. Now some of you that listened to our previous quarterly calls, gently encourage me not to cover our expenses on such a granular basis. So I’ll try to keep my remarks a bit more high level this quarter. You will find detailed expense information in the financial statements attached to our earnings release that just hit the wire or in our soon to be filed report on 10-Q. Our consolidated operating expenses for the three months ended September 30, 2023 were approximately $3.2 million compared to $3.7 million for the three months ended September 30, 2022. This decrease of approximately $0.5 million or 13.4% in the 2023 period was due to decreases in G&A expenses of approximately $700,000, offset by increases in professional fees of approximately $129,000 and an increase in our payroll and related expenses of $78,000.

The $700,000 decrease in general and administrative expenses or G&A expenses was primarily due to the combination of a $377,000 decrease in clinical trial expenses associated with the closed COVID trial. A $261,000 decrease in the purchase of raw materials for research and development testing for use in our Hemopurifier and a $140,000 decrease in subcontract expenses associated with previous government contracts. The $129,000 increase in professional fees was primarily due to an increase of $72,000 in accounting fees associated with audit and compliance services and a $38,000 increase relating to services for our Australian subsidiary. And the $78,000 increase in payroll expense was due to a $135,000 increase in salary expense related to an increase in headcount, which was partially offset by a $56,000 decrease in stock-based compensation related to employee stock option grants.

As a result of the changes in expenses that I just noted, the company’s net loss decreased from $3.8 million in the three months ended September 30, 2022, and to $3 million in the three months ended September 30, 2023. 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, 2023, and the statements of operations for the three and six months ended September 30, 2023 and 2022. We will file our quarterly report on Form 10-Q following this call. Our next earnings call for the fiscal third quarter ending December 31, 2023, will coincide with the filing of our quarterly report on Form 10-Q in February 2024. And now, Steven, I would be happy to take any questions that you may have.

Operator, please open the call for questions.

Operator: [Operator Instructions] Our first question will come from Marla Marin with Zacks. Please go ahead.

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Q&A Session

Marla Marin: Thank you. So you said something in your prepared remarks that I was hoping we could get a little bit more color on where you spoke about in the expected basket trial, analyzing the Hemopurifier for multiple cancer types and seeing its efficacy in helping to, I guess, fight the PD-L1 challenge. You said that each patient would serve as its own control. Could you give us a little bit more color there on exactly how that will work?

Steven LaRosa: Yes. Thanks, Marla. So because the patients are going to have a run-in period with their anti-PD-1 therapy alone, we’ll be able to see what the anti-PD-1 therapy has done to their exosomes and their immune function, their T cell response to the tumor. So we’ll have that as a control. And then when you when they – if they go on to the Hemopurifier phase because they’re progressing, their tumor is progressing, then we’ll be able to see what the exosome levels and their T cell responses are with the Hemopurifier. So each patient that is their own control, meaning they have with and without the Hemopurifier.

Marla Marin: Got it. Okay. So then when you’re thinking about that, there is that 70% of the population that just unfortunately doesn’t respond to Keytruda and other therapies like Keytruda. And you’ll be looking at how those patients responding once they are in the Hemopurifier, which day one will be their baseline, and you’ll see if there’s an improvement from day one once they go on Hemopurifier. Is that the right way to think that?

Steven LaRosa: That’s correct, Marla. We’ll be able to see what happens to their exosome levels and their T cell functions after the Hemopurifier compared to when they were not on the Hemopurifier. And you stated it correctly. We acknowledge that, fortunately, our happily 30% of people will do just fine on their anti-PD-1 and they’ll just – they won’t go on to the Hemopurifier, they’ll just continue getting their effective therapy. But those 70% will go on – will be eligible for the Hemopurifier phase in the trial.

Marla Marin: Okay. Got it. Thanks. So just switching topics a little bit in terms of where you are with obtaining a second supply of, I’m not even going to try to say it so that you have enough Hemopurifiers for your ongoing clinical efforts. So right now, what you have already in hand is sufficient for the back of oncology trials planned in India and Australia. Is that correct?

Jim Frakes: Yes. We think it’s a good prudent business to have two sources of supply for critical inventory components. The FDA is really making us – they just really a – through whole gamut of responses adding the second supplier. But we are now in a position with our original supplier to manufacturer. So we’re actually very excited about that, Marla, it opens up opportunities in the U.S. and perhaps we can talk to the FDA about moving the same basket trial that Steve just described into the U.S. And that’s one of my goals as Interim CEO is to try to bridge that into the U.S. as well. I mean that’s our home market. So Yes. It’s moving in the right direction on that DNA front.

Marla Marin: Got it. So then just one follow-up, and I’ll step out of queue. So moving into the U.S., I think when you originally talked about doing clinical trials in Australia, I think that part of the strategy was to generate some positive data in Australia where the cost of generating data would be lower. And then using that data in the U.S. to possibly shorten your time line. Is that the right way to think about it if you do move back into the U.S. at some point in the near term?

Steven LaRosa: Yes. But the – Marla, the FDA has also said we could submit under our breakthrough designation in oncology. We can submit a new oncology trial to them as an IDE.

Jim Frakes: We do plan to – in Australia, they have some great labs. We’ve made some fantastic principal investigators that are very interested in exosomes. And we may use their labs for trials in other countries like the U.S. and India as well, which would give us potentially that tax benefit you referred to, which is about $0.44 on the dollar? Cash – not a tax credit, it’s actually a cash incentive because they’re trying to build their life science industry in Australia.

Marla Marin: Okay. Got it. Thank you.

Jim Frakes: Thank you.

Steven LaRosa: Thank you, Marla.

