Aethlon Medical, Inc.

Good day and welcome to the Athlon Medical Second Quarter Fiscal 2024 Earnings and Corporate Update Call. All participants will be in a 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 touchtone phone. And 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 Mr. Michael Miller with RX Communications. Please go ahead, sir.

Thank you, operator, and good afternoon, everyone. Welcome to Athlon Medical's second quarter fiscal 2020 for earnings conference call. My name is Michael Miller with RX Communications. At 4.15 p.m. Eastern time today, Athlon Medical released financial results for its second fiscal quarter ended September 30th, 2023. If you have not seen or received Athlon Medical's earnings release, please visit the investor page at www.athlonmedical.com. Following this introduction and the reading of the company's forward-looking statement, Athlon's interim chief executive officer and chief financial officer, James Frakes, and Athlon's Chief Medical Officer, Dr. Steven LaRosa, will provide an overview of Athlon's strategy and recent developments. Mr. Frakes 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 Mr. Frakes, please note The news released today and this call contain forward-looking statements within the meanings 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 and the company's annual report on Form 10-K for the fiscal year ended March 31, 2023. The company's most recent report on Form 10-Q and in the company's other filings with the Securities and Exchange Commission. Except as it 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 Mr. James Frakes, Athlon's interim chief executive officer and chief financial officer.

Thank you, Mike. And I would like to thank all of you for dialing in. This is Jim Frakes. Many of you know me as the longtime CFO of Athlon Medical. Last Tuesday, November 7th, our board of directors made the decision to make a change in the company's leadership. And they named me as the interim chief executive officer replacing Dr. Charles Fisher, Jr. On behalf of everyone at Athlon Medical, we would like to thank Dr. Fisher for his service to the company as our CEO and as a member of our board of directors. I'm grateful for our board's confidence in me. I'm deeply committed to Athlon shareholders and employees and plan to work tirelessly to help the company succeed. I look forward to continuing the development of the hemopurifier and initiating in both India and Australia a potential phase one clinical trial in oncology, an area where we see great promise and ongoing emphasis. We received clearance in October from the Drug Controller General of India, or DCGI, the central drug authority in India for our planned oncology trial. We expect this trial to begin following completion of an internal in vitro binding study of relevant targets and subsequent approval by the respective ethics boards of interested sites in India. We previously reported a disruption in our hemopurifier supply for domestic trials and use, and that our intended transition to a new supplier for galanthus nivalis agglutinin, or DNA, a component of our hemopurifier, was delayed as we worked with the FDA for approval of the supplement to our IDE which is required to make this manufacturing change. While we continue to work with the FDA to qualify the second supplier of GNA, I'm pleased to note we're also in the process of completing final testing to begin manufacturing hemopurifiers at our new manufacturing facility here in San Diego for use in clinical trials, US clinical trials, using GNA from our original GNA supplier. We do have sufficient supply of hemopurifiers for use in our planned oncology trial in Australia and India. With that, I will now turn the call over to Dr. Steven LaRosa, Athlon's Chief Medical Officer.

