Mission Viejo-based drug developer Aeolus Pharmaceuticals Inc. has filed documents with the Securities and Exchange Commission showing it completed a stock sale that raised $3.6 million to pay overhead in the immediate future.
Aeolus is a developer of cancer and biodefense drugs and hasn’t yet produced a commercial product. It’s in the third year of a five-year, $118 million research-and-development contract with the U.S. Department of Health & Human Services’ Biomedical Advanced Research and Development Authority for its AEOL 10150 compound.
The company’s filing said it had sold about 30.5 million shares of its common stock.
“The financing was done back in the first quarter,” Chief Executive John McManus said.
McManus said the company requires $100,000 to $125,000 a month in cash to pay for overhead not covered by revenue from its government contract. Aeolus’ filing showed the company had just over $1.9 million in cash on hand as of March 31.
Aeolus started in 1994 and moved to Orange County from North Carolina in 2005. It has had a history of losses—a common condition for development-stage drug companies. Aeolus said in its filing that it has lost about $182.5 million from its inception through March 31.
The company reported net income of $1.7 million for the year ended September 2012 and $299,000 for the prior fiscal year. Those results were affected by a noncash gain in the year ended September 2012 related to decreases in its warrants’ fair value and a similar circumstance for the prior fiscal year.
Its larger pattern of losses meant that “we need to raise substantial additional capital to fund our operations and clinical trials and continue our research and development, unless and until we receive a procurement of sufficient size from the U.S. Government for the Strategic National Stockpile,” Aeolus said in its filing.
The filing also lists some risks, including a “going concern” statement from its auditor. It also said it had identified a “material weakness in internal controls over financial reporting,” which led to its restating some financial results for the 12 months ended Sept. 30, 2012, and Sept. 30, 2011.
Aeolus “intends to explore strategic and financial alternatives, which may include a merger or acquisition with or by another company,” according to its filing.
“We talk to other companies from time to time about partnering because we have a lot of drugs, more than we can frankly develop at the same time,” McManus said, adding that Aeolus has no definitive agreements. The company is developing AEOL 10150 to treat the effects of radiation exposure on the lungs in the event of a nuclear bombing or a problem with a nuclear power plant. It’s also looking to develop AEOL 10150 as an agent to counteract exposure to chemical weapons, such as mustard and chlorine gases.
“It’s what they call a ‘broad spectrum medical countermeasure,’” McManus told the Business Journal last year. “The government likes those.”
• Headquarters: Mission Viejo
• Business: Drug maker
• Founded: 1994
• Ticker symbol: AOLS (OTC)
• 2012 revenue: $7.3 million
• Recent earnings: ($5.8 million) for Q1
• Market value: About $53.8 million
• Notable: Raised $3.6 million in stock sale
Aeolus is working to obtain emergency-use authorization by the Biomedical Advanced Research and Development Agency for AEOL 10150. It’s looking to start human safety studies this year and to have all of the data together for a possible procurement contract by 2014’s second quarter, McManus said.
Federal authorities could create a strategic stockpile of AEOL 10150 if the drug gets an emergency use designation, McManus said.
Work on AEOL 10150 would then continue, with an eye toward Food and Drug Administration approval in 2016, the same year the government contract expires.
Aeolus, which has five full-time employees, had a market value of about $53.8 million last week. Its shares trade on the low-profile over-the-counter exchange.
Separately, Aeolus announced that John Clerici, founding partner of Washington, D.C.-based Tiber Creek Partners LLC; Mitchell Kaye, chief executive and founder of MedClaims Liaison LLC in Philadelphia; and Dr. Jeffrey Scott, general manager and senior vice president of P4 Healthcare, a unit of Dublin, Ohio-based Cardinal Health Inc., have joined its board.
McManus said Aeolus is looking for replacement directors with more experience in dealing with the government.
The new directors replace Joseph Krivulka, Michael Lewis and Peter Suzdak, who all resigned after eight-year terms.
Aeolus’ pipeline also includes AEOL 11207, which it’s developing for epilepsy and Parkinson’s disease; the Michael J. Fox Foundation is funding the latter project’s research. The company also is examining AEOL 10150 as a potential cancer treatment.
