By Brian Marckx, CFA
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Fiscal Q4 2018 Financials, Operational Update
Aethlon (AEMD) reported financial results for their fiscal fourth quarter 2018 ending March 31st and provided a business update. Revenue of $75k, which was largely inline with our $89k estimate, relates entirely to a second milestone from the NCI cancer grant. Subsequent to the close of fiscal 2018, AEMD billed an additional $112k for work completed under this grant. A subsequent, phase 2 contract worth approximately $1.5M over two years, could follow. Q4 operating loss was $1.3M, just a hair more than the ~$1.2M quarterly average throughout fiscal 2018. EPS was ($0.08), compared to our ($0.09) estimate.
Cash used in operating activities was $1.0M and $3.9M ($915k and $3.6M, ex-changes in working capital) in the three and twelve-month periods ending March 31st. Relative to the balance sheet, cash balance was $7.0M at year-end and bolstered by $9.6M in net proceeds from the sale of common shares during fiscal 2018. Current cash balance is expected to be sufficient to fund operations for at least the next 12 months.
Relative to the operational update…
While no major headline-grabbers over the last few months, AEMD does continue to make progress on the operational front – and that’s true in both ESI and Hemopurifier-related development programs. Most importantly, while management was not able to share specifics, they did note on the call that they have had active and regular communication with FDA regarding regulatory pathway design for Hemopurifier under the Breakthrough Device designation. More specifically, AEMD indicated that discussions have largely focused on how to most efficiently collect data. We will be eager to hear more specifics about management’s conversations with FDA. This remains a stay-tuned situation.
And while we hope to know more details in the near-future, we think that our prior supposition that Real World Data (or some form of) could play a part in a viable FDA pathway, is still valid. We also think that recent changes to FDA under Dr. Scott Gottleib’s leadership, including more ‘out-of-the-box’ thinking aimed at streamlining commercial access to potentially life-saving therapies, could also eventually play in AEMD’s favor. A recent example of the agency’s updated approach is FDA’s approval, via the Breakthrough Device program, of the first blood test for evaluation of mild traumatic brain injury. Interestingly, FDA’s February 14, 2018 News Release announcing approval of the ‘Banyan Brain Trauma Indicator’ notes that the agency worked closely with the test developer and the U.S. Dept of Defense to expedite evaluation of the device (which has military application). This is an example of a non-traditional commercial regulatory pathway and one that could potentially also represent an opportunity for AEMD.
Hemopurifier also continues to be evaluated in potential cancer applications. As a reminder, cancer has been a potential target program for Hemopurifier for a long time but seems to have oscillated in importance from almost-mothballed to back-burnered for at least the last few years. Years ago, Aethlon had demonstrated the ability of Hemopurifier to capture immunosuppressive exosomes derived from metastatic melanoma – so while the additional recent activity related to cancer is new, the idea that their device may have utility for this application is not.
We think that now with the ESRD/HCV feasibility study completed and the recent grant from NCI, that cancer may now get some greater attention. We also think the relatively massive recent interest (with certain recent significant successes) in cancer immunotherapies and greater insight into the role that exosomes may play (as possible enhancers) in regards to CAR-T efficacy might present a new, and potentially, very significant opportunity for Aethlon.
As a reminder, in September 2017 AEMD was awarded a Phase I grant funded by the National Cancer Institute. The contract, dubbed "Device Strategy for Selective Isolation of Oncosomes and Non-Malignant Exosomes” is for $299,250 and has a nine-month term. The University of Pittsburgh and Massachusetts General Hospital (researchers at Mass General were part of the tumor exosomes study discussed below) are working under AEMD to complete the contract which involves evaluation of AEMD’s technology in the capture of circulating tumor-derived exosomes. In October 2017 AEMD completed the initial milestone under this grant and recorded $75k in related revenue in fiscal Q3 2018. In Q4 they recognized the second milestone, also worth $75k. Another $112k was billed in fiscal Q1 ’19 (i.e. ending June 30, 2018). Upon successful completion, they may be eligible for a Phase II grant that is expected to be worth approximately $1.5M.
CAR-T therapies have been recent headline-grabbers with FDA approval of Novartis’ Kymriah and Gilead/Kite’s Yescarta for the treatment of aggressive non-Hodgkin lymphoma. The therapies have shown such extraordinary efficacy in clinical trials that an FDA panel (recommending approval of Kymriah) member noted that it was the most exciting thing he had seen in his life. CAR-T therapies involve removing cells from the body, modifying them to target particular cancers and then putting them back into the patient.
Several recently published studies have focused on exosomes’ potential role in facilitating effectiveness of cancer immunotherapies. This includes the use of CAR-T cell-derived exosomes as a way to reduce certain challenges of CAR-T cells, such as adverse events (eg cytokine release syndrome) and difficulty in locating and penetrating solid cancers.,
So as exosomes’ role in cancer and immunotherapies continues to evolve, we think AEMD could benefit given that whether exosomes are viewed as a facilitator of cancer progression or a facilitator to immunotherapy efficacy (or both), in order to address their role they need to be removed from the body. Current methods to isolate and remove exosomes from the body are time and cost-prohibitive2, which we think could offer an opportunity for Aethlon and their Hemopurifier.
On the ESI side of the business, in March AEMD announced initiation of their CTE/TauSome study at the first (and primary) site, Translational Genomics Research Institute in Arizona. As initiation of the study had taken longer than first anticipated, cutting of the ribbon on the initial location is somewhat of a milestone. Enrollment, which management noted was going well, included nine former NFL players on just the first day. AEMD has been active in both promoting awareness of the study as well as in encouraging enrollment. CEO Jim Joyce’s (also an NFL alumni) NFL relationships and a newly formed ‘Player’s Council’ could further aid in that regard. We expect we will hear regular enrollment updates on future calls.
Board Appointments – recent highlights also include the appointment of two key persons to AEMD’s board of directors – the consummation of which satisfied NASDAQ’s independent board and audit committee composition requirements. We expect the new appointments to be integral in developing strategy for AEMD which could include collaboration and/or partnering activities.
‣ In November 2017 Dr. Charles Fisher, Jr. joined AEMD’s board and audit committee. Dr. Fisher was previously Head of the Section of Critical Care Medicine at The Cleveland Clinic Foundation and has extensive research and practical industry experience in the areas of sepsis and inflammation including leading the Xigris Global Product Team at Eli Lilly. Xigris was the only drug to receive FDA approval for the treatment of sepsis.
‣ In January 2018 Sabrina Martucci Johnson joined AEMD’s board and audit committee. Ms. Johnson is CEO of Daré Biosciences (Zacks initiated June 2018) and was previously the COO and CFO of Cypress Biosciences, which developed the PROSORBA column (for the treatment of rheumatoid arthritis).
We cover AEMD with a $6.75/share price target. See below for free access to our most recent report.
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