Indicate the number of outstanding shares of each of the issuer’s
classes of capital stock or common stock as of the close of the period covered by the annual report.
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.
If this report is an annual or transition report, indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer”
in Rule 12b-2 of the Exchange Act. (Check one):
If an emerging growth company that prepares its financial statements
in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.
☐
† The term “new or revised financial accounting
standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification
after April 5, 2012.
Indicate by check mark which basis of accounting the registrant
has used to prepare the financial statements included in this filing:
If “Other” has been checked in response to the
previous question indicate by check mark which financial statement item the registrant has elected to follow.
If this is an annual report, indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Unless otherwise indicated or the context
otherwise requires, all references in this annual report on Form 20-F (the “Annual Report”) to “Auris Medical
Holding Ltd.,” “Auris Medical,” “Auris,” the “Company,” “we,” “our,”
“ours,” “us” or similar terms refer to (i) Auris Medical Holding AG (formerly Auris Medical AG), or Auris
Medical (Switzerland), together with its subsidiaries, prior to our corporate reorganization by way of the merger of Auris Medical
Holding AG into Auris Medical NewCo Holding AG (the “Merger”), a newly incorporated, wholly-owned Swiss subsidiary
on March 13, 2018 (i.e. to the transferring entity), (ii) to Auris Medical Holding AG (formerly Auris Medical NewCo Holding AG),
together with its subsidiaries after the Merger (i.e. to the surviving entity) and prior to the Redomestication (as defined below)
and (iii) to Auris Medical Holding Ltd., a Bermuda company, or Auris Medical (Bermuda), the successor issuer to Auris Medical
(Switzerland) under Rule 12g-3(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), after the
effective time at which Auris Medical (Switzerland) continued its corporate existence from Switzerland to Bermuda (the “Redomestication”),
which occurred on March 18, 2019. The trademarks, trade names and service marks appearing in this report are property of their
respective owners.
On May 1, 2019, the Company effected a
one-for-twenty reverse share split (the “2019 Reverse Share Split”) of the Company’s issued and outstanding
common shares. Unless indicated or the context otherwise requires, all per share amounts and numbers of common shares in this
report have been retrospectively adjusted for the 2019 Reverse Share Split.
Unless indicated or the
context otherwise requires, (i) all references in this report to our common shares as of any date prior to March 13, 2018 refer
to the common shares of Auris Medical (Switzerland) (having a nominal value of CHF 0.40 per share (pre-2019 Reverse Share Split))
prior to the 10:1 “reverse share split” effected through the Merger, (ii) all references to our common shares as of,
and after, March 13, 2018 and prior to the Redomestication refer to the common shares of Auris Medical (Switzerland) (having a
nominal value of CHF 0.02 per share (pre-2019 Reverse Share Split)) after the 10:1 “reverse share split” effected
through the Merger, (iii) all references to our common shares as of, and after, the Redomestication on March 18, 2019 refer to
the common shares of Auris Medical (Bermuda) (having a par value of CHF 0.02 per share (pre-2019 Reverse Share Split)) and (iv)
the Company’s common shares on or after May 1, 2019, the date of the 2019 Reverse Share Split, have a par value of CHF 0.40.
The terms “dollar,” “USD”
or “$” refer to U.S. dollars and the term “Swiss Franc” and “CHF” refer to the legal currency
of Switzerland.
This Annual Report contains statements
that constitute forward-looking statements. Many of the forward-looking statements contained in this Annual Report can be identified
by the use of forward-looking words such as “anticipate,” “believe,” “could,” “expect,”
“should,” “plan,” “intend,” “will,” “estimate” and “potential,”
among others, or the negatives thereof.
Forward-looking statements appear in a
number of places in this Annual Report and include, but are not limited to, statements regarding our intent, belief or current
expectations. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently
available to our management. Such statements are subject to risks and uncertainties, and actual results may differ materially
from those expressed or implied in the forward-looking statements due to various factors, including, but not limited to, those
identified under the section “Item 3. Key Information-D. Risk factors” in this Annual Report. These risks and uncertainties
include factors relating to:
Our actual results or performance could
differ materially from those expressed in, or implied by, any forward-looking statements relating to those matters. Accordingly,
no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if
any of them do so, what impact they will have on our results of operations, cash flows or financial condition. Except as required
by law, we are under no obligation, and expressly disclaim any obligation, to update, alter or otherwise revise any forward-looking
statement, whether written or oral, that may be made from time to time, whether as a result of new information, future events
or otherwise.
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
|
A.
|
Directors
and senior management
|
Not applicable.
Not applicable.
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
|
B.
|
Method
and expected timetable
|
Not applicable.
ITEM 3. KEY INFORMATION
|
A.
|
Selected
Financial Data
|
The following tables summarize our consolidated
financial data as of the dates and for the periods indicated. The consolidated financial statement data as of December 31, 2019
and 2018 and for each of the years in the three-year period ended December 31, 2019 has been derived from our consolidated financial
statements presented elsewhere in this Annual Report, which have been prepared in accordance with International Financial Reporting
Standards as issued by the International Accounting Standards Board (“IFRS”). The consolidated financial data for
the years ended December 31, 2016 and 2015 has been derived from our audited consolidated financial statements which have been
prepared in accordance with IFRS and which have not been included herein.
This financial information should be read
in conjunction with “Item 5-Operating and Financial Review and Prospects” and our consolidated audited financial statements,
including the notes thereto, included in this Annual Report.
|
|
For the years ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands of CHF except for share and per share data)
|
|
Profit or Loss and Other Comprehensive Loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
(3,325
|
)
|
|
|
(6,690
|
)
|
|
|
(19,211
|
)
|
|
|
(24,777
|
)
|
|
|
(26,536
|
)
|
General and administrative
|
|
|
(3,934
|
)
|
|
|
(4,264
|
)
|
|
|
(5,150
|
)
|
|
|
(5,447
|
)
|
|
|
(4,342
|
)
|
Operating loss
|
|
|
(7,259
|
)
|
|
|
(10,954
|
)
|
|
|
(24,361
|
)
|
|
|
(30,224
|
)
|
|
|
(30,878
|
)
|
Interest income
|
|
|
18
|
|
|
|
—
|
|
|
|
54
|
|
|
|
68
|
|
|
|
37
|
|
Interest expense
|
|
|
(29
|
)
|
|
|
(1,070
|
)
|
|
|
(1,640
|
)
|
|
|
(829
|
)
|
|
|
(8
|
)
|
Foreign currency exchange gain/(loss), net
|
|
|
(219
|
)
|
|
|
(140
|
)
|
|
|
(825
|
)
|
|
|
(100
|
)
|
|
|
1,144
|
|
Revaluation gain from derivative financial instruments
|
|
|
664
|
|
|
|
1,350
|
|
|
|
3,372
|
|
|
|
291
|
|
|
|
—
|
|
Transaction costs
|
|
|
—
|
|
|
|
(520
|
)
|
|
|
(1,027
|
)
|
|
|
|
|
|
|
|
|
Loss before tax
|
|
|
(6,825
|
)
|
|
|
(11,334
|
)
|
|
|
(24,427
|
)
|
|
|
(30,794
|
)
|
|
|
(29,705
|
)
|
Income tax gain/(loss)
|
|
|
194
|
|
|
|
(162
|
)
|
|
|
18
|
|
|
|
131
|
|
|
|
—
|
|
Income tax expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net loss attributable to owners of the Company
|
|
|
(6,631
|
)
|
|
|
(11,496
|
)
|
|
|
(24,409
|
)
|
|
|
(30,663
|
)
|
|
|
(29,705
|
)
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items that will never be reclassified to profit or loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remeasurements of defined benefits liability
|
|
|
(72
|
)
|
|
|
1,277
|
|
|
|
272
|
|
|
|
(394
|
)
|
|
|
(54
|
)
|
Items that are or may be reclassified to profit or loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation differences
|
|
|
16
|
|
|
|
(11
|
)
|
|
|
50
|
|
|
|
(20
|
)
|
|
|
(13
|
)
|
Other comprehensive income/(loss)
|
|
|
(56
|
)
|
|
|
1,266
|
|
|
|
322
|
|
|
|
(414
|
)
|
|
|
(67
|
)
|
Total comprehensive loss attributable to owners of the Company
|
|
|
(6,687
|
)
|
|
|
(10,230
|
)
|
|
|
(24,087
|
)
|
|
|
(31,077
|
)
|
|
|
(29,772
|
)
|
Net loss per share(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted(2)
|
|
|
(2.28
|
)
|
|
|
(14.46
|
)
|
|
|
(111.61
|
)
|
|
|
(178.60
|
)
|
|
|
(184.00
|
)
|
Weighted-average number of shares used to compute net loss per common share, basic and diluted
|
|
|
2,909,056
|
|
|
|
795,043
|
|
|
|
218,709
|
|
|
|
171,646
|
|
|
|
161,496
|
|
|
(1)
|
For
periods prior to the closing of our initial public offering, net loss per share includes
preference shares, which were converted on a one-for-one basis upon the closing of our
initial public offering.
|
|
(2)
|
Basic
net loss per common share and diluted net loss per common share are the same. See Note
21 to our audited consolidated financial statements included elsewhere in this Annual
Report. The basic and diluted loss per share for the years ended December 31, 2019, 2018,
2017, 2016 and 2015 is revised to reflect the reverse-split ratio of 20 to 1 following
the 2019 Reverse Share Split on May 1, 2019.
|
|
|
As of December
31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
(in thousands of CHF)
|
|
Statement of Financial Position Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
1,385
|
|
|
|
5,393
|
|
|
|
14,973
|
|
|
|
32,442
|
|
|
|
50,237
|
|
Total assets
|
|
|
9,226
|
|
|
|
9,877
|
|
|
|
17,826
|
|
|
|
35,658
|
|
|
|
52,812
|
|
Total liabilities
|
|
|
3,190
|
|
|
|
6,227
|
|
|
|
19,888
|
|
|
|
21,515
|
|
|
|
8,070
|
|
Share capital
|
|
|
1,650
|
|
|
|
710
|
|
|
|
19,350
|
|
|
|
13,732
|
|
|
|
13,722
|
|
Total shareholders’ (deficit)/equity
attributable to owners of the Company
|
|
|
6,036
|
|
|
|
3,650
|
|
|
|
(2,162
|
)
|
|
|
14,143
|
|
|
|
44,741
|
|
|
B.
|
Capitalization
and indebtedness
|
Not applicable.
|
C.
|
Reasons
for the offer and use of proceeds
|
Not applicable.
You should carefully consider the risks
and uncertainties described below and the other information in this Annual Report. Our business, financial condition or results
of operations could be materially and adversely affected if any of these risks occurs, and as a result, the market price of our
common shares could decline. This Annual Report also contains forward-looking statements that involve risks and uncertainties.
See “Forward-Looking Statements.” Our actual results could differ materially and adversely from those anticipated
in these forward-looking statements as a result of certain factors.
Risks Related to Our Business and Industry
We are a development-stage company and have a limited
operating history and a history of operating losses. We anticipate that we will continue to incur losses for the foreseeable future.
We are a development-stage biopharmaceutical
company with limited operating history. Since inception, we have incurred significant operating losses. We incurred net losses
(defined as net loss attributable to owners of the Company) of CHF 6.7 million, CHF 11.5 million and CHF 24.4 million for the
years ended December 31, 2019, 2018 and 2017, respectively. As of December 31, 2019, we had an accumulated deficit of CHF 152.8
million.
Our losses have resulted principally from
expenses incurred in research and development of our product candidates, pre-clinical research and general and administrative expenses
that we have incurred while building our business infrastructure. We expect to continue to incur significant operating losses in
the future as we continue our research and development efforts for our product candidates in clinical development. In our financial
year ended December 31, 2019, we incurred CHF 7.3 million in operating loss and capitalized development cost of CHF 3.2 million,
and we expect our total cash need in 2020 to be in the range of CHF 7.5 to 10.0 million for our expected total operating expenses
of CHF 3.5 to 4.5 million and our expected capitalized research and development costs of CHF 4.0 to 5.5 million.
To date, we have financed our operations
through the initial public offering and a follow-on offering of our common shares, private placements of equity securities and
short- and long-term loans. On July 19, 2016, we entered into a Loan and Security Agreement with Hercules Technology Growth Capital,
Inc., or Hercules. The agreement provided us with a senior secured term loan facility for up to $20 million. On January 31, 2019,
we made the final payment to Hercules under the facility, comprising the last amortization payment as well as an end of term charge.
With the final payment, all covenants and collaterals in favor of Hercules have been lifted.
We have no products approved for commercialization
and have never generated any revenues from product sales. Biopharmaceutical product development is a highly speculative undertaking
and involves a substantial degree of risk. It may be several years, if ever, before we have a product candidate approved for commercialization
and begin to generate revenues from product sales.
We have never generated any revenue from product sales
and may never be profitable.
We have no products approved for commercialization
and have never generated any revenue. Our ability to generate revenue and achieve profitability depends on our ability to successfully
complete the development of, and obtain the marketing approvals necessary to commercialize, one or more of our product candidates.
We do not anticipate generating revenue from product sales unless and until we obtain regulatory approval for, and commercialize,
Keyzilen®, Sonsuvi®, AM-125 or AM-201. Our ability to generate future revenue from product sales
depends heavily on our success in many areas, including but not limited to:
|
●
|
completing
research and clinical development of our product candidates;
|
|
●
|
obtaining
marketing approvals for our product candidates, including Keyzilen®, Sonsuvi®,
AM-125 or AM-201, for which we will have to complete clinical trials;
|
|
●
|
developing
a sustainable and scalable manufacturing process for any approved product candidates
and maintaining supply and manufacturing relationships with third parties that can conduct
the process and provide adequate (in amount and quality) products to support clinical
development and the market demand for our product candidates, if approved;
|
|
●
|
launching
and commercializing product candidates for which we obtain marketing approval, either
directly or with a collaborator or distributor;
|
|
●
|
obtaining
market acceptance of our product candidates as viable treatment options;
|
|
●
|
addressing
any competing technological and market developments;
|
|
●
|
identifying,
assessing, acquiring and/or developing new product candidates;
|
|
●
|
negotiating
favorable terms in any collaboration, licensing, or other arrangements into which we
may enter;
|
|
●
|
maintaining,
protecting, and expanding our portfolio of intellectual property rights, including patents,
trade secrets, and know-how; and
|
|
●
|
attracting,
hiring, and retaining qualified personnel.
|
Even if one or more of the product candidates
that we develop is approved for commercial sale, we anticipate incurring significant costs associated with commercializing any
approved product candidate. Because of the numerous risks and uncertainties with pharmaceutical product development, we are unable
to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. Our
expenses could increase beyond expectations if we are required by the FDA, the EMA, or other regulatory agencies, domestic or
foreign, to change our manufacturing processes, or to perform clinical, nonclinical, or other types of trials in addition to those
that we currently anticipate. In cases where we are successful in obtaining regulatory approvals to market one or more of our
product candidates, our revenue will be dependent, in part, upon the size of the markets in the territories for which we gain
regulatory approval, the accepted price for the product, the ability to obtain coverage and reimbursement at any price, and whether
we own the commercial rights for that territory. If the number of our addressable patients is not as significant as we estimate,
the indication approved by regulatory authorities is narrower than we expect, or the treatment population is narrowed by competition,
physician choice or treatment guidelines, we may not generate significant revenue from sales of such products, even if approved.
Additionally, if we are not able to generate sufficient revenue from the sale of any approved products, we may never become profitable.
We may be unable to develop and commercialize
Keyzilen®, Sonsuvi®, AM-125 or AM-201 or any other product candidate and, even if we do, may never
achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a semiannual
or annual basis. Our failure to become and remain profitable would decrease the value of the Company and could impair our ability
to raise capital, expand our business or continue our operations.
We expect that we will need substantial additional funding
before we can expect to become profitable from sales of our products. If we are unable to raise capital when needed, we could
be forced to delay, reduce or eliminate our product development programs or commercialization efforts.
We expect our research and development expenses
to remain significant in connection with our ongoing clinical development activities, particularly as we initiate new trials with
AM-125 and AM-201 may initiate new trials of Keyzilen® and Sonsuvi® and may initiate pre-clinical
and clinical development of other product candidates. We expect our total cash need in 2020 to be in the range of CHF 7.5 to 10.0
million for our expected total operating expenses of CHF 3.5 to 4.0 million and our expected capitalized research and development
costs of CHF 4.0 to 5.5 million. As of December 31, 2019, our cash and cash equivalents were CHF 1.4 million. Our assumptions may
prove to be wrong, and we may have to use our capital resources sooner than we currently expect. If we are unable to raise capital
when needed, we could be forced to delay, suspend, reduce or terminate our product development programs or commercialization efforts.
Also, should we fail to raise sufficient funds to cover our operating expenditures for at least a 12 month period, we may no longer
be considered a “going concern.” The lack of a going concern assessment may negatively affect the valuation of the
Company’s investments in its subsidiaries and result in a revaluation of these holdings. The board of directors will need
to consider the interests of our creditors and take appropriate action to restructure the business if it appears that we are insolvent
or likely to become insolvent. 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. The COVID-19 outbreak and its impact on the global financial markets may limit our ability to raise additional
funds to continuously fund our operations and complete the research and development of all of our product candidates. If we receive
regulatory approval for any of our product candidates, and if we choose to not 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. We also expect to continue to incur additional costs associated with operating as a public company.
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.
Raising additional capital may cause dilution to our
shareholders, restrict our operations or require us to relinquish rights to our intellectual property or future revenue streams.
Until such time, if ever, as we can generate
substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings, grants,
and license and development agreements in connection with any collaborations. We do not have any committed external source of
funds. In the event we need to seek additional funds, we may raise additional capital through the sale of equity or convertible
debt securities. In such an event, our shareholders’ ownership interests will be diluted, and the terms of these new securities
may include liquidation or other preferences that adversely affect our shareholders’ rights as holders of our common shares.
Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific
actions, such as incurring additional debt, making capital expenditures or declaring dividends.
If we raise additional funds through collaborations,
strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable
rights to our intellectual property or future revenue streams. If we are unable to raise additional funds when needed, we may
be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to
develop and market product candidates that we would otherwise prefer to develop and market ourselves.
We do not have a history of commercializing pharmaceutical
products, which may make it difficult to evaluate the prospects for our future viability.
Our operations to date have been limited
to financing and staffing the Company, developing our technology and developing our product candidates. We have not yet demonstrated
an ability to successfully complete large-scale, pivotal clinical trials, obtain marketing approvals, manufacture a commercial
scale product or conduct sales and marketing activities necessary for successful product commercialization. Consequently, predictions
about our future success or viability may not be as accurate as they could be if we had a history of successfully developing and
commercializing pharmaceutical products.
We are in the process of evaluating potential next steps
in the development of our late-stage product candidates Keyzilen® and Sonsuvi®. We cannot give any
assurance that these candidates will continue to be developed, receive regulatory approval or be successfully commercialized or
partnered.
We do not have any products that have
gained regulatory approval. We have two late-stage clinical product candidates, (i) Keyzilen® (AM-101), which
is being developed for the treatment of acute inner ear tinnitus and (ii) Sonsuvi® (AM-111), which is being
developed for the treatment of acute inner ear hearing loss. On March 13, 2018, we announced that the TACTT3 Phase 3 clinical
trial with Keyzilen® did not meet its primary efficacy endpoint of a statistically significant improvement in
the Tinnitus Functional Index, or TFI, 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. This followed our announcement in August 2016 that, TACTT2,
the previously conducted Phase 3 sister trial with Keyzilen®, did not meet its two co-primary efficacy
endpoints of statistically significant changes in tinnitus loudness and tinnitus burden compared to placebo.
On April 25, 2019, we announced that
we had completed the design of a pivotal Phase 2/3 trial for Keyzilen®. The trial shall, in two stages,
reaffirm the compound’s efficacy in the treatment of acute tinnitus following traumatic cochlear injury and provide
confirmatory efficacy data to support a filing for marketing authorization. On September 13, 2019, we announced that we had
obtained advice on the development plan and regulatory pathway from the U.S. Food and Drug Administration (“FDA”)
in the context of a Type C meeting and from the European Medicines Agency (“EMA”) in the context of a Scientific
Advice procedure for Keyzilen®. If we continue development of Keyzilen®with a pivotal Phase 2/3
trial in order to pursue regulatory approval, which may require additional studies and trials in the future, we would need to
obtain additional funds for any such additional study or studies, and we may be unable to do so. We currently aim to
implement the further development of Keyzilen® with non-dilutive funding, which may include strategic
partnering, special purpose vehicle financing, grant funding or a combination thereof. If we are not able to obtain
additional funds, we will not be able to complete the development, testing and commercialization of
Keyzilen®.
On November 28, 2017, we announced that
the HEALOS Phase 3 clinical trial that investigated our other late-stage product candidate, Sonsuvi®, 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, in post-hoc
analyses, a clinically meaningful and nominally significant improvement in hearing was observed in the subpopulation of patients
with acute profound hearing loss at baseline. Based on these results, we submitted the design of a new pivotal trial with AM-111
0.4 mg/mL in patients suffering from acute profound hearing loss to the European Medicines Agency, or EMA, and subsequently also
to the U.S. Food and Drug Administration, or the FDA, for review. Through a Protocol Assistance procedure the EMA endorsed the
proposed trial design, choice of efficacy and safety endpoints, as well as the statistical methodology. In a Type C meeting with
written responses, the proposed choice of primary and secondary efficacy endpoints, the safety endpoints, as well as the planned
sample size and statistical methodology were also endorsed by the FDA. We currently aim to implement the further development of
Sonsuvi® through strategic partnering, special purpose vehicle financing, grant funding or a combination thereof.
If we are not able to obatin additional funds, we will not be able to complete the development, testing and commercialization
of Sonsuvi®.
On December 30, 2019, we announced the
formation of a new subsidiary, Zilentin Ltd., to bundle our development projects for the treatment of tinnitus and hearing loss
in a separate entity. Upon completion of the transfers from other Group companies, Zilentin Ltd. is expected to own all tangible
and intangible assets related to the development of tinnitus therapeutics, including Keyzilen®, and hearing loss therapeutics
(Sonsuvi®).
Risks Related to the Development and Clinical Testing of
Our Product Candidates
We depend entirely on the success of Keyzilen®,
Sonsuvi®, and AM-125 and AM-201, which are still in clinical development. If our clinical trials are unsuccessful,
we do not obtain regulatory approval or we are unable to commercialize Keyzilen®, Sonsuvi®, AM-125
and AM-201, or we experience significant delays in doing so, our business, financial condition and results of operations will
be materially adversely affected.
We currently have no products approved
for sale and have invested a significant portion of our efforts and financial resources in the development of Keyzilen®,
Sonsuvi®, AM-125 and AM-201, which are still in clinical development. Our ability to generate product revenues,
which we do not expect will occur for at least the next few years, if ever, will depend heavily on successful clinical development,
obtaining regulatory approval and eventual commercialization of these product candidates. We currently generate no revenues from
sales of any drugs, and we may never be able to develop or commercialize a marketable drug. The success of Keyzilen®,
Sonsuvi®, AM-125 and AM-201 and our other product candidates will depend on several factors, including the following:
|
●
|
completing
clinical trials that demonstrate the efficacy and safety of our product candidates;
|
|
●
|
receiving
marketing approvals from competent regulatory authorities;
|
|
●
|
establishing
commercial manufacturing capabilities;
|
|
●
|
launching
commercial sales, marketing and distribution operations;
|
|
●
|
acceptance
of our product candidates by patients, the medical community and third-party payors;
|
|
●
|
a
continued acceptable safety profile following approval;
|
|
●
|
competing
effectively with other therapies; and
|
|
●
|
qualifying
for, maintaining, enforcing and defending our intellectual property rights and claims.
|
If we do not achieve one or more of these
factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize Keyzilen®,
Sonsuvi®, AM-125 and AM-201, which would materially adversely affect our business, financial condition and results
of operations.
We face risks related to health epidemics and outbreaks,
including the COVID-19 “coronavirus” outbreak, which could significantly disrupt our preclinical studies and clinical
trials, and therefore our receipt of necessary regulatory approvals could be delayed or prevented.
In December 2019, a novel strain of coronavirus
COVID-19 was reported to have surfaced in Wuhan, China. The extent to which COVID-19 may impact our preclinical and clinical trial
operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the
duration and geographic reach of the outbreak, the severity of COVID-19, and the effectiveness of actions to contain and treat
COVID-19. In particular, the COVID-19 outbreak will delay enrollment of patients into our “TRAVERS” phase 2 trial with
AM-125. Candidates for participation in this trial undergo certain types of neurosurgery, which are elective procedures. Due to
the COVID-19 outbreak, the sites participating in the “TRAVERS” trial have postponed elective procedures and temporarily
reduced or suspended clinical research activities. As a result, enrollment came to a halt towards the end of March 2020. Although
sites are expected to catch up on enrollment once COVID-19 related restrictions are relaxed, the Company therefore expects that
the interim analysis following Part A of the trial will be completed only in the third quarter of 2020, at the earliest.
The continued spread of COVID-19 globally
could otherwise adversely impact our clinical trial operations, including our ability to recruit and retain patients and principal
investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19 if an outbreak occurs in their
geography. Disruptions or restrictions on our ability to travel to monitor data from our clinical trials, or to conduct clinical
trials, or the ability of patients enrolled in our studies to travel, or the ability of staff at study sites to travel, as well
as temporary closures of our facilities or the facilities of our clinical trials partners and their contract manufacturers, would
negatively impact our clinical trial activities. In addition, we rely on independent clinical investigators, contract research
organizations and other third-party service providers to assist us in managing, monitoring and otherwise carrying out our preclinical
studies and clinical trials, including the collection of data from our clinical trials, and the outbreak may affect their ability
to devote sufficient time and resources to our programs or to travel to sites to perform work for us. Similarly, our preclinical
trials could be delayed and/or disrupted by the outbreak. As a result, the expected timeline for data readouts of our preclinical
studies and clinical trials and certain regulatory filings may be negatively impacted, which would adversely affect our ability
to obtain regulatory approval for and to commercialize our product candidates, increase our operating expenses and have a material
adverse effect on our financial results.
Clinical drug development involves a lengthy and expensive
process with uncertain timelines and uncertain outcomes, and results of earlier studies and trials may not be predictive of future
trial results. If clinical trials of our product candidates are prolonged or delayed, we may be unable to obtain required regulatory
approvals, and therefore be unable to commercialize our product candidates on a timely basis or at all.
To obtain the requisite regulatory approvals
to market and sell any of our product candidates, we must demonstrate through extensive pre-clinical studies and clinical trials
that our products are safe and effective in humans. Clinical testing is expensive and can take many years to complete, and its
outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The results of pre-clinical
studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials.
For example, positive results generated to date in clinical trials for our product candidates do not ensure that later clinical
trials will demonstrate similar results. Product candidates in later stages of clinical trials may fail to show the desired safety
and efficacy traits despite having progressed through pre-clinical studies and initial clinical trials. A number of companies
in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse
safety profiles, notwithstanding promising results in earlier trials. Our future clinical trial results may not be successful.
Clinical trials must be conducted in accordance
with FDA, EMA and comparable foreign regulatory authorities’ legal requirements, regulations or guidelines, and are subject
to oversight by these governmental agencies and Institutional Review Boards, or IRBs, at the medical institutions where the clinical
trials are conducted. In addition, clinical trials must be conducted with supplies of our product candidates produced under current
good manufacturing practices, or cGMP, and other requirements. We depend on medical institutions and clinical research organizations,
or CROs, to conduct our clinical trials in compliance with current good clinical practice, or cGCP, standards. To the extent the
CROs fail to enroll participants for our clinical trials, fail to conduct the trials to cGCP standards or are delayed for a significant
time in the execution of trials, including achieving full enrollment, we may be affected by increased costs, program delays or
both, which may harm our business.
To date, we have not completed all clinical
trials required for the approval of any of our product candidates. Keyzilen®and Sonsuvi® are in
Phase 3 clinical development, subject to our ability to find non-dilutive partnering for such programs, and AM-125 and AM-201
are in Phase 2 and Phase 1 clinical development, respectively.
The completion of clinical trials for
our clinical product candidates may be delayed, suspended or terminated as a result of many factors, including but not limited
to:
|
●
|
the
delay or refusal of regulators or IRBs to authorize us to commence a clinical trial at
a prospective trial site and changes in regulatory requirements, policies and guidelines;
|
|
●
|
delays
or failure to reach agreement on acceptable terms with prospective CROs and clinical
trial sites, the terms of which can be subject to extensive negotiation and may vary
significantly among different CROs and trial sites;
|
|
●
|
delays
in patient enrollment and variability in the number and types of patients available for
clinical trials;
|
|
●
|
the
inability to enroll a sufficient number of patients in trials to ensure adequate statistical
power to detect statistically significant treatment effects;
|
|
●
|
negative
or inconclusive results, which may require us to conduct additional pre-clinical or clinical
trials or to abandon projects that we expect to be promising;
|
|
●
|
safety
or tolerability concerns could cause us to suspend or terminate a trial if we find that
the participants are being exposed to unacceptable health risks;
|
|
●
|
regulators
or IRBs requiring that we or our investigators suspend or terminate clinical research
for various reasons, including noncompliance with regulatory requirements or safety concerns,
among others;
|
|
●
|
lower
than anticipated retention rates of patients and volunteers in clinical trials;
|
|
●
|
our
CROs or clinical trial sites failing to comply with regulatory requirements or meet their
contractual obligations to us in a timely manner, or at all, deviating from the protocol
or dropping out of a trial;
|
|
●
|
delays
relating to adding new clinical trial sites;
|
|
●
|
difficulty
in maintaining contact with patients after treatment, resulting in incomplete data;
|
|
●
|
errors
in survey design, data collection and translation;
|
|
●
|
delays
in establishing the appropriate dosage levels;
|
|
●
|
the
quality or stability of the product candidate falling below acceptable standards;
|
|
●
|
the
inability to produce or obtain sufficient quantities of the product candidate to complete
clinical trials; and
|
|
●
|
exceeding
budgeted costs due to difficulty in accurately predicting costs associated with clinical
trials.
|
Any delays in completing our clinical
trials will increase our costs, slow down our product candidate development and approval process and jeopardize our ability to
commence product sales and generate revenues. Any of these occurrences may harm our business, financial condition and prospects
significantly. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical
trials may also ultimately lead to the denial of regulatory approval of our product candidates.
Positive or timely results from pre-clinical
or early-stage trials do not ensure positive or timely results in late-stage clinical trials or product approval by the FDA, the
EMA or comparable foreign regulatory authorities. Product candidates that show positive pre-clinical or early clinical results
may not show sufficient safety or efficacy in later stage clinical trials and therefore may fail to obtain regulatory approvals.
For example, although Keyzilen®achieved favorable results in our Phase 2 efficacy trial, in August 2016, we announced
that the Phase 3 TACTT2 clinical trial of Keyzilen® did not meet its two co-primary efficacy endpoints of statistically
significant changes in tinnitus loudness and tinnitus burden compared to placebo. On March 13, 2018, we announced that the
TACTT3 trial 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.
Also, pre-clinical and clinical data are
often susceptible to varying interpretations and analyses. Many companies that believed their product candidates performed satisfactorily
in pre-clinical studies and clinical trials have nonetheless failed to obtain marketing approval for the product candidates. The
FDA, the EMA and comparable foreign regulatory authorities have substantial discretion in the approval process and in determining
when or whether regulatory approval will be obtained for any of our product candidates. Even if we believe the data collected
from clinical trials of our product candidates are promising, such data may not be sufficient to support approval by the FDA,
the EMA or any other regulatory authority.
In some instances, there can be significant
variability in safety and/or efficacy results between different trials of the same product candidate due to numerous factors,
including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, adherence
to the dosing regimen and other trial protocols and the rate of dropout among clinical trial participants. In the case of our
late-stage clinical product candidates, results may differ in general on the basis of the larger number of clinical trial sites
and additional countries and languages involved in Phase 3 clinical trials.
In the case of Keyzilen®,
our endpoints in Phase 3 clinical trials were based on patient reported outcomes, or PROs, some of which were captured daily from
trial participants with electronic diaries. Based on insights from our analysis of the TACTT2 and TACTT3 trials, we believe the
high frequency of tinnitus loudness ratings over an extended period of time may have caused a number of patients to excessively
focus on their tinnitus symptoms, thereby influencing the measured outcome. In addition, the daily reporting requirements may
have led to rating fatigue and a loss of accuracy and reliability of the data that were entered. In the previous clinical trials
with Keyzilen® we had collected these PROs only during study visits, i.e. much less frequently. Under the Special
Protocol Assessment (SPA) with the FDA we agreed to increase the rating frequency for the TACTT trials.
In the case of Sonsuvi®,
we are evaluating safety and efficacy in an idiopathic condition which implies a considerable heterogeneity in the etiology
and natural history of the condition. In addition, we have been dealing with a limited availability of detailed and reliable data
relating to the natural history of acute hearing loss, which implies substantial uncertainty with regards to the design of clinical
trials, e.g. for determining the number of patients required for statistical testing or the size of the expected treatment effect.
For example, a Phase 2 clinical trial with Sonsuvi® showed a strong relationship between the level or severity
of initial hearing loss and the size of the treatment effect for active-treated patients compared to placebo-treated patients.
Whereas a high spontaneous recovery rate and no treatment effects were observed in patients with mild to moderate hearing loss
at baseline, lower spontaneous recovery and meaningful treatment effects were observed in patients with severe to profound hearing
loss. Accordingly, enrollment into the Phase 3 trials HEALOS and ASSENT was restricted to patients with severe-profound hearing
loss at baseline. On November 28, 2017, we announced that the HEALOS Phase 3 clinical trial that investigated Sonsuvi®
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 (PTA ≥ 90 dB at baseline in accordance with
a commonly used classification of hearing loss severity) revealed a clinically meaningful and nominally significant improvement
in the Sonsuvi® 0.4 mg/mL treatment group. Accordingly, in HEALOS we found confirmation about the relationship
between severity of hearing loss and the size of therapeutic effects; however, such therapeutic effects were not observed in the
subgroup of patients with severe initial hearing loss but rather, unlike in the Phase 2 trial, only in the subgroup with profound
initial hearing loss. We understand from animal studies that the pharmacological target for Sonsuvi® is only activated
in case of severe acute cochlear injury; however, activation of this target cannot be determined in humans, and we had to rely
on the measurement of hearing loss for assessing the severity of injury.
Based on the results from the HEALOS clinical
trial, we submitted the design of a new pivotal trial with AM-111 0.4 mg/mL in patients suffering from acute profound hearing
loss to the EMA and subsequently also to the FDA for review. Through a Protocol Assistance procedure the EMA endorsed the proposed
trial design, choice of efficacy and safety endpoints, as well as the statistical methodology. In a Type C meeting with written
responses, the proposed choice of primary and secondary efficacy endpoints, the safety endpoints, as well as the planned sample
size and statistical methodology were also endorsed by the FDA.
Orphan drug designation for AM-111 was
granted by the FDA and EMA for the treatment of acute sensorineural hearing loss, or ASNHL, an umbrella term that comprises hearing
loss from acute acoustic trauma, or AAT, surgery-induced trauma or idiopathic sudden sensorineural hearing loss, or ISSNHL. We
estimate ISSNHL to be the largest of the three subgroups. The broader, more general designation of ASNHL is based on the common
pathophysiologic pathway shared by the three subgroups. Although we aim to obtain regulatory approval for the entire indication
of ASNHL based on confirmatory efficacy and safety data that covers only one or two rather than all three of the subgroups, there
can be no assurance that regulatory agencies will concur with this assumption at the time of the marketing approval procedure.
In that case, it may not be sufficient to conduct trials in the subgroup of ISSNHL, as is currently planned to gain the indication
for ASNHL.
If we are required to conduct additional
clinical trials or other testing of Keyzilen®, Sonsuvi®, AM-125, AM-201 or any other product candidate
that we develop beyond the trials and testing that we currently contemplate, if we are unable to successfully complete clinical
trials of our product candidates or other testing, if the results of these trials or tests are unfavorable or are only modestly
favorable or if there are safety concerns associated with Keyzilen®, Sonsuvi®or our other product
candidates, we may:
|
●
|
be
delayed in obtaining marketing approval for our product candidates;
|
|
●
|
not
obtain marketing approval at all;
|
|
●
|
obtain
approval for indications or patient populations that are not as broad as intended or
desired;
|
|
●
|
obtain
approval with labeling that includes significant use or distribution restrictions or
significant safety warnings, including boxed warnings;
|
|
●
|
be
subject to additional post-marketing testing or other requirements; or
|
|
●
|
remove
the product from the market after obtaining marketing approval.
|
Our product development costs will also
increase if we experience delays in testing or marketing approvals or if we are required to conduct additional clinical trials
or other testing of Keyzilen®, Sonsuvi®, AM-125 or AM-201 beyond the trials and testing that we
currently contemplate and we may be required to obtain additional funds to complete such additional clinical trials. We cannot
assure you that our clinical trials will begin as planned or be completed on schedule, if at all, or that we will not need to
restructure our trials after they have begun. Significant clinical trial delays also could shorten any periods during which we
may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before
we do or shorten any periods during which we have the exclusive right to commercialize our product candidates, which may harm
our business and results of operations. In addition, some of the factors that cause, or lead to, clinical trial delays may ultimately
lead to the denial of regulatory approval of Keyzilen®, Sonsuvi®, AM-125, AM-201 or any other product
candidate.
If serious adverse, undesirable or unacceptable side
effects are identified during the development of our product candidates or following approval, if any, we may need to abandon
our development of such product candidates, the commercial profile of any approved label may be limited, or we may be subject
to other significant negative consequences following marketing approval, if any.
If our product candidates are associated
with serious adverse, undesirable or unacceptable side effects, we may need to abandon their development or limit development
to certain uses or sub-populations in which such side effects are less prevalent, less severe or more acceptable from a risk-benefit
perspective. Many compounds that initially showed promise in pre-clinical or early-stage testing have later been found to cause
side effects that restricted their use and prevented further development of the compound for larger indications.
In our clinical trials of Keyzilen®
and Sonsuvi® to date, adverse events have included procedure-related transient changes in tinnitus loudness,
muffled hearing, ear discomfort or pain, incision site complications and middle ear infections. A limited number of serious adverse
events were observed (in 1.2 to 2.5% of patients enrolled in the Keyzilen® trials and in 2.7 to 4.5% of patients
in the Sonsuvi® trials); all (Keyzilen®) or most (Sonsuvi®) were considered unrelated
or unlikely related to the treatment. In the two Phase 1 trials and the currently ongoing Phase 1b trial (up to the interim analysis)
with intranasal betahistine, adverse events included transient and dose-dependent nasal congestion or discomfort. No serious adverse
events were observed. Occurrence of serious procedure- or treatment-related side effects could impede clinical trial enrollment
and receipt of marketing approval from the FDA, the EMA and comparable foreign regulatory authorities. They could also adversely
affect physician or patient acceptance of our product candidates.
Additionally, if one or more of our product
candidates receives marketing approval, and we or others later identify undesirable side effects caused by such products, a number
of potentially significant negative consequences could result, including:
|
●
|
regulatory
authorities may withdraw approvals of such product;
|
|
●
|
regulatory
authorities may require additional warnings on the label;
|
|
●
|
we
may be required to create a medication guide outlining the risks of such side effects
for distribution to patients;
|
|
●
|
we
could be sued and held liable for harm caused to patients; and
|
|
●
|
our
reputation and physician or patient acceptance of our products may suffer.
|
Any of these events could prevent us from
achieving or maintaining market acceptance of the particular product candidate, if approved, and could significantly harm our
business, results of operations and prospects.
We depend on enrollment of patients in our clinical trials
for our product candidates. If we are unable to enroll patients in our clinical trials, our research and development efforts could
be materially adversely affected.
Successful and timely completion of clinical
trials will require that we enroll a sufficient number of patient candidates. Trials may be subject to delays as a result of patient
enrollment taking longer than anticipated or patient withdrawal. Patient enrollment depends on many factors, including the size
and nature of the patient population, eligibility criteria for the trial, the proximity of patients to clinical sites, the design
of the clinical protocol, the availability of competing clinical trials, the availability of new drugs approved for the indication
the clinical trial is investigating, and clinicians’ and patients’ perceptions as to the potential advantages of the
drug being studied in relation to other available therapies.
The specific target population of patients
and therapeutic time windows may make it difficult for us to enroll enough patients to complete our clinical trials in a timely
and cost-effective manner. Delays in the completion of any clinical trial of our product candidates will increase our costs, slow
down our product candidate development and approval process and delay or potentially jeopardize our ability to commence product
sales and generate revenue. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion
of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.
We may become exposed to costly and damaging liability
claims, either when testing our product candidates in the clinic or at the commercial stage; and our product liability insurance
may not cover all damages from such claims.
We are exposed to potential product liability
and professional indemnity risks that are inherent in the research, development, manufacturing, marketing and use of pharmaceutical
products. Currently, we have no products that have been approved for commercial sale; however, the current and future use of product
candidates by us in clinical trials, and the sale of any approved products in the future, may expose us to liability claims. These
claims might be made by patients that use the product, healthcare providers, pharmaceutical companies or others selling such products.
Any claims against us, regardless of their merit, could be difficult and costly to defend and could materially adversely affect
the market for our product candidates or any prospects for commercialization of our product candidates.
Although the clinical trial process is
designed to identify and assess potential side effects, it is always possible that a drug, even after regulatory approval, may
exhibit unforeseen side effects. If any of our product candidates were to cause adverse side effects during clinical trials or
after approval of the product candidate, we may be exposed to substantial liabilities. Physicians and patients may not comply
with any warnings that identify known potential adverse effects and patients who should not use our product candidates.
We purchase liability insurance in connection
with each of our clinical trials. It is possible that our liabilities could exceed our insurance coverage. We intend to expand
our insurance coverage to include the sale of commercial products if we obtain marketing approval for any of our product candidates.
However, we may not be able to maintain insurance coverage at a reasonable cost or obtain insurance coverage that will be adequate
to satisfy any liability that may arise. If a successful product liability claim or series of claims is brought against us for
uninsured liabilities or in excess of insured liabilities, our assets may not be sufficient to cover such claims and our business
operations could be impaired.
Should any of the events described above
occur, this could have a material adverse effect on our business, financial condition and results of operations.
We have obtained orphan drug designation for Sonsuvi®
for the treatment of ASNHL from the FDA and the EMA, and we may rely on obtaining and maintaining orphan drug exclusivity
for Sonsuvi®, if approved. Orphan drug designation may not ensure that we will enjoy market exclusivity in a particular
market, and if we fail to obtain or maintain orphan drug exclusivity for Sonsuvi®, we may be subject to earlier
competition and our potential revenue will be reduced.
Sonsuvi® has been
granted orphan drug designation for the treatment of ASNHL by the FDA and EMA. Under the Orphan Drug Act, the FDA may
designate a product as an orphan drug if it is intended to treat a rare disease or condition, defined as a patient population
of fewer than 200,000 in the United States, or a patient population greater than 200,000 in the United States where there is
no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States. In the
European Union, the EMA’s Committee for Orphan Medicinal Products, or COMP, grants orphan drug designation to promote
the development of products that are intended for the diagnosis, prevention, or treatment of a life-threatening or
chronically debilitating condition affecting not more than five in 10,000 persons in the European Union. Additionally,
designation is granted for products intended for the diagnosis, prevention, or treatment of a life-threatening, seriously
debilitating or serious and chronic condition when, without incentives, it is unlikely that sales of the drug in the European
Union would be sufficient to justify the necessary investment in developing the drug or biological product or where there is
no satisfactory method of diagnosis, prevention, or treatment, or, if such a method exists, the medicine must be of
significant benefit to those affected by the condition.
In the United States, orphan drug designation
entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages
and user-fee waivers. In addition, if a product receives the first FDA approval for the indication for which it has orphan designation,
the product is entitled to orphan drug exclusivity, which means the FDA may not approve any other application to market the same
drug for the same indication for a period of seven years, except in limited circumstances, such as a showing of clinical superiority
over the product with orphan exclusivity or where the manufacturer is unable to assure sufficient product quantity. In the European
Union, orphan drug designation entitles a party to financial incentives such as reduction of fees or fee waivers and ten years
of market exclusivity following drug or biological product approval. This period may be reduced to six years if the orphan drug
designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify
maintenance of market exclusivity.
Even though we have obtained orphan
drug designation for Sonsuvi® for the treatment of ASNHL in the United States and Europe, we may not be the
first to obtain marketing approval for any particular orphan indication due to the uncertainties associated with developing
pharmaceutical products. Further, even if we obtain orphan drug designation for a product, that exclusivity may not
effectively protect the product from competition because different drugs with different active moieties can be approved for
the same condition. Moreover, the FDA can waive orphan drug exclusivity if we are unable to manufacture sufficient supplies
of Sonsuvi® if the FDA finds that a subsequent applicant demonstrates clinical superiority to
Sonsuvi®. Orphan drug designation neither shortens the development time or regulatory review time of a drug
nor gives the drug any advantage in the regulatory review or approval process.
The orphan drug designation for Sonsuvi®
relates to ASNHL, an umbrella term comprising AAT, ISSNHL and surgery-induced trauma based on a common pathophysiologic
pathway. Our Phase 3 late-stage program enrolled patients suffering from ISSNHL, which represent the largest of the three ASNHL
subgroups.
Due to our limited resources and access to capital, we
must and have in the past decided to prioritize development of certain product candidates; these decisions may prove to have been
wrong and may adversely affect our revenues.
Because we have limited resources and
access to capital to fund our operations, we must decide which product candidates to pursue and the amount of resources to allocate
to each. As such, we have been primarily focused on the development of Keyzilen®, Sonsuvi®, AM-125
and AM-201 for the treatment of acute inner ear tinnitus, acute inner ear hearing loss, vertigo and antipsychotic-induced weight
gain, respectively, with our current commercial focus being limited to AM-125 and AM-201 while we search for non-dilutive or strategic
transactions with respect to Keyzilen® and Sonsuvi®. Our decisions concerning the allocation of
research, collaboration, management and financial resources toward particular compounds, product candidates or therapeutic areas
may not lead to the development of viable commercial products and may divert resources away from better opportunities. Similarly,
our potential decisions to delay, terminate or collaborate with third parties in respect of certain product development programs
may also prove not to be optimal and could cause us to miss valuable opportunities. If we make incorrect determinations regarding
the market potential of our product candidates or misread trends in the biopharmaceutical industry, in particular for inner ear
disorders, our business, financial condition and results of operations could be materially adversely affected.
Our research and development activities could be affected
or delayed as a result of possible restrictions on animal testing.
Certain laws and regulations require us
to test our product candidates on animals before initiating clinical trials involving humans. Animal testing activities have been
the subject of controversy and adverse publicity. Animal rights groups and other organizations and individuals have attempted
to stop animal testing activities by pressing for legislation and regulation in these areas and by disrupting these activities
through protests and other means. To the extent the activities of these groups are successful, our research and development activities
may be interrupted, delayed or become more expensive.
Risks Related to Regulatory Approval of Our Product Candidates
We cannot give any assurance that any of our product
candidates will receive regulatory approval, which is necessary before they can be commercialized.
Our future success is dependent on our
ability to successfully develop, obtain regulatory approval for, and then successfully commercialize one or more product candidates.
We currently have two late-stage clinical product candidates, (i) Keyzilen® (AM-101), which is being developed
for the treatment of acute inner ear tinnitus and (ii) Sonsuvi® (AM-111), being developed for the treatment of
acute inner ear hearing loss. Additionally, we have one product candidate, AM-125, in Phase II clinical development, and another,
AM-201, in Phase I clinical development. We are not permitted to market or promote any of our product candidates before we receive
regulatory approval from the FDA, EMA or comparable foreign regulatory authorities, and we may never receive such regulatory approval
for any of our product candidates.
Although certain of our employees have
prior experience with submitting marketing applications to the FDA, EMA or comparable foreign regulatory authorities, we as a
company have not submitted such applications for our product candidates. We cannot be certain that any of our product candidates
will be successful in clinical trials or receive regulatory approval. Applications for our product candidates could fail to receive
regulatory approval for many reasons, including but not limited to the following:
|
●
|
the
FDA, EMA or comparable foreign regulatory authorities may disagree with the design or
implementation of our clinical trials;
|
|
●
|
the
population studied in the clinical program may not be sufficiently broad or representative
to assure safety in the full population for which we seek approval;
|
|
●
|
the
FDA, EMA or comparable foreign regulatory authorities may disagree with our interpretation
of data from nonclinical trials or clinical trials;
|
|
●
|
the
data collected from clinical trials of our product candidates may not be sufficient to
support the submission of a new drug application, or NDA, or other submission or to obtain
regulatory approval in the United States or elsewhere;
|
|
●
|
we
may be unable to demonstrate to the FDA, EMA or comparable foreign regulatory authorities
that a product candidate’s risk-benefit ratio for its proposed indication is acceptable;
|
|
●
|
the
FDA, EMA or other regulatory authorities may fail to approve the manufacturing processes,
test procedures and specifications, or facilities of third-party manufacturers with which
we contract for clinical and commercial supplies; and
|
|
●
|
the
approval policies or regulations of the FDA, EMA or comparable foreign regulatory authorities
may significantly change in a manner rendering our clinical data insufficient for approval.
|
In addition, no product for the treatment
of acute inner ear tinnitus, acute inner ear hearing loss or antipsychotic-induced weight gain has been approved by the FDA or
the EMA. Accordingly, our current product candidates or any of our other future product candidates could take a significantly
longer time to gain regulatory approval than expected or may never gain regulatory approval. This could delay or eliminate any
potential product revenue by delaying or terminating the potential commercialization of our product candidates.
We generally plan to seek regulatory approval
to commercialize our product candidates in the United States, the European Union and in additional foreign countries where we
have commercial rights. To obtain regulatory approval in other countries, we must comply with numerous and varying regulatory
requirements of such other countries regarding safety, efficacy, chemistry, manufacturing and controls, clinical trials, commercial
sales, pricing, and distribution of our product candidates. Even if we are successful in obtaining approval in one jurisdiction,
we cannot ensure that we will obtain approval in any other jurisdictions. Failure to obtain marketing authorization for our product
candidates will result in our being unable to market and sell such products, which would materially adversely affect our business,
financial conditional and results of operations. If we fail to obtain approval in any jurisdiction, the geographic market for
our product candidates could be limited. Similarly, regulatory agencies may not approve the labeling claims that are necessary
or desirable for the successful commercialization of our product candidates.
Because we are developing therapies for which there is
little clinical experience and, in some cases, using new endpoints, there is more risk that the outcome of our clinical trials
will not be favorable. Even if the results of our trials are favorable, there is risk that they will not be acceptable to regulators
or physicians.
There are currently no drugs with proven
efficacy for acute inner ear tinnitus, acute inner ear hearing loss or acute peripheral vertigo. In addition, there has been limited
historical clinical trial experience generally for the development of drugs to treat these conditions. Regulatory authorities
in the United States and European Union have not issued definitive guidance as to how to measure the efficacy of treatments for
acute inner ear tinnitus, acute inner ear hearing loss or acute peripheral vertigo, and regulators have not yet established what
is required to be demonstrated in a clinical trial in order to signify a clinically meaningful result and/or obtain marketing
approval. We designed our Phase 3 trials for Keyzilen® and Sonsuvi® to include endpoints that we
believe are clinically justified and meaningful. Specifically, with regard to Keyzilen®, the FDA and EMA supported
the use of the Tinnitus Functional Index (TFI) questionnaire as the primary efficacy outcome measure. The TFI captures the impact
of tinnitus on the patient’s day-to-day functioning. Furthermore, the two agencies agreed on a weekly collection of patient-reported
tinnitus loudness. The FDA considers the improvement in tinnitus loudness as a co-primary efficacy endpoint, whereas the EMA endorsed
it as a secondary efficacy endpoint.
