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AEMD: Compassionate Use, Real-World Data, Awaiting FDA Final Guidance

By Brian Marckx, CFA



Fiscal Q1 2019 Financials, Operational Update

Aethlon (AEMD) reported financial results for their fiscal first quarter 2019 ending June 30th and provided a business update. Revenue of $150k represented the final payment from the phase I NCI cancer grant. A subsequent, phase 2 contract worth approximately $1.5M over two years, could follow – AEMD’s application for which is expected to be submitted later this year. Q1 operating loss was $1.1M, down slightly from the ~$1.2M quarterly average during fiscal 2018. EPS was ($0.06), compared to our ($0.07) estimate.

Cash used in operating activities was $818k ($851k, ex-changes in working capital) – slightly lower than the $1.0M ($900k) quarterly averages during fiscal 2018. Cash balance, which was $6.1M at quarter-end, is expected to be sufficient to fund operations for at least the next 12 months.

Relative to the operational update…
Updates to several of the development programs were provided on the call, including that related to Hemopurifier under the Breakthrough Device designation, Hemopurifier’s potential role in cancer therapy and updates in the ESI segment – including CTE/TauSome study enrollment status and potential new opportunities.

As is relates to the Breakthrough Device (BD) designation, while management indicated that they continue to have regular dialogue with FDA, that until the FDA Draft Guidance on the Breakthrough Devices Program is finalized, there may not be any substantive decisions made relative to what a potential approval pathway would encompass. In other words, we think this is largely on hold until FDA’s final guidance is published (no timeline has been offered).

In the meantime, AEMD is evaluating a potential supplement to their existing compassionate use IDE that was previously approved by FDA for use of Hemopurifier in the treatment of Ebola. Management noted that the supplement would be for other life-threatening viruses that Hemopurifier has already demonstrated (in, at least, in-vitro studies) the ability to capture. In addition to Ebola, other viruses and pathogens that Hemopurifier has shown utility in capturing include Zika, Chikungunya, Dengue virus, H1N1 swine flu, H5N1 bird flu virus, the reconstructed Spanish flu of 1918 virus, West Nile virus and MERS. Filing of the supplemental compassionate use application could happen in the very near-term.

While, as we first noted when Hemopurifier was approved for compassionate use in Ebola, supplemental approval is not likely to generate much in the way of revenue, the opportunity to gain additional real-world human clinical experience could be of significant value. In fact, assuming supplemental use in other life-threatening targets is granted, evidence of additional ‘successful/safe’ clinical use under expanded access could be a significant step forward in AEMD’s quest for U.S. regulatory marketing approval. Importantly, expanded access/compassionate use was designed to address the challenges associated with evaluating novel life-threatening target therapies – including instances where it is not feasible to conduct a traditional pivotal RCT – as is the case with life-threatening highly glycosylated viruses. As we have opined in the past, we think a viable approval pathway in the U.S., if it exists, may include aggregation of sufficient evidence of safety and clinical utility through less-traditional routes (such as Real World data). Compassionate use may play a role.

Hemopurifier Cancer programs
Cancer as a target of Hemopurifier seems to be gaining traction. Part of the reason relates to the recent NCI grant – but it appears that part also relates to the growing body of evidence surrounding exosomes’ role in cancer progression.

In fiscal Q1 ’19 AEMD received final payment from the phase I grant funded by the National Cancer Institute. The contract, dubbed "Device Strategy for Selective Isolation of Oncosomes and Non-Malignant Exosomes”, paid $299,250 over nine months. The University of Pittsburgh and Massachusetts General Hospital worked under AEMD to complete the contract. Deliverables included demonstrating the ability of Hemopurifier to capture melanoma exosomes from plasma and to isolate tumor-derived exosomes from non-malignant exosomes. AEMD anticipates submitting an application for a phase II follow-on grant, which is expected to be worth approximately $1.5M over two years, later this year.

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 showed extraordinary efficacy in clinical trials. 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 (non tumor-derived) exosomes’ potential role in facilitating effectiveness of cancer therapeutics, including 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 (citation1, citation2). Exosomes also appear to have potential utility as a delivery vehicle for orally administered chemotherapies – including paclitaxel (which is currently only delivered I.V.) (citation3).

The common theme among the growing knowledge base is that exosomes almost certainly play a much more integral role in intracellular signaling and communication than had only recently been thought. Evidence indicates that both non-malignant and tumor-derived exosomes travel lymphatic circulation – ideal for a chemotherapy delivery vehicle but also in the metastasis of cancer (which also suggests that removal of tumor-derived exosomes could inhibit metastasis).

AEMD has had some initial successes in the capture of tumor-derived exosomes. In addition to the recent phase I NCI grant, years ago they had also demonstrated the ability of Hemopurifier to capture immunosuppressive exosomes derived from metastatic melanoma. They could also soon have initial data from an investigator-initiated study being conducted with UC Irvine evaluating the ability of Hemopurifer in capturing tumor-derived exosomes. The study, announced in April 2015, enrolled 17 subjects (data includes 120 samples) across four different cancer types (breast, gastric, head & neck, and ovarian. While analysis is ongoing, management’s comments on the Q2 ’19 indicated that initial results are promising.

AEMD has been more aggressive in pursuing cancer as a potential target and in collaboration with the University of Pittsburgh Hillman Cancer Center, recently submitted a proposal for grant funding to NCI for a n=50 human trial in hand and neck cancer. The goal is to determine if tumor-derived exosome capture via Hemopurifier can enhance efficacy of Bristol-Myers’ Optivo (nivolumab), a checkpoint inhibitor.

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. Enrollment, which included nine former NFL players on just the first day, stood at 20 as of the day of the Q1 call (Aug 8th) and likely increased shortly afterwards as the second enrollment date was scheduled for August 10th. 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. Additional study sites are expected to come online. We expect we will hear regular enrollment updates on future calls.

We cover AEMD with a $6.75/share price target. See below for free access to our updated report.

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