Aethlon Medical, Inc.

Good afternoon and welcome to the Athlon Medical Second Quarter 2020 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question, press asterisk then one on your telephone keypad. To withdraw your question, please press asterisk. Please note, this event has been recorded. I would like to turn this over to Jim Frakes, CFO. Please go ahead, sir.

Thank you, Operator, and good afternoon, everyone. Welcome to Athlon Medical's second quarter 2021 earnings conference call. My name is Jim Frakes, and I am Athlon's Chief Financial Officer. At 4.15 p.m. Eastern Time today, Athlon Medical released financial results for its second quarter ending September 30, 2020. If you have not seen or received Athlon Medical's earnings release, please visit the investors page at www.athlonmedical.com. Following this introduction and the reading of our forward-looking statement, Athlon CEO, Dr. Tim Rodell, and our chairman, Dr. Chuck Fisher, will provide an overview of Athlon's strategy and recent developments. I will then make some brief remarks on Athlon's financials, and then we will open up the call for the Q&A session. Before I hand the call over to Dr. Rodell, please note that the news released today and this call contained forward-looking statements within the meaning of the Federal Securities Act of 1933 and the Securities Exchange Act of 1934. 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, 2020, 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. Tim Rodell, Athlon Medical's CEO.

Thank you, Jim, and thank you, everybody, for dialing in this afternoon. I'd like to start today by talking about our oncology programs. As you know, our lead program in oncology is in head and neck cancer. And we're initially focused on an early feasibility study, or EFS, which is the device equivalent of the phase one study that is being done at the University of Pittsburgh Hillman Cancer Center. We noted earlier, I think on our last call, that we have institutional review board approval at the University of Pittsburgh. Hillman Cancer Center, and I'm happy to say today that the trial is now open for patient enrollment. You can find the details of the trial, including all of the detailed inclusion, exclusion criteria and endpoints on clinicaltrials.gov, but let me review them briefly here. In this trial, we plan to enroll 10 to 12 subjects with advanced and or metastatic head and neck cancer who are going to receive pembrolizumab, also known as Keytruda from Merck, as standard of care in the frontline setting, so these are not previously treated patients. Keytruda was approved for this indication in June of last year, although it had been previously approved, as had other immuno-oncology agents, in the salvage setting prior to that, so for patients who had failed previous chemotherapy. The primary endpoint for this trial, as with all early-stage trials, is safety, with secondary endpoints including clearance, characterization of exosomes, response rates, and survival, both progression-free and overall. With respect to safety, we should remind you, however, that the hemopurifier has been used about 150 times in humans with viral diseases with a very clean safety profile. Now, what's important to recognize here is that while Keytruda and similar products known as immuno-oncology agents or checkpoint inhibitors have dramatic effects in some patients, with patients living for over five years with metastatic disease who would have only survived for months previously, and this includes patients with melanoma, with non-small cell lung cancer, and patients with head and neck cancer. But unfortunately, the majority of patients don't respond. So the improvements in survival that are seen in the overall population are generally driven by a minority of patients. In head and neck cancer, in the frontline setting where we are working, only about 30 to 35% of patients respond in the frontline setting and a much lower percentage in the salvage setting. Now, the literature, the medical literature suggests that a major mechanism by which patients fail to respond to these agents is mediated by immunosuppressive exosomes, which we've discussed in the past. These are subcellular particles that are shed by cancer cells that, as you know, the hemopurifier is designed to clear along with glycosylated viruses, which I'll get to in a minute. And as you may know, Keytruda is one of the top-selling drugs in the world, and the revenues are still growing. Now, there are multiple mechanisms by which exosomes are involved in advancing cancers, but this particular setting that is in combination with checkpoint inhibitors may represent one of the most significant opportunities. The story is similar for other solid tumors with Keytruda and other checkpoint inhibitors, which could mean that there may be multiple opportunities beyond our first indication of head and neck cancer. So we view this as being essentially a beachhead that potentially can lead to other tumor targets. And we're now beginning to investigate some of these additional solid tumor targets. Now, to move on to infectious diseases, as we previously disclosed, the FDA has approved a supplement to our existing viral 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. We have now started up, we're in the process of starting up, The first centers in this study, we have IRB approval and we're working through the final administrative details. This trial is now listed as of a couple of days ago on clinicaltrials.gov so that you can see the details of the trial design and also the centers that are involved as they are enrolled. We're in the process of recruiting a number of other centers. Now, finally, as I discussed on our last call, we have treated one patient so far with COVID-19 under the single patient emergency use pathway that allows for treatment of patients who are in extremis without pre-approval from FDA. And on the last call, I think I used the term uneventful for that treatment, and that may have been misinterpreted. For privacy reasons, we can't talk about the patient's overall course nor would one expect one patient to give us meaningful information about efficacy. But to give a little bit more information here, we can say that we completed with this patient eight six-hour hemopurifier treatments over nine days, successfully confirming that the hemopurifier can be used in this setting. We remain open to treating other patients under this pathway in centers where our formal trial is not up and running. So I'll stop there. I'd like to turn it over to Chuck to comment on recent events and anything that I've said, and then we'll turn it back over to Jim for the financial discussion and then open up for questions. Chuck?

