Download Aeris Therapeutics

Aeris Therapeutics
Investor Presentation
Jan. 28, 2013
2014
Prepared for:
Author: David R. Leon
Collaboration with: Chip Hennen, Tom Hoster,
Mobile: 901.356.1565  Email: [email protected]
Investor Purchase Proposal — Aeris Therapeutics
Table of Contents:
1. Executive Summary ............................................................................................................. 3
2. Previous Funding ................................................................................................................. 4
3. Company Acquisition and Re-launch Strategy ..................................................................... 4
4. Org Chart for Re-launched Aeris Therapeutics .................................................................... 6
5. Milestones Timeline for Re-Launched Aeris Therapeutics ................................................... 7
6. Financial Plan for Re-launch of Aeris Therapeutics .............................................................. 8
7. Heath Economics & Reimbursement ................................................................................... 9
8. The Market Opportunity ......................................................................................................10
9. About Emphysema .............................................................................................................10
10. Current Treatment Options ................................................................................................11
11. Endoscopic Lung Volume Reduction (ELVR) .....................................................................11
12. AeriSeal System Description..............................................................................................12
13. AeriSeal Clinical Results, History, and Status ....................................................................14
14. Competition .......................................................................................................................17
15. Key Opinion Leader Feedback...........................................................................................20
16. Intellectual Property Portfolio .............................................................................................24
17. Past Financial Statements .................................................................................................26
18. AeriSeal System Cost of Goods Sold Analysis ..................................................................27
19. Reasons for Aeris’ Closing .................................................................................................28
Page 2 of 31
Investor Purchase Proposal — Aeris Therapeutics
1. Executive Summary
Founded in 2001, Aeris Therapeutics is a privately held medical device start-up company
specializing in the development and commercialization of novel treatments for patients with
emphysema and other advanced lung diseases. With corporate offices in Woburn, MA, the
company ceased operations in November 2013 after it lost its funding. The company’s
principals, including the estate of the sole investor, are disposing of all of the company’s
intangible assets, including its IP portfolio, via a closed auction tentatively scheduled to close
February 28, 2014. This prospectus outlines the opportunity available from the purchase of
those assets and the successful re-launch of Aeris Therapeutics.
Aeris spent ten (10) years developing its initial product, the AeriSeal® System, a relatively
simple and innovative 30-minute procedure therapy for advanced emphysema invented by the
company’s founder, Edward Ingenito, MD. Dr. Ingenito has served as the company’s Chief
Medical Officer and Scientific Director. He is a recognized expert in pulmonary physiology and
lung volume reduction and has published extensively in peer-reviewed journals.
Emphysema is a progressive, debilitating lung disease for which there are few treatment
options. In recent years, lung volume reduction surgery (LVRS), which involves surgical removal
of diseased portions of the lung in order to enable the remaining portions of the lung to function
better, has become an accepted procedure for advanced emphysema. Though considered the
only truly effective treatment for advanced emphysema, the procedure is complicated and is
accompanied by substantial morbidity and mortality risks, as well as economic cost, so it is
performed infrequently.
The AeriSeal System is intended to provide benefits similar to those of LVRS via a completely
non-surgical in-patient treatment. AeriSeal Foam Sealant, a cross-linked polymer agent, is
administered by a medical device through the working channel of a bronchoscope into the target
areas of the lung, where it polymerizes and seals the diseased lung regions. Over time, the
sealed regions collapse, thereby reducing lung volume.
The AeriSeal System has been shown in open-label investigational and peer-reviewed
published studies to reduce lung volume, improve lung function, and improve quality of life in
patients with advanced emphysema and a favorable risk/benefit profile. The system has been
granted CE Mark approval in the European Union (EU). About 350 patients have been treated
to date.
This prospectus proposes to attract an investor(s) to quickly acquire and control all of Aeris
Therapeutics’ intellectual property for $2 to $3 Million, re-launch the company, then prepare a
private placement memorandum to obtain the estimated $25-$30 Million necessary to complete
critical milestones for a successful exit.
Page 3 of 31
Investor Purchase Proposal — Aeris Therapeutics
Endoscopic Lung Volume Reduction Market Size
Country
COPD Rate
U.S.
13,090,000
Europe
17.45%
Germany 4,483,668
France
3,624,987
Italy
2,779,593
Spain
2,766,615
U.K.
3,927,864
Subtotal EU5 17,582,727
18.8%
70.2%
Meet
Clinical
Criteria for
LVRS
49.9%
70.0%
59.2%
18.2%
$
13,000
2,456,000
1,724,112
860,332
602,232
356,522
109,606
466,128
$
6,059,644,000
841,244
680,135
521,519
519,084
736,962
3,298,944
590,554
477,455
366,106
364,397
517,347
2,315,859
294,686
238,250
182,687
181,834
258,156
1,155,613
206,280
166,775
127,881
127,284
180,709
808,929
122,118
98,731
75,705
75,352
106,980
478,886
37,543
30,353
23,274
23,166
32,889
147,225
159,661
129,084
98,980
98,518
139,869
626,111
$
$
$
$
$
$
2,075,592,864
1,678,089,912
1,286,737,388
1,280,729,464
1,818,298,301
8,139,447,929
COPD Gold IIIIV
G O L D III- IV
Dx w/
E m p h ysem a
>40%
involvement w/
Emphysema
Upper Lobe
Predominant
Homogenous
Reduced
Treatable
Patients
Market Size
2. Previous Funding
Aeris Therapeutics’ operations were funded entirely by an angel investor, xxxxxx, principal of
xxxx Enterprises, Framingham, MA. He owns 86% of the company, including its intangible
assets. The estimated investment expenditures to date is $70-$75 Million, which is consistent
for PMA novel device development costs. More recently, he funded operations month to month.
