Aethlon Medical, Inc. (AEMD) on Q2 2023 Results - Earnings Call Transcript
Operator: Good afternoon, and welcome to the Aethlon Medical Second Quarter Fiscal 2022 Earnings and Corporate Update 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.
James Frakes: Thank you, operator, and good afternoon, everyone. Welcome to Aethlon Medical's Second Quarter 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 second quarter ended September 30, 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, Aethlon's CEO, Dr. Chuck Fisher; our Chief Medical and Chief Scientific Officer, Dr. Steven Larosa; and our Chief Business Officer, Guy Cipriani, 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 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, 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.
With that, I will now turn the call over to Dr. Chuck Fisher, Aethlon's Chief Executive Officer.
Charles Fisher: Thank you, Jim, and thank all of you who dialed in. My name is Chuck Fisher, I'm the CEO of Aethlon.
It's been a busy 3 months since our last investor conference call on August 9, 2002. We've had to make some important business decisions during that time frame. Due to the scarcity of COVID-19 patients and intensive care units eligible for enrollment into our US COVID trial, we recently decided to terminate the agreement with our contract research organization or CRO.
As a result, while our Investigational Device Exemption related to severe viral diseases remains open, we are discontinuing in U.S. COVID clinical trial given at this time. We intend to remain optimistic about viral diseases, and we will evaluate viral epidemics when they occur. Using this decision -- we expect this decision to save the company up to $5 million over the next 12 months, which we intend to allocate towards advancing the study of our Hemopurifier in oncology.
Similarly, due to lack of patient enrollment by the University of Pittsburgh Medical Center in our head and neck cancer safety trial, we and the University of Pittsburgh Medical Center, UPMC, have terminated this study. As a result of internal discussions and recognition of the evolving significance of immuno-oncology, we are emphasizing our role and opportunity in oncology with our novel therapy for which we have an FDA breakthrough designation. We are planning a new clinical trial 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 as a treatment option in oncology. We are in the later (sic) [ latter ] stages of selecting a new CRO to supervise its planned oncology study in the U.S. and in Australia, which my colleague will discuss shortly.
The addition of a second supplier for Galanthus nivalis agglutinin or GNA, used in the resin of our Hemopurifier, is delayed in the U.S., pending approval by the U.S. Food and Drug Administration of the supplement to our IDE required to enact this manufacturing addition and change. In our opinion, the FDA has mandated unexpectedly high testing requirements for a product in the early safety and feasibility stage of development. The additional data requested by the FDA may take us several months to obtain. We are escalating our concerns with the FDA decision by engaging the FDA's ombudsman. However, there can be no assurances that this escalation will accelerate our development time lines.
Now I'd like to turn the call over to Dr. Steven Larosa, Aethlon's Chief Medical and Chief Scientific Officer, who will provide an update of our current clinical trial and infectious disease in India and our planned trial in cancer. Steve?
Steven Larosa: Hi, everyone, and thanks for listening into our presentation. I'm Dr. Steven Larosa, the Chief Medical and Chief Scientific Officer of Aethlon.
The regulatory authorities in India have accepted our manufacturing change that Chuck just noted. And as a result, we will ship cartridges to our site in India for use in our COVID-19 trial. To refresh our memory about this trial, Medanta Medicity Hospital, a multi-specialty hospital in Delhi, India, has enrolled 1 patient in our COVID-19 trial in India and continues to actively screen patients. Our CRO, Qualtran, LLC, has identified additional potential sites for the trial in India and is currently affecting feasibility.
Qualtran is also interviewing sites to hold an oncology trial with our Hemopurifier in India. As Chuck just noted, we are planning a new clinical trial 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 as a treatment option in oncology. We are in the later (sic) [ latter ] stages of selecting a new CRO to supervise this planned oncology study.
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. The subsidiary will initially focus on the oncology market in Australia. Once selected, it is likely that our new CRO will oversee planned oncology studies in both the U.S. and 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 Unit, where he completed multiple in-licensing and out-licensing transactions for commercial, clinical and preclinical assets. He also worked with Chuck as VP of Business Development at Cardiome Pharma Corp., where Guy and Chuck led the negotiation of an $800 million global development and co-commercialization licensing deal with Merck & Co. in 2009 around that company's lead Phase III cardiovascular program.
Guy Cipriani: Thank you, Steve, and good afternoon. 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 tax -- 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 R&D costs.
This 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 is 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.
James Frakes: Thank you, Guy, and good afternoon again, everyone.
As of September 30, 2022, Aethlon Medical had a cash balance of approximately $19.6 million. Our consolidated operating expenses for the 3 months ended September 30, 2022, were approximately $3.67 million compared to $2.14 million for the 3 months ended September 30, 2021. This increase of $1.53 million or 71% in the 2022 period was due to increases in our general and administrative expenses of $863,000, in our professional fees of $354,000 and in our payroll and related expenses of $307,000.
The $863,000 increase in our general and administrative expenses was primarily due to the combination of a $384,000 increase in our clinical trial expenses, a $258,000 increase in supplies, primarily for manufacturing Hemopurifiers, a $140,000 increase in subcontract expenses related to our government contracts, a $50,000 increase in our rent expense and a $32,000 increase in our insurance expense.
