This Prospectus Supplement No. 1 (this “Prospectus
Supplement”) amends and supplements our Prospectus dated July 12, 2018 (the “Prospectus”), which forms a part
of our Registration Statement (our “Registration Statement”) on Form F-1 (Registration No. 333-225676). This Prospectus
Supplement is being filed to amend and supplement the information included or incorporated by reference in the Prospectus with
the information contained in this Prospectus Supplement.
This Prospectus Supplement includes information
from our Current Report on Form 6-K, which was filed with the Securities and Exchange Commission on August 15, 2018.
This Prospectus Supplement should be read
in conjunction with the Prospectus that was previously delivered, except to the extent that the information in this Prospectus
Supplement updates and supersedes the information contained in the Prospectus.
Unaudited Condensed Consolidated Interim
Financial Statements as of June 30, 2018 and December 31, 2017 and for the Three and Six Months Ended June 30, 2018 and 2017
Condensed Consolidated Interim Statement of Profit or Loss and
Other Comprehensive Income or Loss
Condensed Consolidated Interim Statement of Financial Position
Condensed Consolidated Interim Statement of Changes in Equity
Condensed Consolidated Interim Statement of Cash Flows
Notes to the Condensed Consolidated Interim Financial Statements
Notes to the Condensed Consolidated Interim
Financial Statements
As of June 30, 2018 and December 31, 2017
and for the Three and Six Months Ended June 30, 2018 and 2017 (in CHF)
1. Reporting entity
Auris Medical Holding AG, previously named
Auris NewCo Holding AG, (the “Company” or “Auris NewCo”) is a corporation (Aktiengesellschaft) organized
in accordance with Swiss law and domiciled in Switzerland and was established on March 13, 2018. On March 13, 2018, the Auris NewCo
Holding AG merged (the “Merger”) with Auris Medical Holding AG (“Auris OldCo”), a corporation (Aktiengesellschaft)
organized in accordance with Swiss law and domiciled in Switzerland. The Merger took place following Auris OldCo shareholder approval
at an extraordinary general meeting of shareholders held on March 12, 2018. Auris NewCo Holding AG changed its name to Auris Medical
Holding AG following consummation of the Merger. Following the Merger, the Company had a share capital of CHF 122,347.76, divided
into 6,117,388 common shares with a nominal value of CHF 0.02 each. Pursuant to the Merger, the Auris OldCo’s shareholders
received one common share with a nominal value of CHF 0.02 of the Company for every 10 of our common shares held prior to the Merger,
effectively resulting in a “reverse stock split” at a ratio of 10-for-1. On March 14, 2018 the common shares of Auris
NewCo began trading on the Nasdaq Capital Market under the trading symbol “EARS”.
The Company’s registered address
is Bahnhofstrasse 21, 6300 Zug. These condensed consolidated interim financial statements comprise the Company and its subsidiaries
(together referred to as the “Group” and individually as “Group entities”). These condensed consolidated
interim financial statements also include financial information of Auris OldCo prior to the Merger as discussed below. The Company
is the ultimate parent of the following Group entities:
|
•
|
Auris Medical AG, Basel, Switzerland (100%) with a nominal share capital of CHF 2,500,000
|
|
•
|
Otolanum AG, Zug, Switzerland (100%) with a nominal share capital of CHF 100,000
|
|
•
|
Auris Medical Inc., Chicago, United States (100%) with a nominal share capital of USD 15,000
|
|
•
|
Auris Medical Ltd., Dublin, Ireland (100%) with a nominal share capital of EUR 100
|
The Group is primarily involved in the
development of novel products that address important unmet medical needs in neurotology and mental health supportive care. The
Group is primarily focusing on the development of intranasal betahistine for the treatment of vertigo (AM-125) and for the treatment
of antipsychotic-induced weight gain and somnolence (AM-201). This program is currently in Phase 1.
2. Basis of preparation
Statement of compliance
These condensed consolidated interim financial
statements as of June 30, 2018 and December 31, 2017 and for the three and six months ended June 30, 2018 have been prepared in
accordance with International Accounting Standard 34
Interim Financial Reporting
(“IAS 34”) and should be read
in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2017.
These condensed consolidated interim financial
statements include all adjustments that are necessary to fairly state the results of the interim period. The Group believes that
the disclosures are adequate to make the information presented not misleading. Interim results are not necessarily indicative of
results to be expected for the full year. Management does not consider the business to be seasonal or cyclical.
Certain information and footnote disclosures
normally included in consolidated financial statements prepared in accordance with International Financial Reporting Standards
(“IFRS”), as issued by the International Accounting Standards Board, have been condensed or omitted as permitted by
IAS 34. The condensed consolidated statement of financial position as of December 31, 2017 was derived from the audited consolidated
financial statements.
The interim condensed consolidated financial
statements were authorized for issuance by the Company’s Audit Committee on August 14, 2018.
Functional and reporting currency
These interim condensed consolidated financial
statements are presented in Swiss Francs (“CHF”), which is the Company’s functional currency (“functional
currency”) and the Group’s reporting currency.
Considering reorganization / Merger
The
Merger is not a business combination and is accounted for as a reorganization. Therefore, the condensed consolidated interim financial
statements of the Company are a continuation of the financial information of Auris OldCo except that the condensed consolidated
interim financial statements reflect a reclassification between share capital and share premium in order to reflect the share capital
of Auris NewCo. For the periods prior to the Merger, in calculating loss per share, the weighted average number of shares outstanding
is calculated based on the number of weighted average shares issued by Auris OldCo, adjusted for the reverse stock split ratio
of 10-for-1.
Related Party Transaction
On February 9, 2018, Thomas Meyer, our
Chief Executive Officer, entered into a shares transfer agreement with the Company to facilitate the rounding up of fractional
shares resulting from the exchange ratio used in the Merger. Pursuant to the terms of the share transfer agreement, Mr. Meyer has
committed to transfer, at no consideration, a common share to any shareholder entitled to a fraction of a common share as part
of the Merger. Pursuant to the share transfer agreement, neither the Company nor Mr. Meyer will receive any compensation for this
arrangement. Any expenses incurred by Mr. Meyer in connection with the transfers under such agreement were borne by the Company.
Significant accounting policies
The accounting policies applied by the
Group in these condensed consolidated interim financial statements are the same as those applied by the Group in its audited consolidated
financial statements as of and for the year ended December 31, 2017 and have been applied consistently to all periods presented
in these condensed consolidated interim financial statements, unless otherwise indicated.
New standards, amendments and interpretations
adopted by the Group
The Group has not early adopted any standard,
interpretation or amendment that was issued, but is not yet effective.
A number of new standards, amendments to
standards and interpretations are effective for the Group’s 2018 reporting year. The application of these new standards,
amendments to standards and interpretations does not have material impact on the financial statements of the Group.
Asset Purchase
On April 24, 2018, one of our subsidiaries
entered into an agreement to purchase patents related to compositions for weight management and methods of reducing weight gain
associated with olanzapine treatment.
3. Taxation
The Group’s income tax expense recognized
in the condensed interim consolidated statement of profit or loss is presented as follows:
|
|
SIX MONTHS ENDED
|
|
|
June 30, 2018
|
|
June 30, 2017
|
Deferred income tax expense
|
|
|
—
|
|
|
|
—
|
|
Deferred income tax gain
|
|
|
17,453
|
|
|
|
16,382
|
|
Total income tax gain
|
|
|
17,453
|
|
|
|
16,382
|
|
The tax effect of taxable temporary differences
that give rise to deferred income tax liabilities or to deferred income tax assets as of June 30, 2018 and 2017 is presented as
follows:
|
|
June 30, 2018
|
|
June 30, 2017
|
Deferred Tax liabilities
|
|
|
|
|
Intangible assets
|
|
|
(354,116
|
)
|
|
|
(338,493
|
)
|
Hercules Loan & Warrant
|
|
|
(8,377
|
)
|
|
|
(61,316
|
)
|
Derivative financial instrument
|
|
|
(19,759
|
)
|
|
|
—
|
|
Total
|
|
|
(382,252
|
)
|
|
|
(399,809
|
)
|
Deferred Tax assets
|
|
|
|
|
|
|
|
|
Net operating loss (NOL)
|
|
|
220,895
|
|
|
|
219,609
|
|
Total
|
|
|
220,895
|
|
|
|
219,609
|
|
Deferred Tax, net
|
|
|
(161,357
|
)
|
|
|
(180,200
|
)
|
4. Loan and Warrant
On July 19, 2016 the Company entered into
a Loan and Security Agreement (the “Hercules Loan and Security Agreement”) for a secured term loan facility of up to
$20.0 million with Hercules Capital, Inc. as administrative agent (“Hercules”) and the lenders party thereto. An initial
tranche of $12.5 million was drawn on July 19, 2016, concurrently with the execution of the Hercules Loan and Security Agreement.