Mr. Rosse, who is 86 years old, is now suffering from advanced dementia. As a result, his
estate recently assumed decision authority and determined as of November 22nd, 2013, to
cease all operations and put the company’s intellectual property and other assets up for sale to
the highest bidder.
3. Company Acquisition and Re-launch Strategy
The value offered with this transaction is acquiring a novel medical device technology for less
than 5% of the total development cost, substantially lowering the return basis for a successful,
profitable exit. Total European sales revenue for 2012 was $481,000 and $650,000 in 2013.
The auction process is being managed by xxxxxx xxxxxx an intangible asset disposition
company engaged by the assignee of the creditors of Aeris Therapeutics. In conversations with
Hilco, it was stated the transaction value should be in the “low seven figures.” The target close
date is February 28th, 2014. Potential buyers have also been informed that the sellers are
motivated and the transaction could happen sooner.
The relaunch strategy shall operate Aeris Therapeutics in three (3) phases over the next 5
years, during which the following should be completed.
 Restart, complete and publish the pivotal randomized U.S. clinical trials that were
underway prior to the shutdown.
 Obtain a U.S. CPT code with sufficient reimbursement.
 Establish and grow U.S. and European sales.
 Seek a full company sale.
Page 4 of 31
Investor Purchase Proposal — Aeris Therapeutics
Phase I: The core technology is well developed and needs very little R&D expenditure and is
ready for Phase III execution. Over the next 12 months, the following core operations should be
established. Estimated cost: $9 Million ($3 Million to acquire the IP and $6 Million to reestablish
operations).
 Quickly acquire the IP.
 Re-launch the company with key personnel.
 Re-start product manufacturing.
 Re-establish the clinical trials now underway.
 Re-establish commercialization of Europe and the U.S. to generate revenue.
Phase II: Months 13-36 the following activity should be completed. Estimated cost: $9 Million.
 Published pivotal RCT in peer-reviewed, prestigious journal and complete other critical
publications that support commercialization and direct revenue generation.
 Physician professional society sponsorship, CPT submission with appropriate
reimbursement.
 Procedure refinement, training, clinical pathway, and KOL adoption.
 Established and growing sales of ELVR approach in Europe (maintain less than
$500,000 month case burn rate with $2 Million in new revenue).
Phase III: Months 37-60 the following activity should be completed. Estimated cost: $9 Million.
 CPT code issued with sufficient reimbursement.
 Expansion of European and U.S. sales.

$4 Million in U.S. and EU sales revenue.
 ELVR established as leading procedure with follow-up economics validation study.
 Completed widespread patient activation.
 Established and validated a scaleable business model.
During the acquisition of Aeris Therapeutics’ IP and other key intangible assets and the relaunch of the company, David Leon will serve as its General Manager and President
responsible for its successful re-launch and completion of the foregoing objectives, including its
product commercialization and exit strategy.
The anticipated exit strategy will most likely be direct acquisition via one of the major biotech or
medical device companies. However, once a clear reimbursement pathway is established, sales
revenue is expected to accelerate significantly, providing greater company valuation and ample
opportunity to determine the most appropriate timing and exit strategy.
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Investor Purchase Proposal — Aeris Therapeutics
4. Org Chart for Re-launched Aeris Therapeutics
Following is the interim org chart for the key executive staff at the re-launch of Aeris:
GM/President
CFO
Chief Scientific
Officer and Medical
Director
VP, Operations
Director of Clinical
Affairs
Director of
Marketing/Marketing
Communications
Chip Hennen. 25 years of senior-level marketing management
experience in the medical device and hi-tech industries including
EndoGastric Solutions, Intersect, Cannuflow, Providence Medical
Technology, Thayer IP, and Equilar. Founder and a principal with
several hi-tech startups, including Edge Diagnostic Systems,
successfully sold to a Fortune 500 company, with which he served as a
divisional vice president. San Mateo School of Law and a MacArthur
Foundation scholarship recipient.
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Investor Purchase Proposal — Aeris Therapeutics
5. Milestones Timeline for Re-Launched Aeris Therapeutics
Following are the key milestones to be met in three (3) phases to ensure the success of the relaunched Aeris Therapeutics and maximize possible return for its funding investments from
angel investors.
