Aethlon Medical, Inc. — Form 10-Q Summary
Reporting period: Three months ended June 30, 2021, the company’s fiscal first quarter; compared with the three months ended June 30, 2020. Filed August 9, 2021. Financial statements are unaudited.
Business context
Aethlon is a clinical-stage medical technology company developing the Hemopurifier for cancer and life-threatening viral infections, and exosome-based diagnostic biomarkers through its majority-owned subsidiary, Exosome Sciences, Inc. The FDA has designated the Hemopurifier a Breakthrough Device for two indications; this designation is not product approval.
Financial results and liquidity
| Metric | Quarter ended June 30, 2021 | Prior-year quarter |
|---|---|---|
| Revenue | $131,966 | $0 |
| Operating expenses | $2,230,279 | $1,410,418 |
| Operating loss | $2,098,313 | $1,410,418 |
| Net loss attributable to Aethlon | $2,097,303 | $1,410,283 |
| Basic and diluted loss per share | $0.16 | $0.15 |
| Net cash used in operating activities | $2,071,828 | $1,101,973 |
Revenue was government-contract revenue, not product sales: $114,849 related to previously deferred Phase II melanoma-contract milestones achieved in the quarter, and $17,117 came from a University of Pittsburgh subaward. The company deferred an invoice for current-period work after falling short of certain milestones. Research and development expense was $587,687, versus $377,167.
Cash rose to $25,171,679 from $9,861,575 at March 31, 2021. Working capital was $24,416,467. Financing activities provided $17,420,306, principally from stock issuance; investing activities used $38,374. Current liabilities were $1,131,299, against current assets of $25,547,766. The filing reports no material borrowing balance; interest and other debt expense was $125. Management said cash on hand should fund operations for at least 12 months from issuance of the financial statements.
Changes and notable items
- Operating expenses rose $819,861, or 58.1%, year over year. Management attributed the increase mainly to higher payroll and related expenses, including added R&D staff and a CEO milestone bonus; higher subcontractor costs on government contracts; and increased insurance expense.
- Net loss increased from about $1.41 million to about $2.10 million, and operating cash use increased from about $1.10 million to about $2.07 million.
- The company raised $17.46 million net from common-stock issuance: $4.95 million through its at-the-market program, $11.66 million in a registered direct financing, and $0.82 million from cash warrant exercises. Shares outstanding increased from 12,150,597 at March 31 to 15,386,367 at June 30, a substantial dilution of existing holders.
- At June 30, the company had 586,141 warrants outstanding and 1,013,659 stock options outstanding. The filing reports approximately $3.72 million of unrecognized stock-based compensation cost.
Outlook, risks and contingencies
No formal revenue, earnings, or cash-flow guidance is provided. Management expects continued negative cash flows and net losses for the foreseeable future and plans significant investment in raw materials and an internal manufacturing facility for clinical trials. Future capital needs depend on clinical progress, regulatory work, commercialization and other factors.
The company describes an early-feasibility head-and-neck cancer study planned for 10–12 subjects at UPMC Hillman Cancer Center, with safety as the primary endpoint. It also describes an FDA-authorized COVID-19 feasibility study designed for up to 40 subjects at up to 20 U.S. centers. COVID-19, clinical-trial execution, regulatory approval, manufacturing scale-up, competition, intellectual property, reimbursement and access to additional capital are identified risks. The company reported no pending or threatened legal proceedings.
A new office and laboratory lease was expected to commence upon occupancy in the second half of 2021; the company estimated its contractual payments’ present value at approximately $806,000. The filing also notes that the pandemic’s potential future effects on operations, trial timelines and access to capital could not be estimated.
Investor verification priorities
- Confirm current cash burn and whether the stated 12-month runway remains valid, particularly after planned manufacturing and clinical-trial spending.
- Track clinical-trial status and enrollment: the filing uses differing descriptions of the cancer study’s startup/recruitment status and of COVID-19 site recruitment.
- Verify contract milestones, deferred revenue recognition and remaining funding under the NIH/NCI awards.
- Assess dilution from equity offerings, warrant exercises and outstanding options, including any future financing needs.
- Check progress and costs for the new laboratory and office lease, manufacturing plans, and regulatory requirements; Breakthrough Device status does not establish FDA approval.