Thanks, Tim. In follow-up on our oncology early feasibility study, as Tim mentioned, the primary endpoint of this trial was is safety with a secondary endpoint, including clearance of exosomes, as he has just mentioned. Also, as Tim mentioned, the literature suggests that a major mechanism associated with failure to respond in cancer is mediated by excessive exosomes, as Tim also mentioned. And with that, I'll turn it back over to Jim. I just want to emphasize those two points.

Thank you, Chuck. And good afternoon again, everyone. At September 30, 2020, we had a cash balance of approximately $14.5 million. Our consolidated operating expenses for the three months ended September 30, 2020, were approximately $1.77 million compared to approximately $1.70 million for the three months ended September 30, 2019. This increase of approximately $70,000 or 4.1% in the 2020 period was due to an increase in general and administrative expenses of approximately $212,000, which was partially offset by decreases in professional fees of approximately $106,000 and in payroll and related expenses of approximately $37,000. The $212,000 increase in our general and administrative expenses was primarily due to a $143,000 increase in lab supplies in connection with our ongoing effort to continue to build an inventory of hemopurifiers for our clinical trials that Timberdell and Chuck Fisher just mentioned, and also to a $54,000 increase in our clinical trial expenses themselves. The $106,000 decrease in our professional fees was primarily due to a $94,000 decrease in our legal fees and a $60,000 decrease in our accounting fees, which were partially offset by a $38,000 increase in scientific consulting expenses. The $37,000 decrease in our payroll and related expenses was due to the combination of a $159,000 reduction in stock-based compensation expense and a $122,000 increase in our cash-based compensation expense. The cash-based compensation expense was in turn due to additions to our headcount and to salary increases. There was no other expense during the three months ended September 30, 2020. While in the three months ended September 30, 2019, other expense primarily consisted of approximately $4,000 of losses on share for warrant exchanges. As a result of the changes in expenses that I just noted, our net loss before non-controlling interests increased to approximately $1.77 million for the three months ended September 30, 2020, or 15 cents per share, from approximately $1.71 million for the three months ended September 30, 2019, or $1.29 per share. 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, 2020, and the statements of operations for the three-month and six-month periods ended September 30, 2020 and 2019. We will file our quarterly report on Form 10-Q following this call. Our next earnings call will coincide with the filing of our quarterly report on Form 10-Q in February 2021. And now, Tim and I would be happy to take any questions that you may have. Operator, please open the call for questions.

We will now begin the question and answer session. To ask a question, you may press asterisk then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To explore your question, please press asterisk then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Maura Mary with Vax.

Thank you. So I have a few questions, which is we're all reading about what's going on right now in terms of spikes in COVID cases. So can you talk a little bit about how, if at all, you see that impacting your timeline? on the clinical trials?

