Aethlon Medical, Inc.

Good day, and welcome to the Athletic Medical Third Quarter Fiscal 2023 Earnings and Corporate Update Call. All participants will be enlisted on the note. If you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone. To withdraw from the question queue, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Jim Frakes, Chief Financial Officer. Please go ahead.

Thank you, Operator, and good afternoon, everyone. Welcome to Athlon Medical's Third Quarter 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 third quarter ended December 31, 2022. 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, our Chief Medical Officer, Dr. Steven LaRosso, our Chief Business Officer, Guy Cipriani, and I will provide an overview of Athlon's strategy and recent developments. I will then make some brief remarks on Athlon's semantics. We will then open up the call for the Q&A session. Chuck Fisher, our CEO, cannot join us today due to an illness, and he passes along his apologies for not being able to participate. Please note that the news released 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. Acceptance 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. Over the past three months, we've continued to work hard on advancing our hemopurifier. We are working on a new clinical trial with our hemopurifier 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 hemophilopyrase treatment option in oncology. We've recently selected NAMSA, a world-leading medtech CRO, offering global end-to-end development services to supervise this planned oncology trial, first in Australia and then in the United States, which my colleagues will discuss shortly. We also recently hired Lee Arnold, Ph.D., as our new Chief Scientific Officer, Dr. Arnold is a creative scientific leader with 36 years of accomplishments in molecularly targeted drug discovery. After an initial eight publications in biophysics and biochemistry as an undergraduate at the University of Waterloo, he earned a PhD in organic chemistry at the University of Alberta. Dr. Arnold began his career in partner research at Synpex Canada and then joined Pfizer where he was the inventor of Tarceva, for non-small cell lung cancer. During his tenure at DASF Abbott Bioresearch Center, he established medicinal and combinatorial chemistry operations and initiated and led two multinational multidisciplinary projects in angiogenesis, ultimately leading to the . As Vice President of Research at OSI Pharmaceuticals, Dr. Arnold and his team discovered four oncology development candidates. Dr. Arnold also had served as the chief scientific officer in a number of innovative start-up biotechnology companies. Just prior to joining Aplon Medical, Dr. Arnold was the CSO and co-founder of Artis Biosciences, which was established at the start of the COVID pandemic, that discovered and advanced the oral protease inhibitor, homochlorovir, into clinical trials for SARS-CoV-2 in only 17 months. Dr. Arnold's inventive and leadership contributions in drug discovery and development to date have resulted in an approved drug and 16 additional development candidates, currently fueling eight clinical trials in oncology, immunology, and virology. These achievements are documented in over 94 published patents and applications and more than 39 peer-reviewed publications. We are delighted to have Lee Arnold join our team, and we look forward to his leadership of our research team. We would also like to thank Dr. Steven LaRosa, our Chief Medical Officer, for heading our research team as Interim Chief Scientific Officer for the past two years. And now I would like to hand the call over to Dr. Steven LaRosa, Ampline's Chief Medical Officer, who will provide an update on our clinical trials in infectious disease in India and in our planned trial in cancer.

Steve? Hi, everyone, and thanks for listening in to our presentation. I am Dr. Steven LaRosa, the Chief Medical Officer at AFSLAW. First, I would like to give a brief update on our COVID-19 clinical trial in India. To refresh your memories about that trial, Vedanta Medicine Hospital, a multi-specialty hospital in Delhi, India, has enrolled one patient in this trial in India and continues to actively screen patients. Our CRO, Qualtrain LLC, has identified additional potential sites for the trial in India, and we are awaiting the ethics board meetings at these sites. Qualtrain is also interviewing sites to hold an oncology trial with our hemopurifier in India. We also recently entered into a material transfer agreement with the University of California San Francisco Medical Center for the study of post-acute sequela of COVID-19 infection, PASC, also known as long COVID-19. In this study, we will receive plasma samples from patients with PASC, as well as from patients with prior COVID-19 infection without PASC symptoms. The objective of this study is to perform in vitro analyses of exosomes to determine the viability of PASD as a therapeutic target for the hemoburifier. As Jim noted, we are planning a new clinical trial in oncology that will include multiple tumor types with the goal of enabling us to build our safety database in oncology and provide data to inform the design of future efficacy trials in oncology. We recently selected NAMSA as our CRO to supervise this planned oncology study. NAMSA will oversee this planned oncology study, which will commence first in Australia and then follow on in the United States. We were impressed by the quality and experience of the personnel that NAMSA plans to dedicate to our project, both in Australia and in the U.S. We initiated a successful kickoff meeting last week with NHTSA. 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. This subsidiary will initially focus on the oncology market in Australia. Now, I would like to introduce Guy Cipriani, our Chief Business Officer. Guy worked and talked to me at Eli Lilly as a member of Lilly's corporate business development team, where he completed multiple in-licensing and out-licensing transactions for commercial, clinical, and preclinical assets. He also works with Chuck as VP of Business Development at Cardinium Pharma Corporation.

