Edited Transcript of AEMD earnings conference call or presentation 25-Jun-20 8:30pm GMT

And also collaborating with basic researchers there who are world experts in the role of exosomes in cancer progression and metastasis. We expect that the trial will be open for patient enrollment within the next few weeks and it will be listed on clinicaltrials.gov in the next day or two. Once that listing goes up on clinicaltrials.gov, we’ll put a link to it on our website, and you’ll be able to see more details of the trial.

But in brief, the trial, which will enroll 10 to 12 subjects in an open-label design, will combine Hemopurifier treatment with pembrolizumab or trade name of KEYTRUDA from Merck in patients with advanced and/or metastatic disease in the frontline setting.

Pembrolizumab was approved in the front-line setting last June based on studies showing that it improved survival by several months on average. But like other checkpoint inhibitors or immuno-oncology agents in other solid tumors such as melanoma and non-small cell lung cancer, its impact is substantial but on a minority of patients.

Some patients may have striking outcomes with multiyear survival in advanced disease, which prior to the advent of these agents was unheard of, but the majority of patients, unfortunately, show little or no improvement.

Studies have shown, and that a major mechanism of resistance to these agents may involve tumor derived immunosuppressive exosomes, which as we have previously described, our subcellular particles that are shed from tumor cells and circulate in these patients.

We’ve previously shown that a laboratory version of the Hemopurifier can clear exosomes for multiple tumor types as described in a poster that we presented at the online AACR, American Association for Cancer Research Meeting this week. You can find a link to this poster on our website.

In the trial, we will treat enrolled patients with a 4-hour Hemopurifier treatment immediately prior to their first 2, every 3-week pembrolizumab administrations. The primary endpoint for this trial, as always, in these types of early trials is safety with secondary endpoints, including tumor response, survival, and most importantly, from a mechanism of action perspective, we will be able to investigate the clearance and characterization of exosomes and potentially to understand that clearance and its relationship to improved outcomes.

Now to move on to infectious disease. We announced last week that the FDA has approved a supplement to our existing viral IDE or Investigational Device Exemption, to allow for the treatment with the Hemopurifier of up to 40 patients with SARS-CoV-2 COVID-19 disease at up to 20 centers in the United States. This supplement is very similar to the one that was approved several years ago for Ebola in both the United States and Canada, and that supplement remains open.

We previously discussed and put up a statement on our website the potential use of the Hemopurifier in COVID-19. And we noted that we have data with multiple viruses in vitro and in humans including a version of the MERS virus, which like SARS-CoV-2 is a beta coronavirus, so closely related, showing that the Hemopurifier or a lab version of it could clear substantial quantities of virus in circulation.

While at the time we posted that statement, we did not have data with SARS-CoV-2 , we now have shown that we can clear a specific SARS-CoV-2 protein in the lab. We have not demonstrated clearance of whole virus because of safety issues that it would have to be done in a much higher level seclusion facility. But given the data with all of the other viruses that we’ve shown and our ability to very effectively clear this protein, we have a high degree of confidence that the Hemopurifier will trap the SARS-CoV-2 COVID-19 virus.

We also discussed at that time, the question of whether clearing circulating virus would have an impact on a disease where the proximate target is the lung. The literature has evolved very rapidly, as many of you probably know, since the original description of the outbreak in China. And the literature regarding the disease is now very clear that although the lung is frequently one of the first organs involved in many patients and particularly in the most severely affected ones, this is a systemic disease that potentially affects all organ systems and that the sickest patients outcomes may be driven by other organ involvement, including cardiac disease, and the profound coagulopathies or abnormalities of blood coagulation that characterize their courses.

In fact, there’s some evidence that the lung disease may in fact be initiated in many patients, not from the top from the alveoli but in fact, through the micro circulation in the lung. We’re now in the process of identifying centers to initiate the investigation of the Hemopurifier in this disease.

Finally, before I ask for Chuck’s thoughts, and turn it back over to Jim, I want to comment on a new addition to the management team. We recently recruited Tom Taccini to the position of Vice President of Manufacturing and Product Development.

Tom is an industry veteran with more than 35 years of experience in mechanic medical devices and expertise in manufacturing, product development, quality systems, regulatory affairs and program and project management. He is already in place and is having a major impact on helping to advance our manufacturing capabilities.

What many observers of our industry generally don’t recognize is the critical role that manufacturing and product development play in the process of getting to market.