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Investor Purchase Proposal — Aeris Therapeutics
6. Financial Plan for Re-launch of Aeris Therapeutics
Operating Cash Flow Projection
Aeris Therapeutics
Beginning Q1 2014 Q2 2014 Q3 2014 Q4 2014
Cash on hand
Revenue
(Units $10,000 ASP)
US
Europe
Funding Proceeds
Interest
TOTAL CASH RECEIPTS
Total cash available
Expenditures
Comp & Benefits
Headcount
Administrative
QC
Clinical & Regulatory
Medical Affairs
Operations
Sales/Marketing
Research
Totals
ASPIRE Pivotal Trail
Clinical Trial Other,
Registry
Marketing
Insurance, Legal &
Accounting
Facilities
Consulting / Contract
Services
Travel
Manufacturing
Other
SUBTOTAL
Loan principal payment
Capital purchases
Other startup costs
TOTAL CASH PAID OUT
Cash on hand
2015
2016
2017
2018
Total
6,000,000 6,000,000 4,492,500 3,087,500 1,382,500 8,757,500 2,087,500 4,932,500 1,254,500
10
30
100,000
22,500
22,500
300,000
9,000,000
22,500
22,500
75
150,000
600,000
110
230
500
955
300,000
800,000 2,200,000 3,450,000
800,000 1,500,000 2,800,000 6,100,000
9,000,000
18,000,000
250,000
350,000
25,000
300,000 1,015,000
22,500
22,500
122,500 9,322,500 1,150,000 10,450,000 2,325,000 5,300,000 28,565,955
6,000,000 6,022,500 4,515,000 3,210,000 10,705,000 9,907,500 12,537,500 7,257,500 6,554,500
500,000
550,000
550,000
2
1
3
1
3
2
1
3
1
3
1
2
1
3
1
3
1
10
11
11
550,000 2,400,000 2,800,000 3,200,000 3,200,000 13,750,000
0
2
2
2
3
3
0
1
1
1
1
1
0
3
3
3
3
3
0
1
1
1
1
1
0
3
3
3
3
3
0
1
2
3
4
4
0
1
1
1
0
11
12
14
16
16
0
0
750,000 3,500,000 2,700,000
700,000
400,000 9,400,000
200,000
400,000
750,000
50,000
10,000
50,000
20,000
50,000
30,000
100,000
30,000
400,000
90,000
500,000
120,000
600,000
140,000
300,000 2,050,000
180,000
620,000
80,000
150,000
80,000
50,000
80,000
50,000
80,000
50,000
330,000
200,000
460,000
225,000
460,000
225,000
460,000 2,030,000
250,000 1,200,000
50,000
20,000
200,000
60,000
80,000
37,500
120,000
80,000
37,500
200,000
80,000
37,500
520,000
150,000
220,000
420,000
150,000
220,000
298,000
150,000
220,000
220,000 1,888,000
150,000
860,000
220,000 1,192,500
0
1,260,000 1,327,500 1,747,500 1,877,500 7,810,000 7,595,000 5,993,000 5,380,000 32,990,500
0
-120,000
-50,000
-30,000
-20,000
-10,000
-10,000
-10,000
-10,000 -260,000
-150,000
-50,000
-50,000
-50,000
-300,000
1,530,000 1,427,500 1,827,500 1,947,500 7,820,000 7,605,000 6,003,000 5,390,000 32,430,500
6,000,000 4,492,500 3,087,500 1,382,500 8,757,500 2,087,500 4,932,500 1,254,500 1,164,500
Phase I
Phase II
Phase III
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Investor Purchase Proposal — Aeris Therapeutics
7. Heath Economics & Reimbursement
The FDA approval strategy for the AeriSeal System will be to have it indicated as a treatment for
severe, heterogeneous upper lobe predominant (ULP) Emphysema. In Europe, the AeriSeal
System is indicated for ULP and homogeneous with reduced upper lobe perfusion Emphysema.
Medicare will be the predominant payer for targeting future coverage/payment models. A
comprehensive commercial payer strategy will be created to leverage Medicare gains. It is
expected that AeriSeal System treatment will be performed on an in-patient basis. Emphysema
patients are medically complex and are expected to have post-treatment complications that
warrant inpatient status.
Current inpatient reimbursement amounts for ICD-9 code 33.79 (Endoscopic insertion of other
bronchial device or substances) maps to Medical MS-DRG 190-192.
The current crosswalk of ICD-9 to ICD-10 procedure codes does not create an
anatomically/physiologically accurate code for AeriSeal. However, the AeriSeal System is not
expected to receive FDA approval until after implementation of ICD-10 in September 2014. The
following reimbursement amounts are expected.
National Base Rates do not include other adjusted amounts paid to the hospital such as Indirect
Medical Expense and Disproportionate share. Including these adjustments, the hospital often
gets more than the stated base amount. In reviewing the DRG reimbursements for the ASPIRE
Clinical Trial sites, the average DRG value was $15,000-$22,000, depending on complications
or comorbidities. With the higher ICD-10 reimbursement, the anticipated device average selling
price per procedure of $13,000 should be easily absorbed and will not provide an economic
disincentive to adopt the new technology.
CPT Code Strategy: Develop clinical publication and professional societies plan to gain support
for coverage policies and sponsorship for eventual Level I code. Aeris will submit an application
to the AMA for a Category III code in parallel with RCT publication dates to be available for use
upon FDA approval.
Page 9 of 31
Investor Purchase Proposal — Aeris Therapeutics
If the MS-DRG assignment changes, Aeris will seek Inpatient New Technology Add-On. The
criteria includes newness and cost and clinical improvement. AeriSeal will easily meet all three
criteria. If the pivotal RCT shows that AeriSeal System will be used in an outpatient setting,
reimbursement options will include New Tech APC or Device Pass-Through revenue codes.
8. The Market Opportunity
Emphysema is the 3rd leading cause of death in the U.S.(1),
with substantial annual patient care costs with an increasing
global prevalence currently afflicting more than 60M patients
worldwide.
 4.8M patients in the U.S.(1)
 8.4M in Western Europe
 2.3M Japan
About 10% of these patients have severe disease and are
potential candidates for treatment with the AeriSeal System.(2)
AeriSeal Revenue and Market Opportunity
Lung Volume Reduction
Qualified Cases
AeriSeal
Treatable
Patients
Average
Selling
Price
Total Market Size
U.S.
466,128
$ 13,000
$ 6,059,664,000
Western Europe
626,111
$ 13,000
$ 8,139,443,000
9. About Emphysema
Emphysema is a progressive, debilitating disease characterized by destruction of lung tissue as
a result of inflammation caused by exposure to noxious inhaled agents for extended periods.
The most common cause of this condition is cigarette smoking, although genetic, occupational,
and environmental causes account for up to 10% of cases. Emphysema is unique among the
different forms of chronic obstructive pulmonary disease (COPD) in that it involves irreversible
destruction of alveolar tissue of the lung.
