Aeolus Pharmaceuticals' (AOLS) CEO John McManus on Q2 2016 Results - Earnings Call Transcript

| About: Aeolus Pharmaceuticals, (AOLS)

Aeolus Pharmaceuticals Inc. (OTCQB:AOLS) Q2 2016 Earnings Conference Call May 19, 2016 11:00 AM ET

Executives

David Cavalier - Chairman & CFO

John McManus - President & CEO

Analysts

Operator

Good afternoon, my name is Kanisha [ph] and I will be your conference operator today. At this time I would like to welcome everyone to the Investor Update Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question-and-answer session. [Operator Instructions].

Thank you. I would now like to turn the call over to Mr. David Cavalier, Chairman and Chief Financial Officer.

David Cavalier

Thank you. Good morning and thank you all for joining us for the Aeolus Pharmaceuticals investor update conference call. I am David Cavalier, Chairman of the Board of Directors and Chief Financial Officer for Aeolus. Also on the call today is John McManus, our President and Chief Executive Officer.

Before we begin, I would like to remind everyone that during this call we will be making forward looking statements regarding future events including statements about our $118 million BARDA contracts, development timelines and milestones and clinical results of our drug candidates and our expectations regarding future clinical trials. All of which involves risk, uncertainty assumptions that if they do not fully materialize or prove to be incorrect could cause actual results to differ materially.

These risks are fully described in further detail in our reports filed in the Securities and Exchange Commission including our annual report on Form-10K for the year ended September 30, 2015. These forward looking statements represent the company judgment as of the date of this conference call Thursday May 19, 2016. The company has claimed any intent or obligation to update these forward looking statements whether as a result of new information or otherwise. For copies of our press releases 10-K, 10-Q and other SEC filings and other important information, please visit our website www.aolsrx.com. John and I will provide a full update on all of our programs including the development of our lead compound AEOL-10150 as a medical counter-measure for the pulmonary sub-syndrome of acute radiation exposure or Lung-ARS in partnership with BARDA.

As a reminder, BARDA is the bio-medical advanced research & development authority. The division of the United States Department of Health and Human Services charts of funding the advanced development of medical counter-measures for chemical, biological, radiological and nuclear threats. BARDA also manages $2.8 billion Central Reserve fund established under the Pandemic All-Hazards Preparedness Reauthorization Act of 2013. The special reserve fund is used to require calm downs for the strategic national stock pile of federally managed repository for medical treatments of chemical, biological and nuclear threats. One of the goals of the BARDA contracts is to prepare 10150 or lead compounds for potential procurements of the stockpile. I would like to begin the day with a few remarks before turning the call over to John for a detailed FDR Delta program.

I am very pleased to report that the company has never been positioned either fundamentally or financially. Our development program with BARDA continues to move towards the goal of approval under the animal rule and filing a pre-Emergency Use Authorization or EUA application for 10150 upon the completion of the safety studies John will describe later in this call. The Emergency Use Authorization is an FDA regulatory pathway that allows the use of other approved drugs when an emergency has been declared and there are no existing treatments. N-150 has already efficacy including a significant survival advantage and improvements in clinical and laboratory measures of lung functions in multiple mouths and non-human primate studies when administered at least 24 hours after radiation exposure.

It has been granted orphan drug designation in Lung-ARS and it is the only compound in development with BARDA with Lung-ARS syndrome. In fact we are not aware of any other compounds and development for this syndrome nor are we aware of any compounds that have demonstrated efficacy in Lung-ARS when administered after radiation exposure. Historically, BARDA has made majority of its purchases for the strategic national stock pile following the filing of a pre-EUA application prior to the FDA approval. Although we will continue to pursue FDA approval for 10 months at the end of annual role, the filing of the pre-EUA application presents the potential commercialization of the compound.

I would like to actually pause here to point out that there was a real world example of it this morning. BARDA purchased an additional $100 million worth of invenion [ph] which is a small pox vaccine from the very Nordic, they've already purchased $133 million worth of it; and both of these purchases have been made prior to FDA approval using the EUA pathway that we are describing here. I would also like to thank BARDA for providing both financial support and technical expertise to address the FDA clinical hold on our Investigational New Drug or IND filing for the 10 months in the Lung-ARS. On February 22 we received notice through the FDA that the clinical hold has been lifted clearing the way to resume the work on the BARDA Lung-ARS program.

Our partnership with BARDA continues to be a source of tremendous value for the company and for its shareholders providing over $30 million so far in non-diluted funding for the development of 10150. As a quick example of its value, Aeolus has reduced the cost of manufacturing 10150 by over 85% thanks to work funded under the BARDA contract. This manufacturing work not only advances the development of 10150 in bio-defense, it is equally valuable to commercial indications like Idiopathic Pulmonary Fibrosis and Oncology. This is just one example of the value created by work performed under the BARDA contract.

I would also like to point out that unlike the traditional biotech partner BARDA is not entitled for royalties or any equity or control in the company or 10150 under the contracts. To the company this is a unique and very valuable partnership. The traditional commercial development programs we are prepared to make two IND filings for 10150. One is Idiopathic Pulmonary Fibrosis or IPF and the other is Oncology with the goal subject to FDA approval of initiating phase 1 studies in the second half of this year in both these indications. 10150 has already been granted orphan drug designation in IPF. In Oncology, pre-clinical work indicates the 10150 protects healthy normal tissue from the harmful side effects of radiation and does not interfere with the effect of effectiveness of chemotherapy or radiation therapy.

In fact, the pre-clinical research also shows the treatment with 10150 improves tumor control following treatment. Both of these indications represent BARDAs potential commercial market for 10150 outside of biodefense. I should also note that both of these commercial development programs are directly related to data generated and work conducted under the BARDA contract. Once again, it is important to highlight the values of contract has created with the 10150 development program and for Aeolus shareholders. We have also initiated the IND work for a second compound AEOL-11114 with a goal of filing an IND for Parkinson's Disease in 2017. 11114 has an exciting potential as an Parkinson's Disease treatment given its mechanism of action. It's pharmacokinetic and safety profile and the significant efficacy demonstrated in two wildly used animals models of the disease.

