By Brian Marckx, CFA
READ THE FULL AEMD RESEARCH REPORT
Fiscal Q2 2019 Financials, Operational Update
Aethlon (AEMD) reported financial results for their fiscal second quarter ending September 30th and provided an operational update. As we had expected, no revenue was generated in the quarter – we do, however anticipate that revenue will return in fiscal Q3 and reflect initial progress under the recently awarded NCI grant evaluating Hemopurifier in the removal of breast cancer derived exosomes from the blood.
Operating expenses were up 8% from fiscal Q1 to almost $1.4M. Expenses related to an increase in the size of AEMD’s board as well as progress in the UC Irvine clinical trial, and related expenses, accounted for most of the difference. EPS was ($0.08) compared to our ($0.07) estimate.
Cash used in operating activities was $991k and $1.8M ($1.0M and $1.9M, ex-changes in working capital) in the three and six months ending 9/30/18, which compares to a quarterly average of $1.0M ($900k) throughout 2017. Cash balance was $5.1M at quarter-end, which management estimates is sufficient to fund operations for at least the next 12 months.
Relative to the operational update…
Management outlined somewhat of a shift in their overall development gameplan for Hemopurifier on the Q2 call. It appears the decision was based on the seemingly ever-growing opportunities to evaluate their flagship device in cancer applications and the apparent difficulties in moving their life-threatening highly glycosylated viruses program along. As a reminder, management indicated on the Q1 call in August that while they continued to have regular dialogue with FDA related to a virus program under the Breakthrough Device designation, that until their Draft Guidance on the Breakthrough Devices Program is finalized, there may not be any substantive decisions made relative to what a potential approval pathway would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.
FDA has not provided a timeline on when their Breakthrough Device Draft Guidance might be finalized. In fact, FDA’s Draft Guidance documents are not always finalized. History has also shown that the Draft-to-Final guidance timeline can sometimes be years. So, given that, we think AEMD’s decision to pivot towards cancer makes sense. In fact, given the successes to-date of Hemopurifier in capturing tumor derived exosomes and the growing body of evidence surrounding exosomes’ role in cancer progression, the virus-related headwinds may eventually prove fortunate.
AEMD had also been considering 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 on a prior earnings call 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.
While it is not clear whether that plan is tabled or back-burnered, the message on the Q2 call was clearly focused on pursuing a formal cancer clinical regulatory program. Management outlined several cancer-related milestones on the Q2 call and noted that in late-September they filed a follow-on submission to FDA for Breakthrough Device designation for use of Hemopurifier ‘for exosome depletion as an adjunct therapy diagnosed with metastatic cancer”.
Hemopurifier Cancer programs
AMED said that after receiving feedback from FDA, that they amended their Breakthrough-cancer package and re-filed it with the agency on October 23rd. As of the Q2 call (Nov 6th) FDA had not yet responded. While AEMD did not disclose specifics of the filing or what was required for inclusion, it almost certainly referenced the growing documented successes of Hemopurifier as a potential cancer fighting device.
Cancer as a target of Hemopurifier has gained a lot of traction as of late. Part of the reason relates to recent NCI grants – but also relates to the growing body of evidence surrounding exosomes’ role in cancer progression. As it relates to the NCI grants, AEMD recently successfully completed a phase I contract evaluating Hemopurifier in the removal of melanoma-derived exosomes and will submit for a subsequent phase II contract. They were also just awarded an NCI grant for the removal of breast cancer derived exosomes from the blood. Continued successful completion should significantly bolster the already compelling evidence demonstrating the potential of Hemopurifier to reduce circulating exosomes from the blood and cancer metastasis.
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 $299k 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. A follow-on phase II contract, worth approximately $2M over two years, could follow. AEMD is now preparing the submission and expects to make the filing later this month.
And, in September 2018 AEMD was awarded another NCI contract. Titled, “The Hemopurifier device for targeted removal of breast cancer exosomes from the blood circulation”, the award will pay $298k over 12 months. The work is also being done in conjunction with the University of Pittsburgh and Massachusetts General Hospital. Then, in late-October 2019 AEMD received notification of a U.S. DoD Army Breakthrough Award. Titled “Isolation of triple negative breast cancer exosomes using the Hemopurifier”, AEMD noted that they are now in the contracting process.
AEMD could also have initial data from an investigator-initiated study conducted at UC Irvine in a program titled, “Plasma exosome concentration in cancer patients undergoing treatment” which is evaluating the ability of Hemopurifer in the in-vitro capture of tumor-derived exosomes. The study, which was conducted earlier this year, enrolled 17 subjects (data includes 120 samples) across four different cancer types (breast cancer, esophageal cancer and ovarian cancer). Management’s comments on the Q1 ’19 call in August 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’ 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 that an amended filing could be in the works. If eventually funded, the company believes that this human study could form the basis of a clinical study protocol for an eventual IDE submission to FDA. 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.
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 was at 41 as of the Q2 call (Nov 6th). 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 the link above for free access to our most recent report on the company.
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