Aethlon Medical, Inc.

Good afternoon, everyone, and welcome to the Athlon Medical third quarter fiscal 2021 earnings and corporate update conference call. All participants will be in a listen-only mode. Should you need assistance, please see a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Mr. Jim Frakes, Chief Financial Officer. Sir, please go ahead.

Thank you, Operator, and good afternoon, everyone. Welcome to Athlon Medical's third 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 or its third quarter ended December 31st, 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's CEO, 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. 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 released today and this call contain 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 31st, 2020, and in the company's other filings with the Securities and Exchange Commission. Acceptance may be required by law. The company does not intend nor is 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, Athlon Medical's Chief Executive Officer.

Thank you, Jim, and thank all of you for dialing in today. As Jim said, my name is Chuck Fisher. You may recall that I have spoken during previous earning calls in my capacity as Athlon Medical's Chairman of the Board. At the end of October 2020, our board directors asked me to take on the CEO role in an effort to accelerate the company's clinical progression. So this is my first earnings call as Athlon Medical's CEO. I'd like to tell you about what we've accomplished in the past three months. I'd like to start today by talking about our oncology program. As you know, our lead oncology program is in head and neck cancer. This program is actually focused on an early feasibility study, the device equivalent of a Phase I trial in drug development. And it is being conducted at the University of Pittsburgh Medical Center, UPMC, the Hillman Cancer Center. We previously reported that we had IRB approval at UPMC, and this trial is now open and actively screening patients for enrollment. You can find the details of the trial on clinicaltrials.gov. We plan to enroll 10 to 12 subjects with advanced or metastatic head and neck cancer who are going to receive Imbrolizumab, which is known by its brand name of Keytruda, as the approved standard of care for head and neck in the frontline setting. Patients enrolled will first be treated with our chemopurifier for the purpose of decreasing the circulating exosome load prior to receiving their first dose of Keytruda. Our first patient in this trial recently successfully completed all the required human purifier treatments and Keytruda infusions. Keytruda was approved for frontline indication in June of 2019 and had previously been approved in the salvage setting prior to that. The primary endpoint for this trial, as with all early stage trials, is safety. with secondary endpoints including clearance of exosomes, response rate, and survival. We should note again that the hemopurifier has been used in over 150 patient exposures in humans, primarily with viral diseases, with a very clean safety profile. What is important to recognize here is that all Keytruda and similar products, known as Oncology agents or checkpoint inhibitors may have dramatic effects with some patients surviving or living for over five years with metastatic disease who have only survived four months previously. The majority of patients don't respond to Keytruda. In head and neck cancer, in the frontline setting, about 30% to 35% of patients respond to Keytruda with a much lower survival percentage in the salvage setting. The literature suggests a major mechanism by which patients fail to respond to these agents is mediated by immunosuppressive exosomes, which are subcellular particles shed by cancer cells. As you may know, the Athlon hemopurifier is designed to clear exosomes in addition to clearing glycosylated viruses. It's also worth noting that Keytruda is one of the top-selling drugs in the world and has recently been approved for frontline therapy in solid tumors, which could mean multiple opportunities of life beyond our first indication of head and neck cancer. We are now exploring multiple clinical development opportunities in some of these additional solid tumors. On the infectious disease front, as we previously disclosed, the FDA has approved a supplement to our existing viral IDE to allow for the emergency use with the human purifier of up to 40 patients with SARS-CoV-2 COVID-19 at up to 20 centers in the U.S. We now have IRB approval in the first center in this study, which is now listed on ct.gov, where you can see the details. We're actively recruiting other centers. As discussed previously on our last call, we have treated a single critically ill patient with COVID-19 on a single patient emergency use pathway. The patient had severe multi-organ failure and had little chance of surviving. We completed eight six-hour chemo-purifier treatments over a course of nine days. Successfully weaned the patient from the ventilator in the hospital transferred the patient to an extended care facility for rehabilitation of muscle strength and stiff joints through the prolonged hospitalization. This patient successfully demonstrated that the hemopurifier can be used in the critical care setting. We remain open to treating other patients under this pathway and centers where our formal trial is not up and running. In anticipation of the commencement of our multiple clinical trials, we've expanded our leadership team at Athlon Medical. In January of 2021, we hired two senior executives to expand our executive team. Stephen LaRosa, MD, joined our team as chief medical officer and has hit the ground running. Steve has extensive experience in successfully recruiting and running clinical trials, interacting with regulatory authorities, participating in FDA hearings, and successful regulatory approvals. Steve worked with me on the team I led at Eli Lilly as a key frontline physician on our activated protein C, APC, severe sepsis trial, leading to the first and only drug approved for severe sepsis. Zygris was the drug's name. Steve has focused on opening up hospitals for our studies, training doctors and nurses to use our human purifier and stimulating patient enrollment in our clinical trials. He has a solid academic background, having graduated from Lawson University Medical School with his MD. He did his residency at the Cleveland Clinic where we also worked together for four years, including his chief residency. He did a infectious disease fellowship at Mass General Hospital for two years. Guy Cipriani, MBA, joined our team as Senior Vice President and Chief Business Officer. Guy's responsibilities include overseeing business development, partnerships, strategic relationships, and strategic development. Guy Cefrione is an experienced biotech executive with 20 years of experience in the pharmaceutical, biotech, and medical device industries. His extensive background includes corporate development, strategic development, alliance management, and product development activities for companies such as Eli Lilly, Transform Pharma, which was acquired by Johnson & Johnson for $230 million, Cascadian Therapeutics, which was acquired by Seattle Genetics for $615 million. It successfully completed over 25 deals of various types, including commercialization agreements, development agreements, discovery collaborations, and distribution agreements across multiple therapeutic areas, including cardiovascular, infectious disease, oncology, and the central nervous system. Guy and I had the privilege to work together at Cardio and Pharma, and along with another colleague, sold a key asset from that company to Merck for $800 million at U.S., or at that time it was $1.2 billion Canadian, and that time was the largest deal in Canadian history at the time. In total, Guy has contributed in excess of $2 billion in deal value, across all of the organizations he has served. On his background, he earned his BSEE with high honors from Rochester Institute of Technology and an MBA from the Kellogg Graduate School of Management at Northwestern University. In sum, Athlon Medical Executive Management collectively has greater than 130 years of experience in drug and device development and regulatory approvals. This senior team has accomplished a lot in their first few months and I speak for all of us when I say that the team at Athlon sees exciting potential growth of our company and to use our proprietary hemotrophic to help patients across multiple diseases. At this point, I'll turn it back over to Jim for the financial discussion and then open up for questions.

