By Brian Marckx, CFA
Fiscal Q4 2017 Financials, Operational Update…
Aethlon Medical ( AEMD) reported financial results for their fiscal fourth quarter 2017 ending March 31st and provided an operational update. Aside from slightly higher spend in SG&A ($1.4M A vs. $1.1M E) as compared to what we were modeling, the financial results provided no meaningful surprises. Q4 and full-year EPS were ($0.22) and ($0.94), compared to our ($0.18) and ($0.90) respective estimates.
Relative to the cash balance, AEMD exited fiscal 2017 with $1.6M on the balance sheet. This was recently bolstered by net proceeds of $2.2M from the sale of common stock (via both the ATM and under an existing shelf), which was partially offset by the cash redemption of some restricted stock units.
Cash used in operating activities was $953k and $3.5M ($1.2M and $4.0M ex-changes in working capital) in the three and twelve months ending March 31, 2017.
The operational front has been more exciting as of late, particularly with additional (capture-related) data of the U.S. feasibility study announced last week - that followed an earlier announcement that the study met its primary (safety) endpoint. The positive outcome of this study is expected to be a catalyst in moving Hemopurifier to the next steps towards management's goal of validating it as a broad-spectrum countermeasure against viral infectious pathogens.
Feasibility Study HCV Capture Data Announced at BIO International Convention
During a presentation at the 2017 BIO International Convention in San Diego on June 21st management announced HCV capture data from their recently completed U.S. feasibility study. As a reminder, eight patients with ESRD and infected with HCV were enrolled in the single-arm study, which was conducted at DaVita MedCenter in Houston. Subjects received Hemopurifier treatment 3x/week for two consecutive weeks. Data related to vital signs, blood work, hematology and liver function were collected during the weeks of Hemopurifier treatment as well as one week prior. So while this was primarily a safety study, efficacy-related data including viral load reductions and measurement of total virus captured were also collected and are expected to be included in the final report submission to FDA.
Relative to the primary endpoint (i.e. safety), Aethlon announced earlier that Hemopurifier treatment was well-tolerated and that there were no device-related adverse events reported. Given that safety was the main objective of the study and these patients (i.e. those with ESRD and HCV) were of highly compromised health, the positive safety outcome is significant not only in terms of the event-profile of the device, but also as solid support in petitioning FDA for follow-on clinical trials as well as for (potentially immediate) consideration under PHEMCE's broad-spectrum countermeasure program mandate.
As it relates to the (secondary) efficacy measures, the BIO presentation gave us the first glimpse on viral capture during the feasibility study. Capture data that was presented relates to measurements taken following two (of the six total) Hemopurifier treatments. Data was available from 13 cartridges related to seven patients (two cartridges from six patients and one cartridge from one patient). As the slides from the presentation (below) show, virus capture ranged from a low of 589k I.U. (patient six, cartridge two) to a high of 1.62B (patient one, cartridge two). Average capture per cartridge was 154.4M. Management noted during the presentation that the study researchers mistakenly (i.e. violated study protocol) thoroughly saline-washed the cartridges at the treatment site following Hemopurifier treatment (and prior to measuring capture data) which could have had the effect of reducing the capture yields.
While its difficult to judge the clinical significance of this data, it does clearly show that the Hemopurifier is capturing the HCV virus (which may have been even greater if not for the saline-wash issue). This adds to the considerable prior evidence of Hemopurifier's ability to capture target substances including human studies in HIV and Ebola (as well as earlier human studies in HCV) and in vitro studies in a host of other viruses (discussed in more detail below).
Expected next steps for Hemopurifier development, based on management's comments during the BIO Convention presentation and (subsequently) on the Q4 earnings call (June 28th), appear to now be somewhat more definitive. As a reminder, we noted in our April 27th report that AEMD was considering one or more options forward including leveraging regulatory pathways designed to speed approval of devices that address life-threatening diseases and conditions such as the Expedited Access Pathway (EAP). At that time AEMD had already engaged the FDA - feedback from which (relative to the feasibility study outcomes) we had expected would be used to shape the specific direction the AEMD would proceed.
While AEMD did not address any specific discussions with FDA, they did note that they will move forward with submitting an application to FDA requesting eligibility under the EAP program. They also expect to seek "Breakthrough Device" designation. As a reminder, the EAP launched in April 2015 and 'breakthrough device" designation was introduced as part of the 21st Century Cures Act in order to further streamline the regulatory process for novel devices which address conditions where either no alternative exists, or the device in question provides for clinically meaningful advantages.