Development for work-to-date has been funded by the Michael J. Fox foundation for Parkinson's Disease and we are grateful for their support and guidance. We have also initiated IND enabling work for our third compound AEOL-20415 for the treatment of infectious diseases with a goal of filing in 2017. We believe that 20415 may have applications in both biodefense and in several large medical indications.

I will finish my opening remarks by commenting briefly on our stock and the recent trading. We have filed our application to re-lift the company on NASDAQ and we continue to move forward with this process. We will us dates that they are available because we believe that this is a valuable initiative for our shareholders and I would also like to clarify that the recently authorized reverse split will only be executed before our re-listing on NASDAQ or other senior exchange. We do not believe that the current stock price and the market capitalization reflect either the significant de-risk in the lifting of clinical hold or the near term bio-defense and commercial milestone. It is in fact hard to think of a fully funded company for the significant government contract of pathway to near-term commercialization and multiple development programs marked indications with the market cap at $30 million. I hope that today's call can make the value of the company clear to all.

I'd like now to turn the call over to John McManus for a detailed update on all of our development programs. At the end of our prepared comments, we will open the call upto questions. John?

John McManus

Thank you, Dave and good morning everyone, and thank you for joining us on the call today. 2016 has already been a positive and exciting year for Aeolus as we expanded development of 10150 into commercial applications and moved towards filing INDs for two new products. Our goal is that by this time next year we are going to have three different products in human clinical studies and at least five indications.

On February 22, the FDA lifted the clinical hold on our IND for 10150 in Lung-ARS, the target of our BARDA contract. This was a significant de-risking event for the company while we work under the BARDA contract and there may have been an appearance that everything was on hold, I can assure that work continued under both end of the contract and outside of the contract and while the clinical hold prevented us from running safety studies it was needed to support a potential pre-EUA filing and approval under the Animal Rule. It also effectively prevented us from filing INDs for our new commercial indications IPF, Radiation and Oncology. With the hold lifted we are now moving forward with the development of 10150 across all of these indications. Before I provide an update on our 10150 clinical program I want to echo Dave's thanks to BARDA for both their financial support and their technical input in helping the company resolve the clinical hold.

While many people understand that we have a contract with BARDA and that we receive financial support from the US Government to develop our compound as a medical counter-measure, it is not well understood that BARDA is our partner in the development of 10150. The relationship that we have is much like a partnership with a big pharma company. In addition to providing $3 million to non-diluted capital to address the clinical hold, BARDA joined us for the FDA meetings provided technical expertise and offered design on the studies that allowed the company to address the FDAs question successfully. Over the course of the contract we received more than $30 million in funding and have also benefitted from the input and knowledge of the BARDA team. As a result of this partnership, we have been able to reduce the cost of our product by 90%, file a new patent that extends patent protection until 2034 and complete the pre-clinical safety and toxicology work that led to the FDA removing the clinical hold in February.

BARDA has been an excellent partner and we are very grateful for their support. I think this is one of the areas where is a bit of a misperception in the market. There seems to be a differentiation in the partnership that we have versus the traditional partnership and I think that as Dave pointed out we have many of the same advantages that you would see in big firm of partnership through our BARDA relationships, that we don't develop the economics as one typically has to do to get a big partnership for development.

For the Lung-ARS indication we originally planned to generate the safety data required for approval in a pre-EUA by studying healthy and normal volunteers. While the lifting of the clinical hold allows us to do this, the FDA has strongly recommended to us and BARDA that rather than run the studies on healthy normal volunteers, maybe patients that might benefit from treatment. In our discussions with the Food & Drug Administration, the agency suggested that using studies in IPF and Radiation & Oncology would be an effective strategy for obtaining the safety data needed for the pre-EUA filing and ultimately, the approval under the Animal Rule. After extending discussions with BARDA there is now a consensus that our planned IPF and radiation oncology phase 1 studies being used to generate safety data.

Previously, the IPF and radiation oncology programs had been outside the scope of our contract with BARDA, additionally subsequent phase 1 and phase 2 studies in IPF and radiation oncology may be used to provide the safety data for full approval on in the animal rule due to the number of patients that will be required by the FDA. As a result, we've scheduled the meeting with BARDA in July to request funding for our phase 1 studies on IPF and radiation oncology rather than healthy volunteers. While we still have the option of running studies in healthy normal volunteers, given the FDAs removal of the clinical hold, moving into patient that might benefit from treatment is in line with the FDAs preference, provides the data that BARDA needs for pre-EUA filing and animal rule approval and creates the opportunity for non-diluted funding of our clinical development program in IPF and cancer. While our initial looked respect will be furnished to run phase 1 studies in IPF and cancer, the consensus reached during the resolution of the clinical hold means that we may be able to receive turning from BARDA for later stage studies as an indication.

As I said we plan to meet with BARDA in July to request the funding for the phase 1 studies and at that time we also request the exercise of options under the contract to fund manufacturing of 10150 registration batches. This is the last step required to complete the chemistry of manufacturing and control works for ultimate new drug application in Lung-ARS, IPF and cancer. This material will also be required for immune clinical safety studies under the BARDA contract. We expect BARDA to respond to these requests by September.

While the work of discussions on the clinical hold was taking place it may have appeared to those outside that not much was going on in Aeolus. Nothing could be further from the truth. During this time, we formed clinical advisory boards and planned and launch the clinical development programs for IPF and cancer, and we completed the proof-of-principle work and pre-clinical development planning for our new compounds; AEOL 11114 to Parkinson's Disease and AEOL 20415 for Cystic Fibrosis.

Let me provide some details on these programs and layout some basic timeline. Last year, we filed and received orphan drug status for AEOL 10150 in IPF. We also formed a clinical advisory board made of five of the top IPF clinicians in the country, and led by Dr. Kevin Brown of National Jewish Health. Under Dr. Brown's leadership we have developed the phase 1 protocol for IPF which we will file with our IND for this mutation after meeting with the FDA this summer. Our plan is to initiate this study in the fall and it will either be funded by BARDA or with some of the money that we raised in December of 2015.