Air sacs and other alveolar lung tissue in the lungs are gradually destroyed, resulting in a
decrease in lung elasticity and a collapse of the small airways leading to the air sacs, causing
air and gases to become trapped in them. Since air cannot be effectively exhaled from the air
sacs, the diseased regions of the lungs expand and crowd out the healthy ones, causing the
lungs to over inflate, or “hyper inflate,” until they become too large for the chest cavity, severely
Page 10 of 31
Investor Purchase Proposal — Aeris Therapeutics
restricting diaphragm movement. The restricted movement of the diaphragm means insufficient
air is being inhaled and exhaled from the lungs. Emphysema patients are only able to take small
breaths and experience debilitating shortness of breath (dyspnea) and concomitant exercise
limitations.
10. Current Treatment Options
The most commonly prescribed therapies for emphysema are oxygen, bronchodilators and antiinflammatory drugs, agents that help relieve obstruction to airflow. These agents are beneficial
in patients with airway diseases such as asthma and chronic bronchitis. However, no
pharmacologic therapy slows the progressive loss of lung function that occurs with emphysema.
Surgical treatment, in the form of lung volume reduction surgery (LVRS), has proved a
beneficial but costly option for select patients with advanced emphysema. In addition, morbidity
following LVRS is common (40-50%) and includes a high incidence of prolonged post-operative
air-leaks, respiratory failure, and pneumonia. Fewer than 500 LVRS cases are performed
annually in the U.S. In addition, LVRS is palliative, not curative.
Bronchoscopic lung volume reduction (BLVR) approaches were developed to address the need
for a less invasive and less expensive alternative to LVRS that could produce the same
physiological results. Though all of these minimally invasive techniques are still under
investigation, they “have the potential of benefiting a broader emphysema population than
LRVS.”(3)
11. Endoscopic Lung Volume Reduction (ELVR)
The various bronchoscopic lung volume reduction therapies include placing one-way valves,
wire-like coils, steam vapor, or chemical foam sealant into the lungs. All are seeking a portion
of this huge market. All of these endoscopic LVR (ELVR) treatments are designed to capture
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Investor Purchase Proposal — Aeris Therapeutics
the clinical benefits of LVRS while reducing or eliminating the costly and high-risk side effects of
LVRS. The bulk of qualifying cases are medically managed patients, on oxygen with limited
treatment options.
12. AeriSeal System Description
The AeriSeal System falls within the
non-surgical pulmonary intervention
product category of Lung Volume
Reduction (LVR) and is designed to
reduce lung volume without surgery
to improve overall lung function and
quality of life in patients with
advanced emphysema.
The procedure involves the delivery
of a liquid foam sealant into
diseased areas of the lung, where it
polymerizes and produces collapse
of the diseased area. The liquid
foam sealant is delivered via a
standard bronchoscope. The
sealant physically seals both small airways and collateral air channels, causing the treated
areas to collapse via absorption atelectasis, thereby reducing the volume of that area of the
lung, restoring a more normal physiological relationship between the lung and the chest cavity.
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Investor Purchase Proposal — Aeris Therapeutics
The net result is that the diaphragm has sufficient room to move properly, enabling the patient to
inhale and exhale air more normally.
Most patients achieve an improvement in lung function and quality of life equivalent to what is
achieved with lung volume reduction surgery (LVRS), but without the substantial morbidity and
mortality risks associated with LVRS. Typically, most patients achieve a 20%-25% improvement
in overall lung function and quality of life, considered a medically significant improvement.
DELIVERY OF THE AERSEAL FOAM SEALANT
With the patient under conscious or full sedation, a dual
lumen catheter is advanced via a bronchoscope into the
airways of the diseased portion of the lung, with the tip
stationed 3-4 cm distal to the bronchoscope. The
fibrinogen and thrombin solutions comprising the AeriSeal
liquid foam sealant are administered through the catheter
over 10–15 seconds. Immediately afterward, 60 mL of air
is injected through the working channel of the
bronchoscope to advance the reagent distally. After 30
seconds, the bronchoscope is then moved to the next
intervention site. Typically, a total of four (4) lung
segments are treated in one procedure.
The average selling price for the AeriSeal System foam sealant is $3,250 per lung segment
each patient requires 4 lung subsegment treatments in a single treatment session therefore the
per procedure revenue generation is $13,000.
CLASSIFICATION OF THE AERISEAL SYSTEM
In the U.S., the AeriSeal System is regulated as a Class III medical device, for which a premarket approval application (PMA) is required. In accordance with the European Medical Device
Directive, the AeriSeal System is classified as a Class IIb, long-term invasive medical device.
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Investor Purchase Proposal — Aeris Therapeutics
13. AeriSeal Clinical Results, History, and Status
The first-generation AeriSeal System involved six (6) initial biocompatibility/toxicology studies in
animal models which were completed and published in 2001 and 2003. In 2004, an open-label
phase 1 trial deemed the use of the AeriSeal System sealant in COPD patients safe. It was
followed by three (3) phase II trials in Europe and Israel to assess the safety and efficacy of the
AeriSeal Emphysematous Lung Sealant System (i.e., the “AeriSeal System”).
Subsequently three (3) single arm pilot studies conducted in Europe and Israel also served to
identify the optimal treatment strategy for the AeriSeal System treatment. Results from these
studies led to the development of a well-defined, prospectively-validated approach for selecting
patients with advanced emphysema who are likely to respond to AeriSeal System treatment.
Current recommendations for patient selection, treatment site selection, patient preparation,
procedural instructions, expected and potential complications, and post treatment management
are summarized in the AeriSeal Instructions for Use document. The optimal approach includes
treatment at four (4) lung sites, two (2) in each upper lobe, administered during a single
treatment session.
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Investor Purchase Proposal — Aeris Therapeutics
The use of the second-generation AeriSeal System was initiated in 2011. To date, six (6)
clinical articles have been published and three (3) abstracts, including a 24-month follow-up and
three (3) 12-month follow-up studies.