Thank you, Jim, and I look forward to continuing to work with you closely in your new role as the interim CEO at Athlon Medical. We continue to work towards studying the hemopurifier as an adjuvant treatment to anti-PD-1 antibodies. such as Keytruda and Opdivo, in the treatment of solid tumors. Anti-PD-1 antibodies act to neutralize program death ligand 1, or PD-L1, a ligand released by tumors that blocks the ability of one's own immune system, specifically T cells, to fight tumors. These agents have been revolutionary in the field of clinical oncology in a number of tumor types. But unfortunately, only approximately 30% of patients will have a lasting response. A leading theory of why this resistance occurs to these agents is that tumors release extracellular vesicles containing PD-L1 that serve as decoy molecules. In essence, distracting the antibodies from reinvigorating the body's T cells to fight the tumors. Unchanged or increasing levels of extracellular vesicles containing PD-L1 have been associated with progressive disease during anti-PD-1 antibody treatment. The hypothesis exists that if we can decrease or debulk extracellular vesicles containing PD-L1 with the hemopurifier, then we can resuscitate the ability of the anti-PD-1 antibodies to reinvigorate the T cell's response to tumors. In vitro, we have previously shown that the affinity resin within the Athlon hemopurifier can bind tumor-derived extracellular vesicles from a number of cancer types. In a patient with severe COVID-19 infection, we demonstrated in vivo a decrease in extracellular vesicles during hemopurifier treatment. We are currently working on in vitro experiments to specifically address the ability of the hemopurifier to decrease extracellular vesicles containing PD-L1. If this is confirmed, as we expect, we plan to seek approval of a clinical trial of the hemopurifier by ethics board committees at interested sites in Australia and India. The planned clinical trial is designed as a basket trial, meaning encompassing multiple tumor types for which anti-PD-1 antibodies are considered standard of care. In this trial, patients will undergo a run-in period where they receive two months of initial anti-PD-1 therapy during which total extracellular vesicle concentrations as well as extracellular vesicles containing PD-L1 concentrations will be measured. We'll also be measuring markers of immune function. Patients who have stable or progressive disease after this two-month run-in period of anti-PD-1 therapy will go on to the hemopurifier phase of the study where different intervals of hemopurifier treatment will be examined. As such, each patient will be serving as their own control. This design is expected to help us answer a number of important questions, including is the hemopurifier treatment safe and feasible in patients with solid tumors? Does the hemopurifier have the same effect on removal of extracellular vesicles in the immune system regardless of tumor type? How often do you need to treat with the hemopurifier to have sustained decreases in extracellular vesicle levels? And does decreasing extracellular vesicles containing PD-L1 lead to improvement in anti-tumor T cell functions? The answers to all of these questions will inform the development of future efficacy trials with the hemopurifier in oncology. With that, I'll turn the call back over to Jim for the financial discussion, and then he will open it up for questions.

Thanks, Steve. And good afternoon again, everyone. As of September 30, 2023, Athlon Medical had a cash balance of approximately $10.2 million. Now some of you that listened to our previous quarterly calls 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 will find detailed expense information in the 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 September 30, 2023 were approximately $3.2 million compared to $3.7 million for the three months ended September 30, 2022. This decrease of approximately half a million dollars or 13.4% in the 2023 period was due to decreases in G&A expenses of approximately $700,000, offset by increases in professional fees of approximately $129,000, and an increase in our payroll and related expenses of $78,000. The $700,000 decrease in general and administrative expenses or G&A expenses was primarily due to the combination of a $377,000 decrease in clinical trial expenses associated with the closed COVID trial. A $261,000 decrease in the purchase of raw materials for research and development testing for use in our hemopurifier. And a $140,000 decrease in subcontract expenses associated with previous government contracts. The $129,000 increase in professional fees was primarily due to an increase of $72,000 in accounting fees associated with audit and compliance services and a $38,000 increase relating to services for our Australian subsidiary. And the $78,000 increase in payroll expense was due to a $135,000 increase in salary expense related to an increase in headcount. which was partially offset by a $56,000 decrease in stock-based compensation related to employee stock option grants. As a result of the changes in expenses that I just noted, the company's net loss decreased from $3.8 million in the three months ended September 30, 2022, to $3 million in the three months ended September 30, 2023. 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, 2023, and the statements of operations for the three and six months ended September 30, 2023 and 2022. We will file our quarterly report on form 10Q following this call. Our next earnings call for the fiscal third quarter ending December 31, 2023, will coincide with the filing of our quarterly report on Form 10-Q in February 2024. And now, Steve and I 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 speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. And at this time, we'll pause momentarily to assemble our roster. Again, to ask a question, please press star, then one. Our first question will come from Marla Marin with Zax. Please go ahead.

Thank you. So you said something in your prepared remarks that I was hoping we could get a little bit more color on it. where you spoke about in the expected basket trial, analyzing the hemopurifier for multiple cancer types and seeing its efficacy in helping to, I guess, fight the PD-L1 challenge. You said that each patient would serve as its own control. Could you give us a little bit more color there on exactly how that will work?

