Aethlon Medical Inc (AEMD) 2017 Q1 法說會逐字稿

Good afternoon and welcome to the Aethlon Medical, Inc., first-quarter earnings conference call. All participants will be in listen-only mode. (Operator Instructions) Please also note that this event is being recorded.

I would now like to turn the conference over to Brad Edwards. Please go ahead.

Thank you, operator. And good afternoon, everyone, and welcome to Aethlon Medical's fiscal 2017 first-quarter conference call. Hosting the call today are Aethlon's Chairman and CEO, Jim Joyce, as well as the Company's CFO, Jim Frakes. Mr. Joyce will provide an overview of Aethlon's strategy, clinical testing status, and recent developments. Mr. Frakes will then make some brief remarks on Aethlon's financials. After that, we will open up the call for the Q&A session.

Before I hand the call over to Mr. Joyce, please note that the news release today and this call contain forward-looking statements within the meaning of the Federal Securities Act of 1933 and the Securities Exchange Act of 1934. Forward-looking statements involve risk and uncertainties that can cause actual results to differ materially from those anticipated or suggested by such forward-looking statements.

Statements containing words such as may, believe, anticipate, expect, intend, plan, protect, estimate, or similar expressions constitute forward-looking statements. Factors that may contribute to such differences include, without limitation, risks related to the Company's ability to develop and commercialize its products; the ability to fund and complete clinical testing of the Company's products; the Company's ability to raise working capital if and when needed; the Company's ability to protect its intellectual property; the impact of changing government regulations on biomedical devices; the ability of the Company to meet the milestones contemplated in its contract with DARPA; and other risk factors.

The foregoing list of risks and uncertainties is illustrative but is not exhaustive. Additional risk factors can be found under the caption Risk Factors in the Company's annual report on Form 10-K for the year ended March 31, 2016, and in the Company's other filings with the Securities and Exchange Commission. For a more detailed discussion of the risks and uncertainties that could cause actual results to differ materially from any forward-looking statements, please see the Company's public filings, all available on Aethlon's website.

With that, I will now turn the call over to Mr. Joyce.

Thank you, Brad, and good afternoon. During our fiscal year-end call on June 29, I referenced the ability of our Hemopurifier to address viral pathogens that are beyond the reach of being treated with traditional drugs and vaccines. I also reviewed the daunting challenge of trying to align these traditional agents with each and every pathogen threat.

In reality, only a handful of the more than 300 viruses that are known to be infectious to man are addressed with an antiviral drug agent, and only 1 of the 13 viruses classified as Category A pathogens are addressed with a proven treatment countermeasure. For those not familiar with Category A terminology, these are infectious agents that pose the highest risk to national security and public health, as they are easily disseminated from person-to-person, have high mortality rates, and they provide a basis for panic and social disruption.

The inability to address such a breadth of threats with traditional therapeutics has contributed to a decision by the United States Department of Health and Human Services to expand our government's focus towards broad-spectrum platform technologies that can cross the boundaries of different pathogen threats. Based on human clinical and preclinical studies, we believe our Hemopurifier is the leading and perhaps only true broad-spectrum countermeasure being advanced in FDA-approved clinical studies.

Earlier today, we expanded our collection of broad-spectrum evidence when we disclosed that our research team validated the rapid in vitro capture of Zika virus from the cell culture fluids in human blood serum with our Hemopurifier. I want to emphasize that this study was conducted with the strain of Zika that has spread from South America to ravage Puerto Rico, and likely responsible for the first wave of infection tier in the mainland.

While our research team has had access to older strains in Zika for some time, we decided to wait until we had access to the strain that is currently circling the globe. In that regard, Zika has been named a global health threat by the World Health Organization. And according to CDC, more than 7,300 Americans have been diagnosed with Zika, including more than 1,800 individuals in continental United States and Hawaii. Again, like most viral pathogen, Zika virus is not addressed with a proven drug or vaccine.

