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AEMD: Eventual FDA Cancer Indication Is A Realistic Outcome

By Brian Marckx, CFA

NASDAQ:AEMD
NYSE:BMY

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Fiscal Q3 2019 Financials, Operational Update

Aethlon (AEMD) reported financial results for their fiscal third quarter ending December 31st and provided a business update.  While we had modeled an initial payment under their ongoing NCI grant (The Hemopurifier Device for Targeted Removal of Breast Cancer Exosomes from the Blood Circulation), which was awarded in September and will pay a total of $298.4k through ~August 2019, initial revenue is now expected to be recognized in the current (i.e. ending March 31st) quarter.  AEMD noted that they received $50k under this grant in January.  We model the remaining to be recognized next fiscal year.

Operating expenses were up 45% from Q2 to almost $2.0M but, excluding $517k of separation-related accruals related to the departure of Jim Joyce, operating expenses were $1.5M, or 7% higher than the previous quarter.  As compared to the prior year and excluding these one-time expenses, operating expenses increased $209k (+16%) and $405k (+11%) in the three and nine months through Q3’19.    

Cash used in operating activities was $1.1M and $2.9M ($1.7M and $3.6M, ex-changes in working capital) in the three and nine months ending December 31st, respectively.  Cash balance was $4.8M at quarter-end, which management estimates is sufficient to fund operations for at least the next 12 months.  

Relative to the operational update…
In addition to the mid-December appointment of a new CEO, Dr. Tim Rodell, the other major recent news of interest came in late November when AEMD announced that they had received Breakthrough Device designation from FDA for their Hemopurifier in the treatment of cancer.  The proposed indications under this Breakthrough Device designation includes "The Hemopurifier is a single-use device indicated for the treatment of individuals with advanced or metastatic cancer who are either unresponsive to or intolerant of standard of care therapy, and with cancer types in which exosomes have been shown to participate in the development or severity of the disease. Therapy with the Hemopurifier device should be an adjunct to standard of care for cancer."  

This is now the second such designation for their flagship device, the first of which came in September 2017 when FDA approved AEMD’s application seeking Expedited Access Pathway designation for their Hemopurifier with the following proposed indications for use; "The Hemopurifier is a single-use device indicated for the treatment of life-threatening highly glycosylated viruses that are not addressed with an approved treatment."  

As we noted in our November 27th investor Note, news of FDA granting the Breakthrough Designation came earlier than we would have anticipated but, more importantly opens up new lanes of dialogue and presumed direct assistance with FDA towards advancing Hemopurifier towards a formal cancer-therapy focused development program.  This could be somewhat of a game-changer, in our opinion as while the highly glycosylated virus program had substantial potential, there remains an overarching question of just exactly what a viable regulatory program would encompass (we have covered this topic in detail in prior reports).  

While cancer is just as impossible to effectively control and treat as are the deadly viruses that would fall under the purview of the initial Breakthrough program, it is obviously relatively widely prevalent and more ‘chronic’ as compared to infection from highly virulent viruses (which, if exposed, could result in death in relatively short period of time).  This makes cancer a much more practical target to build a clinical and regulatory program around.  And with Hemopurifier already having shown substantive efficacy in reducing or eliminating circulating tumor derived exosomes from the blood, it is possible that a cancer pursuit could be relatively fast-moving.    

Next steps in cancer…
As the title of the proposed indications indicate, the Breakthrough Device designation (BDD) relegates use of the Hemopurifier under a formal clinical program to cancers in which exosomes have been shown to “participate in the development or severity of the disease”, which have metastasized and which have failed to respond to standard of care.  In addition, AEMD’s device will be used as an adjunct to standard of care.

While management did not provide specifics in terms of anticipated next steps under a cancer-related clinical development program, we think it’s a reasonable assumption that they will look to put the pieces together for an eventual petition to FDA to conduct formal U.S.-based clinical studies.  And while we have no insight into the incremental milestones that Aethlon will be focused on or specifics in terms of their near-term goals, we do think that there is reason to believe that a cancer indication for the Hemopurifier is an eventual realistic outcome.  

Already-completed clinical studies should provide at least some support for the safety of the device, while preclinical studies support Hemopurifiers’ ability to capture exosomes.  And there is a growing body of evidence that, yes, exosomes do play a role in cancer progression.  And as it relates to a question of Hemopurifiers’ safety, the fact that the BDD indication is for metastasized cancers and for which standard of care has failed (i.e. patients which are essentially out of options), implies a lower safety hurdle.  Meanwhile, successful capture of exosomes in preclinical studies in a variety of cancers including breast, ovarian and metastatic melanoma certainly lends credence to the effectiveness of the Hemopurifier in removing exosomes from the circulation of cancer patients.  And, finally, receipt and successful competition of grants from the National Cancer Institute related to this topic – that is, removal of exosomes from circulation as a cancer therapy means that this is a pursuit that is not just of interest to Aethlon but to the U.S. government as well.  For these reasons, we believe eventual FDA approval to conduct clinical studies in a related cancer indication is a very realistic assumption.  

We also note that AEMD had previously been aggressive in pursuing cancer as a potential target and in collaboration with the University of Pittsburgh Hillman Cancer Center, had 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’ (BMY) Opdivo (nivolumab), a checkpoint inhibitor which currently generates $6B in annualized revenue.  While funding was not approved following the initial submission, AEMD indicated on the Q2 ’19 call (November 2018) that an amended filing could be in the works.  If eventually funded, AEMD’s prior CEO, Jim Joyce, noted at the time that he believed that this human study could form the basis of a clinical study protocol for an eventual IDE submission to FDA.  As we noted in our Q2 update (Nov 9th Pivot Towards Cancer Makes Sense. FDA Filing For Breakthrough Device in Cancer), we believed that eventual approval of an IDE for such a study protocol could represent the first significant step towards a possible regulatory program positioning Hemopurifier as an adjunct to already established cancer therapies.  That could open up new opportunities for AEMD in relation to development of Hemopurifier, potentially including collaborations with the likes of Bristol-Myers.  While too early to speculate on chances of such an opportunity materializing, given the potential upside to AEMD, it is something that we will be closely watching.  It is not clear whether AEMD is still/may still pursue re-submittal of this grant application.  

We hope to know more about the company’s specific plans, including near-term goals towards pursuit of U.S. clinical studies.  We also think that, in the meantime, AEMD may apply to FDA for Expanded Access / Compassionate Use of Hemopurifier in an oncology setting.  While Expanded Access, if granted, would not be a substitute for clinical studies, it could offer the opportunity for initial human use/experience in cancer and potentially provide some relevant value in further supporting the use of the device for this application.  As a reminder, the Hemopurifier was previously granted Expanded Access for the treatment of Ebola.    

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