Clinical development gets most of the attention, but no product gets approved without reproducible, scalable, reliable and well-characterized manufacturing processes, and we are devoting very substantial resources to make sure that this is not rate-limiting in the development of the Hemopurifier.

This is doubly important in products for life-threatening diseases where development can move very quickly. To remind you, the Hemopurifier is the subject of 2 Breakthrough Device designations by FDA, one for viral disease and one for oncology. And in this setting, the regulatory process and the development process can move very quickly. So we have to be prepared by the time we’re ready to file for approval, assuming our development programs are successful.

Tom is a great addition to the team. But I would also be remiss if I didn’t point out that all of what I’ve been talking about was done in a very short time, with a small but incredibly talented and motivated team of scientists and development professionals to whom we are profoundly indebted.

And while our group is taking all appropriate precautions to protect each other during these challenging times, including working remotely wherever possible, we have continued research in our laboratories. We continue our manufacturing operations to manufacture Hemopurifiers for our clinical trials.

With that, I’d like to get Chuck’s thoughts and observations before turning it back over to Jim for the financial section of the call. Chuck? Make sure, you’re not on mute, Chuck.

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Charles J. Fisher, Aethlon Medical, Inc. – Independent Chairman & Member of Extracorporeal Therapy Advisory Board [4]

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Thanks, Tim. Thanks all of you for joining our call today. As we all know, this year has presented significant challenges to all of us. Despite working from home, the team has been able to keep up a strong pace to move things through the regulatory process as well as the trial design and institutional review board approvals in a timely fashion.

I want to emphasize the critical importance of product development. As Tim mentioned, Tom Taccini is a strong addition to our management team and has hit the ground running. In addition to advancing product production, we are working hard on developing a stockpile of Hemopurifiers in anticipation of increased use.

Further, we are updating our documentation in preparation for future filings with regulatory agencies.

As you know, from our prior calls and filings, the Hemopurifier as Tim mentioned, has 2 breakthrough designations, and we will soon be in the clinic for both COVID-19 and head and neck cancer, creating life-threatening viral disease and exosome associated cancer. We are now delivering on the plan we outlined a year ago. We have a strong and engaged Board of Directors who are focused on developing goals and ensuring that we achieve them.

I will now hand the call back over to Jim Frakes, our CFO, for the financial presentation. Jim?

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James B. Frakes, Aethlon Medical, Inc. – CFO, Senior VP of Finance & Secretary [5]

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Thanks, Chuck, and good afternoon, again, everyone. Our net loss was approximately $6.4 million or $1.87 per share for the fiscal year ended March 31, 2020 compared to a net loss of approximately $6.2 million or $5.13 per share for the fiscal year ended March 31, 2019.

We recorded government contract revenue of approximately $650,000 in the fiscal year ended March 31, 2020. This revenue resulted from work performed under our Phase II melanoma cancer contract with the NCI. We recorded government contract revenue of approximately $230,000 in the fiscal year ended March 31, 2019.

Our operating expenses for the fiscal year ended March 31, 2020, were approximately $6.58 million in comparison with $6.23 million for the fiscal year ended March 31, 2019. This increase of approximately $350,000 or 6% in the fiscal year ended March 31, 2020, was due to increases in professional fees of $537,000 and in general and administrative expense of $595,000, which were partially offset by a decrease of $781,000 in payroll and related expenses.

The $537,000 increase in our professional fees in the fiscal year ended March 31, 2020, was primarily due to a $694,000 increase in our legal fees, and a $111,000 increase in our accounting fees, which were partially offset by decreases of $245,000 in consulting fees.

The increase in legal and accounting fees related to increased activity in our registration statement filings and in intellectual property actions, among other matters.

The $595,000 increase in general and administrative expenses in the fiscal year ended March 31, 2020, was primarily due to a combination of a $316,000 increase in our clinical trial expenses; a $198,000 increase in subcontracting and other costs related to our government contracts and an increase in $87,000 in laboratory supplies.

The $781,000 decrease in payroll and related expenses in the fiscal year ended March 31, 2020, was due to a combination of a decrease in our stock-based compensation of $475,000 and a decrease of $306,000 in cash-based compensation. Primarily due to the termination of consulting and severance payments to our former Chief Executive Officer and former President.

Other expense in the fiscal year ended March 31, 2020, consisted of a noncash loss on debt extinguishment, interest expense and a gain on share for warrant exchanges. And then the fiscal year ended March 31, 2019, consisted of interest expense only.

Other expense for the fiscal year ended March (inaudible) $450,000 compared to other expense of approximately $220,000 for the fiscal year ended March 31, 2019.