The loan matures on January 2, 2020 and bears interest at a minimum rate of 9.55% per annum, and is subject to the variability
of the prime interest rate. The loan is secured by a pledge of the shares of Auris Medical AG owned by the Company, all intercompany
receivables owed to the Company by its Swiss subsidiaries and a security assignment of the Company’s bank accounts.
On April 5, 2018 the Company entered
into an agreement with Hercules whereby the terms of the Company's Loan and Security Agreement with Hercules were amended to
eliminate the $5 million liquidity covenant in exchange for a repayment of $5 million principal amount
outstanding under the Loan and Security Agreement. The Company shall maintain a blocked cash account denominated in
United States Dollars as a blocked account (the “Blocked Account”) as collateral for the remaining principal
balance of the Secured Obligations and the End of Term Charge. The carrying value of the cash serving as collateral is CHF
3,748,995 as of June 30, 2018. The Blocked Account will be reduced on a dollar for dollar basis by the amount of such principal
payments or end of term charge when such payments are received by Lender.
Following
the modification of the loan to repay $5 million, a loss of CHF 334,747 was recognized in connection with the modification of
the loan and transaction costs. This loss is presented in the line interest expense in the condensed consolidated interim statement
of profit or loss and other comprehensive income or loss.
The loan was initially recognized at transaction
value with deductions of the fair value of the warrant at transaction date and directly attributable transactions costs.
Subsequent to initial recognition, the
loan is measured at amortized cost using the effective interest method. Applying this method, the calculated value of the loan
as of June 30, 2018 is CHF 3,618,095. Of the CHF 3,618,095 amortization payments due within the next 12 months, an amount of CHF
3,618,095 is classified as current liabilities.
In connection with the loan facility, the
Company issued Hercules a warrant to purchase up to 241,117 of its common shares at an exercise price of $3.94 per share. As of
March 13, 2018, following consummation of the Merger, the warrant is exercisable for 15,673 common shares at an exercise price
of $39.40 per common share. Upon Hercules making the second advance under the loan facility, the warrant shall become exercisable
for the additional 8,440 common shares (assuming the Company rounds up fractional common shares to the next whole common share).
The warrant expires on July 19, 2023. The fair value calculation of the warrant is based on the Black-Scholes option price model.
Assumptions are made regarding inputs such as volatility and the risk free rate in order to determine the fair value of the warrant.
As the warrant is part of the loan transaction, its fair value was deducted from the loan proceeds and accounted for separately
as non-current financial liability. Following the initial recognition, the warrant is measured at fair value and the changes in
fair value are shown as profit or loss.
On June 30, 2018, the fair value of the
warrant amounts to CHF 1,645. Therefore, the fair value decreased by the total amount of CHF 21,705 in the current year (fair value
as of December 31, 2017: CHF 23,350).
5. Capital and reserves
Share capital
The issued share capital of the Company
consisted of:
|
|
Common Shares
|
|
|
Number
|
|
|
2018
|
|
2017
|
As of January 1
|
|
|
48,373,890
|
|
|
|
34,329,704
|
|
Common shares issued for capital increase with a
nominal value of CHF 0.40 each
|
|
|
12,800,000
|
|
|
|
10,000,000
|
|
Adjustment during the Merger:
|
|
|
|
|
|
|
|
|
Issuance of Auris NewCo Shares
|
|
|
6,117,388
|
|
|
|
-
|
|
Cancellation of Auris OldCo Shares
|
|
|
(61,173,890
|
)
|
|
|
-
|
|
Shares outstanding after Merger on March 13, 2018
|
|
|
6,117,388
|
|
|
|
-
|
|
Total, as of June 30
|
|
|
6,117,388
|
|
|
|
44,329,704
|
|
All shares have a nominal value of CHF
0.02 after the Merger (respective CHF 0.40 before the Merger) and are fully paid in. As of June 30, 2018, the nominal value of
the 6,117,388 issued shares amounted to CHF 122,347.76 (as of June 30, 2017, the nominal value of 44,329,704 issued shares amounted
to CHF 17,731,881.60).
As of March 13, 2018, following consummation
of the Merger, the number of shares were reduced by the ratio of 10 to 1 (resulting in a “reverse share split”) and
the nominal value per share was reduced from CHF 0.40 to CHF 0.02. This resulted in a reduction of share capital and in a concurrent
increase in share premium, totaling to CHF 24,347,208, presented in the statement of changes in equity in the line reorganization
of group structure.
Equity Offerings
On July 17, 2018 the Company completed
a public offering of 17,948,717 common shares with a nominal value of CHF 0.02 each, Series A warrants each entitling its holder
to purchase 0.35 of a common share and for an aggregate of 6,282,050 common shares, and Series B warrants entitling its holder
to purchase 0.25 of a common share for an aggregate of 4,487,179 common shares (the “July 2018 Registered Offering”).
The exercise price for both series Warrants is CHF 0.39. The net proceeds to us from the July 2018 Registered Offering were approximately
$6.2 million (or $7.2 million if the underwriters exercise in full their over-allotment option), after deducting underwriting discounts
and other offering expenses payable by us. The underwriter was granted a 30-day option to purchase up to 2,692,307 additional common
shares and/or additional Series A warrants to purchase up to 942,307 common shares and/or additional Series B warrants to purchase
up to 673,076 common shares. As of August 14, 2018, the underwriters have not exercised their over-allotment option.
The Company had transaction costs amounting
to CHF 743,727. The transactions costs were recorded as CHF 648,711 in equity for the issuance of the common shares and CHF 95,016
to finance expense in the statement of profit or loss and comprehensive loss for the issuance of the warrants.
On May 2, 2018 the Company entered into
the 2018 Commitment Purchase Agreement and the 2018 Registration Rights Agreement with Lincoln Park Capital Fund, LLC (“LPC”).
Pursuant to the 2018 Commitment Purchase Agreement, LPC agreed to purchase common shares for up to $10,000,000 over the 30-month
term of the 2018 Commitment Purchase Agreement. The 2018 Commitment Purchase Agreement replaces the 2017 Commitment Purchase Agreement,
which was terminated as a result of the Merger. Under the 2017 Commitment Purchase Agreement, LPC agreed to subscribe for up to
$13,500,000 common shares and prior to its termination, the Company had issued an aggregate of 2,600,000 common shares for aggregate
proceeds of $1.8 million to LPC under the 2017 Commitment Purchase Agreement.
The
Company had transaction costs amounting to CHF 349,907. The payment of CHF 252,351 in order to give the Company the option to
require LPC to purchase common shares was recorded as a derivative financial instrument and classified as a non-current asset,
and CHF 97,556 to finance expense in the statement of profit or loss and comprehensive loss.
On January 30, 2018, the Company completed
a public offering of 12,499,999 common shares with a nominal value of CHF 0.40 each and concurrent offering of 7,499,999
warrants, each warrant entitling its holder to purchase one common share (the “January 2018 Registered Offering”).
The net proceeds to the Company from the January 2018 Registered Offering were approximately $4.9 million, after deducting placement
agent fees and other estimated offering expenses payable by the Company. As of March 13, 2018, following the consummation of the
Merger, the outstanding warrants issued in the January 2018 Registered Offering were exercisable for up to 750,002 common shares
(assuming the Company rounds up fractional common shares to the next whole common share) at an exercise price of $5.00 per common
share.
The Company had transaction costs amounting
to CHF 654,985. The transaction costs were recorded as CHF 341,226 in equity for the issuance of the common shares and CHF 313,760
to finance expense in the statement of profit or loss and comprehensive loss for the issuance of the warrants.
As of June 30, 2018 the fair value of the
warrants issued in the January 2018 Registered Offering amounted to CHF 314,141. Since its initial recognition, the fair value
of these warrants has decreased by CHF 2,169,606, resulting in a gain in the corresponding amount (fair value as of January 30,
2018: CHF 2,483,747).
On October 10, 2017 the Company entered
into a purchase agreement and a registration rights agreement with Lincoln Park Capital Fund, LLC. Pursuant to the purchase agreement,
LPC agreed to subscribe for up to $13,500,000 of
our common shares over the 30-month term of
the purchase agreement. On January 23, 2018, the Company issued 300,000 of our common shares to LCP for an aggregate amount of
CHF 136,077 under the purchase agreement.