While two drugs were approved for IPF in late 2014, there then remained a tremendous unmet need for patients suffering from this disease. And we believe that this is a significant opportunity. There is a high level of interest on the part of big pharma in partnering with the requiring companies that have drugs for this indication that demonstrate positive effects on biomarkers even in phase 1 study. We have designed our studies to provide this type of data in addition to testing, safety and probability of 10150. The initial phase 1 study would have a treatment period of up to 28 days and would include 20 to 30 patients. We expect the study to take approximately up to one year particularly in clients who are on the study at the premier IPF clinical sites in the U.S. including National Jewish, University of Michigan, UC San Francisco, Tulane and Vanderbilt.

For cancer radiation therapy, we will announce the formation and membership of our clinical advisory board this quarter. We are completing our IND and FDA meeting request for this mutation and expect to file our IND by the end of the third quarter, and initiate our first cancer clinical study by year-end. The cancer study will be done in patients with non-small cell lung cancer receiving radiation and chemotherapy. The study will include up to 40 patients for treatment period of up to six weeks. Sites are being finalized but will include some of the premier cancer centers in the Middle Atlantic region. This study should also be completed within one year of initiation.

I want to reiterate that while the company believes that BARDA may fund the IPF and cancer Phase 1 studies, we do have sufficient capital to pay for these studies ourselves. However we are excited about the possibility of expanding the scope of our development partnership with BARDA to include our development efforts in cancer and IPF.

As the FDA made clear in our discussions with them and BARDA around the clinical hole, generating safety data to meet the U.S. government's requirements in ill patients that might also benefit from treatment seems like the ethical and right thing to do. The completion of these safety studies in 2017 will position the company to file a pre-emergency use authorization for use of 10150 as a treatment for Lung-ARS following a nuclear detonation or accident. The emergency use authorization or EUA is an FDA regulatory pathway that allows the use of unapproved drug when an emergency has been required when there are no existing therapies.

Although it is not obligated to make a purchase, BARDA, has made the majority of its procurements for the strategic national stock pile following the filing of a pre-EUA application. 10150 is the only compound in development for Lung-ARS and the only compound that has demonstrated efficacy in this indication when administered after a radiation exposure. Efficacy has been demonstrated in multiple studies in both mice and non-human primates. In addition, 10150 has been granted orphan drug designation for Lung-ARS. While there are other companies developing treatment for exposure to radiation, these compounds are targeted at other syndrome and do not compete with Aeolus or 10150.

In addition to being very excited about moving forward with the development of 10150, we are also very pleased to be moving to new compounds towards IND filings in 2017. The first of these compounds, the AEOL-11114 is being developed for Parkinson's Disease and was invented by Brian Day at National Jewish and Manisha Patel of the University of Colorado. This new compound and the work that was done is an example of the successful collaboration strategy that we have implemented and executed over the last ten years. We work closely with researchers and academia, and we're very fortunate to have this drug and a number of others that we were able to in-license for further development. And we wait until we have significant principle data before we execute in-license but make sure that we have right to potentially obtain the material if we find the data positive.

Both of our obligations for the in-license will come upon approval of the drug so we are able to focus the resources that we have on R&D rather than on acquisition of the products. 11114 was a subject to two research grants from the Michael J. Fox Foundation for Parkinson's Disease. Wherein two models of Parkinson's, 11114 reduced oxidative stress and damage, mitigate dopamine depletion, preventive loss of nigrostriatal dopaminergic neuron, are one of the most important neuropathological features of Parkinson's Disease, and improved Parkinson's Disease like motor deficit. Additional studies funded by the Fox Foundation showed that 11114 exhibited drug-like characteristics with favorable pharmacokinetic profile, oral bioavailabity, metabolic stability and inability to cross the blood-brain barrier, and also we saw a safety profile that is immutable for long time dosing.

As I indicated, we developed this in partnership with National Jewish and University of Colorado, and we obtained a worldwide exclusive licenses for that development. We recently announced the new composition of mother patent for 114 have been issued in Europe and Japan, and the composition of mother patent is pending in the United States, as well as a number of other major countries across the world. IND enabling work is currently underway and we plan to file and IND for 114 in the first half of 2017. The company intends to evaluate partnerships for the development of 114 once we have some of that pre-IND work under our belt.

We are also conducting IND enabling work in the second compound, the AEOL 20415 that was also developed in collaboration with Dr. Day at National Jewish. 20415 is kind of showing significant promise in the treatment of infectious diseases. We are currently running animal proof of concept studies in models of infections common to cystic fibrosis stations, and we expect to have those results by the end of the year -- excuse me, by the end of the quarter. These animal studies would confirm in vitro or test tubes studies that we've seen showing that the drug is highly effective against the common infections for cystic fibrosis patients.

20415 is unique and that it augments the body's natural host defense system for fighting both bacterial and viral infections while limiting information, current available and confirmatory growth work by suppressing the immune system which can be counterproductive during the effect of infections. This compound has been shown to be effective at killing multiple drug-resistant clinical strains of pseudomonas, isolated from Cystic Fibrosis patients and improves bacterial clearance and diminishes lung inflammation in a Cystic Fibrosis mouse model of pseudomonas. I think this is really a significant opportunity for us because there is a tremendous amount of attention to both the medical community and of the U.S. government on the need for effective antibiotics to address drug resistant bacteria and viruses. And this is a novel compound, we've not seen anything else like it out there, and I think if we can generate the data required to show some safety in animals and efficacy in animals, we have some very significant opportunities.

We believe that 20415 has applications in both wide extent and in several large medical indications. Provided that 20415 has demonstrated the ability to kill pathogens including antibiotic-resistant strains while dampening the inflammation caused by immune response to both viruses and bacterial infections in pre-clinical models. In some infectious disease such as sprains and influenza, inflammation from the body's normal immune response can naturally increase lethality. We believe that the combination of the anti-microbial and the anti-inflammatory activity as exhibited by 20415 could be extremely beneficial in treating these types of infectious bloods. The company intends to pursue potential government funding sources once we have the proof of concept study in the animals completed.

