Aethlon Medical, Inc.

And welcome to the Athlon Medical first quarter fiscal 2024 earnings and corporate update conference call. All participants will be in listen-only mode. Should 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 telephone keypad. To withdraw your question, 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 Affon Medical's first quarter fiscal 2024 earnings conference call. My name is Jim Frakes, and I'm Affon's Chief Financial Officer. At 4.15 p.m. Eastern time today, Athlon Medical released financial results for its first fiscal quarter ended June 30, 2023. 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 Chief Executive Officer, Dr. Charles J. Fisher, Jr., and our Chief Medical Officer, Dr. Steven LaRosa, 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. LaRosa, 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, 2023, 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 in future circumstances. With that, I will now turn the call over to Dr. Steven LaRosa, Athlon's Chief Medical Officer.

Thank you, Jim, and thank all of you for dialing in. Hi, this is Steven LaRosa. Due to the timing of our March 31st fiscal year, this first quarter report falls only about five weeks after our recent call on June 28th. Athlon Medical is continuing the research and clinical development of its hemopurifier, a therapeutic blood filtration system that can bind and remove harmful exosomes and life-threatening viruses from the blood. These qualities of the hemopurifier have potential applications in oncology where cancer-associated may promote immune suppression and metastasis, as well as in life-threatening infectious diseases and the organ transplant field. Our ongoing COVID-19 trial in India for patients in the intensive care unit at Medanta Medicity Hospital remains open for enrollment. with one patient treated today. In May 2023, a second clinical site, Malana Azad Medical College, known as MAMC, received ethics board approval to participate in the trial, and site activation activities are currently underway. Patients with COVID-19 infections that require hospitalization continue to occur in India, and the addition of MAMC as a second high-quality clinical site may improve the enrollment of patients who go on to require ICU care for severe infection. In the oncology indication, Athlon Medical continues to work with its contract research organization, NAMSA LLC, to initiate a clinical study in Australia. Specifically, this is a safety, feasibility, and dose-finding trial in solid tumors failing treatment with anti-PD-1 antibodies. Athlon Medical believes that the data generated from this trial will help inform the design of future oncology efficacy trials of the company's hemopurifier. Ongoing activities include site identification and qualification, finalization of necessary documents for ethics board submission, the case report form development, and selection of a data safety monitoring board. With that, I will now turn the call over to Dr. Charles J. Fisher, Athlon's chief executive officer.

Thanks, Steve, and good afternoon, everyone. Hi, my name is Chuck Trisham. We recently announced that we are investigating the use of the hemipurifier and the organ transplant setting initially focusing on the potential removal of harmful viruses and exosomes from recovered kidneys. Our initial objective is to confirm that the hemopurifier in translational studies when incorporated into a machine perfusion organ preservation circuit can remove harmful viruses and exosomes from recovered donor kidneys. Last month, we signed a research collaboration agreement with 34 Lives PBC to investigate the use of our proprietary hemopurifier and 34 Lives organ evaluation and preservation system with the goal of increasing the supply of usable donated kidneys for human transplants. We have previously demonstrated the removal of multiple viruses and exosomes from buffer solutions in vitro utilizing a scaled-down version of our human purifier. This process may potentially reduce complications following transplantation of the recovered organ, which can include viral infection, delayed graft function, and rejection. We believe that this new approach could be additive to existing technologies that are currently in place to meaningfully increase the number of viable kidneys for transplant. On a personal note, as a physician and formal division chief at three major research hospitals, I've seen many potentially usable organs discarded and that has always troubled me greatly. There are up to eight potential organs that can be transplanted and typically only two to 2.5 organs are actually transplanted per donor. TMS is currently applying pressure on the organ procurement organizations to increase this average. TMS is the payment source for the majority of kidney transplants because it reduces the burden on the U.S. government to cover ongoing dialysis treatments for citizens that have failed kidneys. Dialysis cost the US taxpayer $120 billion in 2019, which equals 34% of Medicare's total $350 billion of outpatient services budget. Kidney transplants are cost-effective to Medicare, saving up to $250,000 per year from each recipient. With an average kidney transplant lifespan of 10 years, this becomes $2.5 million in lifetime savings per transplant. There are currently 750,000 Americans receiving dialysis of 20 or more hours per week in the U.S. 105,000 of those patients needed a transplant, but the average waiting time for a kidney is six years. In 2020, only 17,581 patients, or 17%, received a transplant in kidney, while 12,293 died while waiting or became too sick to receive a transplant. In 2021, approximately 7,800 kidneys that were recovered from transplant were left unused that perhaps could have been used. Our objective is to increase the number of usable organs that can be introduced into the transplant community. In conclusion on this topic, we are excited about this addition to our focus at Athlon and believe this could be a significant business opportunity. With that, I'll turn the call back over to Jim for the financial discussions and then open up the call for questions. Thank you.