On February 21, 2017, in connection with
a public offering of 12,499,000 common shares, the Company issued 10,000,000 warrants, each warrant entitling its holder to purchase
0.70 of a common share at an exercise price of $ 1.20. Additionally, the underwriter was granted a 30-day option to purchase up
to 1,500,000 additional common shares and/or 1,500,000 additional warrants, of which the underwriter partially exercised its option
for 1,350,000 warrants. As of March 13, 2018, following the consummation of the Merger, the outstanding warrants issuable in the
2017 offering were exercisable for an aggregate of 794,000 common shares, at an exercise price of $12.00 per common share. As of
June 30, 2018 the fair value of the warrants amounted to CHF 96,766. The revaluation gain of the derivative for the six months
ended June 30, 2018 amounted to CHF 1,716,647, which is an increase of CHF 16,525 when comparing to the same period in 2017. Since
its initial recognition, the fair value decreased by CHF 4,993,697, resulting in a gain in the corresponding amount (fair
value as of February 21, 2017: CHF 5,090,463).
Issue of common shares upon exercise of options
During the six months ended June 30, 2018,
no options were exercised.
Controlled Equity Offering
On June 1, 2016, the Company entered into
a Controlled Equity Offering Sales Agreement with Cantor Fitzgerald, pursuant to which we might have offered and sold from time
to time common shares, with a nominal value of CHF 0.40 per share, having an aggregate offering price of up to $35 million through
Cantor. In the first quarter of 2018, we did not offer or sell any common shares under the Controlled Equity Offering Sales Agreement.
The Controlled Equity Offering program terminated upon consummation of the Merger on March 13, 2018.
6. Employee benefits
|
|
SIX MONTHS ENDED
|
|
|
JUNE 30, 2018
|
|
|
JUNE 30, 2017
|
|
Salaries
|
|
|
1,469,707
|
|
|
|
2,038,138
|
|
Pension costs
|
|
|
202,756
|
|
|
|
184,924
|
|
Share based compensation expense
|
|
|
(99,772
|
)
|
|
|
155,510
|
|
Other employee costs and social benefits
|
|
|
213,082
|
|
|
|
245,593
|
|
Total employee benefits
|
|
|
1,785,773
|
|
|
|
2,624,164
|
|
7. Share based payments
Share based compensation net gain of CHF
84,748 was recognized for the six months ended June 30, 2018. Share based compensation gain related to employee stock options amounted
to CHF 99,772 for the six months ended June 30, 2018 due to forfeiture of options related to the reduction in headcount (for the
six months ended June 30, 2017 a loss of CHF 155,510).
Share based compensation expense of CHF 15,024 related to the purchase of intangibles was recognized for the six months ended June
30, 2018.A total of 371,893 options were granted in the six months ended June 30, 2018. The exercise price of the options granted
is US$ 1.579 per share. The methodology for computation of share based compensation expense for the period is consistent with the
methodology used in 2017.
8. Loss per share
|
|
THREE MONTHS
ENDED
|
|
SIX MONTHS
ENDED
|
|
|
June 30, 2018
|
|
June 30, 2017
|
|
June 30, 2018
|
|
June 30, 2017
|
Loss attributable to owners of the Company
|
|
|
(3,079,528
|
)
|
|
|
(5,411,272
|
)
|
|
|
(4,825,018
|
)
|
|
|
(13,811,400
|
)
|
Weighted average number of shares outstanding
|
|
|
6,117,389
|
|
|
|
4,432,970
|
|
|
|
5,898,278
|
|
|
|
4,171,859
|
|
Basic and diluted loss per share
|
|
|
(0.50
|
)
|
|
|
(1.22
|
)*
|
|
|
(0.82
|
)
|
|
|
(3.31
|
)*
|
*The basic and diluted loss per share for
the three and six months ended June 30, 2017 is revised to reflect the reverse-split ratio of 10 to 1 following the Merger on March
13, 2018.
For the three and six months ended
June 30, 2018 and June 30, 2017 basic and diluted loss per share are calculated based on the weighted average number of shares
issued and outstanding and excludes shares to be issued under the stock option plans, as they would be anti-dilutive. As of the
date hereof, the Company had 438,050 options outstanding under its stock option plans. The average number of options outstanding
between January 1, 2018 and June 30, 2018 was 280,472 (128,510 for the period between January 1, 2017 and June 30, 2017).
9. Events after the Reporting Period
On July 17, 2018 we completed a public
offering of 17,948,717 common shares with a nominal value of CHF 0.02 each, 6,282,050 Series A warrants entitling its holder to
purchase a common share and 4,487,179 Series B warrants entitling its holder to purchase a common share. The net proceeds to us
from the July 2018 Registered Offering were approximately USD 6.2 million (or USD7.2 million if the underwriters exercise in full
their over-allotment option), after deducting underwriting discounts and other offering expenses payable by us. The underwriter
was granted a 30-day option to purchase up to 2,692,307 additional common shares and/or additional Series A warrants to purchase
up to 942,307 common shares and/or additional Series B warrants to purchase up to 673,076 common shares. As of August 14, 2018,
the underwriters have not exercised their right to purchase any Over-Allotment Warrants.
As of July 17, 2018, the nominal value
of the 24,066,105 issued common shares amounted to CHF 481,322.10. All common shares have a nominal value of CHF 0.02 and are fully
paid in.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
This management’s discussion and
analysis is designed to provide you with a narrative explanation of our financial condition and results of operations. We recommend
that you read this in conjunction with our unaudited condensed consolidated interim financial statements as of and for the three
and six months ended June 30, 2018 and 2017 included as Exhibit 99.1 to this Report on Form 6-K, which have been prepared in accordance
with International Accounting Standard (“IAS”) 34,
Interim Financial Reporting
. We also recommend that you read
our management’s discussion and analysis and our audited consolidated financial statements and the notes thereto, which appear
in our Annual Report on Form 20-F for the year ended December 31, 2017 (the “Annual Report”) filed with the U.S. Securities
and Exchange Commission (the “SEC”) pursuant to the U.S. Securities and Exchange Act of 1934, as amended.
Unless otherwise indicated or the context
otherwise requires, all references to “Auris Medical Holding AG” or “Auris,” the “Company,”
“we,” “our,” “ours,” “us” or similar terms refer to Auris Medical Holding AG, together
with its subsidiaries, prior to our corporate reorganization by way of the Merger (as defined below) on March 13, 2018 (i.e. to
the transferring entity), and to Auris Medical Holding AG (formerly Auris Medical NewCo Holding AG), together with its subsidiaries
after the Merger (i.e. to the surviving entity). The trademarks, trade names and service marks appearing in this discussion and
analysis are property of their respective owners.
Unless indicated or the context otherwise
requires, all references in this Report on Form 6-K to our common shares as of any date prior to March 13, 2018 refer to our common
shares (having a nominal value of CHF 0.40 each) prior to the 10:1 “reverse stock split” effected through the Merger
and all references to our common shares as of, and after, March 13, 2018 refer to our common shares (having a nominal value of
CHF 0.02 each) after the 10:1 “reverse stock split” effected through the Merger.
We prepare and report our consolidated
financial statements and financial information in accordance with International Financial Reporting Standards (“IFRS”)
as issued by the International Accounting Standards Board (the “IASB”). None of our financial statements were prepared
in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). We maintain our books
and records in Swiss Francs. We have made rounding adjustments to some of the figures included in this management’s discussion
and analysis. Accordingly, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures
that precede them. Unless otherwise indicated, all references to currency amounts in this discussion and analysis are in Swiss
Francs.
This discussion and analysis is dated as
of August 14, 2018.
Overview
We are a clinical-stage biopharmaceutical
company focused on the development of novel products that address important unmet medical needs in neurotology and mental health
supportive care. We are focusing on the development of intranasal betahistine for the treatment of vertigo (AM-125) and for the
treatment of antipsychotic-induced weight gain and somnolence (AM-201). This program is currently in Phase 1. In addition,
we have two Phase 3 programs under development: (i) Keyzilen ® (AM-101), which is being developed for the treatment
of acute inner ear tinnitus and (ii) AM-111, which is being developed for the treatment of acute inner ear hearing loss. AM-111
has been granted orphan drug status by the FDA and the EMA and has been granted fast track designation by the FDA.