So roughly you can see that a great year has been accomplished at Aeolus while the clinical hold on 10150 for the Lung-ARS is addressed. Over this time period we have come to form the company from one sought after one indication company to a company with three products or at least five different indications. This is all being done at minimal cost to shareholders given the significant support we have received from the US government and foundations such as Michael J. Fox. Indeed Aeolus has benefitted from $50 million from third front party funding's since 2010. We limbed to continue to utilize these pipes of partnership to leverage the investment of our shareholders and create additional value for our company. I would like to thank our employees as well as our many loyal consultants and collaboration partners for all of their work in transforming the company.

Looking forward, Aeolus has positioned significant growth over the next 12-18 months. By mid-next year we expect to have five active INDs and clinical development programs for three different drugs. We look forward to running the client safety studies with BARDA and filing a pre-Emergency Use Authorization application for as soon as they are complete. Upon completion of the safety studies we will also be positioned for phase 2 studies in both IPF and radiation oncology, two indications with very large potential markets and very large needs. We will also be bringing our two new drugs into the clinic in Parkinson and infectious disease with the potential for non-diluted financial supports of these programs. Finally, the filing of the pre-EUA application will position us for potential sales of 10150 and Lung-ARS, an indication which we know of no other product in the advanced development by the U.S. government.

Given all that has been accomplished operationally and strategically, we believe that the current stock price do not reflect our true value. As a result, we will be making a strong push to increase the market awareness of the company and its development program. There is a great deal underway at Aeolus and we believe that the market will be interested once the secret is out.

With that I'd like to open up the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And we do have a question from the line of James [ph] from Paulson Investments.

Unidentified Analyst

Hey guys, can you hear me? Well, a real quick. I have got three different questions. First one is really on your comments on the BARDA purchase today which I think is pretty significant, can you talk a little bit more at a higher level? How many drugs has BARDA purchased prior to FDA approval and so really that question is how frequently does that happen and then secondly, when they do make a purchase give me some sort of ball park figure of the size of the purchase?

David Cavalier

Sure, I will take the first part and give the second over to John. But there have been numerous examples of BARDA using the EUA regulatory pathway to purchase counter-measures to stock pile. Two of them come to mind immediately are ST-246 which is a $415 million procurement from SEGA, now they small pox treatment. That was made under the EUA pathway prior to FDA approval. Neupogen which is actually a large drug that's sold by Amgen is being stock piled currently for the hematopoietic or the immune system bone marrow syndrome of radiation, and that was -- the stock piling there actually began prior to FDA approval from that using the EUA authorization. So I think that it does strike a balance between showing efficacy safety and has feeling that the drug administered in a state of maturity that you can stockpile it and got to get into the stock pile early up so that we could use it, god forbid something happens. On the size, John do you want to walk through some of the guidance, some of the ideas we have about what the need is in the radiation scenario?

John McManus

Sure, Dave. Hi James, thanks for the questions. I guess that there is three things that I would point to the determination of size. One is the need which is generally determined by the Department of homeland Security. They have got an approach that they use and to define the threat, then that's taken by BARDA. BARDA then turns that into an assessment for the number of courses of treatment that would be required. So they assign what they think the need might be and that's based on a threat. So if for each particular threat that's going to be different, some are bigger like, anything, any sort of pandemic communicable type of biological threat could be much larger radiation as a fairly large possibility. Some of the chemical threats are smaller so those are indication specific.

The second component is budget. How much money does BARDA have, how many other things do they have to do so they are constantly managing their inventory so to speak and figuring out how to make their dollar stretch out as far as possible? The good news there is that they have a fairly good amount of money in their acquisition budget right now and have not had a lot of major acquisitions. And the last is the availability of the product. So for drugs that are on the market like Neupogen and Neulasta, they can use existing inventory or they can arrange agreements with distributors or manufacturers, just sort of have an oversupply of material in the market so it can pull from that in addition to their, whatever they put in the strategic national stockpile.

Specific to radiation, best guidance that I can give is what we have even given by BARDA which is to look at the RSP that went out for the acquisition and that ultimately led to the purchase of Neupogen and similar product manufactured by Sanofi. They purchased roughly $200 million worth of material that represents less than 10% and of the designed need that was driven in part by budget, in part by the availability of those products turn it out in the marketplace. In that RFP, there is a request for 100,000 courses of treatments and a backup of the 100,000 so roughly 200,000 courses of treatment. That's probably the best guidance that's out there, we wouldn't have anything more definitive until they put out an actual RFP for Lung-ARS but I think it probably would be somewhere in line with what was done with Neupogen.

Unidentified Analyst

Okay, thank you. That is very exciting on the bio-defense side. Moving to the clinical or commercial side you gave very good detail on the some of the structure of the studies for the IPF and Lung-ARS, I couldn't get everything down in my notes. These are phase 1 safety trials. What outcome major would you have? Would these be just one armed? Every patients' going to get the rug, there is going to be no placebo and would you vary the dosing? Are you doing different types of dosing or if you could talk a little bit more on the structure of the trial? I know it could change and at the true level of confidence, how much data have you seen on the animal work you have done on the CMC and the Tox work that gives you a level of confidence that you will be successful in these phase 1s?

David Cavalier

Sure. In terms of the data, the IPF indication actually came out of the work that was done under the BARDA contract so it's another one of the many benefits that we have seen in working with the government. We haven't really considered the IPF application both we didn't have the data but also because of some of the concerns that were underlying in the clinical hold, so the work that was done to mitigate the clinical hold, eliminated these issues that opened the door for our IPF, and it also generated the safe-study efficacy data that gives us this promise. And IPF as an example, the standard model that's used to determine that a drug might be effective is a bleomycin mouse model. We've run that study, our results are equal and better than the drug, the primary drug on the market prefinidone [ph] which was developed by InterMune and acquired by Roche for $8 billion about a year ago.

And in addition to that, we have significant data from our radiation program that shows there are drugs protects against fibrosis. Radiation is not as widely used as a model for IPF not because there's anything wrong with the model but it's because most research labs don't have the equipment to do these types of studies, because we were working with BARDA and we're doing all of the work in Lung-ARS, we did and so we probably have more data being its clinical advisory board than they've ever seen for any drug that's been presented to them. And our clinical advisory board members have worked on the development of every product for IPF that's been either approved, rejected or tested in any way. So I think we have a tremendous amount of data there.