With regard to Sonsuvi®,
the FDA and EMA have indicated that a 10 dB improvement in hearing thresholds compared to placebo is clinically significant, in
line with clinical practice. However, no product has been approved for marketing based upon such guidance and we cannot be certain
that Sonsuvi® will be approved even if it were to demonstrate such result in further Phase 3 trials.
Whereas various balance tests such as
the tandem Romberg or standing on foam tests or other objective measures such as nystagmography or head impulse tests are widely
used in the diagnosis and management of vertigo, there is no universally recognized definition of the clinical meaningfulness
of outcomes, and regulatory authorities have not issued guidelines for demonstrating efficacy for drug-based treatments such as
AM-125. Therefore we cannot be certain that AM-125 will be approved even if it were to show statistically significant improvements
in these tests.
Some of our conclusions regarding the potential efficacy
of Sonsuvi® in our completed HEALOS clinical trial for the treatment of ASNHL in the subgroup of patients with
profound acute hearing loss is based on retrospective analyses of the results, which are generally considered less reliable indicators
of efficacy than pre-specified analyses.
After determining that we did not achieve
the primary efficacy endpoint in our completed HEALOS clinical trial of Sonsuvi®for the treatment of ASNHL, we
performed retrospective analyses that we believe show treatment effects on the magnitude of hearing recovery in favor of Sonsuvi®
in cases of profound hearing loss at baseline. Although we believe that these additional analyses were warranted, a retrospective
analysis performed after unblinding trial results can result in the introduction of bias if the analysis is inappropriately tailored
or influenced by knowledge of the data and actual results. In particular, the analysis that resulted in a clinically meaningful
effect being observed in active-treated patients who suffered from profound acute hearing loss poses greater risk of bias as such
subgroup was not pre-specified in the trial design, notwithstanding that we applied a commonly used definition of profound hearing
loss.
Because of these limitations, regulatory
authorities typically give greatest weight to results from pre-specified analyses and less weight to results from post-hoc, retrospective
analyses. According to discussions with the EMA and FDA, the therapeutic benefits that were observed in the HEALOS subgroup of
profound acute hearing loss will need to be confirmed prospectively in one or more additional Phase 3 trials in order to gain
regulatory market approval. However, there is no guarantee that we will ever receive such regulatory approval.
Safety issues with isomers of our product candidates
or with approved products of third parties that are similar to our product candidates, could delay or prevent the regulatory approval
process or result in restrictions on labeling.
Discovery of previously unknown problems,
or increased focus on a known problem, with an approved product may result in restrictions on its permissible uses, including
withdrawal of the medicine from the market. Esketamine and betahistine, the active pharmaceutical ingredients, or APIs, of Keyzilen®
and AM-125, may be affected by the safety of the drugs related to them. Although both APIs have been used successfully in
patients for many years, newly observed toxicities or worsening of known toxicities, in pre-clinical studies of, or in patients
receiving, Esketamine, the racemate Ketamine or betahistine, or reconsideration of known toxicities of these APIs in the setting
of new indications, could result in increased regulatory scrutiny of Keyzilen®or AM-125. For example, Ketamine
is regulated by the Drug Enforcement Administration, or DEA, under the Controlled Substances Act, or CSA, as a Schedule III drug.
DEA scheduling is a separate process that can delay when a drug may become available to patients beyond a NDA approval date, and
the timing and outcome of such DEA process is uncertain. Although we have observed no abuse liability associated with Keyzilen®
to date, if Keyzilen® were to be scheduled under the CSA, such scheduling could negatively impact the ability
or willingness of physicians to prescribe Keyzilen® and our ability to commercialize it.
Substantial additional data may need to be generated
in order to obtain marketing approval for AM-125.
Oral betahistine has been in clinical
use for several decades and is reported to be currently marketed in 115 countries world-wide. However, in the United States oral
betahistine is not approved since the FDA revoked the drug product’s marketing authorization in the early 1970s over issues
with unsubstantiated information about some patients in the efficacy studies upon which approval had been based. Given the absence
of an approved betahistine drug product in the United States and to the extent that existing data may not be deemed sufficient,
the FDA may require a full development package for AM-125.
Furthermore, additional data will be required
for the specific formulation of AM-125 and the intranasal administration route. Since intranasal delivery of betahistine has the
potential to result in substantially higher systemic exposures as measured by concentrations in blood plasma compared to oral
delivery, existing safety assessments conducted with or for the approved drug product may not be sufficient. In addition, some
of these assessments were performed a long time ago and may not be in line with current regulations and guidelines. Therefore
the scope of our development program for AM-125 may ultimately not be much smaller than one for new chemical entities.
Even if our product candidates obtain regulatory approval,
we will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense.
Additionally, our product candidates, if approved, could be subject to labeling and other restrictions and market withdrawal and
we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our
products.
If marketing authorization is obtained
for any of our product candidates, the product will remain subject to continual regulatory review and therefore authorization
could be subsequently withdrawn or restricted. Any regulatory approvals that we receive for our product candidates may also be
subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval,
or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials and surveillance to monitor
the safety and efficacy of the product candidate. In addition, if the FDA or a comparable foreign regulatory authority approves
any of our product candidates, we will be subject to ongoing regulatory obligations and oversight by regulatory authorities, including
with respect to the manufacturing processes, labeling, packing, distribution, adverse event reporting, storage, advertising and
marketing restrictions, and recordkeeping and, potentially, other post-marketing obligations, all of which may result in significant
expense and limit our ability to commercialize such products. These requirements include submissions of safety and other post-marketing
information and reports, registration, as well as continued compliance with cGMPs, cGDPs and cGCPs for any clinical trials that
we conduct post-approval. In the European Union, the marketing authorization holder has to operate a pharmacovigilance system
which conforms with and is equivalent to the respective Member State’s pharmacovigilance system, requiring the holder to
evaluate all information scientifically, to consider options for risk minimization and prevention and to take appropriate measures
as necessary. As part of this system, we will have to, inter alia, have a qualified person responsible for pharmacovigilance,
maintain a pharmacovigilance system master file, operate a risk management system for each medicinal product, monitor the outcome
of risk minimization measures, and update continuously all pharmacovigilance data to update the risk assessment.
Later discovery of previously unknown
problems with a product, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers
or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:
|
●
|
restrictions
on the marketing or manufacturing of the product, withdrawal of the product from the
market, or voluntary or mandatory product recalls;
|
|
●
|
fines,
warning letters or holds on clinical trials;
|
|
●
|
refusal
by the FDA to approve pending applications or supplements to approved applications filed
by us, or suspension or revocation of product license approvals;
|
|
●
|
product
seizure or detention, or refusal to permit the import or export of products; and
|
|
●
|
injunctions
or the imposition of civil or criminal penalties.
|
If any of these events occurs, our ability
to sell such product may be impaired, and we may incur substantial additional expense to comply with regulatory requirements,
which could materially adversely affect our business, financial condition and results of operations. The FDA’s or any other
regulatory authority’s policies may change and additional government regulations may be enacted that could prevent, limit
or delay regulatory approval of our product candidates. If we are slow or unable to adapt to changes in existing requirements
or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing
approval that we may have obtained, which would adversely affect our business, prospects and ability to achieve or sustain profitability.
Future legislation, third-party coverage and reimbursement
and health care cost containment initiatives and treatment guidelines may constrain our future revenues.
Our ability to successfully market our
product candidates will depend in part on the level of reimbursement that government health administration authorities, private
health coverage insurers and other organizations provide for the cost of our products and related treatments. Countries in which
any of our product candidates are sold through reimbursement schemes under national health insurance programs frequently require
that manufacturers and sellers of pharmaceutical products obtain governmental approval of initial prices and any subsequent price
increases. In certain countries, including the United States, government-funded and private medical care plans can exert significant
indirect pressure on prices. We may not be able to sell our product candidates profitably if adequate prices are not approved or
coverage and reimbursement is unavailable or limited in scope. Increasingly, third-party payors attempt to contain health care
costs in ways that are likely to impact our development of products including:
|
●
|
failing
to approve or challenging the prices charged for health care products;
|
|
●
|
introducing
reimportation schemes from lower priced jurisdictions;
|
|
●
|
limiting
both coverage and the amount of reimbursement for new therapeutic products;
|
|
●
|
denying
or limiting coverage for products that are approved by the regulatory agencies but are considered to be experimental or investigational
by third-party payors; and
|
|
●
|
refusing
to provide coverage when an approved product is used in a way that has not received regulatory marketing approval.
|
Moreover, recently there has been heightened
governmental scrutiny over the manner in which manufacturers set prices for their commercial products. There have been several
recent U.S. Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring
more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the cost of
drugs under Medicare, and reform government program reimbursement methodologies for drugs. While any proposed measures will require
authorization through additional legislation to become effective, Congress and the Trump administration have each indicated that
it will continue to seek new legislative and/or administrative measures to control drug costs. At the state level, legislatures
are increasingly passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing,
including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure
and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.
We anticipate that Congress, state legislatures,
and third-party payors may continue to review and assess alternative healthcare delivery and payment systems and may in the future
propose and adopt legislation or policy changes or implementations effecting additional fundamental changes in the healthcare
delivery system. We cannot assure you as to the ultimate content, timing, or effect of changes, nor is it possible at this time
to estimate the impact of any such potential legislation.
In the European Union, a new clinical
trial regulation centralizes clinical trial approval, which eliminates redundancy, but in some cases this may extend timelines
for clinical trial approvals due to potentially longer wait times. The regulation requires specific consents for use of data in
research which, among other measures, may increase the costs and timelines for our product development efforts. The regulation
also provides an obligation for clinical trial sponsors to make summaries of all trial results, accompanied by a summary understandable
to laypersons, as well as the clinical trial report publicly available in a new database. Beyond this obligation, the EMA adopted
a new “Agency policy on publication of clinical data” (in force since January 1, 2015) based on which the EMA makes
available to the public all clinical trials submitted with the EMA as well as raw data results (“individual patient data”).
These publication requirements can conflict with legitimate secrecy interests of the sponsors and may lead to valuable clinical
trial data falling into the public domain.
On June 23, 2016, the UK public voted
in a referendum to leave the European Union. The UK officially left the EU on January 31, 2020 and is now in a transition
period due to end on December 31, 2020. During the transition period, the UK will continue to follow all of the EU’s rules
and its trading relationship will remain the same, while the UK and the EU negotiate the terms of their post-2020 relationship,
including how to handle the licensing and regulation of pharmaceuticals. Therefore, there will likely be no major legal
implications for the life sciences sector in the short term, that is, during 2020. In the long term, however, the effects
may be more severe, in particular if the EU and the UK cannot agree to a continued close association and/or the UK chooses not
to incorporate existing European Union rules into UK national law and/or to no longer aligns itself with European law. The administrative
burden for pharmaceutical companies could increase significantly because regulatory requirements, for example clinical trial authorizations
and marketing authorization applications, may need to be fulfilled under a new and different legal framework for the UK. Existing
marketing authorizations granted in the European Union under the centralized procedure prior to the exit may potentially not be
recognized anymore by the UK.
Austerity measures in certain European
nations may also affect the prices we are able to seek if our products are approved, as discussed below.
Both in the United States and in the European
Union, legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional
activities for pharmaceutical products. We do not know whether additional legislative changes will be enacted, or whether the
regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our
product candidates, if any, may be.
Our relationships with customers and payors may be subject
to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which, if violated, could expose us to
criminal sanctions, civil penalties, exclusion from government healthcare programs, contractual damages, reputational harm and
diminished profits and future earnings, among other penalties.
Healthcare providers, payors and others
play a primary role in the recommendation and prescription of any products for which we obtain marketing approval. Our future
arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws
and regulations, primarily in the United States, that may constrain the business or financial arrangements and relationships through
which we market, sell and distribute our products for which we obtain marketing approval. Restrictions under applicable U.S. healthcare
laws and regulations, include the following:
|
●
|
the
U.S. healthcare anti-kickback statute prohibits, among other things, persons from knowingly
and willfully soliciting, offering, receiving or providing remuneration, directly or
indirectly, in cash or in kind, to induce or reward either the referral of an individual
for, or the purchase, order or recommendation of, any good or service, for which payment
may be made under U.S. government healthcare programs such as Medicare and Medicaid;
|
|
●
|
the
U.S. False Claims Act imposes criminal and civil penalties, including civil whistleblower
or qui tam actions, against individuals or entities for knowingly presenting, or causing
to be presented, to the U.S. government, claims for payment that are false or fraudulent
or making a false statement to avoid, decrease or conceal an obligation to pay money
to the federal government;
|
|
●
|
the
U.S. Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal
and civil liability for executing a scheme to defraud any healthcare benefit program
or making false statements relating to healthcare matters;
|
|
●
|
HIPAA,
as amended by the Health Information Technology for Economic and Clinical Health Act,
or HITECH, imposes obligations, including mandatory contractual terms, with respect to
safeguarding the privacy, security and transmission of individually identifiable health
information;
|
|
●
|
the
transparency requirements under the Health Care Reform Law require manufacturers of drugs,
devices, biologics and medical supplies to report to the U.S. Department of Health and
Human Services information related to payments and other transfers of value made by such
manufacturers to physicians and teaching hospitals, and ownership and investment interests
held by physicians or their immediate family members; and
|
|
●
|
analogous
laws and regulations, such as state anti-kickback and false claims laws, may apply to
sales or marketing arrangements and claims involving healthcare items or services reimbursed
by non-governmental third-party payors, including private insurers, and some state laws
require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary
compliance guidelines and the relevant compliance guidance promulgated by the federal
government in addition to requiring manufacturers to report information related to payments
to physicians and other health care providers or marketing expenditures.
|
Similar laws exist in other jurisdictions.
In the European Union, there is currently
no central European anti-bribery or similar legislation. However, more and more European Union member states as well as life sciences
industry associations are enacting increasingly specific anti-bribery rules for the healthcare sector which are as severe and
sometimes even more severe than in the United States. Germany, for example, has recently adopted new criminal provisions dealing
with granting benefits to healthcare professionals. This new law has increased the legal restrictions as well as the legal scrutiny
for the collaboration and contractual relationships between the pharmaceutical industry and its customers.
Because of the breadth of these laws and
the narrowness of the statutory exceptions and safe harbors available under the U.S. federal Anti-Kickback Statute, it is possible
that some of our future business activities could be subject to challenge under one or more of such laws. In addition, recent
health care reform legislation has strengthened these laws. For example, the Health Care Reform Law, among other things, amends
the intent requirement of the federal anti-kickback and criminal healthcare fraud statutes. A person or entity no longer needs
to have actual knowledge of this statute or specific intent to violate it. Moreover, the Health Care Reform Law provides that
the government may assert that a claim including items or services resulting from a violation of the federal anti-kickback statute
constitutes a false or fraudulent claim for purposes of the False Claims Act.
Efforts to ensure that our business arrangements
with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible
that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations
or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in
violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil,
criminal and administrative penalties, damages, fines, exclusion from U.S. government funded healthcare programs, such as Medicare
and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other providers or entities
with whom we expect to do business with are found to be not in compliance with applicable laws, they may be subject to criminal,
civil or administrative sanctions, including exclusions from government funded healthcare programs.
Risks Related to Commercialization of Our Product Candidates
We operate in highly competitive and rapidly changing
industries, which may result in others discovering, developing or commercializing competing products before or more successfully
than we do.
The biopharmaceutical and pharmaceutical
industries are highly competitive and subject to significant and rapid technological change. Our success is highly dependent on
our ability to discover, develop and obtain marketing approval for new and innovative products on a cost-effective basis and to
market them successfully. In doing so, we face and will continue to face intense competition from a variety of businesses, including
large, fully integrated pharmaceutical companies, specialty pharmaceutical companies and biopharmaceutical companies, academic
institutions, government agencies and other private and public research institutions in Europe, the United States and other jurisdictions.
These organizations may have significantly greater resources than we do and conduct similar research, seek patent protection and
establish collaborative arrangements for research, development, manufacturing and marketing of products that compete with our
product candidates.
We believe that our key competitors are
Otonomy, Inc., or Otonomy, Sound Pharmaceuticals, Inc., or Sound Pharma, Sensorion SA, or Sensorion, and Alkermes plc, or Alkermes.
In October 2013, Otonomy announced the launch of a development program for the treatment of tinnitus, OTO-311, which is based
on the NMDA receptor antagonist gacyclidine and may directly compete with our Keyzilen® product candidate. In 2019
Otonomy initiated a Phase 1/2 trial with an adapted formulation (with the drug product now being called OTO-313). OTO-313’s
competitive strength will ultimately depend on the demonstration of clinical efficacy and safety and its comparison with Keyzilen®.
Otonomy is also developing OTO-104, which is a polymer-based formulation of dexamethasone for intratympanic treatment of vertigo
in Ménière’s disease. In Phase 3 of clinical development, OTO-104 showed no treatment effects in a North American
study, but showed treatment effects in a European study, which had been terminated early. In 2018 the company initiated another
Phase 3 study with OTO-104 which is expected to complete in 2020. If Otonomy’s drug product is approved prior to AM-125,
we will have to compete against it in the treatment of vertigo in Ménière’s disease. In addition, OTO-104
is being evaluated by Otonomy for the treatment of certain types of hearing loss and may compete against Sonsuvi®.
In June 2006, Sound Pharma began clinical
testing of an oral treatment for hearing loss (SPI-1005, ebselen). Its active substance mimics and prompts production of the glutathione
peroxidase enzyme. In February 2014, Sound Pharma announced positive outcomes from a placebo-controlled Phase 2 clinical trial
with SPI-1005 in the prevention of temporary inner ear hearing loss from listening to loud music with a mobile digital media player.
Although Sonsuvi® targets permanent rather than transient and mild-moderate rather than profound hearing loss,
SPI-1005 may become competing products if Sound Pharma seeks and manages to demonstrate clinical efficacy also in the prevention
and treatment of permanent profound inner ear hearing loss.
Sensorion is developing SENS-401, a 5-HT3
antagonist with anti-inflammatory properties, for the oral treatment of sudden sensorineural hearing loss. In 2019, the company
initiated a Phase 2 clinical trial with SENS-401 in the treatment of sudden sensorineural hearing loss; the conclusion of the
trial is expected by the company for the second quarter of 2020. Sensorion also developed SENS-111, a histamine H4 receptor antagonist,
for the oral treatment of acute vertigo crises. In 2017 a Phase 2 trial was initiated to enroll patients with acute unilateral
vestibulopathy. In December 2019, Sensorion announced that the trial was unsuccessful and that the SENS-111 development program
was terminated. If successful, SENS-401 may compete against Sonsuvi®.
There are several companies developing
treatments for hearing loss. Strekin AG, a privately held Swiss company, announced in April 2016 that it plans to develop STR001,
an agonist of the peroxisome proliferator, for surgery induced hearing loss and that it commenced a Phase 2 program in Germany
and France. The status for this trial is unknown. Strekin subsequently initiated a Phase 3 trial with STR001 in the treatment
of ASNHL and expects results in early 2020. Nordmark, a German company, is developing Ancrod, the biologically active substance
from the venom of the Malayan Pit Viper (Calloselasma rhodostoma), for the treatment of sudden sensorineural hearing loss
and has initiated Phase 2 program. The trial was completed in 2018, but no results have been published so far. Both, STR001 and
Ancrod have the potential to compete with Sonsuvi®.
There exist a variety of drug products
that are licensed or used off-label for the treatment of vertigo, including steroids, diuretics, anti-emetics or anti-nausea medications.
In many countries outside the United States, oral betahistine is the standard of care and licensed for the treatment of Ménière’s
disease and vestibular vertigo. Although we expect that AM-125 will offer benefits over oral betahistine due to the ability to
bypass the strong first-pass metabolism associated with oral intake and provide for a higher bioavailability and avoid gastric
side effects, it may take time to change prescribing and usage patterns in favor of the newer product.
Alkermes has developed a fixed dose combination
of olanzapine, an antipsychotic drug, and samidorphan, a novel opioid antagonist, under product code ALKS 3831 for the oral treatment
of schizophrenia. Samidorphan has been shown in Phase 2 and Phase 3 trials to mitigate the weight gain associated with olanzapine
monotherapy in schizophrenia. In November 2019, Alkermes filed an NDA with the FDA for US approval. If approved, AM-201 will compete
against ALKS 3831. We believe that AM-201 may offer benefits over ALKS 3831 due to its different mode of action, flexibility in
dosing and potential effects on daytime sleepiness, another side effect of olanzapine.
The highly competitive nature of and rapid
technological changes in the biotechnology and pharmaceutical industries could render our product candidates or our technology
obsolete or non-competitive. Our competitors may, among other things:
|
●
|
develop
and commercialize products that are safer, more effective, less expensive, or more convenient
or easier to administer;
|
|
●
|
obtain
quicker regulatory approval;
|
|
●
|
establish
superior proprietary positions;
|
|
●
|
have
access to more manufacturing capacity;
|
|
●
|
implement
more effective approaches to sales and marketing; or
|
|
●
|
form
more advantageous strategic alliances.
|
Should any of these occur, our business,
financial condition and results of operations could be materially adversely affected.
The successful commercialization of our product candidates
will depend in part on the extent to which governmental authorities and health insurers establish adequate coverage and reimbursement
levels and pricing policies.
The successful commercialization of Keyzilen®,
Sonsuvi®, AM-125, AM-201 or our other product candidates will depend, in part, on the extent to which coverage
and reimbursement for our products or procedures using our products will be available from government and health administration
authorities, private health insurers and other third-party payors. To manage healthcare costs, many governments and third-party
payors increasingly scrutinize the pricing of new technologies and require greater levels of evidence of favorable clinical outcomes
and cost-effectiveness before extending coverage. In light of such challenges to prices and increasing levels of evidence of the
benefits and clinical outcomes of new technologies, we cannot be sure that coverage will be available for Keyzilen®,
Sonsuvi®, AM-125, AM-201 or any other product candidate that we commercialize and, if available, that the reimbursement
rates will be adequate.
Our customers, including hospitals, physicians
and other healthcare providers that purchase certain injectable drugs administered during a procedure, such as our product candidates,
generally rely on third-party payors to pay for all or part of the costs and fees associated with the drug and the procedures
administering the drug. These third-party payors may pay separately for the drug or may bundle or otherwise include the costs
of the drug in the payment for the procedure. We are unable to predict at this time whether our product candidates, if approved,
will be eligible for such separate payments. Nor can we predict at this time the adequacy of payments, whether made separately
for the drug and procedure or with a bundled or otherwise aggregate payment amount for the drug and procedure. In addition, obtaining
and maintaining adequate coverage and reimbursement status is time-consuming and costly.
Third-party payors may deny coverage and
reimbursement status altogether of a given drug product, or cover the product but may also establish prices at levels that are
too low to enable us to realize an appropriate return on our investment in product development. Because the rules and regulations
regarding coverage and reimbursement change frequently, in some cases at short notice, even when there is favorable coverage and
reimbursement, future changes may occur that adversely impact the favorable status. Further, the net reimbursement for drug products
may be subject to additional reductions if there are changes to laws that presently restrict imports of drugs from countries where
they may be sold at lower prices than in the United States.
The unavailability or inadequacy of third-party
coverage and reimbursement could have a material adverse effect on the market acceptance of our product candidates and the future
revenues we may expect to receive from those products. In addition, we are unable to predict what additional legislation or regulation
relating to the healthcare industry or third-party coverage and reimbursement may be enacted in the future, or what effect such
legislation or regulation would have on our business.
Our products may not gain market acceptance, in which
case we may not be able to generate product revenues, which will materially adversely affect our business, financial condition
and results of operations.
Even if the FDA, the EMA or other regulatory
authority approves the marketing of any product candidates that we develop, physicians, healthcare providers, patients or the
medical community may not accept or use them. Efforts to educate the medical community and third-party payors on the benefits
of our product candidates may require significant resources and may not be successful. If Keyzilen®, Sonsuvi®,
AM-125, AM-201 or any other product candidate that we develop does not achieve an adequate level of acceptance, we may not generate
significant product revenues or any profits from operations. The degree of market acceptance of Keyzilen®, Sonsuvi®,
AM-125, AM-201 or any of our product candidates that is approved for commercial sale will depend on a variety of factors, including:
|
●
|
how
clinicians and potential patients perceive our novel products;
|
|
●
|
the
timing of market introduction;
|
|
●
|
the
number and clinical profile of competing products;
|
|
●
|
our
ability to provide acceptable evidence of safety and efficacy;
|
|
●
|
the
prevalence and severity of any side effects;
|
|
●
|
relative
convenience and ease of administration, particularly as Keyzilen® and
Sonsuvi® have to be administered by an ear, nose, throat physician, and
in case of Keyzilen® the procedure has to be repeated for a total of three
times;
|
|
●
|
patient
diagnostics and screening infrastructure in each market, particularly as Keyzilen®,
Sonsuvi® and AM-125, are being developed for the treatment of acute inner
ear disorders and are thus dependent on a relatively rapid diagnosis and dosing process;
|
|
●
|
marketing
and distribution support;
|
|
●
|
availability
of coverage, reimbursement and adequate payment from health maintenance organizations
and other third-party payors, both public and private; and
|
|
●
|
other
potential advantages over alternative treatment methods.
|
If our product candidates fail to gain
market acceptance, this will have a material adverse impact on our ability to generate revenues to provide a satisfactory, or
any, return on our investments. Even if some products achieve market acceptance, the market may prove not to be large enough to
allow us to generate significant revenues.
In addition, the potential market opportunity
of Keyzilen®, Sonsuvi®, AM-125 and AM-201 are difficult to precisely estimate. Our estimates of
the potential market opportunity are predicated on several key assumptions such as industry knowledge and publications, third-party
research reports and other surveys. While we believe that our internal assumptions are reasonable, these assumptions involve the
exercise of significant judgment on the part of our management, are inherently uncertain and the reasonableness of these assumptions
could not have been assessed by an independent source in every detail. If any of the assumptions proves to be inaccurate, then
the actual market for Keyzilen®, Sonsuvi®, AM-125 and AM-201 could be smaller than our estimates
of the potential market opportunity. If the actual market for Keyzilen®, Sonsuvi®, AM-125 and AM-201
is smaller than we expect, or if the products fail to achieve an adequate level of acceptance by physicians, health care payors
and patients, our product revenue may be limited and it may be more difficult for us to achieve or maintain profitability.
We have never commercialized a product candidate before
and may lack the necessary expertise, personnel and resources to successfully commercialize our products on our own or together
with suitable partners.
We have never commercialized a product
candidate, and we currently have no sales force, marketing or distribution capabilities. To achieve commercial success for Keyzilen®,
Sonsuvi®, AM-125, AM-201 and our other product candidates, we will have to develop our own sales, marketing and
supply organization or outsource these activities to a third party.
Factors that may affect our ability to
commercialize our product candidates on our own include recruiting and retaining adequate numbers of effective sales and marketing
personnel, obtaining access to or persuading adequate numbers of physicians to prescribe our drug candidates and other unforeseen
costs associated with creating an independent sales and marketing organization. Developing a sales and marketing organization
requires significant investment, is time-consuming and could delay the launch of our product candidates. We may not be able to
build an effective sales and marketing organization. If we are unable to build our own distribution and marketing capabilities
or to find suitable partners for the commercialization of our product candidates, we may not generate revenues from them or be
able to reach or sustain profitability.
Risks Related to Our Reliance on Third Parties
If we fail to maintain our current strategic relationships
with INSERM and Xigen, our business, commercialization prospects and financial condition may be materially adversely affected.
We have a co-ownership/exploitation agreement
with the Institut National de la Santé et de la Recherche Médicale, or INSERM, governing the exploitation
of any products derived from patents that resulted from our joint research program with INSERM that was conducted in 2003 to 2005.
Under this agreement with INSERM, we are given the exclusive right to exploit the patents issuing from the filed patent applications
for all claimed applications, including the treatment of tinnitus, in order to develop, promote, manufacture, cause to be manufactured,
use, sell and distribute any products, processes or services deriving from such patents, including Keyzilen®, in
any country in which these patent applications have been filed during the term of the agreement. We alone are entitled to grant
manufacturing or sales licenses for any patents to our subsidiaries and/or third parties. INSERM is entitled to use the inventions
covered by the patents and applications for its own research purposes, free of charge, but may not generate any direct or indirect
profits from such use. We have agreed to finance any additional research and development work necessary to obtain marketing authorizations
for inventions covered by these patents and applications. If we fail to use reasonable efforts in carrying out this additional
research, then INSERM may revoke the exclusivity of exploitation granted to us under this agreement. Additionally, we have an
exclusive worldwide license from Xigen for the application of Xigen’s novel intracellular peptide therapeutics in the area
of ear disorders. These intellectual property rights have been the basis of our research and development of Keyzilen®
and Sonsuvi®.
Good relationships with INSERM and Xigen
are important for our business prospects. If our relationships with INSERM or Xigen were to deteriorate substantially or INSERM
or Xigen were to challenge our use of their intellectual property or our calculations of the payments we owe under our agreements,
our business, financial condition, commercialization prospects and results of operations could be materially adversely affected.
We may seek to form additional strategic alliances in
the future with respect to our product candidates, and if we do not realize the benefits of such alliance, our business, financial
condition, commercialization prospects and results of operations may be materially adversely affected.
Our product development programs and the
potential commercialization of our product candidates will require substantial additional cash to fund expenses and may require
expertise, such as sales and marketing expertise, which we do not currently possess. Therefore, in addition to our relationships
with INSERM and Xigen, for our Keyzilen®and Sonsuvi® product candidates respectively, for one or
more of our product candidates, we may decide to enter into strategic alliances, or create joint ventures or collaborations with
pharmaceutical or biopharmaceutical companies for the further development and potential commercialization of those product candidates.
We face significant competition in seeking
appropriate collaborators. Collaborations are complex and time-consuming to negotiate and document. Any delays in entering into
new strategic partnership agreements related to our product candidates could delay the development and commercialization of our
product candidates and reduce their competitiveness even if they reach the market. We may also be restricted under existing and
future collaboration agreements from entering into strategic partnerships or collaboration agreements on certain terms with other
potential collaborators. We may not be able to negotiate collaborations on acceptable terms, or at all, for any of our existing
or future product candidates and programs because the potential partner may consider that our research and development pipeline
is insufficiently developed to justify a collaborative effort, or that our product candidates and programs do not have the requisite
potential to demonstrate safety and efficacy in the target population. If we are unsuccessful in establishing and maintaining
a collaboration with respect to a particular product candidate, we may have to curtail the development of that product candidate,
reduce the scope of or delay its development program or one or more of our other development programs, delay its potential commercialization
or reduce the scope of our sales or marketing activities, or increase our expenditures and undertake development or commercialization
activities at our own expense for which we have not budgeted. If we elect to increase our expenditures to fund development or
commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable
terms or at all. If we do not have sufficient funds, we will not be able to bring our product candidates to market and generate
product revenue. Even if we are successful in establishing a new strategic partnership or entering into a collaboration agreement,
we cannot be certain that, following such a strategic transaction or license, we will be able to progress the development and
commercialization of the applicable product candidates as envisaged, or that we will achieve the revenues that would justify such
transaction, and we could be subject to the following risks, each of which may materially harm our business, commercialization
prospects and financial condition:
|
●
|
we
may not be able to control the amount and timing of resources that the collaboration
partner devotes to the product development program;
|
|
●
|
the
collaboration partner may experience financial difficulties;
|
|
●
|
we
may be required to relinquish important rights such as marketing, distribution and intellectual
property rights;
|
|
●
|
a
collaboration partner could move forward with a competing product developed either independently
or in collaboration with third parties, including our competitors; or
|
|
●
|
business
combinations or significant changes in a collaboration partner’s business strategy
may adversely affect our willingness to complete our obligations under any arrangement.
|
We rely on third parties to conduct our nonclinical and
clinical trials and perform other tasks for us. If these third parties do not successfully carry out their contractual duties,
meet expected deadlines, or comply with regulatory requirements, we may not be able to obtain regulatory approval for or commercialize
our product candidates and our business could be substantially harmed.
We have relied upon and plan to continue
to rely upon third-party CROs to monitor and manage data for our ongoing nonclinical and clinical programs, including the clinical
trials of Keyzilen®, Sonsuvi®, AM-125 and AM-201. We rely on these parties for execution of our
nonclinical and clinical studies and control only certain aspects of their activities. Nevertheless, we are responsible for ensuring
that each of our trials is conducted in accordance with the applicable protocol, legal, regulatory, and scientific standards and
our reliance on the CROs does not relieve us of our regulatory responsibilities. We and our CROs and other vendors are required
to comply with cGMP, cGCP, and Good Laboratory Practice, or GLP, which are regulations and guidelines enforced by the FDA, the
Competent Authorities of the Member States of the European Union and comparable foreign regulatory authorities for all of our
product candidates in nonclinical and clinical development. Regulatory authorities enforce these regulations through periodic
inspections of study sponsors, principal investigators, trial sites and other contractors. If we or any of our CROs or vendors
fail to comply with applicable regulations, the data generated in our nonclinical and clinical trials may be deemed unreliable
and the EMA, FDA, other regulatory authorities may require us to perform additional nonclinical and clinical trials before approving
our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority
will determine that all of our clinical trials comply with cGCP regulations. In addition, our clinical trials must be conducted
with product produced under cGMP regulations. Our failure to comply with these regulations may require us to repeat clinical trials,
which would delay the regulatory approval process.
If any of our relationships with these
third-party CROs terminates, we may not be able to enter into arrangements with alternative CROs or do so on commercially reasonable
terms. In addition, our CROs are not our employees, and except for remedies available to us under our agreements with such CROs,
we cannot control whether or not they devote sufficient time and resources to our on-going nonclinical and clinical programs.
If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced
or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our protocols, regulatory
requirements, or for other reasons, our clinical trials may be extended, delayed, or terminated and we may not be able to obtain
regulatory approval for or successfully commercialize our product candidates. CROs may also generate higher costs than anticipated.
As a result, our results of operations and the commercial prospects for our product candidates would be harmed, our costs could
increase, and our ability to generate revenue could be delayed.
Switching or adding additional CROs involves
additional cost and requires management time and focus. In addition, there is a natural transition period when a new CRO commences
work. As a result, delays occur, which can materially impact our ability to meet our desired clinical development timelines. Though
we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter similar challenges or
delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition,
and prospects.
We currently rely on third-party suppliers and other
third parties for production of our product candidates and our dependence on these third parties may impair the advancement of
our research and development programs and the development of our product candidates.
We currently rely on and expect to continue
to rely on third parties, for the manufacturing and supply of chemical compounds for the clinical trials of our product candidates,
including Keyzilen®, Sonsuvi®, AM-125 and AM-201, and others for the manufacturing and supply of
pre-filled syringes and spray pumps. For the foreseeable future, we expect to continue to rely on such third parties for the manufacture
of any of our product candidates on a clinical or commercial scale, if any of our product candidates receives regulatory approval.
Reliance on third-party providers may expose us to different risks than if we were to manufacture product candidates ourselves.
The facilities used by our contract manufacturers to manufacture our product candidates must be approved by the FDA or other regulatory
authorities pursuant to inspections that will be conducted after we submit our NDA or comparable marketing application to the
FDA or other regulatory authority. Although we have auditing rights with all our manufacturing counterparties, we do not have
control over a supplier’s or manufacturer’s compliance with these laws, regulations and applicable cGMP standards
and other laws and regulations, such as those related to environmental health and safety matters. If our contract manufacturers
cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA
or others, they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities. In addition,
we have no control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and
qualified personnel. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture
of our product candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities,
which would significantly impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved.
Any failure to achieve and maintain compliance with these laws, regulations and standards could subject us to the risk that we
may have to suspend the manufacturing of our product candidates or that obtained approvals could be revoked, which would adversely
affect our business and reputation. Furthermore, third-party providers may breach agreements they have with us because of factors
beyond our control. They may also terminate or refuse to renew their agreements because of their own financial difficulties or
business priorities, potentially at a time that is costly or otherwise inconvenient for us. If we were unable to find adequate
replacement or another acceptable solution in time, our clinical trials could be delayed or our commercial activities could be
harmed.
In addition, the fact that we are dependent
on our suppliers and other third parties for the manufacture, storage and distribution of our product candidates means that we
are subject to the risk that our product candidates and, if approved, commercial products may have manufacturing defects that
we have limited ability to prevent or control. The sale of products containing such defects could result in recalls or regulatory
enforcement action that could adversely affect our business, financial condition and results of operations.
Growth in the costs and expenses of components
or raw materials may also adversely influence our business, financial condition and results of operations. Supply sources could
be interrupted from time to time and, if interrupted, that supplies could be resumed (whether in part or in whole) within a reasonable
time frame and at an acceptable cost or at all.
Our current and anticipated future dependence
upon others for the manufacturing of Keyzilen®, Sonsuvi®, AM-125, AM-201 and any other product candidate
that we develop may adversely affect our future profit margins and our ability to commercialize any products that receive marketing
approval on a timely and competitive basis.
The drug substance and drug product for our product candidates
are currently acquired from single-source suppliers. The loss of these suppliers, or their failure to supply us with the drug
substance or drug product, could materially and adversely affect our business.
We do not currently, and do not expect
to in the future, independently conduct manufacturing activities for our product candidates, including Keyzilen®,
Sonsuvi®, AM-125 and AM-201. We currently have a relationship with one supplier each, for the supply of the API
of Keyzilen®, Sonsuvi®, AM-125 and AM-201. We are reliant upon single source third-party contract
manufacturing organizations to manufacture and supply the drug substance and drug product and components thereof for each of Keyzilen®,
Sonsuvi®, AM-125 and AM-201. We do not currently have any other suppliers for the drug substance or drug product
of our product candidates and, although we believe that there are alternate sources of supply that could satisfy our clinical
and commercial requirements, and we have performed some preliminary investigations to assess this availability, we cannot assure
you that identifying alternate sources and establishing relationships with such sources would not result in significant delay
in the development of our product candidates. Additionally, we may not be able to enter into supply arrangements with alternative
suppliers on commercially reasonable terms, or at all. A delay in the development of our product candidates or having to enter
into a new agreement with a different third party on less favorable terms than we have with our current suppliers could have a
material adverse impact upon on our business.
Risks Related to Intellectual Property
If we or our licensors are unable to obtain and maintain
effective patent rights for our technologies, product candidates or any future product candidates, or if the scope of the patent
rights obtained is not sufficiently broad, we may not be able to compete effectively in our markets.
We rely upon a combination of patents,
trade secret protection, and confidentiality agreements to protect the intellectual property related to our technologies and product
candidates. Our success depends in large part on our and our licensors’ ability to obtain and maintain patent and other
intellectual property protection in the United States and in other countries with respect to our proprietary technology and products.
We have sought to protect our proprietary
position by filing patent applications in the United States and abroad related to our novel technologies and products that are
important to our business. This process is expensive and time-consuming, and we may not be able to file and prosecute all necessary
or desirable patent applications at a reasonable cost, in a timely manner or in all jurisdictions. It is also possible that we
will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection.
Moreover, in some circumstances, we do not have the right to control the preparation, filing and prosecution of patent applications,
or to maintain the patents, covering technology that we license from third parties. Therefore, these patents and applications
may not be prosecuted and enforced in a manner consistent with the best interests of our business.
The patent position of biotechnology and
pharmaceutical companies generally is highly uncertain and involves complex legal and factual questions for which legal principles
remain unsolved. The patent applications that we own or in-license may fail to result in issued patents with claims that cover
our product candidates in the United States or in other foreign countries. Publications of discoveries in the scientific literature
often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions remain confidential
for a period of time after filing, and some remain so until issued. We cannot be certain that we were the first to file any patent
application related to our product candidates, or whether we were the first to make the inventions claimed in our owned patents
or pending patent applications, nor can we know whether those from whom we license patents were the first to make the inventions
claimed or were the first to file. As a result, the issuance, scope, validity, enforceability and commercial value of our patent
rights are highly uncertain. There is no assurance that all potentially relevant prior art relating to our patents and patent
applications has been found, which can invalidate a patent or prevent a patent from issuing from a pending patent application.
Even if patents do successfully issue, and even if such patents cover our product candidates, third parties may challenge their
validity, enforceability, or scope, which may result in such patents being narrowed, found unenforceable or invalidated, which
could allow third parties to commercialize our technology or products and compete directly with us, without payment to us, or
result in our inability to manufacture or commercialize products without infringing third party patent rights. Furthermore, even
if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property, provide exclusivity
for our product candidates, prevent others from designing around our claims or provide us with a competitive advantage. Any of
these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our business.
We, independently or together with our
licensors, have filed several patent applications covering various aspects of our product candidates. We cannot offer any assurances
about which, if any, patents will issue, the breadth of any such patent or whether any issued patents will be found invalid and
unenforceable or will be challenged by third parties. Any successful opposition to these patents or any other patents owned by
or licensed to us after patent issuance could deprive us of rights necessary for the successful commercialization of any product
candidates that we may develop. Further, if we encounter delays in regulatory approvals, the period of time during which we could
market a product candidate under patent protection could be reduced.
We may not have sufficient patent terms to effectively
protect our products and business.
Patents have a limited lifespan. In the
United States, the natural expiration of a patent is generally 20 years after it is filed. Although various extensions may be
available, the life of a patent, and the protection it affords, is limited. Given the amount of time required for the development,
testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after
such candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights
to exclude others from commercializing products similar or identical to ours or otherwise provide us with a competitive advantage.
Even if patents covering our product candidates are obtained, once the patent life has expired for a product, we may be open to
competition from generic medications.
While patent term extensions under the
Hatch-Waxman Act in the United States and under supplementary protection certificates in Europe may be available to extend the
patent exclusivity term for Keyzilen®, Sonsuvi®, AM-125 and AM-201, we cannot provide any assurances
that any such patent term extension will be obtained and, if so, for how long. In addition, upon issuance in the United States
any patent term can be adjusted based on certain delays caused by the applicant(s) or the U.S. Patent and Trademark Office, or
USPTO. For example, a patent term can be reduced based on certain delays caused by the patent applicant during patent prosecution.
While in the United States there is a
possibility of obtaining market protection independent from any patent protection for up to 3 and 5 years from approval, and in
the European Union one may obtain data exclusivity of eight years from approval with an additional two years of market exclusivity
(which can potentially be extended by one year), there is no assurance that we can obtain such data exclusivity and market protection
with respect to Keyzilen®, Sonsuvi®, AM-125, or any of our other product candidates. Our issued
patents and pending patent applications are expected to expire for Keyzilen®between 2024 and 2028, for Sonsuvi®
between 2020 and 2027, and for AM-125 and AM-201 in 2038, prior to any patent term extensions to which we may be entitled
under applicable laws.
Patent policy and rule changes could increase the uncertainties
and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.
Changes in either the patent laws or interpretation
of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent
protection. The laws of foreign countries may not protect our rights to the same extent as the laws of the United States. Assuming
the other requirements for patentability are met, in the United States prior to March 15, 2013, the first to invent the claimed
invention is entitled to the patent, while outside the United States, the first to file a patent application is entitled to the
patent. After March 15, 2013, under the Leahy-Smith America Invents Act, or the Leahy-Smith Act, enacted on September 16, 2011,
the United States has moved to a first to file system. The Leahy-Smith Act also includes a number of significant changes that
affect the way patent applications will be prosecuted and may also affect patent litigation. Certain aspects of the Leahy-Smith
Act are currently unclear as the courts address the USPTO’s implementing regulations. In general, the Leahy-Smith Act and
its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement
or defense of our issued patents, all of which could have a material adverse effect on our business and financial condition In
addition, recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and
weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to
obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained.
Depending on future actions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents
could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and
patents that we might obtain in the future.
If we are unable to maintain effective proprietary rights
for our technologies, product candidates or any future product candidates, we may not be able to compete effectively in our markets.
In addition to the protection afforded
by patents, we rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable
or that we elect not to patent, processes for which patents are difficult to enforce and any other elements of our product candidate
discovery and development processes that involve proprietary know-how, information or technology that is not covered by patents.
However, trade secrets can be difficult to protect. We seek to protect our proprietary technology and processes, in part, by entering
into confidentiality agreements with our employees, consultants, scientific advisors, and contractors. We also seek to preserve
the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical
and electronic security of our information technology systems. While we have confidence in these individuals, organizations and
systems, agreements or security measures may be breached, and we may not have adequate remedies for any breach. Moreover, if any
of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent
such competitor from using that technology or information to compete with us, which could harm our competitive position.
Although we expect all of our employees
and consultants to assign their inventions to us, and all of our employees, consultants, advisors, and any third parties who have
access to our proprietary know-how, information or technology to enter into confidentiality agreements, we cannot provide any
assurances that all such agreements have been duly executed or that our trade secrets and other confidential proprietary information
will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially
equivalent information and techniques. Misappropriation or unauthorized disclosure of our trade secrets could impair our competitive
position and may have a material adverse effect on our business. Additionally, if the steps taken to maintain our trade secrets
are deemed inadequate, we may have insufficient recourse against third parties for misappropriating such trade secrets. In addition,
others may independently discover our trade secrets and proprietary information. For example, the FDA, as part of its Transparency
Initiative, is currently considering whether to make additional information publicly available on a routine basis, including information
that we may consider to be trade secrets or other proprietary information, and it is not clear at the present time how the FDA’s
disclosure policies may change in the future, if at all.
Further, the laws of some foreign countries
do not protect proprietary rights to the same extent or in the same manner as the laws of the U.S. As a result, we may encounter
significant problems in protecting and defending our intellectual property both in the U.S. and abroad. If we are unable to prevent
material disclosure of the intellectual property related to our technologies to third parties, we will not be able to establish
or maintain a competitive advantage in our market, which could materially adversely affect our business, financial condition and
results of operations.
Third-party claims of intellectual property infringement
may expose us to substantial liability or prevent or delay our development and commercialization efforts.
Our commercial success depends in part
on our ability to develop, manufacture, market and sell our product candidates and use our proprietary technology without alleged
or actual infringement, misappropriation, or other violation of the patents and proprietary rights of third parties. There have
been many lawsuits and other proceedings involving patent and other intellectual property rights in the biotechnology and pharmaceutical
industries, including patent infringement lawsuits, interferences, oppositions, and reexamination proceedings before the USPTO
and corresponding foreign patent offices. Numerous U.S.- and foreign-issued patents and pending patent applications, which are
owned by third parties, exist in the fields in which we are developing product candidates. Some claimants may have substantially
greater resources than we do and may be able to sustain the costs of complex intellectual property litigation to a greater degree
and for longer periods of time than we could. In addition, patent holding companies that focus solely on extracting royalties
and settlements by enforcing patent rights may target us. As the biotechnology and pharmaceutical industries expand and more patents
are issued, the risk increases that our product candidates may be subject to claims of infringement of the patent rights of third
parties.
Third parties may assert that we are employing
their proprietary technology without authorization. There may be third-party patents or patent applications with claims to materials,
formulations, methods of manufacture, or methods of treatment related to the use or manufacture of our product candidates. Although
we generally conduct certain freedom to operate search and review with respect to our product candidates, we cannot guarantee
that any of our search and review is complete and thorough, nor can we be sure that we have identified each and every patent and
pending application in the United States and abroad that is relevant or necessary to the commercialization of our product candidates.
Because patent applications can take many years to issue, there may be currently pending patent applications that may later result
in issued patents that our product candidates may infringe. In addition, third parties may obtain patents in the future and claim
that use of our technologies infringes upon these patents. If any third-party patents were held by a court of competent jurisdiction
to cover the manufacturing process of any of our product candidates, any molecules formed during the manufacturing process or
any final product itself, the holders of any such patents may be able to block our ability to commercialize such product candidate
unless we obtained a license under the applicable patents, or until such patents expire or are finally determined to be invalid
or unenforceable. Similarly, if any third-party patents were held by a court of competent jurisdiction to cover aspects of our
formulations, processes for manufacture, or methods of use, the holders of any such patents may be able to block our ability to
develop and commercialize the applicable product candidate unless we obtained a license or until such patent expires or is finally
determined to be invalid or unenforceable. In either case, such a license may not be available on commercially reasonable terms
or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same
technologies licensed to us.
Parties making claims against us may obtain
injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize one or more
of our product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and
would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against
us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, pay royalties,
redesign our infringing products or obtain one or more licenses from third parties, which may be impossible or require substantial
time and monetary expenditure.
Additional competitors could enter the market with generic
versions of our products, which may result in a material decline in sales of affected products.
Under the Hatch-Waxman Act, a pharmaceutical
manufacturer may file an abbreviated new drug application, or ANDA, seeking approval of a generic copy of an approved innovator
product. Under the Hatch-Waxman Act, a manufacturer may also submit an NDA under section 505(b)(2) that references the FDA’s
prior approval of the innovator product. A 505(b)(2) NDA product may be for a new or improved version of the original innovator
product. Hatch-Waxman also provides for certain periods of regulatory exclusivity, which preclude FDA approval (or in some circumstances,
FDA filing and reviewing) of an ANDA, or 505(b)(2) NDA. These include, subject to certain exceptions, the period during which
an FDA-approved drug is subject to orphan drug exclusivity. In addition to the benefits of regulatory exclusivity, an innovator
NDA holder may have patents claiming the active ingredient, product formulation or an approved use of the drug, which would be
listed with the product in the FDA publication, “Approved Drug Products with Therapeutic Equivalence Evaluations,”
known as the “Orange Book.” If there are patents listed in the Orange Book, a generic or 505(b)(2) applicant that
seeks to market its product before expiration of the patents must include in the ANDA what is known as a “Paragraph IV certification,”
challenging the validity or enforceability of, or claiming non-infringement of, the listed patent or patents. Notice of the certification
must be given to the innovator, too, and if within 45 days of receiving notice the innovator sues to protect its patents, approval
of the ANDA is stayed for 30 months, or as lengthened or shortened by the court.
Accordingly, if Keyzilen®,
Sonsuvi®, AM-125 and AM-201 are approved, competitors could file ANDAs for generic versions of Keyzilen®,
Sonsuvi®, AM-125 and AM-201, or 505(b)(2) NDAs that reference Keyzilen®, AM-111, AM-125 and AM-201,
respectively. If there are patents listed for Keyzilen®, Sonsuvi®, AM-125 and AM-201 in the Orange
Book, those ANDAs and 505(b)(2) NDAs would be required to include a certification as to each listed patent indicating whether
the ANDA applicant does or does not intend to challenge the patent. We cannot predict whether any patents issuing from our pending
patent applications will be eligible for listing in the Orange Book, how any generic competitor would address such patents, whether
we would sue on any such patents, or the outcome of any such suit.
We may not be successful in securing or
maintaining proprietary patent protection for products and technologies we develop or license. Moreover, if any patents that are
granted and listed in the Orange Book are successfully challenged by way of a Paragraph IV certification and subsequent litigation,
the affected product could immediately face generic competition and its sales would likely decline rapidly and materially. Should
sales decline, we may have to write off a portion or all of the intangible assets associated with the affected product and our
results of operations and cash flows could be materially and adversely affected.
Obtaining and maintaining our patent protection depends
on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent
agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance fees on any issued
patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the patent. The USPTO
and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and
other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment
of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result
in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant
jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include, but are
not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly
legalize and submit formal documents. In such an event, our competitors might be able to enter the market, which would have a
material adverse effect on our business.
The patent protection and patent prosecution for some
of our product candidates is dependent on third parties.