Recent Developments
Launch of Project AM-201
On May 15, 2018, we announced the
expansion of our intranasal betahistine development program beyond the treatment of vertigo into mental health supportive care
indications. Under project code AM-201 we intend to develop intranasal betahistine for the treatment of weight gain and drowsiness
(somnolence), which are major side effects of many antipsychotic drugs. As we focus on advancing our AM-125 and AM-201 programs
with intranasal betahistine, we announced at the same time that we plan to move forward with our late-stage programs AM-111 for
the treatment of acute inner ear hearing loss and AM-101 for the treatment of acute inner ear tinnitus through strategic partnering
and with non-dilutive funding.
Scientific Advice from EMA on Development
Plan and Regulatory Pathway for AM-111
On May 7, 2018, we announced that
we had received positive Scientific Advice from the Committee for Medicinal Products for Human Use (“CHMP”) of the
European Medicines Agency (“EMA”) related to the development plan and regulatory pathway for AM-111. The Scientific
Advice (Protocol Assistance) had been requested by us following the results of the HEALOS phase 3 trial. The EMA reviewed our proposed
concept for a single pivotal trial with AM-111 0.4 mg/mL in patients suffering from acute profound hearing loss, which builds to
a large extent on the design and outcomes
from HEALOS. The EMA endorsed the proposed
trial design, choice of efficacy and safety endpoints, as well as the statistical methodology. In addition, the EMA provided important
guidance on the regulatory path forward and the maintenance of AM-111’s orphan drug designation. Meanwhile, we have requested
a Type C meeting to discuss the development plan and regulatory path forward in the United States.
Otonomy Ruling
On
August 1, 2018, the United States Court of Appeals for the Federal Circuit reversed the USPTO’s Patent Trial and Appeal Board’s
determination of priority in our favor relating to the July 2015 USPTO declaration of patent interference (No. 106,030) involving
our issued U.S. patent No. 9,066,865 (the “865 Patent”) and Otonomy, Inc.’s (“Otonomy”) U.S. patent
application No. 13/848,636 (the “636 Application”). We believe that this ruling will not impact any of our development
programs.
Nasdaq Listing Requirements
On July 31, 2018, we received a letter
from the Listings Qualifications Department of The Nasdaq Capital Market (“Nasdaq”) notifying us that our minimum bid
price per share of our common shares was below $1.00 for a period of 30 consecutive business days as required by Nasdaq’s
continued listing requirements. We have a compliance period of 180 calendar days, or until January 28, 2019 (the “Compliance
Period”), to regain compliance with Nasdaq’s minimum bid price requirement. In the event we do not regain compliance
by January 28, 2019, we may be eligible for an additional 180 calendar day grace period. We intend to actively monitor our closing
bid price for our common shares between now and January 28, 2019 and intend to take any reasonable actions to resolve our noncompliance
with the minimum bid price requirement as may be necessary.
In addition to the minimum closing bid
price requirement, we are required to comply with certain other Nasdaq continued listing requirements, including a series of financial
tests relating to shareholder equity, market value of listed securities and number of market makers and shareholders. If we fail
to maintain compliance with any of those requirements, our common shares could be delisted from Nasdaq’s Capital Market.
On January 11, 2018, we received a letter from Nasdaq indicating that we have been provided an initial period of 180 calendar days,
or until July 10, 2018 to regain compliance with Nasdaq’s listing requirements. On July 17, 2018, the Company closed its
registered offering of 17,948,717 common shares, Series A warrants to purchase 6,282,050 common shares and Series B warrants to
purchase 4,487,179 common shares. The Company has granted the underwriters in the offering a 30 day option to purchase up to an
additional 2,692,307 common shares and/or additional Series A warrants to purchase up to 942,307 common shares and/or additional
Series B warrants to purchase up to 673,076 common shares. As a result of the proceeds received by the Company in connection with
the offering, the Company has regained compliance with Nasdaq’s minimum equity standard pursuant to Nasdaq Listing Rule 5550(b)(1).
The Company has been informed that Nasdaq will continue to monitor the Company’s ongoing compliance with the minimum equity
requirements and, if at the time of its next periodic report the Company does not evidence compliance, it may be subject to delisting.
TACTT3 Trial
On March 13, 2018, we announced preliminary
top-line data from the TACTT3 trial which indicated that the study had not met its primary efficacy endpoint of a statistically
significant improvement in the Tinnitus Functional Score from baseline to Day 84 in the active treated group compared to placebo
either in the overall population or in the otitis media subpopulation. On May 15, 2018, we announced that further investigation
of the trial
’
s outcomes confirmed these preliminary results
and that we believe that the lack of separation between the active- and placebo-treated groups may be due to certain elements of
the study design and conduct.
HEALOS Trial Results
On November 28, 2017, we announced that
the HEALOS Phase 3 clinical trial that investigated AM-111 in the treatment of acute inner ear hearing loss did not meet the primary
efficacy endpoint of a statistically significant improvement in hearing from baseline to Day 28 compared to placebo for either
active treatment groups in the overall study population. However, a post-hoc analysis of the subpopulation with profound acute
hearing loss revealed a clinically and statistically significant improvement in the AM-111 0.4 mg/mL treatment group. On January
4, 2018, we announced that further analyses on the basis of the HEALOS full data set provided additional confirmation of and support
for AM-111’s otoprotective effects in the profound acute hearing loss subpopulation. Patients treated with AM-111 0.4 mg/mL
showed a statistically significantly lower incidence of no hearing improvement (defined as less than 15 dB) compared to placebo
by Day 91 (11.4 vs. 38.2%, risk ratio 0.30, p=0.012). They also had a lower incidence of no marked hearing improvement (defined
as less than 30 dB) (28.6 vs. 50.0%, risk ratio 0.57, p=0.087). In addition, the significant improvement in pure tone hearing in
the AM-111 0.4 mg/mL group was coupled with superior improvement in speech discrimination as the score of correctly recognized
words improved by 49.2 percentage points to Day 91 compared to 30.4 percentage points in the placebo group (p=0.062). We are currently
discussing the HEALOS results
and the regulatory pathway with health authorities,
please see “Recent Developments— Scientific Advice from EMA on Development Plan and Regulatory Pathway for AM-111”
in this discussion and analysis for details.
Merger
On March 13, 2018, Auris Medical Holding
AG merged into Auris Medical NewCo Holding AG (the
“
Merger
”
),
a newly incorporated, wholly-owned Swiss subsidiary (
“
Auris
NewCo
”
) following shareholder approval at an extraordinary
general meeting of shareholders held on March 12, 2018. Following the Merger, Auris NewCo, the surviving company had a share
capital of CHF 122,347.76, divided into 6,117,388 common shares with a nominal value of CHF 0.02 each. Pursuant to the Merger,
our shareholders received one common share with a nominal value of CHF 0.02 of Auris NewCo for every 10 common shares in Auris
Medical Holding AG held prior to the Merger, effectively resulting in a “reverse share split” at a ratio of 10-for-1.
Auris NewCo changed its name to “Auris Medical Holding AG” as part of the consummation of the Merger, effective March 13,
2018. On March 14, 2018 the common shares of Auris NewCo began trading on the Nasdaq Capital Market under the trading symbol
“EARS.”
LPC Purchase Agreement
On May 2, 2018 we entered into a purchase
agreement (the “2018 Commitment Purchase Agreement”) and a Registration Rights Agreement (the “2018 Registration
Rights Agreement”) with Lincoln Park Capital Fund, LLC (“LPC”). Pursuant to the Commitment Purchase Agreement,
LPC agreed to purchase common shares for up to $10,000,000 over the 30-month term of the 2018 Commitment Purchase Agreement. The
2018 Commitment Purchase Agreement replaces a purchase agreement we entered into with LPC on October 10, 2017 (the “2017
Commitment Purchase Agreement”) which was terminated as a result of the Merger.
Offering of Common Shares and Warrants
On January 26, 2018, we issued and sold
12,499,999 of our common shares. The common shares were offered pursuant to our effective shelf registration statement on Form
F-3, which was initially filed with the Securities and Exchange Commission on September 1, 2015 and declared effective on September
10, 2015 (File No. 333-206710). We refer to such offering of common shares as the “January 2018 Registered Offering.”
In a concurrent private placement, we sold
to the investors in the January 2018 Registered Offering warrants to purchase one of our common shares for each common share purchased
in the January 2018 Registered Offering. The warrants cover, in the aggregate, 7,499,999 of our common shares. The warrants became
exercisable immediately upon their issuance on January 30 2018 at an exercise price of $0.50 per common share, and expire on January
30, 2025. Following the consummation of the Merger, the warrants are exercisable for an aggregate of 750,002 of our common shares
(assuming we round up fractional common shares to the next whole common share), at an exercise price of $5.00 per common share.