In cancer, it was the cancer radiation therapy indication that actually led us to the board of contract. We have significant data in fractionated radiation model where we show or see that the drug protects the lung tissue and other tissues in the body from the negative effects of radiation without interfering with the positive effects that radiation has on tumor cells, and there's a complicated scientific reason for that, but again the BARDA contract added to the amount of information we have supporting that by, we've run over a hundred animals, hundred monkeys and thousands of mice through radiation model where we see efficacy, and that just gives us a tremendous amount going into the clinical studies to talk about in the show what the promise is, and it has the clinicians very excited.

I think that we have, I don't know that there's really anything more we could do in terms of animal data. We just need to test it in humans and see what we see there. We're currently doing a pharmacometric analysis which is computer modeling and simulation of all the efficacy data that we have in indications to confirm what we think the optimal dose should be, more fairly certain as to what that is. Bear in mind that we previously have run human safety studies in patients with ALS, Lou Gehrig's disease, we've seen safety in those patients and we have a pretty good idea that the dose we're looking at for IPF and cancer should be tolerated very well, and based on all the animal data we're very optimistic about potential for signs of efficacy. The phase 1 studies are principally designed to demonstrate safety and tolerability and to generate pharmacokinetic and pharmacodynamic data that we can use to design future studies.

But we have put biomarkers in the cancer study measurements of side effects and so on into the protocols, so that we hopefully can get some signs but their primary purpose really is safety. So we don't want to jump the gun and expect too much from these first studies, but we'll be looking to see what we can.

Unidentified Analyst

Excellent, thank you for that answer. And lastly, I'm kind of a balance sheet guy. So you've got a nice cash balance about $4.5 million according to the release, but real quick what, for biotech, what's the accounts receivable and what's the deferred revenue is? Is that all from BARDA or what are those two line items?

David Cavalier

Yes, so that's just never certain, all those things are just the timing of the BARDA contract, the reimbursement of the BARDA contract. If you actually take our cash positions, net debts and net receivables that we were owed at the time of filing, we're fairly closer, little bit $4.9 million in cash and net receivables. So those [ph] related to the timing of dealing BARDA from work being done and for reimbursement under the contract.

Unidentified Analyst

Well, thank you. Typically we don't see those line items on a biotech doing drug discovery. Thanks a lot guys, very nice call. I'll jump back in queue. Thank you.

John McManus

Thank you, James.

Operator

Your next question comes from the line of Michael Harpin [ph].

Unidentified Analyst

Hi, it's actually Michael Harperin [ph], how are you on the West Coast? Just two quick questions; have you been ever approached by other governments such as Israel or other high tech representatives expressing interest or even in partnering in one separate quest? And then number two, for your 11114, what is the mechanism of delivery? Is it IV, is it a pill form or have you considered direct transcranial infusion into the sustention [ph], has that been even thought or discussed with your team?

David Cavalier

So the first question, and thank you very much. Those are actually two very, very good questions. On the first question, we have already actually done some collaboration with foreign government. As you correctly point out, some of the likely candidates are Japan, South Korea and Israel. Japan, we had done work back when the tsunami happened that there was the nuclear accident at Fukushima where we have set things up so that in the anticipation of treatment of central radiation, the people exposed by those radiation we might have included 10150 in a kind of phase 1 study to see if it was valuable as a treatment for the radiation, nothing actually happened there because nobody really gradated into that level. One thing that did come out of it that was very powerful was the Japanese sort of suggested that we needed to show data that we could not interfere with GCSF, so our Neupogen-like drug.

And so we ran studies that showed not only 10150 not interfere with Neupogen-like drug but in fact Neupogen becomes a mechanism of action that caused some inflammation in potential pro-fibrotic activity in the lungs, and administration of 10150 help reduce that. So there is a best front-line GCSF therapy for the bone marrow syndrome, it may actually exacerbate them -- is it a radiation level that you don't typically see. The lungs syndrome developing -- I mean, typically demonstrated the ability to reduce that. So that was one thing that came out of foreign government collaboration. We also have done some work with the Israelis, they have been focused more on the chemical and the nerve gas side. I think that probably have partially reflect the probability [ph] analysis of some of the facts that might been, we're ready to pursue that for them as well.

Like people ask this question a lot, was it to be clear there is nothing under the contract that prevents sales to foreign government. You are required to get Department of State and Department of Commerce approval but generally speaking, as long as you're talking about your allies, and as long as the U.S. government is always given priority for its needs, that shouldn't be an issue. And must be possible for [ph] Japan with Israel exports and drugs, there were never any problems there. On your second question as far as doping, I -- were you asking about 10150 for Lung-ARS or 11114 for Parkinson's?

Unidentified Analyst

No, 11114 for Parkinson's, direct transcranial infusion into substantial [ph] for production of dopamine.

David Cavalier

So I don't think -- I don't know into that, but it's an orally administered drug and it does cost the blood-brain barrier very, can cause efficiently. John, I don't know if we look at that kind of administration.

John McManus

Michael, thank you for the question. As far as 114 goes, it is oral. We get very good oral bioavailability. We're currently working on finalizing that formulation and starting stability and generating the material that we need to run our IND-enabling study. We have not looked at intracranial administration largely because we got really positive effects with the oral product. We have developed 114 in collaboration with the Fox Foundation, used their models and really took their advice in terms of formulation, animal model choices, et cetera, and so that's really where we've been focused. I think that's an interesting question. I'll talk to Dr. Patel and some of the others about that as a consideration as their back up or possibly something else worth exploring. But the data that we have seen in the model so far has been incredibly promising and that's kind of where the focus has been.

And if you, I don't know if you've seen the publications, there are one or two out there on the data that are generated under that program but if you have entered and don't see the publication, I will be more than happy to send a copy to you to take a look at but we work closely with Fox where to go with the compound. They really are an excellent foundation in terms of [ph] and funding and actual productivity of contributors dollars towards generating and testing promising therapies.