While we normally seek to obtain the right
to control prosecution, maintenance and enforcement of the patents relating to our product candidates, there may be times when
the filing and prosecution activities for patents relating to our product candidates are controlled by our licensors. This is
the case under our agreement with Xigen, where Xigen is entirely responsible for the prosecution and maintenance of the licensed
patents and patent applications directed to Sonsuvi®. Xigen has no obligation to provide us any information with
respect to such prosecution and we will not have access to any patent prosecution or maintenance information that is not publicly
available. Although we monitor Xigen’s ongoing prosecution and maintenance of the licensed patents, if Xigen or any of our
future licensing partners fail to prosecute, maintain and enforce such patents and patent applications in a manner consistent
with the best interests of our business, including by payment of all applicable fees for patents covering Sonsuvi®
or any of our product candidates, we could lose our rights to the intellectual property or our exclusivity with respect to those
rights, our ability to develop and commercialize those product candidates may be adversely affected and we may not be able to
prevent competitors from making, using, and selling competing products. Specifically, Xigen is concurrently developing another
indication for brimapitide (XG-102), the active substance of Sonsuvi®. This may cause a conflict of interest and
adversely affect Xigen’s ability to prosecute the patent portfolio licensed to us in the best interest of our business.
In addition, even where we have the right to control patent prosecution of patents and patent applications we have licensed from
third parties including with respect to the patents and applications licensed to us under our co-ownership and exploitation agreement
with INSERM for Keyzilen®, we may still be adversely affected or prejudiced by actions or inactions of our licensors
and their counsel that took place prior to the date upon which we assumed control over patent prosecution. We are required to
consult and cooperate with INSERM regarding the prosecution, maintenance, and enforcement of, and in certain instances INSERM
has the right to independently enforce, the relevant patents, which may place those patients at risk or hinder our ability to
develop and commercialize those product candidates or protect our patent rights.
If we fail to comply with the obligations in our intellectual
property agreements, including those under which we license intellectual property and other rights from third parties, or otherwise
experience disruptions to our business relationships with our licensors and partners, we could lose intellectual property rights
that are important to our business.
We are a party to a number of intellectual
property license and co-ownership agreements that are important to our business and expect to enter into additional such agreements
in the future. Our existing agreements impose, and we expect that future agreements will impose, various diligence, commercialization,
milestone payment, royalty, and other obligations on us. If we fail to comply with our obligations under these agreements, or
we are subject to a bankruptcy, we may be required to make certain payments to the licensor, we may lose the exclusivity of our
license, or the licensor may have the right to terminate the license, in which event we would not be able to develop or market
products covered by the license. Moreover, if we fail to comply with our obligations under our co-ownership and exploitation agreement
with INSERM for Keyzilen®, including certain commercialization requirements, or we are subject to a bankruptcy,
INSERM may terminate the agreement and we may lose our rights to exclusively exploit and commercialize the applicable patents.
In such event we would not be able to prevent INSERM from exploiting or licensing to the third parties the rights to exploit the
applicable patents, which would have a material adverse effect on our ability to successfully commercialize the affected product
candidates. Under our co-ownership agreement with INSERM we may be required to assign our rights in the relevant patents to INSERM
if we choose not to or fail to continue to prosecute maintain or patents or patent applications in a given country or countries,
in which event we would not be able to develop or market products covered by the applicable patents.
Licensing of intellectual property is
of critical importance to our business and involves complex legal, business, and scientific issues. Disputes may arise regarding
intellectual property subject to a licensing or co-ownership agreement, including:
|
●
|
the scope of rights granted under the agreement and other interpretation-related
issues;
|
|
●
|
the extent to which our technology and processes infringe on intellectual
property of the licensor or partner that is not subject to the agreement;
|
|
●
|
the sublicensing of patent and other rights;
|
|
●
|
our diligence and commercialization obligations under the agreement
and what activities satisfy those obligations;
|
|
●
|
the ownership of inventions and know-how resulting from the joint
creation or use of intellectual property by our licensors or partners and us and our collaborators; and
|
|
●
|
the priority of invention of patented technology.
|
If disputes over intellectual property
and other rights that we have licensed or co-own prevent or impair our ability to maintain our current licensing or exclusivity
arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates.
We may not be successful in obtaining or maintaining
necessary rights to our product candidates through acquisitions and in-licenses.
We currently have rights to the intellectual
property, through licenses from third parties and under patents that we own, to develop our product candidates. Because our programs
may require the use of proprietary rights held by third parties, the growth of our business will likely depend in part on our
ability to acquire, in-license, maintain or use these proprietary rights. In addition, our product candidates may require specific
formulations to work effectively and efficiently and the rights to these formulations may be held by others. We may be unable
to acquire or in-license any compositions, methods of use, processes, or other third-party intellectual property rights from third
parties that we identify as necessary for our product candidates. The licensing and acquisition of third-party intellectual property
rights is a competitive area, and a number of more established companies are also pursuing strategies to license or acquire third-party
intellectual property rights that we may consider attractive. These established companies may have a competitive advantage over
us due to their size, cash resources, and greater clinical development and commercialization capabilities.
For example, we sometimes collaborate
with U.S. and foreign academic institutions to accelerate our pre-clinical research or development under written agreements with
these institutions. Typically, these institutions provide us with an option to negotiate a license to any of the institution’s
rights in technology resulting from the collaboration. Regardless of such option, we may be unable to negotiate a license within
the specified timeframe or under terms that are acceptable to us. If we are unable to do so, the institution may offer the intellectual
property rights to other parties, potentially blocking our ability to pursue our applicable product candidate or program.
In addition, companies that perceive us
to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third-party
intellectual property rights on terms that would allow us to make an appropriate return on our investment. If we are unable to
successfully obtain a license to third-party intellectual property rights necessary for the development of a product candidate
or program, we may have to abandon development of that product candidate or program and our business and financial condition could
suffer.
We may be involved in lawsuits to protect or enforce
our patents or the patents of our licensors, which could be expensive, time-consuming, and unsuccessful.
Competitors may infringe our patents or
the patents of our licensors. To counter such infringement, we may be required to file claims against those competitors, which
can be expensive and time-consuming. If we or one of our licensing partners were to initiate legal proceedings against a third
party to enforce a patent covering one of our product candidates, the defendant could counterclaim that the patent covering our
product candidate is invalid, overbroad and/or unenforceable, or that we infringe the defendant’s patents. In patent litigation
in the United States, defendant counterclaims alleging invalidity, overbreadth and/or unenforceability are commonplace. Grounds
for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty,
obviousness, or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution
of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. The outcome following
legal assertions of invalidity and unenforceability is unpredictable. A court may decide that a patent of ours is invalid or unenforceable,
in whole or in part, construe the patent’s claims narrowly or refuse to stop a third party from using the technology in
question on the grounds that our patents do not cover that technology. An adverse result in any litigation proceeding could put
one or more of our patents at risk of being invalidated or interpreted narrowly, which could adversely affect us.
Interference proceedings provoked by third
parties or brought by us or declared by the USPTO may be necessary to determine the priority of inventions with respect to our
patents or patent applications or those of our licensors. An unfavorable outcome could require us to cease using the related technology
or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not
offer us a license on commercially reasonable terms or at all. Our defense of litigation or interference proceedings may fail
and, even if successful, may result in substantial costs and distract our management and other employees. In addition, the uncertainties
associated with litigation could have a material adverse effect on our ability to raise the funds necessary to continue our clinical
trials, continue our research programs, license necessary technology from third parties, or enter into development partnerships
that would help us bring our product candidates to market. We may not be able to prevent, alone or with our licensors, misappropriation
of our intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the
United States.
Furthermore, because of the substantial
amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential
information could be compromised by disclosure during this type of litigation. There could also be public announcements of the
results of hearings, motions, or other interim proceedings or developments. If securities analysts or investors perceive these
results to be negative, it could have a material adverse effect on the price of our common shares.
We may be subject to claims that our employees, consultants,
or independent contractors have wrongfully used or disclosed confidential information of third parties or that our employees have
wrongfully used or disclosed alleged trade secrets of their former employers.
We employ and utilize the services of
individuals who were previously employed or provided services to universities or other biotechnology or pharmaceutical companies.
Although we try to ensure that our employees, consultants, and independent contractors do not use the proprietary information
or know-how of others in their work for us, we may be subject to claims that we or our employees, consultants, or independent
contractors have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary
information, of any of our employee’s, consultant’s or independent contractor’s former employer or other third
parties. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying
monetary damages, we may lose valuable intellectual property rights or personnel, which could adversely impact our business. Even
if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management
and other employees.
Our reliance on our advisors, employees and third parties
requires us to share our intellectual property and trade secrets, which increases the possibility that a competitor will discover
them or that our intellectual property will be misappropriated or disclosed.
Because we rely on our advisors, employees
and third-party contractors and consultants to research and develop and to manufacture our product candidates, we must, at times,
share our intellectual property with them. We seek to protect our intellectual property and other proprietary technology in part
by entering into confidentiality agreements and, if applicable, material transfer agreements, consulting agreements or other similar
agreements with our advisors, employees, third-party contractors and consultants prior to beginning research or disclosing proprietary
information. These agreements typically limit the rights of these advisors, employees and third parties to use or disclose our
confidential information, including our intellectual property and trade secrets. Despite the contractual provisions employed when
working with these advisors, employees and third parties, the need to share intellectual property and other confidential information
increases the risk that such confidential information becomes known by our competitors, are inadvertently incorporated into the
product development of others or are disclosed or used in violation of these agreements. Given that our proprietary position is
based, in part, on our know-how, intellectual property and trade secrets, a competitor’s discovery of our intellectual property
or trade secrets or other unauthorized use or disclosure would impair our competitive position and may have a material adverse
effect on our business.
In addition, these agreements typically
restrict the ability of our advisors, employees, third-party contractors and consultants to publish data potentially relating
to our intellectual property, although our agreements may contain certain limited publication rights. For example, any academic
institution that we may collaborate with in the future may expect to be granted rights to publish data arising out of such collaboration,
provided that we are notified in advance and given the opportunity to delay publication for a limited time period in order for
us to secure patent protection of intellectual property rights arising from the collaboration, in addition to the opportunity
to remove confidential or trade secret information from any such publication. In the future, we may also conduct joint research
and development programs that may require us to share intellectual property under the terms of our research and development or
similar agreements. Despite our efforts to protect our intellectual property, our competitors may discover our trade secrets or
know how, either through breach of our agreements with third parties, independent development or publication of information by
any of our third-party collaborators. A competitor’s discovery of our intellectual property would impair our competitive
position and have an adverse impact on our business.
We may be subject to claims challenging the inventorship
of our patents and other intellectual property.
We may be subject to claims that former
employees, collaborators or other third parties have an interest in our patents or other intellectual property as an inventor
or co-inventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who
are involved in developing our product candidates. Litigation may be necessary to defend against these and other claims challenging
inventorship or our ownership of our patents or other intellectual property. If we fail in defending any such claims, in addition
to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use,
valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful
in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
We may not be able to protect our intellectual property
rights throughout the world.
Filing, prosecuting, and defending patents
on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights
in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some
foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States.
Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States,
or from selling or importing products made using our inventions in and into the United States or other jurisdictions. As part
of ordinary course prosecution and maintenance activities, we determine whether to seek patent protection outside the U.S. and
in which countries. This also applies to patents we have acquired or in-licensed from third parties. In some cases this means
that we, or our predecessors in interest or licensors of patents within our portfolio, have sought patent protection in a limited
number of countries for patents covering our product candidates. Competitors may use our technologies in jurisdictions where we
have not obtained or are unable to adequately enforce patent protection to develop their own products and further, may export
otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the
United States. These products may compete with our products and our patents or other intellectual property rights may not be effective
or sufficient to prevent them from competing.
Many companies have encountered significant
problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries,
particularly certain developing countries, do not favor the enforcement of patents, trade secrets, and other intellectual property
protection, particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement
of our patents, the reproduction of our manufacturing or other know-how or marketing of competing products in violation of our
proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions, whether or not successful, could
result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at
risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties
to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if
any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world
may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.
Risks Related to Employee Matters and Managing Growth
Our future growth and ability to compete depends on retaining
our key personnel and recruiting additional qualified personnel.
Our success depends upon the continued
contributions of our key management, scientific and technical personnel, many of whom have substantial experience with or been
instrumental for us and our projects. Key management includes our executive officers Thomas Meyer, our founder, Chairman and Chief
Executive Officer and Elmar Schaerli, Chief Financial Officer.
The loss of key managers and senior scientists
could delay our research and development activities. Laws and regulations on executive compensation, including legislation in
Switzerland, may restrict our ability to attract, motivate and retain the required level of qualified personnel. In addition,
the competition for qualified personnel in the biopharmaceutical and pharmaceutical field is intense, and our future success depends
upon our ability to attract, retain and motivate highly-skilled scientific, technical and managerial employees. We face competition
for personnel from other companies, universities, public and private research institutions and other organizations. If our recruitment
and retention efforts are unsuccessful in the future, it may be difficult for us to implement business strategy, which could have
a material adverse effect on our business.
We expect to expand our sales and marketing, development,
and regulatory capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.
We expect to experience significant growth
in the number of our employees and the scope of our operations, particularly in the areas of sales and marketing, and to a lesser
extent, drug development and regulatory affairs. To manage our anticipated future growth, we must continue to implement and improve
our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified
personnel. Due to our limited financial resources, we may not be able to effectively manage the expansion of our operations or
recruit and train additional qualified personnel. The expansion of our operations may lead to significant costs and may divert
our management and business development resources. Any inability to manage growth could delay the execution of our business plans
or disrupt our operations.
Risks Related to Our Common Shares
The price of our common shares may be volatile and may
fluctuate due to factors beyond our control.
The share price of publicly traded emerging
biopharmaceutical and drug discovery and development companies has been highly volatile and is likely to remain highly volatile
in the future. The market price of our common shares may fluctuate significantly due to a variety of factors, including:
|
●
|
positive or negative results of testing and clinical trials by us,
strategic partners, or competitors;
|
|
●
|
delays in entering into strategic relationships with respect to
development and/or commercialization of our product candidates or entry into strategic relationships on terms that are not
deemed to be favorable to us;
|
|
●
|
technological innovations or commercial product introductions by
us or competitors;
|
|
●
|
changes in government regulations;
|
|
●
|
developments concerning proprietary rights, including patents and
litigation matters;
|
|
●
|
public concern relating to the commercial value or safety of any
of our product candidates;
|
|
●
|
financing or other corporate transactions;
|
|
●
|
publication of research reports or comments by securities or industry
analysts;
|
|
●
|
general market conditions in the pharmaceutical industry or in the
economy as a whole;
|
|
●
|
our ability to maintain the listing of our common shares on Nasdaq;
or
|
|
●
|
other events and factors beyond our control.
|
Additionally, these factors may affect
the liquidity of our common shares, which may hurt your ability to sell our common shares in the future. In addition, the stock
market in general has recently experienced extreme price and volume fluctuations that have often been unrelated or disproportionate
to the operating performance of individual companies. Broad market and industry factors may materially affect the market price
of companies’ stock, including ours, regardless of actual operating performance.
Our common shares may be involuntarily delisted from
trading on The Nasdaq Capital Market if we fail to comply with the continued listing requirements. A delisting of our common shares
is likely to reduce the liquidity of our common shares and may inhibit or preclude our ability to raise additional financing.
We are required to comply with certain
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 The Nasdaq Capital Market.
In 2017 and 2019, we failed to maintain
compliance with the minimum bid price requirement. To address that non-compliance, on March 13, 2018, we effected the Merger,
pursuant to which we effected a “reverse share split” at a ratio of 10-for-1, and on May 1, 2019, we effected a “reverse
share split” at a ratio of 20-for-1. Additionally, on January 11, 2018, we received a letter from Nasdaq indicating that
we were not in compliance with Nasdaq’s market value of listed securities requirement. As a result of the July 2018 Registered
Offering, we resolved the non-compliance with the market value of listed securities requirement by complying with Nasdaq’s
minimum equity standard. However, there can be no assurance that we will be able to successfully maintain compliance with the
several Nasdaq continued listing requirements.
If, for any reason, Nasdaq should delist
our common shares from trading on its exchange and we are unable to obtain listing on another national securities exchange or
take action to restore our compliance with the Nasdaq continued listing requirements, a reduction in some or all of the following
may occur, each of which could have a material adverse effect on our shareholders:
|
●
|
the liquidity of our common shares;
|
|
●
|
the market price of our common shares;
|
|
●
|
our ability to obtain financing for the continuation of our operations;
|
|
●
|
the number of institutional and general investors that will consider
investing in our common shares;
|
|
●
|
the number of investors in general that will consider investing
in our common shares;
|
|
●
|
the number of market makers in our common shares;
|
|
●
|
the availability of information concerning the trading prices and
volume of our common shares; and
|
|
●
|
the number of broker-dealers willing to execute trades in shares
of our common shares.
|
Moreover, delisting may make unavailable
a tax election that could affect the U.S. federal income tax treatment of holding, and disposing of, our common shares. See “Taxation—Material
U.S. Federal Income Tax Considerations for U.S. Holders” below.
In the event that our common shares are delisted from
Nasdaq, U.S. broker-dealers may be discouraged from effecting transactions in shares of our common shares because they may be
considered penny stocks and thus be subject to the penny stock rules.
On February 6, 2019, we received a letter
from Nasdaq stating that due to our continued non-compliance with the minimum $1.00 bid price requirement, our common shares were
subject to delisting unless we timely requested a hearing before the Nasdaq Hearings Panel. We timely requested such a hearing
on February 8, 2019, which request has stayed any delisting or suspension action by Nasdaq pending the hearing and the expiration
of any additional extension period granted following the hearing. On May 20, 2019, we announced that the Nasdaq Hearings Panel
notified us in a letter that we had regained compliance with the minimum bid price requirement under Nasdaq Listing Rule 5550(a)(2).
The Nasdaq Hearings Panel further determined that we were in compliance with all applicable Nasdaq listing standards.
The SEC has adopted a number of rules
to regulate “penny stock” that restrict transactions involving stock which is deemed to be penny stock. Such rules
include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities Exchange Act of 1934 (the
“Exchange Act”). These rules may have the effect of reducing the liquidity of penny stocks. “Penny stocks”
generally are equity securities with a price of less than $5.00 per share (other than securities registered on certain national
securities exchanges or quoted on the Nasdaq Stock Market if current price and volume information with respect to transactions
in such securities is provided by the exchange or system). Our common shares have in the past constituted, and may again in the
future constitute, “penny stock” within the meaning of the rules. The additional sales practice and disclosure requirements
imposed upon U.S. broker-dealers may discourage such broker-dealers from effecting transactions in our common shares, which could
severely limit the market liquidity of such common shares and impede their sale in the secondary market.
A U.S. broker-dealer selling penny stock
to anyone other than an established customer or “accredited investor” (generally, an individual with net worth in
excess of $1,000,000 or an annual income exceeding $200,000, or $300,000 together with his or her spouse) must make a special
suitability determination for the purchaser and must receive the purchaser’s written consent to the transaction prior to
sale, unless the broker-dealer or the transaction is otherwise exempt. In addition, the “penny stock” regulations
require the U.S. broker-dealer to deliver, prior to any transaction involving a “penny stock”, a disclosure schedule
prepared in accordance with SEC standards relating to the “penny stock” market, unless the broker-dealer or the transaction
is otherwise exempt. A U.S. broker-dealer is also required to disclose commissions payable to the U.S. broker-dealer and the registered
representative and current quotations for the securities. Finally, a U.S. broker-dealer is required to submit monthly statements
disclosing recent price information with respect to the “penny stock” held in a customer’s account and information
with respect to the limited market in “penny stocks.”
Shareholders should be aware that, according
to the SEC, the market for “penny stocks” has suffered in recent years from patterns of fraud and abuse. Such patterns
include (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;
(ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (iii)
“boiler room” practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales
persons; (iv) excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and (v) the wholesale dumping
of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, resulting in investor
losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect
to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will
strive within the confines of practical limitations to prevent the described patterns from being established with respect to our
securities.
Certain principal shareholders and members of our executive
team and board of directors own a significant portion of our common shares and as a result will be able to exercise significant
control over us, and your interests may conflict with the interests of such shareholders.
Certain principal shareholders and their
affiliated entities as well as members of our executive team and board of directors own approximately 8.9% of our common shares.
Depending on the level of attendance at our general meetings of shareholders, these shareholders may be in a position to determine
the outcome of decisions taken at any such general meeting. Any shareholder or group of shareholders controlling more than 50%
of the shares represented at our general meetings of shareholders may control any shareholder resolution requiring an absolute
majority of the shares represented, including the election of members to the board of directors of the Company, certain decisions
relating to our capital structure, the approval of certain significant corporate transactions and certain amendments to our bye-laws
(the “Bye-Laws”). To the extent that the interests of these shareholders may differ from the interests of the Company’s
other shareholders, the latter may be disadvantaged by any action that these shareholders may seek to pursue. Among other consequences,
this concentration of ownership may have the effect of delaying or preventing a change in control and might therefore negatively
affect the market price of our common shares.
Future sales, or the possibility of future sales, of
a substantial number of our common shares could adversely affect the price of our common shares.
Future sales of a substantial number of our
common shares, or the perception that such sales will occur, could cause a decline in the market price of our common shares. Approximately
8.9% of our common shares issued and outstanding are held by affiliates. If these shareholders sell substantial amounts of common
shares in the public market, or the market perceives that such sales may occur, the market price of our common shares and our ability
to raise capital through an issue of equity securities could be adversely affected. Additionally, as of the date of this Annual
Report we have warrants outstanding, which are exercisable for an aggregate of 2,488,520 common shares at a weighted average exercise
price of $9.80 per share, an equity commitment to sell up to $8.2 million of additional common shares to Lincoln Park Capital Fund,
LLC (“LPC”) pursuant to the commitment purchase agreement we entered into on May 2, 2018 with LPC (the “LPC Purchase
Agreement”) and an at-the-market offering program pursuant to the sales agreement we entered into with A.G.P./Alliance Global
Partners (“A.G.P.”) on November 30, 2018, as amended on April 5, 2019 (the “A.G.P. Sales Agreement”) for
sales of up to $25.0 million of additional common shares. We have also filed registration statements to register the resale of
the common shares underlying the warrants that we have offered and sold in unregistered transactions, the common shares that are
sold to LPC and the common shares and other equity securities that we have issued under our prior equity incentive plans or may
issue under our new omnibus equity compensation plan. These common shares may be freely sold in the public market upon issuance,
subject to certain limitations applicable to affiliates. In addition, we have filed a registration statement covering the issuance
and sale by us of up to $100 million of common shares, debt securities, warrants, purchase contracts, units and common shares.
We may issue such securities, including our common shares and warrants to purchase common shares, at any time and from time to
time subject to the limitations set forth in General Instruction I.B.5 of Form F-3. If a large number of our common shares and/or
warrants to purchase common shares are sold in the public market, the sales could reduce the trading price of our common shares
and impede our ability to raise future capital.
We do not expect to pay dividends in the foreseeable
future.
We have not paid any dividends since our
incorporation. Even if future operations lead to significant levels of distributable profits, we currently intend that any earnings
will be reinvested in our business and that dividends will not be paid until we have an established revenue stream to support
continuing dividends. The proposal to pay future dividends to shareholders will in addition effectively be at the discretion of
our board of directors after taking into account various factors including our business prospects, cash requirements, financial
performance and new product development. In addition, payment of future dividends is subject to certain limitations pursuant to
Bermuda law or by our Bye-laws. We are subject to Bermuda law restrictions on the payment of dividends including that no dividends
may be declared by our board of directors or paid by the Company if there are reasonable grounds for believing that: (i) we are,
or would after the payment be, unable to pay our liabilities as they become due; or (ii) that the realizable value of our assets
would thereby be less than our liabilities. Accordingly, investors cannot rely on dividend income from our common shares and any
returns on an investment in our common shares will likely depend entirely upon any future appreciation in the price of our common
shares.
Additionally, in connection with the Merger,
the Swiss Federal Tax Administration took the position (on the basis of a tax ruling) that, as a result of the Merger, the existing
Capital Contribution Reserves will be offset against the retained losses. This leads to a reduced amount of Capital Contribution
Reserves. We do not intend to make distributions in the foreseeable future, but if the position of the tax authorities were to
prevail, it is likely that any distributions exceeding the reduced amount of Capital Contributions Reserves would be treated as
taxable dividends for Swiss tax purposes. If we ever decide to declare dividends, we expect to challenge the view under the tax
ruling, but there can be no assurance that any such challenge would be successful.
We are a holding company with no material direct operations.
We are a holding company with no material
direct operations. As a result, we would be dependent on dividends, other payments or loans from our subsidiaries in order to
pay a dividend. Our subsidiaries are subject to legal requirements of their respective jurisdictions of organization that may
restrict their paying dividends or other payments, or making loans, to us.
We are a foreign private issuer and, as a result, we
are not subject to U.S. proxy rules and are subject to Exchange Act reporting obligations that, to some extent, are more lenient
and less frequent than those of a U.S. domestic public company.
We report under the Exchange Act, as a
non-U.S. company with foreign private issuer status. Because we qualify as a foreign private issuer under the Exchange Act and
although we are subject to Bermuda laws and regulations with regard to such matters and furnish semiannual financial information
to the SEC, we are exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including
(i) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security
registered under the Exchange Act; (ii) the sections of the Exchange Act requiring insiders to file public reports of their stock
ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and (iii) the
rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial
and other specified information, or current reports on Form 8-K, upon the occurrence of specified significant events. In addition,
foreign private issuers are not required to file their annual report on Form 20-F until four months after the end of each financial
year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75
days after the end of each fiscal year. Foreign private issuers are also exempt from the Regulation Fair Disclosure, aimed at
preventing issuers from making selective disclosures of material information. As a result of the above, you may not have the same
protections afforded to shareholders of companies that are not foreign private issuers.
As a foreign private issuer and as permitted by the listing
requirements of Nasdaq, we follow certain home country governance practices rather than the corporate governance requirements
of Nasdaq.
We are a foreign private issuer. As a
result, in accordance with Nasdaq Listing Rule 5615(a)(3), we comply with home country governance requirements and certain exemptions
thereunder rather than complying with certain of the corporate governance requirements of Nasdaq.
Bermuda law does not require that a majority
of our board of directors consists of independent directors. Our board of directors therefore may include fewer independent directors
than would be required if we were subject to Nasdaq Listing Rule 5605(b)(1). In addition, we are not subject to Nasdaq Listing
Rule 5605(b)(2), which requires that independent directors regularly have scheduled meetings at which only independent directors
are present.
Bermuda law does not require that we disclose
information regarding third-party compensation of our directors or director nominee. As a result, our practice varies from the
third-party compensation disclosure requirements of Nasdaq Listing Rule 5250(b)(3). We follow the requirements of Bermuda law
with respect to our compensation committee, disclosure of compensation of our directors and executive officers and information
regarding third-party compensation of our directors or director nominee, each of which differ from the requirements of the Nasdaq
Listing Rules.
In addition, as permitted by Bermuda law,
we have opted not to implement a standalone nominating committee. To this extent, our practice varies from the independent director
oversight of director nominations requirements of Nasdaq Listing Rule 5605(e).
The quorum for a general meeting of shareholders
is as set out in our Bye-laws, which provides for a quorum of two or more persons present at the start of the meeting and representing
in person or by proxy issued and outstanding voting shares in the company. Our practice thus varies from the requirement of Nasdaq
Listing Rule 5620(c), which requires an issuer to provide in its bylaws for a generally applicable quorum, and that such quorum
may not be less than one-third of the outstanding voting stock. We must provide shareholders with an agenda and other relevant
documents for the general meeting of shareholders. However Bermuda law has no regulatory regime for the solicitation of proxies,
thus our practice varies from the requirement of Nasdaq Listing Rule 5620(b), which sets forth certain requirements regarding
the solicitation of proxies. In addition, we have opted out of shareholder approval requirements for the issuance of securities
in connection with certain events such as the acquisition of stock or assets of another company, the establishment of or amendments
to equity-based compensation plans for employees, a change of control of us and certain private placements. To this extent, our
practice varies from the requirements of Nasdaq Listing Rule 5635, which generally requires an issuer to obtain shareholder approval
for the issuance of securities in connection with such events.
As a result of the above, you may not
have the same protections afforded to shareholders of companies that are not foreign private issuers.
We may lose our foreign private issuer status, which
would then require us to comply with the Exchange Act’s domestic reporting regime and cause us to incur significant legal,
accounting and other expenses.
We are a foreign private issuer and therefore
we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act applicable
to U.S. domestic issuers. In order to maintain our current status as a foreign private issuer, either (a) a majority of our common
shares must be either directly or indirectly owned of record by non-residents of the United States or (b)(i) a majority of our
executive officers or directors may not be United States citizens or residents, (ii) more than 50 percent of our assets cannot
be located in the United States and (iii) our business must be administered principally outside the United States. These criteria
are tested on the last business day of our second fiscal quarter, each year. If we lost this status, we would be required to comply
with the Exchange Act reporting and other requirements applicable to U.S. domestic issuers, which are more detailed and extensive
than the requirements for foreign private issuers. We may also be required to make changes in our corporate governance practices
in accordance with various SEC and stock exchange rules. The regulatory and compliance costs to us under U.S. securities laws
if we are required to comply with the reporting requirements applicable to a U.S. domestic issuer may be significantly higher
than the cost we would incur as a foreign private issuer. As a result, we expect that a loss of foreign private issuer status
would increase our legal and financial compliance costs and would make some activities highly time-consuming and costly. We also
expect that if we were required to comply with the rules and regulations applicable to U.S. domestic issuers, it would make it
more difficult and expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced
coverage or incur substantially higher costs to obtain coverage. These rules and regulations could also make it more difficult
for us to attract and retain qualified members of our board of directors.
We believe that we were a “passive foreign investment
company,” or PFIC, for U.S. federal income tax purposes for our 2019 taxable year, and we expect to be a PFIC for our current
year and for the foreseeable future.
We believe that we were a “passive
foreign investment company,” or PFIC, for U.S. federal income tax purposes for our 2019 taxable year, and we expect to be
a PFIC for our current year and for the foreseeable future. However, our actual PFIC status for the current or any future taxable
year is uncertain and cannot be determined until after the end of such taxable year. In addition, we may, directly or indirectly,
hold equity interests in other PFICs. Under the Internal Revenue Code of 1986, as amended, we will be a PFIC for any taxable year
in which (i) 75% or more of our gross income consists of passive income or (ii) 50% or more of the average quarterly value of our
assets consists of assets that produce, or are held for the production of, passive income. For purposes of the above calculations,
a non-U.S. corporation that directly or indirectly owns at least 25% by value of the shares of another corporation is treated as
if it held its proportionate share of the assets of the other corporation and received directly its proportionate share of the
income of the other corporation. Passive income generally includes dividends, interest, rents, royalties and capital gains.
If we are a PFIC for any taxable year
during which a U.S. investor holds our shares, the U.S. investor may be subject to adverse tax consequences, including (i) the
treatment of all or a portion of any gain on disposition as ordinary income, (ii) the application of a deferred interest charge
on such gain and the receipt of certain dividends and (iii) compliance with certain reporting requirements.
For further discussion of the adverse
U.S. federal income tax consequences of our classification as a PFIC, see “Material U.S. Federal Income Tax Considerations
for U.S. Holders.”
If we fail to maintain an effective system of internal
control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result,
shareholders could lose confidence in our financial and other public reporting, which would harm our business and the trading
price of our common shares.
Effective internal controls over financial
reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures,
are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their
implementation could cause us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection
with Section 404 of the Sarbanes-Oxley Act of 2002, or any subsequent testing by our independent registered public accounting
firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that
may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement.
Inferior internal controls could also subject us to regulatory scrutiny and sanctions, impair our ability to raise revenue and
cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price
of our common shares.
We are required to disclose changes made
in our internal controls and procedures, and our management is required to assess the effectiveness of these controls annually.
However, for as long as we are a “non-accelerated filer” under Securities and Exchange Commission rules, our independent
registered public accounting firm is not be required to attest to the effectiveness of our internal controls over financial reporting
pursuant to Section 404. An independent assessment of the effectiveness of our internal controls could detect problems that our
management’s assessment might not. Undetected material weaknesses in our internal controls could lead to financial statement
restatements and require us to incur the expense of remediation.
If securities or industry analysts do not publish research,
or publish inaccurate or unfavorable research, about our business, the price of our common shares and our trading volume could
decline.
The trading market for our common shares
depends in part on the research and reports that securities or industry analysts publish about us or our business. We do not have
any control over these analysts. We cannot assure you that analysts will cover us or provide favorable coverage. If one or more
of the analysts who cover us downgrade our common shares or publish inaccurate or unfavorable research about our business, the
price of our common shares would likely decline. If one or more of these analysts cease coverage of the Company or fail to publish
reports on us regularly, demand for our common shares could decrease, which might cause the price of our common shares and trading
volume to decline.
As a Bermuda company, it may be difficult for you to
enforce judgments against us or our directors and executive officers.
We are a Bermuda exempted company. As
a result, the rights of holders of our common shares are governed by Bermuda law and our memorandum of continuance (the “Memorandum
of Continuance”) and Bye-laws. The rights of shareholders under Bermuda law may differ from the rights of shareholders of
companies incorporated in other jurisdictions. Many of our directors referred to in this Annual Report are not residents of the
United States, and a substantial portion of our assets are located outside the United States. As a result, it may be difficult
for investors to effect service of process on those persons in the United States or to enforce in the United States judgments
obtained in U.S. courts against us or those persons based on the civil liability provisions of the U.S. securities laws. It is
doubtful whether courts in Bermuda will enforce judgments obtained in other jurisdictions, including the United States, against
us or our directors or officers under the securities laws of those jurisdictions or entertain actions in Bermuda against us or
our directors or officers under the securities laws of other jurisdictions.
Bermuda law differs from the laws in effect in the United
States and may afford less protection to holders of our common shares.
We are subject to the laws of Bermuda.
As a result, our corporate affairs are governed by the Companies Act 1981 of Bermuda (the “Companies Act”), which
differs in some material respects from laws typically applicable to U.S. corporations and shareholders, including the provisions
relating to interested directors, amalgamations, mergers and acquisitions, takeovers, shareholder lawsuits and indemnification
of directors. Generally, the duties of directors and officers of a Bermuda company are owed to the company only. Shareholders
of Bermuda companies typically do not have rights to take action against directors or officers of the company and may only do
so in limited circumstances. Class actions are not available under Bermuda law. The circumstances in which derivative actions
may be available under Bermuda law are substantially more proscribed and less clear than they would be to shareholders of U.S.
corporations. The Bermuda courts, however, would ordinarily be expected to permit a shareholder to commence an action in the name
of a company to remedy a wrong to the company where the act complained of is alleged to be beyond the corporate power of the company
or illegal, or would result in the violation of the company’s memorandum of association (or memorandum of continuance) or
bye-laws. Furthermore, consideration would be given by a Bermuda court to acts that are alleged to constitute a fraud against
the minority shareholders or, for instance, where an act requires the approval of a greater percentage of the company’s
shareholders than that which actually approved it.
When the affairs of a company are being
conducted in a manner that is oppressive or prejudicial to the interests of some shareholders, one or more shareholders may apply
to the Supreme Court of Bermuda, which may make such order as it sees fit, including an order regulating the conduct of the company’s
affairs in the future or ordering the purchase of the shares of any shareholders by other shareholders or by the company. Additionally,
under our Bye-laws and as permitted by Bermuda law, each shareholder has waived any claim or right of action against our directors
or officers for any action taken by directors or officers in the performance of their duties, except for actions involving fraud
or dishonesty. In addition, the rights of holders of our common shares and the fiduciary responsibilities of our directors under
Bermuda law are not as clearly established as under statutes or judicial precedent in existence in jurisdictions in the United
States, particularly the State of Delaware. Therefore, holders of our common shares may have more difficulty protecting their
interests than would shareholders of a corporation incorporated in a jurisdiction within the United States.
Our Bye-laws restrict shareholders from bringing legal
action against our officers and directors.
Our Bye-laws contain a broad waiver by
our shareholders of any claim or right of action, both individually and on our behalf, against any of our officers or directors.
The waiver applies to any action taken by an officer or director, or the failure of an officer or director to take any action,
in the performance of his or her duties, except with respect to any matter involving any fraud or dishonesty on the part of the
officer or director. This waiver limits the right of shareholders to assert claims against our officers and directors unless the
act or failure to act involves fraud or dishonesty.
We have anti-takeover provisions in our Bye-laws that
may discourage a change of control.
Our Bye-laws contain provisions that could
make it more difficult for a third party to acquire us without the consent of our board of directors. These provisions provide
for:
|
●
|
directors only to be removed for cause;
|
|
●
|
restrictions on the time period in which directors may be nominated;
|
|
●
|
our board of directors to determine the powers, preferences and
rights of our preference shares and to issue the preference shares without shareholder approval; and
|
|
●
|
an affirmative vote of 66 2/3% of our voting shares for certain
“business combination” transactions which have not been approved by our board of directors.
|
These provisions could make it more difficult
for a third party to acquire us, even if the third party’s offer may be considered beneficial by many shareholders. As a
result, shareholders may be limited in their ability to obtain a premium for their shares.
Legislation enacted in Bermuda as
to economic substance may affect our operations.
Pursuant to the Economic
Substance Act 2018 (as amended) of Bermuda (the “ES Act”) that came into force on January 1, 2019, a registered entity
other than an entity which is resident for tax purposes in certain jurisdictions outside Bermuda (“non-resident entity”)
that carries on as a business any one or more of the “relevant activities” referred to in the ES Act must comply with
economic substance requirements. The ES Act may require in-scope Bermuda entities which are engaged in such “relevant activities”
to be directed and managed in Bermuda, have an adequate level of qualified employees in Bermuda, incur an adequate level of annual
expenditure in Bermuda, maintain physical offices and premises in Bermuda or perform core income-generating activities in Bermuda.
The list of “relevant activities” includes carrying on any one or more of the following activities: banking, insurance,
fund management, financing, leasing, headquarters, shipping, distribution and service centre, intellectual property and holding
entities. The ES Act could affect the manner in which Auris Medical operates its business, which could adversely affect its business,
financial condition and results of operations.
Based on the ES Act
currently, for so long as Auris Medical is a non-resident entity, it is not required to satisfy any such economic substance requirements
other than providing the Bermuda Registrar of Companies annually information on the jurisdiction in which it claims to be resident
for tax purposes together with sufficient evidence to support that tax residence. Although it is presently anticipated that the
ES Act will have little material impact on the Auris Medical or its operations, as the legislation is new and remains subject
to further clarification and interpretation, it is not currently possible to ascertain the precise impact of the ES Act on Auris
Medical.
ITEM 4. INFORMATION ON THE COMPANY
A.
|
History and development of the Company
|
Overview
We are a clinical-stage biopharmaceutical
company dedicated to developing therapeutics that address important
unmet medical needs in neurotology and CNS disorders. We are focusing on the development of intranasal betahistine for the treatment of vertigo (AM-125) and for the prevention
of antipsychotic-induced weight gain and somnolence (AM-201). These programs have gone through two Phase 1 trials and have moved
into proof-of-concept studies in 2019. In addition, we have two Phase 3 programs under development, subject to our ability to obtain non-dilutive funding or partnering: (i) Keyzilen®
(AM-101), which is being developed for the treatment of acute inner ear tinnitus and (ii) Sonsuvi® (AM-111), which is being
developed for the treatment of acute inner ear hearing loss. Sonsuvi® has been granted orphan drug status by the FDA and the
EMA and has been granted fast track designation by the FDA.
Our product candidates Keyzilen® and
Sonsuvi® are injected under local anesthesia into the middle ear by a technique called intratympanic injection. Once injected
into the middle ear, the active substance, which is formulated in a biocompatible gel, diffuses into the inner ear. The procedure
is short, safe, has a long history of use and allows for highly targeted drug delivery with minimal systemic exposure. It is performed
by an ear, nose and throat, or ENT, specialist on an outpatient basis over one or more visits.
Our product candidates AM-125 and AM-201
are administered with a metered spray into the nose. Intranasal application allows for the active substance to reach the blood
stream rapidly while avoiding the substantial “first-pass” metabolism associated with the current standard oral intake
of betahistine.
AM-125
We are developing AM-125 for the intranasal
treatment of acute peripheral vertigo. On February 2, 2017, we entered into an asset purchase agreement with Otifex, pursuant
to which we have purchased various assets related to betahistine dihydrochloride in a spray formulation. The assets include preclinical
and clinical data as well as certain intellectual property rights. In a Phase 1 clinical trial conducted by Otifex in 40 healthy
volunteers intranasal betahistine showed good tolerability and significantly higher betahistine concentrations in blood plasma
than reported for oral betahistine administration.
In 2018, we conducted a second Phase 1
clinical trial with AM-125 in healthy volunteers. The study results demonstrated superior bioavailability over a range of four
intranasal betahistine doses compared to oral betahistine, with plasma exposure being 5 to 29 times higher (unadjusted for dose;
p-value between 0.056 and p < 0.0001). Further, it confirmed the favorable safety profile of intranasal betahistine and showed
that the treatment was well tolerated when administered three times daily for three days. The randomized double blind placebo
controlled Phase 1 trial with dose escalation enrolled a total of 72 healthy volunteers. One group of study participants received
a single dose of intranasal betahistine or placebo and, following a wash-out period, three doses daily for three days. Single
doses were escalated up to 60 mg, and repeated doses up to 40 mg. For the latter, the maximum tolerated dose based on local tolerability
was determined at 40 mg. The other group of study participants received oral betahistine or placebo for reference. Pharmacokinetic
parameters in blood plasma were determined for betahistine and its metabolites, and relative bioavailability for intranasal betahistine
was calculated compared to oral betahistine 48 mg, which is the maximum approved daily dose as marketed worldwide (ex U.S.).
We have discussed the regulatory requirements
for AM-125 during a pre-Investigational New Drug (“IND”) meeting with the FDA and in the context of scientific advice
meetings with the EMA and two European national health authorities to further define the development program. We believe that,
if approved, AM-125 could become the first betahistine product for the treatment of acute peripheral vertigo in the United States.
In July 2019, we started enrollment into
a randomized placebo-controlled Phase 2 clinical study with AM-125. The “TRAVERS” Phase 2 trial is expected to enroll
118 patients suffering from acute vertigo following surgical removal of a vestibular schwannoma, a tumor growing behind the inner
ear, resection of the vestibular nerve (vestibular neurectomy) or surgical removal of parts of the inner ear (labyrinthectomy).
It is being conducted in several European countries and Canada. The TRAVERS trial has two parts: In Part A, three ascending doses
of AM-125 or placebo, administered three times daily over a total of four weeks, will be tested in a total of 30 patients. In addition,
oral betahistine 48 mg will be tested in 16 patients under open-label conditions for reference. Due to the COVID-19 outbreak, the
sites participating in the “TRAVERS” trial have postponed elective procedures and temporarily reduced or suspended
clinical research activities. As a result, enrollment came to a halt towards the end of March 2020. Although sites are expected
to catch up on enrollment once COVID-19 related restrictions are relaxed, the Company therefore expects that the interim analysis
following Part A of the trial will be completed only in the third quarter of 2020, at the earliest. Based on an interim analysis
following Part A two doses will be selected and tested against placebo in an estimated 72 patients in Part B.
AM-201
In 2019, we initiated a Phase 1b trial
in Europe to evaluate AM-201’s safety and its effects for the prevention of olanzapine induced weight gain and drowsiness.
Participants received either AM-201 (1, 2.5, 5, 10 or 20 mg) or placebo in parallel with oral olanzapine (10 mg) once a day for
four weeks. On October 11, 2019, we announced interim results from the first 50 participants in the trial. The study demonstrated
good safety and tolerability of AM-201 and revealed relevant reductions in olanzapine-induced weight gain and daytime sleepiness.
In female study participants, who overall showed more pronounced changes than male participants, a reduction in weight gain of
1.1 kg against placebo was observed at the highest tested dose of 20 mg three times per day (probability of effectiveness = 90%).
The trial then proceeded to the next higher and final dose level of 30 mg tested in an additional 30 healthy volunteers, with
the last subject having its last study visit in March 2020. We expect to report top-line data from the study in May 2020.
Keyzilen®
Our clinical program with Keyzilen®,
Esketamine gel for injection, is in Phase 3 clinical trials in acute inner ear tinnitus. Esketamine is a potent, small molecule
non-competitive NMDA receptor antagonist. Keyzilen® is formulated in a biocompatible gel and delivered via intratympanic injection.
It has demonstrated a favorable safety profile and positive effect on PROs associated with tinnitus in two Phase 2 clinical trials.
The Phase 3 clinical development program comprised two pivotal clinical trials with highly similar design, one in North America
(TACTT2) and one in Europe, which we refer to as TACTT3.
Tinnitus is categorized as acute during
the three months after onset and chronic when it persists for more than three months. Approximately 25% of American adults (50
million people) have experienced tinnitus with nearly 8% of American adults (16 million people) having frequent occurrences. Epidemiological
studies reveal comparable prevalence rates for Europe. Among the tinnitus patients seen by general practitioners and ENT specialists
in the United States and the top five European markets who reported seeing at least one tinnitus patient in the previous three
months, approximately 36% of patients sought medical treatment during the first three months following tinnitus onset.
Possible causes of acute inner ear tinnitus
include traumatic insult such as exposure to excessive noise, or middle ear infection (otitis media, or OM). We have conducted
Phase 2 trials in this specific tinnitus population with Keyzilen®, which demonstrated a favorable safety profile. Furthermore,
in our Phase 2 clinical trials, Keyzilen® showed a dose dependent, persistent and clinically relevant improvement, as compared
to the placebo, in subjective tinnitus loudness as well as other patient reported outcomes, such as tinnitus annoyance, tinnitus
severity, sleep difficulties and general tinnitus impact. In August 2016, we announced that the trial Efficacy and Safety of Keyzilen®
(AM-101) in the Treatment of Acute Peripheral Tinnitus 2, or TACTT2, the first of two pivotal Phase 3 clinical trials with Keyzilen®,
did not meet the two co-primary endpoints of statistically significant changes in tinnitus loudness and tinnitus burden as measured
by the TFI compared to placebo. However, the TACTT2 trial data showed treatment effects on TFI in favor of Keyzilen® for certain
subgroups and supported the positive safety profile established in the Phase 2 trials.
In the second quarter of 2017 we announced
results from AMPACT1 and AMPACT2 (AM-101 in the Post-Acute Treatment of Peripheral Tinnitus 1 and 2), two open-label extension
studies of the Phase 3 TACTT2 and TACTT3 clinical trials, respectively. The AMPACT studies were conducted at the request of the
US Food and Drug Administration (FDA) to generate safety data from chronic intermittent use of Keyzilen® for up to 12 months.
Both AMPACT1 and AMPACT2 confirmed the good safety profile of Keyzilen®.
Based on the outcomes from the TACTT2
trial, we amended our protocol for the TACTT3 Phase 3 clinical trial of Keyzilen® in two steps. Under the final, amended trial
protocol, the change in TFI score was elevated from a key secondary endpoint to a primary efficacy endpoint, the trial size was
increased to enhance statistical sensitivity to the effects of treatment, and the subgroup of patients with otitis media-related
tinnitus was included in confirmatory statistical testing along with the overall study population. The change in tinnitus loudness
was downgraded from a primary to a secondary efficacy endpoint. As in TACTT2, tinnitus loudness was initially rated on a daily
basis; however, the rating frequency was subsequently reduced in between study visits in order to lighten the burden of patients
and reduce the potential impact of the frequent measures. Enrollment into the TACTT3 trial was resumed in early 2017 and completed
in September 2017.
On March 13, 2018, we announced that the TACTT3 trial did not
meet 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.
This outcome was confirmed by further analyses. We consider that additional studies with Keyzilen® will be necessary to move
the program forward, and that the way how outcomes are measured Keyzilen® will need to be improved in order to provide more
robust efficacy data. On April 25, 2019, we announced that we had completed the design of a pivotal Phase 2/3 trial for Keyzilen®.
The trial shall, in two stages, reaffirm the compound’s efficacy in the treatment of acute tinnitus following traumatic
cochlear injury and provide confirmatory efficacy data to support a filing for marketing authorization. On September 13, 2019,
we announced that we have obtained advice on the development plan and regulatory pathway from the U.S. Food and Drug Administration
(“FDA”) in the context of a Type C meeting and from the European Medicines Agency (“EMA”) in the context
of a Scientific Advice procedure for Keyzilen®. We intend to fund further development of Keyzilen® either through
partnerships or research grants. See “Item 4. Information on the Company—B. Business overview—Keyzilen®
Phase 3 Clinical Program.”
Sonsuvi®
We are also developing Sonsuvi® for
acute inner ear hearing loss. In our Phase 2 clinical trial, AM-111 showed a favorable safety profile. Furthermore, in patients
with severe to profound ASNHL, we observed a clinically relevant improvement in hearing threshold, speech discrimination and a
higher rate of complete tinnitus remission compared with placebo. On November 28, 2017, we announced that the HEALOS Phase 3 clinical
trial that investigated Sonsuvi® 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 (PTA
≥ 90 dB at baseline in accordance with a commonly used classification of hearing loss severity) revealed a clinically meaningful
and nominally significant improvement in the Sonsuvi® 0.4 mg/mL treatment group. Further, patients treated with Sonsuvi®
0.4 mg/mL showed a nominally significantly lower incidence of no hearing improvement compared to placebo by Day 91 as well as
a superior improvement in word recognition score. Outcomes with Sonsuvi® 0.8 mg/mL tended to be somewhat less pronounced than
those observed for Sonsuvi® 0.4 mg/mL. Sonsuvi® was well tolerated and the primary safety endpoint was met.
Together with the outcomes of the HEALOS
trial, we announced that ASSENT, the second Phase 3 clinical trial investigating Sonsuvi®, was terminated early in order to
avoid the need for substantial protocol changes and interruptions of enrollment pending feedback from health authorities on the
regulatory pathway. ASSENT was planned to enroll a total of 300 patients in the US, Canada and South Korea. In contrast to HEALOS
and the Phase 2 trial, where patients with insufficient hearing recovery had the option of receiving a course of oral corticosteroids
as reserve therapy, all patients in ASSENT would receive oral corticosteroids as a background therapy. At the time of early termination,
the ASSENT trial had recruited 56 patients.
Based on the HEALOS results, we submitted
the design of a new pivotal trial with AM-111 0.4 mg/mL in patients suffering from acute profound hearing loss to the EMA and
subsequently also to the FDA for review. Through a Protocol Assistance procedure the EMA endorsed the proposed trial design, choice
of efficacy and safety endpoints, as well as the statistical methodology. In a Type C meeting with written responses, the proposed
choice of primary and secondary efficacy endpoints, the safety endpoints, as well as the planned sample size and statistical methodology
were also endorsed by the FDA. We intend to fund further development of Sonsuvi® through partnerships.
On December 30, 2019 we announced the
formation of a new subsidiary, Zilentin Ltd., to bundle our development projects for the treatment of tinnitus and hearing loss
in a separate entity. Upon completion of the transfers from other Group companies, Zilentin Ltd. shall own all tangible and intangible
assets related to the development of tinnitus therapeutics, including Keyzilen®, and hearing loss therapeutics (Sonsuvi®).
Hercules Loan and Security Agreement
On July 19, 2016, we entered into a Loan
and Security Agreement (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.
On April 5, 2018, we entered into an agreement with Hercules Capital, Inc. (“Hercules”) whereby the terms of the Loan
and Security Agreement 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. On January 31, 2019, we made the final payment to Hercules under the
facility, comprising the last amortization payment as well as an end of term charge. With the final payment, all covenants and
collaterals in favor of Hercules have been lifted. In addition, Hercules agreed to return the warrant held by Hercules exercisable
for 783 common shares at an exercise price of $788.00 per common share for no consideration to us in exchange for our payment
to Hercules.