An additional concerning factor regarding Zika is that researchers have linked the virus with Guillain-Barre syndrome, a severe neurological disorder that can cause paralysis. In pregnant women, Zika has demonstrated to cause microcephaly, which results in babies being born with a small head and underdeveloped brain. And earlier this week researchers reported the connection between Zika infection and arthrogryposis, which is a condition that results in the deformities of joints in both the arms and legs of newborns.

In addition to Zika data, we also released news today that we have entered into an agreement with the Defense Advanced Research Projects Agency, also known as DARPA, to validate the in vitro capture of Middle East Respiratory Syndrome Coronavirus, also known as MERS-CoV. This virus was discovered to be infectious in man in 2012 and has a mortality rate of approximately 30%. Again, like Zika, MERS-CoV is not addressed with a proven drug or vaccine.

In addition to our confirmation of Zika capture, our broad-spectrum Hemopurifier validations now includes the mosquito-borne viruses chikungunya, dengue, and West Nile virus. We have also demonstrated the capture of Vaccinia and Monkeypox, which serve as models for human smallpox infection. And specific to pandemic influenza threats, we have validated the capture of H5N1 avian flu; H1N1 swine flu virus; and the reconstructed 1918 influenza virus, which represents a model for the strain of influenza that killed approximately 50 million individuals.

In regards to human studies, Hemopurifier therapy has previously been administered to individuals infected with Ebola, hepatitis C, and HIV. In the case of Ebola, the remarkable response in the comatose admission with multiple organ failure contributed to the emergency use clearance of our device by the FDA and the government of Canada. And for what it's worth, Time Magazine named the Hemopurifier to be a top 25 invention and one of the most 11 remarkable advances in healthcare.

At present, our clinical team has enrolled the fifth patient of a 10-patient feasibility study designed to advance Hemopurifier therapy as a treatment countermeasure against the Zika and other acute viral pathogens that are untreatable with traditional drug therapies. Upon successful completion, which we are targeting for year-end, we will have an opportunity to file a pivotal IDE submission with FDA related to a chronic viral pathogen such as HIV or hepatitis C, where it's actually feasible to conduct controlled human efficacy studies. The completion of the study will also set the stage for us to submit an IDE to treat cancer.

As it relates to cancer, some of you may have noticed that Bristol-Myers Squibb lost $20 billion in market value last Friday based on the report that its immuno-oncology drug, Opdivo, did not perform significantly better than chemotherapy in a study of patients with newly diagnosed lung cancer. On Monday, Bristol-Myers lost another $5 billion of market value. The Wall Street Journal reported that the outcome of this study raises questions about what has been the hottest area in cancer research: immuno-oncology drugs designed to stimulate the immune system to better combat cancer.

Bristol-Myers's value erosion should be a wake-up call for the entire drug industry to better understand the role of tumor-derived exosomes in inhibiting or causing resistance to emerging immuno-oncology drugs as well as established chemotherapeutic agents -- a role that is increasingly being published in peer-reviewed science journals. We believe that a device, i.e. our Hemopurifier, can synergistically combine with these therapies to reduce the presence of tumor-derived exosomes to improve treatment outcomes and do so without introducing additional drug toxicity.

We made a bet that tumor-derived exosomes played a role in promoting cancer progression a decade ago. At that time, we began to demonstrate that our Hemopurifier could capture these particles based on an observation that exosomes were cloaking themselves with a surface structure that was the basis for our Hemopurifier's ability to capture viruses. We accurately assessed that viruses and exosomes were deploying this structure as a means to evade surveillance of the immune system.

Unfortunately, the consensus of the medical community at that time was that exosomes were nothing more than cellular debris and had no biological function. Fast forward 10 years later, and the evidence is extremely clear that tumor-derived exosomes play a multitude of deleterious roles in cancer progression, including immune suppression, immune evasion, drug resistance, and the promotion of metastases, which is attributed to 90% of cancer deaths.

If you are interested in learning more about tumor-derived exosomes and why we are excited about this field, I encourage you to visit PubMed and search the words exosome in cancer. If you do so today, you will see that 1,874 publications appear, most of which have been offered in the last three years.

