Aeolus Pharmaceuticals reports financial results for three months and twelve months ended September 30, 2009

Aeolus Pharmaceuticals, Inc. (OTC Bulletin Board: AOLS) announced today financial results for the three months and twelve months ended September 30, 2009. The Company reported a net loss of $746,000, or $0.02 per share, for the three months ended September 30, 2009 compared to a loss of $1,055,000, or $0.03 per share, for the three months ended September 30, 2008. Results for the three months ended September 30, 2008 included licensing income of $175,000, a related collaboration charge of $413,000 for a milestone payment due under a license agreement and a non-cash charge of $118,000 as a result of the re-pricing of certain warrants.

“Fiscal 2009 was a year of major progress for Aeolus in the development of AEOL 10150 as a medical countermeasure”

The Company reported a net loss of $2,296,000, or $0.07 per share, for the fiscal year ended September 30, 2009, compared to a loss of $2,973,000, or $0.09 per share, for the fiscal year ended September 30, 2008.

“Fiscal 2009 was a year of major progress for Aeolus in the development of AEOL 10150 as a medical countermeasure,” stated John L. McManus, President and Chief Executive Officer. “In addition to reporting significant efficacy in studies of the compound as a countermeasure for exposure to radiation, sulfur mustard gas and chlorine gas, we have continued to secure funding from the National Institutes for Health for further development of our lead compound and from investors for the operation of the Company. We look forward to the completion of additional, key studies of the compound and our second compound AEOL 11207, and remain committed to leveraging our financial resources through our partnerships with the federal government and our academic research partners.”

Research and development expenses decreased in fiscal 2009 when compared to fiscal 2008. The lower level of R&D expenses during the current period reflects a lower amount of manufacturing and research expenses. During fiscal 2008, we were in the process of manufacturing small quantities of our drug candidates to support our development program whereas during fiscal 2009 we had no manufacturing underway and were only running stability studies on existing drug supplies. Research expenses also declined during the current year as more of the Company’s research programs were funded by external grants during fiscal 2009. The Company currently has five studies under way for its lead compound, AEOL 10150:

• as a medical countermeasure against the effects of acute radiation syndrome (“ARS”) in the lungs,
• as a medical countermeasure against the effects of acute radiation syndrome in the gastro-intestinal tract,
• as a medical countermeasure against the effects of sulfur mustard gas on the lungs,
• as a medical countermeasure against the effects of sulfur mustard gas on the skin, and
• as a medical countermeasure against the effects of chlorine gas.

In addition, we have two studies underway testing our second drug compound, AEOL 11027 for the potential treatment of epilepsy and Parkinson’s disease. These programs are being funded in part by private foundation and government grants.

General and administrative (“G&A”) expenses decreased in fiscal year 2009 when compared to fiscal year 2008. G&A expenses were lower due to a decline in stock based compensation expense, Board of Directors expense and legal fees. Stock based compensation expense declined as lower valuations were assigned to our stock option grants in the current year when compared to the prior year. Board of Directors expense decreased as the Board of Directors adopted a stock based compensation plan in July 2008 whereas during the prior year, the Board of Directors received cash and stock based compensation. Legal fees declined due to management’s continued efforts to reduce costs by performing regulatory and compliance activities in-house.

During fiscal year 2009, we recorded a gain on the sale of our holdings of Arca Biopharma, Inc. (“ARCA”) common stock of $133,000.

During fiscal 2008, CPEC LLC (“CPEC”) received a milestone payment from ARCA who we out-licensed all rights to a potential therapeutic compound referred to as “bucindolol.” During fiscal 2008, CPEC received a milestone payment of $500,000 as a result of ARCA filing a New Drug Application for bucindolol. We recorded $175,000 of income during fiscal 2008 as a result of our equity ownership of CPEC. Also as a result of the filing of the New Drug Application with the US Food and Drug Administration, the Company is obligated to pay $413,000 in the form of cash or stock at the Company’s election to the majority owner of CPEC who will in turn pay the original licensors of bucindolol per the terms of the 1994 Purchase Agreement of CPEC.

During fiscal 2009, as a result of our March 2009 financing, we were required to lower the exercise price of certain warrants. As a result of the change in the exercise price, these warrants were revalued resulting in an increase in the value of $38,000 which was charged to the statement of operations. During fiscal 2008, as a result of the issuance of Senior Convertible Notes, we were required to lower the exercise price of certain warrants. As a result of the change in the exercise price, these warrants were revalued resulting in an increase in the value of $118,000 which was charged to the statement of operations.

During fiscal 2009, we recorded a gain of $49,000 related to the net increase in the market value of our trading securities. During fiscal 2008, we recorded an “other-than-temporary” impairment charge of $49,000 based upon reduced market values of these securities.

As of September 30, 2009, the Company had $646,000 in cash and cash equivalents and 37,563,392 shares of common stock outstanding.