Thanks, Chuck, and good afternoon again, everyone. As of June 30, 2023, Athlon Medical had a cash balance of approximately $12.9 million. During the first quarter ended June 30, 2023, we raised net proceeds of approximately $1.1 million under the at the market agreement with HC Wainwright. Now, some of you that listened to our previous quarterly calls have gently encouraged me not to cover our expenses on such a granular basis. So I'll try to keep my remarks a bit more high level this quarter. You can find detailed expense information and financial statements attached to our earnings release that just hit the wire or in our soon to be filed report on 10Q. Our consolidated operating expenses for the three months ended June 30, 2023 were approximately $3.4 million compared to $2.9 million for the three months ended June 30, 2022. This increase of approximately half a million dollars or 17.3% in the 2023 period was due to increases in general and administrative expenses of approximately $276,000, professional fees of $133,000, and in payroll and related expenses of approximately $91,000. The $276,000 increase in G&A expenses was primarily due to a combination of factors. Those factors included a $344,000 increase in the purchase of raw materials, for the production of the company's hemopurifier, a $133,000 increase related to our Australian subsidiaries' activities, and a $105,000 increase in depreciation and equipment maintenance associated with leasehold improvements and new equipment for manufacturing and lab facilities. Those increases were partially offset by a $160,000 decrease in clinical trial expenses and a $140,000 decrease in subcontract expense associated with our former government contracts. The $133,000 increase in professional fees was due to an increase of $123,000 in investor relations expenses associated with facilitating investor awareness and assistance with more widespread dissemination of company news, An increase of $37,000 increase associated with accounting and legal services for our new Australian subsidiary. And $86,000 of legal expenses associated with year-end filings and general corporate matters. Those increases were offset by decreases in regulatory services of $85,000 and recruiting expense of $28,000. And the $91,000 increase in payroll expense was due to a $56,000 increase in salary expense related to an increase in headcount and a $35,000 increase in stock-based compensation related to employee stock option grants. As a result of the factors that I just noted, the company's net loss increased to approximately $3.3 million in the three months ended June 30, 2023, from approximately $2.9 million in the three months ended June 30, 2022. We included these earnings results and related commentary in a press release issued earlier this afternoon. That release included the balance sheet for June 30, 2023, and the statements of operations for the three months ended June 30, 2023 and 2022. We will file our quarterly report on Form 10-Q following this call. Our next earnings call for the fiscal second quarter ending September 30, 2023 will coincide with the filing of our quarterly report on Form 10-Q in November 2023. And now, Chuck, Steve, 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 star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster.

Coffee. Soft.

The first question is from Marla Merritt with Zax. Please go ahead.

Thank you. So I'm just wondering, do you have any sense, you talked a little bit about, you know, what you're doing right now to prepare for the oncology trials in Australia. Do you have any sense of what the potential timeline is or it's too early for that?

Hi Marla, it's Steve La Rosa. Thanks for the question. So currently we're working with NAMSA and we have interviewed a number of sites. We have four that are now interested and we have to engage in the ethics commission and we're filing those documents and then we'll have to go through their questions there. We're planning to do this and all by the end of this year.

Okay. Thank you. And is the possibility you had talked about at certain points in the past of expanding trials in India, expanding into the oncology space, is that something that is still, you know, potentially on the horizon?

