AEMD: SeaStar Collaboration Is Intriguing, More Evidence of Exosomes’ Role in Cancer Progression

By Brian Marckx, CFA

NASDAQ:AEMD

READ THE FULL AEMD RESEARCH REPORT

Fiscal Q4 2019 Financials, Operational Update

Aethlon Medical (AEMD) reported financial results for their fiscal fourth quarter ending March 31, 2019 and provided a business update. Revenue of $80k was recorded in the quarter, representing the initial payment under AEMD’s ongoing NCI grant (The Hemopurifier Device for Targeted Removal of Breast Cancer Exosomes from the Blood Circulation), which was awarded in September 2018 and will pay a total of $298.4k through ~August 2019. This revenue relates to a completed milestone, “to evaluate Hemopurifier-mediated capture of breast cancer exosomes”. We assume the remainder of the contract is recognized as revenue by Q2’20 (ending September 30, 2019).

Operating expenses were up 24% from Q4’18 but down 15%, or ~$293, sequentially. For the full year, operating expenses were $6.2M, an increase of $1.3M, or 25%, from 2018. Much of the yoy increase is explained by separation-related accruals related to the departure of (prior CEO,) Jim Joyce.

Cash used in operating activities was $1.4M and $4.3M ($1.2M and $4.7M, ex-changes in working capital) in the three and twelve months ending March 31, 2019 as compared to $1.0M and $3.9M ($915k and $3.6M, ex-changes in working capital) in the comparable prior year periods.

Relative to the operational update…
The major recent highlight on the operational front was the announcement, made concurrent with the company’s fiscal Q4’19 earnings release, of a collaboration with SeaStar Medical, Inc. SeaStar, which was formed approximately one year ago when CytoPherx acquired Immunocept Medical Products (and subsequently changed their name to SeaStar), is led by Dr. Charles Fisher, who is also a Director on Aethlon’s Board. SeaStar’s ‘CLR 2.0 Hemofilter’ is a blood filter which is FDA 510(k)-cleared for use in patients with acute kidney injury, pulmonary edema and congestive heart failure.

Aethlon’s press release announcing the relationship notes that CLR 2.0 is currently marketed for organ preservation in the solid organ transplant market. Similar to the Hemopurifier, CLR 2.0 cartridges are compatible with standard, hospital-based CRRT (continuous renal replacement therapy) equipment. In terms of the extent and depth pf SeaStar’s extracorporeal blood filtration related IP, this PR announcing CytoPerx’s acquisition of Immunocept mentions that, “there are 62 issued and pending U.S. patents covering nearly everything that can be done with hollow fiber membranes in the acute inflammation and multi-organ failure therapeutic space.”

While Aethlon has yet to provide specifics in terms of exactly what the duo will pursue in terms of product development, the press release does note that, “…the companies plan to jointly develop complete treatment solutions that will allow deployment into multiple inpatient and outpatient treatment settings in any clinical indication where combined use of the Hemopurifier and CPCs may improve or expand indications for use, including but not limited to infectious disease, oncology and organ preservation and transplant.” Much of the appeal of working together appears related to the potential complementariness of the two technologies’ targeted indications – for example, Hemopurifier’s ability to capture exosomes and clear viruses may have real utility in (CLR 2.0’s) an organ transplantation indication.

Aethlon did not provide much more in the way of specifics on the Q4’19 earnings call but did say that their focus, at least initially, will likely be on the development of a joint product which includes a combination of each parties’ technologies for one or more (not-yet-specified) critical care applications. But it also sounds as if there’s potentially lots of different optionality in terms of cross-application of each’s technologies towards individual pursuits either related to the Hemopurifier and CLR 2.0 Hemofilter or development of novel products. We think it is mostly a blank slate at this point and look forward to hearing updates on their plans for leveraging their joint technologies and other resources.

Hemopurifier cancer-related pursuit
While management did not offer details in terms of their interaction with FDA regarding the Breakthrough Device designation for the Hemopurifier in the treatment of cancer, they did indicate that communication with the agency has been ongoing and that progress towards commencement of eventual clinical studies is being made. Management also noted that they hope to have more to talk about relative to this in the coming months.

Encouragingly, there is no shortage of new evidence supporting the role of exosomes in the progression of cancer and, similarly, that removing tumor-derived exosomes from circulation may inhibit tumor growth and/or potentially improve the effectiveness of immunotherapies. As this describes the basis for Aethlon’s pursuit of the Hemopurifier in a potential cancer indication, a growing database of evidence can have important contextual implications including potentially influencing key opinion leaders and regulators alike.

Among the new evidence supporting the targeting of tumor-derived exosomes is a paper published in April 2019 in the journal Cell. The article, Suppression of Exosomal PD-L1 Induces Systemic Anti-tumor Immunity and Memory, cites that when PD-L1 (a membrane-bound ligand on the cell surface of many cells that is upregulated with inflammation and oncogenic lesion) on cancer cells binds to T cells (specifically to the T cells’ PD-1 receptor), it suppresses the T cells’ ability to fight the tumor. As tumor-derived exosomes secrete PD-L1 (which suppress T cells’ cancer-killing ability), removal of exosomal PD-L1 inhibits cancer growth.

View Exhibit I - Removal of Exosomes Secreting PD-L1 Extends Cancer Survival¹

Based on our $6.25/share target price, AEMD trades significantly below fair value. See link for free access to our updated report on Aethlon Medical.

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1. Poggio et al., Suppression of Exosomal PD-L1 Induces Systemic Anti-tumor Immunity and Memory 2019, Cell 177, 414–427