Thanks, Chuck, and good afternoon again, everyone. At December 31, 2020, we had a cash balance of approximately $12.1 million. We recorded approximately $625,000 in government contract revenue in the three months ended December 31, 2020, compared to approximately $413,000 in the three months ended December 31, 2019. Our consolidated operating expenses for the three months ended December 31, 2020 or approximately $3.07 million compared to approximately $1.29 million for the three months ended December 31, 2019. This increase of approximately $1.78 million or 137.9% in the 2020 period was due to an increase in payroll and related expenses of approximately $1.12 million in general and administrative expenses of approximately $646,000 and in professional fees of approximately $15,000. The $1.12 million increase in payroll and related expenses was due to the combination of an $842,000 increase in our cash-based compensation expense and a $275,000 increase in stock-based compensation expense. And the largest factor in the cash-based compensation expense was the result of recording an aggregate of $593,000 related to severance costs associated with the separation agreement with our former CEO in the third quarter. Additional factors were a $125,000 increase in year-end bonus payments, increased headcount, and salary increases. The $646,000 increase in our general and administrative expenses was primarily due to a $361,000 increase in clinical trial expenses, a $133,000 increase in subcontractor expenses associated with government contracts and grants, a $130,000 increase in lab supplies in connection with the ongoing effort to continue to build an inventory of hemopurifiers for our clinical trials, and to a $40,000 increase in insurance expenses. A $15,000 increase in professional fees was primarily due to a $28,000 increase in contract labor, primarily research scientists hired on a consulting basis, and a $23,000 increase in legal fees, which were partially offset by a $35,000 decrease in our accounting fees. Other expense was nominal during the three months ended December 31, 2020 and 2019. As a result of the changes in revenues and expenses that I just noted, our net loss before non-controlling expenses increased to approximately $2.44 million for the three months ended December 31, 2020, or 20 cents per share. from approximately $821,000 for the three months ended December 31, 2019, or 28 cents 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 December 31, 2020, and the statements of operations for the three-month and nine-month periods ended December 31, 2020, and 2019. We will file our quarterly report on Form 10-Q following this call. Now, our next earnings call will coincide with the filing of our annual report on Form 10-K in June 2021. And now, Chuck and I would be happy to take any questions that you may have. Operator, please open the call for questions.

Ladies and gentlemen, at this time, we'll begin the question and answer session. To ask a question, you may press star and then 1 using a touch-tone telephone. To withdraw your questions, you may press star and 2. If you are using a speakerphone, we do ask that you please pick up your handset before pressing the keys to ensure the best sound quality. Once again, that is star and then 1 to ask a question. We'll pause momentarily to assemble the roster. And our first question today comes from Anthony Vendetti from Maxim Group. Please go ahead with your question.