In early 2012, a large 300-patient, 30-site randomized U.S. clinical trial comparing AeriSeal
versus medical management was started. Called ASPIRE, the trial’s sites include some of the
most highly respected medical institutions in the U.S., including:
 Brigham and Women’s Hospital
 Johns Hopkins University
 Mayo Clinic
 Duke University Medical Center
 Cleveland Clinic
 University of Alabama Birmingham
 Emory University Hospital
 Yale-New Haven Hospital
As of January 1, 2014, ninety (90) of the 300 required patients have been enrolled and
randomized. It is believed that completion of the ASPIRE trial will lead to FDA approval and
reimbursement support.
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Investor Purchase Proposal — Aeris Therapeutics
ASPIRE AeriSeal Highly Confidential Pivotal US Randomized
Clinical Trial Preliminary Results
AeriSeal
15.8% 25.8% 15.5% 34.5% 31.0% 17.2%
Deaths
AECOPD
Pneumonia
Respiratory
Events
Complications First 90 Days
All Events
6 Min Walk
FEV1
Improvement
FVC
6 Month results 19 AeriSeal treatment patients 13 control patients
12.1%
1.7
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Investor Purchase Proposal — Aeris Therapeutics
14. Competition
Bronchoscopic lung volume reduction is a novel approach and a promising method for the
treatment of severe emphysema. As expected, in addition to the AeriSeal System procedure,
various other methods of bronchoscopic lung volume reduction are also currently under
investigation, these include one way valves, airway implant/coils and thermal vapor ablation.
Endobronchial valves are the most studied bronchoscopic lung volume reduction technique.
The lung is divided into compartments (lobes) and the valves are placed in the air ways of one
of the lobes of the lung. The valves allow air and secretions to pass out through the valve but
not back in. This may result in the lobe shrinking in volume and may allow healthier parts of the
lung to expand and take part in the exchange of oxygen and carbon dioxide. Patient numbers
are still relatively small, 127 for duckbill valves and 98 for umbrella shaped valves. The most
commonly used products are the IBV valve (Olympus) & Zephyr valve (PulmonX, Neuchatel,
Switzerland, Redwood City, CA).
Thermal vapor ablation uses controlled doses of steam which produces an inflammatory
response that results in lung volume reduction. A 2 mm catheter is inserted via flexible
bronchoscopy to the target airways a precise does of steam generated by an electronically
controlled pressure vessel is then delivered to the isolated airways. The InterVapor system by
Uptake Medical (Tustin, CA) is the only available system.
Airway coils use nitinol of 10 to 20 cm in length are delivered via a bronchoscope and catheter.
The coil technique tether small airways helping to hold them open and preventing airway
collapse during exhalation. The REPNEU coil by PneumRx (Mountain View, CA) is the only
available coil.
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Investor Purchase Proposal — Aeris Therapeutics
Competitive Product Comparison*
N/A
-
12%
Zephyr / PulmonX
X
NO YES
YES
0%
6.8%
5.8%
7.9%
Inter Vapor Steam / Uptake
x
NO
NO
NO
NO
10%
N/A
RePneu / PneumRx
x
YES
YES
15.40%
50%
dyspnea
YES
NO
TOTAL CASES
NO** YES
QOL
Complications
x
IBV Valve / Olympus
IDE
16.6%
X
Approved
8.6%
X
Other
25%
AeriSeal / Aeris Therapeutics
Product/Company
Austrialia
YES
30%
Isreal
6 Min Walk
- is Not Significant)
FEV1
Improvement
(
NO YES
Europe
Class
US FDA Approval
Clinical Trials Results
Status
RCT Approval /
Completed
OUS
RegulatoryApproval
Sealants
↑ ↑
387
Valves
↑ -
-
Steam
x
¥
↑ ↑
Coils
19.4%
9.1%
↑ ↑
280
*Only includes the more widely available products does not include university single site products or products under proof
**Humanitarian Device Exemption (HDE) in the US & EU for the management of prolonged air leaks HDE devices effect less
¥ Outside United States Pivotal trial recruiting patients. No US sites participating
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Investor Purchase Proposal — Aeris Therapeutics
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Investor Purchase Proposal — Aeris Therapeutics
15. Key Opinion Leader Feedback
Gerard Criner, MD, Temple University, Philadelphia, PA. Dr. Criner believes the AeriSeal
System procedure is a “game changing” modality. He estimates that there are 3-4 Million severe
emphysema patients in the U.S. 12% - 15% are potential ELVR candidates, meaning about a
500,000 patient market size.
Dr. Criner has worked with all the bronchoscopic lung volume reduction therapies since 1993
and has done over 100 ELVR cases using coils, valves, steam, and polymer agents. He
believes that there is a large unmet patient need in this area and that patients are attracted to
the minimally invasive approach. He also believes that the clinical benefits are understated and
cited that their internal data shows that the benefits of ELVR may extend patient’s lives up to 17
years. He believes the AeriSeal polymer sealant and the coils methods have the broadest
patient application, meaning they can offer a therapy for the largest patient population.
Dr. Criner also says that hyperinflation tracks directly to mortality better than to other indices.
Therefore, treating hyperinflation with a less invasive approach like the AeriSeal System
procedure that has a good cost profile is well received.
Dr. stated that up to 6,000 patients have been treated with the valves method, mostly in Europe,
but the cases were limited to patients without collateral ventilation.
On Aeris’ ASPIRE clinical trial, Dr. Criner stated that Aeris set up the trial without the necessary
funding support believing they could raise additional capital as they were completing the study.
However, the U.S. ELVR market is not as mature at Europe, so U.S. patient recruitment was
slower than anticipated. The additional patient education required to recruit patients resulted in
Aeris’ burning too much cash. The small single center trials in Europe were promising, but the
serious adverse events in ASPIRE were higher than expected, resulting in unanticipated delays
while they were investigated. This is the purpose of quality studies, to reveal issues like this. Dr.