Thank you, Steve, and good afternoon. As Jim noted, I'm pleased to share that we've recently established an affluence subsidiary in Australia to take advantage of the relatively favorable development environment in that country and 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 costs for those activities conducted in that country. The 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 Apple. 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 financial discussion and then open up for questions.

Thanks, Guy, and good afternoon again, everyone. As of December 31st, 2022, Athlon Medical had a cash balance of approximately $17.5 million. Our consolidated operating expenses for the three months ended December 31, 2022 were approximately $2.85 million compared to $2.545 million for the three months ended December 31, 2021. This increase of approximately $305,000, or 12%, in the 2022 period was due to increases in our professional fees of $296,000 and in our payroll and related expenses of $49,000, which were offset by a decrease in our general and administrative expenses of approximately $40,000. The $296,000 increase in our professional fees was primarily due to the combination of a $145,000 increase in contract labor expense associated with product development and scientific analytical services, a $73,000 increase in scientific consulting expense, a $71,000 increase in legal fees, and a $22,000 increase associated with recruiting. These expenses were partially offset by a $14,000 decrease in our accounting expenses. The $49,000 increase in our payroll and related expenses was due to an increase of $167,000 in salary expense and an increase of $62,000 in stock-based compensation expense. Those were related to increased headcount and were partially offset by a decrease of $180,000 in relocation expense. And the $40,000 decrease in our administrative expenses was primarily due to a $75,000 decrease in clinical trial expenses, a $19,000 decrease in rent expense, and a $20,000 decrease in licenses and permits, which was partially offset by a $60,000 increase in appreciation expense. We did not record government contract revenue in the three months ended December 31, 2022, We recorded approximately $17,000 in government contract revenue in the three month ended December 31, 2021. As of December 31, 2022, we 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 National Cancer Institute. Once the NCI completes the closed-out review of the contract, we expect to recognize this revenue to $574,000, currently recorded as deferred revenue under December 31, 2022, balance sheet. As a result of the changes in revenues and expenses that I just noted, our net loss increased to approximately $2.85 million, in the three months ended December 31, 2022 from approximately $2.5 million in the three months ended December 31, 2021. During the nine months ended December 31, 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 December 31, 2022, and the statements of operations for the three and nine months ended December 31, 2022 and 2021. We will file our quarterly report on form 10Q following this call. Our next earnings call for the fiscal fourth quarter ending March 31, 2023, will coincide with the filing of our annual report on Form 10-K in mid to late June 2023. And now, we would be happy to take any questions that you may have. Operator, please open the call for questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the key. To withdraw from the question queue, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from with . Please go ahead. Thank you.

So, I think the first question is probably for Steve. Can you give us a sense of, you know, you're initiating the clinical trials first in Australia and then, you know, in the U.S.? Do you have internally, do you have a timeline? Are you, you know, going to wait until you see the initial top-line data out of Australia before making a decision? Can you give us some sense of what that could be?

