Prepared for:
Author: David R. Leon
Collaboration with: Chip Hennen, Tom Hoster,
Jan. 28, 2013
Mobile: 901.356.1565

Email: davidrleon@gmail.com
2014

Investor Purchase Proposal — Aeris Therapeutics
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
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
Country COPD Rate
COPD Gold III-
IV
18.8%
Endoscopic Lung Volume Reduction Market Size
Meet
G O L D III- IV Clinical
>40%
Dx w/ involvement w/
Upper Lobe Homogenous
E m p h ysem a
Criteria for
Emphysema
Predominant Reduced
LVRS
70.2% 49.9% 70.0% 59.2% 18.2%
U.S.
13,090,000
Europe 17.45%
Germany 4,483,668
France
Italy
3,624,987
2,779,593
Spain 2,766,615
U.K.
3,927,864
Subtotal EU5 17,582,727
2,456,000
841,244
680,135
521,519
519,084
736,962
3,298,944
1,724,112 860,332
590,554
477,455
366,106
364,397
294,686
238,250
182,687
181,834
517,347 258,156
2,315,859 1,155,613
602,232
206,280
166,775
127,881
127,284
180,709
808,929
356,522
122,118
98,731
75,705
75,352
106,980
478,886
109,606
37,543
30,353
23,274
23,166
32,889
147,225
Treatable
Patients
466,128
159,661
129,084
98,980
98,518
139,869
626,111
Market Size
$ 13,000
$ 6,059,644,000
$ 2,075,592,864
$ 1,678,089,912
$ 1,286,737,388
$ 1,280,729,464
$ 1,818,298,301
$ 8,139,447,929
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 22 nd , 2013, to cease al l operations and put the company’s intellectual property and other assets up for sale to the highest bidder.
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.
Page 5 of 31

Investor Purchase Proposal — 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.
Page 6 of 31

Investor Purchase Proposal — Aeris Therapeutics
5.
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.
Page 7 of 31

Investor Purchase Proposal — Aeris Therapeutics
Cash on hand
Beginning Q1 2014 Q2 2014 Q3 2014 Q4 2014 2015 2016 2017 2018
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
Total
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
10
100,000
22,500
30 75
150,000
300,000 600,000
9,000,000
22,500 250,000
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
350,000 25,000 300,000 1,015,000 22,500 22,500
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
3
1
2
1
3
10
200,000
50,000
10,000
80,000
150,000
550,000 550,000
3
1
2
1
3
1
2
1
3
1
3
1
11
400,000
50,000
20,000
80,000
50,000
11
750,000
50,000
30,000
80,000
50,000
550,000 2,400,000 2,800,000 3,200,000 3,200,000 13,750,000
0
2
1
2
1
2
1
3
1
3
1
0
0
3
1
3
1
3
1
3
1
3
1
0
0
3
1
3
2
3
3
1
3
4
1
3
4
1
0
0
0
11 12 14 16 16 0
0
750,000 3,500,000 2,700,000 700,000 400,000 9,400,000
100,000 400,000
30,000 90,000
80,000
50,000
330,000
200,000
500,000
120,000
600,000
140,000
300,000 2,050,000
180,000 620,000
460,000 460,000 460,000 2,030,000
225,000 225,000 250,000 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
420,000 298,000 220,000 1,888,000
150,000 150,000 150,000 860,000
220,000 220,000 220,000 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
-150,000
-50,000
-50,000
-30,000
-50,000
-20,000
-50,000
-10,000 -10,000 -10,000 -10,000 -260,000
-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
Page 8 of 31

Investor Purchase Proposal — Aeris Therapeutics
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.
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)
Lung Volume Reduction
Qualified Cases
AeriSeal
Treatable
Patients
Average
Selling
Price
Total Market Size
U.S.
Western Europe
466,128
626,111
$ 13,000 $ 6,059,664,000
$ 13,000 $ 8,139,443,000
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.
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)
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
Page 11 of 31

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.
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.
Page 12 of 31

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.
Page 13 of 31

Investor Purchase Proposal — Aeris Therapeutics
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.
Page 14 of 31