Criner believes that as more experience is gained with the AeriSeal System procedure, the
SAEs, patient selection, treatment protocols (such as administrating steroid pre-procedure),
post-procedure treatment regiments, and agent refinements will all improve significantly.
Edmundo R. Rubio, MD, Virginia Tech Medical School, Roanoke, VA. Dr. Rubio believes
that of all the ELVR treatments under investigation, the AeriSeal System has shown in
preliminary data as having the most effective treatment results and best side effects profile. He
believes it is a very promising therapy with a large potential patient population. Of the two
patients he has treated with the AeriSeal procedure, one has shown very significant
improvement and the other good improvement.
Dr. Rubio’s patients are averse to surgery and for many the AeriSeal System procedure is really
there best option, if not there only viable alternative. According to Dr. Rubio, the valve method
has failed in the broader population.
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Investor Purchase Proposal — Aeris Therapeutics
On Aeris’ ASPIRE clinical trial, Dr. Rubio believes that recruiting patients for the trial was difficult
because the criteria was too narrow. He also thinks that many of the patients recruited did not
have upper lobe-only disease.
Herman Ingerl, MD, Robert Bosch Krankenhaus GmbH. Dr. Ingerl has treated 17 patients
with the AeriSeal System procedure. All have done very well (90% success rate vs. 70%
success rate with valves). Measurement of success included testing patient before treatment
and again 6 weeks after: 6MWT, lung function tests (FEV1), X-ray, CT scan, and blood gas
measurement.
Dr. Ingerl says the AeriSeal System is an extremely easy procedure to complete and can be
done in a short amount of time. He also believes it is the safest ELVR procedure. Patients
overall feel better and there is an improvement in lung function long-term. Most adverse events
occur in the first 3-4 days, but symptoms usually go away. Patients are kept in the hospital for 56 days for reimbursement purposes only, not because of any AEs. Dr. Ingerl says that treating
patients with LVR modalities has good reimbursement. (If the patient leaves after only 2 days,
then the hospital receives only 20% of the reimbursement funds available.) Most patients
experience inflammation on the first day. However, after 1 week, the patients feel better and do
well.
On his experience with the valves method, patients have done well, but there have been a
number of pneumothorax cases and the placement of valves is challenging. He believes the
reimbursement funds price is comparable to the AeriSeal system; there is little difference
between 5 valves ($10K) and then AeriSeal ($12K) currently receive reimbursement for the
valves and the procedure.
On his experience with the coils method, Dr. Ingerl does not to pursue this method because he
currently does not see any advantages with it. He believes this method has the worst safety
profile and most patients overall do not feel well. He has had patients referred to him to have
their coils removed because of various complications. Once implanted, however, coils are very
difficult to remove and a significant amount of lung tissue is destroyed. He believes that coils are
associated with a high number of pneumothorax cases.
Wolfgang Gesierich, MD, Asklepios Fachkliniken Muenchen – Gauting. Dr. Gesierich has
treated about 10 patients with the AeriSeal System procedure and believes that they all responded
“overall quite well.” He believes the efficacy impact on the patient is similar to valves, but that
the AeriSeal System is the best and safest way principally because short/slow volume reduction
is gentler on the lung and therefore safer. With the AeriSeal System, he believes there is not an
enormous volume reduction on the lobe immediately following the procedure, unlike with valves.
Dr. Gesierich states that with the AeriSeal System procedure patients experience severe
inflammatory response in the first few days, but they are given prophylactic treatments and the
symptoms go away after 1-2 weeks. He advises his patients to tolerate this initial inflammatory
response because the AeriSeal procedure is really the better treatment.
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Investor Purchase Proposal — Aeris Therapeutics
Figure 1. Dr. Gesierich’s AeriSeal System and other ELVR procedure experience.
By comparison, Dr. Gesierich believes the valve method is too aggressive because it causes
immediate atelectasis of a whole lobe (“very cruel to the lung”). Complications frequently include
pneumothorax (at least 15% - 20% of patients). Every patient with a pneumothorax has needed
a chest tube. Some with severe bronchial fistulas (several liters of volume/minute) have had to
have 2-3 chest drains placed.
With the coil method, Dr. Gesierich believes it does not provide much improvement in lung
function, so it usually is the last treatment modality considered. Says Dr. Gesierich, “most
patients also don’t like the feeling of the coils inside them.”
EXPERIENCE USER CONTACTS
Edmundo R. Rubio, MD, FCCP
Section Chief of Pulmonary, Critical Care, Sleep and Environmental Medicine
Carilion Clinic
Assistant Professor of Medicine, VTC School of Medicine
1906 Belleview Avenue, Suite 320
Roanoke, VA 24014
Email:
Tel:
Notes: Treated first U.S. pivotal trial patient; 2 treated patients in ASPIRE study.
Gerard J. Criner, MD, FACP, FACCP
Chair, Department of Medicine, Professor, Medicine
Temple University
Director, Medical Intensive Care Unit and Ventilator Rehabilitation Unit
Co-Director, Center for Inflammation, Translational and Clinical Lung Research
Tel:
Email:
Mark Dransfield, MD
Associate Professor of Medicine
Medical Director, UAB Lung Health Center
Division of Pulmonary, Allergy & Critical Care Medicine
University of Alabama at Birmingham
Tel:
Email:
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Investor Purchase Proposal — Aeris Therapeutics
Tom Gildea, MD
Advanced Lung Disease Section
Department of Pulmonary Allergy and Critical Care Medicine
Cleveland Clinic, Cleveland OH
Advanced training in interventional and advanced diagnostic bronchoscopy
Tel:
Email:
Hermann Ingerl, MD
Oberarzt Endoskopie / Pneumologie
Robert Bosch Krankenhaus GmbH
Klinik Schillerhöhe Solitudestr. 18 70839 Gerlingen
Tel.