Thanks. So as I mentioned, thanks, Marla. As I mentioned on the call, we started our kickoff meeting with our CRO last week. They are currently now looking for sites within Australia. The process in Australia is such that the sites will first get approval with their ethics board and then submit to the TGA, the regulatory authority in Australia. In the U.S., once we have... approval to use devices with our new supplier of devices, we would then start to, we would then submit the protocol, the same protocol for the same trial within the U.S. and then go through the process of bringing these sites up. So it's, the pathway will be Australia and then the U.S. sites as the regulatory process allows.

Okay, thank you. And then this question is for Jim. In terms of materials transfer agreement that you just formulated, you can give us a sense of what the economics there will involve. And then also, this question is sort of, you know, all rolled in to the same question. It's apparent, I think, at this point that COVID was not a one-time thing, that it's probably here. just the way, you know, the flu is, and it's something that we'll be talking about for a long time. Given that, and given that you'll be doing some research now on long COVID, what kind of, you know, prospects are you thinking about in terms of obtaining some government funding to help finance some of that research, if you are thinking about that?

Hi, Marla. This is Guy. I can answer the question about the MTA specifically. So it's a material transfer agreement. The terms essentially are we pay per sample. There's no other strings attached to that. So that's very workable for us. We can then analyze the samples and determine the utility of our device and actually determine being a treatment option for that disease. So there's a lot of science, obviously, that goes in behind that. But I think the upfront agreement is one that works very well for us. And frankly, it's one I think we'll look to boilerplate with other diseases as we get to them. With respect to government grants or government money available for the type of work we want to do in long COVID, we're always Curious to find those sources of funds. We certainly were very alert about the availability of some of those monies on the COVID side. It was there. It was maintained for a while, and then it dried up as we progressed. We will keep a keen eye to see what types of government programs we might qualify for on law COVID. Right now, at this time, we don't have any on our sites.

Okay. Thank you very much. I'll step out of the queue.

Thank you, Marla.

Our next question comes from Anthony Vendetti with Maxim Group. Please go ahead.

Sure. Thanks. First, I want to just start with a general question and then drill down a little more on a couple of the opportunities here. In terms of oncology, you know, The original focus was the opportunity with Keytruda and to improve the efficacy of that huge checkpoint inhibitor, right? I mean, in terms of dollars, I believe Merck generates over $20 billion in annual revenue there. And I know there's difficulty in enrolling patients. Is that why you shifted strategy? And if so, can you just talk about how you look at the oncology opportunity now with, you know, outside of KeyTruth?

Thanks, Anthony. This is Steve LaRose. I'll try to answer your question. So, you know, the initial trial was a single center study at University of Pittsburgh. and head and neck cancer where the patients were getting on hematurafar treatment up front before their first dose of the Tequitin hembrolizumab. And as you mentioned, they had, University of Pittsburgh was not successful at enrolling, so the trial was stopped. So we've taken the opportunity to actually design a new trial where we're still going to focus on patients who have had a lead-in period with a checkpoint inhibitor, but either have stable disease or progressive disease. And it will be a basket type of trial, which means there are many tumor types for which checkpoint inhibitors are used. And so this trial will afford us the ability to gain data in multiple tumor types and look at what the hemopurifier does for to both the exosome levels and the immune response to tumors. So we'll gain data in a variety of tumor types that will help us pick a strategy going forward for an efficacy trial. Additionally, in this study, there's multiple dosing intervals being looked at or examined, which was not a feature of the initial trial. So it will really inform us about the dosing strategy of the hemopurifier, i.e., how often you have to how often you have to administer it. So it still is looking at the ability of the hemopurifier to augment or resuscitate the response to checkpoint inhibitors. But it's just going to let us look at multiple tumor types and multiple dosing intervals. So it will give us much more data going forward.

Okay. And then I just wanted to make sure I understood correctly. Are you, I mean, from what I understand, from, you know, prior studies, you know, the hemopurifier is, you know, pretty safe. There haven't been any adverse events in any of the prior trials. If you're running a safety study now, is there any reason that you feel that that is necessary or required?