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.
Page 15 of 31

Investor Purchase Proposal — Aeris Therapeutics
AeriSeal 15.8% 25.8% 15.5% 34.5% 31.0% 17.2% 12.1% 1.7
Page 16 of 31

Investor Purchase Proposal — Aeris Therapeutics
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*
OUS
RegulatoryApproval
US FDA Approval
Status
Clinical Trials Results (
-
is Not Significant)
Class Product/Company
Sealants
AeriSeal / Aeris Therapeutics
Valves
IBV Valve / Olympus
X X x
NO YES
YES
30%
25% 8.6% 16.6%
387
NO** YES
YES
NO
N / A 12%
-
Zephyr / PulmonX X NO YES
YES
6.8%
0%
5.8% 7.9% -
Steam
Inter Vapor Steam / Uptake x x ¥ NO NO
NO
NO
10% N / A
Coils
RePneu / PneumRx x YES
YES
15.40% 19.4%
50%
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
Page 18 of 31

Investor Purchase Proposal — Aeris Therapeutics
Page 19 of 31

Investor Purchase Proposal — Aeris Therapeutics
15.
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 5-
6 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
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
Key claim
Status Title Expiration
Years to
Expiration
A method for reducing lung volume in a patient, hydrogel, non-natural polymer & cross-linker
Granted
Lung Volume
Reduction Therapy
Using Cross-Linked
Non-Natural
Polymers
13-Apr-31 17
Region
US
Patent #
8,198,365
A Method of reducing lung volume in a patient, bronchoscope, introducing biochemical material
Granted
Tissue Volume
Reduction
A method for reducing lung volume, introducing a material into diseased alveolar region
Granted
Tissue Volume
Reduction
5-Sep-19
28-Aug-20
5
6
US
US
6,682,520
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*
Key claim
Blocking Patents and Extended Coverage
Status Title Expiration
17-Jun-23
Years to
Expiration
9 A Method for non-surgical lung volume reduction, applying an amount of energy
Granted
Compositions & Methods for Reducing Lung
Volume
23-Jun-17 3
A non-surgical method of reducing lung volume in a patient, collapsing a target region, with fibrinogen & activator
Granted
Tissue Volume
Reduction
23-Aug-20 6
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
8-May-28 14
Region
US
Canada
US, Australia,
Austria, Belgium,
Europe, France,
Germany,UK**
US
US
Patent #
7,819,908
2,530,042
6,610,043
8,445,589
7,861,710
BLVR can be carried out by collapsing a region of the lung adhering one portion to another
Granted
Promoting fibrosis in or around adherent tissue
US 7,300,428
A Method for reducing lung volume, multi-lumen catheter, bronchoscope, polymer, crosslinker and sclerosing agent
Granted
Polymer Systems for Lung Volume
Reduction Therapy
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
US 8,361,484
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Investor Purchase Proposal — Aeris Therapeutics
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)
2011
$161,189
$162,582
($1,393)
$752,318
$3,349,027
$1,039,979
$5,141,324
($5,142,717)
$1,917,605
($7,060,322)
2012
$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)
YTD August
2013
$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)
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
$338,251
$42,590
$304,075
$194,820
$879,736
$123,281
$9,946,704
$10,949,721
$220,442
$125,143
$430,341
$108,538
$884,464
$911,244
($870,983)
$9,850,404
$96,300
$10,871,429
$601,018
$17,312
$564,522
$90,090
$1,272,942
$913,447
($889,565)
$9,850,404
$96,300
$11,243,528
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
$264,833
$327,152
$2,812,329
$3,404,314
$12,000,000
$15,404,314
$2,605,728
($7,060,322)
($4,454,594)
$10,949,720
$181,734
$308,127
$82,500
$572,361
$3,000,000
$3,572,361
$33,726,331
($20,671,335)
($5,755,927)
$7,299,069
$10,871,430
$333,425
$429,782
$142,500
$905,707
$3,000,000
$3,905,707
$38,226,331
($26,427,262)
($4,461,248)
$7,337,821
$11,243,528
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Investor Purchase Proposal — Aeris Therapeutics
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Investor Purchase Proposal — Aeris Therapeutics
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 com pany’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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