Yes, thanks, Marla. So because the patients are going to have a run-in period with their anti-PD-1 therapy alone, we'll be able to see what the anti-PD-1 therapy has done to their exosomes and their immune function, their T cell response to the tumor. So we'll have that as a control. And then if they go on to the hemopurifier phase because they're progressing, their tumor's progressing, Then we'll be able to see what the exosome levels and the T cell responses are with the hemopurifier. So each patient then is their own control, meaning you have with and without the hemopurifier.

Got it. Okay. So then when you're thinking about that, there's that 70% of the population that just unfortunately doesn't respond to Keytruda and other therapies like Keytruda. And you'll be looking at how those patients respond once they are on the hemopurifier, which day one will be their baseline, and you'll see if there's an improvement from day one once they go on the hemopurifier. Is that the right way to think about it?

That's correct, Marla. We'll be able to see what happens to their exosome levels and their T cell functions after the hemopurifier compared to when they were not on the hemopurifier. And you stated correctly, we acknowledge that fortunately or happily, 30% of people will do just fine on their DPD-1, and they won't go on to the hemopurifier. They'll just continue getting their effective therapy. But those 70% will be eligible for the hemopurifier phase in the trial.

Okay, got it. Thanks. So just switching topics a little bit in terms of where you are with obtaining a second supply of I'm not even going to try to say it, so that you have enough hemopurifiers for your ongoing clinical efforts. So right now, what you have already in hand is sufficient for the basket oncology trials planned in India and Australia. Is that correct?

Yes. We think it's good, prudent business to have two sources of supply for critical inventory components. Um, the FDA is really making us, uh, you know, they, they just, uh, really go through a whole gamut of responses, adding the second supplier. Um, but we have, we are now in a position with our original supplier to manufacture. So we, we're actually very excited about that, Marla, that it opens up opportunities in the U S and perhaps we can, um, talked to the FDA about moving the same basket trial that Steve just described into the U.S., and that's one of my goals as interim CEO is to try to bridge that into the U.S. as well. I mean, that's our home market. So, yes, we're moving in the right direction on that DNA front.

Got it. So then just one follow-up, and I'll step out of queue. So moving into the U.S., I think when you originally talked about doing clinical trials in Australia, I think that part of the strategy was to generate some positive data in Australia where the costs of generating data would be lower. And then using that data in the U.S. to possibly shorten your timeline, is that possible? the right way to think about it if you do move back into the U.S. at some point in the near term.

Yes, but Marlon, the FDA has also said we could submit under our breakthrough designation in oncology, we can submit a new oncology trial to them as an IDE.

We do plan to in Australia, they have some great labs. We've met some fantastic principal investigators that are very interested in exosomes. And we may use their labs for trials in other countries like the U.S. and India as well, which would give us potentially that tax benefit that you referred to, which is about 44 cents on the dollar in cash, not a tax credit. It was actually a cash incentive because they're trying to build their life science industry in Australia.

Okay, got it. Thank you. Thank you. Thank you, Marla.

The next question will come from Thomas McGovern with Maxim Group. Please go ahead.

Hey, guys, how's it going? So, yeah, so my first question. Hi, Thomas. Hey, how's it going? So my first question is on the progress in Australia. I just want to see if there's any updates in that regard, specifically relating to some site identification or qualification, the ethics board submission, and then finally patient enrollment. you know, where you guys, when you guys believe you'll be able to begin enrolling patients and all. Right.

So we, as I mentioned during the, during our talk, the, we're completing some in vitro experiments, which should allow us to complete the clinical investigator brochure, which is a necessary document for ethics board submission. We have already, we're working closely with a CRO NAMSA in Australia and with Qualtrane in India. I can't tell you the exact name of the sites because we don't have contracts in place with them yet, but we have a number of sites in Australia who have already had interest, two of which have already undergone site qualification visits, as well as a major center in India. So we have a number of centers that are poised to submit to their ethics board the materials once we have them complete.

Great, great to see some progress there. My next question, similar in kind of construct, I suppose, but is there any progress worth noting on your investigation to the hemipurifier's utility in organ transplants?

We have collaborated with an outside group and have done studies on perfusates, meaning fluid that's gone through retrieved organs. And we are analyzing that data now with the hopes of publishing it down the line. So yes, we've made progress on the in vitro experiments on the transplant side.