Our publication, entitled Exosome Removal as a Therapeutic Adjuvant in Cancer, which reviews our treatment strategy in cancer, has now been cited in 57 other peer-reviewed publications, which is 3 more publications than what I reported during our June 29 call. Again, like most viral pathogens, tumor-derived exosomes are not addressed with a proven drug agent.

Now, before I hand the call to our CFO Jim Frakes, I want to quickly review some of our other initiatives. First, I want to talk about clinical programs. While our primary focus is clinical progression in the United States, we will from time to time take opportunities to treat disease conditions overseas. In this regard, our President, Rod Kenley, is preparing to train the principal investigators for the launch of a Hemopurifier study to treat patients with severe dengue infection at the MAX Super Specialty Hospital in Delhi, India. Like Zika virus, dengue infection is primarily transmitted by the Aedes aegypti mosquito.

In regards to our majority-owned subsidiary, Exosome Sciences, we've been informed that the recruitment of former NFL players, which will be supported by a $16 million NIH grant that was awarded to our collaborators at the Boston University CTE Center, is expected to kick off in September. An objective of this clinical program is to advance a test that could diagnose chronic traumatic encephalopathy or CTE in living individuals.

We previously disclosed that we collaborated with the Boston University team to discover what is believed to be the first candidate biomarker to diagnose CTE in living individuals. We trademarked this biomarker to be known as a TauSome. If you're not familiar with CTE, it's a disease condition associated with repetitive head trauma and at present can only be diagnosed in postmortem autopsy.

In a previous study of 78 former NFL players and 16 former non-contact-sport control athletes, we observed TauSome levels to be approximately 9 times higher in the NFL group as compared to the control subjects. We now look forward to continuing our validation of TauSome as the first candidate biomarker to identify CTE in living individuals.

And finally, we have also active in research and development of new products that leverage our core competency of targeting the elimination of disease-promoting targets from bodily fluids. In this regard, we filed a new patent on August 3 related to a cerebral spinal fluid processing system. While this is an early stage product candidate, its successful development could provide a platform to treat a wide range of neurological and central nervous system disorders.

With that said, I will now hand off the baton to Jim Frakes, our CFO, to talk about our financials.

Thanks, Jim. Given our strategy of concentrating on US clinical progression, we are not focused on the generation of revenues at this time, and we did not complete any milestones in the June 2016 quarter. However, as Jim Joyce noted earlier, DARPA agreed to change our next milestone to validate the in vitro capture of the MERS virus. We are working on that study now with the help of collaborators. And while we expect to complete that work in the September quarter, there can be no assurance that that will occur.

At June 30, 2016, we had a cash balance of approximately $1.3 million. That cash position will continue to be used to fund our FDA-approved feasibility study in the US and our operations. As Jim Joyce noted earlier, we recently entered into an agreement for a $12.5 million at-the-market financing arrangement. This arrangement will allow us to raise capital at our discretion at prevailing market prices without the need to issue warrants or to issue shares at a discount to market prices. We have tested this arrangement and we intend to use it discreetly.

Our consolidated operating expenses were approximately $1.1 million in the first quarter of fiscal 2017 compared to approximately $1.3 million in the prior-year period. This decrease of approximately $146,000 or 11.4% was due to decreases in payroll and related expenses of approximately $113,000 and G&A expenses of approximately $62,000. Those were partially offset by an increase in professional fees of approximately $30,000. The $113,000 decrease in payroll and related expenses was primarily due to a $107,000 expense reduction in cash-based compensation at ESI due to headcount reductions and a $6,000 reduction in cash-based compensation at Aethlon, also due to headcount reductions from the 2015 period.

The $62,000 decrease in G&A expenses was primarily due to a decrease of $44,000 in our non-DARPA-related G&A expenses and to a decrease of $17,000 in the G&A expenses at ESI. And the $30,000 increase in our professional fees was primarily due to an increase in our non-DARPA-related professional fees of $58,000, which was partially offset by a reduction in our professional fees at ESI of $5,000 and in our DARPA-related professional fees of $24,000.

