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AEMD - 10-Q Filed for Fiscal Q1 2013 (6/30/2012)

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10-Q Filed for Fiscal Q1 2013 (6/30/2012)

Brian Marckx, CFA

Aethlon (AEMD) filed their 10-Q for their fiscal Q1 2013.  Revenue was generally in-line with our number with operating expenses moderately higher but more than offset by a non-cash gain on derivative liability.  The net result was net loss coming in lower than our estimate but EPS in-line.

Revenue of $217k (vs. $300k E) was from the DARPA contract which, in aggregate, has now paid $1.58 million related to the six milestones that AEMD has billed to-date (see Appendix at the end of this report for description of milestones billed).  Aethlon is still eligible to provide work and bill for another ~$400k under the initial DARPA contract (which totals $1.98MM) over the next several months.  DARPA has the option of entering into the remainder of the proposed contract for years two through five, which would pay Aethlon up to an additional $4.8 million, annual payments under which would range between $775k and $1.6 million.

Q1 operating expenses were $1.2 million, slightly above our $1.1 million estimate, mostly related to adding three scientists to for work on the DARPA contract.  Net income and EPS came in at ($1.0) million and ($0.01) compared to our ($1.2) million and ($0.01) numbers.  As noted the beat on net income came from a gain on derivative liability.  

Aethlon exited fiscal Q1 (6/30/2012) with $496k in cash, compared to $144k at the end of the prior quarter (3/31/2012).  Cash burn has improved over the past few quarters as a result of cash receipts related to the DARPA contract.  Cash used in operations was $320k in Q1, compared to $740k used the prior quarter and $1.84 million in fiscal 2012.

Q1 ending cash balance also benefitted from Aethlon raising approximately $792k (gross) from the April sale of 2.5 million common shares (@ $0.08/share) with warrants and the June sale of 8.22 million common shares (@ $0.072/share) with warrants.   

Despite being in default on the majority of their debt obligations (although they have recently successfully converted some debt to common stock), Aethlon continues to be successful in raising piecemeal capital to finance operations.  We think this speaks positively to the ongoing investor interest in the company and faith in the potential for the Hemopurifier.  As we've noted in the past, Aethlon will need to raise a substantial amount of cash, enter into partnering arrangements or score additional valuable contracts/grants in order to maintain operations.

10th Patient Treated in Extract-1 Study

A few weeks ago Aethlon reported that ten patients have been treated to-date in their Extract-1 study.  

As a reminder in February Aethlon reported data on the first three patients treated, indicating effectiveness in reducing HCV load through the 3-day Hemopurifier treatment phase.  IVR (undetectable viral load at 7 days) was achieved in 1 of the 3 patients and RVR (undetectable viral load at 30 days) was achieved in 2 of the 3 patients, with the third almost achieving RVR.  Then in May Aethlon reported that nine patients (six of which were infected with genotype-1 HCV) had been treated, seven of which had been followed for 90 days or more (including three for 48 weeks) and had undetectable viral load.  Specifics on the trial endpoints (change in HCV RNA from baseline to days 3, 7, and 30) were not offered.  

In late July came news that ten patients (six of which were infected with genotype-1 HCV) have now been treated, the two most recent of which achieved IVR.  Aggregate results of all ten patients on the three efficacy endpoints was not offered although Aethlon does note that four of the six (67%) genotype-1 patients have achieved RVR (undetectable viral load at 30 days).  Relative to data from large HCV studies, this RVR rate indicates that Hemopurifier may be having a positive effect on reducing HCV load.  

Earlier in the year Aethlon submitted a request to the Medicity IRB for permission to increase frequency of treatment to seven days in the Extract-1 study which the company believes will show even more rapid viral load reduction.  A response is pending.  

Expanded Access To Hemopurifier Treatment Granted In India

Aethlon had previously noted that they were looking to open up treatment to individuals outside of India.  The company announced last week that Medicity's Institutional Review Board has agreed to allow compassionate use treatment to patients that have failed or relapsed on standard HCV drug therapy.  The compassionate use program is separate from the clinical study and Extract-1 is still ongoing.  AEMD believes the compassionate use program could draw patients from not only India but other countries including the United States and in Europe.  AEMD hopes to have details regarding treatment protocol, inclusion criteria, patient approval process and therapy pricing finalized later in 2012.  We have now begun to model a small amount of revenue related to this compassionate use program beginning with fiscal Q3 2013 (ending December 31, 2012).  


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