Right. Well, you know, each patient population is a different entity. So we've only dosed two prior patients in oncology. And so it is important from a regulatory perspective to demonstrate safety and feasibility within that population. So that is a key, still a key feature of the trials. even though, as you've mentioned, we have treated patients in over 160 sessions now of the hemopurifier with a fairly benign safety profile. But it's still important to actually look at safety and feasibility specifically within the oncology population. But there's more to this trial than safety and feasibility is the main objective, but it's also looking at exosome removal and dosing and downstream effects on the immune system. So there's a whole lot wrapped into the study.

Okay. And then lastly, the partnership with NAMSA. Can you talk about how that's going to work from a cost structure, cost sharing as you move that partnership forward?

Anthony, this is Guy. I'll just kind of lead off and say it's really a fee-for-service relationship. Um, so they're providing service for us. We're paying a fee. Um, and it's fairly typical of what you might expect for a contract research organization. So, um, you know, we, we obviously looked at multiple firms, you know, we, we picked NASA because, um, they fit operationally and from an expertise standpoint with what we wanted to do. And, you know, frankly, the, the cost was in a range that we felt was very acceptable for this service. So, um, Other than that, I don't think I have a point there.

Well, the only other point, this is Jim, Anthony. Okay. For the work that's going to be conducted in Australia, you know, the Australian government could change the rules. I mean, there are many scenarios. But everything being equal, if they don't change their guidelines, we should be able to recoup 43.5% of money spent on R&D in Australia. So, that chunk of the NAMSA fees potentially will go to RICU.

Okay.

I think of choice of NAMSA. So, you know, we did an exhaustive review. They have a footprint in Australia where they know the investigators quite well, those who've done the hyper trials. They have a keen understanding of the regulatory. process and they also have um particularly in their leadership expertise not only in devices but in oncology and the combination thereof so we we thought it was going to be the the best team that would be that a cro could feel for this kind of trial yeah i know it looks like uh based on everything you mentioned looks like a a great choice uh lastly just shipping gears to covid um

You know, I think you said you have one enrolled in, I think that's the one in India. But is that, at this point, based on, you know, keeping costs under control and so forth, do you believe that's still worth the efforts to continue that trial? Or will there be a point where you might say, you know what, this is, you know, our resources are best utilized elsewhere? Maybe just give a timeline on that or what the timeline is to make a decision whether to continue with that or shut it down.

This is Jim again, Anthony. The Indian trial is not cost prohibitive. We have a very reasonable relationship financially with the CRO. We may pull the plug at some point, but... They are looking at additional hospitals. They do have a billion people there, and if the variants do become harsh in the future, it may make sense. We're excited about the possibility. There's no assurance we'll find the right PI and center to do a similar oncology trial in India, but that's pretty exciting to us. So it's a very low-cost option that we have there with that COVID clause going on in India.

Okay. Thanks. All right. Appreciate the update. I'll hop back in with you. Thanks. Okay. Thank you.

Our next question comes from Vernon Bernardino with HC RainRide. Please go ahead.

Hello, everyone. This is for Vernon. Thank you for taking our question. Can you please help us understand the current COVID landscape in terms of opportunity to continue advancing the hemopurifier? And if priorities were to change, what are your thoughts on what it would take to continue development?

Yeah, thanks. This is Steve Loro. I'll try to answer your question. So, you know, as you probably know, although there are still a number of COVID cases, the incidence of severe COVID requiring hospitalization and ICU stay has dropped dramatically, making it not a feasible population to conduct a trial in acute COVID. But as I mentioned, there is now evolving data about the role of exosomes in patients with this PASC, this long COVID protracted symptoms for which there aren't good therapies. A lot of this data came out of the University of California, San Francisco, and they have a file repository of patient samples where we're now actually able to look at are there specific features of those exosomes and are those exosomes amenable to removal by our device? So, you know, the potential exists that we'll learn something that will inform us that, provide us with the translational data to justify perhaps a potential clinical trial in long COVID. So I think that's still a, an area that needs to be explored, and we're going to do that.

Thank you so much for taking our call.

Thank you.

This concludes our question and answer session. I would like to turn the conference back over to Jim Frakes for any closing remarks.

I'd like to thank you again for joining us today to discuss our Q3 results, and we look forward to keeping you up to date on future calls. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.