Unidentified Analyst

Thank you very much.

David Cavalier

Thank you.

Operator

Your next question comes from the line of Roger Liga [ph]. Roger your line is open.

David Cavalier

Operator why don't we give Roger a chance to get back in the queue and we will take another question.

Operator

Okay. And your next question comes from the line of Harry Rodey [ph] from Newport Coast.

Unidentified Analyst

Hi, gentlemen this is Harry Rodey from Newport Coast. And first of all, I want to thank you for coming on and updating everyone as to where we are with the company. There has been a lot of concern I think that nothing was happening for a while and apparently, quite a bit's been going on. So -- but my question is directed again on primary drug or first drug that we focused on for the contamination with BARDA, I think we have established that BARDA has been a good partner for us, they have been generous to us and worked with us. I'd like to explore just a little bit more especially in reference to what David said about the purchase of Neupogen by BARDA. First of all, the contract itself I understand to be a $118 million contract. How much of that funding have we used, how much is available yet on the project and secondly, it's my understanding that the commitment that BARDA has made by simply by purchase of the drug from Amgen is not sufficient an accompanying drug for the lung that works for it. So if you could address those two questions I would certainly appreciate it.

David Cavalier

Sure. So on the contract itself, the full contract value is $118.4 million of which we have drawn down $30 million to-date so roughly about $88 million left available under the contract. And quite a lot of that funding relates to things like modern manufacturing work, actually be manufacture of some large lots of drug and some of the additional work that would be continuing on for the full approval of the annual role post the pre-EUA filing. So we will file the pre-EUA application, one of the requirements of having an Emergency Unit Authorization application is that you continue forward to try and get a full approval. So the contract is setup to continue funding the program all the way through the full FDA approval even though there is this potential for commercialization after the pre-EUA filing. So that's where a lot of the money and the contract is organized into a series of options each of which is generally related to a specific task or a set of task like manufacturing, registration batches for large scale manufacturing and we will go to BARDA from time to time to have a meeting with them and provide updates and request the extra conditional options.

The meeting that we are referring to in July will be called an in-process review meeting on IPR and then the information of where we have been and what we are planning to do and we will request the actual side of the contract, one of the key points to make them call here is that because now BARDA can FDA, all have reached a consensus that the best way to generate the safety data for the pre-EUA application is to use one or both of the IPF and radiation oncology study, we will be requesting funding for that study from BARDA and that has not previously been part of the contract and so that will be a new addition to the contract which has been granted [ph]. So we would expect that would be additional work on the contract if not currently listed under the statement of work. So we would expect to meet with them in July and usually BARDA has responded to requests in about 30 to 60 days. That's why we are giving them September guidance.

On the Neupogen question, I don't want to overstate it. There is a signal there, Neupogen because of its mechanism of action does cause a flood of nutra pills in both lungs which can be pro-inflammatory. It's not something that we discovered. This is actually in the labeling for Neupogen so it does present something of a dilemma for treating radiation patients because on the one hand it's very effective at increasing the production of the immune system effectively. Boosting the factory if you will and on the other hand there are some side effects to this. It doesn't mean that you absolutely have to give another drug with it, but it doesn't create a problem where we just happen to have potential effects. So what we saw in the work that we did generated by the collaboration with the Japanese was that you saw this [indiscernible] effect of Neupogen and 10150 was affective even at sub-lethal doses of radiation in reducing some of that inflammation. I wouldn't say that's the primary reason because the primary reason why a drug like 10150 is needed is that there are -- you can get fairly decent outcomes by treating with supportive care, Neupogen, antibiotics over the initial acute syndrome but right now the thing that will open up the gatekeeper for long-term survival is the lung syndrome which is developed a bit later.

And as we have been kind of trying to point out there are no other drugs in development for this. There is nothing that we are aware has shown efficacy when given after radiation and so you know there are some other companies who are public with working in the radiation space, a good example might be Sologenic [ph], they are working on the gastro-intestinal syndrome and we wish them he best of luck. We hope that they are very successful and the more people who survive the early syndromes are more likely to be faced with the issue of how they are going to develop fibrosis for the lungs. But for our syndrome there is no competition, so I think that's really the core point. the fact that may be beneficial for patients who we are giving Neupogen therapy is more of an additional benefit much in a way that our data in sulfur [ph] gas, chorine gas, the chemical gases is another, is a benefit that makes the procurement more attractive to the government, they are buying a drug for multiple uses, it treats an unmet need, and also it may have some synergies on the front line therapy for the other radiation therapies so I would phrase it that way. I wouldn't say we have to get something from Neupogen but there is a side effect of Neupogen that we do happen to address or we have shown evidence to address that might be of value.

John McManus

Let me add a couple of things on to what you said. You know I remember for those of us who are old enough, in the cold war times there were movies like the Day After or whatever where nuclear attacks were launched, I think everybody was either dead or severely mutated. The understanding of radiation damage and what's likely to happen has evolved a lot. And wasn't very long ago, probably the early parts of 2000 where radiation was thought of as one thing, if you could get something that would address the damage, one drug, that's what we want. We would want a silver bullet. As work was done to develop animal models to assess radiation damage it became clear that it's a big problem, it's complicated, and it's not one thing. Radiation effects cell signaling and that effects everything in the body so you get acute effects and you get later term effects and really late term effects like DNA mutation and cancer and so on.

So the government is thinking on this has evolved with science and you can see even back in 2011 when we had the earthquake in Japan, a lot of the public thought, okay let's go get some potassium iodide and take that and we will be safe and that will protect one organ in your body, period. And then what is very clear is radiation is more like AIDS type of problem where it will take a tool kit full of drugs to different problems and problems in different parts of the body. Neupogen addresses one problem and so you are right in the sense it's a step towards, it helps, Neupogen and antibiotics and fluids will get a lot of people through the early stages of radiation damage more so than what we saw certainly back in Japan after World War II. But even in some of the more recent events like Chernobyl. But if you get people past the acute phase so that they end up with chronic lung disease or death from fibrosis or pneumonitis, you've really not accomplished anything and the government is acutely aware of that.