Wolfgang Gesierich, MD
Oberarzt Bronchologie / allg. Pneumologie
Asklepios Fachkliniken Muenchen-Gauting
Dr.ssa Michela Bezzi
Endoscopia Respiratoria
Spedali Civili di Brescia
Italy
INDEPENDENT EXPERTS
Bartolome R. Celli, MD
Professor of Medicine
Pulmonary and Critical Care Medicine
Brigham and Women’s Hospital, Pulmonary Division
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Investor Purchase Proposal — Aeris Therapeutics
16. Intellectual Property Portfolio
The AeriSeal System is protected under broad IP the portfolio includes:
• 10 issued US patents (8361484, 8198365, 8445589, 6610043, 6682520,
7654998, 7654999, 7300428, 7819908, 7861710)
•2 pending US applications
• 23 international issued patents
• 7 pending international patent applications

Broad method of use claims
 “A method for reducing lung volume in a patient, the method comprising: introducing
a material into a diseased alveolar region…”
 Multiple types of materials and delivery methods
 Tissue volume reduction by applying energy with a catheter

Composition of matter claims cover:
 Multiple types of materials including polymers, cross-linked hydrogels, biopolymers
and polymeric additives

Patent estate:

Strong blocking patents and extended coverage
Aeris Therapeutics IP Portfolio
Key Claims, Status, Coverage*
Key claim
A method for reducing lung volume in
a patient, hydrogel, non-natural
polymer & cross-linker
Status
Title
Expiration
Lung Volume
Reduction Therapy
Granted Using Cross-Linked 13-Apr-31
Non-Natural
Polymers
Years to
Expiration
Region
Patent #
17
US
8,198,365
A Method of reducing lung volume in a
Tissue Volume
patient, bronchoscope, introducing
Granted
Reduction
biochemical material
5-Sep-19
5
US
6,682,520
A method for reducing lung volume,
introducing a material into diseased
alveolar region
Granted
Tissue Volume
Reduction
28-Aug-20
6
US
7,654,998
A non-surgical method of reducing
lung volume via trachea, antisurfactant
Granted
Tissue Volume
Reduction
31-Oct-20
6
US
7,654,999
*This is an abbreviated description and list of significant patents, does not including pending or published IP in Europe, Japan, Korea
& Mexico, full descriptions are available up request
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Investor Purchase Proposal — Aeris Therapeutics
Aeris Therapeutics IP Portfolio
Key Claims, Status, Coverage*
Blocking Patents and Extended Coverage
Key claim
Status
Title
A Method for non-surgical lung volume
reduction, applying an amount of
Granted
energy
Compositions & Methods
for Reducing Lung
Volume
A non-surgical method of reducing
lung volume in a patient, collapsing a
target region, with fibrinogen &
activator
Tissue Volume
Reduction
Granted
A method of sealing a bronchopleural
fistula, non-natural polymer & crosslinker
Granted
A handheld apparatus that deoivers
pressurized gas to airway
Granted
Lung Volume
Reduction Therapy
Using Crosslinked
Non-Natural
Polymers
Respiratory
assistance
apparatus &
methods
BLVR can be carried out by collapsing
a region of the lung adhering one
Granted
portion to another
Promoting fibrosis
in or around
adherent tissue
A Method for reducing lung volume,
multi-lumen catheter, bronchoscope,
polymer, crosslinker and sclerosing
agent
Polymer Systems
for Lung Volume
Reduction Therapy
Granted
Years to
Expiration
17-Jun-23
9
Expiration
Region
Patent #
US
7,819,908
3
Canada
2,530,042
23-Aug-20
6
US, Australia,
Austria, Belgium,
Europe, France,
Germany,UK**
6,610,043
8-May-28
14
US
8,445,589
US
7,861,710
US
7,300,428
US
8,361,484
23-Jun-17
26-Sep-27
13
*This is an abbreviated description and list of significant patents full descriptions are available up request
**This patent covers 22 countries, this is an abbreviated list, complete list available upon request
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Investor Purchase Proposal — Aeris Therapeutics
17. Past Financial Statements
Aeris Therapeutics 2011 to Year to Date 2013
Financial Statement
Years
Income Statement
Net sales
Cost of Sales
Operating Margin
Sales & Marketing
Development
General & Administrative
Operating expenses
Operating Income/ (loss)
Interest Expense
Other Income and Expenses
Total Other Income / Expenses
Net Income /(Loss)
Balance Sheet
Current Assets:
Cash & Equivalents
Accounts receivable
Inventory
Prepaid expenses
Total Current Assets
Property, Plant & Equipment
Accumulated Depreciation
Other Assets
Goodwill and Intangible Assets
Security Deposits & Other Assets
Total Assets
Current Liabilities
Accounts payable
Accrued Expenses
Accrued Interest
Total Current Liabilities
Notes Payable
Total Liabilities
Shareholders' equity
Members' Equity
Accumulated Deficit
YTD Net Income
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity
2011
2012
YTD August
2013
$161,189
$162,582
($1,393)
$752,318
$3,349,027
$1,039,979
$5,141,324
($5,142,717)
$1,917,605
$640,621
$62,528
$578,093
$600,757
$1,162,358
$3,011,640
$6,054,513
($5,476,420)
$279,760
($255)
$279,505
($5,755,925)
$632,469
$37,943
$594,526
$489,662
$1,258,539
$2,352,732
$4,982,382
($4,387,856)
$60,000
$13,392
$73,392
($4,461,248)
($7,060,322)
$338,251
$42,590
$304,075
$194,820
$879,736
$220,442
$125,143
$430,341
$108,538
$884,464
$123,281
$911,244
($870,983)
$601,018
$17,312
$564,522
$90,090
$1,272,942
$913,447
($889,565)
$9,946,704
$10,949,721
$9,850,404
$96,300
$10,871,429
$9,850,404
$96,300
$11,243,528
$264,833
$327,152
$2,812,329
$3,404,314
$12,000,000
$15,404,314
$181,734
$308,127
$82,500
$572,361
$3,000,000
$3,572,361
$333,425
$429,782
$142,500
$905,707
$3,000,000
$3,905,707
$2,605,728
$33,726,331
($20,671,335)
($5,755,927)
$7,299,069
$10,871,430
$38,226,331
($26,427,262)
($4,461,248)
$7,337,821
$11,243,528
($7,060,322)
($4,454,594)
$10,949,720
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Investor Purchase Proposal — Aeris Therapeutics
18. AeriSeal System Cost of Goods Sold Analysis
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Investor Purchase Proposal — Aeris Therapeutics
19. Reasons for Aeris’ Closing
A careful analysis of Aeris Therapeutics’ previous development/growth strategies and
operations was performed to understand why the company failed and how to ensure the
success of the re-launched company.
