Aethlon Medical, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended June 30, 2020; filed August 11, 2020. Aethlon is a clinical-stage medical technology company developing the Hemopurifier for cancer and life-threatening viral diseases, and exosome-based diagnostic biomarkers through majority-owned Exosome Sciences, Inc. The filing reports unaudited consolidated results.
Financial results and position
| Metric | Q1 FY2021 | Q1 FY2020 |
|---|---|---|
| Revenue | $0 | $30,000 |
| Operating expenses | $1.410 million | $1.596 million |
| Operating loss | $1.410 million | $1.566 million |
| Net loss attributable to Aethlon | $1.410 million | $2.066 million |
| Basic and diluted loss per share | $0.15 | $1.63 |
| Cash used in operating activities | $1.102 million | $1.248 million |
At June 30, cash was $15.722 million, versus $9.605 million at March 31; working capital was $14.872 million, versus $8.973 million. Total assets were $16.427 million and total liabilities were $1.240 million. Convertible notes had been paid off in July 2019; remaining reported liabilities were principally operating items and lease obligations. No gross margin is meaningful because the company recorded no revenue in the quarter.
Financing activities provided $7.237 million, primarily from $7.261 million in net proceeds under the at-the-market (ATM) stock program, partly offset by restricted-stock tax withholding payments. Investing activities used $18,000. The company sold 2,685,600 shares through the ATM at an average net price of $2.70 per share; common shares outstanding rose from 9.367 million at March 31 to 12.070 million at June 30. Wainwright commissions were 3% of gross proceeds.
Changes versus the prior-year quarter
- Revenue declined from $30,000 to zero. The company invoiced the NCI $206,729 under its Phase II melanoma contract but recorded it as deferred revenue because contract milestones had not been achieved.
- Operating expenses fell 12% ($186,000), mainly from lower stock-based compensation and professional fees, partly offset by higher general and administrative costs, including clinical-trial expense.
- Net loss narrowed by approximately $656,000. The comparison benefited from the absence of the prior-year $447,011 debt-extinguishment loss and lower interest expense following repayment of convertible notes in July 2019.
- Operating cash use improved by approximately $146,000, while the large increase in ending cash primarily reflected ATM share issuance, rather than operating cash generation.
Outlook, developments and risks
- Management said June 30 cash was expected to fund operations for at least 12 months from the financial statements’ issuance date. It also expected continued losses and negative operating cash flows and said future capital needs depend on clinical progress and other factors.
- The FDA approved a supplement to the open IDE on June 17, 2020, permitting a COVID-19 feasibility study of up to 40 ICU patients at up to 20 U.S. centers. The company was recruiting sites. The FDA had also approved an early feasibility study of Hemopurifier with pembrolizumab for 10–12 head-and-neck cancer patients; the study had IRB approval and was in startup.
- COVID-19 had not caused significant disruptions to operations or the supply chain to date, but the company could not estimate future effects on trials, timelines, costs, operations or access to capital.
- The company remains dependent on clinical and regulatory progress, future financing, patent protection and potential commercialization. Some patents may expire before approval. Management noted plans for significant raw-material and contract-manufacturing spending, subject to raising additional capital.
- No pending or threatened legal proceedings were reported. In July 2020, the board amended its non-employee director compensation program, increasing certain director retainers and equity award values.
Important facts for investors to verify
- Whether the NCI contract milestones are achieved and the $206,729 deferred amount is recognized; confirm remaining contract funding and deliverables.
- COVID-19 and cancer study site activation, enrollment, timelines, costs and any regulatory developments.
- Cash burn and runway against management’s 12-month estimate, including planned manufacturing and clinical spending and the need for further capital.
- Remaining ATM capacity, any subsequent share issuance, and the dilutive impact of outstanding warrants, options and restricted stock units.
- Whether the company’s clinical-stage programs can demonstrate safety and efficacy and ultimately obtain required approvals; Breakthrough Device designation is not product approval.