This is Tim, and thanks for the question, Marla. It's a great question. I think that, you know, you've seen or you read a lot about the impact of the pandemic on the conduct of clinical trials, particularly international trials. But, you know, I think that the answer is somewhat different for the two indications. First of all, with respect to the cancer trial, We don't see it having any impact on that. And the reason for that is that patients with advanced head and neck cancer can't really wait to be treated. So they're going to continue to be coming into the clinic and be treated with, in the case of our study, with Keytruda. So I don't think it's going to change patients. how things will happen with respect to that. With respect to the COVID-19 trial, it means that a lot of centers are already getting very busy and are seeing a lot of patients. As you know, the pandemic is moving around. We said on the last call that part of the reason we wanted to have 20 sites available is so that we could be in a position to open up where the patients are. We're now seeing a second wave starting up in the northeast, but one of the major areas where patients are starting to be seen is in the Midwest. California and our neighborhood, including Orange County, where our first trial site for COVID is open, remains very busy. And I think that we're going to continue to see a lot of patients there. The other point I would make is that I think everybody's aware that there are hundreds, if not thousands, of different trials going on using vaccines, using drugs, using therapeutic antibodies. But if you actually look at our trial design and the patients that are going to qualify for our trial, in fact, are the sicker of the patients. They will be in the ICU, but many of them will be on ventilators. And so I don't see us competing with most of the other things that are going on out there for patients. So it's an important question, but I think we're well positioned to manage it.

Okay, thank you. Now, also, you mentioned during your prepared remarks, you talked about additions to headcount. Can you just give us a little bit more color on that? Is that primarily to support the clinical trials?

It's to support a number of things. You know, the part of this that people tend to forget is that in order To run clinical trials and develop products, you need a product. You actually need a drug, or in our case, we need hemopurifiers, which we're currently manufacturing under GMP conditions to support our clinical trials. And one of the major things that we have to be in a position to do is to scale up manufacturing and to advance it so that we have a product that potentially could be a commercial product if and when we get approval. So we are adding headcount. Not huge numbers, but we announced earlier that we hired a very experienced vice president of product development and manufacturing, Tom Ticini, who was already making substantial contributions. We do need additional people to work on the manufacturing side. But in addition, you know, earlier this year before the pandemic really struck, our primary clinical program was the program at the University of Pittsburgh, is a single center trial enrolling 10 to 12 patients, and that doesn't require a huge amount of headcount or operational staff. But now that we're running or initiating a multi-center trial in up to 20 centers, we do need additional clinical operations personnel, and those are the two primary places where we're increasing headcount. And again, that's not going to be huge numbers of people, but we do need adequate resources to address both of those areas.

Okay, thanks. And my last question, you have a sizable cash balance at the end of the quarter. Could you just remind us of, you know, your thinking in terms of, you know, everything that you're currently, you know, involved with, if you could give us some color on, you know, where you see that taking you through?

Yeah, let me hand that to Jim because that's his daily look. Jim? Sure.

That's a good question, Marla, that we focus on quite a bit. Historically, we've burned about $1.3 million in cash a quarter. That was the case in the June quarter and in the previous June quarter. And in fact, our cash only went down by $1.2 million from $15.7 to $14.5 in the September quarter. But I think we've been pretty clear that we are modestly expanding our headcount. We're investing a lot of money for our little company into building hemopurifier cartridges for the clinical trials. So our burn rate will increase on purpose, but not extensively. So I wouldn't want anybody to take the 14.5 million we have right now and divide by 1.3 and see we have three years of cash because our burn rate is going to increase. But on the other hand, these initial safety trials are not small numbers of patients, not that many treatments per patient, so they're manageable. So we're not in a position where we have to raise cash with horrible terms. So if and when we raise cash, it may be with a strategic investor or opportunistic terms. We hope to be in a stronger position. than we've been in the past on the fundraising front.

Okay.

I'm sorry, I can't be more specific.

That was helpful. Thank you.

My pleasure.

This concludes our question and answer session. I'd like to turn the conference back over to Tim Riddell, CEO, for any closing remarks.

Yeah, thank you, Greg. So just once again, thank you all for dialing in. Thank you for your continued interest and support. And we look forward to talking to you again on the next quarterly call. And between now and then, stay safe and be well. Thank you.

The conference has now concluded. Thank you for attending today's