Thanks. Thanks, Chuck and Jim. I just wanted to follow up on the early feasibility study. As you've mentioned, it's designed to enroll 10 to 12 subjects. You know, in the last update, one patient that I know has been treated It was in December, you mentioned on the call. Can you give it a little bit more color on how that patient is doing now, and how is the enrollment going for the other subjects, and is that being stalled or delayed at all by COVID-19?

Anthony, thanks for the excellent question. During my commentary, I made mention to the fact that the first patient treated had completed his treatment of both the cycles of the hemopurifier as well as the Keytruda. That patient has completed their therapy per the protocol and obviously will continue to be followed, but has already completed that. In terms of the activity, the group we're working with at the University of Pittsburgh Medical Center, the Helman Cancer Center, are very keen on this trial. They have screened numerous patients for us. Unfortunately, two dropped out after their initial screening, as other factors were known that would then exclude them from it. But they're very active and are keen to continue to find good patients for us and are very pleased with the first patient.

And just on the last part of my question there, I know, I'm sorry, it was a multi-part question there, but is COVID-19 delaying any enrollment or is it the screening process to make sure it's the right patient before you can get to those 10 to 12 subjects?

So COVID-19, when it hit this particular hospital group, they somehow rather missed the first cycle. So initially, It was a bit difficult on them just for all the infrastructure issues, but as it relates to the cancer patients, they kind of come through a different cycle and come to the oncology environment or screen there, and then if they meet the criteria and have consented, usually all this is done in advance, then they would be taken to dialysis. The only effect that we've seen, potential effect, is if a lot of patients are getting dialysis for the COVID-19 are the devices available. We've not seen a shortage of effort to try and get these patients done, and the patients we have treated, they did go great directly, too. So I think they've worked out something with the dialysis people to have somebody scheduled if they try and really get them through.

Okay, and then just shifting gears on the COVID-19 patient, based on your description, it sounds like that That particular patient was in pretty bad shape. He said severe multi-organ failure, and they received eight six-hour treatments over nine days and have recovered. How is that patient doing at this point? Is that patient still in rehabilitation, or has that patient been discharged?

I don't know the specific status of whether that patient has been discharged from the rehabilitation because sometimes it's done inpatient and then you migrate to inpatient, outpatient, and go back and forth. So I don't know if you're specific to this model. We'll try and find that answer for you.

Okay. And if that trial with 40 patients goes well, what's the potential for the hemopurifier, whether that's with COVID-19 treatments, or with other viruses going forward?

Well, I think there's a number of possibilities for us here, which I view all as positive. The key is we have demonstrated in the past and continue to demonstrate that we bind all glycosylated viruses. And that also raises the specter with some of the... newer mutants coming out, might we have continued binding capability with them because our process is not based upon a specific antibody to a specific target. It's based on the adhesive effect of our lectin, which theoretically would bind a variety of different mutants. We don't know that yet. That's kind of what our thinking is at this point.

Okay, great. I'll hop back in the queue. Thanks so much.

Thank you. And our next question comes from from . Please go ahead with your question.

Thank you. So just building on what you just said in terms of the COVID study, it's not, you know, specifically designed for COVID per se, but, you know, for treating terrifying and treating and it's not a specific strain. With the new strains that we're starting to see in the U.S., is there to be any kind of impact on the study going forward?

I didn't get the last part of your question, Marla. Did you just restate it, please? It's kind of broken up.

Yeah. So we're starting to see new strains of COVID in the U.S., given what you just said. My takeaway from what you just said is that there will not likely be an impact on the study based on the new strains of COVID that we are starting to see, but I was hoping to get a color from it.

Right, so there's a couple things to consider here. One, not only do we bind glycosylated viruses, we also bind exosomes, which are also present in these patients and may contribute to some of their organ failures. and most likely do particularly later in the disease. So we kind of have a two-part piece here. We're not just blocking the virus. We're actually blocking some of the inflammatory processes that occur in those patients. That's one piece. My other commentary was, and it's a forward-looking statement, so I'm going to be clear about that, that if we had the opportunity to examine a variety of spike proteins in the mutants, we might find that we're binding them because our binding process is different than the antibody binding process.

Okay, thank you. And then, not recently about Keytruda. I think Keytruda received expanded approval in the EU for lymphoma. I mean, looking at that, looking at, you know, the expansion for Keytruda, are there any takeaways that we can, you know, look at in terms of the potential of the human process?

Most of the disease states that Keytruda is treated, is used as a primary agent. also have circulating exosomes, sometimes in the many millions. So they would become potentially attractive to us because we can take those exosomes out. And as we mentioned earlier, currently the data says roughly 30 to 35 percent of the patients treated respond to Keytruda, so there's a pretty vast opening for other opportunities. If we can by taking out exosomes, make those patients more responsive to Keytruda, that would be a big plus for the patients and for those that are treating the patients. And we look at that space and saying that's a significant opportunity for us.

Okay. Thank you.

