Aethlon Medical, Inc. (AEMD)
Q2 2022 Earnings Conference Call
November 14, 2022, 04:30 PM ET
Company Participants
Charles Fisher - Chief Executive Officer
James Frakes - Senior Vice President and Chief Financial Officer
Steven LaRosa - Chief Medical Officer
Guy Cipriani - Senior Vice President and Chief Business Officer
Conference Call Participants
Marla Marin - Zacks Investment Research
Thomas McGovern - Maxim Group
Presentation
Operator
Good afternoon and welcome to the Aethlon Medical's Second Quarter Fiscal 2022 Earnings and Corporate Update Conference Call. Participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note 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 PM 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 thanks all of you for dialing in. My name is Chuck Fisher, and I’m CEO of Aethlon. It has been a busy three months since our last investor conference call on August 9, 2002. We plan to make some important business decisions during that timeframe. Due to the scarcity of COVID patients in an intensive care unit eligible for enrollment into our U.S. 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 the U.S. COVID clinical trial activity at this time. We intend to remain optimistic of our 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 twelve months, which we intend to allocate towards advancing the study of our Hemopurifier in oncology.
Similarly due to the lack of patient enrollment by the University of Pittsburgh Medical Center in our head and neck cancer safety trial, we and 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 on 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 stages of selecting a new CRO to supervise this new planned oncology study in the U.S. and in Australia which my colleagues will discuss shortly.
The addition of a second supplier of Galanthus nivalis agglutinin or GNA which is 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 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 timelines.
Now I'd like to hand the call over to Dr. Steven LaRosa, Aethlon's Chief Medical and Chief Scientific Officer who will provide an update on our current clinical trial and infectious disease in India and our planned trial in cancer. Steve?
Steven LaRosa
Hi everyone and thanks for listening in to our presentation. I'm Dr. Steven LaRoza, the Chief Medical and Chief Scientific Officer at Aethlon. The regulatory authorities in India have accepted our manufacturing change that Chuck just noted, and as a result, we will shift cartridges to our site in India for use in our COVID-19 trial.
To refresh our memories about this trial, Medanta Medicity Hospital, a multi-specialty hospital in Delhi, India, has enrolled one 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 assessing 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 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 CardioPharma Corporation, where Guy and Chuck led the negotiation of an $800 million global development and co-commercialization licensing deal with Merck & Company in 2009 around that company's lead Phase 3 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. A quality of the science, clinical infrastructure, availability of patients and its 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
Thanks 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 three months ended September 30, 2022 were approximately $3.67 million compared to $2.14 million for the three 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 non-cash charge of approximately $142,000 as other expense in the three months ended September 30, 2022.
Aethlon did not record any revenue related to our government contract with the NIH in the three months ended September 30, 2022 compared to approximately $132,000 in the three 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 its revenue, the $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 three months ended September 30, 2022 from approximately $2 million in the three months ended September 30, 2021.
During the six 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 a press release issued earlier this afternoon. That release included the balance sheet for September 30, 2022 and the statements of operations for the three and six months ended September 30, 2022 and 2021.
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, 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.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question comes from Marla Marin with Zachs. Please go ahead.
Marla Marin
Thank you. So a lot going on. I guess, you know, you've expanded the oncology area, you did that quite a while ago and I guess that health is pivot now. Are you thinking that any of the data from some of the preclinical study will form some part of that database as you move forward in that area?
Charles Fisher
Steve?
Steven LaRosa
So, 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 and 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 outcome. So I think the scientific basis is largely driven by the data of solid tumors and their response to immuno-oncology.
Marla Marin
Okay, thank you. And when you start moving forward in Australia, how far, like is, can you give us any sense of what the timeline there might be?
Steven LaRosa
Well, based on what we are 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 work backwards to the company's regulatory approval, but it's usually on the order of four to six months.
Marla Marin
Okay, thanks very much.
Operator
The next question is from Thomas McGovern with Maxim Group. Please go ahead.
Thomas McGovern
Hey guys. My first question is on the upcoming oncology trial and 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 did not have a response after two months would then go to the, what we call the Hemopurifier phase of the study, where they would undergo different puriosity of Hemopurifier treatment. And what this study allows you to do is, have each patient serve as their own controls, so you can see the additive benefit of the Hemopurifier. So all the patients will in this upcoming study will have had a checkpoint in an anti-pd-1 antibody prior.
Thomas McGovern
Okay, great. Thanks for that insight. And then, sorry, my call was 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 in Australia, the Australian industry and the tax authority, they both have combined to offer up this R&D tax rebate program. And it's essentially 43.5% rebate. So for every dollar Australian you spend, you get about 43.5 cents 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 rebate 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 receive at the end of the fiscal year that you file for that rebate. It's not just a -- it's not a tax credit. So it's actually spreading our research dollars longer, if you will.
Thomas McGovern
Great. And then my final question is, could you guys just, if at all possible, could you guys provide some type of timeline for our understanding on the NIH review?
James Frakes
Hi. This is Jim, by the way, Thomas. In previous contracts we'd have had with the NIH they've taken a quarter or two or maybe even three quarters to get through all the close out documentation. I understand why you want the question to build your model, but the revenue under your model, but I don't have the impression they're overstaffed right now. I mean, I think they've had -- they've lost some people and they're all stringing, so it might be three quarters rather than one, that's just a guess.
Thomas McGovern
Okay. Thanks for taking the time to answer my question. I appreciate it guys.
James Frakes
Okay, thank you.
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 today to discuss 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 will end the call.
Operator
Our conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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Aethlon Medical, Inc. (AEMD) Q2 2022 Earnings Call Transcript