Amendment of Hercules Loan and Security Agreement
On April 5, 2018, we entered into an agreement
with Hercules Capital, Inc. (“Hercules”) whereby the terms of our Loan and Security Agreement (the “Loan and
Security Agreement”) with Hercules were amended to eliminate the $5 million liquidity covenant in exchange for a repayment
of $5 million principal amount outstanding under the Loan and Security Agreement.
Capital Increase
On June 28, 2018, an extraordinary
general meeting of shareholders approved an ordinary share capital increase and certain changes to our Articles of Association
to increase our authorized share capital and our conditional share capital for financing purposes (collectively, the “Capital
Increase”). On July 17, 2018, the Company closed its registered offering of 17,948,717 common shares, Series A warrants to
purchase 6,282,050 common shares and Series B warrants to purchase 4,487,179 common shares. We refer to such offering of common
shares as the “July 2018 Registered Offering.” The Company has granted the underwriters in the July 2018 Registered
Offering a 30 day option to purchase up to an additional 2,692,307 common shares and/or additional Series A warrants to purchase
up to 942,307 common shares and/or additional Series B warrants to purchase up to 673,076 common shares.
Collaboration and License Agreements
There have been no material changes to
our collaboration and license agreements from those reported in “Item 5—Operating and Financial Review and Prospects–Operating
results—Collaboration and License Agreements” in the Annual Report.
Research and Development Expense
Our research and development expense is
highly dependent on the development phases of our research projects and therefore may fluctuate substantially from period to period.
Our research and development expense mainly relates to the following key programs:
|
•
|
Keyzilen
®
(AM-101).
We conducted a Phase 3 clinical development program with Keyzilen
®
comprising two Phase 3 trials and two open label follow-on trials. We completed enrollment of the last of these trials (TACTT3)
in September 2017. On March 13, 2018, we announced that preliminary top-line data from the TACTT3 trial indicated that the study
did not meet its primary efficacy endpoint of a statistically significant improvement in the Tinnitus Functional Index score from
baseline to Day 84 in the active treated group compared to placebo either in the overall population or in the otitis media subpopulation.
We anticipate that our research and development expenses in connection with the Keyzilen
®
trials will be lower in
2018 than in 2017, reflecting the completion of these trials.
|
|
•
|
AM-111
. We conducted a Phase 3 clinical development program with AM-111 comprising two Phase 3 trials in the treatment
of ISSNHL, titled HEALOS and ASSENT. On November 28, 2017, we announced that the HEALOS trial did not meet the primary efficacy
endpoint of a statistically significant improvement in hearing from baseline to Day 28 compared to placebo for either active treatment
groups in the overall study population. However, a post-hoc analysis of the subpopulation with profound acute hearing loss revealed
a clinically meaningful and nominally significant improvement in the AM-111 0.4 mg/mL treatment group. We terminated the ASSENT
trial as it was very similar in design to the HEALOS trial and, based on the new findings, was no longer adequate for testing AM-111.
We received feedback from the EMA regarding the design of a future Phase 3 trial and on the regulatory path forward and have requested
regulatory feedback also from the FDA. We expect that our research and development expenses in connection with the AM-111 trials
will be lower in 2018 than in 2017, reflecting the completion of these trials.
|
|
•
|
AM-125
. In the first quarter of 2018, we initiated a second Phase 1 trial in healthy volunteers to further test the
safety and tolerability and the pharmacokinetics of AM-125. We expect to obtain the results of the study in summer 2018.
|
Other research and development expenses
mainly relate to our pre-clinical studies of AM-102 (second generation tinnitus treatment). The expenses mainly consist of costs
for synthesis of the pre-clinical compounds and costs paid to academic and other research institutions in conjunction with pre-clinical
testing.
For a discussion of our other key financial
statement line items, please see “Item 5—Operating and Financial Review and Prospects–Operating results—Financial
Operations Overview” in the Annual Report.
Results of Operations
The numbers below have been derived from
our unaudited condensed consolidated interim financial statements as of and for the three and six months ended June 30, 2018 and
2017. The discussion below should be read along with this financial information, and it is qualified in its entirety by reference
to them.
Comparison of the three
months ended June 30, 2018 and 2017
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
2018
|
|
2017
|
|
Change
|
|
|
(in thousands of CHF)
|
|
%
|
Research and development
|
|
|
(2,014
|
)
|
|
|
(4,723
|
)
|
|
|
(57
|
%)
|
General and administrative
|
|
|
(1,099
|
)
|
|
|
(1,236
|
)
|
|
|
(11
|
%)
|
Operating loss
|
|
|
(3,113
|
)
|
|
|
(5,958
|
)
|
|
|
(48
|
%)
|
Interest income
|
|
|
—
|
|
|
|
14
|
|
|
|
(100
|
%)
|
Interest expense
|
|
|
(507
|
)
|
|
|
(410
|
)
|
|
|
24
|
%
|
Foreign currency exchange gain/(loss), net
|
|
|
22
|
|
|
|
(593
|
)
|
|
|
(104
|
%)
|
Revaluation gain from derivative financial instruments
|
|
|
607
|
|
|
|
1,529
|
|
|
|
(60
|
%)
|
Transaction costs
|
|
|
(98
|
)
|
|
|
—
|
|
|
|
(100
|
%)
|
Loss before tax
|
|
|
(3,088
|
)
|
|
|
(5,418
|
)
|
|
|
(43
|
%)
|
Income tax gain
|
|
|
9
|
|
|
|
8
|
|
|
|
12.5
|
%
|
Net loss attributable to owners of the Company
|
|
|
(3,079
|
)
|
|
|
(5,410
|
)
|
|
|
(43
|
%)
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Items that will never be reclassified to profit or loss
|
|
|
|
|
|
|
|
|
|
|
|
|
Remeasurements of defined benefit liability
|
|
|
804
|
|
|
|
56
|
|
|
|
1,336
|
%
|
Items that are or may be reclassified to profit and loss
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation differences
|
|
|
(34
|
)
|
|
|
40
|
|
|
|
(185
|
%)
|
Other comprehensive income
|
|
|
770
|
|
|
|
96
|
|
|
|
702
|
%
|
Total comprehensive loss attributable to owners of the Company
|
|
|
(2,309
|
)
|
|
|
(5,314
|
)
|
|
|
(57
|
%)
|
Comparison of the six months ended June
30, 2018 and 2017
|
|
Six months ended June 30,
|
|
|
2018
|
|
2017
|
|
Change
|
|
|
(in thousands of CHF)
|
|
%
|
Research and development
|
|
|
(4,958
|
)
|
|
|
(10,704
|
)
|
|
|
(54
|
%)
|
General and administrative
|
|
|
(2,459
|
)
|
|
|
(2,661
|
)
|
|
|
(8
|
%)
|
Operating loss
|
|
|
(7,417
|
)
|
|
|
(13,365
|
)
|
|
|
(45
|
%)
|
Interest income
|
|
|
—
|
|
|
|
45
|
|
|
|
(100
|
%)
|
Interest expense
|
|
|
(856
|
)
|
|
|
(831
|
)
|
|
|
3
|
%
|
Foreign currency exchange gain/(loss), net
|
|
|
(66
|
)
|
|
|
(931
|
)
|
|
|
(93
|
%)
|
Revaluation gain from derivative financial instruments
|
|
|
3,908
|
|
|
|
1,760
|
|
|
|
122
|
%
|
Transaction costs
|
|
|
(411
|
)
|
|
|
(506
|
)
|
|
|
(19
|
%)
|
Loss before tax
|
|
|
(4,842
|
)
|
|
|
(13,828
|
)
|
|
|
(65
|
%)
|
Income tax gain
|
|
|
17
|
|
|
|
16
|
|
|
|
6
|
%
|
Net loss attributable to owners of the Company
|
|
|
(4,825
|
)
|
|
|
(13,811
|
)
|
|
|
(65
|
%)
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Items that will never be reclassified to profit or loss
|
|
|
|
|
|
|
|
|
|
|
|
|
Remeasurements of defined benefit liability
|
|
|
1,085
|
|
|
|
284
|
|
|
|
282
|
%
|
Items that are or may be reclassified to profit or loss
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation differences
|
|
|
(19
|
)
|
|
|
60
|
|
|
|
(132
|
%)
|
Other comprehensive income
|
|
|
1,066
|
|
|
|
344
|
|
|
|
210
|
%
|
Total comprehensive loss attributable to the owners of the Company
|
|
|
(3,759
|
)
|
|
|
(13,468
|
)
|
|
|
(72
|
%)
|
Research and development expense
|
|
Three months ended June 30,
|
|
|
|
|
2018
|
|
2017
|
|
Change
|
|
|
(in thousands of CHF)
|
|
%
|
Clinical projects
|
|
|
(497
|
)
|
|
|
(2,953
|
)
|
|
|
(83
|
%)
|
Pre-clinical projects
|
|
|
(105
|
)
|
|
|
(152
|
)
|
|
|
(31
|
%)
|
Drug manufacturing and substance
|
|
|
(769
|
)
|
|
|
(568
|
)
|
|
|
35
|
%
|
Employee benefits
|
|
|
(473
|
)
|
|
|
(669
|
)
|
|
|
(29
|
%)
|
Other research and development expenses
|
|
|
(170
|
)
|
|
|
(379
|
)
|
|
|
(55
|
%)
|
Total
|
|
|
(2,014
|
)
|
|
|
(4,721
|
)
|
|
|
(57
|
%)
|
Research and development expenses amounted
to CHF 2.0 million in the three months ended June 30, 2018. This represents a decrease of about CHF 2.7 million from research and
development expenses of CHF 4.7 million for the three months ended June 30, 2017. Research and development expenses reflected the
following:
|
·
|
Clinical projects.