That $58,000 increase in our non-DARPA-related professional fees was due to a combination of a $48,000 increase in scientific consulting fees, a $23,000 increase in legal fees, and a $2,000 increase in investor relations fees. Those increases were partially offset by a $50,000 decrease in accounting fees.

We had other expense of approximately $1 million in the first quarter of fiscal 2017 compared to $126,000 in the prior-year period. The increase was due to a debt extinguishment expense of $616,000 and warrant repricing expense of $345,000, with no comparable expenses in the prior-year period.

The debt extinguishment and warrant repricing expenses were non-cash charges and were offset on a dollar-for-dollar basis by an increase to our paid-in capital, so those charges had no impact on our overall shareholders' equity. Additionally, our interest expense decreased by approximately $84,000. Overall, the net loss for the first quarter of fiscal 2017 was $2.1 million or $0.28 per share compared to a net loss of $1.2 million or $0.18 per share in the prior-year period.

For a more detailed review of the movements in our operating expenses and in our balance sheet, I would like to refer you to the earnings release that we put out after the market closed today or to our Form 10-Q, which we will follow later on today. In that 10-Q on our statements of cash flows, you will see that the cash used in our operations increased by only $30,000 from 2015 period to the 2016 period as we continue to monitor our expenses closely.

Over the past year we have had a number of questions from our shareholders about the prospectus supplements that we file as a result of every material filing we do the SEC. We filed two S-1 registration statements with the SEC to register the securities that we sold in our December 2014 and June 2015 equity offerings. These prospectus supplements -- filings are not related to any current fundraising or insider sales; they are merely a cover sheet on top of whatever material filing that we have me.

We are required to update those registration statements whenever we have a material development or filing. So you will see two prospectus supplements go out later on today or tomorrow morning, and those are again merely cover sheets for a combination of yesterday's 8-K filing and today's 10-Q filing.

And now, Jim Joyce and I will be happy to take any questions that you may have.

(Operator Instructions) Brian Marckx, Zacks Investment Research.

(technical difficulty) some clarity on that. Is the MERS portion of it essentially replacing part of the sepsis portion of it? Or is the MERS portion of it incremental to the sepsis portion of it?

Brian, this is Jim Joyce. I missed, on our side, the first part of your question. We didn't hear the very beginning. But it sounds like your question was specific to the milestone arrangement -- what was substituted out, or was it exchanged for another milestone?

Right, right. Is the MERS -- the new MERS portion, is that essentially a substitute for part of the sepsis portion, or is this incremental to the sepsis contract?

It's a substitute, but it's also -- it's not incremental to the contract, but it's incremental to advancing our product under the DARPA DLT program. And I think sometimes people forget that this program was not just specific to sepsis, but specific to viruses and other types of pathogens.

And our program manager, who is a virologist, had discussed with us the importance of expanding our infectious viral pathogen data. And a big concern to him and perhaps others was the emergence of MERS virus, which first was identified to be infectious in man in 2012. So we had the opportunity to change out a milestone that really wasn't still relevant for something that was more timely.

And DARPA has worked with us in the past in part of this program to exchange out other milestones that really were created or tried to be projected five years ago what they would be in the future. So an example would be: in the last year or so we were able to change out a milestone that didn't turn out to be of great importance -- to exchange it for being able to help establish GMP manufacturing of our Hemopurifier, which is a very important milestone, which is a better use of DARPA's money and something we leveraged to our benefit.

The other thing I will add: as part of this program -- and this is just related to sepsis in general, because people predominantly think about the DARPA DLT program as being just specific to sepsis. I will point out that when we initiated our sepsis contract, or this DARPA DLT contract, there was a belief that sepsis -- the primary cause of sepsis was a pro-inflammatory response as a result of a blood infection, whether it's bacterial or viral; and then it created this pro-inflammatory response, sometimes known as a cytokine storm, that could cause mortality in sepsis patients.

Since the beginning of the program there have been publications that have demonstrated that in reality, that early pro-inflammatory phase is not the deadly phase of sepsis, but there is a transition from that phase to a long phase of immune suppression -- and that in reality, the majority of sepsis patients actually die from immune paralysis, the inverse of a cytokine storm; and that during this immune suppression phase, there is an activation of many different latent viral pathogens, whether they are cytomegalovirus -- that's the Barre virus, herpes simplex virus, CTV virus. There is an activation of latent viral pathogens, and the majority of people who die from sepsis actually die with the significant activation of latent viral pathogens.