And our next question comes from Dave Levine from Turkle Research. Please go ahead with your question.

Hi, fellas. How are you doing? Good, Dave.

How are you?

Good. So you kind of got to some of my questions with some of the others, but I just want to make sure that I understand. I mean, on the cancer side, certainly the focus is on exosome removal. And I'm wondering if this initial COVID patient, if you're going to be able to gather things from the study of what you gathered from them that may help you determine whether how maybe exosomes impact other disease outside of cancer, like COVID, for example. And I guess by extension, you know, could we learn something from that patient that would help us understand better maybe what role exosomes do play in, you know, viruses and things outside of cancer? I mean, is that a path that's likely to provide some visibility with that when you learn something more about what you gathered from that patient and other patients for that matter as you go forward.

So I think your point is an excellent one. And again, we need to get the data before we can make course statements. But your hypothesis that if we're able to remove exosomes through carrying inflammatory packets of information and or infectious packets of information, That should work in the patient's favor. And that would be rather broad. It's also worth noting that in some of the cancer patients we're treating, some cancers are associated with having a viral element to them. We may be able to help remove the viral element, as well as the exosomes, in addition to what affect the . But I think there are some good opportunities soon to make a statement. I think I'm trying to answer your hypothetical question.

Yeah, so is it reasonable to think that? I mean, because I think as we look back sort of over the history of the hemopurifier, I mean, I think one of the things that's always been a challenge is, you know, just the clinical process to begin with. But I think there's also this issue of, you know, if it's determined that a hemopurifier is helpful, there's still this question of, you know, when is it most helpful, right? I mean, is it most helpful at the front end of disease or most helpful at the end of disease, you know, as it progressed or somewhere in between? And I guess I'm thinking that with respect to hemopurifier's ability to bind to the lectins, you know, that's one advantage of it. But then if it's also, you know, extracting exosomes, it may be that because the combination of the two, you know, it may be effective across the spectrum of that progression of that disease. Is that reasonable?

One way you can make reason out of that is if we take the COVID more often than not, the viral phase earlier on, those become intercellular, and at the later phase, we have probably more of an inflammatory process that's made stimulated by the virus. Also, recognized in exosomes. That's how I put those pieces of information together on your hypothetical.

Okay, so let me just switch gears to the cancer side a little bit. I think you made reference to Keytruda being used more in the first line. Did I get that right?

Yes, it's been approved for frontline therapy in solid tumors.

Okay, can you give me a sense of how that sort of impacts. We're starting to see a lot of combination therapies, obviously, around Keytrude and other checkpoint inhibitors, which sort of makes sense from, I guess, an ethical perspective. But is there anything to gather from the fact that Keytrude is being used in the first line and how that may impact the success or maybe the ultimate approval of some of those other combination therapies if they're allowed to be used in combination with getting treated in the first line. And I guess what I'm getting to is that same idea of, you know, things being more effective maybe in the front end of disease progression as opposed to the back end of the worst portion of the progression. I mean, that seems really... advantageous for some of those combination therapies that are allowed to be used in the first line with Keytruda?

That's a reasonable question. I think it's worth noting that in the current early feasibility trial that we're doing, we are actually using the anal purifier to recirculating exosomes prior to the first dose of Keytruda. So we're as much in the front of the line as anybody can be. And the idea there is if we can reduce the circulating exosomes, does that potentially improve the ability for Keytruda to have a higher rate on patients with a lowered exosome load? That would fit conceptually with what you're saying. I can't speak to the other combinations without knowing them specifically and appropriately comment on them.

Yeah, but I mean, conceptually, it's certainly conceivable that hemopurifier could help somebody in combination with Keytruda much more at the front end than at the back end. Not necessarily, but certainly that's a potential. That could potentially be true, right?

Well, the first part can be potentially true, but I wouldn't say that there's not an effect by continuing to move back subs later on. There's a cycle of time between each dose. You want to keep the circulating exosomes at a lower level. So early on, I think it carries throughout. If you actually take this early feasibility study, you get closer to having an answer to your specific question.

Great. Thank you.

Thank you, Dave.

Thanks, Dave.

And ladies and gentlemen, at this time, we'll end today's question and answer session. I'd like to turn the conference call back over to management for any closing remarks.

This is Chuck. I'd just like to thank you again, all of you, for joining us today to discuss our Q3 results. We're looking forward to keeping you up to date on future calls. During the fourth quarter, we will also participate in several investor events including the Maximum Securities 2021 Emerging Growth Virtual Conference and the H.C. Wainwright Global Healthcare Conference, both are in March. Thank you all for joining the call, and we very much appreciate your excellent questions. Thank you.

And, ladies and gentlemen, with that, we'll conclude today's conference call. We do thank you for attending. You may now disconnect your lines.