Aethlon Medical, Inc. — Form 10-Q
Reporting period: Quarter ended December 31, 2020 (the company’s fiscal third quarter); nine-month results are for the nine months ended December 31, 2020. All figures are unaudited.
Business context
Aethlon is a clinical-stage medical technology company developing the Hemopurifier, an investigational device intended to remove cancer-related exosomes and certain viruses from blood. The FDA has designated it a Breakthrough Device for specified cancer and life-threatening viral indications. The company also owns a majority interest in Exosome Sciences, which develops diagnostic biomarkers. Reported revenue to date was from government contracts and grants, not commercial product sales.
Financial results and liquidity
| Metric | Three months ended Dec. 31, 2020 | Nine months ended Dec. 31, 2020 | Comparable 2019 period |
|---|---|---|---|
| Revenue | $624,871 | $624,871 | $443,458 |
| Operating expenses | $3,068,459 | $6,250,266 | $1,289,864; $4,588,255 |
| Operating loss | $2,443,588 | $5,625,395 | $876,406; $4,144,797 |
| Net loss attributable to Aethlon | $2,442,892 | $5,623,739 | $819,581; $4,591,042 |
| Basic and diluted loss per share | $0.20 | $0.50 | $0.28; $2.52 |
| Cash used in operating activities | Not presented quarterly | $4,526,309 | $3,577,253 |
The comparable-period figures in the table are shown in quarterly and nine-month order, respectively. The company reported no meaningful operating margin; revenue consisted of government contract and grant activity.
At December 31, 2020, cash was $12.13 million, restricted cash was $46,726, working capital was $11.09 million, and total liabilities were $1.24 million. No convertible notes remained outstanding; the notes had been repaid in July 2019. Management said available cash was expected to fund operations for at least 12 months from the financial-statement issuance date. The company nevertheless expects continued losses and negative cash flows and says future capital needs depend on development and clinical-trial plans.
Material changes and notable items
- Quarterly revenue increased about 41% year over year, while operating expenses rose 138%; quarterly net loss increased to $2.44 million from $0.82 million. For the nine months, revenue increased to $624,871 from $443,458, while net loss increased to $5.62 million from $4.59 million.
- Higher expenses reflected increased payroll and administration, including $593,272 of severance-related expense associated with former CEO Timothy Rodell’s separation, as well as clinical-trial costs, subcontractors, lab supplies, and insurance.
- The company raised $7.26 million net under its at-the-market stock program during the nine-month period, selling 2,685,600 shares at an average net price of $2.70. Shares outstanding rose from 9.37 million at March 31 to 12.12 million at December 31, a substantial source of dilution.
- Government-contract revenue included $436,427 under an NCI melanoma contract and $188,444 recognized from a completed breast-cancer grant, both recognized in the current nine-month period. A separate $256,750 University of Pittsburgh subaward had not yet generated recognized revenue.
- Cash used in operations increased year over year, from $3.58 million to $4.53 million. Financing cash inflow was primarily equity issuance.
Outlook, risks, and contingencies
- The head-and-neck cancer early feasibility study, designed for 10–12 participants with pembrolizumab, was open for enrollment at UPMC Hillman Cancer Center. The COVID-19 feasibility study was planned for up to 40 patients at up to 20 U.S. centers; initial sites had IRB approval and were preparing to enroll. The filing reports one COVID-19 patient completed eight treatments under emergency-use provisions; this is not a controlled efficacy finding.
- COVID-19 could affect trial timelines, costs, supply and access to capital. The company said it had not experienced significant disruption to date but could not estimate future effects.
- Key risks include clinical-trial delays or unfavorable results, regulatory approval uncertainty, need for additional financing, manufacturing scale-up and compliance, competition, reimbursement uncertainty, and patent protection. Some patents could expire before regulatory approval.
- In December 2020, Aethlon agreed to lease new office and laboratory space for 63 months, expected to be occupied in the second quarter of 2021. Estimated present value of contractual payments was approximately $806,000; rent commencement and balance-sheet recognition were tied to occupancy.
- After quarter-end, the company hired a Chief Business Officer and a Chief Medical Officer, with associated salary, bonus, relocation, and equity-award commitments. Management reported disclosure controls were effective and no material change in internal control; it reported no pending or threatened legal proceedings.
Important facts for investors to verify
- Clinical-trial enrollment, timing, safety results, and whether either Hemopurifier program demonstrates meaningful clinical benefit.
- Cash burn and runway against management’s 12-month estimate, particularly given planned trial, manufacturing, and laboratory spending and the stated possibility of needing additional capital.
- Remaining capacity and terms under the ATM program, and the potential dilution from future equity issuance, options, and warrants.
- The timing and amount of revenue from government awards, including the unrecognized University of Pittsburgh subaward, and the sustainability of grant-funded revenue.
- Actual occupancy costs and lease obligations for the new facility, and the full costs of executive hiring and former-CEO separation.