In the three months ended June 30,
2018 clinical expenses were lower than in the three months ended June 30, 2017 by CHF 2.5 million due to lower service and milestone
costs for our Keyzilen
®
and AM-111 studies, mainly reflecting the completion of TACTT2, AMPACT1 and AMPACT2 and
progression towards completion of TACTT3, HEALOS and ASSENT trials.
|
|
·
|
Pre-clinical projects
. In the three months ended June
30, 2018, pre-clinical expenses decreased by CHF 47 thousand compared to the three months ended June 30, 2017, primarily due to
lower expenses related to our AM-102 program partly offset by higher expenses in our AM-125 program.
|
|
·
|
Drug manufacture and substance.
In the three months ended
June 30, 2018, drug manufacture and substance related costs increased by CHF 0.2 million compared to the three months ended June
30, 2017, related to AM-111 and AM-125 project activities.
|
|
·
|
Employee benefits
. Employee expenses decreased by CHF
0.2 million in the three months ended June 30, 2018 compared to the same period in 2017 primarily due to a reduction in headcount.
|
|
·
|
Other research and development expenses
. Other research and development expenses decreased by CHF 0.2 million in the three months ended June 30, 2018 compared to the same period in 2017 primarily due to a reduction in regulatory related activities.
|
|
|
Six months ended June 30,
|
|
|
|
|
2018
|
|
2017
|
|
Change
|
|
|
(in thousands of CHF)
|
|
%
|
Clinical projects
|
|
|
(1,988
|
)
|
|
|
(7,142
|
)
|
|
|
(72
|
%)
|
Pre-clinical projects
|
|
|
(318
|
)
|
|
|
(294
|
)
|
|
|
8
|
%
|
Drug manufacturing and substance
|
|
|
(1,103
|
)
|
|
|
(1,054
|
)
|
|
|
5
|
%
|
Employee benefits
|
|
|
(1,038
|
)
|
|
|
(1,494
|
)
|
|
|
(31
|
%)
|
Other research and development expenses
|
|
|
(511
|
)
|
|
|
(719
|
)
|
|
|
(29
|
%)
|
Total
|
|
|
(4,958
|
)
|
|
|
(10,703
|
)
|
|
|
(54
|
%)
|
Research and development expenses amounted
to CHF 5.0 million in the six months ended June 30, 2018. This represents a decrease of about CHF 5.7 million from research and
development expenses of CHF 10.7 million for the six months ended June 30, 2017. Research and development expenses reflected the
following:
|
·
|
Clinical projects.
In the six months ended June 30, 2018
clinical expenses were lower than in the six months ended June 30, 2017 by CHF 5.1 million due to lower service and milestone costs
for our Keyzilen
®
and AM-111 studies, mainly reflecting the completion of TACTT2, AMPACT1 and AMPACT2 and progression
towards completion of TACTT3, HEALOS and ASSENT trials.
|
|
·
|
Pre-clinical projects
. In the six months ended June 30,
2018, pre-clinical expenses increased by CHF 24 thousand compared to the six months ended June 30, 2017, primarily due to activities
related to our AM-125 program.
|
|
·
|
Drug manufacture and substance.
In the six months ended
June 30, 2018, drug manufacture and substance related costs increased by CHF 49 thousand compared to the six months ended June
30, 2017, due to AM-125 project activities.
|
|
·
|
Employee benefits
. Employee expenses decreased by CHF
0.5 million in the six months ended June 30, 2018 compared to the same period in 2017 primarily due to a reduction in headcount.
|
|
·
|
Other research and development expenses
. Other research and development expenses decreased by CHF 0.2 million in the six months ended June 30, 2018 compared to the same period in 2017 primarily due to a reduction in regulatory related activities.
|
General and administrative expense
|
|
Three months ended June 30,
|
|
|
|
|
2018
|
|
2017
|
|
Change
|
|
|
(in thousands of CHF)
|
|
%
|
Employee benefits
|
|
|
(562
|
)
|
|
|
(571
|
)
|
|
|
(2
|
%)
|
Lease expenses
|
|
|
(19
|
)
|
|
|
(18
|
)
|
|
|
6
|
%
|
Business development
|
|
|
—
|
|
|
|
(56
|
)
|
|
|
(100
|
%)
|
Travel and representation
|
|
|
(15
|
)
|
|
|
(15
|
)
|
|
|
0
|
%
|
Administration costs
|
|
|
(488
|
)
|
|
|
(678
|
)
|
|
|
(28
|
%)
|
Depreciation tangible assets
|
|
|
(15
|
)
|
|
|
(18
|
)
|
|
|
(17
|
%)
|
Capital tax expenses
|
|
|
—
|
|
|
|
118
|
|
|
|
(100
|
%)
|
Total
|
|
|
(1,099
|
)
|
|
|
(1,237
|
)
|
|
|
(11
|
%)
|
General and administrative expense amounted
to CHF 1.1 million in the three months ended June 30, 2018 compared to CHF 1.2 million in the same period in the previous year.
Administration costs were lower mainly due to lower legal and consultancy fees.
|
|
Six months ended June 30,
|
|
|
|
|
2018
|
|
2017
|
|
Change
|
|
|
(in thousands of CHF)
|
|
%
|
Employee benefits
|
|
|
(748
|
)
|
|
|
(1,130
|
)
|
|
|
(34
|
%)
|
Lease expenses
|
|
|
(36
|
)
|
|
|
(44
|
)
|
|
|
(18
|
%)
|
Business development
|
|
|
(9
|
)
|
|
|
(56
|
)
|
|
|
(84
|
%)
|
Travel and representation
|
|
|
(25
|
)
|
|
|
(94
|
)
|
|
|
(73
|
%)
|
Administration costs
|
|
|
(1,609
|
)
|
|
|
(1,296
|
)
|
|
|
24
|
%
|
Depreciation tangible assets
|
|
|
(30
|
)
|
|
|
(37
|
)
|
|
|
(19
|
%)
|
Capital tax expenses
|
|
|
(2
|
)
|
|
|
(5
|
)
|
|
|
(60
|
%)
|
Total
|
|
|
(2,459
|
)
|
|
|
(2,662
|
)
|
|
|
(8
|
%)
|
General and administrative expense amounted
to CHF 2.5 million in the six months ended June 30, 2018 compared to CHF 2.7 million in the same period in the previous year. Administration
costs were higher mainly due to higher legal fees related to the Merger. Lower employee benefits was mainly related to lower headcount
and employee benefit-related expenses.
Interest income
Interest income decreased by CHF 14 thousand
in the three months ended June 30, 2018 compared to the three months ended June 30, 2017, due to the termination of short-term
deposits.
Interest income decreased by CHF 45 thousand
in the six months ended June 30, 2018 compared to the six months ended June 30, 2017, due to the termination of short-term deposits.
Interest expense
Interest expense increased in the three
months ended June 30, 2018 compared to the same prior year period by CHF 0.1 million. The increase relates to a reduction in the
outstanding balance of the loan under the Hercules Loan and Security Agreement, as we commenced repayment of the loan facility
in July 2017, offset by the loss recorded in connection with the modification of the loan and transaction cost.