So the approval and acquisition of Neupogen really are the first important step that really create, almost create an obligation to address the second step. And on the contract, David, pointed out we've drawn down about $30 million of $118 million. I want to emphasize that most of what remains in the contract is designed for manufacturing and clinical study. Others are also some significant funding in there for pivotal animal studies would be required for FDA approval. But there is $30 million to $50 million worth of funding for manufacturing drug and running clinical studies, and I think that's an important thing to keep in mind. If we can continue to see positive results, continue to develop a good relationship, maintain a good relationship with BARDA, we have a significant amount of money there that can be used to generate the safety data that we need in humans which we're hoping will come in IPF and cancer patients.

So there is a lot of opportunity for us to move forward the development not just in Lung-ARS but in these commercial indications as well.

Unidentified Analyst

Well, thanks, John. That answers a lot of my questions. The thing is with BARDA. I know their commitment is to protect us a country from diseases such as small pox and radioactive fallout in the rest of us. So they have a firm commitment, not only to fund the development of a drug but to actually purchase it so they can stock pile it for the protection of the country. And that's my understanding, their commitment is strong that they're actually looking and anticipating buying our drug as part of the national security and national health.

John McManus

They were formed in 2004, officially, in response to 9/11. The formation was directed by a couple of senators, and their mandate was to acquire drugs to put in stock pile, and that was their mandate. So that in the event that we had problems like we did with anthrax shortly after 9/11 that it wouldn't be a reactive thing, we'd be prepared. What they found initially was that while they thought there might be all these nice drugs to acquire nobody was developing them because there had been no market. They created a market for the drugs, but they looked around and saw that not a lot of research had been done.

And so their second mandate was to fund the research and development. But their principal purpose, their primary objective is to acquire drugs. And while sometimes you want to shake your head and wonder whether anybody in Washington thinks or plans. There is a lot of thoughts on this that went into the design of this legislation, including particularly the emergency use authorization. I've talked to the people that designed the bill and wrote the legislation and they were very aware that the FDA does not like approving drugs on animal data, and so therefore they created this option for an emergency use authorization which gives BARDA the ability to make that acquisition on a cost benefit analysis without an FDA approval. And that I think was a very, very smart move on their part, probably something the FDA was very happy to have so they kind of got taken off the hook a bit and it gives BARDA the flexibility to operate.

I think to Jim's question, I think there have been more than 20 drugs that have been acquired under emergency use authorization, or if not they're acquired before the EUAs, so there is an acquisition of the drug knowing that an EUA can be used. The EUA exercise only in the event of use. It's not exercised prior to, so I think there's certainly things that one can question about how the program has been designed and so on. But there are a lot of things that done correctly and there's a strong commitment on the part of BARDA to make acquisitions. That's really what they view their purpose would be.

Unidentified Analyst

So we have access to a lot of millions of dollars to develop a drug that the same agency wants to purchase from us for the National Defense. So I appreciate answering my questions. Thank you very much, gentlemen.

John McManus

Sure. Thank you.

Operator

Your next question comes from the line of Duran Brench [ph].

Unidentified Analyst

Hi, gentlemen. I have a couple more questions. You're kind of late, on 10150, instead of doing the human safety trials, I guess you guys are going to do it with actual cancer patients, is that correct?

David Cavalier

Yes, so what we are indicating is that we already had applied to do a healthy normal study, and the FDA cleared us to do that in February, but they also what they were trying to guide us and to BARDA, our partner, is that the idiopathic pulmonary fibrosis and/or the cancer study would be from their perspective, a really advantageous way of getting the safety data for this emergency use authorization filing, and the reasoning was partially because you're giving the drug to people who have potential benefit. So they very much like that as a way of going forward. So what we summarize that, I don't know if you missed the beginning of the call, but we will be going to BARDA in July. This agreement is consensus between BARDA, the Company and the FDA that this is the appropriate way to get safety data as open to the possibility that BARDA may spun the study under the contract. We'll meet with them in July. We'll request studies, funding for those studies, radiation oncology and IPF. We will initiate the study in the second half of the year. We can fund the studies on our own, but it will obviously be very beneficial to the company if they became part of the contract. So that's where we are on that front.

Unidentified Analyst

Okay.

John McManus

I'll also just add that it may not be obvious to everybody but a lot of what goes on here between BARDA and the FDA in medical countermeasures development is the evolutionary in learning. When we went into FDA the first time in 2011, they've never seen any animal model for lung radiation, and so I think BARDA had thought that all the data needed to be generated in healthy normal volunteers and the FDA would prefer to have it generated in patients that would benefit from treatment because of the ethical benefit versus no benefit question. But also if we can show that the drug is effective in humans against similar type of disease fibrosis or radiation damage, it makes them more comfortable. So there is a strong desire from the FDA which is good for us because it creates an incentive for BARDA to want to see the work done on those patients, and it also creates an argument for that to be done so that people don't question why they would be funding the commercial programs.

Unidentified Analyst

I like the whole idea. Just getting down a little bit further, how many patients are we looking at and how long would the trials actually last?

John McManus

Well, the initial studies would be relatively small. That's typically how it works in phase 1. In IPFs of roughly 25 patients, in cancer, the non-small cell indication between 30 and 40 patients. We would then go the second study, and each of those indications based on the results of the first study the second studies would be larger. In phase 2, you're starting to look at generating efficacy data and really refining your dosing in your treatment regimen. So they would be bigger than the first studies, so we're looking at 25 and say 35 so a total of 60 patients in the first two. Figured that you're going to have at least double that in the second round of studies. Just to get some perspective, the contract with BARDA calls for somewhere between 300 to 1,000 patients to be run through studies to generate safety data, so there is a large safety requirement that may appear to be different than what's normal in drug development, usually you don't have that many patients and safety studies but the reality is that in the traditional program the larger phase 2 and phase 3 efficacy studies are called efficacy studies but they also provide safety data.