Operator: The next question will come from Thomas McGovern with Maxim Group. Please go ahead.

Thomas McGovern: Hi guys. How it’s going. So my first question is on the progress in Australia. I just want to see if any updates in that regard, specifically relating to some site identification or qualification, the Ethics Board submission and then finally, patient enrollment, where you guys – when you guys believe you’ll be able to begin enrolling patients?

Steven LaRosa: So as I mentioned during our talk, we’re completing some in vitro experiments, which should allow us to complete the clinical investigator brochure, which is a necessary document for Ethics Board submission. We have already – we’re working closely with a CRO, NAMSA in Australia and with Qualtran in India. We’ve all – I can’t tell you the exact name of the site because we don’t have contracts in place with them yet, but we have a number of sites in Australia who have already had interest, two of which have already undergone site qualification visits as well as a major center in India. So we have a number of centers that are poised to submit to their Ethics boards the materials once we have them complete.

Thomas McGovern: Great. Great to see some progress there. My next question, similar in kind of construct, I suppose, but is there any progress worth noting on your investigation to the Hemopurifier’s utility and organ transplants?

Jim Frakes: We have collaborated with an outside group and have done studies on perfusate, meaning fluid that’s gone through retrieved organs. And we are analyzing that data now with the hopes of publishing it down the line. So yes, we’ve made progress on the in vitro experiments on the transplant side.

Thomas McGovern: Great. And then finally, just real quick, if you guys could give us some type of expected time line for – I mean, I know working with the FDA, it can be very difficult to kind of approximate this, but if you have any type of visibility into how long you expect it to take for that second supplier to be approved? And then kind of a second question, then I’ll hop back into the queue, but do you guys have any time line relating to the new manufacturing facility, would you guys expect that to becoming operational? Thanks.

Jim Frakes: Guy Cipriani, our Chief Operating Officer is here and he overseas manufacturing group and regulatory. So I think this falls into his wheelhouse.

Guy Cipriani: Hi, this is Guy. So first, regarding the manufacturing site and the one that’s online, we’re currently doing engineering batches and validation batches in that facility. So we hope to be able to submit to the FDA to add that site to our IDE before the end of the year. So then we’ll have to wait some period of time after we submit to the FDA to either get it an okay or to be told we have to do some additional work. So I think in the first quarter, we’ll have clarity on that. Regarding bringing the second supplier of GNA online, that’s an ongoing process. We have some work to do to address some of the concerns still. We think we should be able to accomplish all of that in the first quarter. I think bringing the site online in the early part of the first quarter and getting the GNA clearance somewhat midway through the first quarter, if not soon.

Jim Frakes: Thank you, Guy. And Thomas, of course, we can’t predict when the FDA will approve something or come back with more questions. But all we can do is look at when we could submit our packages to them.

Thomas McGovern: Totally understandable. And just for clarity, when you refer to the first quarter, you’re referring to the third fiscal quarter for you guys, first quarter being the calendar year quarter in ’24?

Jim Frakes: Calendar year. Yes.

Thomas McGovern: Okay, understood. All right, great. Thank you take my questions. I’ll jump back in queue. Thanks, guys.

Jim Frakes: Thank you, Thomas.

Operator: The next question will come from Vernon Bernardino with H.C. Wainwright. Please go ahead.

Vernon Bernardino: Hi, guys. Thanks for taking my question. And Jim and Guy, congratulations on the new appointment. Just wanted to ask, I guess, a little bit more about the time line. Just wondering if you could map out a little bit as far as the initial what we may see as far as the in vitro work before we could see perhaps an announcement that you would think about starting the human clinical trial?

Steven LaRosa: Hi Vernon, this is Steve. So we had envisioned that those in vitro experiments would take place during November and December with the hopes of being able to enroll in early 2024.

Vernon Bernardino: Perfect. Regarding the new supply, do you have to do any GMP work as far as the new suppliers are concerned? And again, could you remind us where or how the current supply is obtained?

Guy Cipriani: Yes. So we have an existing supplier of our GNA and sector laboratories in the Bay Area in California. All of our manufacturing is done under GMP. So because this is a natural plant product, we want to have more than one supplier providing that key ingredient to us. So really, this is as part of the strategy to derisk our supply chain. At some point in the future, as we get going on our studies, we’ll probably look to see if we can do a recombinant version of the protein to even derisk it further. So these are all activities that we’re, thinking about it, we’re being very cautious in how we kind of roll them out. But we – right now, we need to mitigate any risk of supply by having more than one supplier of this key starting material.

Vernon Bernardino: As part of that work, going to evolve involve supply that is needed to dovetail with the initiation of studies? Or do you have enough supply now such that once you do get FDA approval to the supplement of your IDE that you could start studies right away?

Guy Cipriani: Yes. We are able to manufacture devices to support a study today. So we don’t have – we currently don’t have supply constraints on the GNA.

Jim Frakes: Right. Just to expand further on Guy’s comments, Vernon. So while we’re waiting for our own manufacturing facility here in San Diego to come online with FDA approval, we can easily go back to the contract research facility which is a little north of us here in Southern California. And we could run a few batches, manufacturing campaigns there. And so we don’t – things can always change. But at the moment, our feeling is supply is not a problem which is a nice change from points in the past.

Vernon Bernardino: Yes, terrific. I’ll look forward to perhaps announcement of those in future results in the start of the studies in human. Thanks again and congrats.

Jim Frakes: Thank you, Vernon.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Mr. James Frakes for any closing remarks. Please go ahead, sir.

Jim Frakes: I’d like to thank all of you again for joining us today for a discussion of our quarter end results, and we look forward to keeping you up-to-date on future calls. Thanks again for your support. Goodbye.

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