Redomestication
On January 24, 2019, our board of directors determined that
it would be in our best interest to change our legal seat and jurisdiction of incorporation, respectively, from Switzerland to
Bermuda (the “Redomestication”). Our shareholders approved the Redomestication and adopted the Memorandum of Continuance
and the Bye-laws at an extraordinary meeting of shareholders held on March 8, 2019. Upon the issuance of a certificate of continuance
by the Registrar of Companies in Bermuda on March 18, 2019, the Company discontinued as a Swiss company and, pursuant to Article
163 of the Swiss Federal Act on Private International Law and pursuant to Section 132C of the Companies Act 1981 of Bermuda (the
“Companies Act”), continued existence under the Companies Act as a Bermuda company with the name “Auris Medical
Holding Ltd.”
2019 Reverse Split
On May 1, 2019, we effected the 2019 Reverse
Share Split of our common shares at a ratio of 1-for-20. No fractional common shares were issued as a result of the 2019 Reverse
Share Split, and any entitlement to fractional common shares were repurchased and settled in cash. Impacted amounts and share information
included in the consolidated financial statements and notes thereto have been adjusted for the reverse share split as if such reverse
share split occurred on the first day of the periods presented. Certain amounts in the notes to the consolidated financial statements
may be slightly different than previously reported due to the repurchase of fractional shares as a result of the reverse share
split.
2017 LPC Purchase Agreement
On October 10, 2017, we entered into a
purchase agreement (the “Commitment Purchase Agreement”) with LPC. Pursuant to the Commitment Purchase Agreement,
LPC agreed to subscribe for up to $13,500,000 of our common shares over the 30-month term of the Commitment Purchase Agreement.
Pursuant to the Registration Rights Agreement, we agreed to file registration statements with the SEC to register the resale of
the common shares purchased by LPC. As of March 12, 2018, we had issued an aggregate of 13,000 common shares to LPC pursuant to
the Commitment Purchase Agreement. The Commitment Purchase Agreement terminated upon consummation of the Merger on March 13, 2018.
Additionally, in a separate private placement on October 16, 2017, we issued 1,744,186 (pre-merger) of our common shares to LPC
for an aggregate price of $1,500,000.
January 2018 Offerings
On January 30, 2018, we completed a public
offering of 62,499 common shares (the “January 2018 Registered Offering”) and a concurrent offering of 37,499 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 December 31, 2019, the outstanding warrants issued in the January 2018 offering were exercisable for up to
37,501 common shares (assuming we decide to round up fractional common shares to the next whole common share) at an exercise price
of $100.00 per common share.
2018 LPC Agreement
On May 2, 2018, we entered into the LPC
Purchase Agreement with LPC. Pursuant to the LPC Purchase Agreement, LPC has agreed to subscribe for up to $10,000,000 of our
common shares over the 30-month term of the LPC Purchase Agreement.
Pursuant to the LPC Purchase Agreement,
so long as a registration statement covering the resale by LPC of the common shares that we issue to LPC pursuant to the LPC Purchase
Agreement is available for use, we have the right, from time to time at our sole discretion over the 30-month period from and
after June 15, 2018, the date of the satisfaction of the conditions in the LPC Purchase Agreement, to require LPC to subscribe
for up to 12,500 of our common shares, subject to adjustments as set forth below (such maximum number of shares, as may be adjusted
from time to time, the “Regular Purchase Share Limit”; each such purchase, a “Regular Purchase”); provided,
however, that (i) the Regular Purchase Share Limit shall be increased to 15,000 of our common shares if the total number of outstanding
common shares on the purchase date exceeds 500,000, (ii) the Regular Purchase Share Limit shall be increased to 17,500 of our
common shares if the closing sale price of our common shares is not below $20.00 on the purchase date and the total number of
outstanding common shares on the purchase date exceeds 625,000 and (iii) the Regular Purchase Share Limit shall be increased to
20,000 of our common shares if the closing sale price of our common shares is not below $20.00 on the purchase date and the total
number of outstanding common shares on the purchase date exceeds 750,000. The Regular Purchase Share Limit is subject to proportionate
adjustment in the event of a reorganization, recapitalization, non-cash dividend, stock split or other similar transaction; provided,
that if after giving effect to such full proportionate adjustment, the adjusted Regular Purchase Share Limit would preclude us
from requiring LPC to subscribe for common shares at an aggregate purchase price equal to or greater than $100,000 in any single
Regular Purchase, then the Regular Purchase Share Limit for such Regular Purchase will not be fully adjusted, but rather the Regular
Purchase Share Limit for such Regular Purchase shall be adjusted as specified in the LPC Purchase Agreement, such that, after
giving effect to such adjustment, the Regular Purchase Share Limit will be equal to (or as close as can be derived from such adjustment
without exceeding) $100,000. We may not require LPC to purchase in any single Regular Purchase common shares having an aggregate
purchase price greater than $1,000,000. We may not issue any of our common shares as a Regular Purchase on a date in which the
closing sale price of our common shares is below $0.50 (subject to adjustment for any reorganization, recapitalization, non-cash
dividend, stock split or other similar transaction). The purchase price for Regular Purchases shall be equal to the lesser of
(i) the lowest sale price of our common shares on the applicable purchase date and (ii) the average of the three lowest closing
sale prices of our common shares during the 10 business days immediately prior to the applicable purchase date, as reported on
The Nasdaq Capital Market.
We also have the right, at our sole discretion,
to require LPC to make tranche purchases of up to $2,000,000 in separate tranches of not less than $100,000 and up to $500,000
for each purchase, at a purchase price equal to the lesser of (i) $100.00 per common share or (ii) 96% of the
purchase price, provided that (a) the closing price of the common shares is not below $20.00 and (b) the total number of outstanding
common shares exceeds 625,000. We can deliver notice for a tranche purchase at any time, so long as at least 15 business days
have passed since a tranche purchase was completed.
In all instances, we may not issue common
shares to LPC under the LPC Purchase Agreement if it would result in LPC beneficially owning more than 4.99% of our outstanding
common shares.
The LPC Purchase Agreement contains customary
representations, warranties and agreements of the parties, certain limitations and conditions to completing future sale transactions,
indemnification rights of LPC and other obligations of the parties. LPC has covenanted not to cause or engage in any manner whatsoever,
any direct or indirect short selling or hedging of our common shares. We issued to LPC a cash commitment fee of $250,000
for entering into this commitment.
The net proceeds under the LPC Purchase
Agreement will depend on the frequency and prices at which we issue our common shares to LPC. We expect that any proceeds received
by us from such issuances to LPC will be used for working capital and general corporate purposes. We have the right to terminate
the LPC Purchase Agreement at any time for any reason upon one business day’s written notice to LPC.
As of the date of this Annual Report,
we have sold 463,000 of our common shares for an aggregate offering price of $1.7 million pursuant to the LPC Purchase
Agreement.
July 2018 Registered Offering
On July 17, 2018, we
completed a public offering of 897,435 common shares, 314,102 Series A warrants entitling its holders to purchase a common share
and 224,358 Series B warrants entitling its holder to purchase a common share (the “July 2018 Registered Offering”).
The net proceeds to us from the July 2018 Registered Offering were approximately $6.2 million, after deducting underwriting discounts
and other offering expenses payable by us. As of December 31, 2019, the outstanding Series A warrants issued in the July 2018
Registered Offering were exercisable for up to 168,876 common shares at an exercise price of CHF 7.80 per common share, and the
outstanding Series B warrants issued in the July 2018 Registered Offering were exercisable for up to 81,137 common shares of which,
the number of Series B warrants outstanding were exercisable for up to 46,602 common shares at an exercise price of CHF 7.80 per
common share and 34,535 common shares at an exercise price of CHF 3.95 per common share (which exercise price was automatically
adjusted due to the May 2019 Registered Offering). Since the July 2018 Registered Offering, certain Series A warrant holders exercised
their warrant shares to purchase 145,226 common shares of the Company and certain Series B warrant holders exercised warrant shares
to purchase 143,221 common shares.
FiveT Capital AG Purchase Agreements
On November 27, 2018 and December 11,
2018, we entered into purchase agreements with FiveT Capital AG, providing for the issuance and sale by us of an aggregate of
165,750 of our common shares for an aggregate purchase price of $1.6 million in two separate registered direct offerings.
“At-the-Market” Offering
Program
On November 30, 2018, we entered into
the A.G.P. Sales Agreement with A.G.P. Pursuant to the terms of the A.G.P. Sales Agreement, as amended on April 5, 2019, we may
offer and sell our common shares, from time to time through A.G.P. by any method deemed to be an “at-the-market” offering
as defined in Rule 415(a)(4) promulgated under the Securities Act. Pursuant to the A.G.P. Sales Agreement, we may sell common
shares up to a maximum aggregate offering price of $25.0 million. As of the date of this Annual Report, we have sold 202,805 of
our common shares for an aggregate offering price of $1.4 million pursuant to the A.G.P. Sales Agreement.
May 2019 Registered Offering
On May 15, 2019, the
Company completed a public offering of (i) 440,000 common shares with a par value of CHF 0.40 each, together with warrants to
purchase 440,000 common shares, and (ii) 1,721,280 pre-funded warrants, with each pre-funded warrant exercisable for one common
share, together with warrants to purchase 1,721,280 common shares, including 110,000 common shares and warrants to purchase 110,000
common shares sold pursuant to a partial exercise by the underwriters of the underwriters’ over-allotment option (the “May
2019 Registered Offering”). The exercise price for the pre-funded warrants is CHF 0.01 per common share and for the warrants
is CHF 4.34.
Corporate Information
We are an exempted company organized under
the laws of Bermuda. We began our current operations in 2003. On April 22, 2014, we changed our name from Auris Medical AG to
Auris Medical Holding AG and transferred our operational business to our newly incorporated subsidiary Auris Medical AG, which
is now our main operating subsidiary. On March 13, 2018, we effected a corporate reorganization through the Merger into a newly
formed holding company for the purpose of effecting the equivalent of a 10-1 “reverse share split.” Following shareholder
approval at an extraordinary general meeting of shareholders held on March 8, 2019 and upon the issuance of a certificate of continuance
by the Registrar of Companies in Bermuda on March 18, 2019, the Company discontinued as a Swiss company and, pursuant to Article
163 of the Swiss Federal Act on Private International Law and pursuant to Section 132C of the Companies Act 1981 of Bermuda (the
“Companies Act”), continued existence under the Companies Act as a Bermuda company with the name “Auris Medical
Holding Ltd.” (the “Redomestication”). Our registered office is located at Clarendon House, 2 Church Street,
Hamilton HM11, Bermuda, telephone number +1 (441) 295 5950. We maintain a website at www.aurismedical.com where general information
about us is available. Investors can obtain copies of our filings with the SEC from this site free of charge, as well as from
the SEC website at www.sec.gov. We are not incorporating the contents of our website into this Annual Report.
Strategy
Our goal is to become a leading biopharmaceutical
company focused on developing and commercializing novel therapeutics to treat neurotology and CNS disorders. The key elements
of our strategy to achieve this goal are:
|
●
|
Target disorders that have a defined pathophysiology and that
are amenable to treatment. We are focusing on disorders for which the pathophysiology is defined, can be effectively targeted
and where affected patients seek medical attention proactively.
|
|
●
|
Use drug delivery techniques and proprietary drug formulations
for effective, safe and rapid targeted administration. We are developing treatments for neurotology disorders based on
targeted drug delivery. Where the target is inside the inner ear, such as in case of acute inner ear hearing loss or tinnitus,
we employ intratympanic injections into the middle ear. This short outpatient procedure allows us to deliver therapeutic concentrations
of drug in a highly targeted fashion with only minimal systemic exposure. We are using proprietary, fully biocompatible and
biodegradable gel formulations for optimum middle ear tolerance and effective diffusion of active substances into the inner
ear. Where the target is localized not only in the inner ear, but also in the brain, as in the case of vertigo, we are using
a spray formulation for intranasal drug delivery to reach it more effectively than with oral administration.
|
|
●
|
Leverage products into additional therapeutic indications.
We consider our intranasal betahistine program as a platform on which various indications can be developed. The program started
with project AM-125 for the treatment of acute vertigo and has been expanded with project AM-201 to address also the prevention
of antipsychotic-induced weight gain. We see additional opportunities in other indications and seek to explore those for further
indication expansions.
|
|
●
|
Build an efficient commercial infrastructure to maximize the
value of our product candidates. We intend to build commercial operations in select markets. In those markets, we expect
our commercial operations to include specialty sales forces targeting ENTs and specialists in neurotology both in hospitals
and in private practice. In other markets, we expect to seek partnerships that would maximize our products’ commercial
potential.
|
The Inner Ear
We have focused our drug discovery and
development efforts on targeting the inner ear, which is comprised of the cochlea, the organ of hearing, and the vestibular system,
the organ of balance. The snail-shaped cochlea is the sensory organ at the periphery of the auditory system, which transmits sound
along the auditory pathway up to the brain for hearing. Acute insults to the cochlea from a variety of sources—for example,
loud noise, infection or insufficient blood supply—may lead to excessive levels of glutamate, the principal neurotransmitter
in the cochlea as well as other pathological processes. This in turn may damage cochlear hair cells, which tune and amplify sound
inside the cochlea or convert mechanical movement into neural signals, as well as cochlear neurons. Such damage may result in
the symptoms of inner ear hearing loss and/or inner ear tinnitus that can be transitory as natural repair mechanisms set in or
that become permanent when hair cells or neurons die or are permanently injured.
Because the cochlea is located deep inside
the head and because it is separated from the middle ear by a combination of bone and membranes, the interior of the cochlea is
a challenging location for drug delivery. We have chosen to deliver certain of our products via intratympanic injection across
the ear drum (also known as the tympanic membrane) into the middle ear cavity. By formulating our products with biocompatible
gels, we facilitate the diffusion of active substances across the round window membrane into the cochlea at clinically meaningful
concentrations.
The vestibular system communicates with
the cochlea and consists of three semi-circular canals and the vestibule. It is responsible for the sensations of balance and
motion. The vestibular system uses the same kinds of fluids and detection cells (hair cells) as the cochlea and sends information
to the brain regarding the altitude, rotation, and linear motion of the head. The vestibular system works with the visual system
to keep objects in view when the head is moved. Joint and muscle receptors are also important in maintaining balance. The brain
receives, interprets, and processes the information from all these systems to create the sensation of balance.
When vestibular input from each ear is
equal, the system is in balance, and there is no sense of movement. When inputs are unequal, the brain interprets this as movement.
As a result, compensatory eye movements and postural adjustments occur to maintain balance. However, when some pathology (e.g.,
inflammation or trauma) disrupts signaling unilaterally, the result is an imbalance in vestibular input that can lead to vertigo.
Market
Inner ear disorders, including hearing
loss, tinnitus, Meniere’s Disease and balance disorders, are common and often inter-related conditions. Chronic inner ear
disorders such as tinnitus and hearing loss are highly prevalent. According to the National Institute on Deafness and Other Communication
Disorders, or NIDCD, more than four out of 10 Americans, at some point in their lives, experience an episode of dizziness significant
enough to see a doctor. According to research by Saber Tehrani and colleagues published in the journal Academic Emergency Medicine
in 2013 there are almost 4 million emergency room visits per year in the U.S. for problems of dizziness or vertigo. Approximately
615,000 individuals in the United States are currently diagnosed with Meniere’s disease and 45,500 cases are newly diagnosed
each year. Also according to the NICDC, approximately 10% of the U.S. adult population, or about 25 million Americans, have experienced
tinnitus lasting at least five minutes in the past year. Additionally, according to a 2016 publication by Bhatt et al. in the
journal JAMA Otolaryngology—Head and Neck Surgery, 21.4 million (9.6%) U.S. adults experienced tinnitus in the past 12 months.
The NIDCD also reports that 37.5 million
Americans, or 15% of the adult U.S. population, report having some trouble hearing. Epidemiological studies reveal comparable
prevalence rates for Europe. Additionally, according to a 2016 publication by Hoffman et al. in the journal JAMA Otolaryngology—Head
and Neck Surgery, the annual prevalence of speech-frequency hearing loss among adults aged 20 to 69 years was 14.1% (27.7 million)
in the 2011-2012 period.
Although there are several drugs available for the treatment
of vertigo, they were all introduced several decades ago and have only limited clinical utility. In the US, diphenhydramine, meclizine,
promethazine and benzodiazepines are frequently used as vestibular suppressants; they act centrally and have a sedating effect
which may impose a serious limitation when the activities of the subject require alertness. Outside the US, betahistine is frequently
used as a non-sedating treatment for vertigo; it was also introduced several decades ago. As for the treatment of tinnitus or
hearing loss, there is currently no FDA or EMA approved drug therapy on the market.
According to a 2011 publication by Hall
et al. in the journal BMC Health Services Research, among the tinnitus patients seen by physicians who reported seeing at least
one tinnitus patient in the previous three months, approximately 36% of patients sought medical treatment during the first three
months following the onset of the disorder.
The market for ear disorders is underserved
despite the fact that according to a 2007 report by the consulting firm NeuroInsights, hearing loss ranks among the top ten neurologic
disorders by worldwide prevalence, ranking above attention deficit disorders, Alzheimer’s disease and multiple sclerosis.
There are three main reasons for this:
|
●
|
Inner ear physiology. It has been extremely challenging for
pharmaceutical companies to deliver drugs at effective concentrations to the inner ear. Like the eye, the inner ear is a protected
space. Systemically administered drugs such as intravenous or oral formulations in doses high enough to reach effective inner-ear
concentrations often bring unacceptable systemic toxicity.
|
|
●
|
Heterogeneity of inner ear disorders. Hearing loss, tinnitus
and vertigo are symptoms of many different underlying etiologies, and they manifest themselves in many different ways. For
example, tinnitus may be provoked by such different proximal causes as whiplash injury, excessive noise exposure, the flu
or even certain dental problems. In some cases, the tinnitus originates inside the cochlea, but then becomes “centralized,”
that is, the phantom sound persists even long after the initial source of the sensation has been removed. In case of vertigo,
possible triggers include infection, inflammation, surgical trauma, disturbances of inner ear fluid balance or debris inside
the inner ear. There has been a dearth of knowledge about the pathophysiology of tinnitus, hearing loss and vertigo, which
has hindered the pharmaceutical industry in pursuing therapeutics in this area.
|
|
●
|
Lack of clinical trial paradigms. Historically, there have
been challenges regarding the clinical endpoints used in measuring changes in tinnitus. Since tinnitus usually is perceived
only by the patient affected by it, so far there has been no direct way of measuring it. Like pain, tinnitus assessments have
to rely on subjective endpoints. Tinnitus assessments consist either of psychoacoustic measures, performed by audiologists
and other hearing specialists and sometimes considered as “semi-objective,” or they are based on PROs. Unlike
in pain, there has been a lack of guidelines and validation work on these PROs, and the relevance and reliability of psychoacoustic
measures as efficacy outcome variables have been questioned.
|
|
●
|
Challenges with bioavailability. Betahistine, the active
substance of AM-125 and also AM-201, has been used for decades for the treatment of vertigo. However, when administered orally,
only small quantities of the drug actually reach the blood stream and can be distributed to the inner ear and the brain due
to rapid and pronounced first pass metabolism. As a consequence of the low bioavailability, there has been significant variability
in therapeutic outcomes.
|
For these reasons, the industry’s
discovery and development of novel therapies for inner ear disorders has lagged far behind efforts in other therapeutic areas.
We are addressing each of these issues
with our approach to developing therapeutics targeting the inner ear. Using targeted drug delivery to the inner ear reduces systemic
exposure to our product candidates. We target specific types of tinnitus, hearing loss and vertigo that are addressable with drug-based
therapies. We have worked with regulatory agencies to develop and validate acceptable clinical trial paradigms.
Our Targeted Delivery Solution for the Treatment of Vestibular
Disorders
In vestibular disorders, the target for
pharmacologic intervention may not only be in the inner ear, but also in central parts of the vestibular system, i.e., the brain.
In such case, a treatment may be best delivered systemically, provided that the active substance can reach these targets. Intranasal
administration is a non-invasive route for drug delivery, which allows for drugs to be absorbed into the systemic circulation
through the nasal mucosa. This route may be used in a range of acute or chronic conditions requiring considerable systemic exposure.
It offers advantages such as ease of administration, rapid onset of action, and avoidance of first-pass metabolism.
AM-125, betahistine for the treatment
of vertigo, is self-administered into the nose by patients with a metered spray. The active substance gets absorbed quickly into
the blood stream, circumventing the extensive first-pass metabolism associated with oral administration. This allows for achieving
substantially higher blood concentrations. Via blood circulation, betahistine reaches its target histamine receptors in the inner
ear and the brain. AM-201 is the same intranasal betahistine formulation, but targets only brain histamine receptors.
Our Localized Delivery Solution for the Treatment of Inner
Ear Tinnitus and Hearing Loss
Both Keyzilen® and Sonsuvi® are
administered locally to the inner ear by intratympanic injection since systemic administration is not well suited for inner ear
treatments due to a biological barrier similar to the blood brain barrier.
With intratympanic administration, the
drug is injected via a needle through the anesthetized ear drum into the middle ear cavity. The drug then diffuses across the
semi-permeable round window membrane (RWM) into the inner ear.
Both Keyzilen® and Sonsuvi®
are formulated in a viscous gel of sodium hyaluronate in order to facilitate contact with the RWM, reduce the risk of the
drug draining off from the middle ear via the Eustachian tube and achieve effective diffusion into the cochlea. The gel is biocompatible,
biodegradable, and isotonic (that is, having the same salt concentration and therefore not causing any pressure build up on either
side of the RWM). The gel has a physiologic or near-physiologic pH which helps minimize potential irritation to the ear.
In addition, in the case of Sonsuvi®,
we are employing D-TAT, a peptidic active transporter technology that allows the transport of a large molecule to the inner ear
that would normally be blocked by the RWM. This novel use of D-TAT brings peptides not only behind the RWM but inside cells in
the inner ear. To our knowledge, we are the first company to be delivering intracellular peptides to the inner ear using an active
transporter such as D-TAT.
The intratympanic injection procedure
by which our therapeutics are delivered to the RWM is a minimally invasive procedure that is relatively simple to perform by an
experienced ENT specialist. Most ENT physicians and neurotologists have a high degree of comfort with intratympanic injection
and it is well-accepted by patients. A billable procedure, intratympanic injection is routinely reimbursed under a broader reimbursement
code. For the injection, patients lie in a supine position, with the ear designated for administration pointing up; the injection
is performed under local anesthesia of the eardrum by an ENT specialist using a microscope. Following the procedure, patients
rest for 20 to 30 minutes to ensure maximum physical contact of the drug with the RWM. The tympanic membrane heals rapidly, usually
within a few days, and the procedure may be performed several times. Often performed in children suffering from ear infections,
the reversible opening of the eardrum is one of the most frequent ENT procedures.
Our Product Candidates
The following table summarizes our product
development pipeline:
* Dates of key milestones are indicative and subject to change
AM-125 in Vestibular Disorders
Vestibular Disorders
Balance disorders are medical conditions
that evoke the sensation of unsteadiness, dizziness or vertigo. Patients suffering from balance disorders are often profoundly
impacted in their daily activities. Balance problems can be caused by many different health conditions, medications or anything
that affects certain areas of the brain or the inner ear labyrinth. Balance disorders originating from the inner ear labyrinth
include benign paroxysmal positional vertigo, or positional vertigo, labyrinthitis, vestibular neuronitis and Meniere’s
disease, a chronic condition characterized by severe episodic vertigo, tinnitus, and fluctuating hearing loss.
In case of vertigo, patients experience
a false sensation of movement of oneself or the environment. This can be a spinning or wheeling sensation, or they simply feel
pulled to one side. This may lead to imbalance, nausea or vomiting. The cause of vertigo can be an imbalance between the left
and right vestibular systems in signaling position and acceleration to the brain. The symptom of vertigo may partially or fully
resolve thanks to spontaneous recovery of the peripheral vestibular function and / or through compensation of the imbalance at
the brain level, which is known as vestibular compensation.
The imbalance between the left and right
vestibular systems and thus the sensation of vertigo may be reduced by dampening the vestibular function in the unaffected, opposite
inner ear through pharmacotherapy. This minimizes the extent of the imbalance falsely interpreted as movement. Most existing therapies
rely on this strategy to minimize vertigo symptoms, but also have unintended sedative effects. Examples include meclizine, benzodiazepines,
dimenhydrinate or amitriptyline.
Betahistine is widely used around the
world for the treatment of vestibular disorders, notably Meniere’s disease and vertigo. Its development goes back to the
use of intravenous histamine, which provided symptomatic relief for these disorders. Betahistine is a structural analog of histamine.
It acts as a partial histamine H1-receptor agonist and, more powerfully, as a histamine H3-receptor antagonist. Betahistine has
been shown to increase cochlear, vestibular and cerebral blood flow, facilitate vestibular compensation and inhibit neuronal firing
in the vestibular nuclei. Unlike other drugs, it has no sedating effect. Betahistine is typically taken orally with a recommended
daily dose of 24 to 48 mg, divided in 2 or 3 single doses.
Betahistine is generally recognized as
a safe drug and there exists a large body of data on the pharmacology, pharmacokinetics and toxicology of the compound. It is
approved in about 115 countries world-wide for the treatment of Meniere’s disease and vestibular vertigo, but not in the
United States. In 1970, the Commissioner of FDA withdrew approval of the NDA after the discovery that the submission contained
unsubstantiated information about some patients in the efficacy studies upon which approval was based. Today, betahistine is available
in the United States only from compounding pharmacies or through importation. Despite limited availability, a survey by Clyde
and colleagues published in Otology & Neurotology in 2017 revealed that 56% of U.S. neurotologists and 16% of generalists
use betahistine and 20-30% of neurotologists use it often or always when treating patients with Meniere’s disease.
Various studies and meta-analyses have
demonstrated therapeutic benefits of betahistine in both the treatment of vertigo as well as in supporting vestibular rehabilitation.
However, the evidence for therapeutic benefits is variable, and it has been suggested that efficacy could be increased with higher
doses and / or longer treatment periods. It is well known that orally administered betahistine is rapidly and almost completely
metabolized into 2-pyridylacetic acid, also known as 2-PAA, which lacks pharmacological activity. As a consequence the bioavailability
of oral betahistine is estimated to be very low.
Our Solution—AM-125
On February 2, 2017, we entered into an
asset purchase agreement with Otifex, pursuant to which we have purchased various assets related to betahistine dihydrochloride
in a spray formulation, which we are developing for intranasal treatment of vertigo under the product code AM-125.
The assets include preclinical and clinical
data as well as certain intellectual property rights. In a Phase 1 clinical trial conducted by Otifex in 40 healthy volunteers
intranasal betahistine showed good tolerability and significantly higher betahistine concentrations in blood plasma than reported
for oral betahistine administration.
Therapeutic rationale for AM-125 in vertigo
We are aiming to address the currently
limited therapeutic utility of betahistine arising from its low oral bioavailability by avoiding first pass metabolism by monoamine
oxidase. Intranasal administration of betahistine provides substantially higher bioavailability than oral administration as there
is only very little monoamine oxidase activity known to occur in the nose, allowing higher quantities of betahistine to be absorbed
into the blood stream and reach target histamine receptors in the inner ear and brain. As preclinical and clinical data suggest
that betahistine’s therapeutic effects increase with higher systemic exposure, we expect AM-125’s higher bioavailability
to translate into more pronounced therapeutic benefits.
Vertigo endpoints
Vertigo cannot be measured directly. Therapy
typically aims to a) reduce the symptoms of vestibular dysfunction underlying vertigo and / or b) accelerate vestibular compensation
and recovery. Status and therapeutic outcomes are usually assessed by a battery of tests, addressing static and dynamic deficits,
balance impairment, functional performance and disability, using both objective and subjective measures.
Loss of postural control affects essentially
all patients suffering from acute vertigo and has a substantial impact on day-to-day functioning. It is assessed relatively easily
through a number of widely-used balance and functional tests:
|
-
|
Static conditions: Romberg test, standing on foam, single-leg
stance
|
|
-
|
Dynamic conditions: tandem gait, timed “up and go”,
10 meter walking or other tests
|
Other outcome measures target the interaction
between inner ear and ocular sensory input. Nystamgography measures the velocity and direction of involuntary eye movements (nystagmus)
triggered by vestibular imbalance and the head-impulse test measures to which extent the reflex is disturbed that triggers eye
movement as a response to a movement of the head. Further, there are clinician or patient reported clinical outcomes that subjectively
capture the illusion of movement, the duration of the illusion, motion intolerance, neurovegetative signs, and instability. Examples
include the Dizziness Handicap Inventory (DHI) questionnaire or the European Evaluation of Vertigo (EEV).
Clinical development of AM-125
In 2018, we conducted a Phase 1
clinical trial with AM-125 in healthy volunteers. The study results demonstrated superior bioavailability over a range of four
intranasal betahistine doses compared to oral betahistine, with plasma exposure being 5 to 29 times higher (unadjusted for dose;
p-value between 0.056 and p < 0.0001). Further, it confirmed the favorable safety profile of intranasal betahistine and showed
that the treatment was well tolerated when administered three times daily for three days. The randomized double blind placebo
controlled Phase 1 trial with dose escalation enrolled a total of 72 healthy volunteers. One group of study participants received
a single dose of intranasal betahistine or placebo and, following a wash-out period, three doses daily for three days. Single
doses were escalated up to 60 mg, and repeated doses up to 40 mg. For the latter, the maximum tolerated dose based on local tolerability
was determined at 40 mg. The other group of study participants received oral betahistine or placebo for reference. Pharmacokinetic
parameters in blood plasma were determined for betahistine and its metabolites, and relative bioavailability for intranasal betahistine
was calculated compared to oral betahistine 48 mg, which is the maximum approved daily dose as marketed worldwide (ex U.S.).
We have discussed the regulatory requirements
for AM-125 during a Pre-IND meeting with the FDA and in the context of scientific advice meetings with the EMA and two European
national health authorities to further define the development program. We believe that, if approved, AM-125 could become the first
betahistine product and the first non-sedating drug for the treatment of acute peripheral vertigo in the United States.
In 2019, we have initiated a randomized placebo-controlled
Phase 2 clinical study with AM-125. The “TRAVERS” Phase 2 trial is expected to enroll 118 patients suffering from acute
vertigo following surgical removal of a vestibular schwannoma, a tumor growing behind the inner ear, resection of the vestibular
nerve (vestibular neurectomy) or surgical removal of parts of the inner ear (labyrinthectomy). It is expected that treatment with
betahistine reduces the symptoms of vertigo and accelerates vestibular compensation. The TRAVERS trial is conducted in several
European countries and Canada. The TRAVERS trial has two parts: In Part A, three ascending doses of AM-125 or placebo, administered
three times daily over a total of four weeks, are tested in a total of 30 patients. In addition, oral betahistine 48 mg will be
tested in 16 patients under open-label conditions for reference. Due to the COVID-19 outbreak, the sites participating in the “TRAVERS”
trial have postponed elective procedures and temporarily reduced or suspended clinical research activities. As a result, enrollment
came to a halt towards the end of March 2020. Although sites are expected to catch up on enrollment once COVID-19 related restrictions
are relaxed, the Company expects that the interim analysis following Part A of the trial will be completed only in the third quarter
of 2020, at the earliest. Based on an interim analysis following Part A two doses will be selected and tested against placebo in
an estimated 72 patients in Part B.
The primary efficacy endpoints will be
the time standing on foam and the tandem Romberg test. For the tandem Romberg test, the patient is asked to stand straight in
tandem stand – the heel of one foot touching the toes of the other foot – with eyes closed. For the standing on foam
test, the patient is asked to stand straight on a foam plate with parallel feet and eyes closed. An examiner will measure the
time that the patient is able to hold this position until he or she either open the eyes, or move the feet in order to maintain
balance for a maximum of 30 seconds. Further assessments include the tandem gait test, where the patient is asked to walk a maximum
of 20 steps along a straight line, and the deviation of a vertical line as perceived by the patient from a correct vertical line.
Further, the DHI questionnaire will be answered by patients and the EEV questionnaire will be administered by the investigator.
AM-201 in Antipsychotic-Induced Weight Gain
Antipsychotic-induced weight gain
The use of second generation antipsychotic
drugs such as olanzapine or clozapine can be associated with severe side effects such as weight gain, metabolic dysregulation
and somnolence. These side effects not only have a negative effect on patients’ compliance with medication, but expose them to
additional hazards: weight gain is strongly correlated with metabolic dysregulation leading to diabetes and cardiovascular disease;
and somnolence may severely impact quality of life, affecting learning, social interactions or tasks such as driving or operating
machinery. These adverse events are mainly attributed to the histamine H1 receptor antagonistic properties of these agents. Treatment
with these antipsychotic drugs reduces the activity of the H1 receptor, which in turn causes increased eating and weight gain.
According to the U.S. prescription information
for olanzapine, accumulated evidence shows that patients gain on average 2.6 kg over a treatment duration of 6 weeks. During long-term
treatment (≥ 48 weeks) patients gain on average 5.6 kg as shown in a review published by Citrome and colleagues published in
the journal Clinical Drug Investigations in 2011. Over that time period, 64%, 32%, and 12% of patients treated with olanzapine
gain at least 7%, 15%, or 25% of their baseline body weight, respectively.
The concerns about antipsychotic-induced
weight gain and consequent metabolic changes have led the FDA to highlight these risks as warnings in the prescribing information
of certain antipsychotics and call for regular monitoring of glycemic control, lipid profile and weight. These concerns are also
reflected in treatment guidelines, which do not recommend olanzapine or clozapine as first-line treatments, despite the fact that
meta-analyses such as one by Leucht and colleagues published in 2013 in the journal Lancet show that they are among the most effective
treatments for schizophrenia.
Our Solution—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 prevention of antipsychotic-induced weight gain
and somnolence. Betahistine is thought to counteract the effects of antipsychotics such as olanzapine and to relieve the inhibitory
effect on the H1 receptor by binding to and activating the H1 receptor to normalize/reduce the food take and consequently lead
to reduced weight gain and somnolence. We believe the weight-attenuating effect is intensified by betahistine’s property
as antagonist at the H3 receptor. We have discussed our development plan for AM-201 with the FDA during a Pre-IND meeting. In
its written response, the FDA supported the planned conduct of a multiple dose Phase 1 trial with AM-201 administered to healthy
subjects in combination with olanzapine to evaluate the pharmacokinetics, pharmacodynamics, and safety, and to establish proof-of-concept.
Further, the FDA endorsed weight gain normalized to baseline body weight versus placebo as reasonable primary efficacy endpoint
for a subsequent Phase 2 trial.
In 2019, we initiated a Phase 1b trial
in Europe to evaluate AM-201’s safety and its effects for the prevention of olanzapine induced weight gain and drowsiness.
Participants received either AM-201 (1, 2.5, 5, 10 or 20 mg) or placebo in parallel with oral olanzapine (10 mg) once a day for
four weeks. On October 11, 2019, we announced interim results from the first 50 participants in the trial. The study demonstrated
good safety and tolerability of AM-201 and revealed relevant reductions in olanzapine-induced weight gain and daytime sleepiness.
In female study participants, who overall showed more pronounced changes than male participants, a reduction in weight gain of
1.1 kg against placebo was observed at the highest tested dose of 20 mg three times per day (probability of effectiveness = 90%).
The trial then proceeded to the next higher and final dose level of 30 mg tested in an additional 30 healthy volunteers, with the
last subject having its last study visit in March 2020. We expect to report top-line data from the study in May 2020.
Keyzilen® in Tinnitus
Our clinical program with Keyzilen®,
Esketamine gel for injection, is in Phase 3 development in acute inner ear tinnitus, subject to our ability to obtain non-dilutive
funding or partnering. Esketamine is a potent, small molecule non-competitive NMDA receptor antagonist. Keyzilen®
is formulated in a biocompatible gel and delivered via intratympanic injection. It has demonstrated a favorable safety profile
and positive effect on PROs associated with tinnitus in two Phase 2 clinical trials. The Phase 3 clinical development program
comprised two pivotal clinical trials with highly similar design, one in North America (TACTT2) and one in Europe, which we refer
to as TACTT3.
Tinnitus
Tinnitus, frequently perceived as a ringing
in the ears, is the perception of sound when no external sound is present. Similar to pain, it is an unwanted, unpleasant and
thus distressing sensation. Tinnitus may result in further symptoms such as inability to concentrate, irritability, anxiety, insomnia,
and clinical depression. In many cases, tinnitus significantly impairs quality of life and affects normal day-to-day activities.
According to the American Tinnitus Association, approximately 16 million persons in the United States have tinnitus symptoms severe
enough to seek medical attention and about two million persons cannot function on a normal day-to-day basis. In addition, tinnitus
is now the number one service-connected disability for all veterans, before hearing loss, and annual service-connected disability
payments for tinnitus to veterans from all periods of service were expected to exceed $2.75 billion by the end of 2016.
Tinnitus is categorized as acute during
the first three months and chronic when it persists for more than three months. The distinction between acute and chronic is based
on the clinical observation that spontaneous recovery or complete remission of tinnitus is much more likely to occur in the first
days, weeks and months following its onset. The chances of spontaneous recovery decline exponentially as the acute phase progresses.
In the chronic stage, improvement is much more unlikely, and the therapeutic focus shifts from curing to managing the disorder.
In some cases, tinnitus originates inside the cochlea, or the periphery of the auditory system, but then becomes “centralized,”
that is, the phantom sound persists even long after the initial source of the sensation has been removed.
Tinnitus is a symptom that can be triggered
by a variety of diseases or incidents such as noise trauma, infection, inflammation, vascular problems, temporomandibular joint
dysfunction, head trauma or whiplash injury. In the majority of cases the tinnitus originates in the cochlea, but the precise
mechanisms of tinnitus generation are still the subject of considerable debate and remain to be fully elucidated. In our development
we are focusing on one particular, well-defined type of tinnitus generation based on glutamate excitotoxicity.
Acoustic trauma and other insults to the
inner ear may trigger increased levels of extra-cellular glutamate, which in turn cause excessive activation of cochlear NMDA
receptors. This process results in damage or killing of sensory cells and is thought to be responsible for abnormal spontaneous
“firing” of auditory nerve fibers, which may be perceived as tinnitus. Under normal circumstances, the NMDA receptors
are thought to play no role in the auditory nerve’s transmission of nerve pulses that carry sound information. In case of
a trauma such as excessive sound exposure these receptors may become pathologically active, and thus tinnitus is triggered.
Current Therapies and Unmet Need
Tinnitus treatments may be categorized
according to whether they treat the underlying cause or provide symptomatic relief. It is rarely possible to treat the underlying
cause. When it is possible, treatment often involves a surgical procedure to resect tumors or vascular abnormalities. In contrast,
treatments to provide symptomatic relief are highly diverse, reflecting the general lack of understanding of the underlying pathophysiology.
Currently, the most widely employed treatment
options include counseling, cognitive behavioral therapy, various forms of sound therapies, tinnitus retraining therapy, or TRT,
herbal and vitamin supplements, ginkgo biloba, vasodilators, steroids, benzodiazepines and tricyclic antidepressants.
Sound-based therapies and TRT are some
of the most commonly employed treatments for tinnitus. TRT is a non-pharmacological intervention that employs low-level sound
emitted by a so-called “masking device” worn behind or in the ear. TRT also incorporates patient counseling to help
habituate patients to their tinnitus. In those cases in which it is effective, TRT takes one to two years before patients “learn”
to ignore tinnitus without the aid of a masking device. TRT can cost $2,500 to $3,000, including the masking devices. After an
initial period of enthusiasm in the 1980s, masking devices declined in popularity among clinicians because it became clear that
many patients who agreed to try them were nonusers six months later. While classic sound based therapies are based on broadband
sound, newer therapies use sound individually tailored to the hearing loss and tinnitus characteristics.
Although there are no approved drugs in
the United States for the treatment of tinnitus, there is widespread off-label use of drugs approved for other indications. The
U.K. Charity Action on Hearing Loss reports that more than three million prescriptions are written each year in the United States
and Europe for drugs that purport to offer tinnitus relief, drugs for which there is no proven efficacy.
The local anesthetic and antiarrhythmic
drug lidocaine is the only substance to date that is known to attenuate tinnitus, albeit only temporarily. This illustrates that
tinnitus can be addressed using pharmacological intervention. However, lidocaine causes severe vertigo and other side effects,
preventing its widespread clinical use.
Our Solution—Keyzilen® (AM-101)
Therapeutic rationale for Keyzilen®
in tinnitus
The API of Keyzilen® is
Esketamine hydrochloride, a well-known small molecule non-competitive NMDA receptor antagonist. As described above, acoustic trauma
and other insults to the inner ear have been shown in animal studies to activate cochlear NMDA receptors. The antagonist effect
of Esketamine towards the NMDA receptor aims to suppress the aberrant activity of the auditory nerve and thus diminish tinnitus.
In our pre-clinical trials, we demonstrated
that Keyzilen® was able to suppress tinnitus induced by acute noise trauma in a dose-dependent and non-reversible
fashion.
Ketamine has been used clinically for
decades as an anesthetic and analgesic. Esketamine is the S-enantiomer of Ketamine and was introduced in a small number of markets
outside the United States as a more potent NMDA receptor antagonist with more favorable side effects than racemic Ketamine. We
are using Esketamine in doses that result in systemic exposure several orders of magnitude lower than those seen when Esketamine
is used as an anesthetic at clinically safe doses. In March 2019, the first esketamine drug product was approved by the FDA –
esketamine intranasal spray for treatment of treatment-resistant depression (SPRAVATO).
Tinnitus endpoints
Given the lack of existing tinnitus treatments,
there have been no fully validated or universally accepted outcome measures for clinical trials. There are two fundamental types
of efficacy outcome variables. PROs such as the visual or numerical rating of tinnitus loudness or tinnitus questionnaires provide
direct subjective measures of tinnitus and its impact on sleep, relaxation, communication, emotions, social interactions and other
factors. For example, patients are asked a single question to rate the loudness of their tinnitus “right now” on a
scale from 0 (“no tinnitus heard”) to 10 (“tinnitus extremely loud”). Among several tinnitus questionnaires,
the 25 item TFI is one of the most recent. It was developed and validated broadly in line with the PRO guidelines of the FDA and
was introduced in 2011 by Meikle et al. following extensive validation work, as described in the journal Ear & Hearing. Alternatively,
measures commonly referred to as psychoacoustic may be performed by an audiologist, which is why they are considered “semi-objective.”
They seek to determine how loud a masking sound has to be to cover the tinnitus (minimum masking level, or MML) or how loud the
tinnitus is compared to reference sound (equal loudness match).
In our Phase 2 clinical trials, PROs showed
good responsiveness and consistent results, whereas psychoacoustic measures proved highly variable and unreliable. Therefore,
following discussions with the FDA and EMA, it was agreed that our Phase 3 clinical program for Keyzilen® would
be based on PROs with the improvement of subjective tinnitus loudness being defined as the primary efficacy endpoint. As part
of the SPA with the FDA, it was agreed that improvement as measured by the TFI questionnaire would serve as a co-primary efficacy
endpoint in our TACTT2 trial in order to confirm the clinical meaningfulness of a reduction in tinnitus loudness.
Keyzilen®Clinical Development
Phase 1/2
We conducted the first clinical evaluation
of Keyzilen® in a Phase 1/2 double blind, randomized, placebo-controlled trial that included dose escalation from
0.03 to 0.81 mg/mL. The trial enrolled 24 patients suffering for up to three months from severe or disabling permanent inner ear
tinnitus caused by AAT or sudden deafness (also called idiopathic sudden sensorineural hearing loss, or ISSNHL) and after unsuccessful
steroid treatment.. The trial showed that single doses of intratympanically administered Keyzilen® were well tolerated
up to the highest tested dose of 0.81 mg/mL. Only small traces of Esketamine and its primary metabolite were detected in blood
samples within the first hours following treatment administration.
Phase 2
Following successful completion of our
Phase 1/2 trial, we conducted two multi-center Phase 2 trials, one in Europe (Treatment of Acute Inner Ear Tinnitus 0 or TACTT0)
and the other in Europe and the United States (which we refer to as TACTT1).
TACTT0 was conducted as a double-blind,
randomized, placebo controlled, multiple dose, parallel group, Phase 2 clinical trial at 28 European sites between March 2009
and May 2011. It enrolled patients with persistent inner ear tinnitus as a result of AAT, otitis media (OM), or ISSNHL, occurring
not more than three months prior. Trial participants received three intratympanic administrations of Keyzilen®
at dose levels of either 0.27 mg/mL or 0.81 mg/mL or placebo over three consecutive days. A total of 248 patients were randomized.
As described by van de Heyning and colleagues in a 2014 article in Otology & Neurotology, Keyzilen® was well
tolerated and had no negative impact on hearing. Adverse events were mostly local and related primarily to anticipated temporary
changes in tinnitus loudness and muffled hearing following the intratympanic injection procedure. These effects usually resolved
with closure of the ear drum.
The trial further showed a dose-dependent
reduction in patient reported outcomes (PROs) such as subjective tinnitus loudness and the THI-12 questionnaire measuring tinnitus
impact in the subpopulation of patients with tinnitus induced by AAT or OM, but not in the subpopulation of tinnitus induced by
ISSNHL. In the latter, an unexpectedly high rate of spontaneous remission and substantial heterogeneity in outcomes were observed.
Contrary to the PROs the minimum masking levels failed to indicate any treatment effect.
Given the high variability and the uncertainty
over the precise trigger of the tinnitus in ISSNHL, we decided to continue clinical development exclusively in tinnitus following
AAT and OM. In addition, we decided to focus on PROs for efficacy endpoints as we had determined – in a separate study –
that the MML was not reliable enough.
TACTT1, our second double-blind, randomized,
placebo-controlled Phase 2 clinical trial, enrolled 85 patients suffering from acute inner ear tinnitus following cochlear trauma
or OM to complement the TACTT0 trial, notably by evaluating efficacy trends with different treatment schemes.
Patients received single (Cohort 1) or
multiple (Cohort 2: three injections over two weeks) doses of Keyzilen® at a dose level of 0.81 mg/mL or placebo.
As described by Staecker and colleagues
in an article in Audiology & Neurotology in 2015, TACTT1 further confirmed the safety and tolerability of the treatment and
demonstrated the gradual improvement in PROs in Keyzilen®treated groups that had already been observed in TACTT0.
Spreading the three treatment administrations over two weeks rather than three days as applied in TACTT0 appeared to provide less
therapeutic benefit.
Keyzilen®Phase 3 Clinical Program
We have conducted two pivotal trials with
Keyzilen® with highly similar designs, one in North America (TACTT2) and one in Europe (TACTT3). TACTT2 enrolled
343 patients, while TACTT3 Stratum A (Europe) randomized 372 patients, both during the acute stage. Both trials were designed
as a randomized, double-blind, placebo-controlled trial in acute inner ear tinnitus following traumatic cochlear injury or otitis
media. Trial participants received three injections of Keyzilen® 0.87 mg/mL or placebo in a 3:2 ratio over three
to five days and were followed for 84 days. The TACTT2 trial was conducted primarily in North America, the TACTT3 trial was conducted
exclusively in Europe.
In addition, TACTT3 Stratum B explored
the potential efficacy of Keyzilen® during the post-acute stage (tinnitus onset between three and 12 months) since
data from our Phase 2 clinical program suggested that Keyzilen® might be effective beyond the three month acute
stage. An Independent Data Review Committee conducted an interim analysis after enrollment of 150 patients. The interim analysis
showed positive efficacy signals, with higher activity levels observed in the early post-acute stage (three to six months) compared
to the late post-acute stage (six to 12 months). Based on recommendations from the Independent Data Review Committee, TACTT3 Stratum
B continued solely with enrollment of patients with tinnitus onset three to six months prior. In total, 369 patients were randomized
in TACTT3 Stratum B pre- and post-interim analysis.
Two further trials, AMPACT1 and AMPACT2
(Keyzilen® in the Post-Acute Treatment of Peripheral Tinnitus) were nine-month open label extension trials conducted
at the same sites as for TACTT2 and TACTT3. These extension trials were open to participants who completed the TACTT2 or the TACTT3
trial (the latter until summer 2016) and evaluated the safety and local tolerance of up to three treatment cycles, each with three
repeated doses of Keyzilen® 0.87 mg/mL.
The extension trials were designed in
response to the FDA’s request for safety data from chronic intermittent use by tinnitus patients in support of a NDA filing.
Although we do not have any plans to seek a label for such use, the FDA considered such unintended use likely to occur.
On August 18, 2016, we announced outcomes
from the Phase 3 TACTT2 clinical trial. Keyzilen® was well tolerated with no drug-related serious adverse events.
The trial’s primary safety endpoint, incidence of clinically meaningful hearing deterioration, was met. However, the trial
did not meet the two co-primary efficacy endpoints of statistically significant changes in tinnitus loudness and the TFI questionnaire
compared to placebo.
Following the outcomes from the TACTT2
trial, we amended our protocol for the TACTT3 Phase 3 clinical trial of Keyzilen®. The change in TFI score was
elevated from a key secondary endpoint to a primary efficacy endpoint, the trial size was increased to enhance statistical sensitivity
to the effects of treatment, and the subgroup of patients with otitis media-related tinnitus was included in confirmatory statistical
testing along with the overall study population. The change in tinnitus loudness was downgraded from a primary to a secondary
efficacy endpoint. As in TACTT2, tinnitus loudness was initially rated on a daily basis; however, the rating frequency was subsequently
reduced in between study visits in order to lighten the burden of patients and reduce the potential impact of the frequent measures.
Enrollment into the TACTT3 trial was resumed in early 2017 and completed in September 2017.
On March 13, 2018, we announced that the
TACTT3 trial did not meet 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. We believe we have identified two principal sources for the negative outcomes from the TACTT trials: (i)
the high frequency of tinnitus loudness ratings over an extended period of time and (ii) an unexpectedly high level of variability
in outcomes among study sites. A survey among a number of TACTT3 participants revealed that the daily capture of tinnitus loudness
and annoyance caused a number of patients to excessively focus on their tinnitus symptoms. In addition it was observed that a
non-negligible number of study participants presumably became tired of the daily ratings after some time and stopped providing
actual values. With respect to variability, our analysis subsequent to the unblinding of the trial data has shown positive outcomes
at numerous sites, including many of the high enrolling study centers, but inconclusive or contradictory outcomes at other sites.
We consider that additional studies with
Keyzilen® will be necessary to move the program forward, and that the way how outcomes are measured Keyzilen®
will need to be improved in order to provide more robust efficacy data. On April 25, 2019, we announced that we had completed
the design of a pivotal Phase 2/3 trial for Keyzilen®. The trial shall, in two stages, reaffirm the compound’s
efficacy in the treatment of acute tinnitus following traumatic cochlear injury and provide confirmatory efficacy data to support
a filing for marketing authorization. On September 13, 2019, we announced that we have obtained advice on the development plan
and regulatory pathway from the U.S. Food and Drug Administration (“FDA”) in the context of a Type C meeting and from
the European Medicines Agency (“EMA”) in the context of a Scientific Advice procedure for Keyzilen®.
We intend to fund further development of Keyzilen® either through partnerships or research grants.
Sonsuvi® (AM-111) in Hearing
Loss
Sonsuvi® is being
developed for the treatment of ASNHL, subject to our ability to obtain non-dilutive funding or partnering. In sensorineural
hearing loss, there is damage to the sensory cells of the inner ear or the auditory nerve. Sensorineural hearing loss is also
called “inner ear hearing loss”. Hearing loss is a heterogeneous disorder of many forms with a variety of causes.