So people are now reviewing as to why 41 previous clinical studies that were targeting to modulate the cytokine storm -- they are now reviewing that the possibility of the failure of those studies could be attributed to the fact that there is a better understanding of sepsis today, and that perhaps a majority of the mortality rates are triggered by immune suppression, not hyperactivation of the immune system. So all of these irises become very important, we believe, to DARPA in the overall ability to treat sepsis.

Okay, good. How much of the DARPA contract remains unpaid through the fifth year?

I will let Jim Frakes address that.

There are two milestones left, one of which is this MERS one that was substituted in, and they are both approximately $195,000. I can't remember the exact amount. But you could just plus or minus a couple thousand from that number.

Okay, that is what I had as well. Okay. Thanks for that.

Relative to the feasibility study, Jim, you said you have 5 of the expected 10 enrolled currently. Your prior guidance was that you thought that the study could conclude by the end of the current year. Is that still your expectation?

That's still our expectation, and that is the guidance that we are getting from our clinical research team.

Okay. Okay, good. In terms of Zika, the data or the announcement this morning sounds encouraging. Maybe talk about what you see as potential next steps, if that is something that you think that is -- that you think that you may pursue.

Yes, well, first thing we knew we had to do was to obtain data related to the current strain of Zika in circulation, and that strain of virus for clinical testing has been very hard to access, and our research team did a good job to get access to that and conduct our studies.

But Zika, like other pathogens that aren't well understood when they break out -- we are learning a lot about it. I think in reality, it doesn't seem to be a very severe infection. Only 20% of patients actually show symptoms. Of those infected, only 20% show symptoms.

But there is this emerging knowledge of other conditions that the disease seems to be triggering, especially the horrific condition people are seeing in pregnant women. The other concern is that Zika is extremely -- very closely related to dengue. And at present, in the current outbreak, there has only been one viral strain of Zika identified.

However, as this virus mutates, like dengue has, where there is different distinctive strains of dengue -- if it involves and develops new strains, there is the potential for individuals who become infected a second time to suffer from severe infection, much like in the case of dengue, where it could transition to dengue hemorrhagic viral infection or dengue shock syndrome, which can be highly fatal.

And then the other challenge you have is -- and again, these are just speculations of potential things that are concerning about the virus. The other thing is that if it does involve other strains, and that similarity between dengue does evolve, then you have a problem potentially with vaccines, whereas -- there is an example of a vaccine with the World Health Organization, pushed out into testing in 35,000 individuals a couple years ago, that was designed to protect individuals from future dengue infection. And now, as some of the data is being reported a couple years later, we are seeing that this vaccine may have actually primed certain populations to suffer from severe dengue infection.

In fact, the rate of severe dengue infection in young children that participated in that program is 5 to 7 times higher than that of non-vaccine participants. So there's just a multitude of things to be concerned about.

Our opportunities to treat Zika are much like opportunities that surface in other viral pathogens like Ebola. We knew that as the virus emerges, that we would need to have validation data in hand -- much like we did with Ebola in our studies with researchers from the CDC and USAMRIID -- that we would need validation data in hand if we were going to pursue the treatment of individuals infected with Ebola. So this data is important from that perspective, but our research team, much like many others, is watching to see what is learned as the virus continues to unfold.

Jim, can you talk a little bit more about the dengue treatment program that you referenced in your prepared remarks in terms of what your expectations are, I guess, in terms of how many patients could run through that program? And then is this going to be structured in a way where you can actually collect data to get some sort of a sense in terms of efficacy, or at least safety, or any other measures that you can ballpark the effectiveness of Hemopurifier in dengue?

Brian, I don't anticipate we will be collecting data that will be statistically significant to the extent to come to any conclusion regarding efficacy in the larger picture. We would anticipate that we would be treating somebody to improve their health, and to expand our dossier of human treatment experience, and to demonstrate broad-spectrum viral capabilities with the Hemopurifier.