The $354,000 increase in our professional fees was primarily due to a combination of a $152,000 increase in our contract labor expense associated with product development and analytical services, a $136,000 increase in our legal fees and a $61,000 increase in our investor relations expenses, primarily related to solicitation expenses associated with our 2022 Annual Meeting of Stockholders.
The $307,000 increase in our payroll and related expenses was in part due to an increase in our stock-based compensation expense of $112,000, and our cash-based compensation expense increased by $195,000 due to our increased head count. In September 2022, the Board of Directors of Exosome Sciences, Inc., or ESI; and Aethlon, as the majority shareholder of ESI, approved the dissolution of ESI, our former subsidiary. As a result of this dissolution, we recorded a noncash charge of approximately $142,000 as other expense in the 3 months ended September 30, 2022.
Aethlon did not report any revenue related to our government contracts with the NIH in the 3 months ended September 30, 2022, compared to approximately $132,000 in the 3 months ended September 30, 2021. As of September 30, 2022, the company 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 NCI. 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 September 30, 2022, balance sheet.
As a result of the changes in revenues and expenses I just noted, our net loss increased to approximately $3.8 million in the 3 months ended September 30, 2022, from approximately $2 million in the 3 months ended September 30, 2021. During the 6 months ended September 30, 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 the press release issued earlier this afternoon. That release included the balance sheet for September 30, 2022, and the statements of operations for the 3 and 6 months ended September 30, 2022, and 2021. We will file a quarterly report on Form 10-Q following this call.
Our next earnings call for the fiscal third quarter ending December 31, 2022, will coincide with the filing of our quarterly report on Form 10-Q in early February 2023. And now Chuck, Steve, Guy and 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 comes from Marla Marin with Zacks.
Marla Marin: So a lot going on. I guess you've expanded the oncology area, you did that quite a while ago and I guess that how do you pivot now? Are you thinking that any of the data from some of the preclinical studies will form some part of that database as you move forward in that area?
Steven Larosa: Thanks, Marla. So if I understand the question, you're asking about preclinical data informing studies. What we can say is that there are a number of solid tumor types in which checkpoint inhibitors are used in which there is not a lasting response. And the data would suggest a hypothesis that if you remove exosomes associated with that decreased response, you might improve outcomes. I think the scientific basis is largely driven by the data of solid tumors in their response to immuno-oncology.
Marla Marin: Okay. And when you start moving forward in Australia, how far -- like can you give us any sense of what the time line there might be?
Steven Larosa: Based on what we're hearing from our different CROs that we're interviewing the process for full approval and getting up and running, it's a different process in Australia. You start with site ethics approval and then you worked backwards to the company's regulatory approval, but it's usually in the order of 4 to 6 months.
Operator: The next question [ Thomas McGovern ] with Maxim Group.
Unknown Analyst: My first question is on the upcoming oncology trial. I just wanted to know if there would be patients involved in the trial that are on KEYTRUDA.
Steven Larosa: Yes. So the planned study is that all patients will have a lead-in period of either nivolumab or pembrolizumab, which is KEYTRUDA and the patients who do not have a response after 2 months would then go to the, what we call the Hemopurifier phase of the study, where they would undergo different curiosity of Hemopurifier treatment. And what this study allows you to do is have each patient service their own control, so you can see the additive benefit of the Hemopurifier. So all the patients, in this upcoming study, will have had a checkpoint in anti-PD-1 antibody prior.
Unknown Analyst: Okay. Great. And sorry, my call is kind of cutting out a little bit. When you guys were discussing your decision to go into Australia. So I heard that there was a rebate. Could you just repeat, maybe just real quick like high level why you chose Australia again? And then specifically, what that rebate was?
Guy Cipriani: Sure thing. This is Guy. Thanks for the question. So the -- in Australia, the Australian industry and the tax authority, they both have combined to offer up this R&D tax rebate program. It's essentially 43.5% rebate. So for every dollar Australia you spend, you get about $0.435 back. And it's applied to research around clinical development. And they, of course, want you to commercialize the products in that country. There's a lot of reasons for picking Australia besides just the rebates.
And one, it's kind of a -- it's a very significant center for cancer studies. There's a lot of thought leaders and patients in Australia, and we think for the tumor types that we're looking at, we should be able to find and enroll the patients at very reputable centers in Australia. And I should point out that it's a rebate that you received at the end of the fiscal year that you file for that rebate. It's not just -- it's not a tax credit. So it's actually spreading our research dollars longer, if you will.
Unknown Analyst: Great. And then my final question is, could you guys just now -- if at all possible, can you guys provide some type of time line for our understanding on the NIH review?
James Frakes: This is Jim, by the way, Thomas. In previous contracts we've had with the NIH, they've taken a quarter or 2 or maybe even 3 quarters to get through all the -- close our documentation. I understand why you want the question to build your model, but -- the revenue into your model, but I don't have the impression they're overstaffed right now. I think they've had -- they've lost some people, and they're all straining. So it might be 3 quarters rather than 1. That's just a guess.
Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Dr. Chuck Fisher, CEO, for any closing remarks.
Charles Fisher: I want to thank everybody who joined us again to discuss on our Q2 results and our changing course and announcing it to you. We look forward to keeping you up to date on our future calls. And thank you very much for joining us. With that, we'll end the call.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