ASNHL may be triggered by a variety of insults, such as exposure to excessively loud sound, infection, inflammation or
certain ototoxic drugs. These insults may also result in tinnitus. According to an article by Alexander and Harris published
in Otology & Neurotology in 2013, the average annual incidence of sudden deafness is 66,954 new cases among the U.S.
insured population. There are no currently approved treatments for this patient population.
Sonsuvi®contains a synthetic
D-form peptide (Brimapitide or D-JNKI-1) that protects sensorineural structures in the inner ear from stress-induced damage. Sonsuvi®
has been granted orphan drug status by both EMA and FDA and has been granted fast track designation by the FDA for the treatment
of sudden sensorineural hearing loss.
Hearing Loss
Hearing loss, like tinnitus, is a heterogeneous
disorder of many forms with diverse etiology. There are two general categories: conductive hearing loss in which sound waves are
not conducted efficiently to the inner ear due to build-up of earwax, fluid, or a punctured eardrum; and sensorineural hearing
loss, in which there is damage to the inner ear or the auditory nerve. Acute hearing loss can occur in either category. Hearing
loss is amenable to pharmaceutical intervention (and thus relevant to our drug development) only when it is sensorineural in origin.
ASNHL is often accompanied by tinnitus.
There are two main types of acute hearing
loss: hearing loss induced by trauma, such as from a loud rock concert or an explosion; and hearing loss that arises from unknown
origins, that is, idiopathically, based on causes suspected to include changes in blood flow to the inner ear, bacterial and viral
infections, autoimmune disease and others. The former is known as AAT. The latter is known as ISSNHL. Together they can be defined
as ASNHL. In both cases, the onset is sudden. And in both cases, part of the initial hearing loss tends to recover naturally in
the days and weeks following the loss; however, some of the loss may remain and, over time, become chronic in nature and less
amenable to therapeutic intervention.
ASNHL differs from age-related hearing
loss or hearing loss driven by chronic exposure to noise. Those types of hearing loss arise more slowly or on the basis of repeated
insults, in slow motion. By contrast, in the case of ASNHL, the effects are felt immediately. This difference in the speed of
progression is significant since sudden hearing losses are noticed much more readily.
ASNHL involves a variety of pathologic
processes such as massive release of free reactive oxygen species, excessive and pathological stimulation of receptors on neurons
by neurotransmitters like glutamate, and inflammation. These reactions, in turn, can damage sensorineural structures of the inner
ear such as the sensitive inner and outer hair cells and nerve cells that line the interior of the cochlea. If the stress incident
is severe enough, it may lead to permanent cochlear injury with irreversible loss of hair cells and nerve cells. Cell death occurs
primarily through so-called programmed cell death, which is driven by damaged cells (apoptosis), and to a lesser extent also through
necrosis, which is a passive consequence of gross injury to the cell.
JNK is a signal transmitting enzyme that
is stress-activated and regulates a number of important cellular activities. Stresses to the cochlea such as those described above,
if severe enough, can activate the JNK signal transduction pathway, leading to the activation of transcription factors such as
c-jun and c-fos that are found in the cell nucleus. This activation, in turn, activates genes encoding inflammatory molecules
or promoting cell death.
Current Therapies and Unmet Need
Sensorineural hearing loss may have a
serious impact on people’s personal and professional lives. Severe to profound hearing loss can result in high societal
costs, mostly due to reduced work productivity, as reported in 2000 in the International Journal of Technology Assessment in Healthcare.
Yet no treatment currently exists that has unequivocal evidence of efficacy for AAT or ISSNHL. There is no FDA- or EMA-approved
drug on the market for sensorineural hearing loss. The only remaining therapeutic option is a hearing aid or, in cases of deafness
or near-deafness, a cochlear implant.
A patient with the acute form of hearing
loss may recover on his or her own, especially if the loss is of low or moderate intensity and severity. This is due to intrinsic
repair mechanisms inside the cochlea. However, in other cases the patient may recover only partially or not at all. In those cases,
in the absence of effective treatment, acute hearing loss will become chronic and irreversible. There is currently no possibility
to regrow or replace sensory structures inside the inner ear that are not recovered in the weeks immediately following the loss.
For ASNHL, non-specific treatments are
frequently prescribed, mostly on an off-label empirical basis. These may include glucocorticoids and steroids such as prednisolone
or dexamethasone; vasodilators such as pentoxyfilline; rheologics; ionotropics and local anesthetics; antioxidants and thrombolytics.
In the United States, most frequently
oral prednisolone is administered for the treatment of ASNHL. Corticosteroids are intended to reduce inflammation and swelling
in the ear that may be related to hearing loss. The U.S. treatment guideline issued in 2012 by the American Academy of Otolaryngology/Head
& Neck Surgery for ISSNHL lists oral steroids and hyperbaric oxygen as treatment options, but refrains from recommending them
in light of the low evidence level for their efficacy. Indeed, Nosrati-Zarenoe and Hultcrantz presented in 2012 in the journal
Otology and Neurotology the results of a Swedish placebo controlled trial with oral prednisolone in the treatment of ISSNHL that
showed no therapeutic effect on hearing loss from active treatment.
Our Solution—Sonsuvi®
(AM-111)
We are developing Sonsuvi®
as a treatment for acute inner ear hearing loss. Sonsuvi® contains a synthetic D-form peptide (D-JNKI-1) that acts
as a c-Jun N-terminal Kinase (JNK) ligand, thereby protecting sensorineural structures in the inner ear from stress-induced damage.
We are developing D-JNKI-1 under a worldwide exclusive license for the treatment of ear disorders from Xigen (Switzerland). Like
Keyzilen®, Sonsuvi® is delivered in a biocompatible gel formulation via intratympanic injection.
We have established the safety and preliminary efficacy of Sonsuvi® in a Phase 2 and in a Phase 3 clinical trial.
The acute stage of hearing loss represents a window in time in which the inner ear can be protected from permanent hearing loss.
Sonsuvi® received orphan drug designation by both EMA and FDA in 2005 and 2006, respectively, and was granted fast
track designation by the FDA in 2017.
Therapeutic rationale for Sonsuvi®
in hearing loss
The proprietary API of Sonsuvi®
is brimapitide (D-JNKI-1), a 31 amino acid synthetic D-form peptide that binds to JNK and inhibits activation of transcription
factors such as c-jun and c-fos, thereby protecting sensorineural structures from stress-induced inflammation and apoptosis. Brimapitide
comprises an active transporter sequence, or D-TAT, that enables Sonsuvi® to cross the round window membrane quickly,
diffuse widely throughout the cochlea, transfect sensorineural cells effectively and reach its target inside the cell nucleus.
The D-form of the peptide provides for protease resistance and hence enhanced stability. Sonsuvi® was shown to
remain pharmacologically active for several days inside the cochlea. The D-form is necessary for Sonsuvi® to cross
the RWM.
By attenuating inflammation and protecting
cells from apoptosis, we believe that Sonsuvi® reinforces natural recovery processes and helps to prevent or minimize
permanent damage respectively chronic hearing loss. Sonsuvi®’s otoprotective effect has been demonstrated
in various animal models of cochlear stress, including AAT, acute labyrinthitis (inflammation), drug ototoxicity (aminoglycosides),
bacterial infection, cochlear ischemia and cochlear implantation trauma.
We conducted our pre-clinical development
program for Sonsuvi® in close collaboration with academic partners and various CROs. Brimapitide was invented by
Xigen in Lausanne, Switzerland. In 2003, we signed a Collaboration and License Agreement with Xigen, under which we in-licensed
worldwide exclusive rights for use of D-JNKI-1 in the treatment of ear disorders. Under the agreement with Xigen, we have exchanged
various pre-clinical and clinical data.
Hearing loss endpoints
Unlike tinnitus, where measures of therapeutic
outcomes have to rely on PROs, the evaluation of hearing is based on psychoacoustic measures performed by audiologists. Audiometric
procedures and equipment are highly standardized around the world; hearing thresholds are typically determined by presenting pure
tones in the 250 Hz to 8 kHz range through headphones or ear inserts (air conduction) or through a vibrator placed behind the
ear or on the forehead (bone conduction). An increase in volume of 10 dB is perceived as twice as loud. In other words, a person
whose hearing thresholds improved by 10 dB can hear sounds at half the intensity level that was necessary before. A change of
this magnitude is generally considered to be clinically relevant. In addition to pure tone audiometry usually speech audiometry
is conducted, in which the audiologist measures a patient’s ability to hear and correctly understand a series of monosyllabic
words.
Sonsuvi®Clinical Development
We have completed three clinical trials
of Sonsuvi® that demonstrated its favorable safety profile and efficacy in treating more severe types of ASNHL.
We have benefited several times from engaging in a protocol assistance procedure with the EMA and exchanges with the FDA. The
design of our pivotal Phase 3 clinical trials was based on the outcomes from our Phase 2 clinical trial and our discussions with
the EMA and FDA.
Phase 1/2 Clinical Trial
A Phase 1/2 clinical trial was conducted
at two centers in Germany in January 2006, with 11 patients suffering from AAT due to New Year’s firecracker accidents.
Patients had at least 30 dB hearing loss by pure tone audiometry (average of 4 and 6 kHz) and were treated within 24 hours of
onset.
Trial participants received a single dose
of Sonsuvi® at either 0.4 mg/mL or 2 mg/mL in a biocompatible gel formulation by intratympanic injection into the
most affected ear. The primary endpoint of the trial was the recovery of hearing thresholds from baseline to Day 30. Sonsuvi®
was well tolerated by all trial participants, regardless of the dose. The Phase 1/2 trial provided the first indications
of therapeutic benefit of Sonsuvi® in humans.
Phase 2 Clinical Trial
To further evaluate the efficacy and safety
of Sonsuvi® we conducted a Phase 2b clinical trial between March 2009 and 2012. Since pre-clinical tests had demonstrated
Sonsuvi®’s otoprotective effects in many different types of cochlear stress, the patient population was expanded
from AAT cases to also include patients affected by ISSNHL. In addition, based on observations from our Phase 1 clinical trial,
we expanded the allowed time window from 24 to 48 hours from onset. The design for this Phase 2b trial was discussed with the
EMA under a protocol assistance procedure.
As described by Suckfuell and colleagues
in an article in Otology & Neurotology in 2014, the trial enrolled 210 participants who suffered from ASNHL (unilateral ISSNHL,
uni-or bilateral AAT) with hearing loss of at least 30 dB at the average of the three worst affected frequencies (pure tone average;
PTA) and onset not more than 48 hours previously. Sonsuvi® was dosed at 0 mg/mL (placebo), 0.4 mg/mL (Low Dose)
and 2.0 mg/mL (High Dose). All patients without a clinically relevant hearing recovery on Day 7 were given the option to take
a course of oral prednisolone as a reserve therapy. The primary efficacy endpoint was hearing loss recovery from baseline to Day
7 at the three worst affected frequencies. The trial consisted of a baseline assessment and four follow-up visits on Days 3, 7,
30, and 90.
Sonsuvi®demonstrated a
favorable safety profile in this trial. There were no statistically significant differences in the occurrence of clinically relevant
hearing deterioration in the treated ear. Also, there were no apparent differences in the frequency of adverse events between
placebo and Sonsuvi® treated patients at any time points, no systemic side effects and no negative impact on balance
or tinnitus. There were transient procedure related effects such as ear discomfort or pain, incision site complications or middle
ear infection in less than 5% of cases.
Overall, the trial did not meet its primary
efficacy endpoint. Analysis of PTA improvement by hearing loss severity in accordance with a commonly used hearing loss classification
revealed unexpectedly strong spontaneous recovery for lesser severities: by Day 7, placebo-treated patients enrolling with mild-to-moderate
hearing loss (PTA <60 dB) had recovered more than three quarters of their initial loss, whereas for patients with severe to
profound hearing loss (PTA ≥60 dB), it was only about one quarter. Post-hoc analyses in the severe-to-profound hearing loss
subgroup demonstrated superiority of Sonsuvi® 0.4 mg/mL over placebo for the primary endpoint, improvement in absolute
PTA, as well as for co-primary efficacy endpoints, hearing improvement relative to the initial hearing loss and frequency of complete
hearing recovery. Further, the improvement in word recognition scores was nominally significant as well as the frequency of complete
tinnitus remission.
The Sonsuvi® 2.0 mg/mL
group overall showed improvement between the Sonsuvi® 0.4 mg/mL and the placebo groups, without reaching statistical
significance. However, differences between the two active treatment groups were nominally not significant.
Phase 3 Clinical Program
Based on Phase 2 clinical trial outcomes,
we initiated a Phase 3 clinical program including confirmatory testing of Sonsuvi®0.4 mg/mL as well as exploring
potential incremental therapeutic benefits from a higher concentration (0.8 mg/mL) in ISSNHL patients. Since a “bell shaped”
dose response curve was observed in animal studies, testing a concentration between 0.4 and 2.0 mg/mL was expected to shed further
light on the dose effect relationship in humans. In view of the high spontaneous recovery in the mild to moderate hearing loss
subgroup observed in Phase 2, recruitment was limited to patients experiencing severe or profound ISSNHL, i.e. patients with more
pronounced medical need. Further, the time window for inclusion was extended from up to 48 hours to up to 72 hours from ISSNHL
onset as the magnitude of the therapeutic effect in Phase 2 did not appear to decrease when the later treatment was started. This
enlargement also aligned the duration of the time window with the period over which ISSNHL can develop, which is defined, e.g.
by the U.S. practice guideline for sudden sensorineural hearing loss, as 72 hours.
The first Phase 3 trial, called HEALOS,
enrolled a total of 256 patients in several European and Asian countries. On November 28, 2017, we announced that the HEALOS Phase
3 clinical 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 (PTA ≥ 90 dB at baseline in accordance with a commonly used classification
of hearing loss severity) revealed a clinically meaningful and nominally significant improvement in the Sonsuvi®
0.4 mg/mL treatment group. Further, patients treated with Sonsuvi® 0.4 mg/mL showed a nominally significantly lower
incidence of no hearing improvement compared to placebo by Day 91 as well as a superior improvement in word recognition score.
Outcomes with Sonsuvi® 0.8 mg/mL tended to be somewhat less pronounced than those observed for Sonsuvi®
0.4 mg/mL. Sonsuvi® was well tolerated and the primary safety endpoint was met.
Together with the outcomes of the HEALOS
trial, we announced that ASSENT, the second Phase 3 clinical trial investigating Sonsuvi®, was terminated early
in order to avoid the need for substantial protocol changes and interruptions of enrollment pending feedback from health authorities
on the regulatory pathway. ASSENT was planned to enroll a total of 300 patients in the US, Canada and South Korea. In contrast
to HEALOS and the Phase 2 trial, where patients with insufficient hearing recovery had the option of receiving a course of oral
corticosteroids as reserve therapy, all patients in ASSENT would receive oral corticosteroids as a background therapy. At the
time of early termination, the ASSENT trial had recruited 56 patients.
Based on the HEALOS results, we submitted
the design of a new pivotal trial with AM-111 0.4 mg/mL in patients suffering from acute profound hearing loss to the EMA and
subsequently also to the FDA for review. Through a Protocol Assistance procedure the EMA endorsed the proposed trial design, choice
of efficacy and safety endpoints, as well as the statistical methodology. In a Type C meeting with written responses, the proposed
choice of primary and secondary efficacy endpoints, the safety endpoints, as well as the planned sample size and statistical methodology
were also endorsed by the FDA. We currently aim to implement the further development of Sonsuvi® through strategic partnering,
special purpose vehicle financing, grant funding or a combination thereof. There is no guarantee that we will be successful in
any pursuit of such transactions or that we will be able to continue our efforts to develop and commercialize Sonsuvi®
in the future on a non-dilutive basis, or that any alternative course of action will lead to the success of the program.
Competition
We may face competition from
different sources with respect to our product candidates Keyzilen® (AM-101), Sonsuvi® (AM-111),
AM-125 and AM-201 and our other pipeline products or any product candidates that we may seek to develop or commercialize in
the future. Any product candidates that we successfully develop and commercialize will compete with existing therapies, even
if they are not licensed specifically for use in our target therapeutic indications or if they lack clear proof of
efficacy.
There exist a variety of drug products
that are licensed or used off-label for the treatment of vestibular disorders and Meniere’s disease exist, including steroids,
diuretics, anti-emetics or anti-nausea medications. In many countries outside the United States, oral betahistine is the standard
of care and licensed for the treatment of Meniere’s disease and vestibular vertigo. No FDA or EMA approved products exist
for the treatment of acute inner ear tinnitus or acute inner ear hearing loss; however, some drug products such as pentoxifylline,
gingko biloba, corticosteroids, betahistine, trimetazidine or piracetam are frequently prescribed off-label. Some of them are
even licensed as tinnitus or hearing loss treatments in certain countries of the European Union.
Possible competitors may be biotechnology
and pharmaceutical companies as well as academic institutions, government agencies and private and public research institutions,
which may in the future develop products to treat acute inner ear tinnitus or hearing loss or vertigo. Any product candidates
that we successfully develop and commercialize will compete with new therapies that may become available in the future. We believe
that the key competitive factors affecting the success of our product candidates, if approved, are likely to be efficacy, safety,
convenience, price, tolerability and the availability of reimbursement from government and other third-party payors.
Vestibular Disorders
There are a number of product candidates
in clinical development by third parties that aim to prevent or treat vertigo. Based on publicly available information, we have
identified the following drug product candidates that are currently in clinical development:
|
●
|
Otonomy is developing a polymer-based formulation for the steroid
dexamethasone (Otividex; OTO-104) for patients with Meniere’s disease. In August 2017 Otonomy announced that a Phase
3 clinical trial conducted in the United States had failed to show a treatment effect of OTO-104 against placebo and that
a European Phase 3 clinical trial was terminated early. In November 2017 the company announced that the European study showed
a statistically significant reduction in the count of definitive vertigo days. In 2018 the company initiated a new Phase 3
trial with OTO-104 which is expected to complete in 2020.
|
|
●
|
Sound Pharma has a product candidate (SPI-1005, ebselen), that mimics
and prompts production of the enzyme glutathione peroxidase and is designed for oral administration. In June 2019 Sound Pharmaceuticals
announced top-line results from a Phase 2 clinical trial with SP-1005 with Meniere’s disease. The company reported a
significant improvement in hearing; however, no information was provided with regard to any potential treatment effects on
vertigo.
|
The aforementioned developments have the
potential to compete with AM-125. Likewise, AM-125, if approved, will compete with products that are licensed or used off-label
for the treatment of vestibular disorders and Meniere’s disease, including steroids, diuretics, anti-emetics or anti-nausea
medications as well as oral betahistine, the standard of care for treatment of Meniere’s disease and vestibular vertigo
in many countries outside the United States. Although we expect that AM-125 will offer benefits over oral betahistine due to the
ability to bypass the strong first-pass metabolism associated with oral intake and provide for a higher bioavailability and avoid
gastric side effects, it may take time to change prescribing and usage patterns in favor of the newer product.
Antipsychotic-induced weight gain
There are a number of product candidates
in clinical development by third parties that aim to prevent or treat antipsychotic-induced weight gain. Based on publicly available
information, we have identified the following drug product candidates that are currently in clinical development:
|
●
|
ALKS-3831 is a fixed-dose combination of olanzapine and samidorphan,
a novel opioid system modulator, which is being developed by Alkermes Inc. with the specific aim of providing the therapeutic
benefits of olanzapine with less weight gain than olanzapine monotherapy. On November 29, 2018 Alkermes announced that the
ENLIGHTEN-2 phase 3 trial with ALKS-3831 had met its coprimary endpoints of mean % body weight change from baseline and %
of patients with ≥10% weight gain. The reported reduction in weight gain over 6 months was 37% versus olanzapine monotherapy.
In November 2019, Alkermes filed an NDA with the FDA for US approval. If approved, AM-201 will compete against ALKS 3831.
|
If approved, ALKS-3831 will reach the
market well before AM-201. We believe that our product may provide various benefits over ALKS-3831, notably that it does not come
in a fixed dose combination, allowing for dosing flexibility, has a different mode of action, providing potentially also effects
on daytime sleepiness, another side effect of olanzapine and that it may be used with other antipsychotic drugs than olanzapine.
As weight gain is associated with immediate
metabolic side effects it is advisable to prevent antipsychotic-induced weight gain rather than seek to treat the overweight once
it has developed. Weight monitoring, dietary and lifestyle changes as well as behavioral and cognitive counseling present the
most effective non-pharmacologic ways to prevent and also treat antipsychotic weight gain. Pharmacologic approaches include the
switch to an alternative antipsychotic treatment strategy, which however can be associated with a loss of efficacy or the appearance
of other side effects. Limited evidence for efficacy with metformin as an exploratory adjuvant to prevent antipsychotic-induced
weight gain has been demonstrated.
Acute inner ear tinnitus
There are a number of products in pre-clinical
research and clinical development by third parties to treat tinnitus in the broader sense. Most of them are aiming to provide
symptomatic relief (without treating the underlying cause) and targeting chronic rather than acute tinnitus. Examples include
TRT or tinnitus maskers as well as more recent approaches like transcranial magnetic stimulation, vagus nerve stimulation, or
customized sound therapy. Based on publicly available information, we have further identified the following drug product candidates
that are currently in clinical development:
|
●
|
Otonomy Inc. acquired an early stage NMDA receptor antagonist product
candidate (NST-001, gacyclidine) from Neurosystec Inc. in October 2013. Following OTO-311’s evaluation in a Phase 1
trial and a subsequent change in formulation, Otonomy initiated a Phase 1/2 trial with the modified drug product OTO-313 in
2019. The trial is expected to complete in 2020. Based on publicly available information, OTO-313 will target a similar group
of tinnitus patients. Its competitive strength will ultimately depend on the demonstration of clinical efficacy and safety
and its comparison with Keyzilen®.
|
Progress in the development of Keyzilen®
and in particular market approval may attract increased interest in developing treatments for acute inner ear tinnitus and may
lead to the arrival of new competitors.
Acute inner ear hearing loss
There are a number of product candidates
in pre-clinical research and clinical development by third parties that aim to prevent or treat acute inner ear hearing loss.
Based on publicly available information, we have identified the following drug product candidates that are currently in clinical
development:
|
●
|
Sound Pharma has a product candidate (SPI-1005, ebselen), that mimics
and prompts production of the enzyme glutathione peroxidase and is designed for oral administration. In a Phase 2 clinical
trial SP-1005 was tested for the prevention of noise-induced hearing loss in young adults. The study showed a reduction in
the temporary hearing threshold that in one dose was better by 2.75 dB than in the placebo group.
|
|
●
|
Otologic Pharmaceutics, Inc. has a product candidate (HPN-07) designed
for treatment of acute hearing loss by way of oral administration. A Phase 1 trial was completed in December 2015. A Phase
2 clinical trial is under preparation.
|
|
●
|
Sensorion, a French company, is developing SENS-401 (R-azasetron
besylate) for the treatment of sudden sensorineural hearing loss by way of oral administration. In 2019, the company initiated
a Phase 2 trial, the conclusion of which is expected by the company for the second quarter of 2020. Sensorion has received
orphan drug designation by the EMA for sudden sensorineural hearing loss.
|
|
●
|
Southern Illinois University has an antioxidant product candidate
(D-methionine) that is designed for oral administration in the prevention and treatment of noise induced hearing loss and
currently being tested in a late stage study with the Department of Defense. Enrolment was completed and the study terminated
in April 2019; no results have been published so far.
|
|
●
|
Strekin AG, a privately held Swiss company, has an agonist of the
peroxisome proliferator (STR001) that it plans to develop for sudden sensorineural haring loss. The company announced the
completion of enrollment in a Phase 3 trial and expects to report outcomes in early 2020. Strekin has received
orphan drug designation by the EMA for sudden sensorineural hearing loss.
|
We believe that Sonsuvi®
is the only product candidate administered after an incidence of acute hearing loss that so far has demonstrated in a randomized,
placebo controlled clinical trial a clinically relevant and significant improvement in hearing. To our knowledge, we are also
the only company to have obtained orphan drug designation for a product candidate in the treatment of ASNHL in the United States.
To the extent that other drug developers demonstrate clinical efficacy for their product candidates in the prevention and treatment
of permanent hearing loss from ASNHL, our competitive position may be weakened, and the market exclusivity under the orphan drug
designation may be circumvented.
Intellectual Property
Patents
We seek regulatory approval for our products
in disease areas with high unmet medical need, great market potential and where we have a proprietary position through patents
covering various aspects of our products, e.g., composition, dosage, formulation, and use, etc. Our success depends on an intellectual
property portfolio that supports our future revenue streams as well as erects barriers to our competitors. For example, we have
broad disclosures in our patent applications and can pursue patent claims directed to our own leading product candidates as well
as claims directed to certain potentially competing products. In addition, our earlier filed patent applications are prior art
to others including certain of our competitors who filed their patent applications later than ours. We are maintaining and building
our patent portfolio through: filing new patent applications; prosecuting existing applications and licensing and acquiring new
patents and patent applications.
Despite these measures, any of our intellectual
property and proprietary rights could be challenged, invalidated, circumvented, infringed or misappropriated, or such intellectual
property and proprietary rights may not be sufficient to permit us to take advantage of current market trends or otherwise to
provide competitive advantages.
As of December 31, 2019, we own ten eight
issued U.S. patents and five pending U.S. patent applications along with foreign counterparts of particular patents and applications
in various jurisdictions. We co-own four of our issued U.S. patents, and one of our pending patent applications with INSERM, along
with their foreign counterparts, pursuant to the terms of our co-ownership and exploitation agreement.
In addition, as of December 31, 2019,
we have exclusively licensed from Xigen eleven issued U.S. patents and one pending U.S. patent applications, along with their
foreign counterparts in various jurisdictions that cover the composition of matter or method of use of JNK ligand peptides in
a limited field including the intratympanic treatment of ASNHL.
With respect to our issued patents in
the United States, we may also be entitled to obtain a patent term extension to extend the patent expiration date. For example,
in the United States, we can apply for a patent term extension of up to 5 years for one of the patents covering a product once
the product is approved by the FDA. The exact duration of the extension depends on the time we spend in clinical trials as well
as getting a new drug application approval from the FDA.
Intranasal Betahistine
We have acquired one patent from Otifex
directed to intranasal application of betahistine for Eustachian tube dysfunction that is issued in the United States. In addition,
we purchased from Otifex a patent application on the composition and use of intranasal betahistine, which issued on October 29,
2019, as a US patent covering the composition and use of intranasal betahistine. Further, we acquired in 2018 two U.S. patents
relating to the use of betahistine for the prevention and treatment of olanzapine induced weight gain, and we acquired in 2019
two U.S. patents relating to the use of betahistine for the treatment of attention deficit/hyperactivity disorder and atypical
depression.
Keyzilen®
We are the owner or co-owner of patents
and patent applications relating to Ketamine or its use in inner ear tinnitus. In particular, we have an agreement entitled “Co-Ownership/Exploitation
Agreement” with INSERM with respect to its Ketamine patent portfolio. We have rights to four issued U.S. patents and one
pending U.S. application and corresponding patents and applications in other jurisdictions including Europe, Eurasia, Australia,
Canada, Japan, Brazil, China, South Korea, Israel, India, Mexico, Philippines, Russia, South Africa and New Zealand, covering
formulation and use of Ketamine. Our issued patents and pending patent applications relating to Keyzilen® are expected
to expire between 2024 and 2028, prior to any patent term extensions to which we may be entitled under applicable laws.
Sonsuvi®
We are the exclusive licensee under our
agreement with Xigen of a portfolio of patents and patent applications that relate, among other things, to JNK ligand peptides
or their use in hearing loss. This portfolio includes eleven issued U.S. patents and one pending U.S. application along with their
foreign counterparts in various jurisdictions including, Europe, Australia, Brazil, Canada, Eurasia, South Korea, Israel, India,
Mexico, Ukraine and Japan, that cover the composition of matter or method of use of the JNK ligand peptides. These licensed patents
and patent applications relating to Sonsuvi® are expected to expire between 2020 and 2027, prior to any patent
term extensions to which we may be entitled under applicable laws.
Proprietary Rights
In addition to patent protection,
we intend to use other means to protect our proprietary rights. We may pursue marketing exclusivity periods that are available
under regulatory provisions in certain countries, including the US, Europe and Japan. For example, if we are the first to obtain
market approval of a small molecule product in the United States, we would expect to receive at least 5 years of market exclusivity
in the U.S.
In March 2019, the FDA approved esketamine
in a spray formulation for treatment-resistant depression (SPRAVATO). The product was developed by. Janssen, a subsidiary of Johnson
& Johnson. Therefore we can no longer expect to obtain the potential benefit of a five year market exclusivity period.
Furthermore, orphan drug exclusivity has
been or may be sought where available. Such exclusivity has a term of 7 years in the United States and 10 years in Europe. We
have obtained orphan drug designation for Sonsuvi® for the treatment of ASNHL in the United States and Europe.
Orphan drug protection has been or may be sought where available if such protection also grants 7 years of market exclusivity.
In addition, we have acquired a U.S. orphan drug designation for betahistine for the treatment of obesity associated with Prader-Willi
syndrome.
We have obtained U.S. trademark registrations
for Auris, Auris Medical, Auris Medical Cochlear Therapies (and Design), Keyzilen®and Sonsuvi®.
Further, we have obtained several U.S. trademark registrations for betahistine.
In addition, we rely upon unpatented trade
secrets, know-how, and continuing technological innovation to develop and maintain our competitive position. We seek to protect
our ownership of know-how and trade secrets through an active program of legal mechanism including assignments, confidentiality
agreements, material transfer agreements, research collaborations and licenses.
Collaboration and License Agreements
INSERM
In 2006, we entered into a co-ownership/exploitation
agreement with the INSERM, a publicly funded government science and technology agency in France. Pursuant to the terms of the
agreement, we were granted the exclusive right to exploit any products derived from patents that resulted from our joint research
program with INSERM that was conducted in 2003 to 2005 and led to the development of Keyzilen®. Pursuant to the
terms of the co-ownership/exploitation agreement, we are given the exclusive right to exploit the patents issuing from the filed
patent applications for all claimed applications, including the treatment of tinnitus, in order to develop, promote, manufacture,
cause to be manufactured, use, sell and distribute any products, processes or services deriving from such patents, including Keyzilen®,
in any country in which these patent applications have been filed during the term of the agreement. We alone are entitled to grant
manufacturing or sales licenses for any patents to our subsidiaries and/or third parties. INSERM is entitled to use the inventions
covered by the patents and applications for its own research purposes, free of charge, but may not generate any direct or indirect
profits from such use. Pursuant to the terms of our agreement with INSERM, we are required to finance research and development
work towards achieving certain specified marketing authorizations, and to use best efforts in so far as commercially and financially
feasible to develop, market, and obtain regulatory authorization for products covered by such patents.
As consideration for the exclusive rights
granted to us under the agreement, we have agreed to pay INSERM a two tiered low single digit royalty (where the higher rate is
due on any net sales above a certain threshold) on the net sales of any product covered by the patents (including the use of Keyzilen®
in the treatment of tinnitus triggered by cochlear glutamate excitotoxicity) earned in each country in which these patent
applications have been filed during the term of the agreement. We have also agreed to pay INSERM a low double digit fee on any
sums of any nature (except royalties and certain costs) collected by us in respect of the granting of licenses to third parties.
See “Item 4. Information on the Company—B. Business Overview—Collaboration and License Agreements—INSERM.”
The agreement will remain in force until
the last of the patents covered by the agreement expires or becomes invalid. The patent covered by the agreement with the latest
expiration date expires in 2028. The agreement will be terminated if we cease operations or are liquidated, may be terminated
by either party in case of non-performance by the other party and may be terminated by INSERM in the absence of sales of a product
deriving from the patents for a period from when it first marketed and if such a product is not marketed for a period from the
date when marketing authorization is obtained.
Xigen
In October 2003, we entered into a collaboration
and license agreement with Xigen, pursuant to which Xigen granted us an exclusive worldwide license to use specified compounds
to develop, manufacture and commercialize “pharmaceutical products as well as drug delivery devices and formulations for
local administration of therapeutic substances to the inner ear for the treatment of ear disorders” (the Area). We also
have a right of first refusal to license certain additional compounds developed by Xigen which may be used for the Area, specifically
any cell permeable inhibitors to effectively block certain signal pathways in apoptotic processes.
Under this agreement, we made an upfront
payment to Xigen of CHF 200,000 and we are obligated to make development milestone payments on an indication-by-indication basis
of up to CHF 1.5 million 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. To date, we have paid
CHF 1.325 million to Xigen under the agreement. We will be required to pay Xigen a mid-single digit percentage royalty on net
sales of each licensed product that uses a compound licensed under the agreement, which royalty for a given indication shall be
partially offset by milestone payments we have paid for such indication, until the later of 10 years after the first commercial
sale of any licensed product using such licensed compound in any country, and the first expiration of a patent owned by or exclusively
licensed to Xigen that covers the use of such licensed compound in any country, subject to our obligation to enter into good faith
negotiations with Xigen, upon expiration of the relevant patent on a licensed compound, about the conditions of our further use
of such licensed compound.
Under this agreement we and Xigen grant
each other access to non-clinical or clinical data relating to the compounds licensed under the agreement free of charge for use
in the other party’s proprietary development programs. We have also agreed, upon Xigen’s request, to offer third parties
access to our non-clinical and clinical data relating to compounds licensed under the agreement for use outside the field of our
license, provided that with respect to third party access, we are compensated for a portion of our costs in obtaining such data.
Further, pursuant to our agreement, we and Xigen agreed to enter into a supply agreement within a specified period after the date
of the agreement, which period has since passed, pursuant to which Xigen would supply us with licensed compounds. We did not enter
into such a supply agreement with Xigen. Xigen supplied us with the API for Sonsuvi®for a period of time, but
we presently are receiving our supply from an alternative supplier.
Xigen is responsible for maintaining the
patents licensed to us under our agreement. New patents filed by us for specific inner ear indications or formulations of compounds
licensed under our agreement are jointly owned by us and Xigen, and exclusively licensed to us in our field. We retain all know-how
and other results from our development of compounds licensed under the agreement.
Our agreement with Xigen remains in effect
until terminated. Either we or Xigen may terminate the agreement for the other party’s material breach or bankruptcy, in
the event of force majeure, or after a specified period following the date of the agreement, if we are not progressing any activities
with respect to the licensed compound. This period has passed for Sonsuvi®.
Manufacturing
We currently rely on and expect to continue
to rely on third parties for the supply of raw materials and to manufacture drug supplies for clinical trials of our product candidates,
including Keyzilen®, Sonsuvi®, AM-125 and AM-201. For the foreseeable future, we expect to continue
to rely on such third parties for the manufacture of any of our product candidates on a clinical or commercial scale, if any of
our product candidates receives regulatory approval. Reliance on third-party providers may expose us to more risk than if we were
to manufacture product candidates ourselves. The facilities used by our contract manufacturers to manufacture our product candidates
must be approved by the FDA or other regulatory authorities pursuant to inspections that will be conducted after we submit our
NDA or comparable marketing application to the FDA or other regulatory authority. We do not have control over a supplier’s
or manufacturer’s compliance with these laws, regulations and applicable cGMP standards and other laws and regulations,
such as those related to environmental health and safety matters. If our contract manufacturers cannot successfully manufacture
material that conforms to our specifications and the strict regulatory requirements of the FDA or others, they will not be able
to secure and/or maintain regulatory approval for their manufacturing facilities. In addition, we have no control over the ability
of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or a
comparable foreign regulatory authority does not approve these facilities for the manufacture of our product candidates or if
it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly
impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved. Any failure to achieve
and maintain compliance with these laws, regulations and standards could subject us to the risk that we may have to suspend the
manufacturing of our product candidates or that obtained approvals could be revoked, which would adversely affect our business
and reputation. Furthermore, third-party providers may breach agreements they have with us because of factors beyond our control.
They may also terminate or refuse to renew their agreements because of their own financial difficulties or business priorities,
potentially at a time that is costly or otherwise inconvenient for us. If we were unable to find adequate replacement or another
acceptable solution in time, our clinical trials could be delayed or our commercial activities could be harmed.
In addition, the fact that we are dependent
on our suppliers and other third parties for the manufacture, storage and distribution of our product candidates means that we
are subject to the risk that the products may have manufacturing defects that we have limited ability to prevent or control. The
sale of products containing such defects could result in recalls or regulatory enforcement action that could adversely affect
our business, financial condition and results of operations.
Growth in the costs and expenses of components
or raw materials may also adversely influence our business, financial condition and results of operations. Supply sources could
be interrupted from time to time and, if interrupted, it is not assured that supplies could be resumed (whether in part or in
whole) within a reasonable timeframe and at an acceptable cost or at all.
Commercialization Strategy
Given our current stage of product development,
we currently do not have a commercialization infrastructure. If any of our product candidates is granted marketing approval, we
intend to focus our initial commercial efforts in the United States and select European markets, which we believe represent the
largest market opportunities for us. In those markets, we expect our commercial operations to include our own specialty sales
force that we will specifically develop to target ENTs and specialists in neurotology and neurology, both in hospitals and in
private practice. In other markets, we expect to seek partnerships that would maximize our products’ commercial potential.
Government Regulation
Product Approval Process
The clinical testing, manufacturing, labeling,
storage, distribution, record keeping, advertising, promotion, import, export and marketing, among other things, of our product
candidates are subject to extensive regulation by governmental authorities in the United States and other countries. The FDA,
under the Federal Food, Drug, and Cosmetic Act, regulates pharmaceutical products in the United States. The steps required before
a drug may be approved for marketing in the United States generally include:
|
●
|
the completion of pre-clinical laboratory tests and animal tests
conducted under GLP regulations;
|
|
●
|
the submission to the FDA of an IND application for human clinical
testing, which must become effective before human clinical trials commence;
|
|
●
|
the performance of adequate and well-controlled human clinical trials
to establish the safety and efficacy of the product candidate for each proposed indication and conducted in accordance with
cGCP;
|
|
●
|
the submission to the FDA of a NDA;
|
|
●
|
the FDA’s acceptance of the NDA;
|
|
●
|
satisfactory completion of an FDA inspection of the manufacturing
facilities at which the product is made to assess compliance with cGMPs; and
|
|
●
|
the FDA’s review and approval of an NDA prior to any commercial
marketing or sale of the drug in the United States.
|
The testing and approval process requires
substantial time, effort and financial resources, and the receipt and timing of any approval is uncertain.
Pre-clinical studies include laboratory
evaluations of the product candidate, as well as animal studies to assess the potential safety and efficacy of the product candidate.
The results of the pre-clinical studies, together with manufacturing information and analytical data, are submitted to the FDA
as part of the IND, which must become effective before clinical trials may be commenced. The IND will become effective automatically
30 days after receipt by the FDA, unless the FDA raises concerns or questions about the conduct of the trials as outlined in the
IND prior to that time. In this case, the IND sponsor and the FDA must resolve any outstanding concerns before clinical trials
can proceed.
Clinical trials involve the administration
of the product candidates to healthy volunteers or patients with the disease to be treated under the supervision of a qualified
principal investigator. Clinical trials are conducted under protocols detailing, among other things, the objectives of the study,
the parameters to be used in monitoring safety, and the efficacy criteria to be evaluated. A protocol for each clinical trial
and any subsequent protocol amendments must be submitted to the FDA as part of the IND. Further, each clinical trial must be reviewed
and approved by an independent IRB, either centrally or individually at each institution at which the clinical trial will be conducted.
The IRB will consider, among other things, ethical factors, the safety of human subjects and the possible liability of the institution.
There are also requirements governing the reporting of ongoing clinical trials and clinical trial results to public registries.
The FDA, the IRB or the clinical trial sponsor may suspend or terminate clinical trials at any time on various grounds, including
a finding that the subjects or patients are being exposed to an unacceptable health risk. Additionally, some clinical trials are
overseen by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring
board or committee. This group provides authorization for whether or not a trial may move forward at designated check points based
on access to certain data from the study. We may also suspend or terminate a clinical trial based on evolving business objectives
and/or competitive climate.
Clinical trials are typically conducted
in three sequential phases prior to approval, but the phases may overlap. These phases generally include the following:
|
●
|
Phase 1. Phase 1 clinical trials represent the initial introduction
of a product candidate into human subjects, frequently healthy volunteers. In Phase 1, the product candidate is usually tested
for safety, including adverse effects, dosage tolerance, absorption, distribution, metabolism, excretion and pharmacodynamics.
|
|
●
|
Phase 2. Phase 2 clinical trials usually involve studies
in a limited patient population to (1) evaluate the efficacy of the product candidate for specific indications, (2) determine
dosage tolerance and optimal dosage and (3) identify possible adverse effects and safety risks.
|
|
●
|
Phase 3. If a product candidate is found to be potentially
effective and to have an acceptable safety profile in Phase 2 studies, the clinical trial program will be expanded to Phase
3 clinical trials to further demonstrate clinical efficacy, optimal dosage and safety within an expanded patient population
at geographically dispersed clinical study sites.
|
Phase 4 clinical trials are conducted
after approval to gain additional experience from the treatment of patients in the intended therapeutic indication and to document
a clinical benefit in the case of drugs approved under accelerated approval regulations, or when otherwise requested by the FDA
in the form of post-market requirements or commitments. Failure to promptly conduct any required Phase 4 clinical trials could
result in withdrawal of approval.
The results of pre-clinical studies and
clinical trials, including negative or ambiguous results as well as positive findings, together with detailed information on the
manufacture, composition and quality of the product, are submitted to the FDA in the form of an NDA requesting approval to market
the product. The NDA must be accompanied by a significant user fee payment. The FDA has substantial discretion in the approval
process and may refuse to accept any application or decide that the data is insufficient for approval and require additional pre-clinical,
clinical or other studies.
In addition, under the Pediatric Research
Equity Act, or PREA, an NDA or supplement to an NDA must contain data to assess the safety and effectiveness of the drug for the
claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation
for which the product is safe and effective. The FDA may grant deferrals for submission of data or full or partial waivers. Unless
otherwise required by regulation, PREA does not apply to any drug for an indication for which orphan designation has been granted.
However, if only one indication for a product has orphan designation, a pediatric assessment may still be required for any applications
to market that same product for the non-orphan indication(s).
Once the NDA submission has been submitted,
the FDA has 60 days after submission of the NDA to conduct an initial review to determine whether it is sufficient to accept for
filing. Under the Prescription Drug User Fee Act, the FDA sets a goal date by which it plans to complete its review. This is typically
12 months from the date of submission of the NDA application. The review process is often extended by FDA requests for additional
information or clarification. Before approving an NDA, the FDA will inspect the facilities at which the product is manufactured
and will not approve the product unless the manufacturing facility complies with cGMPs and may also inspect clinical trial sites
for integrity of data supporting safety and efficacy. The FDA may also convene an advisory committee of external experts to provide
input on certain review issues relating to risk, benefit and interpretation of clinical trial data. The FDA is not bound by the
recommendations of an advisory committee, but generally follows such recommendations in making its decisions. The FDA may delay
approval of an NDA if applicable regulatory criteria are not satisfied and/or the FDA requires additional testing or information.
The FDA may require post-marketing testing and surveillance to monitor safety or efficacy of a product.
After the FDA evaluates the NDA and conducts
inspections of manufacturing facilities where the drug product and/or its API will be produced, it may issue an approval letter
or a Complete Response Letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information
for specific indications. A Complete Response Letter indicates that the review cycle of the application is complete and the application
is not ready for approval. A Complete Response Letter may require additional clinical data and/or an additional pivotal Phase
3 clinical trial(s), and/or other significant, expensive and time-consuming requirements related to clinical trials, pre-clinical
studies or manufacturing. Even if such additional information is submitted, the FDA may ultimately decide that the NDA does not
satisfy the criteria for approval. The FDA could also approve the NDA with a Risk Evaluation and Mitigation Strategy, or REMS,
plan to mitigate risks, which could include medication guides, physician communication plans, or elements to assure safe use,
such as restricted distribution methods, patient registries and other risk minimization tools. The FDA also may condition approval
on, among other things, changes to proposed labeling, development of adequate controls and specifications, or a commitment to
conduct one or more post-market studies or clinical trials. Such post-market testing may include Phase 4 clinical trials and surveillance
to further assess and monitor the product’s safety and effectiveness after commercialization.
Orphan Drug Designation
Under the Orphan Drug Act, the FDA may
grant orphan drug designation to a drug intended to treat a rare disease or condition, which is a disease or condition that affects
fewer than 200,000 individuals in the United States, or if it affects more than 200,000, there is no reasonable expectation that
sales of the drug in the United States will be sufficient to offset the costs of developing and making the drug available in the
United States. Orphan drug designation must be requested before submitting an NDA. Orphan drug designation does not convey any
advantage in or shorten the duration of the regulatory review and approval process.
If the FDA approves a sponsor’s
marketing application for a designated orphan drug for use in the rare disease or condition for which it was designated, the sponsor
is eligible for a seven-year period of marketing exclusivity, during which the FDA may not approve another sponsor’s marketing
application for a drug with the same active moiety and intended for the same use or indication as the approved orphan drug, except
in limited circumstances, such as if a subsequent sponsor demonstrates its product is clinically superior. During a sponsor’s
orphan drug exclusivity period, competitors, however, may receive approval for drugs with different active moieties for the same
indication as the approved orphan drug, or for drugs with the same active moiety as the approved orphan drug, but for different
indications. Orphan drug exclusivity could block the approval of one of our products for seven years if a competitor obtains approval
for a drug with the same active moiety intended for the same indication before we do, unless we are able to demonstrate that grounds
for withdrawal of the orphan drug exclusivity exist, such as that our product is clinically superior. Further, if a designated
orphan drug receives marketing approval for an indication broader than the rare disease or condition for which it received orphan
drug designation, it may not be entitled to exclusivity.
Special FDA Expedited Review and
Approval Programs
The FDA has various programs, including
rare pediatric disease and breakthrough therapy designations, which are intended to expedite or simplify the process for the development
and FDA review of drugs that are intended for the treatment of serious or life threatening diseases or conditions and demonstrate
the potential to address unmet medical needs. The purpose of these programs is to provide important new drugs to patients earlier
than under standard FDA review procedures.
Rare pediatric disease, or RPD, designation
by the FDA enables priority review voucher, or PRV, eligibility upon U.S. market approval of a designated drug for rare pediatric
diseases. The RPD-PRV program is intended to encourage development of therapies to prevent and treat rare pediatric diseases.
The voucher, which is awarded upon NDA or Biologics License Application, or BLA, approval to the sponsor of a designated RPD can
be sold or transferred to another entity and used by the holder to receive priority review for a future NDA or BLA submission,
which reduces the FDA review time of such future submission from ten to six months.
Breakthrough therapy designation is for
a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease
or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing
therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development.
The FDA must take certain actions, such as holding timely meetings and providing advice, intended to expedite the development
and review of an application for approval of a breakthrough therapy.
Even if a product qualifies for one or
more of these programs, the FDA may later decide that the product no longer meets the conditions for qualification or decide that
the time period for FDA review or approval will not be shortened.
Pharmaceutical Coverage, Pricing and Reimbursement
In both domestic and foreign markets,
our sales of any approved products will depend in part on the availability of coverage and adequate reimbursement from third-party
payors. Third-party payors include government authorities, managed care providers, private health insurers and other organizations.
Patients who are prescribed treatments for their conditions and providers performing the prescribed services generally rely on
third-party payors to reimburse all or part of the associated healthcare costs. Patients are unlikely to use our products, if
approved, unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our products.
Sales of our products will therefore depend substantially, both domestically and abroad, on the extent to which the costs of our
products will be paid by third-party payors. These third-party payors are increasingly focused on containing healthcare costs
by challenging the price and examining the cost-effectiveness of medical products and services.
In addition, significant uncertainty exists
as to the coverage and reimbursement status of newly approved healthcare product candidates. The market for our product candidates
for which we may receive regulatory approval will depend significantly on access to third-party payors’ drug formularies,
or lists of medications for which third-party payors provide coverage and reimbursement. The industry competition to be included
in such formularies often leads to downward pricing pressures on pharmaceutical companies. Also, third-party payors may refuse
to include a particular branded drug in their formularies or otherwise restrict patient access to a branded drug when a less costly
generic equivalent or other alternative is available. Furthermore, third-party payor reimbursement to providers for our product
candidates may be subject to a bundled payment that also includes the procedure administering our products. To the extent there
is no separate payment for our product candidates, there may be further uncertainty as to the adequacy of reimbursement amounts.
Because each third-party payor individually
approves coverage and reimbursement levels, obtaining coverage and adequate reimbursement is a time-consuming, costly and sometimes
unpredictable process. We may be required to provide scientific and clinical support for the use of any product to each third-party
payor separately with no assurance that approval would be obtained, and we may need to conduct expensive pharmacoeconomic studies
in order to demonstrate the cost-effectiveness of our products. This process could delay the market acceptance of any product
and could have a negative effect on our future revenues and operating results. We cannot be certain that our product candidates
will be considered cost-effective. Because coverage and reimbursement determinations are made on a payor-by-payor basis, obtaining
acceptable coverage and reimbursement from one payor does not guarantee the Company will obtain similar acceptable coverage or
reimbursement from another payor. If we are unable to obtain coverage of, and adequate reimbursement and payment levels for, our
product candidates from third-party payors, physicians may limit how much or under what circumstances they will prescribe or administer
them and patients may decline to purchase them. This in turn could affect our ability to successfully commercialize our products
and impact our profitability, results of operations, financial condition and future success.
Furthermore, in many foreign countries,
particularly the countries of the European Union, the pricing of prescription drugs is subject to government control. In some
non-U.S. jurisdictions, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements
governing drug pricing vary widely from country to country. For example, the European Union provides options for its member states
to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control
the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may
instead adopt a system of direct or indirect controls on the profitability of the Company placing the medicinal product on the
market. We may face competition for our product candidates from lower-priced products in foreign countries that have placed price
controls on pharmaceutical products. In addition, there may be importation of foreign products that compete with our own products,
which could negatively impact our profitability.
Healthcare Reform
In the United States and foreign jurisdictions,
there have been, and we expect there will continue to be, a number of legislative and regulatory changes to the healthcare system
that could affect our future results of operations as we begin to directly commercialize our products.
In particular, there have been and continue
to be a number of initiatives at the U.S. federal and state level that seek to reduce healthcare costs. Initiatives to reduce
the federal deficit and to reform healthcare delivery are increasing cost-containment efforts. We anticipate that Congress, state
legislatures and the private sector will continue to review and assess alternative benefits, controls on healthcare spending through
limitations on the growth of private health insurance premiums and Medicare and Medicaid spending, the creation of large insurance
purchasing groups, price controls on pharmaceuticals and other fundamental changes to the healthcare delivery system. Any proposed
or actual changes could limit or eliminate our spending on development projects and affect our ultimate profitability.
In the future, there may continue to be
additional proposals relating to the reform of the United States healthcare system, some of which could further limit the prices
we are able to charge for our products candidates, or the amounts of reimbursement available for our product candidates. If future
legislation were to impose direct governmental price controls and access restrictions, it could have a significant adverse impact
on our business. Managed care organizations, as well as Medicaid and other government agencies, continue to seek price discounts.
Some states have implemented, and other states are considering, price controls or patient access constraints under the Medicaid
program, and some states are considering price-control regimes that would apply to broader segments of their populations that
are not Medicaid-eligible. Due to the volatility in the current economic and market dynamics, we are unable to predict the impact
of any unforeseen or unknown legislative, regulatory, payor or policy actions, which may include cost containment and healthcare
reform measures. Such policy actions could have a material adverse impact on our profitability.