So you do end up with at least 1,000 patients typically worth of safety data, that's really the way that our program was designed and so if we're instead of testing 1,000 healthy normal volunteers we'd now be looking at testing patients with benefit. And that number of patients frankly is one of the reasons that FDA was even more concerned because it's one thing to test 15 or 20 people, to use them really as guinea pigs in a healthy normal volunteer study, but to do that with upto a 1,000 patients that's a lot of people to be experimenting with where they're really an healthy normal volunteer they are going to receive no benefit, they only have a risk. So I think if we run the contract all the way through to FDA animal rule approval which is what is required, even in the event an EUA, you'd be looking at somewhere between 300 to 1,000 patients that they would need data for.

David Cavalier

Okay. And I just want to be clear though is that, when we talk about genuine 1,000 patients, that is for the full FDA approval under the animal rule, that is not typically EUA filing.

Unidentified Analyst

No, right, I understand. And how many sites are we looking at?

John McManus

For the IPS indication, we would do the study of five sites; University of Michigan, UC San Francisco, Tulane, Vanderbilt and National Jewish; they are among the best sites of the country. To the extent there are a lot of patients in orphan indication like IPF, they have the most there. And there -- the people on our violent board are at those institutions, so we don't believe we'll have any problem recruiting what we need at those sites, we would have the option of expanding it when we needed to. In cancer, we -- the head of our clinical program there is at the University of Maryland, Baltimore; there would clearly be a site, they are very large cancer center. And there are number of other institutions in the neighborhood within 150 to 200 miles of Baltimore that we've been in discussion with and we'll pass announcements on the members of the board and the actual sites more than the next month or so. But we probably would do for maybe five sites there, we'd be looking at something around 35/40 patients, it's a larger indication and they see a lot of those patients and we think we would recruit that one very, very quickly.

Unidentified Analyst

Okay. Now the last question I have and it usually scares everybody, just for full disclosure, I'm kind of a novice at this so bear with me. When it comes to the reverse split, everybody hear reverse split and it's -- that's a panic thing in motion, what would be the exact reason other than the NASDAQ listing. I mean it's hard requirements to get listed, is it so farther end of that?

David Cavalier

Yes, so the only reason why we would do that is because NASDAQ has a $4 minimum bid price for relisting. The company many, many, many years ago -- when it was developing other drugs and was really -- the company has been listed, so we were able to reapply as a relisting company but from our standpoint the only really important reason to do a reverse split now and this is stated fairly clearly in the 14-C is to do a listing on NASDAQ or to a senior exchange. And our reasoning is that given the current regulatory environment for trading insecurities at our SEC, it's actually going hard to get a broad audience and develop liquidity in the stocks because it's very hard for some people to even trade stock or certainly for people who represent broker and such to get their clients in.

So the only time you will see the reverse split exercise is if we have received the green light from NASDAQ. We are then required to initiate the split and then trade for 5 to 10 trading days afterwards just to sort out the other stock trade post the split and then we'll be listed on NASDAQ. So that's the reasoning behind it and then steps forward. Then -- so everything is sort of spring loaded right now, we are -- at this stock price we're probably below the level of rather the quantitative requirements for public flow, so that's something that we're working on bringing the stock back up into that range. But we -- I can say betting pretty confidently that everything, all feedback from NASDAQ has been very positive, and so the time we are ready to get the green light we would execute that and it would be about a two to three week period until you get the listing.

Unidentified Analyst

Okay. All right, gentlemen, thanks very much.

John McManus

I might just add one other thing on the reverse; I know I've gotten some calls from people and some concerns about it. In my career, as a consultant I did a lot of work on capital markets, I understand that people sometimes are concerned about a reverse but the correlation, this is a correlation in forward splits and performance and reverse and underperformance but people do splits because stocks move and stocks don't move until we split. I think what we know and what we've learned is that we're doing this on strength; it's not being done to enable the financing or anything of the sort that seems to improve our visibility, open the door to more people to use the equity and to generate more interest, anecdotally, when things were going on Japan we were interviewed extensively by the writer at New York Times. And he would have included a lot about Aeolus accepted the fact that we weren't listed on an exchange in the New York Times policy, prohibited them mentioning us other than once by name.

So I think from a public relations and from a market opportunity perspective, being able to have people like that write on us being able to have more brokers and individuals actually use the stock without having exempt to million hooks [ph] because of regulation, not really important and our assurances that we'll do everything possible to make sure that if we do the reverse split it's done the right way to generate momentum and that would create opportunities for people to take advantage of it.

Unidentified Analyst

So quick -- one last thing; is there a possibility that it won't happen?

David Cavalier

The listing won't happen?

Unidentified Analyst

No, that the reverse won't be necessary I should say?

David Cavalier

Well, I would say that I think the company feels strong that the goal of listing on NASDAQ is a very valuable corporate development, so our intention will be to try and do it. Of course the only time we're going to be doing it is if we're couple of weeks away from being listed on the National Exchange again. If we just suddenly decided that NASDAQ was not interesting and it is not showing value, we wouldn't execute it.

John McManus

I think the question maybe is that -- is there a scenario under which we wouldn't need to do it? I suppose that anything's possible if -- god forbids, if somebody used a nuclear device at some place and that created the kind of reaction that we saw to the -- Fukushima nuclear problems, that changes things, but the stock would happen quite a bit for that to happen and it's not really something that we can count on. So we'll plan and work on the things that we can control. And if something unexpected comes up, we're always in a position to react to that and we have a flexibility -- we have the approval to do it, the board has the approval, but it's not a mandate, so they do maintain that but we're not planning on something happening because we just don't have control a little to them. So if there was an acquisition or a big event in the news or something unexpected happens, but yes, that is certainly a possibility but not something we plan on.

Unidentified Analyst

Great, gentlemen, thanks for your help.

David Cavalier

Thank you.

Operator

And there are no further questions at this time.

David Cavalier

Very well, thanks everybody for their time today. I hope that we've done a good job in explaining the value of the BARDA program, fact that it's moving forward, that we do represent an unusual opportunity in biotech where you have strong commercial programs under development, potentially with funding from non [ph] sources, and also the opportunity for commercialization pre-sales for the stock pile following an emergency authorization application. So we intend to be out talking quite a bit about the story or representing it's conferences with updates and we look forward to updating everybody on the story.

Operator

This concludes today's conference call. You may now disconnect.

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