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AEMD: EAP Filed, Expect FDA Response By Mid-September

08/21/2017
By Brian Marckx, CFA

NASDAQ:AEMD

Fiscal Q1 2018 Financials, Operational Update


Aethlon (NASDAQ:AEMD) reported financial results for their fiscal first quarter 2018 ending June 30th and provided a business update.  Excluding non-cash debt-extinguishment and warrant exchange expenses, net loss was approximately $1.4M, inline with our $1.4M estimate, and down from $2.2M in Q2 2017 and $1.5M in Q4 2017.  Q1 EPS was ($0.21) on a GAAP basis and ($0.15), excluding the referenced non-cash expenses, compared to our ($0.16) estimate. 

Relative to the cash balance, AEMD exited the quarter with $327k on the balance sheet, down from $1.3M and $1.6M at Q1 and Q4 2017 quarters’ end, respectively.  On July 31st AEMD filed an S-1, registering for sale up to $7.5M in common shares.  The ATM program via HC Wainwright also remains active.  Cash used in operating activities in Q1 was $828k, or $1.1M excluding changes in working capital. 

The major highlight on the operational front since our last update (on June 30th) was submission of the anticipated application to FDA seeking EAP designation for the Hemopurifier.  In an 8-K, filed earlier this week, Aethlon disclosed that they received formal receipt from the FDA of their EAP submission.  Per FDA guidance, the agency’s goal is to make a decision within 30 days (~mid-September) whether to grant EAP designation, or in the event additional information is required, to formally request that the sponsor (i.e. AEMD) submit additional information.  If additional information is requested, the FDA will make a decision within 30 days of the date of request for additional information.   

EAP Criteria
The criteria that FDA uses for evaluating whether a device is eligible for EAP designation are summarized below.  A more comprehensive explanation of the EAP criteria can be found here (http://bit.ly/2vLj4Jw).  Given that AEMD is pursuing indications related to deadly pathogens and virulent threats in which no effective therapy currently exists, it appears the Hemopurifier would sufficiently meet these criteria.  

The EAP criteria are based on the criteria FDA uses to determine eligibility for priority review.  A significant difference between ‘priority review’ and EAP is that FDA specifically designed EAP to allow the sponsor to have earlier and more significant involvement with regulators – which is something that is lacking with priority review and which has been an impediment to speeding FDA review and approval timelines under that program. 

Noteworthy is that the FDA no longer requires the sponsor to include a draft development plan with their EAP application – but will work with the sponsor to develop such a plan, if approved.  The draft development plan includes items such as an outline of planned clinical studies as well as proposed labeling – which are likely to be largely unknown to AEMD at the current time given that they will need feedback from FDA before they can implement any of the related strategy.  The fact that FDA dropped the requirement of including a draft development plan with an EAP application is a key point, in our opinion, and speaks to the importance of the mandate of the program as it relates to working with the sponsor to facilitate the validation and approval processes.   

Relative to that mandate, the FDA’s EAP document states…”Under EAP, the FDA works with device sponsors to try to reduce the time and cost from development to marketing decision without changing the FDA's PMA approval standard of reasonable assurance of safety and effectiveness, the standards for granting De Novo requests, or any other standards of valid scientific evidence. Components of the program include priority review, more interactive review, senior management involvement, and assignment of a case manager. The extent to which the FDA provides these features depends on the availability of resources.” 

Next steps?
The next-steps, if Hemopurifier is accepted under the EAP program, are largely unknown given that it is not feasible to conduct clinical studies for targets such as highly virulent viruses or pandemic threats.  The current ambiguity in how to proceed in terms of sufficiently validating the safety and efficacy of Hemopurifier for these types of indications is why this EAP mandate could prove to be so important.

There is no precedent that we know of where a device has received FDA approval for the (indicated) treatment of highly deadly viruses, pandemic threats or the like.  So while we have no idea as to what a hypothetically clinical program would look like (as enrolling for a randomized, double-blind Ebola clinical trial, for example, is not feasible), as we have hypothesized before, one of the main questions may be whether human studies in common viruses such as HCV or HIV (among a host of others including latent viral pathogens) may serve as further ("sufficient"?) validation of Hemopurifier's "efficacy" in other, more virulent targets.  

There is considerable evidence of Hemopurifier's ability to capture target substances including from human studies in HIV and Ebola (as well as earlier human studies in HCV) and in vitro studies in a host of other viruses.  Most recently, results of a U.S. single-arm feasibility study (n=8) were presented at the 2017 BIO International Convention in June.  The study, in which Hemopurifier was used to treat patients with ESRD and infected with HCV (i.e. very sick individuals), showed AEMD’s device was well-tolerated (with no device-related adverse events reported) and successfully captured up to 1.62B I.U. of the HCV virus (see Appendix for additional information).     

But we do believe, however, that despite the highly deadly nature of the targets that AEMD has indicated they are interested in pursuing, that it is unlikely FDA approval (for any indication) is attainable without additional clinical trials.  So while the EAP program should provide significant benefits in terms of real-time feedback and interaction with regulators and potentially in designing a feasible strategy for pursuit of FDA approval for these types of targets, we think any such route would still need to follow a PMA pathway.            