The federal Drug Supply Chain Security
Act imposes obligations on manufacturers of pharmaceutical products, among others, related to product tracking and tracing. Manufacturers
will be required to provide certain information regarding the drug product to individuals and entities to which product ownership
is transferred, label drug product with a product identifier, and keep certain records regarding the drug product. Further, under
this new legislation, manufacturers will have drug product investigation, quarantine, disposition, and notification responsibilities
related to counterfeit, diverted, stolen, and intentionally adulterated products, as well as products that are the subject of
fraudulent transactions or which are otherwise unfit for distribution such that they would be reasonably likely to result in serious
health consequences or death.
C.
|
Organizational structure
|
The registrant corporation, Auris Medical
Holding Ltd., had five wholly-owned subsidiaries as of December 31, 2019, which are each listed in Exhibit 8.1 filed hereto. We
primarily operate our business out of our operating subsidiary Auris Medical AG.
D.
|
Property, plants and equipment
|
Our registered office is in Hamilton,
Bermuda. We also lease approximately 500 square feet of office space in Basel, Switzerland. This property serves as the corporate
headquarters of our principal operating subsidiary.
ITEM 4A. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
You should read the following discussion
and analysis of our financial condition and results of operations together with the information under “Item 3. Key Information—A.
Selected Financial Data” and our audited consolidated financial statements, including the notes thereto, included in this
Annual Report. The following discussion is based on our financial information prepared in accordance with IFRS as issued by the
IASB, which might differ in material respects from generally accepted accounting principles in other jurisdictions. The following
discussion includes forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ
materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to
those described under “Item 3. Key Information—D. Risk factors” and elsewhere in this Annual Report.
Overview
We are a clinical-stage biopharmaceutical
company dedicated to developing therapeutics that address important
unmet medical needs in neurotology and CNS disorders. We are focusing on the development of intranasal betahistine for the treatment of vertigo (AM-125) and for the
prevention of antipsychotic-induced weight gain and somnolence (AM-201). These programs have gone through two Phase 1 trials and
have moved into proof-of-concept studies in 2019. In addition, we have two Phase 3 programs under development, subject to
our ability to obtain non-dilutive funding or partnering: (i) Keyzilen® (AM-101), which is being developed
for the treatment of acute inner ear tinnitus and (ii) Sonsuvi® (AM-111), which is being developed for the treatment
of acute inner ear hearing loss. Sonsuvi® has been granted orphan drug status by the FDA and the EMA and has been
granted fast track designation by the FDA.
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 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. On April 25, 2019, we announced that we had completed the
design of a pivotal Phase 2/3 trial for Keyzilen® . The trial shall, in two stages, reaffirm the compound’s
efficacy in the treatment of acute tinnitus following traumatic cochlear injury and provide confirmatory efficacy data to support
a filing for marketing authorization. On September 13, 2019, we announced that we have obtained advice on the development plan
and regulatory pathway from the U.S. Food and Drug Administration (“FDA”) in the context of a Type C meeting and from
the European Medicines Agency (“EMA”) in the context of a Scientific Advice procedure for Keyzilen®.
We intend to fund further development of Keyzilen® either through partnerships or research grants. Pending such
funding, we expect our research and development expenses in connection with the Keyzilen® program to remain minimal.
We conducted a Phase 3 clinical development
program with Sonsuvi® 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 Sonsuvi® 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 Sonsuvi®. Based on
the HEALOS results, we submitted the design of a new pivotal trial with AM-111 0.4 mg/mL in patients suffering from acute profound
hearing loss to the EMA and subsequently also to the FDA for review. Through a Protocol Assistance procedure the EMA endorsed
the proposed trial design, choice of efficacy and safety endpoints, as well as the statistical methodology. In a Type C meeting
with written responses, the proposed choice of primary and secondary efficacy endpoints, the safety endpoints, as well as the
planned sample size and statistical methodology were also endorsed by the FDA. We currently aim to implement the further development
of Sonsuvi® through strategic partnering, special purpose vehicle financing, grant funding or a combination thereof. There
is no guarantee that we will be successful in any pursuit of such transactions or that we will be able to continue our efforts
to develop and commercialize Sonsuvi® in the future on a non-dilutive basis, or that any alternative course of action will
lead to the success of the program. Pending such partnering or funding, we expect our research and development expenses in connection
with the Sonsuvi® program to remain minimal.
In the first half of 2018, we initiated
a second randomized placebo-controlled Phase 1 trial in 72 healthy volunteers to further test the safety and tolerability and
the pharmacokinetics of AM-125. On October 17, 2018 we announced positive results from the trial as superior bioavailability over
a range of four intranasal betahistine doses compared to oral betahistine was observed, with plasma exposure being 6 to 29 times
higher (p-value between 0.056 and p<0.0001). Further, it confirmed the good safety profile of intranasal betahistine and showed
that the treatment was well tolerated when administered three times daily for three days. In 2019 we initiated a Phase 2 clinical
study with AM-125, which resulted in higher research and development expense for the AM-125 program than in 2018. The “TRAVERS”
Phase 2 trial will enroll 118 patients suffering from acute vertigo following surgical removal of a vestibular schwannoma, a tumor
growing behind the inner ear, resection of the vestibular nerve (vestibular neurectomy) or surgical removal of parts of the inner
ear (labyrinthectomy). It is conducted in several European countries and Canada.
In 2019, we initiated a randomized placebo-controlled
Phase 1b proof-of-concept trial with AM-201 in healthy volunteers in the. The trial is conducted in Europe and will enroll 80 healthy
volunteers who will receive either AM-201 or placebo concomitantly with olanzapine over four weeks. On October 11, 2019, we announced
positive interim results from the trial and informed that the trial will proceed to the next higher and final dose level of 30mg
tested in 30 healthy volunteers, with the last subject having its last study visit in March 2020. We expect to report top-line
data from the study and obtain results in May 2020.
To date, we have financed our operations
through public offerings of our common shares, private placements of equity securities, and short- and long-term loans. We have
no products approved for commercialization and have never generated any revenues from royalties or product sales. As of December
31, 2019, we had cash and cash equivalents of CHF 1.4 million. Based on our current plans, we do not expect to generate royalty
or product revenues unless and until we obtain marketing approval for, and commercialize, Keyzilen®, Sonsuvi®,
AM-125, AM-201 or any of our other product candidates.
As of December 31, 2019, we had an accumulated
deficit of CHF 152.8 million. We expect to continue incurring losses as we continue our clinical and pre-clinical development
programs, apply for marketing approval for our product candidates and, subject to obtaining regulatory approval of our product
candidates, build a sales and marketing force in preparation for the potential commercialization of our product candidates.
Collaboration and License Agreements
INSERM
In 2006, we entered into a co-ownership/exploitation
agreement with the INSERM, a publicly funded government science and technology agency in France. Pursuant to the terms of the
agreement, we were granted the exclusive right to exploit any products derived from patents that resulted from our joint research
program with INSERM that was conducted in 2003 to 2005 and led to the development of Keyzilen®. Pursuant to the terms of the
co-ownership/exploitation agreement, we were given the exclusive right to exploit the patents issuing from the filed patent applications
for all claimed applications, including the treatment of tinnitus, in order to develop, promote, manufacture, cause to be manufactured,
use, sell and distribute any products, processes or services deriving from such patents, including Keyzilen®, in any country
in which these patent applications have been filed during the term of the agreement.
As consideration for the exclusive rights
granted to us under the agreement, we agreed to pay INSERM a two tiered low single digit percentage royalty (where the higher
rate is due on any net sales above a certain threshold) on the net sales of any product covered by the patents (including the
use of Keyzilen® in the treatment of tinnitus triggered by cochlear glutamate excitotoxicity) earned in each country
in which these patent applications have been filed during the term of the agreement. We have also agreed to pay INSERM a low double
digit fee on any sums of any nature (except royalties and certain costs) collected by us in respect of the granting of licenses
to third parties.
Xigen
In October 2003, we entered into a collaboration
and license agreement with Xigen, pursuant to which Xigen granted us an exclusive worldwide license to use specified compounds
to develop, manufacture and commercialize “pharmaceutical products as well as drug delivery devices and formulations for
local administration of therapeutic substances to the inner ear for the treatment of ear disorders” (the Area). We also
have a right of first refusal to license certain additional compounds developed by Xigen which may be used for the Area, specifically
any cell permeable inhibitors to effectively block certain signal pathways in apoptotic processes.
Under this agreement, we made an upfront
payment to Xigen of CHF 200,000 and we are obligated to make development milestone payments on an indication-by-indication basis
of up to CHF 1.5 million 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. To date, we have paid
CHF 1.325 million to Xigen under the agreement. We will be required to pay Xigen a mid-single digit percentage royalty on net
sales of each licensed product that uses a compound licensed under the agreement, which royalty for a given indication shall be
partially offset by milestone payments we have paid for such indication, until the later of 10 years after the first commercial
sale of any licensed product using such licensed compound in any country, and the first expiration of a patent owned by or exclusively
licensed to Xigen that covers the use of such licensed compound in any country, subject to our obligation to enter into good faith
negotiations with Xigen, upon expiration of the relevant patent on a licensed compound, about the conditions of our further use
of such licensed compound. See “Item 4. Information on the Company—B. Business Overview—Collaboration and License
Agreements—Xigen.”
Otifex
On February 2, 2017, we entered into an
asset purchase agreement with Otifex Therapeutics Pty Ltd (“Otifex”), pursuant to which we agreed to purchase and
Otifex agreed to sell us certain pre-clinical and clinical assets related to a formulation for the intranasal application of betahistine,
which we refer to as AM-125, as well as associated intellectual property rights. We are developing the formulation for the treatment
of vertigo. The Otifex transaction closed in July 2017.
Anti-psychotic induced weight-gain
On April 24, 2018, we entered into an
asset purchase agreement pursuant to which we agreed to purchase two patents related to the treatment of anti-psychotic induced
weight-gain which we refer to as AM-201. The transaction closed in April 2018.
Financial Operations Overview
Research and development expense
Research and development expense consists
principally of:
|
●
|
salaries for research and development staff and related expenses,
including employee benefits;
|
|
●
|
costs for production of pre-clinical compounds, drug substances
and drug products by contract manufacturers;
|
|
●
|
fees and other costs paid to contract research organizations in
connection with additional pre-clinical testing and the performance of clinical trials;
|
|
●
|
costs of related facilities, materials and equipment;
|
|
●
|
costs associated with obtaining and maintaining patents;
|
|
●
|
costs related to the preparation of regulatory filings and fees;
and
|
|
●
|
depreciation and amortization of tangible and intangible fixed assets
used to develop our product candidates.
|
We expect our total cash need in 2020 to
be in the range of CHF 7.5 to 10.0 million for our expected total operating expenses of CHF 3.5 to 4.5 million and our expected
capitalized research and development costs of CHF 4.0 to 5.5 million. Our research and development expense mainly relates to the
following key programs:
|
●
|
AM-125 for Vertigo. The “TRAVERS” Phase 2 trial will enroll 118 patients suffering from acute vertigo following surgical removal of a vestibular schwannoma, a tumor growing behind the inner ear, resection of the vestibular nerve (vestibular neurectomy) or surgical removal of parts of the inner ear (labyrinthectomy). It is conducted in several European countries and Canada. The TRAVERS trial started recruitment during the third quarter of 2019 and has two parts. In Part A, three ascending doses of AM-125 or placebo, administered three times daily over a total of four weeks, are tested in a total of 30 patients. In addition, oral betahistine 48 mg is tested in 16 patients under open-label conditions for reference. Due to the COVID-19 outbreak, sites participating in the “TRAVERS” trial have postponed elective procedures and temporarily reduced or suspended clinical research activities. As a result, enrollment came to a halt towards the end of March 2020. Although sites are expected to catch up on enrollment once COVID-19 related restrictions are relaxed, the Company expects that the interim analysis following Part A of the trial will be completed only in the third quarter of 2020, at the earliest. Based on an interim analysis following Part A two doses will be selected and tested in an estimated 72 patients in Part B.
|
|
●
|
AM-201 for Antipsychotic-Induced Weight Gain. We are conducting a pharmacokinetic/pharmacodynamic trial with AM-201 in antipsychotic-induced weight gain. The trial is conducted in a European country and will enroll 80 healthy volunteers who will receive either AM-201 or placebo concomitantly with olanzapine over four weeks. Doses are escalated in six steps. On October 11, 2019, we announced positive interim results from the trial and informed that the trial will proceed to the next higher and final dose level of 30 mg tested in 30 healthy volunteers, with the last subject having its last study visit in March 2020. We expect to report top-line data from the study in May 2020.
|
|
●
|
Sonsuvi® (AM-111) for Acute Inner Ear Hearing
Loss. Following the HEALOS results, we submitted the design of a new pivotal trial with AM-111 0.4 mg/mL in patients
suffering from acute profound hearing loss to the EMA and subsequently also to the FDA for review. Through a Protocol
Assistance procedure the EMA endorsed the proposed trial design, choice of efficacy and safety endpoints, as well as the
statistical methodology. In a Type C meeting with written responses, the proposed choice of primary and secondary efficacy
endpoints, the safety endpoints, as well as the planned sample size and statistical methodology were also endorsed by the
FDA. We currently aim to implement the further development of Sonsuvi® through strategic partnering, special
purpose vehicle financing, grant funding or a combination thereof. Pending such funding, we expect our research and
development expenses in connection with the Sonsuvi® program to remain minimal.
|
|
●
|
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 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 April 25, 2019, we announced that we had completed
the design of a pivotal Phase 2/3 trial for Keyzilen®. The trial shall, in two stages, reaffirm the compound’s
efficacy in the treatment of acute tinnitus following traumatic cochlear injury and provide confirmatory efficacy data to
support a filing for marketing authorization. On September 13, 2019, we announced that we had obtained advice on the development
plan and regulatory pathway from the U.S. Food and Drug Administration (“FDA”) in the context of a Type C meeting
and from the European Medicines Agency (“EMA”) in the context of a Scientific Advice procedure for Keyzilen®.
We intend to fund further development of Keyzilen® either through partnerships or research grants. Pending
such funding, we expect our research and development expenses in connection with the Keyzilen® program to remain
minimal.
|
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 production of the pre-clinical compounds and costs paid to academic and other research institutions in conjunction with pre-clinical
testing.
For the years ended December 31, 2019,
2018 and 2017, we spent CHF 0.5 million, CHF 1.7 million and CHF 6.5 million, respectively, on research and development expenses
related to Keyzilen®. For the same time periods, we spent CHF 0.1 million, CHF 1.5 million, and CHF 11.4 million,
respectively, on research and development expenses related to Sonsuvi®. For the years ended December 31, 2019 and
2018, we also spent CHF 4.3 million and CHF 3.5 million, respectively, on research and development expenses related to our intranasal
betahistine program (before capitalization of expenses related to AM-125). In addition, we incurred research and development expenses
related to our earlier stage products. Following a marked reduction in research and development expenses related to the conclusion
of the Phase 3 trials with Keyzilen®and Sonsuvi®, their level is expected to start increasing again
from 2021 onward as we advance the clinical development with AM-125 and AM-201. At this time, we cannot reasonably estimate the
nature, timing and estimated costs of the efforts that will be necessary to complete the development of, or the period, if any,
in which material net cash inflows may commence from, any of our product candidates. This is due to numerous risks and uncertainties
associated with developing drugs, including the uncertainty of:
|
●
|
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 and payer
discussions;
|
|
●
|
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.
|
A change in the outcome of any of these
variables with respect to the development of Keyzilen®, Sonsuvi®, AM-125 and AM-201 or any other
product candidate that we may develop could mean a significant change in the costs and timing associated with the development
of such product candidate. For example, if the FDA or other regulatory authority were to require us to conduct pre-clinical and
clinical studies beyond those which we currently anticipate will be required for the completion of clinical development or if
we experience significant delays in enrollment in any clinical trials, we could be required to expend significant additional financial
resources and time on the completion of the clinical development.
General and administrative expense
Our general and administrative expense
consists principally of:
|
●
|
salaries for general and administrative staff and related expenses,
including employee benefits;
|
|
●
|
business development expenses, including travel expenses;
|
|
●
|
administration expenses including professional fees for auditors
and other consulting expenses not related to research and development activities, professional fees for lawyers not related
to the protection and maintenance of our intellectual property and IT expenses;
|
|
●
|
cost of facilities, communication and office expenses; and
|
|
●
|
depreciation and amortization of tangible and intangible fixed assets
not related to research and development activities.
|
Interest income
Our policy is to invest funds in low risk
investments including interest bearing deposits. Saving and deposit accounts generate a small amount of interest income.
Interest expense
Our interest expense consists principally
of bank charges and interest expenses due to the Loan and Security Agreement with Hercules. On January 31, 2019, we made the final
payment to Hercules under the facility, comprising the last amortization payment as well as an end of term charge. Interest expenses
therefore were significantly lower in 2019 compared to 2018.
Revaluation gain from derivative
financial instruments
In connection with the Hercules Loan and
Security Agreement, the Company issued Hercules a warrant to purchase up to 783 of its common shares at an exercise price of $788.00
per share. Revaluation gain/(loss) show the changes in fair value of the warrant issued to Hercules.
On January 31, 2019, in connection with
our final payment to Hercules under the facility, comprising the last amortization payment as well as an end of term charge, Hercules
agreed to return the warrant held by Hercules exercisable for 783 common shares at an exercise price of $788.00 per common
share for no consideration to us in exchange for our payment to Hercules. We canceled the warrant upon receipt.
On February 21, 2017, we issued 10,000,000
(pre-merger) warrants in connection with a registered offering of 10,000,000 common shares (the “February 2017 Registered
Offering”), each warrant entitling its holder to purchase 0.70 of a common share at an exercise price von $ 1.20 (pre-merger).
Additionally, the underwriter was granted a 30-day option to purchase up to 1,500,000 (pre-merger) additional common shares and/or
1,500,000 (pre-merger) additional warrants. On February 15, 2017, the underwriter partially exercised its option for 1,350,000
(pre-merger) warrants. Revaluation gain/(loss) show the changes in fair value of the warrant issued in connection with this offering.
As of December 31, 2019, the outstanding warrants issued in the February 2017 offering were exercisable for up to 39,725 common
shares at an exercise price of $240.00 per common share. As of December 31, 2019, the fair value of the warrants amounted to CHF
0.00. The revaluation gain of the derivative for the twelve months ended December 31, 2019 amounted to CHF 166,301, which is a
decrease of CHF 1,480,811 when comparing to the same period in 2018. Since its initial recognition on February 21, 2017, the fair
value decreased by CHF 5,091,817 resulting in a gain in the corresponding amount (fair value as of February 21, 2017: CHF 5,091,817).
On January 30, 2018 we issued 37,499 warrants
in connection with a direct offering of 62,499 common shares, each warrant entitling its holder to purchase one common share at
an exercise price of $100.00 per common share. As of December 31, 2019, the warrants were exercisable for an aggregate of 37,501
of our common shares (assuming we decide to round up fractional common shares to the next whole common share), at an exercise price
of $100.00 per common share. Revaluation gain/(loss) show the changes in fair value of the warrant issued in connection with this
offering. As of December 31, 2019 the fair value of the warrants amounted CHF 4,353. The revaluation gain of the derivative for
the twelve months ended December 31, 2019 amounted to CHF 285,298, which is a decrease of CHF 1,908,798 when comparing to the same
period in 2018. Since its initial recognition on January 30, 2018, the fair value of the warrants has decreased by CHF 2,479,394
resulting in a gain in the corresponding amount (fair value as of January 30, 2018: CHF 2,483,747).
On July 17, 2018, the Company issued 314,102 Series A warrants
and 224,358 Series B warrants in connection with the July 2018 Registered Offering of 897,435 common shares, each warrant entitling
its holder to purchase one common share at an original exercise price of CHF 7.80 per common share. Revaluation gain/(loss) show
the changes in fair value of the outstanding Series B warrant issued in connection with this offering. As of December 31, 2019,
145,226 Series A warrants were exercised for an aggregate amount of CHF 1,132,762 and 143,221 Series B warrants were exercised
for an aggregate amount of CHF 1,117,125.
As of December 31, 2019, 143,221 Series B exercised warrants
were subject to revaluation at the time that they were exercised and the fair value amounts to CHF 3,005,348 (2018: CHF 3,005,348).
Since its initial recognition on July 17, 2018 the fair value of the warrants has increased by CHF 2,433,099, resulting in a loss
in the corresponding amounts (fair value as of July 17, 2018: CHF 572,249).
As of December 31, 2019, the number of Series B warrants outstanding
subject to revaluation were 34,535 and the fair value amounted to CHF 0.00 (2018: CHF 215,572). The fair value decreased by CHF
215,572 resulting in a revaluation gain of the same amount for the year ended December 31, 2019 (fair value as of July 17, 2018:
CHF 137,987).
Foreign currency exchange gain/(loss),
net
Our foreign currency exchange gain/(loss),
net, consists primarily of unrealized gains or losses on our USD and EUR denominated cash and cash equivalents.
Transaction costs
Transaction costs decreased by CHF
520,125 in the year ended December 31, 2019 compared to the previous year, due to lower fees and transaction costs
related to the equity offering in the second quarter of 2019 compared to the equity offerings in 2018.
Other comprehensive loss
Remeasurements of the net defined benefit
liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset
ceiling (if any, excluding interest), are recognized in other comprehensive loss.
Assets and liabilities of our subsidiaries
with functional currency other than CHF are included in our consolidated financial statements by translating the assets and liabilities
into CHF at the exchange rates applicable at the end of the reporting period. Income and expenses for each consolidated statement
of profit or loss and other comprehensive income are translated at average exchange rates (unless this average is not a reasonable
approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are
translated at the dates of the transaction).
Foreign currency differences arising from
translating the financial statements of our subsidiaries from currencies other than CHF are recognized in other comprehensive
income and presented in the foreign currency translation reserve under equity in the statement of financial position. When a foreign
operation is disposed of such that control, significant influence or joint control is lost, the cumulative amount in the translation
reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal.
Results of Operations
The numbers below have been derived from
our consolidated financial statements included elsewhere herein. The discussion below should be read along with these consolidated
financial statements and it is qualified in its entirety by reference to them.
Comparison of the years ended December
31, 2019 and 2018
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
Change
|
|
|
|
(in thousands of CHF)
|
|
|
%
|
|
Research and development
|
|
|
(3,325
|
)
|
|
|
(6,690
|
)
|
|
|
(50
|
)%
|
General and administrative
|
|
|
(3,934
|
)
|
|
|
(4,264
|
)
|
|
|
(8
|
)%
|
Operating loss
|
|
|
(7,259
|
)
|
|
|
(10,954
|
)
|
|
|
(34
|
)%
|
Interest income
|
|
|
18
|
|
|
|
—
|
|
|
|
(100
|
)%
|
Interest expense
|
|
|
(29
|
)
|
|
|
(1,070
|
)
|
|
|
(97
|
)%
|
Foreign currency exchange gain/(loss), net
|
|
|
(219
|
)
|
|
|
(140
|
)
|
|
|
57
|
%
|
Revaluation gain from derivative financial instruments
|
|
|
664
|
|
|
|
1,350
|
|
|
|
(51
|
)%
|
Transaction Costs
|
|
|
—
|
|
|
|
(520
|
)
|
|
|
(100
|
)%
|
Loss before tax
|
|
|
(6,825
|
)
|
|
|
(11,334
|
)
|
|
|
(40
|
)%
|
Income tax gain/(loss)
|
|
|
194
|
|
|
|
(162
|
)
|
|
|
(220
|
)%
|
Net loss attributable to owners of the Company
|
|
|
(6,631
|
)
|
|
|
(11,496
|
)
|
|
|
(42
|
)%
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
Items that will never be reclassified to profit or loss
|
|
|
|
|
|
|
|
|
|
|
|
|
Re-measurements of defined benefits liability, net of taxes of CHF 0
|
|
|
(72
|
)
|
|
|
1,277
|
|
|
|
(106
|
%)
|
Items that are or may be reclassified to profit or loss
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation differences, net of taxes of CHF 0
|
|
|
16
|
|
|
|
(11
|
)
|
|
|
(245
|
)%
|
Other comprehensive loss
|
|
|
(56
|
)
|
|
|
1,266
|
|
|
|
(104
|
)%
|
Total comprehensive loss attributable to owners of the Company
|
|
|
(6,687
|
)
|
|
|
(10,230
|
)
|
|
|
(35
|
)%
|
Research and development expense
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
Change
|
|
|
|
(in thousands of CHF)
|
|
|
%
|
|
Research and development expense
|
|
|
|
|
|
|
|
|
|
Clinical projects
|
|
|
(993
|
)
|
|
|
(846
|
)
|
|
|
17
|
%
|
Pre-clinical projects
|
|
|
(182
|
)
|
|
|
(873
|
)
|
|
|
(79
|
)%
|
Drug manufacture and substance
|
|
|
(481
|
)
|
|
|
(2,185
|
)
|
|
|
(78
|
)%
|
Employee benefits
|
|
|
(1,374
|
)
|
|
|
(1,653
|
)
|
|
|
(17
|
)%
|
Other research and development expenses
|
|
|
(295
|
)
|
|
|
(1,132
|
)
|
|
|
(74
|
)%
|
Total
|
|
|
(3,325
|
)
|
|
|
(6,689
|
)
|
|
|
(50
|
)%
|
Research and development expense decreased
by 50% from CHF 6.7 million in 2018 to CHF 3.3 million in 2019. Our research and development expense is dependent on the development
phases of our research projects and may therefore fluctuate significantly from year to year. The variances in expense between
2018 and 2019 are mainly due to the following factors:
|
●
|
Capitalization of internal costs for AM-125. In the year ended December 31, 2019,
we capitalized direct costs related to our AM-125 program for a total amount of CHF 3.2 million, compared to CHF 1.9 million
in the year ended December 31, 2018.
|
|
●
|
Clinical projects. In the year ended December 31, 2019, we incurred lower service
and milestone costs for our Keyzilen® and Sonsuvi®studies, mainly reflecting the completion of our late-stage
clinical trials as well as the capitalization of direct cost related to the AM-125 program.
|
|
●
|
Pre-clinical projects. In the year ended December 31, 2019, pre-clinical expenses
decreased by 79% due to the capitalization of our intranasal betahistine program.
|
|
●
|
Drug manufacture and substance. In the year ended December 31, 2019, drug manufacture
and substance expenses decreased by 78% mainly due to lower AM-111 project activities and the capitalization of direct costs
in our AM-125 program.
|
|
●
|
Employee benefits. Employee benefit costs decreased in 2019 due to lower headcount
and lower recruiting fees.
|
|
●
|
Other research and development expenses. Other research and development expenses decreased by CHF 0.8 million in the year ended December 31, 2019 compared to the year ended December 31, 2018 primarily due to a reduction in intellectual property related activities. Further we capitalized legal costs related for patent registration related to the AM-125 program.
|
General and administrative expense
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
Change
|
|
|
|
(in thousands of CHF)
|
|
|
%
|
|
General and administrative expense
|
|
|
|
|
|
|
|
|
|
Employee benefits
|
|
|
(1,011
|
)
|
|
|
(1,084
|
)
|
|
|
(7
|
)%
|
Business development
|
|
|
(114
|
)
|
|
|
(44
|
)
|
|
|
159
|
%
|
Travel expenses
|
|
|
(103
|
)
|
|
|
(71
|
)
|
|
|
45
|
%
|
Administration expenses
|
|
|
(2,653
|
)
|
|
|
(2,798
|
)
|
|
|
(5
|
)%
|
Lease expenses
|
|
|
(27
|
)
|
|
|
(52
|
)
|
|
|
(48
|
)%
|
Depreciation tangible assets
|
|
|
(11
|
)
|
|
|
(187
|
)
|
|
|
(94
|
)%
|
Capital tax expenses
|
|
|
(15
|
)
|
|
|
(29
|
)
|
|
|
(50
|
)%
|
Total
|
|
|
(3,934
|
)
|
|
|
(4,265
|
)
|
|
|
(8
|
)%
|
General and administrative expenses decreased
by 8% from CHF 4.3 million in 2018 to CHF 3.9 million in the year ended December 31, 2019. The decrease is related to lower employee
benefits due to lower headcount and employee benefit-related expenses, partly offset by consultancy costs related to the Redomestication.
Interest income
Interest income decreased in the year
ended December 31, 2019 compared to year the ended December 31, 2018 due to no interests earned in the year ended December 31,
2019 on short-term deposits.
Interest expense
Interest expense are related to the Hercules
Loan and Security Agreement and decreased substantially in the year ended December 31, 2019 to CHF 0.03 million compared to CHF
1.1 million in the year ended December 31, 2018, driven by the early repayment of the loan as well as the payment of the end of
term charge on January 31, 2019.
Foreign currency exchange gain/(loss),
net
Foreign currency exchange loss
decreased in 2019 mainly due to the depreciation of the USD and EUR against the Swiss Franc.
Revaluation gain/(loss) from derivative
financial instruments
On January 31, 2019, we made the final payment
to Hercules under the facility, comprising the last amortization payment as well as an end of term charge. With the final payment,
all covenants and collaterals in favor of Hercules have been lifted. In addition, Hercules agreed to return the warrant held by
Hercules exercisable for 783 common shares at an exercise price of $788 per common share for no consideration to us in exchange
for our payment to Hercules.
On February 21, 2017, we issued 10,000,000
(pre-merger) 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 (pre-merger) additional common shares and/or 1,500,000
(pre-merger) additional warrants. On February 15, 2017, the underwriter partially exercised its option for 1,350,000 (pre-merger)
warrants. Revaluation gain/(loss) show the changes in fair value of the warrant issued in connection with this offering. As of
December 31, 2019, the outstanding warrants issued in the February 2017 offering were exercisable for up to 39,725 common shares
at an exercise price of $240.00 per common share. As of December 31, 2019, the fair value of the warrants amounted to CHF 0.00.
The revaluation gain of the derivative for the twelve months ended December 31, 2019 amounted to CHF 166,301 which is a decrease
of CHF 1,480,811 when comparing to the same period in 2018. Since its initial recognition as of February 21, 2017, the fair value
decreased by CHF 5,091,817 resulting in a gain in the corresponding amount (fair value as of February 21, 2017: CHF 5,091,817).
On January 30, 2018 we issued 37,499 warrants
in connection with a direct offering of 62,499 common shares, each warrant entitling its holder to purchase one common share at
an exercise price of $100.00 per common share. As of December 31, 2019, the warrants were exercisable for an aggregate of 37,501
of our common shares (assuming we decide to round up fractional common shares to the next whole common share), at an exercise price
of $100.00 per common share. Revaluation gain/(loss) show the changes in fair value of the warrant issued in connection with this
offering. As of December 31, 2019 the fair value of the warrants amounted CHF 4,353. The revaluation gain of the derivative for
the twelve months ended December 31, 2019 amounted to CHF 285,298, which is a decrease of CHF 1,908,798 when comparing to the same
period in 2018. Since its initial recognition on January 30, 2018, the fair value of the warrants has decreased by CHF 2,479,394
resulting in a gain in the corresponding amount (fair value as of January 30, 2018: CHF 2,483,747).
On July 17, 2018, the Company issued 314,102 Series A warrants
and 224,358 Series B warrants in connection with the July 2018 Registered Offering of 897,435 common shares, each warrant entitling
its holder to purchase one common share at an original exercise price of CHF 7.80 per common share. Revaluation gain/(loss) show
the changes in fair value of the outstanding Series B warrant issued in connection with this offering.
As of December 31, 2019, 145,226 Series A warrants were exercised
for an aggregate amount of CHF 1,132,762 and 143,221 Series B warrants were exercised for an aggregate amount of CHF 1,117,125.
As of December 31, 2019, 143,221 Series B exercised warrants
were subject to revaluation at the time that they were exercised and the fair value amounts to CHF 3,005,348 (2018: CHF 3,005,348).
Since its initial recognition on July 17, 2018 the fair value of the warrants has increased by CHF 2,433,099, resulting in a loss
in the corresponding amounts (fair value as of July 17, 2018: CHF 572,249).
As of December 31, 2019, the number of Series B warrants outstanding
subject to revaluation were 34,535 and the fair value amounted to CHF 0.00 (2018: CHF 215,572). The fair value decreased by CHF
215,572 resulting in a revaluation gain of the same amount for the year ended December 31, 2019 (fair value as of July 17, 2018:
CHF 137,987).
Income tax gain/(loss)
Income tax gain/(loss) reflects the
assessment of deferred tax assets and liabilities.
Remeasurements of defined benefits
liability
Remeasurements of the net defined benefits
liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset
ceiling (if any, excluding interest), decreased 106% from 2018 to 2019. The loss was primarily due to a reduction in headcount.
Foreign currency translation differences
Foreign currency translation differences
decreased by 245% from 2018 to 2019. The decrease was primarily related to changes in the opening and closing balance of the group’s
currency translation differences.
Comparison of the years ended December
31, 2018 and 2017
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
|
(in thousands of CHF)
|
|
|
%
|
|
Research and development
|
|
|
(6,690
|
)
|
|
|
(19,211
|
)
|
|
|
(65
|
)%
|
General and administrative
|
|
|
(4,264
|
)
|
|
|
(5,150
|
)
|
|
|
(17
|
)%
|
Operating loss
|
|
|
(10,954
|
)
|
|
|
(24,361
|
)
|
|
|
(55
|
)%
|
Interest income
|
|
|
—
|
|
|
|
54
|
|
|
|
(100
|
)%
|
Interest expense
|
|
|
(1,070
|
)
|
|
|
(1,640
|
)
|
|
|
(35
|
)%
|
Foreign currency exchange gain/(loss), net
|
|
|
(140
|
)
|
|
|
(825
|
)
|
|
|
(83
|
)%
|
Revaluation gain/(loss) from derivative financial instruments
|
|
|
1,350
|
|
|
|
3,372
|
|
|
|
(60
|
)%
|
Transaction Costs
|
|
|
(520
|
)
|
|
|
(1,027
|
)
|
|
|
(49
|
)%
|
Loss before tax
|
|
|
(11,334
|
)
|
|
|
(24,427
|
)
|
|
|
(54
|
)%
|
Income tax gain/(expense)
|
|
|
(162
|
)
|
|
|
18
|
|
|
|
(1,000
|
)%
|
Net loss attributable to owners of the Company
|
|
|
(11,496
|
)
|
|
|
(24,409
|
)
|
|
|
(53
|
)%
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
Items that will never be reclassified to profit or loss
|
|
|
|
|
|
|
|
|
|
|
|
|
Remeasurements of defined benefits liability
|
|
|
1,277
|
|
|
|
272
|
|
|
|
369
|
%
|
Items that are or may be reclassified to profit or loss
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation differences
|
|
|
(11
|
)
|
|
|
50
|
|
|
|
(122
|
)%
|
Other comprehensive income/(loss)
|
|
|
1,266
|
|
|
|
322
|
|
|
|
293
|
%
|
Total comprehensive loss attributable to owners of the Company
|
|
|
(10,230
|
)
|
|
|
(24,087
|
)
|
|
|
(58
|
)%
|
Research and development expense
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
|
(in thousands of CHF)
|
|
|
%
|
|
Research and development expense
|
|
|
|
|
|
|
|
|
|
Clinical projects
|
|
|
(846
|
)
|
|
|
(12,366
|
)
|
|
|
(93
|
)%
|
Pre-clinical projects
|
|
|
(873
|
)
|
|
|
(643
|
)
|
|
|
36
|
%
|
Drug manufacture and substance
|
|
|
(2,185
|
)
|
|
|
(2,027
|
)
|
|
|
8
|
%
|
Employee benefits
|
|
|
(1,653
|
)
|
|
|
(2,774
|
)
|
|
|
(40
|
)%
|
Other research and development expenses
|
|
|
(1,132
|
)
|
|
|
(1,402
|
)
|
|
|
(19
|
)%
|
Total
|
|
|
(6,689
|
)
|
|
|
(19,211
|
)
|
|
|
(65
|
)%
|
Research and development expense decreased
by 65% from CHF 19.2 million in 2017 to CHF 6.7 million in 2018. Our research and development expense is dependent on the development
phases of our research projects and may therefore fluctuate significantly from year to year. The variances in expense between
2017 and 2018 are mainly due to the following factors:
|
●
|
Capitalization of internal costs for AM-125. In the year ended December 31, 2018, we capitalized
direct costs related to our AM-125 program for a total amount of CHF 1.9 million.
|
|
●
|
Clinical projects. In the year ended December 31, 2018, we incurred lower service and milestone
costs for our Keyzilen® and Sonsuvi® studies, mainly reflecting the completion of our late-stage clinical trials.
|
|
●
|
Pre-clinical projects. In the year ended December 31, 2018, pre-clinical expenses increased
by 36% due to an increase in activities in our intranasal betahistine program.
|
|
●
|
Drug manufacture and substance. In the year ended December 31, 2018, costs related to raw
material purchases and expenses increased by 8% mainly due to higher costs for process validation related to Sonsuvi®.
|
|
●
|
Employee benefits.
Employee benefit costs decreased in 2018 due to lower headcount and lower recruiting
fees.
|
|
●
|
Other research
and development expenses. Other research and development expenses decreased by CHF 0.3
million in the year ended December 31, 2018 compared to the year ended December 31, 2017
primarily due to a reduction in regulatory related activities.
|
General and administrative expense
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
|
(in thousands of CHF)
|
|
|
%
|
|
General and administrative expense
|
|
|
|
|
|
|
|
|
|
Employee benefits
|
|
|
(1,084
|
)
|
|
|
(2,098
|
)
|
|
|
(48
|
)%
|
Business development
|
|
|
(44
|
)
|
|
|
(162
|
)
|
|
|
(73
|
)%
|
Travel expenses
|
|
|
(71
|
)
|
|
|
(199
|
)
|
|
|
(64
|
)%
|
Administration expenses
|
|
|
(2,798
|
)
|
|
|
(2,522
|
)
|
|
|
11
|
%
|
Lease expenses
|
|
|
(52
|
)
|
|
|
(81
|
)
|
|
|
(36
|
)%
|
Depreciation tangible assets
|
|
|
(187
|
)
|
|
|
(69
|
)
|
|
|
171
|
%
|
Capital tax expenses
|
|
|
(29
|
)
|
|
|
(18
|
)
|
|
|
61
|
%
|
Total
|
|
|
(4,265
|
)
|
|
|
(5,150
|
)
|
|
|
(17
|
)%
|
General and administrative expenses decreased
by 17% from CHF 5.2 million in 2017 to CHF 4.3 million in the year ended December 31, 2018. The decrease is related to lower employee
benefits due to lower headcount and employee benefit-related expenses, partly offset by higher administration costs mainly due
to higher legal fees related to the Merger.
Interest income
Interest income decreased in the year ended
December 31, 2018 compared to year the ended December 31, 2017 due to no interests earned in the year ended December 31, 2018
on short-term deposits.
Interest expense
Interest expense are related to the Hercules
Loan and Security Agreement and decreased substantially in the year ended December 31, 2018 to CHF 1.1 million compared to CHF
1.6 million in the year ended December 31, 2017, mainly driven by the $5.0 million early repayment in April of 2018 and the full
year impact of monthly amortizations of the principal. On June 19, 2016, we drew $12.5 million under the facility. The loan was
initially recognized at transaction value less the fair value of the warrant as of the transaction date and less directly attributable
transactions costs. Following the initial recognition, the loan was measured at amortized cost using the effective interest method.
Changes in amortized cost as well as interest paid to Hercules were recognized as interest expense. In addition, we recognized
bank charges as interest expense.
Foreign currency exchange gain/(loss), net
Foreign currency exchange loss decreased
in 2018 mainly due to the appreciation of the U.S. dollar against the Swiss Franc which triggered a net foreign unrealized currency
gain on U.S. dollar denominated cash and cash equivalents.
Revaluation gain/(loss)
from derivative financial instruments
On January 31, 2019, we made the final
payment to Hercules under the facility, comprising the last amortization payment as well as an end of term charge. With the final
payment, all covenants and collaterals in favor of Hercules have been lifted. In addition, Hercules agreed to return the warrant
held by Hercules exercisable for 783 common shares at an exercise price of $788 per common share for no consideration to us in
exchange for our payment to Hercules.
On February 21, 2017, we issued
10,000,000 (pre-merger) 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 (pre-merger) additional
common shares and/or 1,500,000 (pre-merger) additional warrants. On February 15, 2017, the underwriter partially exercised
its option for 1,350,000 (pre-merger) warrants. Revaluation gain/(loss) show the changes in fair value of the warrant issued
in connection with this offering. As of December 31, 2019, the outstanding warrants issued in the February 2017 offering were
exercisable for up to 39,725 common shares at an exercise price of $240.00 per common share. As of December 31, 2019, the
fair value of the warrants amounted to CHF 0.00. The revaluation gain of the derivative for the twelve months ended December
31, 2019 amounted to CHF 166,301, which is a decrease of CHF 1,480,811 when comparing to the same period in 2018. Since its
initial recognition as of February 21, 2017, the fair value decreased by CHF 5,091,817, resulting in a gain in the
corresponding amount (fair value as of February 21, 2017: CHF 5,091,817).
On January 30, 2018 we issued 37,499 warrants
in connection with a direct offering of 62,499 common shares, each warrant entitling its holder to purchase one common share at
an exercise price of $100.00 per common share. As of December 31, 2019, the warrants became exercisable for an aggregate of 37,501
of our common shares (assuming we decide to round up fractional common shares to the next whole common share), at an exercise price
of $100.00 per common share. Revaluation gain/(loss) show the changes in fair value of the warrant issued in connection with this
offering. As of December 31, 2019 the fair value of the warrants amounted CHF 4,353. The revaluation gain of the derivative for
the twelve months ended December 31, 2019 amounted to CHF 285,298, which is a decrease of CHF 1,908,798 when comparing to the same
period in 2018. Since its initial recognition on January 30, 2018, the fair value of the warrants has decreased by CHF 2,479,394
resulting in a gain in the corresponding amount (fair value as of January 30, 2018: CHF 2,483,747).
On July 17, 2018, the Company issued 314,102 Series A warrants
and 224,358 Series B warrants in connection with the July 2018 Registered Offering of 897,435 common shares, each warrant entitling
its holder to purchase one common share at an original exercise price of CHF 7.80 per common share. Revaluation gain/(loss) show
the changes in fair value of the outstanding Series B warrant issued in connection with this offering.
As of December 31, 2019, 145,226 Series A warrants were exercised
for an aggregate amount of CHF 1,132,762 and 143,221 Series B warrants were exercised for an aggregate amount of CHF 1,117,125.
As of December 31, 2019, 143,221 Series B exercised warrants
were subject to revaluation at the time that they were exercised and the fair value amounts to CHF 3,005,348 (2018: CHF 3,005,348).
Since its initial recognition on July 17, 2018 the fair value of the warrants has increased by CHF 2,433,099, resulting in a loss
in the corresponding amounts (fair value as of July 17, 2018: CHF 572,249).
As of December 31, 2019, the number of Series B warrants outstanding
subject to revaluation were 34,535 and the fair value amounted to CHF 0.00 (2018: CHF 215,572). The fair value decreased by CHF
215,572 resulting in a revaluation gain of the same amount for the year ended December 31, 2019 (fair value as of July 17, 2018:
CHF 137,987).
Income tax expense
Income tax expense reflects the assessment
of deferred tax assets and liabilities.
Remeasurements of defined
benefits liability
Remeasurements of the net defined benefits
liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset
ceiling (if any, excluding interest), increased 369% from 2017 to 2018. The gain was primarily due to a reduction in headcount.
Foreign currency translation differences
Foreign currency translation differences
decreased by 122% from 2017 to 2018. The decrease was primarily related to changes in the opening and closing balance of the group’s
currency translation differences.
|
B.
|
Liquidity and capital resources
|
Since inception, we have incurred significant
operating losses. To date, we have not generated any revenue. We have financed our operations through the public offerings of
our common shares, private placements of equity securities and short-term loans.
Cash flow
Comparison of the years ended December
31, 2019 and 2018
The table below summarizes our consolidated
statement of cash flows for the years ended December 31, 2019 and 2018:
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(in thousands of CHF)
|
|
Net cash used in operating activities
|
|
|
(8,393
|
)
|
|
|
(13,232
|
)
|
Net cash used in investing activities
|
|
|
(3,001
|
)
|
|
|
(1,823
|
)
|
Net cash from financing activities
|
|
|
7,378
|
|
|
|
5,733
|
|
Net effect of currency translation on cash
|
|
|
8
|
|
|
|
(258
|
)
|
Cash and cash equivalents at the beginning of the period
|
|
|
5,393
|
|
|
|
14,973
|
|
Cash and cash equivalents at the end of the period
|
|
|
1,385
|
|
|
|
5,393
|
|
The decrease in cash used in operating
activities from CHF 13.2 million in 2018 to CHF 8.4 million in 2019 reflects the impact of lower operating expenses primarily driven
by lower research and development related expenses.
Cash used in investing activities increased
from CHF 1.8 million in 2018 to CHF 3.0 in 2019. The increase is primarily due to higher investments in intangible assets in 2019.
Cash from financing activities in 2019
increased as the repayment of the loan towards Hercules decreased from CHF 9.3 million to CHF 1.5 million. The cash inflow from
our funding sources decreased from CHF 15.4 million to CHF 8.8 million as a result of lower equity raises.
Comparison of the years ended December
31, 2018 and 2017
The table below summarizes our consolidated
statement of cash flows for the years ended December 31, 2018 and 2017:
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(in thousands of CHF)
|
|
Cash used in operating activities
|
|
|
(13,232
|
)
|
|
|
(24,276
|
)
|
Net cash used in investing activities
|
|
|
(1,823
|
)
|
|
|
(99
|
)
|
Net cash from financing activities
|
|
|
5,733
|
|
|
|
8,221
|
|
Net effect of currency translation on cash
|
|
|
(258
|
)
|
|
|
(1,315
|
)
|
Cash and cash equivalents at the beginning of the period
|
|
|
14,973
|
|
|
|
32,442
|
|
Cash and cash equivalents at the end of the period
|
|
|
5,393
|
|
|
|
14,973
|
|
The decrease in cash used in operating
activities from CHF 24.3 million in 2017 to CHF 13.2 million in 2018 reflects the impact of lower operating expenses primarily
driven by lower research and development related expenses.
Cash used in investing activities increased
from CHF 99 thousand in 2017 to CHF 1.8 million in 2018. The increase is primarily due to higher investments in intangible assets
in 2018.
Cash from financing activities in 2018
decreased as the net proceeds of the January 2018 Registered Offering of $ 4.9 million, the July 2018 Registered Offering of $6.2
million, the November 27, 2018 and December 11, 2018 registered direct offerings with FiveT Capital AG for an aggregate purchase
price of $1.6 million, the issuance of shares under the Commitment Purchase Agreement with LPC of $1.0 million and the issuance
of shares under the ATM program with AGP for $0.4 million, were partly used for the $ 5.0 million repayment and the regular monthly
amortizations and interest payments totaling $ 5.1 million on the Hercules loan.
Cash and funding sources
The table below summarizes our sources
of financing for the years ended December 31, 2019, 2018 and 2017.
|
|
Equity Capital and Preference Shares
|
|
|
Loans
|
|
|
Total
|
|
|
|
(in thousands of CHF)
|
|
2019
|
|
|
8,845
|
|
|
|
—
|
|
|
|
8,845
|
|
2018
|
|
|
15,441
|
|
|
|
—
|
|
|
|
15,441
|
|
2017
|
|
|
11,491
|
|
|
|
—
|
|
|
|
11,491
|
|
Total
|
|
|
35,777
|
|
|
|
—
|
|
|
|
35,777
|
|
On May 15, 2019, the
Company completed a public offering of (i) 440,000 common shares with a par value of CHF 0.40 each, together with warrants to
purchase 440,000 common shares, and (ii) 1,721,280 pre-funded warrants, with each pre-funded warrant exercisable for one common
share, together with warrants to purchase 1,721,280 common shares, including 110,000 common shares and warrants to purchase 110,000
common shares sold pursuant to a partial exercise by the underwriters of the underwriters’ over-allotment option (the “May
2019 Registered Offering”). The exercise price for the pre-funded warrants is CHF 0.01 per common share and for the warrants
is CHF 4.34.
On November 30, 2018, we entered into
the A.G.P. Sales Agreement with A.G.P. Pursuant to the terms of the A.G.P. Sales Agreement, as amended on April 5, 2019, we may
offer and sell our common shares, from time to time through A.G.P. by any method deemed to be an “at-the-market” offering
as defined in Rule 415(a)(4) promulgated under the Securities Act. Pursuant to the A.G.P. Sales Agreement, we may sell common
shares up to a maximum aggregate offering price of $25.0 million. As of the date of this Annual Report, we have sold 202,805
of our common shares for an aggregate offering price of $1.4 million pursuant to the A.G.P. Sales Agreement.
On November 27, 2018 and December 11,
2018, we entered into purchase agreements with FiveT Capital AG, providing for the issuance and sale by us of an aggregate of
165,750 of our common shares for an aggregate purchase price of $1.6 million in two separate registered direct offerings.
On July 17, 2018, we completed a public
offering of 897,435 common shares, 314,102 Series A warrants, each such warrant entitling its holder to purchase a common share,
and 224,358 Series B warrants, each entitling its holder to purchase a common share. The net proceeds to us from the July 2018
Registered Offering were approximately $6.2 million, after deducting underwriting discounts and other offering expenses payable
by us. As of December 31, 2019, the outstanding Series A warrants issued in the July 2018 Registered Offering are exercisable for
up to 168,876 common shares (assuming we decide to round up fractional common shares to the next whole common share) at an exercise
price of CHF 7.80 per common share, and the outstanding Series B warrants issued in the July 2018 Registered Offering are exercisable
for up to 81,137 common shares of which, the number of Series B warrants outstanding were exercisable for up to 46,602 common shares
at an exercise price of CHF 7.80 per common share and 34,535 common shares at an exercise price of CHF 3.95 per common share (which
exercise price was automatically adjusted due to the May 2019 Registered Offering). Since the July 2018 Registered Offering, certain
Series A warrant holders exercised their warrant shares to purchase 145,226 common shares of the Company and certain Series B warrant
holders exercised warrant shares to purchase 143,221 common shares.
On May 2, 2018, we entered into the LPC
Purchase Agreement and the registration rights agreement with LPC (the “Registration Rights Agreement”). Pursuant
to the Purchase Agreement, LPC agreed to purchase common shares for up to $10,000,000 over the 30-month term of the Purchase Agreement.
As of the date of this Annual Report, we have issued an aggregate of 463,000 common shares for aggregate proceeds of $1.7 million
to LPC under the LPC Purchase Agreement. The Purchase Agreement replaced the Purchase Agreement that we entered into with LPC
on October 10, 2017 (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 (pre-merger) 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 62,499 common shares and a concurrent offering of 37,499 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 December 31, 2019, the outstanding
warrants issued in the January 2018 offering were exercisable for up to 37,501 common shares (assuming we decide to round up fractional
common shares to the next whole common share) at an exercise price of $100.00 per common share.
On October 16, 2017, in a separate private
placement, we issued 1,744,186 (pre-merger) common shares to LPC for aggregate proceeds of $1,500,000.
On February 21, 2017, we completed a public
offering of 10,000,000 (pre-merger) common shares and 10,000,000 (pre-merger) 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 estimated offering expenses payable by us. The underwriter was granted a 30-day option to purchase up to 1,500,000
(pre-merger) additional common shares and/or 1,500,000 (pre-merger) additional warrants. On February 15, 2017, the underwriter
partially exercised its option in the amount of 1,350,000 (pre-merger) warrants. As of December 31, 2019, the outstanding warrants
issued in the February 2017 offering were exercisable for up to 39,725 common shares at an exercise price of $240.00 per common
share.