Yes. So we're working with Qualtron LLC, our CRO in India, and they have identified Medanta Medicity as a as a hospital that's interested and, again, would have to go through the same process I articulated for Australia.

Got it. Okay. And then last question is on the organ transplant side. So you're going to be starting looking at translational transplants, I guess, of kidneys. And I think I read that kidneys are the most frequently transplanted organs. Will the results that you get from these first studies, will they be telling of what the potential would be for the hemopurifier in the transplantation of other organs?

This is Chuck Fisher. Good question. So the first part about the translational research is to established that we can remove from organs, both animal organs, which we've already been working on, as well as currently working on human organs that have been rejected but sent to our partner to be perfused. From that, we get the perfusate, and then we test that with our devices here at Athlon Medical Center. to see are we removing things, and the process has just been initiated recently and we'll expect to get some results in the relatively near term. So that would help us understand how best to characterize it. As it relates to organs from different parts of the body at a later stage in this process, some may be more inclined to have inflammatory mediators and some may not, but I think that's That's really an unknown scientific area that we would like to explore. Ideally, we would like to have an effect on as many recovered organs from the donors as possible. These are not donors that are living related. These are brain-dead donors with beating hearts. And in that, we would expect that we might see a number of these same inflammatory mediators.

Mm-hmm. Okay, thanks very much for the answers.

Thanks for the question.

The next question comes from Vernon Bernardino with HC Wainwright. Please go ahead.

Hi, Chuck and Jim. Thanks for taking my question. Just wanted to follow up on that last question. regarding the potential use of hemipurifier and organ transplant in the organ transplant setting. And that's in particular, so I get as far as increasing the number of viable kidneys for transplant, but as you stated in your press release and previously, reducing the complications following transplantation of the recovered organ is That seems like it's possibly two, even though it's the same organ transplant, that is the same procedure, same person, that sounds like it could be potential two uses of the hemipureifier. Please correct me if I'm wrong. And what would be the thinking there as far as clinical trials? Would that be two clinical trials or two? that would all be in the same clinical trial, same patient, et cetera.

Thanks for your question. This is Chuck. Hey, Chuck. I think it's a well-posed question. The issue at the beginning will be, for instance, delayed graft function typically is a marker within the first seven days if the kidney's not functioning and making urine that you may be having a problem. And that would be the first thing that we would look at in the kidneys. And then over time, at the six-month and one-year mark, we would be looking at the same thing as the kidney continuing to function well. So in that sense, if they're functioning well, we would probably have some of our answers. Alternatively, we would potentially expect to have some level of delayed graft function or a further delayed or some dysfunction in the kidney at some point over time, in which case we could go back. But for the time being, it will be primarily an initial study until we have more information to determine would we need to do a follow-on study in addition.

Terrific. And on to a different part of your announcements today. Regarding the trial in India, one patient treated to date, what would be the potential for any acceleration in patient enrollment and treatment this year?

Vernon, this is Steve La Rosa. So, we know from. Hey, hi. So, we know from communication with Medanta that there are in fact COVID patients getting hospitalized. But they are, you know, the patients who need to be enrolled in the study have to be in the ICU. So there's that potential. And then with the second site, that's a large site that's also seeing COVID admissions as well. So we think the second site may help with enrollment. We're still at the mercy of the virus, if you will, of whether it's going to, its changes over time are going to result in probably following that there's varying domains to be seen if that's going to translate into severe cases that would be eligible for study.

Do you have an indication there that they're seeing some of the same dynamics we're seeing here, which is increased hospitalization, increased infections, increased hospitalizations due to the variant of interest EG5?

Yes, we're hearing the same thing, that the case numbers are still up and there are still hospitalizations, but they haven't seen as many ICU patients.

Okay. Okay. Thanks for taking my questions and my follow-ups. Appreciate it.

You're welcome. Thank you.

Thanks, Vernon.

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

Thank you, Operator, and thanks, everybody, for listening. and asking very good questions. We'd like to thank all of you for joining us today and we'll be here to discuss our quarter end results. I look forward to keeping you up to date on the future calls and I wish everybody a good day and thanks again for joining.

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