Interest expense increased in the six months
ended June 30, 2018 compared to the same prior year period by CHF 25 thousand. The increase relates to a reduction in the outstanding
balance of the loan under the Hercules Loan and Security Agreement, as we commenced repayment of the loan facility in July 2017,
offset by the loss recorded in connection with the modification of the loan and transaction cost.
Foreign currency exchange gain / (loss), net
For the three months ended June 30, 2018,
foreign currency exchange loss was CHF 0.6 million lower than during the same period in the previous year, due to the impact of
the appreciation of the US$ currency and the increased US$ cash and cash equivalents held by the Company from the January 2018
Registered Offering.
For the six months ended June 30, 2018,
foreign currency exchange loss was CHF 0.9 million lower than during the same period in the previous year, due to the impact of
the appreciation of the US$ currency and the increased US$ cash and cash equivalents held by the Company from the January 2018
Registered Offering.
Revaluation gain / (loss) from derivative
financial instruments
In connection with the Hercules Loan and
Security Agreement, we issued Hercules a warrant to purchase up to 241,117 of the Company’s common shares at an exercise
price of US$ 3.94 per share. As of March 13, 2018 following the consummation of the Merger, the warrant was exercisable for 15,673
common shares at an exercise price of $39.40 per common share. As of June 30, 2018 the fair value of the warrant amounted to CHF
1,645. The revaluation gain of the derivative for the six months ended June 30, 2018 amounted to CHF 21,705, which is a decrease
of CHF 38,804 when comparing to the same period in 2017. Since its initial recognition, the fair value decreased by CHF 406,535,
resulting in a revaluation gain in the corresponding amount (fair value as of July 19, 2016: CHF 408,180).
On February 21, 2017 we issued 10,000,000
warrants in connection with a public offering of 10,000,000 common shares, each warrant entitling its holder to purchase 0.70 of
a common share at an exercise price of US$ 1.20. Additionally, the underwriter was granted a 30-day option to purchase up to 1,500,000
additional common shares and/or 1,500,000 additional warrants, of which the underwriter partially exercised its option for 1,350,000
warrants. As of March 13, 2018, following the consummation of the Merger, the warrants became exercisable for an aggregate of 794,000
of our common shares, at an exercise price of $12.00 per common share. As of June 30, 2018, the fair value of the warrants amounted
to CHF 96,766. The revaluation gain of the derivative for the six months ended June 30, 2018 amounted to CHF 1,716,647, which is
an increase of CHF 16,525 when comparing to the same period in 2017. Since its initial recognition, the fair value decreased by
CHF 4,993,697, resulting in a gain in the corresponding amount (fair value as of February 21, 2017: CHF 5,090,463).
On January 30, 2018 we issued 7,499,999
warrants in connection with a direct offering of 12,499,999 common shares, each warrant entitling its holder to purchase one common
share at an exercise price of $0.50. As of March 13, 2018, following the consummation of the Merger, the warrants became exercisable
for an aggregate of 750,002 of our common shares (assuming we decide to round up fractional common shares to the next whole common
share), at an exercise price of $5.00 per common share. As of June 30, 2018 the fair value of the warrants amounted CHF 314,141.
Since its initial recognition, the fair value of the warrants has decreased by CHF 2,169,606, resulting in a gain in the corresponding
amount (fair value as of January 30, 2018: CHF 2,483,747).
Transaction costs
Transaction costs decreased by CHF 0.1
million in the six months ended June 30, 2018 compared to the previous period, due to lower fees and transaction costs related
to the equity offering in the first quarter of 2018 compared to the equity offering in the first quarter of 2017.
Cash flows
Comparison of the three
months ended June 30, 2018 and 2017
The table below summarizes our cash flows
for the three months ended June 30, 2018 and 2017:
|
|
Three months ended June 30,
|
|
|
2018
|
|
|
2017
|
|
|
(in thousands of CHF)
|
Cash used in operating activities
|
|
|
(2,304
|
)
|
|
|
(6,290
|
)
|
Net cash used in investing activities
|
|
|
(20
|
)
|
|
|
14
|
|
Net cash used in financing activities
|
|
|
(6,058
|
)
|
|
|
(315
|
)
|
Net effect of currency translation on cash
|
|
|
150
|
|
|
|
(1,017
|
)
|
Cash and cash equivalents at beginning of the period
|
|
|
12,654
|
|
|
|
33,847
|
|
Cash and cash equivalents at end of the period
|
|
|
4,422
|
|
|
|
26,239
|
|
The decrease in net cash used in operating
activities from CHF 6.3 million in the three months ended June 30, 2017 to CHF 2.3 million in the three months ended June 30, 2018
was mainly due to lower operating expenses compared to the same period in 2017. The decrease in net cash used in financing activities
is related to the $ 5.0 million repayment of the loan to Hercules.
Comparison of the six months
ended June 30, 2018 and 2017
The table below summarizes our cash flows
for the six months ended June 30, 2018 and 2017:
|
|
Six months ended June 30,
|
|
|
2018
|
|
|
2017
|
|
|
(in thousands of CHF)
|
Cash used in operating activities
|
|
|
(7,285
|
)
|
|
|
(13,065
|
)
|
Net cash used in investing activities
|
|
|
(19
|
)
|
|
|
(30
|
)
|
Net cash (used in) / from financing activities
|
|
|
(3,095
|
)
|
|
|
8,472
|
|
Net effect of currency translation on cash
|
|
|
(152
|
)
|
|
|
(1,580
|
)
|
Cash and cash equivalents at beginning of the period
|
|
|
14,973
|
|
|
|
32,442
|
|
Cash and cash equivalents at end of the period
|
|
|
4,422
|
|
|
|
26,239
|
|
The decrease in net cash used in operating
activities from CHF 13.1 million in the six months ended June 30, 2017 to CHF 7.3 million in the six months ended June 30, 2018
was mainly due to lower operating expenses compared to the same period in 2017. The decrease in net cash used in financing activities
is related to the $ 5.0 million repayment and the monthly repayments for $ 2.7 million of the loan to Hercules, partly offset by
the net proceeds of the January 2018 offering of $ 4.9 million
Cash and funding sources
On July 17, 2018 we completed a public
offering of 17,948,717 common shares with a nominal value of CHF 0.02 each, 6,282,050 Series A warrants entitling its holder to
purchase a common share and 4,487,179 Series B warrants entitling its holder to purchase a common share. The net proceeds to us
from the July 2018 Registered Offering were approximately $6.2 million (or $7.2 million if the underwriters exercise in full their
over-allotment option), after deducting underwriting discounts and other offering expenses payable by us. The underwriter was granted
a 30-day option to purchase up to 2,692,307 additional common shares and/or additional Series A warrants to purchase up to 942,307
common shares and/or additional Series B warrants to purchase up to 673,076 common shares. As of August 14, 2018, the underwriters
have not exercised their right to purchase any Over-Allotment Warrants. The outstanding Series A warrants issued in the July 2018
Registered Offering are exercisable for up to 7,224,357 common shares at an exercise price of CHF 0.39 per common share and the
outstanding Series B warrants issued in the July 2018 Registered Offering are exercisable for up to 5,160,255 common shares at
an exercise price of CHF 0.39 per common share.
On May 2, 2018 we entered into the 2018
Commitment Purchase Agreement and the 2018 Registration Rights Agreement with Lincoln Park Capital Fund, LLC (“LPC”).
Pursuant to the 2018 Commitment Purchase Agreement, LPC agreed to purchase common shares for up to $10,000,000 over the 30-month
term of the 2018 Commitment Purchase Agreement. The 2018 Commitment Purchase Agreement replaces the 2017 Commitment Purchase Agreement,
which
was terminated as a result of the Merger.
Under the 2017 Commitment Purchase Agreement, LPC agreed to subscribe for up to $13,500,000 of our common shares and prior to its
termination, we had issued an aggregate of 2,600,000 common shares for aggregate proceeds of $1.8 million to LPC under the 2017
Commitment Purchase Agreement.
On January 30, 2018 we completed a public
offering of 12,499,999 common shares with a nominal value of CHF 0.40 each and a concurrent offering of 7,499,999 warrants,
each warrant entitling its holder to purchase one common share. The net proceeds to the Company from the January 2018 Registered
Offering were approximately $4.9 million, after deducting placement agent fees and other estimated offering expenses payable by
the Company. As of March 13, 2018, following the consummation of the Merger, the outstanding warrants issued in the January 2018
offering were exercisable for up to 750,002 common shares (assuming we decide to round up fractional common shares to the next
whole common share) at an exercise price of $5.00 per common share.