But in this case, we don't have high expectations for large recruitment based on the fact that we are looking at severe dengue infection, which are -- typically occurs as a result of a second infection in dengue patients. And the study is being conducted in one clinical site.

So we are looking to expand our universe of human data, further demonstrate the ability of the Hemopurifier to capture the virus. And it also gives us the ability to look at the performance of in vitro studies which model the capture of the virus with actual real human treatment outcomes. And we notice in disease conditions like HIV and hepatitis C, where sometimes the reduction of viral load in humans parallels something similar to what we saw in vitro.

And then other times, like in Ebola, where he had a rate reduction probably similar in vitro as what we've now seen in Zika -- when we went and treated an actual Ebola patient, we saw not a 50% reduction in 5.5 hours or 6 hours; we saw 98% reduction in viral load when we got to humans. So it just gives us a broader treatment experience in different disease conditions and adds to our knowledge, and then helps us to further support the position that we're trying to pursue -- that the US government is advancing our technology as a broad-spectrum countermeasure against these threats. And again, as most people have recognized, these are tropical threats that are also becoming more and more prevalent each year in the United States.

Okay, thanks a lot, guys.

Marc Robins, Catalyst Research.

Hey, some good, surprising news. Congratulations.

What's the story with DARPA? And I want to know the backstory of DARPA and MERS. I guess my question is: has DARPA helped fund any kind of viral investigations other than those directly related to sepsis and then now this MERS opportunity?

We have done other viruses previously in the DARPA study or in the DARPA program that weren't specifically related to sepsis as part of milestone deliveries.

The reason for my question -- there's nothing nefarious. I'm not -- I am trying to -- it seems to me, like, DARPA is attempting to -- and maybe it's the best opportunity of luck that your coordinator is a virologist. Maybe what DARPA is trying to do is reinvigorate and re-back-door the BioShield opportunity that was prevalent back in 2008.

Well, the BioShield opportunity -- certainly DARPA and other agencies have a significant interest in advancing countermeasures. DARPA really is a sponsor to develop technology, not participate in funding products that may come out of the DARPA program for clinical study. They need to have a handoff through a different agency or a different funding party. They don't -- they are not involved in funding human studies.

Understood.

I can't speak for DARPA as to where the DARPA DLT program is going. I suspect there is going to be some nice advances come out of that study that people will appreciate. But I think at this point in time, a few months down the road DARPA will probably discuss on their own how they plan on transitioning that program.

Okay. Has it been decided how many dengue patients are going to be treated in India?

Yes, at the MAX Super City Hospital (sic - MAX Super Specialty Hospital), we have basically stated that we would treat up to 10 patients.

Okay.

But we are not -- again, this is more of an opportunity to obtain treatment experience and perhaps significantly help somebody with severe dengue infection. But again as I mentioned to Brian, we don't have high expectations for collecting enough data that would be statistically significant, just data that would add to our portfolio of broad-spectrum validations.

Previous in the year, I thought NIV was going to be doing some dengue/chikungunya, possibly Zika trials or experiments. Was I misinterpreting that? Is this what we've been looking for, or has there been some NIV work?

No, we did do work with the National Institute of Virology, which is the government of India's primary infectious disease laboratory. And that's a joint venture with the World Health Organization.

We first worked with the NIV a number of years ago. That provided us our first in vitro validations of capturing dengue virus. In this last year, we were able to reestablish that collaboration with NIV for them to validate the capture of Chikungunya virus, which is another one of the orthopod viruses transmitted by the same mosquito that transports Zika and dengue.

So, yes, they did that work. And the original work -- we repeated some dengue studies during the last year as one of our DARPA milestones, and revalidated again the capture of dengue virus with current strains that were a bit newer than what was accessed a couple years ago when we treated.

So, yes, we have worked with the NIV. Again, they're a research lab. They are not a human treatment site or anything of that nature. But they can be very supportive, as they have been, in conducting studies with small-scale Hemopurifiers to model how well the device can capture target pathogens.