On July 19, 2016, the Company entered into
a Loan and Security Agreement for a secured term loan facility of up to $20.0 million with Hercules as administrative agent and
the lenders party thereto. An initial tranche of $12.5 million was drawn on July 19, 2016, concurrently with the execution of the
loan agreement. The loan was to mature on January 2, 2020 and bore interest at a minimum rate of 9.55% per annum, and was subject
to the variability of the prime interest rate. The loan was 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 783 of our common shares at
an exercise price of $788.00 per share. On January 31, 2019, we made the final payment to Hercules under the facility, comprising
the last amortization payment as well as an end of term charge. With the final payment, all covenants and collaterals in favor
of Hercules have been lifted. In addition, Hercules agreed to return the warrant held by Hercules exercisable for 783 common shares
at an exercise price of $788.00 per common share for no consideration to us in exchange for our payment to Hercules.
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 we will need additional funding.
We expect our total cash need in 2020 to be in the range of CHF 7.5 to 10.0 million for our expected total operating expenses of
CHF 3.5 to 4.5 million and our expected capitalized research and development costs of CHF 4.0 to 5.5 million. Additionally, as
of the date of this Annual Report we have warrants outstanding, which are exercisable for an aggregate of 2,488,520 common shares
at a weighted average exercise price of $9.80 per share, an equity commitment to sell up to $8.2 million of additional common shares
to LPC pursuant to the LPC Purchase Agreement and an at-the-market offering program pursuant to the A.G.P. Sales Agreement for
sales of up to $25.0 million of additional common shares.
The COVID-19 outbreak and its impact on the
global financial markets may limit our ability to raise additional funds to continuously fund our operations and complete the research
and development of all of our product candidates. 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 complete our development programs with Keyzilen®, Sonsuvi®, AM-125 and AM-201, obtain
regulatory approval for them and to commercialize our product candidates Keyzilen ® , Sonsuvi®,
AM-125, AM-201 or any other product candidate. If we receive regulatory approval for Keyzilen ®, Sonsuvi®,
AM-125 or AM-201, 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.
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.
For more information as to the risks associated
with our future funding needs, see “Item 3. Key Information—D. Risk factors.”
Significant accounting policies and
use of estimates and judgment
Our management’s discussion and
analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in
accordance with IFRS. The preparation of these financial statements requires us to make judgments, estimates and assumptions that
affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results
may differ from these estimates.
While our significant accounting policies
are more fully described in the notes to our audited consolidated financial statements appearing elsewhere in this Annual Report,
we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our financial
condition and results of operations.
Intangible assets
Research and development
The project stage forms the basis for
the decision as to whether costs incurred for the Company’s development projects can be capitalized. For Keyzilen®,
Sonsuvi® and AM-201 clinical development expenditures are not capitalized until the Company obtains regulatory
approval (i.e. approval to commercially use the product), as this is considered to be essentially the first point in time where
it becomes probable that future revenues can be generated. For the AM-125 program, however, given the current stage of the development
project, the nature of the development approach and the fact that there is an existing market, direct development expenditures
have been capitalized, including certain expenses related to the patenting of intellectual property.
Intellectual property-related costs for
patents are part of the expenditure for the research and development projects. Therefore, registration costs for patents are expensed
when incurred as long as the research and development project concerned does not meet the criteria for capitalization.
Licenses, Intellectual Property and
Data rights
Intellectual property rights that are
acquired by the Company are capitalized as intangible assets if they are controlled by the Company, are separately identifiable
and are expected to generate future economic benefits, even if uncertainty exists as to whether the research and development will
ultimately result in a marketable product. Consequently, upfront and milestone payments to third parties for the exclusive use
of pharmaceutical compounds in specified areas of treatment are recognized as intangible assets.
Measurement
Intangible assets acquired that have finite
useful lives are measured at cost less accumulated amortization and any accumulated impairment losses.
Subsequent expenditure
Subsequent expenditure is capitalized
only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure,
including expenditure on internally generated goodwill and brands, is recognized in profit or loss as incurred.
Amortization
All licenses of the Company have finite
lives. Amortization will start once the Company’s intangible assets are available for use. Amortization of licenses is calculated
on a straight line basis over the period of the expected benefit or until the license expires. The estimated useful life of the
Company’s licenses is 10 years from the date first available for use or the remaining term of patent protection. The Company
assesses at each balance sheet date whether intangible assets which are not yet ready for use are impaired.
Income tax
Income tax expense comprises current and
deferred tax. It is recognized in profit or loss except to the extent that it relates to a business combination, or items recognized
directly in equity or in other comprehensive income/loss, or OCI.
Current tax
Current tax comprises the expected tax
payable or receivable on the taxable income or loss for the year and any adjustment to tax payable or receivable in respect of
previous years. It is measured using tax rates enacted or substantively enacted at the reporting date. Taxable profit differs
from “loss before tax” as reported in the consolidated statement of profit or loss and other comprehensive loss because
of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible.
Deferred tax
Deferred income tax is recognized, using
the balance sheet liability method, on temporary differences arising between the tax bases of assets and liabilities and their
carrying amounts in the consolidated financial statements. Deferred tax is not recognized for:
|
●
|
temporary
differences on the initial recognition of assets or liabilities in a transaction that
is not a business combination and that affects neither accounting nor taxable profit
or loss;
|
|
●
|
temporary
differences related to investments in subsidiaries to the extent that the Company is
able to control the timing of the reversal of the temporary differences and it is probable
that they will not reverse in the foreseeable future; and
|
|
●
|
taxable
temporary differences arising on the initial recognition of goodwill.
|
Deferred income tax is determined using
tax rates and laws that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the
related deferred income tax asset is realized or the deferred income tax liability is settled.
Deferred income tax assets are recognized
to the extent that it is probable that future taxable profit will be available against which the temporary differences can be
utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable
that the related tax benefit will be realized.
Deferred tax assets and liabilities are
offset when there is a legally enforceable right to set off tax assets against tax liabilities and when they relate to income
taxes levied by the same taxation authority and the Company intends to settle its tax assets and liabilities on a net basis.
Employee benefits
The Company maintains a pension plan for
all employees employed in Switzerland through payments to an independent collective foundation. Under IFRS, the pension plan qualifies
as a defined benefit plan. There are no pension plans for the subsidiaries in Ireland and the United States.
The Company’s net obligation in
respect of defined benefit plans is calculated by estimating the amount of future benefit that employees have earned in return
for their service in the current and prior periods, discounting that amount and deducting the fair value of any plan assets.
The recognized asset is limited to the
present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions
to the plan. In order to calculate the present value of economic benefits, consideration is given to any minimum funding requirements.
Remeasurements of the net defined benefit
liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset
ceiling (if any, excluding interest), are recognized immediately in OCI. The Company determines the net interest expense (income)
on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit
obligation at the beginning of the annual period to the then-net defined benefit liability (asset), taking into account any changes
in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments. Net interest
expense and other expenses related to defined benefit plans are recognized in profit or loss.
Share-based compensation
Share Options
The Company maintains a share-based payment
plan in the form of a stock option plan for its employees, members of the Board of Directors as well as key service providers.
Stock options are granted at the Board’s discretion without any contractual or recurring obligations.
The share-based compensation plan qualifies
as an equity settled plan. The grant-date fair value of share-based payment awards granted to employees is recognized as an expense,
with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. Under
the Company’s equity incentive plan (the “Equity Incentive Plan” or “EIP”) adopted in August 2014
and amended in April 2017 and June 2019, 50% of granted share options granted to employees vest after a period of service of two
years from the grant date and the remaining 50% vest after a period of service of three years from the grant date. Share options
granted to members of the Board of Directors in 2016, 2017, 2018 and 2019 vest after a period of one year after the grant date.
The amount recognized as an expense is
adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be
met, such that the amount ultimately recognized as an expense is based on the number of awards that meet the related service and
non-market performance conditions at the vesting date. Share-based payments that are not subject to any further conditions are
expensed immediately at grant date. In the year the options are exercised the proceeds received net of any directly attributable
transaction costs are credited to share capital (par value) and share premium.
Valuation of share options
The fair value of our share options is
determined by our Management and our Board of Directors, and takes into account numerous factors to determine a best estimate
of the fair value of our share options as of each grant date.
In our historical financing rounds, we
have mainly relied on the prior sale of stock method where the Company and new investors negotiate the Company’s valuation
at arm’s length. Typical considerations in this method may include the type and amount of equity sold, the estimated volatility,
the estimated time to liquidity, the relationship of the parties involved, the timing compared to the common shares valuation
date and the financial condition and structure of the Company at the time of the sale.
Following the completion of our initial
public offering, option pricing and values are determined based on the Black Scholes option pricing model, and assumptions are
made for inputs such as volatility of our stock and the risk free rate.
Recent accounting pronouncements
See Note 4 to our audited financial statements
included elsewhere in this Annual Report for a full description of recent accounting pronouncements, including the expected dates
of adoption and effects on the Company’s financial condition, results of operations and cash flows.
C. Research and development, patents and licenses, etc.
See “Item 4. Information on the
Company—A. History and Development of the Company,” “Item 4. Information on the Company—B. Business Overview”
and Item 5. Operating and Financial Review and Prospects—A. Operating Results-Results of Operations.”
D. Trend information
See “Item 5. Operating and Financial
Review and Prospects.”
E. Off-balance sheet arrangements
As of the date of this Annual Report, we
do not have any, and during the periods presented we did not have any, off-balance sheet arrangements except for the lease agreements
for which the short-term lease exemption is applied.
F. Tabular disclosure of contractual obligations
The following table presents information
relating to our contractual obligations as of December 31, 2019:
|
|
Payments
Due by Period
|
|
|
|
Less
Than
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
More
than
5 Years
|
|
|
Total
|
|
|
|
(in thousands of CHF)
|
|
Lease obligations (1)
|
|
|
25
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
25
|
|
Derivative Financial Instruments (2)
|
|
|
—
|
|
|
|
4
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4
|
|
Total
|
|
|
25
|
|
|
|
4
|
|
|
|
—
|
|
|
|
—
|
|
|
|
29
|
|
|
(1)
|
Lease obligations
consist of payments pursuant to short-term lease agreements relating to our leases of office spaces and are not accounted for
on the balance sheet. The lease term of our leases were assess in line with IFRS 16 to be less than 12 months.
|
|
(2)
|
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,
direct placement in January 2018 and the July 2018 Registered Offering.
|
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.
G. Safe harbor
See “Forward-Looking Statements.”
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and senior management
Our directors have been elected for a
one year term and, accordingly, the term will expire at the time of our 2020 annual general meeting. All directors have indicated
that they will stand for re-election.
The following table presents information
about our executive officers and directors.
Name
|
|
Position
|
|
Age
|
|
Initial Year of Appointment
|
|
Executive Officers
|
|
|
|
|
|
|
|
Thomas Meyer
|
|
Chairman, Director and Chief Executive Officer
|
|
52
|
|
2003
|
|
Raoul Dias (1)
|
|
General Counsel
|
|
39
|
|
2019
|
|
Elmar Schaerli
|
|
Chief Financial Officer
|
|
48
|
|
2019
|
|
Non-Executive Directors
|
|
|
|
|
|
|
|
Armando Anido
|
|
Director
|
|
62
|
|
2016
|
|
Mats Blom
|
|
Director
|
|
55
|
|
2017
|
|
Alain Munoz
|
|
Director
|
|
69
|
|
2018
|
|
Calvin W. Roberts
|
|
Director
|
|
67
|
|
2015
|
|
(1)
|
Effective March 20, 2020, Raoul Dias resigned from his position as General Counsel.
|
Unless otherwise indicated, the current
business addresses for our executive officers and directors is Auris Medical Holding Ltd., Clarendon House, 2 Church Street, Hamilton
HM 11, Bermuda.
Executive Officers
Thomas Meyer, Founder, Chairman of
the Board of Directors and Chief Executive Officer: Mr. Meyer founded Auris Medical in April 2003. Prior to founding us, he
was the Chief Executive Officer of Disetronic Group, a leading Swiss supplier of precision infusion and injection systems. He
worked for Disetronic in various functions starting in 1988, becoming member of the Board of Directors in 1996, Deputy Chief Executive
Officer in 1999 and Chief Executive Officer in early 2000. Prior to joining Disetronic, he advised several Swiss companies in
strategy, marketing and corporate finance. He holds a Ph.D. (Dr.rer.pol.) in business administration from the University of Fribourg,
Switzerland.
Raoul Dias, General Counsel: Mr.
Dias has served as Auris Medical’s General Counsel & Secretary since July 2018 and as Senior Counsel & Secretary
since November 2017. Prior to joining Auris Medical, he had worked as Senior Counsel at Amcor Ltd., Senior Counsel &
Secretary at Transocean Partners LLC, and attorney at two leading Swiss law firms. He holds a doctorate in law from the University
of Berne, Switzerland.
Elmar Schaerli, Chief Financial Officer:
Mr. Schaerli has served as Auris Medical’s Chief Financial Officer since November 2019. Mr.
Schaerli has acquired almost 30 years of both private and public finance and accounting experience in the biotech and medtech
industry. In 2003 he founded ante treuhand ag, a Swiss fiduciary company supporting companies primarily in health care and technology,
and has since served as its CEO.
Non-Executive Directors
Armando Anido, Director, Chairman of
the Compensation Committee: Mr. Anido has been a member of our Board of Directors since April 2016. Mr. Anido has more than
30 years of executive, operational and commercial leadership experience in the biopharmaceutical industry. He has served as Chairman
and Chief Executive Officer of Zynerba Pharmaceuticals, Inc., since October 2014. Prior to Zynerba, Mr. Anido served as Chief
Executive Officer of NuPathe, Inc., and Auxilium Pharmaceuticals, Inc. Prior to Auxilium, Mr. Anido held commercial leadership
roles at MedImmune, Glaxo Wellcome and Lederle Labs. He is currently a member of the Board of Directors of SCYNEXIS, Inc. (SCYX),
and he was a member of the Board of Directors of Aviragen Therapeutics, Inc. until it merged with Vaxart Inc. (VXRT) and Adolor
Corporation until it was sold to Cubist Pharmaceuticals. Mr. Anido earned a BS in Pharmacy and an MBA from West Virginia University.
Mats Blom, Director: Mats Blom
has been a member of our Board of Directors since April 2017. Mr. Blom is Chief Financial Officer (CFO) of NorthSea Therapeutics
B.V., a biotechnology company focused on oral, structurally-engineered lipid therapeutics. Prior to joining NorthSea, he served
as CFO of Modus Therapeutics A/B, a biotechnology company developing therapeutics to restore healthy blood flow for patients with
debilitating diseases, Zealand Pharma A/B, a biotechnology company focused on the discovery, design and development of innovative
peptide-based medicines, and Swedish Orphan International, an orphan drug company acquired by BioVitrum in 2009. In addition,
Mr. Blom has extensive managerial experience and has held CFO positions at Active Biotech AB and Anoto Group AB.
Previously, he served as a management consultant at Gemini Consulting and Ernst & Young. Mats Blom holds
a BA in Business Administration and Economics from the University of Lund and an MBA from IESE University of Navarra, Barcelona.
Alain Munoz, Director: Mr. Munoz,
MD, has been a member of our Board of Directors since March 2018 and previously served on our Board of Directors between 2007
and 2015. Mr. Munoz is an entrepreneur and independent management consultant in the pharmaceutical and biotechnology industry.
From 1990 to 2000, Dr. Munoz worked with the Fournier Group, as Research and Development Director and then Senior Vice President
of the Pharmaceutical Division. He joined Fournier from Sanofi Research, where he started as Director in the cardiovascular and
anti-thrombotic products department and then as Vice President international development. Dr. Munoz is qualified in cardiology
and anesthesiology from the University Hospital of Montpellier, France where he was head of the clinical cardiology department.
He has been a member of the Scientific Committee of the French drug agency. He is advisor to Kurma partners and serves on the
Board of Valneva SA (VLA.PA), Hybrigenics S.A. (ALHYG.PA) and Zealand Pharma A/S. (ZEAL.CO).
Calvin W. Roberts, Director: Mr.
Roberts, MD, has been a member of our Board of Directors since April 2015. Mr. Roberts is Senior Vice President and Chief Medical
Officer, Eye Care at Bausch Health Companies Inc. (NYSE: BHC). He joined Bausch + Lomb in 2011. Dr. Roberts is a specialist in
cataract and refractive surgery and has been a pioneer in the use of ophthalmic non-steroidals. Since 1982 he has been a Clinical
Professor of Ophthalmology at Weill Medical College of Cornell University. In addition, he had a private ophthalmology practice
in New York City between 1998 and 2008 and is the author of over 50 peer-reviewed articles. Dr. Roberts has been a member of the
Board of Directors and the Audit Committee of Alimera Sciences, Inc. (NASDAQ: ALIM) since it was founded in 2003, and of Ophthotech
Corporation (NASDAQ: OPHT) since 2019.
B. Compensation
For the year ended December 31, 2019,
the aggregate compensation accrued or paid to the members of our board of directors and our executive officers for services in
all capacities was CHF 1,214,846 (2018: CHF 1,690,635).
For the year ended December 31, 2019,
the amount set aside or accrued by us to provide pension, retirement or similar benefits to members of our board of directors
or executive officers amounted to a total of 42,560 CHF (2018: CHF 55,278).
Compensation awarded to the Board of Directors in 2019
The total compensation of the members
of the board of directors in 2019 is outlined below:
In CHF
|
|
Cash
Compensation
|
|
|
Social
Contributions
|
|
|
Stock
Options(2)
|
|
|
Total
|
|
Thomas Meyer, PhD, Chairman(1)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Armando Anido, MBA
|
|
|
42,103
|
|
|
|
586
|
|
|
|
12,331
|
|
|
|
55,019
|
|
Mats Blom, MBA
|
|
|
42,689
|
|
|
|
—
|
|
|
|
12,331
|
|
|
|
55,019
|
|
Alain Munoz, MD
|
|
|
42,689
|
|
|
|
—
|
|
|
|
12,331
|
|
|
|
55,019
|
|
Calvin W. Roberts, MD
|
|
|
42,103
|
|
|
|
586
|
|
|
|
12,331
|
|
|
|
55,019
|
|
Total
|
|
|
169,584
|
|
|
|
1,172
|
|
|
|
49,323
|
|
|
|
220,078
|
|
|
(1)
|
Disclosed
under “Compensation Awarded to Our Executive Officers” below. The Chief Executive
Officer does not receive any additional compensation for the exercise of the office of
the Chairman.
|
|
(2)
|
In
2019, 13,846 options were granted to each eligible member of the Board of Directors. The
fair value calculation of the options was based on the Black-Scholes option pricing model.
Assumptions were made regarding inputs such as volatility and the risk-free rate in order
to determine the fair value of the options.
|
Compensation Awarded to our Executive Officers in 2019
The total compensation and the highest
individual compensation to our executive officers in 2019 are outlined below:
in CHF
|
|
Fixed Cash
Compensation
|
|
|
Variable
Compensation(1)
|
|
|
Social
contributions
and fringe
benefits
|
|
|
Stock
Options(2)
|
|
|
Total
|
|
Thomas Meyer, PhD Chief Executive Officer(3)
|
|
|
363,600
|
|
|
|
—
|
|
|
|
59,595
|
|
|
|
163,123
|
|
|
|
586,318
|
|
Executive Officers Total(4)
|
|
|
704,006
|
|
|
|
107,482
|
|
|
|
122,691
|
|
|
|
109,912
|
|
|
|
1,044,091
|
|
|
(1)
|
The
variable compensation is paid in cash.
|
|
(2)
|
2019
option grants. The fair value calculation of the options was based on the Black-Scholes
option pricing model. Assumptions were made regarding inputs such as volatility and the
risk-free rate in order to determine the fair value of the options.
|
|
(3)
|
Highest
paid executive.
|
|
(4)
|
On
December 31, 2019, we had three executive officers. Mr. Levett retired from his function
as executive officer effective as of October 31, 2019. The compensation to the retired
executive officer for his services in 2019 is included in the executive officer total
compensation.
|
Employment Agreements
We have entered into employment
and/or consulting agreements with our executive officers Thomas Meyer, Elmar Schaerli and Raoul Dias. The employment and/or
consulting agreements provide for the compensation that Messrs. Meyer, Schaerli and Dias are entitled to
receive, including certain equity grants, and the employment agreements of Messrs. Meyer and Dias contain termination notice
periods of three to six months. The Company will have title to the intellectual property rights developed in connection with
the executive officer’s employment, if any.
None of our directors has entered into
service agreements with the Company. However, we may in the future enter into employment or services agreements with such individuals,
the terms of which may provide for, among other things, cash or equity-based compensation and benefits.
Equity Incentive Plans
Equity
Incentive Plan
In August 2014, as amended and restated
in June 2019, we established the EIP with the purpose of motivating and rewarding those employees and other individuals who are
expected to contribute significantly to our success, and advancing the interests of our shareholders by enhancing our ability
to attract, retain and motivate individuals. As of March 13, 2020, the maximum number of shares available for issuance under
the EIP was 300,000 common shares. The option exercise price for options under the EIP is determined by the compensation committee
at the time of grant, but shall not be less than the par value of a common share on the grant date.
Plan administration. The EIP is
administered by our compensation committee. Approval of the committee is required for all grants of awards under the EIP. The
committee may delegate to one or more officers the authority to grant options and stock appreciation rights, and the committee
may delegate to another committee (which may consist of solely one director) the authority to grant all types of awards.
Eligibility. Any director, employee,
consultant or any other individual who provides services to us or any of our affiliates is eligible to be selected to receive
an award under the EIP.
Awards. Awards include options,
stock appreciation rights, restricted stock, restricted stock units, performance awards and other stock-based awards.
Vesting period. The committee determines
the time or times at which an option becomes vested and exercisable, provided that the minimum vesting period is 12 months. The
committee may specify in an award agreement that an “in-the-money” option be automatically exercised on its expiration
date. For restricted stock and restricted stock units, the award agreement will specify the vesting schedule and, with respect
to restricted stock units, the delivery schedule.
Accelerated vesting. Subject to
any additional vesting conditions that may be specified in an individual award agreement, the EIP provides that upon a change
of control of the Company (as defined in the EIP) the committee may cause options and stock appreciation rights to be cancelled
in consideration of full acceleration of the award or a substitute award with equal intrinsic value (as defined in the EIP). It
also provides that the committee may decide, or include in any award agreement, the circumstances in which, and the extent to
which, an award may be exercised, settled, vested, paid or forfeited in the event of a participant’s termination of service
prior to exercise or settlement of an award.
Amendment. Our board of directors
has the authority to amend the EIP subject, in certain circumstances, to required shareholder approval or the consent of an affected
participant.
Prior
Plans
In 2013 we established Stock Option Plan
C, or Plan C, and in 2008 we established Stock Option Plan A, or Plan A, and Stock Option Plan B, or Plan B. We refer to Plan
A, Plan B and Plan C together as the Prior Plans. There are no outstanding Options under Plan A, Plan B or Plan C.
Indemnification
Section 98 of the Companies Act provides
generally that a Bermuda company may indemnify its directors, officers and auditors against any liability which by virtue of any
rule of law would otherwise be imposed on them in respect of any negligence, default, breach of duty or breach of trust, except
in cases where such liability arises from fraud or dishonesty of which such director, officer or auditor may be guilty in relation
to the company. Section 98 further provides that a Bermuda company may indemnify its directors, officers and auditors against
any liability incurred by them in defending any proceedings, whether civil or criminal, in which judgment is awarded in their
favor or in which they are acquitted or granted relief by the Supreme Court of Bermuda pursuant to section 281 of the Companies
Act.
Our Bye-laws provide that we shall indemnify
our officers and directors in respect of their actions and omissions, except in respect of their fraud or dishonesty. Our Bye-laws
provide that the shareholders waive all claims or rights of action that they might have, individually or in right of the company,
against any of the company’s directors or officers for any act or failure to act in the performance of such director’s
or officer’s duties, except in respect of any fraud or dishonesty of such director or officer. Section 98A of the Companies
Act permits us to purchase and maintain insurance for the benefit of any officer or director in respect of any loss or liability
attaching to him in respect of any negligence, default, breach of duty or breach of trust, whether or not we may otherwise indemnify
such officer or director. We have purchased and maintain a directors’ and officers’ liability policy for such a purpose.
Insofar as indemnification for liabilities
arising under the Securities Act of 1933, as amended, may be permitted to directors, officers and controlling persons of the Company,
the Company has been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act of 1933, as amended, and is, therefore, unenforceable.
Board Composition and Election of Directors
Our board of directors is currently composed
of five members, see “Item 6. Directors, Senior Management and Employees—A. Directors and senior management.”
Each director is elected for a one year term.
Our Bye-laws provide that directors may
be elected at either the annual general meeting or a special general meeting. Unless shareholders determine otherwise, under our
Bye-laws directors hold office until the next annual general meeting or until their successors are elected or appointed or their
office is otherwise vacated.
We are a foreign private issuer. As a
result, in accordance with the Nasdaq stock exchange listing requirements, we comply with home country governance requirements
and certain exemptions thereunder rather than the Nasdaq stock exchange corporate governance requirements. For an overview of
our corporate governance principles, see “Item 16G. Corporate governance.”
Committees of the Board of Directors
Audit Committee
The audit committee, which consists of
Mats Blom, Alain Munoz and Calvin W. Roberts, assists our board of directors in overseeing our accounting and financial reporting
processes and the audits of our financial statements. In addition, the audit committee is directly responsible for the appointment,
compensation, retention and oversight of the work of our independent registered public accounting firm. Mr. Blom serves as chairman
of the committee. The audit committee consists exclusively of members of our board of directors who are financially literate,
and Mr. Blom is considered an “audit committee financial expert” as defined by the SEC. Our board of directors has
determined that Mr. Blom, Mr. Munoz and Mr. Roberts satisfy the “independence” requirements set forth in Rule 10A-3
under the Exchange Act.
The audit committee is governed by a charter
that complies with Nasdaq rules. The audit committee is responsible for, among other things:
|
●
|
the
appointment, compensation, retention and oversight of any auditor or accounting firm
engaged for the purpose of preparing or issuing an audit report or performing other audit,
review or attest services;
|
|
●
|
pre-approving
the audit services and non-audit services to be provided by our independent auditor before
the auditor is engaged to render such services;
|
|
●
|
reviewing
and discussing with the independent auditor its responsibilities under generally accepted
auditing standards, the planned scope and timing of the independent auditor’s annual
audit plan(s) and significant findings from the audit;
|
|
●
|
obtaining
and reviewing a report from the independent auditor describing all relationships between
the independent auditor and the Company consistent with the applicable PCAOB requirements
regarding the independent auditor’s communications with the audit committee concerning
independence;
|
|
●
|
confirming
and evaluating the rotation of the audit partners on the audit engagement team as required
by law;
|
|
●
|
reviewing
with management and the independent auditor, in separate meetings whenever the Audit
Committee deems appropriate, any analyses or other written communications prepared by
the Management and/or the independent auditor setting forth significant financial reporting
issues and judgments made in connection with the preparation of the financial statements,
including analyses of the effects of alternative IFRS methods on the financial statements;
and other critical accounting policies and practices of the Company;
|
|
●
|
reviewing,
in conjunction with the Chief Executive Officer and Chief Financial Officer of the Company,
the Company’s disclosure controls and procedures and internal control over financial
reporting;
|
|
●
|
establishing
procedures for the receipt, retention and treatment of complaints received by the Company
regarding accounting, internal accounting controls or auditing matters, and the confidential,
anonymous submission by employees of the Company of concerns regarding questionable accounting
or auditing matters;
|
|
●
|
approving
or ratifying any related person transaction (as defined in our related person transaction
policy) in accordance with our related person transaction policy.
|
The audit committee meets at least four
times per year.
Compensation Committee
The compensation committee, which consists
of Armando Anido and Alain Munoz, assists our board of directors in overseeing our cash compensation and equity award recommendations
for our executive officers along with the rationale for such recommendations, as well as summary information regarding the aggregate
compensation provided to our directors and executive officers. While Bermuda law does not require that we adopt a compensation
committee, we have established a compensation committee in accordance with Bermuda law. As a result, our practice varies from
the requirements of Nasdaq Listing Rule 5605(d), which sets forth certain requirements as to the responsibilities, composition
and independence of compensation committees.
As of December 31, 2019, we had 12 employees
(8.1 full time equivalents). None of our employees is subject to a collective bargaining agreement or represented by a trade or
labor union. We consider our relations with our employees to be good.
See “Item 7. Major Shareholders
and Related Party Transactions—A. Major shareholders.”
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
The following table presents information
relating to the beneficial ownership of our common shares as of March 13, 2020 by:
|
●
|
each
person, or group of affiliated persons, known by us to own beneficially 5% or more of
our outstanding common shares;
|
|
●
|
each
of our executive officers and directors; and
|
|
●
|
all
executive officers and directors as a group.
|
The number of common shares beneficially
owned by each entity, person, executive officer or director is determined in accordance with the rules of the SEC, and the information
is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any
common shares over which the individual has sole or shared voting power or investment power as well as any common shares that
the individual has the right to acquire within 60 days of March 13, 2020 through the exercise of any option, warrant or other
right. Except as otherwise indicated, and subject to applicable community property laws, the persons named in the table have sole
voting and investment power with respect to all common shares held by that person.
Common shares that a person has the right
to acquire within 60 days of March 13, 2020 are deemed outstanding for purposes of computing the percentage ownership of the
person holding such rights, but are not deemed outstanding for purposes of computing the percentage ownership of any other person,
except with respect to the percentage ownership of all executive officers and directors as a group. As of March 13, 2020, 4,174,133
common shares, or approximately 93%, are held by two holders in the United States. Unless otherwise indicated below, the address
for each beneficial owner is Auris Medical Holding Ltd., Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda.
The percentage of common shares beneficially
owned is based on 4,484,584 common shares issued and outstanding as of March 13, 2020. Each common share confers the right
on the holder to cast one vote at a general meeting of shareholders and no shareholder has different voting rights.
|
|
Shares Beneficially Owned
|
|
Shareholder
|
|
Number
|
|
|
Percent
|
|
5% Shareholders
|
|
|
|
|
|
|
Altium Capital Management, LP (1)
|
|
|
897,435
|
|
|
|
9.99
|
%
|
Executive Officers and Directors
|
|
|
|
|
|
|
|
|
Thomas Meyer, Ph.D. (2)
|
|
|
553,866
|
|
|
|
12.35
|
%
|
Armando Anido, M.B.A (3)
|
|
|
4,452
|
|
|
|
|
*
|
Mats Blom, M.B.A. (4)
|
|
|
4,452
|
|
|
|
|
*
|
Alain Munoz (5)
|
|
|
4,514
|
|
|
|
|
*
|
Calvin W. Roberts, M.D.(6)
|
|
|
4,628
|
|
|
|
|
*
|
Raoul Dias (7)
|
|
|
550
|
|
|
|
|
*
|
Elmar Schaerli, CPA
|
|
|
—
|
|
|
|
|
*
|
All current directors and executive officers as a group (7 persons)
|
|
|
572,462
|
|
|
|
12.77
|
%
|
|
*
|
Indicates
beneficial ownership of less than 1% of the total outstanding common shares.
|
(1)
|
Based on the Schedule 13G/A filed by Altium Capital Management, LP, Altium Growth Fund, LP, and Altium Growth GP, LLC on February 14, 2020. Altium Growth Fund, LP is the record and direct beneficial owner of the securities. Altium Capital Management, LP is the investment advisor of, and may be deemed to beneficially own securities owned by Altium Growth Fund, LP. Altium Growth GP, LLC is the general partner of, and may be deemed to beneficially own securities owned by, Altium Growth Fund, LP. The number of common shares listed in the table consists of 897,435 common shares such holder could acquire upon exercise of outstanding warrants to purchase common shares. Each of the reporting persons shares voting and disposal power over the shares. The percentage in this table reflects that the reporting persons may not exercise the warrants to the extent such exercise would cause the reporting persons to beneficially own a number of common shares that would exceed 9.99% of our then outstanding common shares following such exercise. The address of the principal business office of each of the reporting persons is 551 Fifth Ave, FL 19 New York, NY 10176.
|
|
|
(2)
|
Consists of 390,000 common shares, warrants to purchase 138,097 common shares and options to purchase 25,769 common shares under the EIP.
|
(3)
|
Consists
of options to purchase common shares under the Company’s EIP.
|
(4)
|
Consists
of options to purchase common shares under the Company’s EIP.
|
(5)
|
Consists
of 62 common shares owned by Alain Munoz and options to purchase common shares under
the Company’s EIP.
|
(6)
|
Consists
of 76 common shares jointly owned by Calvin W. Roberts and Andrea Colvin Roberts. Also,
consists of 100 common shares held by Calvin W. Roberts, MD PC Pension Plan. Calvin Roberts
is a trustee for Calvin W. Roberts, MD PC Pension Plan. Also consists of options to purchase
common shares under the Company’s EIP.
|
(7)
|
Consists
of 550 common shares owned by Raoul Dias.
|
Holders
As of March 13, 2020, we had five shareholders
of record of our common shares.
Significant Changes in Ownership by Major Shareholders
We have experienced significant changes
in the percentage ownership held by major shareholders as a result of our public offerings. Prior to our initial public offering
in August 2014, our principal shareholders were Thomas Meyer (34.9%), Sofinnova Venture Partners VIII, L.P. (19.3%), Sofinnova
Capital VII FCPR (18.6%), the ZKB Funds (11.4%) and entities affiliated with Idinvest Partners (9.1%).
In August 2014, we completed our initial
public offering and listed our common shares on the Nasdaq Global Market. In the initial public offering, we issued and sold 50,566
common shares, including 3,566 common shares sold to the underwriters pursuant to the underwriters’ over-allotment option.
In May 2015, we completed a public offering of 26,375 common shares. In February 2017, we completed a public offering of 50,000
common shares and warrants to purchase 39,725 common shares. In January 2018, we completed a public offering of 62,499 common
shares and a concurrent offering of warrants to purchase 37,499 common shares. In July 2018, we completed a public offering of
897,435 common shares and a concurrent offering of Series A warrants to purchase 314,102 common shares and Series B warrants to
purchase 224,358 common shares. In May 2019, we completed a public offering of (i) 440,000 common shares, together with warrants
to purchase 440,000 common shares, and (ii) 1,721,280 pre-funded warrants, with each pre-funded warrant exercisable for one common
share, together with warrants to purchase 1,721,280 common shares. While none of our existing shareholders sold common shares
in the public offerings, certain shareholders purchased common shares in certain of the public offerings. The percentage ownership
held by certain shareholders decreased as a result of the issuance of the common shares sold by us in the public offerings.
Additionally, in February/March 2018 (prior
to the Merger), Sofinnova Capital VII FCPR sold 10,000 of our common shares and in April/May 2018 Sofinnova Venture Partners VIII,
L.P. sold all of our common shares beneficially held by it.
|
B.
|
Related
party transactions
|
Related Person Transaction Policy
Prior to our initial public offering,
we entered into a new related person transaction policy under which any such transaction must be approved or ratified by the audit
committee or the board of directors.
Indemnification Agreements
We have entered into indemnification agreements
with our directors and executive officers. The indemnification agreements and our Bye-laws require us to indemnify our directors
and executive officers to the fullest extent permitted by law.
Employment Agreements
Certain of our executive officers have
entered into employment agreements with the Company, certain of which provide for notice of termination periods and include restrictive
covenants. None of our directors have entered into service agreements with the Company. See “Item 6. Directors, Senior Management
and Employees—B. Compensation—Employment Agreements.”
Mandate Agreement
Ante Treuhand AG (“Ante Treuhand”)
provides the Chief Financial Officer to the Company. The Chief Financial Officer is an employee of Ante Treuhand and is not paid
directly by the Company. Fees paid to Ante Treuhand for CFO services starting November 2019 were CHF 11,770. Fees paid
to Ante Treuhand for other services provided during the year ended December 31, 2019 were CHF 28,611.
|
C.
|
Interests
of experts and counsel
|
Not applicable.
ITEM 8. FINANCIAL INFORMATION
A.
|
Consolidated statements and other financial information
|
Financial Statements
See “Item 18. Financial Statements,”
which contains our financial statements prepared in accordance with IFRS.
Legal Proceedings
From time to time we may become involved
in legal proceedings that arise in the ordinary course of business. During the period covered by the financial statements contained
herein, we have not been a party to or paid any damages in connection with litigation that has had a material adverse effect on
our financial position.
No assurance can be given that future
litigation will not have a material adverse effect on our financial position. See “Item 3. Key Information—D. Risk
factors.”
Dividends and Dividend Policy
We have never paid or declared any cash
dividends on our shares, and we do not anticipate paying any cash dividends on our common shares in the foreseeable future. Any
future determination related to our dividend policy will be made at the discretion of our board of directors and any payment of
dividends will, amongst other requirements, be subject to legal restrictions.
A discussion of the significant changes
in our business can be found under “Item 4. Information on the Company—A. History and development of the Company”
and “Item 4. Information on the Company—B. Business Overview.”
ITEM 9. THE OFFER AND LISTING
|
A.
|
Offering
and listing details
|
A discussion of the offering and listing
details can be found under “Markets” below.
Not applicable.
Our common shares began trading on the
Nasdaq Global Market on August 11, 2014 under the symbol “EARS”. On September 28, 2017, we transferred our common
shares from the Nasdaq Global Market to the Nasdaq Capital Market under the same symbol (“EARS”). On March 14, 2018,
our post-Merger common shares began trading on the Nasdaq Capital Market.
There can be no assurance that our common
shares will remain listed on the Nasdaq Capital Market. See “Item 3. Key Information—D. Risk Factors—Risks Related
to Our Common Shares—Our common shares may be involuntarily delisted from trading on The Nasdaq Capital Market if we fail
to comply with the continued listing requirements. A delisting of our common shares is likely to reduce the liquidity of our common
shares and may inhibit or preclude our ability to raise additional financing.”
Not applicable.
Not applicable.
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
Not applicable.
|
B.
|
Memorandum
of Continuance and Bye-laws
|
We are an exempted company incorporated
under the laws of Bermuda. On January 24, 2019, our board of directors determined that it would be in our best interest to change
our legal seat and jurisdiction of incorporation, respectively, from Switzerland to Bermuda pursuant to the Redomestication. Our
shareholders approved the Redomestication and adopted the Memorandum of Continuance and the Bye-laws at an extraordinary meeting
of shareholders held on March 8, 2019. Upon the issuance of a certificate of continuance by the Registrar of Companies in Bermuda
on March 18, 2019, the Company discontinued as a Swiss company and, pursuant to Article 163 of the Swiss Federal Act on Private
International Law and pursuant to Section 132C of the Companies Act continued existence under the Companies Act as a Bermuda company
with the name “Auris Medical Holding Ltd.”
Set forth below is a description of our
share capital, Memorandum of Continuance and Bye-laws. Additionally, set forth below is a comparison of select provisions of the
corporate laws of Delaware and Bermuda showing the default positions in each jurisdiction that govern shareholder rights.
Bermuda Description of Share Capital
The following description of our share
capital summarizes certain provisions of our Memorandum of Continuance (which is equivalent for these purposes to a memorandum
of association under Bermuda law) and our Bye-laws. Such summaries do not purport to be complete and are subject to, and are qualified
in their entirety by reference to, all of the provisions of our Memorandum of Continuance and Bye-laws in effect from the continuance
of the Company. We urge you to read the forms of our Memorandum of Continuance and Bye-laws, included as exhibits to this Annual
Report.
General
We are an exempted company incorporated
under the laws of Bermuda. We began our current operations in 2003 as a corporation organized in accordance with Swiss law and
domiciled in Switzerland under the name Auris Medical AG, and our name was changed to Auris Medical Holding AG on April 22, 2014.
Following the Merger on March 13, 2018, the surviving entity was named Auris Medical Holding AG. Upon the issuance of a certificate
of continuance by the Registrar of Companies in Bermuda on March 18, 2019, the Redomestication was effected and we continued in
Bermuda pursuant to Section 132C of the Companies Act as a Bermuda company, subject to the Companies Act and other laws of Bermuda,
with the name “Auris Medical Holding Ltd.” Our registered office is located at Clarendon House, 2 Church Street, Hamilton
HM 11, Bermuda.
The Memorandum of Continuance provides
that the objects of our business are unrestricted, and we have the capacity, rights, powers and privileges of a natural person.
Since the Redomestication, other than
the 2019 Reverse Share Split and as otherwise described herein, there have been no material changes to our share capital, mergers,
amalgamations or consolidations of us or any of our subsidiaries, no material changes in the mode of conducting our business,
no material changes in the types of products produced or services rendered and no name changes. There have been no bankruptcy,
receivership or similar proceedings with respect to us or our subsidiaries.
There have been no public takeover offers
by third parties for our shares nor any public takeover offers by us for the shares of another company which have occurred during
the last or current financial years.
Share Capital
As of December 31, 2019, our authorized
share capital consisted of 10,000,000 common shares, par value CHF 0.40 per share, and 20,000,000 preference shares, par value
CHF 0.02 per share, and there were 4,125,949 common shares issued and outstanding, excluding 324,053 common shares issuable upon
exercise of options and 2,488,520 common shares issuable upon exercise of warrants, and no preference shares issued and outstanding.
All of the Company’s issued and outstanding shares are fully paid-in.
Pursuant to our Bye-laws, subject to any
resolution of the shareholders to the contrary, our board of directors is authorized to issue any of our authorized but unissued
shares. There are no limitations on the right of non-Bermudians or non-residents of Bermuda to hold or vote our shares.
Common Shares
Holders of common shares have no pre-emptive,
redemption, conversion or sinking fund rights. Holders of common shares are entitled to one vote per share on all matters submitted
to a vote of holders of common shares. Unless a different majority is required by law or by our Bye-laws, resolutions to be approved
by holders of common shares require approval by a simple majority of votes cast at a general meeting at which a quorum is present.
In the event of our liquidation, dissolution
or winding up, the holders of common shares are entitled to share equally and ratably in our assets, if any, remaining after the
payment of all of our debts and liabilities, subject to any liquidation preference on any issued and outstanding preference shares.
Preference Shares
Pursuant to Bermuda law and our Bye-laws,
our board of directors by resolution may establish one or more series of preference shares having such number of shares, designations,
dividend rates, relative voting rights, conversion or exchange rights, redemption rights, liquidation rights and other relative
participation, optional or other special rights, qualifications, limitations or restrictions as may be fixed by the board without
any further shareholder approval. Such rights, preferences, powers and limitations as may be established could have the effect
of discouraging an attempt to obtain control of us.
Dividend Rights
Under Bermuda law, the board of directors
may declare a dividend without shareholder approval, but a company may not declare or pay dividends if there are reasonable grounds
for believing that: (i) the company is, or would after the payment be, unable to pay its liabilities as they become due; or (ii)
the realizable value of its assets would thereby be less than its liabilities. Under our Bye-laws, each common share is entitled
to dividends if, as and when dividends are declared by our board of directors, subject to any preferred dividend right of the
holders of any preference shares.
Variation of Rights
If at any time we have more than one class
of shares, the rights attaching to any class, unless otherwise provided for by the terms of issue of the relevant class, may be
varied either: (i) with the consent in writing of the holders of 75% of the issued shares of that class; or (ii) with the sanction
of a resolution passed by a majority of the votes cast at a general meeting of the relevant class of shareholders at which a quorum
consisting of at least two or more persons holding or representing issued and outstanding shares of the relevant class is present.
Our Bye-laws specify that the creation or issue of shares ranking equally with existing shares will not, unless expressly provided
by the terms of issue of existing shares, vary the rights attached to existing shares. In addition, the creation or issue of preference
shares ranking prior to common shares will not be deemed to vary the rights attached to common shares or, subject to the terms
of any other series of preference shares, to vary the rights attached to any other series of preference shares.
Transfer of Shares
Our board of directors may in its absolute
discretion and without assigning any reason refuse to register the transfer of a share that it is not fully paid. Our board of
directors may also refuse to recognize an instrument of transfer of a share unless it is accompanied by the relevant share certificate
and such other evidence of the transferor’s right to make the transfer as our board of directors shall reasonably require.
Subject to these restrictions, a holder of common shares may transfer the title to all or any of his common shares by completing
a form of transfer in the form set out in our Bye-laws (or as near thereto as circumstances admit) or in such other common form
as the board may accept. The instrument of transfer must be signed by the transferor and transferee, although in the case of a
fully paid share our board of directors may accept the instrument signed only by the transferor.
Share Split and Reverse Share Split
effected by consolidating our common shares
Our board of directors may in its absolute
discretion and without further approval of shareholders divide, consolidate or sub-divide our share capital in any manner permitted
by the Companies Act, including approving a reverse share split by consolidating our common shares (together with a corresponding
increase in the par value thereof) in a ratio determined by the board of directors. Our Bye-laws also provide that upon an alteration
or reduction of share capital where fractions of shares or some other difficulty would arise, our board of directors may deal
with or resolve the same in any manner as it thinks fit.
Meeting of Shareholders
Under Bermuda law, a company is required
to convene at least one general meeting of shareholders each calendar year (the “annual general meeting”). However,
the members may by resolution waive this requirement, either for a specific year or period of time, or indefinitely. When the
requirement has been so waived, any member may, on notice to the company, terminate the waiver, in which case an annual general
meeting must be called.
Bermuda law provides that a special general
meeting of shareholders may be called by the board of directors of a company and must be called upon the request of shareholders
holding not less than 10% of the paid-up capital of the company carrying the right to vote at general meetings. Bermuda law also
requires that shareholders be given at least five days’ advance notice of a general meeting, but the accidental omission
to give notice to any person does not invalidate the proceedings at a meeting. Our Bye-laws provide that the board of directors
may convene an annual general meeting or a special general meeting. Under our Bye-laws, at least 14 days’ notice of an annual
general meeting or a special general meeting must be given to each shareholder entitled to vote at such meeting. This notice requirement
is subject to the ability to hold such meetings on shorter notice if such notice is agreed: (i) in the case of an annual general
meeting by all of the shareholders entitled to attend and vote at such meeting; or (ii) in the case of a special general meeting
by a majority in number of the shareholders entitled to attend and vote at the meeting holding not less than 95% in nominal value
of the shares entitled to vote at such meeting. The quorum required for a general meeting of shareholders is two or more persons
present in person at the start of the meeting and representing in person or by proxy issued and outstanding common shares.
Access to Books and Records and
Dissemination of Information
Members of the general public have a right
to inspect the public documents of a company available at the office of the Registrar of Companies in Bermuda. These documents
include the company’s memorandum of association (or memorandum of continuance), including its objects and powers, and certain
alterations to the memorandum of association (or memorandum of continuance). The shareholders have the additional right to inspect
the bye-laws of the company, minutes of general meetings and the company’s audited financial statements, which must be presented
to the annual general meeting. The register of members of a company is also open to inspection by shareholders and by members
of the general public without charge. The register of members is required to be open for inspection for not less than two hours
in any business day (subject to the ability of a company to close the register of members for not more than thirty days in a year).
A company is required to maintain its share register in Bermuda but may, subject to the provisions of the Companies Act, establish
a branch register outside of Bermuda. A company is required to keep at its registered office a register of directors and officers
that is open for inspection for not less than two hours in any business day by members of the public without charge. A company
is also required to file with the Registrar of Companies in Bermuda a list of its directors to be maintained on a register, which
register will be available for public inspection subject to such conditions as the Registrar may impose and on payment of such
fee as may be prescribed. Bermuda law does not, however, provide a general right for shareholders to inspect or obtain copies
of any other corporate records.
Election and Removal of Directors
Our Bye-laws provide that our board shall
consist of three directors or such greater number as the board may determine. Our board of directors currently consists of five
directors. Each director shall hold office for such term as the shareholders may determine or, in their absence of such determination,
until the next annual general meeting or until their successors are elected or appointed or their office is otherwise vacated.
Any shareholder or shareholders holding
or representing not less than 5% of the total voting rights wishing to propose for election as a director someone who is not an
existing director or is not proposed by our board must give notice of the intention to propose the person for election. Where
a director is to be elected at an annual general meeting, that notice must be given not less than 90 days nor more than 120 days
before the anniversary of the last annual general meeting prior to the giving of the notice or, in the event the annual general
meeting is called for a date that is not 30 days before or after such anniversary the notice must be given not later than 10 days
following the earlier of the date on which notice of the annual general meeting was posted to members or the date on which public
disclosure of the date of the annual general meeting was made. Where a director is to be elected at a special general meeting,
that notice must be given not later than 10 days following the earlier of the date on which notice of the special general meeting
was posted to members or the date on which public disclosure of the date of the special general meeting was made.
A director may be removed, with cause,
by the shareholders, provided notice of the shareholders meeting convened to remove the director is given to the director. The
notice must contain a statement of the intention to remove the director and must be served on the director not less than fourteen
days before the meeting. The director is entitled to attend the meeting and be heard on the motion for his removal.
Proceedings of Board of Directors
Our Bye-laws provide that our business
is to be managed and conducted by our board of directors. Bermuda law permits individual and corporate directors and there is
no requirement in our Bye-laws or Bermuda law that directors hold any of our shares. There is also no requirement in our Bye-laws
or Bermuda law that our directors must retire at a certain age.
The remuneration of our directors is determined
by our board of directors, and there is no requirement that a specified number or percentage of “independent” directors
must approve any such determination. Our directors may also be paid all travel, hotel and other expenses properly incurred by
them in connection with our business or their duties as directors.
Provided a director discloses a direct
or indirect interest in any contract or arrangement with us as required by Bermuda law, such director is entitled to vote in respect
of any such contract or arrangement in which he or she is interested unless he or she is disqualified from voting by the chairman
of the relevant board meeting.
Indemnification of Directors and
Officers
Section 98 of the Companies Act provides
generally that a Bermuda company may indemnify its directors, officers and auditors against any liability which by virtue of any
rule of law would otherwise be imposed on them in respect of any negligence, default, breach of duty or breach of trust, except
in cases where such liability arises from fraud or dishonesty of which such director, officer or auditor may be guilty in relation
to the company. Section 98 further provides that a Bermuda company may indemnify its directors, officers and auditors against
any liability incurred by them in defending any proceedings, whether civil or criminal, in which judgment is awarded in their
favor or in which they are acquitted or granted relief by the Supreme Court of Bermuda pursuant to section 281 of the Companies
Act.
Our Bye-laws provide that we shall indemnify
our officers and directors in respect of their actions and omissions, except in respect of their fraud or dishonesty. Our Bye-laws
provide that the shareholders waive all claims or rights of action that they might have, individually or in right of the company,
against any of the company’s directors or officers for any act or failure to act in the performance of such director’s
or officer’s duties, except in respect of any fraud or dishonesty of such director or officer. Section 98A of the Companies
Act permits us to purchase and maintain insurance for the benefit of any officer or director in respect of any loss or liability
attaching to him in respect of any negligence, default, breach of duty or breach of trust, whether or not we may otherwise indemnify
such officer or director. We have purchased and maintain a directors’ and officers’ liability policy for such a purpose.
See “Comparison of Corporate Law—Indemnification of directors and executive management and limitation of liability.”
Amendment of Memorandum of Continuance
and Bye-laws
Bermuda law provides that the memorandum
of association (or memorandum of continuance) of a company may be amended by a resolution passed at a general meeting of shareholders.
Our Bye-laws provide that no bye-law shall be rescinded, altered or amended, and no new bye-law shall be made, unless it shall
have been approved by a resolution of our board of directors and by a resolution of our shareholders. In the case of certain bye-laws,
such as the Bye-laws relating to election and removal of directors, approval of business combinations and amendment of bye-law
provisions, the required resolutions must include the affirmative vote of at least 66 2∕3% of our directors then in office
and of at least 66 2∕3% percent of the votes attaching to all shares in issue.