Though the safety and efficacy of the AeriSeal System was proven fairly early in the company’s
history via several European pilot studies, the company faced four (4) major obstacles: 1) topheavy staffing, 2) inadequate Phase III clinical study enrollment strategy, 3) cost
structure/control problems, and 4) slow revenue growth from Europe.
Employee Cost. Aeris had a relatively small staff (under 20 staff members) for most of its
history, but it was also top-heavy with senior executives, seven (7) for most of the last several
years. Though they were all highly qualified medical and scientific professionals, their salaries
were substantial and their direct medical device commercialization experience limited. In
addition other FTE costs such as quality control and manufacturing could have been
outsourced.
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Investor Purchase Proposal — Aeris Therapeutics
Pivotal Clinical Trial problems. The company successfully designed and executed several
small early-stage pilot studies in Europe and Israel and received CE approval and
reimbursement in Germany. Aspire, a 300 patient randomized controlled U.S. and
international clinical trial commenced in late 2011 having secured 30 well respected medical
institutions. Enrollment was very slow; therefore, it was determined to expand the study site
locations to 40 then 60 locations in an effort to increase enrollment velocity. However, this
simply increase cost without increasing enrollment. The correct strategy should have been
concentration on a smaller number of case producing sites, eliminating non-producing sites,
allocation of clinical trial patient recruitment services, and direct customer service activity
with site Clinical Coordinators. Each study case randomized to AeriSeal required direct in
person procedure support therefore travel expenses and per case costs were high. Case
stacking, putting 2-4 cases per travel event, should have been utilized.
European commercialization. CE mark approval was awarded in 2011 although there was
a distinct clinical advance over more established therapies and some reimbursement limits
on widespread adoption revenue growth was slow, supporting competitive studies were
never undertaken, post market registry follow on data ceased therefore the initiative to
establish a revenue stream lost.
Cost structure/control problems. The foregoing costs, taken together with the company’s
other operating costs, resulted in a significant burn rate of between $750K to $1.1M per
month for its last three (3) years of operation. The company’s existing funding structure
could not support the organization through the time required to complete the clinical studies
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Investor Purchase Proposal — Aeris Therapeutics
necessary to obtain a CPT code and satisfactory reimbursement. 19.5 FTE was high along
with the 15,000 SF facility and unneeded internal departments could not be sustain without
significant additional capital.
Summary. It appears key executives did not transition from conducting basic science and
research activity to pre-commercialization and phase III execution and implementing a
successful funding strategy to obtain the additional resources the company required. What’s
more, the company was very slow to implement the cost cutting measures necessary to
ensure the company’s survival beyond 2013, resulting in its closing down its operations in
November 2013. In soliciting strategic partners, Aeris management focused on bigger med
device companies.
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Investor Purchase Proposal — Aeris Therapeutics
REFERENCES
(1) Centers for Disease Control and Prevention, National Vital Statistics Reports, 2010, Death:
Final Data for 2010. Published May 8th, 2013, Sherry L. Murphy, B.S.; Jiaquan Xu, M.D.;
Kenneth D. Kochanek, M.A., Davison of Vital Statistics.
(2) CTS Inspirations, Winter 2013-2014, California Thoracic Society, Novel methods for Lung
Volume Reduction, Bonet, Antonio, MD, Pulmonary & Critical Care Fellow, Cedars-Sinai
Medical center and Zab Mosenifar, MD Geri & Richard Brawerman Chair in Pulmonary &
Critical Care Medicine, Professor & Executive Vice Chairman, Department of Medicine,
Medical Director Women’s Guild Lung Institute, Cedars Sinai Medical Center, Los Angeles,
CA.
(3) A Randomized Trial Comparing Lung-Volume–Reduction Surgery with Medical Therapy for
Severe Emphysema. National Emphysema Treatment Trial Research Group. New England
Journal of Medicine; 348:2059-2073 May 22, 2003.
(4) American Lung Association, Trends in COPD (Chronic Bronchitis and Emphysema): Morbidity
and Mortality, Epidemiology and Statistics Unit, Research and Program Services Division,
August 2011.
(5) Mannino et al., Arch Intern Med. 2000 Jun 12;160(11):1683-9., Akuthota et al., Ann Thorac
Surg. 2012;94:205–11.
Information gathered in this document has been obtained from various sources including:
 Aeris Therapeutics Company documents under Confidential Disclosure Agreement with
the estate assignee.
 Interviews with past employees including the VP of Operations, Chief Medical Officer,
CFO, Scientific Officer, and VP of Product Development.
 Publicly available research.
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