Great. And then finally, just, you know, real quick, if you guys could give us some type of expected timeline for, I mean, I know working with the FDA can be very difficult to kind of approximate this, but if you have any type of visibility into the you know, how long you expect it to take for that second supplier to be approved, and then kind of a second question, then I'll hop back into the queue, but do you guys have any timeline relating to the new manufacturing facility and when you guys expect that to become operational? Thanks.

Guy Cipriani, our chief operating officer, is here, and he oversees the manufacturing group and regulatory, so I think this falls into his wheelhouse.

Sure. Hi, this is Guy. So the First, regarding the manufacturing site and when that's online, we're currently doing engineering batches and validation batches in that facility. So we hope to be able to submit to the FDA to add that site to our IDE before the end of the year. And then we'll have to wait some period of time after we submit to the FDA to either get an okay or to be told we have to do some additional work. So I think in the first quarter, we'll have clarity on that. Regarding bringing the second supplier of G&A online, that's an ongoing process. We have some work to do to address some of the concerns still. We think we should be able to accomplish all of that in the first quarter. I think bringing the site online in the early part of the first quarter and getting the G&A clearance somewhere midway through the first quarter, if not soon.

Thank you, Guy. And Thomas, of course, we can't predict when the FDA will approve something or come back with more questions, but all we can do is look at when we could submit our packages to them.

Totally understandable. And just for clarity, when you refer to the first quarter, you're referring to the third fiscal quarter for you guys, first quarter being the calendar year quarter in 24? Calendar year, yeah. Okay. Understood. All right, great. Thank you for taking the time to take my questions. I'll jump back in queue. Thanks, guys.

Great. Thank you, Thomas. The next question will come from Vernon Bernardino with AT Wainwright. Please go ahead.

Hi, guys. Thanks for taking my question. And Jim and Guy, congratulations on the new appointment. Just wanted to ask... I guess a little bit more about the timelines. I was wondering if you could map out a little bit as far as the initial, what we may see as far as the in vitro work before we could see perhaps any announcement that you would think about starting a human clinical trial? No. Yeah, sure.

Hi, Vernon. This is Steve. So we would envision that those in-vitro experiments would take place during November and December with the hopes of being able to enroll in early 2024. Perfect.

Regarding the new supply, do you have to do any GMP work as far as the new supplier is concerned? And again, could you remind us where or how the current supply is obtained?

Yeah, so we have an existing supplier of our GNA in sector laboratories in the Bay Area in California. All of our manufacturing is done under GMP. you know, because this is a natural, uh, plant product, we want to have, you know, more than one supplier providing, providing that, uh, that key ingredient to us. So really this is, it's part of a strategy to de-risk our supply chain, uh, at some point in the future, um, as we get going on our studies, we'll probably look to see if we can do a recombinant version of the protein to even de-risk it further. So these, these are all activities that, um, We're thinking about and we're being very cautious in how we kind of roll them out. But right now we need to mitigate any risk of supply by having more than one supplier of this key starting material.

Is part of that work going to involve a supply that is needed to dovetail with the initiation of studies, or do you have enough supply now such that once you do get FDA approval through the supplement of your IDE that you could start studies right away?

Yeah, we are able to manufacture devices to support a study today. So we don't have a – we currently don't have supply constraints on the GNA.

Right, just to – expand further on Guy's comments, Vernon. So while we're waiting for our own manufacturing facility here in San Diego to come online with FDA approval, we can easily go back to the contract research facility, which is a little north of us here in Southern California. And we could run a few batches, manufacturing campaigns there. So we don't, things can always change, but At the moment, our feeling is supply is not a problem, which is a nice change from points in the past.

Yeah, terrific. I'll look forward to perhaps an announcement of those in future results and the start of the studies in humans. Thanks again, and congrats. Thank you, Vernon.

This concludes our question and answer session. I would like to turn the conference back over to Mr. James Frake for any closing remarks. Please go ahead, sir.

I'd like to thank all of you again for joining us today for our discussion of our quarter-end results, and we look forward to keeping you up to date on future calls. Thanks again for your support. Goodbye.

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