On October 16, 2017 we issued 1,744,186
common shares to LPC for aggregate proceeds of $1,500,000.
On February 21, 2017 we completed a public
offering of 10,000,000 common shares with a nominal value of CHF 0.40 each and 10,000,000 warrants, each warrant entitling its
holder to purchase 0.70 of a common share. The net proceeds to us from the offering were approximately CHF 9.1 million, after deducting
underwriting discounts and other offering expenses payable by us. The underwriter was granted a 30-day option to purchase up to
1,500,000 additional common shares and/or 1,500,000 additional warrants, of which the underwriter partially exercised its option
in the amount of 1,350,000 warrants. As of March 13, 2018, following the consummation of the Merger, the outstanding warrants issued
in the February 2017 offering were exercisable for up to 794,500 common shares at an exercise price of $12.00 per common share.
On July 19, 2016 the Company entered into
the Loan and Security Agreement with Hercules for a secured term loan facility of up to $20.0 million. An initial tranche of $12.5
million was drawn on July 19, 2016, concurrently with the execution of the loan agreement. The loan matures on January 2, 2020
and bears interest at a minimum rate of 9.55% per annum, and is subject to the variability of the prime interest rate. The loan
is secured by a pledge of the shares of Auris Medical AG owned by the Company, all intercompany receivables owed to the Company
by its Swiss subsidiaries and a security assignment of the Company’s bank accounts. In connection with the loan facility,
we issued Hercules a warrant to purchase up to 241,117 of our common shares at an exercise price of $3.94 per share. As of March
13, 2018, following consummation of the Merger, the warrant is exercisable for 15,673 common shares at an exercise price of $39.40
per common share. On April 5, 2018 we entered into an agreement with Hercules whereby the terms of the Company's Loan and Security
Agreement with Hercules were amended to eliminate the $5 million liquidity covenant in exchange for a repayment of $5
million principal amount outstanding under the Loan and Security Agreement.
We have no other ongoing material financial
commitments, such as lines of credit or guarantees that are expected to affect our liquidity over the next five years, other than
leases.
Funding requirements
We expect that our operating expenses for
2018 will be in the range of CHF 10.0 to CHF 12.0 million and that the existing cash and cash equivalents will enable us to fund
our operating expenses and capital expenditure requirements into the second quarter of 2019. In addition, we anticipate that the
issuance of our common shares under the LPC Purchase Agreement will enable the Company to further fund its operations and capital
requirements. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner
than we currently expect. Our future funding requirements will depend on many factors, including but not limited to:
|
•
|
the scope, rate of progress, results and cost of our clinical trials, nonclinical testing, and other related activities;
|
|
•
|
the cost of manufacturing clinical supplies, and establishing commercial supplies, of our product candidates and any products
that we may develop;
|
|
•
|
the number and characteristics of product candidates that we pursue;
|
|
•
|
the cost, timing, and outcomes of regulatory approvals;
|
|
•
|
the cost and timing of establishing sales, marketing, and distribution capabilities; and
|
|
•
|
the terms and timing of any collaborative, licensing, and other arrangements that we may establish, including any required
milestone and royalty payments thereunder.
|
We expect that we will require additional
funding to continue our ongoing clinical development activities and seek to obtain regulatory approval for, and commercialize,
our product candidates. If we receive regulatory approval for any of our product candidates, and if we choose not to grant any
licenses to partners, we expect to incur significant commercialization expenses related to product manufacturing, sales, marketing
and distribution, depending on where we choose to commercialize. Additional funds may not be available on a timely basis, on favorable
terms, or at all, and such funds, if raised, may not be sufficient to enable us to continue to implement our long-term business
strategy. If we are not able to raise capital when needed, we could be forced to delay, reduce or eliminate our product development
programs or
commercialization efforts. Likewise, if we
are unable to refinance amounts outstanding under our existing term loan facility before such amounts are due we may be unable
to repay such amounts, which could result in foreclosure of the collateral pledged to secure such loan.
We may raise additional capital through
the sale of equity or convertible debt securities. In such an event, your ownership interest will be diluted, and the terms of
these new securities may include liquidation or other preferences that adversely affect your rights as a holder of our common shares.
We may also seek to refinance out outstanding indebtedness.
For more information as to the risks associated
with our future funding needs, see “Item 3—Key Information—Risk factors” in the Annual Report.
Contractual Obligations and Commitments
The following table presents information
relating to our contractual obligations as of June 30, 2018:
|
|
Payments Due by Period
|
|
|
Less Than
1 Year
|
|
Between 1 and 3 Years
|
|
Between 3 and 5 Years
|
|
Total
|
|
|
(in thousands of CHF)
|
Operating lease obligations (1)
|
|
|
36
|
|
|
|
—
|
|
|
|
—
|
|
|
|
36
|
|
Long-term debt obligations (2)
|
|
|
3,618
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,618
|
|
Derivative Financial Instruments (3)
|
|
|
—
|
|
|
|
—
|
|
|
|
413
|
|
|
|
413
|
|
Total
|
|
|
3,654
|
|
|
|
—
|
|
|
|
413
|
|
|
|
4,067
|
|
_______________________
|
(1)
|
Operating lease obligations consist of payments pursuant to operating lease agreements relating to leases of our office space and are not accounted for on the balance sheet. The lease term is indefinite and can be terminated with a six month notice period
|
|
(2)
|
Long-term debt obligations consist of amortization payments and the end of term fee due under the Hercules Loan and Security Agreement converted to CHF at an exchange rate of CHF 0.9584 to US$1.00. The secured term loan under the Hercules Loan and Security Agreement has a maturity date of January 2, 2020, with an interest-only period through July 1, 2017, and amortized payments of principal and interest thereafter in equal monthly instalments until the maturity date. The loan bears interest at a minimum rate of 9.55% per annum, and is subject to the variability of the prime interest rate. Interest payments are not included in the table presented above.
|
|
(3)
|
Derivative Financial instruments relate to the warrants issued in connection with the Hercules Loan and Security Agreement and the warrants issued in the public offering in February 2017 and direct placement in January 2018.
|
Under the terms of our collaboration and
license agreement with Xigen, we are obliged to make development milestone payments on an indication-by-indication basis of up
to CHF 1.5 million upon the successful completion of a Phase 2 clinical trial and regulatory milestone payments on a product-by-product
basis of up to CHF 2.5 million, subject to a mid-twenties percentage reduction for smaller indications, e.g., those qualifying
for orphan drug status, upon receiving marketing approval for a product. The milestones are not included in the table above as
they have not met the recognition criteria for provisions and the timing of these is not yet determinable as it is dependent upon
the achievement of earlier mentioned milestones.
Under the terms of the asset purchase agreement
with Otifex Therapeutics Pty Ltd, we are obliged to make a development milestone payment of $200,000 if use of the purchased formulation
is supported by the results from toxicology studies over three to six months.
Off-Balance Sheet Arrangements
As of the date of this discussion and analysis,
we do not have any, and during the periods presented we did not have any, off-balance sheet arrangements except for the Operating
Lease mentioned in “Item 5—Operating and Financial Review and Prospects—Tabular disclosure of contractual obligations”
in the Annual Report.
Significant Accounting Policies and Use of Estimates and
Judgment
There have been no material changes to
the significant accounting policies and estimates described in “Item 5—Operating and Financial Review and Prospects–Operating
results—Significant accounting policies and use of estimates and judgment” in the Annual Report.
Recent Accounting Pronouncements
There are no IFRS standards as issued by
the IASB or interpretations issued by the IFRS interpretations committee that are effective for the first time for the financial
year beginning on or after January 1, 2018 that had a material impact on our financial position and performance.
JOBS Act Exemption
On April 5, 2012, the JOBS Act was signed
into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for an “emerging
growth company”. As an emerging growth company, we are not required to provide an auditor attestation report on our system
of internal controls over financial reporting. This exemption will apply for a period of five years following the completion of
our initial public offering (2019) or until we no longer meet the requirements of being an “emerging growth company,”
whichever is earlier. We would cease to be an emerging growth company if we have more than US$1.0 billion in annual revenue, have
more than US$700 million in market value of our common shares held by non-affiliates or issue more than US$1.0 billion of non-convertible
debt over a three-year period.