At March 31, 2020, we had a cash balance of approximately $9.6 million and in June 2020, we raised additional cash through the sale of approximately 2.7 million shares of common stock under our ATM facility at an average price of $2.70 per share.

The aggregate net proceeds to us were approximately $7.3 million. Those sales under our ATM represented approximately 2% of the trading volume on the date of the sales and were completed with minimal transaction costs and no warrant issuances. The cash received from the June ATM sales puts the company in its strongest cash position in at least 12 years.

We did land the large Phase II NCI contract last fall, and we do intend to continue to apply for additional government grants and contracts as sources of non dilutive funding.

We included these earnings and related commentary in a press release earlier this afternoon. That release included the balance sheet for March 31, 2020, and the statements of operations for the fiscal years ended March 31, 2020 and 2019. We will file our annual report on Form 10-K following this call.

Our next earnings call will coincide with the filing of our quarterly report on Form 10-Q in August.

And now Chuck, Tim and I would be happy to take any questions that you may have. Operator, please open the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question today will come from Brian Marckx with Zacks.

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Brian W. Marckx, Zacks Investment Research, Inc. – Director of Research and Senior Medical Technology, Medical Device & Diagnostics Analyst [2]

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Congrats on all the developments recently. Can you hear me okay?

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Timothy C. Rodell, Aethlon Medical, Inc. – CEO & Director [3]

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We can hear you fine. Thanks, Brian.

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Brian W. Marckx, Zacks Investment Research, Inc. – Director of Research and Senior Medical Technology, Medical Device & Diagnostics Analyst [4]

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Okay. Great. If I can start with the cancer side of the business, it sounds like you’re pretty confident that the — that trial is going to start the human study is going to start, did the ex vivo presentation was that sort of a prerequisite to start it? Or was it — this just kind of coincidental that it came out roughly at the same time.

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Timothy C. Rodell, Aethlon Medical, Inc. – CEO & Director [5]

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If you’re talking about the AACR poster, no, that poster actually is based on data that’s been generated over the last year or 2 by Annette Marleau, our Senior Director of Research; and Theresa Whiteside and her group at the University of Pittsburgh, and a lot of that was generated actually under 2 previous grants or contracts from the NCI.

So that’s kind of — it’s a summary of a number of different studies. And that was really not part of the review process for the oncology IDE. Obviously, all of those data were available to FDA, but no, we were not waiting for those data for the trial to start.

Let me make a comment, though, about trial start-up very quickly, and that is as you undoubtedly know and everybody on the call knows, when you’re doing trials in large cancer centers, it’s generally a multistep process once the IDE is open to get a trial open and running. And in fact, I’ve run multicenter trials, 40 and 50 center trials, in which some of the larger cancer centers actually didn’t get IRB approval and open until the trial was virtually completely enrolled.

So one of the advantages, obviously, is we have a huge amount of expertise there and a very large patient — available patient population. But it is a big institution with multiple levels of review.

That also potentially raises a question of whether the COVID-19 pandemic slowed us down. And I actually don’t think it did. And the reason I say that is that the — while some clinical research in less sort of life-threatening areas may have been slowed down. And there’s been a lot of press about that around the country, the review process at Pittsburgh at UPMC continued during this.

So I think that the start-up of that trial, again, I’m going to try and not be forward-looking, but I’m also going to try and give you an indication. I would say it’s reasonably imminent. We’re putting the final touches on getting it open for enrollment.

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Brian W. Marckx, Zacks Investment Research, Inc. – Director of Research and Senior Medical Technology, Medical Device & Diagnostics Analyst [6]

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Okay. And Tim, remind me the — this is just a single site study. Is that right?

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Timothy C. Rodell, Aethlon Medical, Inc. – CEO & Director [7]

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It’s a single site study. Yes. It’s very typical for what would be a Phase I study. And incidentally, I should say that this — the protocol for this trial was a joint collaboration between Aethlon and the Head and Neck group at the University of Pittsburgh. So there really is very much joint ownership of the trial.

The other thing I would say, however, is that if you’re familiar with Hillman, it’s a stunningly good oncology center — cancer center, Pittsburgh is a terrific institution, and that’s a very busy practice. So I think in terms of available patients, it’s as good a place as any for us to be.

