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AEMD: Q1 Results. Add Zika to List of Potential Targets

By Brian Marckx, CFA

NASDAQ:AEMD

Fiscal Q1 2017 Financials, Operational Update: Add Zika to Potential List of Viral Targets…

Aethlon (AEMD) reported financial results for their first quarter 2017 and provided and operational update.  Financial results were largely inline with our expectations although there was a notable positive variance in operating expenses, reflecting a combination of management's continued diligence on expense control as well as lower than anticipated spend on R&D - the latter which we attribute to slower trajectory to the U.S. feasibility study as compared to what we had been modeling.  But the study is now 50% enrolled and management is still guiding for completion by current year-end.

Revenue was just $5k in the quarter - inline with what we had expected, and entirely related to the Battelle subcontract.  AEMD still has almost $400k under the DARPA contract yet to be billed, at least a portion of which we think could be booked in the current quarter (i.e. ending 9/30/16).

Of note is that one of the final two DARPA milestones under the DLT contract was recently modified  - under the new milestone AEMD will "quantify the degree to which the Middle East Respiratory Syndrome Coronavirus (MERS) virus can be extracted from circulation in vitro using miniature Hemopurifiers."  MERS, a viral respiratory disease mostly found in the Middle East, is often deadly.  This milestone should offer AEMD a glimpse of Hemopurifier's potential efficacy in removing another deadly pathogen from blood (another new target?).

Q1 OpEx was $1.1M, about 14% lower than our $1.3m estimate - the difference which we attribute to longer than expected draw out of the U.S. feasibility study.  Management noted on the call that the study is now 50% enrolled (i.e. 5 of 10 patients) and expects the study to complete by year-end.  This study, assuming positive, is expected to set the stage for an FDA IDE submission seeking approval to conduct a larger, controlled clinical study with individuals infected with a chronic viral pathogen such as HIV or Hep C  -  as well as potentially open up initial use (potentially via Humanitarian Use Device) for latent pathogens and pandemic threats such as Zika, Ebola, MERS and others.  AEMD may also then seek approval to initiate a cancer study.  As such, results of this study will be an important pathway towards further development and validation of Hemopurifier.

AEMD extended the maturity of the outstanding convertible debt from June 2016 to July 2017, resulting in $2.1M of non-cash related charges.  Q1 net loss and EPS, excluding the non-cash debt modification related charges, were approximately $1.3M and ($0.17), compared to our $1.5M and ($0.20) estimates.  AEMD exited fiscal Q1 with $1.3M in cash and equivalents, down from $2.1M at the end of fiscal 2016.  In June AEMD entered an at-the-market (ATM) equity program through HC Wainwright whereby they will sell up to $12.5M worth of common shares at then-current market prices (or as negotiated with Wainwright).  The ATM affords the opportunity to raise non-dilutive funding.  In July AEMD raised approximately $40k via the ATM from the sale of 6,100 shares at an average price of $6.50/share.

Hemopurifier Removes Zika in In Vitro Studies...

Last week AEMD announced that in in vitro studies a small scale version of Hemopurifier removed 95% of the Zika virus from cell culture in 5.5 hours and approximately 50% of the virus from human blood serum in five hours.  While not expected to immediately move towards a formal Zika program, this provides some early validation, adds to the list of viral pathogens that Hemopurifier has shown to have efficacy in capturing and potentially puts Zika among the targets that AEMD could pursue either under Emergency Use Authorization, or in the longer term, potentially in clinical trials.

Dengue Clinical Study …

Dengue, similarly transmitted by mosquitoes, infects almost 400M people every year.  AEMD recently announced intentions to begin a small (~n=10) India-based clinical study assessing Hemopurifier in removal of Dengue virus.  The study, while not powered for clinical efficacy endpoints, could provide greater insight into Hemopurifier's virus capture capability as well as additional safety-related experience.  The study, titled "A Clinical Safety Study of the Aethlon Hemopurifier in Patients with Dengue Virus Infection" will be conducted at the MAX Super Specialty Hospital in Delhi.  On the Q1 call management noted that they expect to begin training the principal investigators.

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