AEMD expects to submit their application to FDA within two weeks. Per FDA's guidance relative to the EAP program, intended review time is 30 days. As such, AEMD could receive a decision from the agency relative to whether they qualify for the EAP/breakthrough device pathway by mid-August (possible earlier). While even if the EAP/breakthrough status is granted, this will still be a PMA pathway. As such, it will require clinical trials - but does provide certain benefits, including the ability to work closer with FDA personnel and receive much more timely feedback .
The EAP pathway provides certain significant advantages versus FDA's traditional routes. The benefits are aimed at speeding decision-making and reducing sponsors' costs while maintaining FDA's standards on efficacy and safety. The EAP program accomplishes this, in part, by using a much more interactive approach between FDA and the sponsor including direct involvement of management with agency personnel in designing (efficient) development plans. Additionally, an FDA case manager may be assigned to help further facilitate the process. The EAP program also allows, in some cases, for some (or more) collection of data to be done post-market, thereby helping to reduce time-to-market (and allowing the sponsor to defer related costs until after commercialization). And, finally, approval submissions made under the EAP program will receive priority review.
But the main immediate benefit would likely be the close interaction and timely feedback from the agency on topics such as clinical trial design - which could be particularly important and, perhaps somewhat unique in AEMD's case given that it is not feasible to conduct clinical studies for bioterror or pandemic threats - yet those are applications in which the company believes there could be substantial utility for the broad-spectrum capabilities of the Hemopurifier. In essence, one of the main questions may be whether human studies in common viruses such as HCV or HIV (among a host of others including latent viral pathogens) may serve as further ("sufficient"?) validation of Hemopurifier's "efficacy" in other, more virulent targets. Other questions, including endpoints (such as capture or viral load data or patient outcomes), indications being sought and expectations relative to the size of enrollment, are also of particular interest to us.
In the meantime, AEMD will continue to pursue highly virulent viruses in which controlled human studies are not feasible. This could include both bioterror as well as pandemic threats. Category “A” bioterror threats and pandemic viruses would likely fall in these categories. As a reminder, Hemopurifier has shown utility in capturing a variety of viruses and pathogens that could fall into this category including Ebola, Zika, Chikungunya, Dengue virus, H1N1 swine flu, H5N1 bird flu virus, the reconstructed Spanish flu of 1918 virus, West Nile virus and MERS. Some of the validation work for these targets was done in conjunction with government agencies including the U.S. CDC. and the U.S. Army Medical Research Institute for Infectious Diseases.
This may be a pathway that lends itself to either partial or full funding from additional government grants. As a reminder AEMD recently communicated that one of their primary objectives is to be able to fulfill the Public Health Emergency Medical Countermeasures Enterprise (PHEMCE) goal of developing broad-spectrum medical countermeasures (MCM). PHEMCE is an interagency governmental organization comprised of HHS, CDC, NIH, FDA, VA, DoD, DHS and USDA with a goal of coordinat(ing) the development, acquisition, stockpiling, and use of medical products that are needed to effectively respond to a variety of high-consequence public health emergencies, whether naturally occurring or intentional.”
AEMD's goal in this respect is to have Hemopurifier included in the U.S. national stockpile as a broad-spectrum countermeasure. While we do not yet know specifics relative to requisite deliverables for inclusion of consideration for stockpiling as a countermeasure, indications are that AEMD is coordinating a strategy with that goal in mind. We hope to hear related updates in the near future. We do believe that there are factors that may play in AEMD's favor including;
• Hemopurifier demonstrating the ability to capture a variety of viruses (i.e. broad-spectrum capability)
• Safety profile from the feasibility and previous human studies
• Lack of existing therapies (drugs or devices) to address almost all conceivable virulent threats
• Drugs, if developed, would likely have single-target utility (i.e. not broad-spectrum) and may have relatively short shelf-life as compared to Hemopurifier
• Drugs can not be developed for unknown threats - unknown threats is one of the reasons why broad-spectrum capability is important
• Experts believe the risk of bioterror/virulent threats are on the rise and capable of killing tens of millions of people
• The greater the threat risk and consequences of a bioterror attack or pandemic outbreak, likely the lower the bar will be set for consideration of stockpiling therapies that may have countermeasure utility - particularly those that have demonstrated an acceptable safety profile. Importantly, these countermeasures would not necessarily need to be approved by the FDA
See below for free access to our updated report on AEMD.
READ THE FULL RESEARCH REPORT HERE
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