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Brian W. Marckx, Zacks Investment Research, Inc. – Director of Research and Senior Medical Technology, Medical Device & Diagnostics Analyst [8]

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Tim, relative to the recent presentation, the ex vivo studies, is there anything that you can draw from that in terms of the data that you got from that relative to collection of tumor-derived exosomes, the quantity and what that may translate into in terms of outcomes in patients with cancer? Or is that too kind of big of a leap?

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Timothy C. Rodell, Aethlon Medical, Inc. – CEO & Director [9]

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Well, no, I don’t think it’s a big leap, and it’s a great question. The quantitative part of it is going to be a little bit difficult to get to. What we did show until we get clinical data. What we did show in those ex vivo studies is that we can clear or at least the mini version of the Hemopurifier, which runs on the bench, is able to clear exosomes from multiple different tumor types, including breast, melanoma and others. So we know that the mechanism of the Hemopurifier is capable of doing this.

What quantitatively needs to happen in order to allow more patients to respond to checkpoint inhibitors is a question that we expect to be answering in this study. I would remind you that the levels of circulating tumor-derived exosomes in these patients can vary by 3 to 4 orders of magnitude. So they may have anywhere from 10 to the 9 to 10 to the 12 exosomes, tumor-derived exosomes per milliliter of circulating blood.

Now, the Hemopurifier is capable theoretically of clearing very high quantities. But until we actually hook up a patient with head and neck cancer, and look at the quantity of exosomes in their circulating blood prior to treatment and the quantity at the end of treatment. We’re not going to be able to answer that question. What I would say is, again, it’s a wonderful question. And I think we’re probably the only people right now in the country or the world that are going to be able to answer it.

The other thing I would say is that one of the advantages of doing a trial like this, which is open label, is that we’re going to be able to get data essentially in real-time in terms of what quantities of exosomes are we clearing, we’re going to be able to get the exosomes out of the cartridges afterwards. We’re going to be able to not only quantitate them, but also characterize them. So there’s a huge amount of science to be learned here.

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Brian W. Marckx, Zacks Investment Research, Inc. – Director of Research and Senior Medical Technology, Medical Device & Diagnostics Analyst [10]

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Tim, with the new IDE supplement for COVID for that study, now that you’ve got 2 potential human studies ongoing. Is there any concerns relative to your resources to be able to conduct both studies at the same time?

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Timothy C. Rodell, Aethlon Medical, Inc. – CEO & Director [11]

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It’s a good question. We pay a lot of attention to that. And I’m very confident that we have the resources available and mostly in place already. We are very small, as you know. I think I was employee #6, and we have 8 full-time employees right now, but we very — use very heavily contractors and consultants where appropriate to expand our resources.

So we have a group actually based in Colorado, made up of people whom I’ve worked with before that are very experienced clinical research people, regulatory people.

So I’m pretty confident. And again, I’ve run multiple large multicenter trials. And I know what resources are necessary. But it’s a good question. We have to pay attention to it. But based on what we have on our plates right now, I think we’re appropriately resourced.

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Brian W. Marckx, Zacks Investment Research, Inc. – Director of Research and Senior Medical Technology, Medical Device & Diagnostics Analyst [12]

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That’s great. So relative to the COVID study, congrats again on the IDE supplement. Can you give us kind of a sort of a big picture, I guess, in terms of your viewpoint on being able to find the appropriate patients. What does that patient profile look like in terms of the general COVID patients that would be that would test positive and in terms of the 20 study sites, can you give us kind of a big picture view of what that would look like time-wise in terms of being able to enroll?

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Timothy C. Rodell, Aethlon Medical, Inc. – CEO & Director [13]

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Yes. Let me answer the second part of the question first. The 20 sites, we don’t intend to open 20 sites simultaneously. But I think as everybody knows, who’s on this call, one of the characteristics of this pandemic is that it’s going — the number of cases are going up in some places, the number of cases are going down in some places. And unfortunately, this disease is going to be with us for a while. And so we identified, what we proposed a fairly large number of sites for a trial like this, again, not because we intended to open them all at once. But if we open a site in New York, and things go down there, and all of a sudden cases start to spring up other places, which is happening all the time as we speak. In fact, parenthetically, Southern California is getting absolutely hammered now. And a lot of those patients are coming from the Imperial Valley, many of them are in the migrant worker community.

So we wanted to be in a position to essentially go to where the disease is. And that’s the reason for that number of sites. But we’ll be opening a reasonable number as quickly as we possibly can. We’ve already identified several are in the process of putting the documentation in place to get that open. In terms of what the patients look like. Obviously, we’re not going to use an extracorporeal circulation process in somebody who isn’t pretty sick.