In the meantime, inclusion in the Strategic National Stockpile as a broad-spectrum countermeasure is another pursuit.  This may be a pathway that lends itself to either partial or full funding from additional government grants.  
As a reminder AEMD recently communicated that one of their primary objectives is to be able to fulfill the Public Health Emergency Medical Countermeasures Enterprise (PHEMCE) goal of developing broad-spectrum medical countermeasures (MCM).  PHEMCE is an interagency governmental organization comprised of HHS, CDC, NIH, FDA, VA, DoD, DHS and USDA with a goal of coordinat(ing) the development, acquisition, stockpiling, and use of medical products that are needed to effectively respond to a variety of high-consequence public health emergencies, whether naturally occurring or intentional.”     

This could include both bioterror as well as pandemic threats.  Category “A” bioterror threats and pandemic viruses would likely fall in these categories.  As a reminder, Hemopurifier has shown utility in capturing a variety of viruses and pathogens that could fall into this category including Ebola, Zika, Chikungunya, Dengue virus, H1N1 swine flu, H5N1 bird flu virus, the reconstructed Spanish flu of 1918 virus, West Nile virus and MERS.  Some of the validation work for these targets was done in conjunction with government agencies including the U.S. CDC. and the U.S. Army Medical Research Institute for Infectious Diseases.   

While we do not yet know specifics relative to requisite deliverables for inclusion of consideration for stockpiling as a countermeasure, indications are that AEMD is coordinating a strategy with that goal in mind.  We hope to hear related updates in the near future.  We do believe that there are factors that may play in AEMD's favor including; 

• Hemopurifier demonstrating the ability to capture a variety of viruses (i.e. broad-spectrum capability)
• Safety profile from the feasibility and previous human studies
• Lack of existing therapies (drugs or devices) to address almost all conceivable virulent threats
• Drugs, if developed, would likely have single-target utility (i.e. not broad-spectrum) and may have relatively short shelf-life as compared to Hemopurifier
• Drugs cannot be developed for unknown threats - unknown threats are one of the reasons why broad-spectrum capability is important
• Experts believe the risk of bioterror/virulent threats are on the rise and capable of killing tens of millions of people
• The greater the threat risk and consequences of a bioterror attack or pandemic outbreak, likely the lower the bar will be set for consideration of stockpiling therapies that may have countermeasure utility - particularly those that have demonstrated an acceptable safety profile. Importantly, these countermeasures would not necessarily need to be approved by the FDA   

Relative to ESI, Aethlon is looking to build on the success of their findings as part of the DETECT study (see Appendix for details) and expects to initiate the largest study to-date in NFL players in the detection of CTE in living individuals.  As a reminder, Aethlon’s majority-owned subsidiary Exosome Sciences has collaborated with Boston University’s CTE Center for the development of a blood-based diagnostic that would be able to identify CTE in living individuals.  Results from DETECT (see below for more details), presented in April 2015, showed that the NFL players had significantly higher levels of TauSome (tau) in their blood/plasma than those of the controls (subsequent to release of these preliminary results, additional analysis (per the company's comments) showed that TauSome levels were approximately 9 times higher, on average, in the NFL group as compared to control subjects).  Tau levels were also correlated to performance on cognition tests, with higher tau levels corresponding to poorer test performance.  Investigators concluded that TauSome levels in blood plasma may be an accurate biomarker for CTE.     

The goal of AEMD’s new study, announced in January 2017, is to further validate TauSome as an accurate, non-invasive, reliable biomarker for the diagnosis of CTE in living individuals.  The study, per management's comments on the Q1 call (on August 10, 2017), could commence shortly after Labor Day. 

This and other studies should provide additional data points and provide more insight into the potential future utility of the diagnostic for CTE – and potentially other conditions such as Alzheimer’s disease.  While the DETECT study included 78 former NFL players (and 16 controls), this new study is expected to enroll up to 200 former NFL players at several U.S. sites – at full enrollment it would be the largest study in NFL players at risk of CTE.  The study is also expected to assess the potential correlation of Tausome levels in NFL players with that of Alzheimer's patients - with the potential future goal of leveraging this biomarker (as a companion diagnostic) and study data to support enrollment of NFL players in clinical studies evaluating novel anti-tau drugs which are currently aimed mostly at Alzheimer's patients.  Interestingly, additional analysis done subsequent to publishing of the preliminary DETECT data, found that when looking at Alzheimer's patients, they found tau levels in those patients were 10 times higher, on average, as compared to the control subjects in DETECT.    

Success in DETECT was a major milestone, in our opinion, but this larger, follow-on study should provide more definitive information relative TauSome’s place in the detection of CTE (as well as potentially its relationship to other diseases such as Alzheimer’s) – a goal that has escaped the clinical community so far and one that would be a major breakthrough and likely be instrumental in helping to shape the diagnosis, treatment and monitoring of the disease.  As such, we look forward to updates on the progress of both the Hemopurifier and ESI related programs throughout 2017.      

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