Okay, very good. And then my last question: could you explain a little more about the cerebral spinal fluid processing system? Can you give us a little more detail on how that works and what it implies?

Well, this is a -- I can't say too much about it other than we are not aware of any product that actually has been developed that can access and circulate the cerebral spinal fluid. And there are many disease-promoting particles that can reside in the cerebral spinal fluid.

That is a -- and it really, if you can access circulation, it's an interesting area to treat, because we don't have as many challenges as we do in treating blood, where you have lots of activation factors, blood cells, immune cells, things of that nature that we have to navigate around. If you can access the cerebral spinal fluid, it gives you the ability to remove things, perhaps, in more efficient manners, because you don't have as many things to compete with or to avoid.

But there is a multitude of neurological conditions as well as central nervous systems and viral infections -- some of your encephalitis viruses -- that the disease-promoting particles become prevalent in the CSF, and there's not a means to eliminate their presence. So it's a -- I would say it's a bit of a far-reaching project, or would be for most organizations.

But based on our core competencies, it is something we evaluated internally; done some initial developments, spec work; filed a very extensive and expansive patent. And it's something we think we should try. So it's an early stage product, but if we can demonstrate we can safely access and circulate the cerebral spinal fluid, I think it could be a real game-changer in a whole host of diseases.

There is also -- we found as we started getting into this and started learning about the CSF, and learned that when you're younger, this fluid turns over on average about 2.5 times a day. But as you get older, the turnover gets slower and slower and slower until it almost stagnates.

And if you think about a host of neurological conditions in older individuals, one of the things you have a problem with is the CSF is no longer turning over. Or if it is doing so, it's doing it at a very slow rate, which could complicate neurological conditions.

So we are excited about the program. We are not going to overpromote something at this stage, but it's something to keep an eye on. And it's something -- as we advance it, we will have the opportunity to demonstrate capture of different targets.

And what's really cool is our guys -- our research team is in the process of building an artificial cerebral spinal fluid system with artificial brain and all. It's a cool modeling system, and we have entirely [modeled by] cerebral spinal fluid access design. This has a whole multitude -- this has been well thought-out, a whole multitude of different moving pieces. And again, I will just leave it at that for right now.

It sounds like a lot of fun. Okay, thank you. I will get back in queue.

Yi Chen, H.C. Wainwright.

For the feasibility study, of the five patients that have already been receiving therapy, how many therapies they -- each of them have received? And how often do they receive them? Thank you.

Okay. I appreciate the question. In this case, the protocol design was driven in collaboration between us and FDA. And FDA wanted us to enroll patients that were health compromised and already had blood access.

So that put us into the category of enrolling dialysis patients. Even though our focal point is not the treatment of dialysis patients, this becomes the patient population that we enroll. And then as a model for demonstrating safety in a health-compromised patient who is virally infected, the most prevalent virus in that dialysis patient population is hepatitis C virus, which occurs in about 15% of dialysis patients. And that's dropping to lower numbers as the emerging immuno-oncology -- I mean, the antiviral drug regimens continue to become more and more prevalent.

But the strategy in treating -- or the protocol that was created as a strategy to move this forward as a broad-spectrum countermeasure against acute viral threats as well as chronic threats was to recruit this patient population, and for the first three treatments they act as their own control.

So what that means is during their normal dialysis treatments, which occur three times a week for four hours of treatment, that we are monitoring their blood chemistry; changing the viral load; and we are doing that during their normal dialysis treatment. Then for their next six treatments, we are adding that Hemopurifier in series with their dialysis cartridge to measure and quantify any changes in blood chemistry.

This protocol is very similar to the very first protocol we ever ran overseas, and we ran that with success. But very similar to that protocol. But after the three control treatments, we then add our Hemopurifier for a series of six treatments. And again, we are just -- we are inheriting the treatment regimen of the patient's dialysis schedule, which again is three times a week, four hours of treatment. So we are monitoring a total of nine treatments for each recruited patient, of which the first three are just their normal dialysis and the next six have the inclusion of the Hemopurifier.