And the other point there is that the target population for this is the patients who have circulating virus. And there’s a fairly good literature and evolving literature out there that says that the patients who actually you can detect virus in their circulation are the ones who do the worst. They have the highest mortality, the longest ventilator times if they survive at all.

So our target population is the sicker patients. In addition, so there are a number of inclusion criteria, which you’ll be able to find, but it’s going to be patients essentially all who are already in the ICU.

In general, most patients with this disease who are in the ICU ventilated or not have some element of acute kidney injury. And so many of these patients will already be on dialysis or continuous renal replacement therapy, and that’s one of the inclusion criteria.

The other point I would make is that, obviously, there’s a huge amount of research going on and everybody out there is working on both vaccines but also treatments. Remdesivir now has an open emergency use authorization. I expect that’s going to turn into a commercialization approval fairly quickly, but one of the striking things about that drug is that if you look at the data that were published in the New England Journal, just a couple of weeks ago, the effect of that drug is almost entirely in the patients with less severe disease. And the patients who either are not on supplemental oxygen at all or on nasal prongs, 3 or 4 were just by nasal prongs, but the effect in patients who are ventilated and were very sick was limited or nonexistent.

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Brian W. Marckx, Zacks Investment Research, Inc. – Director of Research and Senior Medical Technology, Medical Device & Diagnostics Analyst [14]

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Do you have any kind of insight and maybe particularly given the respike in COVID cases. And obviously, taking into consideration the patient profile that you need, how long it might take to enroll 40 patients? Or is that just too early for that?

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Timothy C. Rodell, Aethlon Medical, Inc. – CEO & Director [15]

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I would say it’s too early. That would be a very dangerous prediction for me to make. As you well know, until you actually have sites open and look at the way that patients are screened and what reasons there are for patients not meeting inclusion and exclusion criteria, it’s really very hard to predict.

I don’t — I wish that I thought that this was going to be over before we could get 40 patients in, but I can pretty much guarantee that it’s not going to be — it’s going to be with us for a while. It’s going to be with us even if there’s a vaccine and those are still a little ways away. But to say how long it’s going to take to get 40 patients would be probably a little bit risky for me right now.

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Brian W. Marckx, Zacks Investment Research, Inc. – Director of Research and Senior Medical Technology, Medical Device & Diagnostics Analyst [16]

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Is there a certain — certain parameters of data that you’ll be collecting in this study that you may be able to use to move to another study and show a support for a formal FDA study or whatever way you might go?

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Timothy C. Rodell, Aethlon Medical, Inc. – CEO & Director [17]

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It’s a great question. And if you sort of — if you compare this trial to what we’re doing in cancer with exosomes, this is one of the great things about this product about this device, is that we can look at the mechanism very quickly. So we will be looking at quantitative PCR before and after treatment. I should also point out incidentally that the literature that the data that are available on quantitative PCR on these patients is very limited. Most hospitals are only doing qualitative is their virus present or not. So we will be able to get those kind of quantitative data. I think that we need to — so we’ll know whether we’re clearing the virus.

Secondarily, as we did with hepatitis C and Ebola, in the past, we can actually look at the spent Hemopurifiers, used Hemopurifiers and elute virus off and quantitate how much virus are actually getting out. So those are — those will be very good mechanistic points.

In terms of what the impact of that is on clinical endpoints, ventilator time, survival, those kinds of things. Obviously, it’s a small study, but I think that we should be able to get a good inkling with a reasonably limited number of patients on whether we’re doing something. And obviously, we’re going to be looking at the earliest time point if we get data that are suggestive for getting into a larger and more controlled trial that potentially could, as you said, serve as a basis for commercialization.

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Operator [18]

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This concludes our question-and-answer session, and I would like to turn the call back over to Tim Rodell for any closing remarks.

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Timothy C. Rodell, Aethlon Medical, Inc. – CEO & Director [19]

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Thank you. First of all, we appreciate everybody who’s dialed in. It’s a large and good group. We appreciate your continuing interest in what we’re doing. We’re delighted to be able to offer some evidence today of the amount of progress that we’ve made. I know that there have been times when people have thought we’ve been a little bit silent. But as you can tell, it’s not because we haven’t been doing things. There’s been a huge amount going on and we’re very excited about what’s happened and what’s coming up in the future.

So again, thank you all for your time. Thanks for dialing in, and we hope that you stay safe and stay well, and we’ll talk to you next quarter. Thanks very much.

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Operator [20]

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