Amit Tandon, SeeThruEquity.

Congratulations on the promising Zika virus funding. Just one question: could you comment on the competitive environment? What is that like in terms of the Zika virus? I think you had mentioned some of the other research teams out there. Could you elaborate on that?

On the competitive environment? We are -- I think there's a lot of groups like us that may have strategies to treat but are trying to navigate through this better understanding of the virus. Oftentimes viruses that are not well understood are not really learned about until there is an actual outbreak.

And in the case of the Zika, you have a virus that was first discovered in 1947. I think there was an outbreak in 1964 and one in the 1970s, but nothing to any great extent. And then out of nowhere, there is an outbreak. And it's just not a virus that many people have studied, so people are learning on the fly.

We are not really aware of other groups that have antiviral drug strategies. We are aware of a vaccine strategy. But again, our viewpoint is that you don't wait for outbreaks to occur to then start vaccine research or treatment programs.

And the challenge with all of these countermeasures is the ability to demonstrate efficacy. Especially viruses that have higher mortality rates -- you can demonstrate safety if you can recruit patients, but in the absence of ability to run efficacy studies, controlled efficacy studies where you recruit people and actually infect them with the virus, it's very difficult to demonstrate efficacy.

And for drugs and vaccines in the absence of being able to demonstrate efficacy, we have to rely on animal models and demonstrate the efficacy of your treatment in two different animal models. And unfortunately, for most of the viral pathogens we deal with, there is not two animal models -- in many cases not even one animal model. So it becomes a very difficult challenge; in most cases animal models don't result in efficacy in humans.

So as a device, we follow a different pathway. We demonstrate that we are safe in humans, but our label indication is the single-use removal of viral pathogens from blood. And in that regard, we have the ability to create these replicated in vitro studies to demonstrate that we can indeed remove the virus that is infectious to man.

So I think we believe, based on our previous dialogues with FDA, that we have a strategic advantage in actually moving our technology across the goal. But in terms of competitive environment, I am aware of the vaccine strategy that's moving into humans to demonstrate safety, but I'm not sure how that proceeds forward to demonstrate efficacy.

Okay, great. That's very helpful. Thank you.

James Tang, Aegis Capital Corporation.

It's James. Congratulations on the great news. It's very exciting stuff. Of course. I was hoping you'd talk a little bit about the costs of actually producing the Hemopurifier and what it will mean when you scale up production.

That's a good question. I am almost embarrassed to tell you how expensive it is to make these things for clinical studies. The actual cost related to the cartridge, the components -- pretty inexpensive, especially as compared to anticipated price of therapies.

But our real gating factor long-term has been the affinity agent that we immobilize that allows us to capture viral pathogens by a unique signature that viral pathogens co-op from your own host cells during replication. This is what provides us broad-spectrum capability.

In this compound -- it's called galanthus nivalis aggluinin -- historically, for clinical purposes and research purposes, we have purchased it from vendors who purify it from its natural source. And that compound from its natural source, when it's not scaled up, is very expensive. Jim, what is it? Like $8,000 to $10,000 a gram?

$10,000 a gram.

Yes, so -- and a gram can make 40 to 50 cartridges.

Wow.

So that's been a real gating factor moving forward is the cost component. And so we have worked for a number of years to scale up GNA and finally had success in being able to grow it under tobacco and have perfected that methodology. We are able to get purified GNA that has activity that is equal to or exceeds the activity of what we'd previously get from naturally sourced GNA.

So having that in place dramatically changes our cost structure. But at this point in time, while we can say it dramatically reduces our cost structure, I don't think we've disclosed publicly where we think our cost structure would be, and at this point in time really don't have an incentive to do so, until we have really mapped out the true scalable cost of G&A. But all I can say is the cost has been reduced dramatically by having access to this compound on a scalable basis.

Thank you.

This concludes the question-and-answer session. I would like to turn the conference back over to Brad Edwards for any closing remarks.

Thank you, operator; and thanks, everyone, for joining us today for the conference call. We look forward to speaking with you on our second-quarter call. Have a great day.

Thanks, everyone.

Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.