Under Bermuda law, the holders of an aggregate
of not less than 20% in par value of a company’s issued share capital or any class thereof have the right to apply to the
Supreme Court of Bermuda for an annulment of any amendment of the memorandum of association (or memorandum of continuance) adopted
by shareholders at any general meeting, other than an amendment which alters or reduces a company’s share capital as provided
in the Companies Act. Where such an application is made, the amendment becomes effective only to the extent that it is confirmed
by the Bermuda court. An application for an annulment of an amendment of the memorandum of association (or memorandum of continuance)
must be made within twenty-one days after the date on which the resolution altering the company’s memorandum of association
(or memorandum of continuance) is passed and may be made on behalf of persons entitled to make the application by one or more
of their number as they may appoint in writing for the purpose. No application may be made by shareholders voting in favor of
the amendment.
Amalgamations, Mergers and Business
Combinations
The amalgamation or merger of a Bermuda
company with another company or corporation (other than certain affiliated companies) requires an amalgamation or merger agreement
that is approved by the company’s board of directors and by its shareholders. Unless the company’s bye-laws provide
otherwise, the approval of 75% of the shareholders voting at such meeting is required to approve the amalgamation or merger agreement,
and the quorum for such meeting must be two persons holding or representing more than one-third of the issued shares of the company.
Our Bye-laws provide that an amalgamation or a merger (other than with a wholly owned subsidiary or as described below) that has
been approved by the board must only be approved by a majority of the votes cast at a general meeting of the shareholders at which
the quorum shall be two or more persons present in person and representing in person or by proxy issued and outstanding common
voting shares. Any amalgamation or merger or other business combination (as defined in the Bye-laws) not approved by our board
of directors must be approved by the holders of not less than 66 2∕3% of all votes attaching to all shares then in issue
entitling the holder to attend and vote on the resolution.
Under Bermuda law, in the event of an
amalgamation or merger of a Bermuda company with another company or corporation, a shareholder of the Bermuda company who did
not vote in favor of the amalgamation or merger and who is not satisfied that fair value has been offered for such shareholder’s
shares may, within one month of notice of the shareholders meeting, apply to the Supreme Court of Bermuda to appraise the fair
value of those shares.
Our Bye-laws contain provisions regarding
“business combinations” with “interested shareholders”. Pursuant to the Bye-laws, in addition to any other
approval that may be required by applicable law, any business combination with an interested shareholder within a period of three
years after the date of the transaction in which the person became an interested shareholder must be approved by our board and
authorized at an annual or special general meeting by the affirmative vote of at least 66 2∕3% of our issued and outstanding
voting shares that are not owned by the interested shareholder, unless: (i) prior to the time that the shareholder becoming an
interested shareholder, our board of directors approved either the business combination or the transaction that resulted in the
shareholder becoming an interested shareholder; or (ii) upon consummation of the transaction that resulted in the shareholder
becoming an interested shareholder, the interested shareholder owned at least 85% of our issued and outstanding voting shares
at the time the transaction commenced. For purposes of these provisions, “business combinations” include mergers,
amalgamations, consolidations and certain sales, leases, exchanges, mortgages, pledges, transfers and other dispositions of assets,
issuances and transfers of shares and other transactions resulting in a financial benefit to an interested shareholder. An “interested
shareholder” is a person that beneficially owns 15% or more of our issued and outstanding voting shares and any person affiliated
or associated with us that owned 15% or more of our issued and outstanding voting shares at any time three years prior to the
relevant time.
Compulsory Acquisition of Shares
Held by Minority Holders
An acquiring party is generally able to
acquire compulsorily the common shares of minority holders in the following ways:
(1) By a procedure under the
Companies Act known as a “scheme of arrangement.” A scheme of arrangement could be effected by obtaining the agreement
of the company and of holders of its shares (or any class of shares), representing in the aggregate a majority in number and at
least 75% in value of the shares or class of shares present and voting at a court ordered meeting held to consider the scheme
or arrangement. The scheme of arrangement must then be sanctioned by the Bermuda Supreme Court. If a scheme of arrangement receives
all necessary agreements and sanctions, upon the filing of the court order with the Registrar of Companies in Bermuda, all holders
of common shares could be compelled to sell their shares under the terms of the scheme or arrangement.
(2) If the acquiring party
is a company it may compulsorily acquire all the shares of the target company, by acquiring pursuant to a tender offer 90% of
the shares or class of shares not already owned by, or by a nominee for, the acquiring party (the offeror), or any of its subsidiaries.
If an offeror has, within four months after the making of an offer for all the shares or class of shares not owned by, or by a
nominee for, the offeror, or any of its subsidiaries, obtained the approval of the holders of 90% or more of all the shares to
which the offer relates, the offeror may, at any time within two months beginning with the date on which the approval was obtained,
require by notice any nontendering shareholder to transfer its shares on the same terms as the original offer. In those circumstances,
nontendering shareholders will be compelled to sell their shares unless the Supreme Court of Bermuda (on application made within
a one-month period from the date of the offeror’s notice of its intention to acquire such shares) orders otherwise.
(3) Where one or more parties
holds not less than 95% of the shares or a class of shares of a company, such holder(s) may, pursuant to a notice given to the
remaining shareholders or class of shareholders, acquire the shares of such remaining shareholders or class of shareholders. When
this notice is given, the acquiring party is entitled and bound to acquire the shares of the remaining shareholders on the terms
set out in the notice, unless a remaining shareholder, within one month of receiving such notice, applies to the Supreme Court
of Bermuda for an appraisal of the value of its shares. This provision only applies where the acquiring party offers the same
terms to all holders of shares whose shares are being acquired.
Anti-Takeover Provisions
Two-thirds supermajority shareholder
voting requirement: Our Bye-laws provide that, except to the extent that a proposal has received the prior approval of the
board, the approval of an amalgamation, merger or consolidation with or into any other person shall require the affirmative vote
of not less than 66 2∕3% of all votes attaching to all shares then in issue entitling the holder to attend and vote on the
resolution (except for certain “business combinations” with “interested shareholders” as set forth in
Amalgamations, Mergers and Business Combinations above).
Amendments to the Bye-laws: Our
Bye-laws provide that no bye-law may be rescinded, altered or amended and no new bye-law may be made until the same has been approved
by a resolution of the board and by a resolution of the shareholders. In the case of certain bye-laws, such as the Bye-laws relating
to election and removal of directors, approval of business combinations and amendment of bye-law provisions, the required resolutions
must include the affirmative vote of at least 66 2∕3% of our directors then in office and of at least 66 2∕3% percent
of the votes attaching to all issued and outstanding shares.
Limitations on the election of directors:
Our Bye-laws provide that a person may be proposed for election or appointment as a director at a general meeting either by the
board or by one or more shareholders holding our shares which in the aggregate carry not less than 5% of the voting rights in
respect of the election of directors. In addition, unless a person is proposed for election or appointment as a director by the
board, when a person is proposed for appointment or election as a director, written notice of the proposal must be given to us
as follows. Where a director is to be appointed or elected: (1) at an annual general meeting, such notice must be given not less
than 90 days nor more than 120 days before the anniversary of the last annual general meeting prior to the giving of the notice
or, in the event the annual general meeting is called for a date that is not 30 days before or after such anniversary the notice
must be given not later than 10 days following the earlier of the date on which notice of the annual general meeting was posted
to shareholders or the date on which public disclosure of the date of the annual general meeting was made; and (2) at a special
general meeting, such notice must be given not later than 10 days following the earlier of the date on which notice of the special
general meeting was posted to shareholders or the date on which public disclosure of the date of the special general meeting was
made.
Shareholder Suits
Class actions and derivative actions are
generally not available to shareholders under Bermuda law. The Bermuda courts, however, would ordinarily be expected to permit
a shareholder to commence an action in the name of a company to remedy a wrong to the company where the act complained of is alleged
to be beyond the corporate power of the company or illegal, or would result in the violation of the company’s memorandum
of association (or memorandum of continuance) or bye-laws. Furthermore, consideration would be given by a Bermuda court to acts
that are alleged to constitute a fraud against the minority shareholders or, for instance, where an act requires the approval
of a greater percentage of the company’s shareholders than that which actually approved it.
When the affairs of a company are being
conducted in a manner which is oppressive or prejudicial to the interests of some part of the shareholders, one or more shareholders
may apply to the Supreme Court of Bermuda, which may make such order as it sees fit, including an order regulating the conduct
of the company’s affairs in the future or ordering the purchase of the shares of any shareholders by other shareholders
or by the company.
Our Bye-laws contain a provision by virtue
of which our shareholders waive any claim or right of action that they have, both individually and on our behalf, against any
director or officer in relation to any action or failure to take action by such director or officer, except in respect of any
fraud or dishonesty of such director or officer. The SEC has advised that the operation of this provision as a waiver of the right
to sue for violations of federal securities laws would likely be unenforceable in U.S. courts.
Capitalization of Profits and Reserves
Pursuant to our Bye-laws, our board of
directors may (i) capitalize any part of the amount of our share premium or other reserve accounts or any amount credited to our
profit and loss account or otherwise available for distribution by applying such sum in paying up unissued shares to be allotted
as fully paid bonus shares pro-rata (except in connection with the conversion of shares) to the shareholders; or (ii) capitalize
any sum standing to the credit of a reserve account or sums otherwise available for dividend or distribution by paying up in full,
partly paid or nil paid shares of those shareholders who would have been entitled to such sums if they were distributed by way
of dividend or distribution.
Exchange controls
We have received consent under the Exchange
Control Act 1972 from the Bermuda Monetary Authority for the issue and transfer of the common shares to and between non-residents
of Bermuda for exchange control purposes provided our shares remain listed on an appointed stock exchange, which includes the
Nasdaq Capital Market. In granting such consent the Bermuda Monetary Authority accepts no responsibility for our financial soundness
or the correctness of any of the statements made or opinions expressed in this Annual Report.
Registrar or Transfer Agent
A register of holders of the common shares
is maintained by Conyers Corporate Services (Bermuda) Limited in Bermuda, and a branch register is maintained in the United States
by American Stock Transfer & Trust Company, LLC, who will serve as branch registrar and transfer agent.
Untraced Shareholders
Our Bye-laws provide that our board of
directors may forfeit any dividend or other monies payable in respect of any shares which remain unclaimed for six years from
the date when such monies became due for payment. In addition, we are entitled to cease sending dividend warrants and checks by
post or otherwise to a shareholder if such instruments have been returned undelivered to, or left uncashed by, such shareholder
on at least two consecutive occasions or, following one such occasion, reasonable enquires have failed to establish the shareholder’s
new address. This entitlement ceases if the shareholder claims a dividend or cashes a dividend check or a warrant.
Certain Provisions of Bermuda Law
We have been designated by the Bermuda
Monetary Authority as a non-resident for Bermuda exchange control purposes. This designation allows us to engage in transactions
in currencies other than the Bermuda dollar, and there are no restrictions on our ability to transfer funds (other than funds
denominated in Bermuda dollars) in and out of Bermuda or to pay dividends to United States residents who are holders of our common
shares.
We have received consent from the Bermuda
Monetary Authority for the issue and free transferability of all of our common shares to and between non-residents of Bermuda
for exchange control purposes, provided our shares remain listed on an appointed stock exchange, which includes the Nasdaq Capital
Market. Approvals or permissions given by the Bermuda Monetary Authority do not constitute a guarantee by the Bermuda Monetary
Authority as to our performance or creditworthiness. Accordingly, in giving such consent or permissions, the Bermuda Monetary
Authority shall not be liable for the financial soundness, performance or default of our business or for the correctness of any
opinions or statements expressed in this Annual Report. Certain issues and transfers of common shares involving persons deemed
resident in Bermuda for exchange control purposes require the specific consent of the Bermuda Monetary Authority.
In accordance with Bermuda law, share
certificates are only issued in the names of companies, partnerships or individuals. In the case of a shareholder acting in a
special capacity (for example as a trustee), certificates may, at the request of the shareholder, record the capacity in which
the shareholder is acting. Notwithstanding such recording of any special capacity, we will not be bound to investigate or see
to the execution of any such trust. We will take no notice of any trust applicable to any of our shares, whether or not we have
been notified of such trust.
Comparison of Corporate Law
Set forth below is a comparison of select
provisions of the corporate laws of Delaware and Bermuda showing the default positions in each jurisdiction that govern shareholder
rights.
DELAWARE CORPORATE
LAW
|
|
BERMUDA CORPORATE
LAW
|
|
|
|
Mergers and similar arrangements
|
|
Under the Delaware General Corporation Law, with certain exceptions, a merger, consolidation,
sale, lease or transfer of all or substantially all of the assets of a corporation must be approved by the board of directors
and a majority of the outstanding shares entitled to vote thereon. A shareholder of a Delaware corporation participating in
certain major corporate transactions may, under certain circumstances, be entitled to appraisal rights pursuant to which such
shareholder may receive cash in the amount of the fair value of the shares held by such shareholder (as determined by a court)
in lieu of the consideration such shareholder would otherwise receive in the transaction. The Delaware General Corporation
Law also provides that a parent corporation, by resolution of its board of directors, may merge with any subsidiary, of which
it owns at least 90.0% of each class of capital stock without a vote by the shareholders of such subsidiary. Upon any such
merger, dissenting shareholders of the subsidiary would have appraisal rights.
|
|
The amalgamation or merger of a Bermuda company with
another company or corporation (other than certain affiliated companies) requires the amalgamation or merger agreement
to be approved by the company’s board of directors and by its shareholders. Unless the company’s bye-laws
provide otherwise, the approval of 75% of the shareholders voting at a general meeting is required to approve the amalgamation
or merger agreement, and the quorum for such meeting must be two persons holding or representing more than one-third of
the issued shares of the company. The Bye-laws provide that a merger or an amalgamation (other than with a wholly owned
subsidiary or as described below) that has been approved by the board must only be approved by a majority of the votes
cast at a general meeting of the shareholders at which the quorum shall be two or more persons present in person and representing
in person or by proxy issued and outstanding voting shares.
The Bye-laws contain provisions regarding “business
combinations” with “interested shareholders”. Pursuant to our Bye-laws, in addition to any other approval
that may be required by applicable law, any business combination with an interested shareholder within a period of three
years after the date of the transaction in which the person became an interested shareholder must be approved by Auris
Medical’s board and authorized at an annual or special general meeting by the affirmative vote of at least 66 and
2/3rds% of Auris Medical’s issued and outstanding voting shares that are not owned by the interested shareholder,
unless: (i) prior to the time that the shareholder becoming an interested shareholder, our board of directors approved
either the business combination or the transaction that resulted in the shareholder becoming an interested shareholder;
or
|
|
|
(ii) upon consummation of the transaction that resulted
in the shareholder becoming an interested shareholder, the interested shareholder owned at least 85% of our issued and
outstanding voting shares at the time the transaction commenced. For purposes of these provisions, “business combinations”
include mergers, amalgamations, consolidations and certain sales, leases, exchanges, mortgages, pledges, transfers and
other dispositions of assets, issuances and transfers of shares and other transactions resulting in a financial benefit
to an interested shareholder.
An “interested shareholder” is a person
that beneficially owns 15% or more of our issued and outstanding voting shares and any person affiliated or associated
with us that owned 15% or more of our issued and outstanding voting shares at any time three years prior to the relevant
time.
|
DELAWARE CORPORATE LAW
|
|
BERMUDA CORPORATE LAW
|
|
|
|
|
|
Under Bermuda law, in the event of an amalgamation or merger of a Bermuda
company with another company or corporation, a shareholder of the Bermuda company who did not vote in favor of the amalgamation
or merger and who is not satisfied that fair value has been offered for such shareholder’s shares may, within one month
of notice of the shareholders meeting, apply to the Supreme Court of Bermuda to appraise the fair value of those shares. Note
that each share of an amalgamating or merging companies carries the right to vote in respect of an amalgamation or merger
whether or not is otherwise carries the right to vote.
|
|
|
|
Shareholders’ suits
|
|
Class actions and derivative actions generally are available to shareholders of a Delaware
corporation for, among other things, breach of fiduciary duty, corporate waste and actions not taken in accordance with applicable
law. In such actions, the court has discretion to permit the winning party to recover attorneys’ fees incurred in connection
with such action.
|
|
Class actions and derivative actions are generally
not available to shareholders under Bermuda law. The Bermuda courts, however, would ordinarily be expected to permit a
shareholder to commence an action in the name of a company to remedy a wrong to the company where the act complained of
is alleged to be beyond the corporate power of the company or illegal, or would result in the violation of the company’s
memorandum of association or bye-laws. Furthermore, consideration would be given by a Bermuda court to acts that are alleged
to constitute a fraud against the minority shareholders or, for instance, where an act requires the approval of a greater
percentage of the company’s shareholders than that which actually approved it.
When the affairs of a company are being conducted in
a manner which is oppressive or prejudicial to the interests of some part of the shareholders, one or more shareholders
may apply to the Supreme Court of Bermuda, which may make such order as it sees fit, including an order regulating the
conduct of the company’s affairs in the future or ordering the purchase of the shares of any shareholders by other
shareholders or by the company.
The Bye-laws contain a provision by virtue of which
Auris Medical’s shareholders waive any claim or right of action that they have, both individually and on Auris Medical’s
behalf, against any director or officer in relation to any action or failure to take action by such director or officer,
except in respect of any fraud or dishonesty of such director or officer.
|
|
|
|
Shareholder vote on board and management compensation
|
|
Under the Delaware General Corporation Law, the board of directors has the authority to
fix the compensation of directors, unless otherwise restricted by the certificate of incorporation or bylaws.
|
|
The Bye-laws contains a provision that the board of directors has the power to determine
the remuneration, if any, of the directors.
|
DELAWARE CORPORATE
LAW
|
|
BERMUDA CORPORATE
LAW
|
Annual vote on board renewal
|
|
Unless directors are elected by written consent in lieu of an annual
meeting, directors are elected in an annual meeting of stockholders on a date and at a time designated by or in the manner
provided in the bylaws. Re-election is possible.
|
|
The Bye-laws provide that the directors shall hold office for such term
as the shareholders may determine or, in their absence of such determination, until the next annual general meeting, or until
their successors are elected or appointed or their office is otherwise vacated. Re-election is possible.
|
|
|
|
Classified boards are permitted.
|
|
Provision for staggered boards of directors may be included in a company’s bye-laws.
|
|
|
|
Indemnification of directors and executive management
and limitation of liability
|
|
The Delaware General Corporation Law provides that
a certificate of incorporation may contain a provision eliminating or limiting the personal liability of directors (but
not other controlling persons) of the corporation for monetary damages for breach of a fiduciary duty as a director, except
no provision in the certificate of incorporation may eliminate or limit the liability of a director for:
any breach of a director’s duty of loyalty
to the corporation or its shareholders;
acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law;
statutory liability for unlawful payment of
dividends or unlawful stock purchase or redemption; or
any transaction from which the director derived
an improper personal benefit.
|
|
Section 98 of the Companies Act provides generally that a Bermuda company may indemnify
its directors, officers and auditors against any liability which by virtue of any rule of law would otherwise be imposed on
them in respect of any negligence, default, breach of duty or breach of trust, except in cases where such liability arises
from fraud or dishonesty of which such director, officer or auditor may be guilty in relation to the company. Section 98 further
provides that a Bermuda company may indemnify its directors, officers and auditors against any liability incurred by them
in defending any proceedings, whether civil or criminal, in which judgment is awarded in their favor or in which they are
acquitted or granted relief by the Supreme Court of Bermuda pursuant to section 281 of the Companies Act.
|
|
|
|
A Delaware corporation may indemnify any person who was or is a party or is threatened to
be made a party to any proceeding, other than an action by or on behalf of the corporation, because the person is or was a
director or officer, against liability incurred in connection with the proceeding if the director or officer acted in good
faith and in a manner reasonably believed to be in, or not opposed to, the best interests of the corporation; and the director
or officer, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.
|
|
The Bye-laws contain provisions that provide that Auris Medical shall indemnify its officers
and directors in respect of their actions and omissions, except in respect of their fraud or dishonesty. Our bye-laws provide
that the shareholders waive all claims or rights of action that they might have, individually or in right of the company,
against any of the company’s directors or officers for any act or failure to act in the performance of such director’s
or officer’s duties, except in respect of any fraud or dishonesty of such director or officer. Section 98A of the Companies
Act permits Auris Medical to purchase and maintain insurance for the benefit of any officer or director in respect of any
loss or liability attaching to him in respect of any negligence, default, breach of duty or breach of trust, whether or not
we may otherwise indemnify such officer or director. We have purchased and maintain a directors’ and officers’
liability policy for such a purpose.
|
Unless ordered by a court, any foregoing indemnification
is subject to a determination that the director or officer has met the applicable standard of conduct:
by a majority vote of the directors who are
not parties to the proceeding, even though less than a quorum;
by a committee of directors designated by a
majority vote of the eligible directors, even though less than a quorum;
by independent legal counsel in a written opinion
if there are no eligible directors, or if the eligible directors so direct; or
by the shareholders.
|
|
|
DELAWARE CORPORATE
LAW
|
|
BERMUDA CORPORATE
LAW
|
Moreover, a Delaware corporation may not indemnify a director or officer
in connection with any proceeding in which the director or officer has been adjudged to be liable to the corporation unless
and only to the extent that the court determines that, despite the adjudication of liability but in view of all the circumstances
of the case, the director or officer is fairly and reasonably entitled to indemnity for those expenses which the court deems
proper.
|
|
|
|
|
|
Directors’ fiduciary duties
|
|
A director of a Delaware corporation has a fiduciary
duty to the corporation and its shareholders. This duty has two components:
the duty of care; and
the duty of loyalty.
|
|
At common law, members of a board of directors owe a fiduciary duty to the company to act
in good faith in their dealings with or on behalf of the company and exercise their powers and fulfill the duties of their
office honestly. This duty includes the following elements: (i) a duty to act in good faith in the best interests of the company;
(ii) a duty not to make a personal profit from opportunities that arise from the office of director; (iii) a duty to avoid
conflicts of interest; and (iv) a duty to exercise powers for the purpose for which such powers were intended.
|
|
|
|
The duty of care requires that a director act in good faith, with the care that an ordinarily
prudent person would exercise under similar circumstances. Under this duty, a director must inform himself of, and disclose
to shareholders, all material information reasonably available regarding a significant transaction. The duty of loyalty requires
that a director act in a manner he reasonably believes to be in the best interests of the corporation. He must not use his
corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the best
interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling
shareholder and not shared by the shareholders generally. In general, actions of a director are presumed to have been made
on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation.
However, this presumption may be rebutted by evidence a breach of one of the fiduciary duties.
|
|
The Companies Act also imposes a duty on directors
and officers of a Bermuda company to: (i) act honestly and in good faith with a view to the best interests of the company;
and (ii) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
In addition, the Companies Act imposes various duties
on directors and officers of a company with respect to certain matters of management and administration of the company.
|
|
|
|
Should such evidence be presented concerning a transaction by a director, a director must
prove the procedural fairness of the transaction, and that the transaction was of fair value to the corporation.
|
|
|
DELAWARE CORPORATE
LAW
|
|
BERMUDA CORPORATE
LAW
|
Shareholder action by written consent
|
|
A Delaware corporation may, in its certificate of incorporation, eliminate
the right of shareholders to act by written consent.
|
|
The Companies Act provides that shareholders may take action by written
consent, expect in respect of the removal of an auditor from office before the expiry of his term or in respect of a resolution
passed for the purpose of removing a director before the expiration of his term of office. A resolution in writing is passed
when it is signed by the members of the company who at the date of the notice of the resolution represent such majority of
votes as would be required if the resolution had been voted on at a meeting or when it is signed by all the members of the
company or such other majority of members as may be provided by the bye-laws of the company.
|
|
|
|
Shareholder proposals
|
|
A shareholder of a Delaware corporation has the right to put any proposal before the annual
meeting of shareholders, provided it complies with the notice provisions in the governing documents. A special meeting may
be called by the board of directors or any other person authorized to do so in the governing documents, but shareholders may
be precluded from calling special meetings.
|
|
Shareholder(s) may, as set forth below and at their own expense (unless the company otherwise
resolves), require the company to: (i) give notice to all shareholders entitled to receive notice of the annual general meeting
of any resolution that the shareholder(s) may properly move at the next annual general meeting; and/or (ii) circulate to all
shareholders entitled to receive notice of any general meeting a statement in respect of any matter referred to in the proposed
resolution or any business to be conducted at such general meeting. The number of shareholders necessary for such a requisition
is either: (i) any number of shareholders representing not less than 5% of the total voting rights of all shareholders entitled
to vote at the meeting to which the requisition relates; or (ii) not less than 100 shareholders.
|
|
|
|
|
|
Pursuant to the Bye-laws, any shareholder or shareholders holding or representing not less
than 5% of the total voting rights wishing to propose for election as a director someone who is not an existing director or
is not proposed by Auris Medical’s board must give notice of the intention to propose the person for election in accordance
with the Bye-laws.
|
DELAWARE CORPORATE
LAW
|
|
BERMUDA CORPORATE
LAW
|
Cumulative voting
|
|
Under the Delaware General Corporation Law, cumulative voting for elections
of directors is not permitted unless the corporation’s certificate of incorporation provides for it.
|
|
Under Bermuda law, the voting rights of shareholders are regulated by
the company’s bye-laws and, in certain circumstances, by the Companies Act. The Bye-laws provide for a plurality of
voting for elections of directors, and cumulative voting for elections of directors is not permitted.
|
|
|
|
Removal of directors
|
|
A Delaware corporation with a classified board may be removed only for cause with the approval
of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise.
|
|
Under the Bye-laws, a director may be removed, with cause, by the shareholders, provided
notice of the shareholders meeting convened to remove the director is given to the director. The notice must contain a statement
of the intention to remove the director and must be served on the director not less than fourteen days before the meeting.
The director is entitled to attend the meeting and be heard on the motion for his removal.
|
|
|
|
Transactions with interested shareholders
|
|
The Delaware General Corporation Law generally prohibits a Delaware corporation from engaging
in certain business combinations with an “interested shareholder” for three years following the date that such
person becomes an interested shareholder. An interested shareholder generally is a person or group who or which owns or owned
15.0% or more of the corporation’s outstanding voting stock within the past three years.
|
|
There is no similar law in Bermuda.
The Bye-laws contain provisions regarding “business
combinations” with “interested shareholders” which are described above under “mergers and similar
arrangements.”
|
|
|
|
Dissolution; Winding up
|
|
Unless the board of directors of a Delaware corporation approves the proposal to dissolve,
dissolution must be approved by shareholders holding 100.0% of the total voting power of the corporation. Only if the dissolution
is initiated by the board of directors may it be approved by a simple majority of the corporation’s outstanding shares.
Delaware law allows a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement
in connection with dissolutions initiated by the board.
|
|
A Bermuda company may be wound up by the Bermuda court
on application presented by the company itself, its creditors (including contingent or prospective creditors) or its contributories.
The Bermuda court has authority to order winding up in a number of specified circumstances including where it is, in the
opinion of the Bermuda court, just and equitable to do so.
A Bermuda company limited by shares may be wound up
voluntarily when the shareholders so resolve in general meeting. In the case of a voluntary winding up, the company shall,
from the commencement of the winding up, cease to carry on its business, except so far as may be required for the beneficial
winding up thereof.
|
DELAWARE CORPORATE
LAW
|
|
BERMUDA CORPORATE
LAW
|
Variation of rights of shares
|
|
A Delaware corporation may vary the rights of a class of shares with
the approval of a majority of the outstanding shares of such class, unless the certificate of incorporation provides otherwise.
|
|
Under the Bye-laws, if at any time we have more than one class of shares,
the rights attaching to any class, unless otherwise provided for by the terms of issue of the relevant class, may be varied
either: (i) with the consent in writing of the holders of 75% of the issued shares of that class; or (ii) with the sanction
of a resolution passed by a majority of the votes cast at a general meeting of the relevant class of shareholders at which
a quorum consisting of at least two persons holding or representing issued shares of the relevant class is present. The Bye-laws
specify that the creation or issue of shares ranking equally with existing shares will not, unless expressly provided by the
terms of issue of existing shares, vary the rights attached to existing shares. In addition, the creation or issue of preference
shares ranking prior to common shares will not be deemed to vary the rights attached to common shares or, subject to the terms
of any other series of preference shares, to vary the rights attached to any other series of preference shares.
|
|
|
|
Amendment of governing documents
|
|
A Delaware corporation’s governing documents may be amended with the approval of a
majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise.
|
|
A Bermuda company’s memorandum of association and bye-laws may be amended by resolutions
of the board of directors and the shareholders, subject to the company’s bye-laws.
|
|
|
|
Inspection of Books and Records
|
|
Shareholders of a Delaware corporation, upon written demand under oath stating the purpose
thereof, have the right during the usual hours for business to inspect for any proper purpose, and to obtain copies of list(s)
of shareholders and other books and records of the corporation and its subsidiaries, if any, to the extent the books and records
of such subsidiaries are available to the corporation.
|
|
Members of the general public have a right to inspect the public documents of a company
available at the office of the Registrar of Companies in Bermuda. These documents include the company’s memorandum of
association/continuance, including its objects and powers, and certain alterations to the memorandum of association/continuance.
The shareholders have the additional right to inspect the bye-laws of the company, minutes of general meetings and the company’s
audited financial statements, which must be presented to the annual general meeting. The register of members of a company
is also open to inspection by shareholders without charge, and by members of the general public on payment of a fee. The register
of members is required to be open for inspection for not less than two hours in any business day (subject to the ability of
a company to close the register of members for not more than thirty days in a year). A company is required to maintain its
share register in Bermuda but may, subject to the provisions of the Companies Act, establish a branch register outside of
Bermuda. A company is required to keep at its registered office a register of directors and officers that is open for inspection
for not less than two hours in any business day by members of the public without charge. Bermuda law does not, however, provide
a general right for shareholders to inspect or obtain copies of any other corporate records.
|
DELAWARE CORPORATE
LAW
|
|
BERMUDA CORPORATE
LAW
|
Payment of dividends
|
|
The board of directors may approve
a dividend without shareholder approval. Subject to any restrictions contained in its certificate of
incorporation, the board may declare and pay dividends upon the shares of its capital stock either:
out of its surplus, or
in case there is no such surplus, out of its
net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year.
Stockholder approval is required to authorize capital
stock in excess of that provided in the charter. Directors may issue authorized shares without stockholder approval.
|
|
Under Bermuda law, the board of directors may declare a dividend without
shareholder approval, but a company may not declare or pay dividends if there are reasonable grounds for believing that: (i)
the company is, or would after the payment be, unable to pay its liabilities as they become due; or (ii) that the realizable
value of its assets would thereby be less than its liabilities. Under the Bye-laws, each common share is entitled to dividends
if, as and when dividends are declared by our board of directors, subject to any preferred dividend right of the holders of
any preference shares.
|
|
|
|
Creation and issuance of new shares
|
|
All creation of shares require the board of directors to adopt a resolution or resolutions,
pursuant to authority expressly vested in the board of directors by the provisions of the company’s certificate of incorporation.
|
|
The authorized share capital of a Bermuda company is determined by the company’s shareholders.
|
Except as otherwise disclosed in this
Annual Report (including the Exhibits), we are not currently, and have not been in the last two years, party to any material contract,
other than contracts entered into in the ordinary course of business.
We have been designated by the Bermuda
Monetary Authority as a non-resident for Bermuda exchange control purposes. This designation allows us to engage in transactions
in currencies other than the Bermuda dollar, and there are no restrictions on our ability to transfer funds (other than funds
denominated in Bermuda dollars) in and out of Bermuda or to pay dividends to United States residents who are holders of our common
shares.
We have received consent from the Bermuda
Monetary Authority for the issue and free transferability of all of our common shares to and between non-residents of Bermuda
for exchange control purposes, provided our shares remain listed on an appointed stock exchange, which includes the Nasdaq Capital
Market. Approvals or permissions given by the Bermuda Monetary Authority do not constitute a guarantee by the Bermuda Monetary
Authority as to our performance or creditworthiness. Accordingly, in giving such consent or permissions, the Bermuda Monetary
Authority shall not be liable for the financial soundness, performance or default of our business or for the correctness of any
opinions or statements expressed in this Annual Report. Certain issues and transfers of common shares involving persons deemed
resident in Bermuda for exchange control purposes require the specific consent of the Bermuda Monetary Authority.
There are no Swiss governmental laws,
decrees or regulations that restrict, in a manner material to us, the export or import of capital, including any foreign exchange
controls, or that generally affect the remittance of dividends or other payments to non-residents or non-citizens of Switzerland
who hold our common shares.
The following summary contains a description
of the material Bermuda, Swiss and U.S. federal income tax consequences of the acquisition, ownership and disposition of common
shares, but it does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision
to purchase common shares. The summary is based upon the tax laws of Bermuda and regulations thereunder, of Switzerland and regulations
thereunder and on the tax laws of the United States and regulations thereunder as of the date hereof, which may be subject to
change.
Bermuda Tax Considerations
At the present time, there is no Bermuda
income or profits tax, withholding tax, capital gains tax, capital transfer tax, estate duty or inheritance tax payable by us
or by our shareholders in respect of our shares. We have received an assurance from the Minister of Finance of Bermuda under the
Exempted Undertakings Tax Protection Act 1966 that, in the event that any legislation is enacted in Bermuda imposing any tax computed
on profits or income, or computed on any capital asset, gain or appreciation or any tax in the nature of estate duty or inheritance
tax, such tax shall not, until March 31, 2035, be applicable to us or to any of our operations or to our shares, debentures or
other obligations except insofar as such tax applies to persons ordinarily resident in Bermuda or is payable by us in respect
of real property owned or leased by us in Bermuda.
Swiss Tax Considerations
This summary of material Swiss tax consequences
is based on Swiss law and regulations and the practice of the Swiss tax administration as in effect on the date hereof, all of
which are subject to change (or subject to changes in interpretation), possibly with retroactive effect. The summary does not
purport to take into account the specific circumstances of any particular shareholder or potential investor and does not relate
to persons in the business of buying and selling common shares or other securities. The summary is not intended to be, and should
not be interpreted as, legal or tax advice to any particular potential shareholder/s, and no representation with respect to the
tax consequences to any particular shareholder/s is made.
Current and prospective shareholders are
advised to consult their own tax advisers in light of their particular circumstances as to the Swiss tax laws, regulations and
regulatory practices that could be relevant for them in connection with the acquiring, owning and selling or otherwise disposing
of common shares and receiving dividends and similar cash or in-kind distributions on common shares (including dividends on liquidation
proceeds and stock dividends) or distributions on common shares based upon a capital reduction (Nennwertrückzahlungen)
or reserves paid out of capital contributions (Reserven aus Kapitaleinlagen) and the consequences thereof under the tax
laws, regulations and regulatory practices of Switzerland.
Taxation of Auris Medical Holding Ltd.
Auris Medical Holding Ltd. is a Swiss tax
resident company, ordinary taxed in the Canton of Zug. The Company is taxed at a current effective income tax rate of 11.9% (including
direct federal as well as cantonal/communal taxes), whereby a participation relief applies to dividend income from qualifying subsidiaries,
and a current annual capital tax rate of 0.072% which is levied on the net equity of the Company.
Taxation of Common Shares: Swiss Federal Withholding Tax
on Dividends and Distributions
Dividend payments and similar cash or
in-kind distributions on the common shares (including dividends on liquidation proceeds and stock dividends) that the Company
makes to shareholders are subject to Swiss federal withholding tax (Verrechnungssteuer) at a rate of 35% on the gross amount
of the dividend. The Company is required to withhold the Swiss federal withholding tax from the dividend and remit it to the Swiss
Federal Tax Administration. Distributions based upon a capital reduction (Nennwertrückzahlungen) and reserves paid
out of capital contributions (Reserven aus Kapitaleinlagen) are not subject to Swiss federal withholding tax.
The Swiss federal withholding tax may
also apply to gains realized upon a repurchase of shares by the Company, on the difference between the repurchase price and the
nominal value of the shares (Nennwertprinzip); a different basis of taxation may apply under the capital contribution principle
(Kapitaleinlageprinzip).
The Swiss federal withholding tax is refundable
or creditable in full to a Swiss tax resident corporate and individual shareholder as well as to a non-Swiss tax resident corporate
or individual shareholder who holds the common shares as part of a trade or business carried on in Switzerland through a permanent
establishment or fixed place of business situated for tax purposes in Switzerland, if such person is the beneficial owner of the
distribution and, in the case of a Swiss tax resident individual who holds the common shares as part of his private assets, duly
reports the gross distribution received in his individual income tax return or, in the case of a person who holds the common shares
as part of a trade or business carried on in Switzerland through a permanent establishment or fixed place of business situated
for tax purposes in Switzerland, recognizes the gross dividend distribution for tax purposes as earnings in the income statements
and reports the annual profit in the Swiss income tax return.
If a shareholder who is not a Swiss resident
for tax purposes and does not hold the common shares in connection with the conduct of a trade or business in Switzerland through
a permanent establishment or fixed place of business situated, for tax purposes in Switzerland, receives a distribution from the
Company, the shareholder may be entitled to a full or partial refund or credit of Swiss federal withholding tax incurred on a
taxable distribution if the country in which such shareholder is resident for tax purposes has entered into a treaty for the avoidance
of double taxation with Switzerland and the further prerequisites of the treaty for a refund have been met. Shareholders not resident
in Switzerland should be aware that the procedures for claiming treaty benefits (and the time required for obtaining a refund
or credit) may differ from country to country. Besides bilateral tax treaties, Switzerland has entered into an agreement with
the European Union on the automatic exchange of information in tax matters (the “AEOI Agreement”) which provides for,
inter alia, full withholding tax exemption of cross-border dividends, interest and royalties between related entities from EU
member states to Switzerland and vice versa if the respective requirements of Article 9 AEOI Agreement are met.
Individual and Corporate Income Tax on Dividends
Swiss resident individuals holding the
common shares as part of their private assets who receive dividends and similar distributions (including stock dividends and liquidation
proceeds), which are not repayments of the nominal value (Nennwertrückzahlungen) of the common shares or reserves
paid out of capital contributions (Reserven aus Kapitaleinlagen) are required to report such payments in their individual
income tax returns and are liable to Swiss federal, cantonal and communal income taxes on any net taxable income for the relevant
tax period. Furthermore, for the purpose of the Direct Federal Tax, dividends, shares in profits, liquidation proceeds and pecuniary
benefits from shares (including bonus shares) are included in the tax base for only 70% of their value (Teilbesteuerung),
if the investment amounts to at least 10% of nominal share capital of the Company. All Swiss cantons have introduced similar partial
taxation measures at cantonal and communal levels with a minimum tax base of 50%.
Swiss resident individuals as well as
non-Swiss resident individual taxpayers holding the common shares in connection with the conduct of a trade or business in Switzerland
through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland, are required to recognize
dividends, distributions based upon a capital reduction (Nennwertrückzahlungen) and reserves paid out of capital contributions
(Reserven aus Kapitaleinlagen) in their income statements for the relevant tax period and are liable to Swiss federal,
cantonal and communal individual or corporate income taxes, as the case may be, on any net taxable earnings accumulated (including
the payment of dividends) for such period. Furthermore, for the purpose of the Direct Federal Tax, dividends, shares in profits,
liquidation proceeds and pecuniary benefits from shares (including bonus shares) are included in the tax base for only 70% (Teilbesteuerung),
if the investment is held in connection with the conduct of a trade or business or qualifies as an opted business asset (gewillkürtes
Geschäftsvermögen) according to Swiss tax law and amounts to at least 10% of nominal share capital of the Company.
All cantons have introduced similar partial taxation measures at cantonal and communal levels with a minimum tax base of 50%.
Swiss resident corporate taxpayers as
well as non-Swiss resident corporate taxpayers holding the common shares in connection with the conduct of a trade or business
through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland, are required to recognize
dividends, distributions based upon a capital reduction (Nennwertrückzahlungen) and reserves paid out of capital contributions
(Reserven aus Kapitaleinlagen) in their income statements for the relevant tax period and are liable to Swiss federal,
cantonal and communal corporate income taxes on any net taxable earnings accumulated for such period. Swiss resident corporate
taxpayers as well as non-Swiss resident corporate taxpayers holding the common shares in connection with the conduct of a trade
or business through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland may be eligible
for participation relief (Beteiligungsabzug) in respect of dividends and distributions based upon a capital reduction (Nennwertrückzahlungen)
and reserves paid out of capital contributions (Reserven aus Kapitaleinlagen) if the common shares held by them as part
of a Swiss business have an aggregate market value of at least CHF 1 million or represent at least 10% of the nominal share capital
of the Company or give entitlement to at least 10% of the profits and reserves of the Company, respectively.
Recipients of dividends and similar distributions
on the common shares (including stock dividends and liquidation proceeds) who neither are residents of Switzerland nor during
the current taxation year have engaged in a trade or business in Switzerland and who are not subject to taxation in Switzerland
for any other reason are not subject to Swiss federal, cantonal or communal individual or corporate income taxes in respect of
dividend payments and similar distributions because of the mere holding of the common shares.
Wealth and Annual Capital Tax on Holding of Common Shares
Swiss resident individuals holding the
common shares as private assets are required to report their common shares as part of their wealth and will be subject to cantonal
and communal wealth tax to the extent the aggregate taxable net wealth is allocable to Switzerland.
Individuals and corporate taxpayers holding
the common shares in connection with the conduct of a trade or business in Switzerland through a permanent establishment or fixed
place of business situated, for tax purposes, in Switzerland, will be subject to cantonal and communal annual capital tax on the
taxable capital to the extent the aggregate taxable capital is allocable to Switzerland.
Individuals and corporate taxpayers not
resident in Switzerland for tax purposes and not holding the common shares in connection with the conduct of a trade or business
in Switzerland through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland, are not
subject to wealth or annual capital tax in Switzerland because of the mere holding of the common shares.
Capital Gains on Disposal of Common Shares
Swiss resident individuals who sell or
otherwise dispose of the common shares realize a tax-free capital gain, or a non-deductible capital loss, as the case may be,
provided that they hold the common shares as part of their private assets. Under certain circumstances, the sale proceeds may
be requalified into taxable investment income (e.g., if the taxpayer is deemed to be a professional securities dealer, etc.).
Capital gains realized on the sale of
the common shares held by Swiss resident individuals who do not hold the common shares as part of their private assets and Swiss
resident corporate taxpayers, as well as non-Swiss resident individuals and corporate taxpayers holding the common shares in connection
with the conduct of a trade or business in Switzerland through a permanent establishment or fixed place of business situated,
for tax purposes, in Switzerland, will be subject to Swiss federal, cantonal and communal individual or corporate income tax,
as the case may be. This also applies to Swiss resident individuals who, for individual income tax purposes, are deemed to be
professional securities dealers for reasons of, inter alia, frequent dealing and debt-financed purchases. Capital gains realized
by resident individuals who hold the common shares as business assets might be entitled to reductions or partial taxations similar
to those mentioned above for dividends (Teilbesteuerung) if certain conditions are met (e.g., holding period of at least
one year and participation of at least 10% of nominal share capital of the Company).
Swiss resident corporate taxpayers as
well as non-Swiss resident corporate taxpayers holding the common shares in connection with the conduct of a trade or business,
through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland, are required to recognize
such capital gain in their income statements for the relevant tax period. Corporate taxpayers may qualify for participation relief
on capital gains (Beteiligungsabzug), if the common shares sold during the tax period represent at least 10% of the Company’s
share capital or if the common shares sold give entitlement to at least 10% of the Company’s profit and reserve and were
held for at least one year. The tax relief applies to the difference between the sale proceeds of common shares by the Company
and the acquisition costs of the participation (Gestehungskosten).
Individuals and corporations not resident
in Switzerland for tax purposes and not holding the common shares in connection with the conduct of a trade or business in Switzerland
through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland, are not subject to Swiss
federal, cantonal and communal individual income or corporate income tax, as the case may be, on capital gains realized on the
sale of the common shares.
Gift and Inheritance Tax
Transfers of common shares may be subject
to cantonal and/or communal inheritance or gift taxes if the deceased or the donor or the recipient were resident in a Canton
levying such taxes and, in international circumstances where residency requirements are satisfied, if the applicable tax treaty
were to allocate the right to tax to Switzerland.
Swiss Issuance Stamp Duty
The Company is subject to paying to the
Swiss Federal Tax Administration a 1% Swiss federal issuance stamp tax (Emissionsabgabe) on any increase of the nominal
share capital of the Company (including capital surplus) or any other equity contributions received by the Company (with or without
issuance of shares). Certain costs incurred in connection with the issuance of shares (if any) may be deductible. There are several
exemptions from issuance stamp tax that may apply under certain circumstances (e.g., certain intercompany reorganizations).
Swiss Securities Transfer Tax
The purchase or sale (or other financial
transfer) of the common shares, whether by Swiss residents or non-Swiss residents, may be subject to Swiss securities transfer
tax of up to 0.15%, calculated on the purchase price or the proceeds if the purchase or sale occurs through or with a Swiss bank
or other Swiss securities dealer as defined in the Swiss Federal Stamp Duty Act as an intermediary or party to the transaction
unless an exemption applies.
Material U.S. Federal Income Tax Considerations for U.S.
Holders
The following is a description of the
material U.S. federal income tax consequences to the U.S. Holders described below of owning and disposing of common shares, but
it does not purport to be a comprehensive description of all tax considerations that may be relevant to a particular person’s
decision to hold the common shares. This discussion applies only to a U.S. Holder that holds common shares as capital assets for
U.S. federal income tax purposes. In addition, it does not describe all of the tax consequences that may be relevant in light
of the U.S. Holder’s particular circumstances, including alternative minimum tax consequences, the potential application
of the provisions of the Code, known as the Medicare contribution tax and tax consequences applicable to U.S. Holders subject
to special rules, such as:
|
●
|
certain
financial institutions;
|
|
●
|
dealers
or traders in securities who use a mark-to-market method of tax accounting;
|
|
●
|
persons
holding common shares as part of a straddle, wash sale, conversion transaction or persons
entering into a constructive sale with respect to the common shares;
|
|
●
|
persons
whose functional currency for U.S. federal income tax purposes is not the U.S. dollar;
|
|
●
|
entities
classified as partnerships for U.S. federal income tax purposes;
|
|
●
|
tax-exempt
entities, including an “individual retirement account” or “Roth IRA”;
|
|
●
|
persons
that own or are deemed to own ten percent or more of our stock by vote or value;
|
|
●
|
persons
who acquired our common shares pursuant to the exercise of an employee stock option or
otherwise as compensation; or
|
|
●
|
persons
holding shares in connection with a trade or business conducted outside of the United
States.
|
If an entity that is classified as a partnership
for U.S. federal income tax purposes holds common shares, the U.S. federal income tax treatment of a partner will generally depend
on the status of the partner and the activities of the partnership. Partnerships holding common shares and partners in such partnerships
should consult their tax advisers as to their particular U.S. federal income tax consequences of holding and disposing of the
common shares.
This discussion is based on the Code, administrative
pronouncements, judicial decisions, final, temporary and proposed Treasury regulations, all as of the date hereof, any of which
is subject to change, possibly with retroactive effect.
A “U.S. Holder” is a holder
who, for U.S. federal income tax purposes, is a beneficial owner of common shares and is:
|
●
|
an
individual who is a citizen or resident of the United States;
|
|
●
|
a
corporation, or other entity taxable as a corporation, created or organized in or under
the laws of the United States, any state therein or the District of Columbia; or
|
|
●
|
an
estate the income of which is subject to U.S. federal income taxation regardless
of its source.
|
|
●
|
a trust with respect to which a U.S. court is able
to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all of its
substantial decisions, or that has a valid election in effect to be treated as a U.S. person under applicable U.S. Treasury Regulations.
|
U.S. Holders should consult their tax advisers
concerning the U.S. federal, state, local and non-U.S. tax consequences of owning and disposing of common shares in their particular
circumstances.
Passive Foreign Investment Company Rules
We believe that we were a PFIC for U.S.
federal income tax purposes for our 2019 taxable year, and we expect to be a PFIC for our current taxable year and for the foreseeable
future. However, our actual PFIC status for the current or any future taxable year is uncertain and cannot be determined until
after the end of such taxable year. In addition, we may, directly or indirectly, hold equity interests in other PFICs, or Lower-tier
PFICs. In general, a non-U.S. corporation will be considered a PFIC for any taxable year in which (i) 75% or more of its gross
income consists of passive income or (ii) 50% or more of the average quarterly value of its assets consists of assets that produce,
or are held for the production of, passive income. For purposes of the above calculations, a non-U.S. corporation that directly
or indirectly owns at least 25% by value of the shares of another corporation is treated as if it held its proportionate share
of the assets of the other corporation and received directly its proportionate share of the income of the other corporation. Passive
income generally includes dividends, interest, rents, royalties and capital gains.
Under attribution rules, assuming we are
a PFIC, U.S. Holders will be deemed to own their proportionate shares of Lower-tier PFICs and will be subject to U.S. federal
income tax according to the rules described in the following paragraphs on (i) certain distributions by a Lower-tier PFIC and
(ii) a disposition of shares of a Lower-tier PFIC, in each case as if the U.S. Holder held such shares directly, even if the U.S.
Holder has not received the proceeds of those distributions or dispositions.
If we are a PFIC for any taxable year
during which a U.S. Holder holds our shares, the U.S. Holder may be subject to certain adverse tax consequences. Unless a U.S.
Holder makes a timely “mark to market” election or “qualified electing fund” election, each as discussed
below, gain recognized on a disposition (including, under certain circumstances, a pledge) of common shares by the U.S. Holder,
or on an indirect disposition of shares of a Lower-tier PFIC, will be allocated ratably over the U.S. Holder’s holding period
for the shares. The amounts allocated to the taxable year of disposition and to years before we became a PFIC, if any, will be
taxed as ordinary income. The amounts allocated to each other taxable year will be subject to tax at the highest rate in effect
for that taxable year for individuals or corporations, as appropriate, and an interest charge will be imposed on the tax attributable
to the allocated amounts. Further, to the extent that any distribution received by a U.S. Holder on our common shares (or a distribution
by a Lower-tier PFIC to its shareholder that is deemed to be received by a U.S. Holder) exceeds 125% of the average of the annual
distributions on the shares received during the preceding three years or the U.S. Holder’s holding period, whichever is
shorter, the distribution will be subject to taxation in the same manner as gain, described immediately above.
If we are a PFIC for any year during which
a U.S. Holder holds common shares, we generally will continue to be treated as a PFIC with respect to the U.S. Holder for all
succeeding years during which the U.S. Holder holds common shares, even if we cease to meet the threshold requirements for PFIC
status. U.S. Holders should consult their tax advisers regarding the potential availability of a “deemed sale” election
that would allow them to eliminate this continuing PFIC status under certain circumstances.
If our common shares are “regularly
traded” on a “qualified exchange,” a U.S. Holder may make a mark-to-market election that would result in tax
treatment different from the general tax treatment for PFICs described above. Our common shares will be treated as “regularly
traded” in any calendar year in which more than a de minimis quantity of the common shares is traded on a qualified exchange
on at least 15 days during each calendar quarter. Nasdaq, on which the common shares are currently listed, is a qualified exchange
for this purpose. U.S. Holders should consult their tax advisers regarding the availability and advisability of making a mark-to-market
election in their particular circumstances and the consequences to them if the common shares are delisted from Nasdaq (see “Item
3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—Our common shares may be involuntarily
delisted from trading on The Nasdaq Capital Market if we fail to comply with the continued listing requirements. A delisting of
our common shares is likely to reduce the liquidity of our common shares and may inhibit or preclude our ability to raise additional
financing” above). In particular, U.S. Holders should consider carefully the impact of a mark-to-market election with respect
to their common shares given that we may have Lower-tier PFICs for which a mark-to-market election may not be available.
If a U.S. Holder makes the mark-to-market
election, the U.S. Holder generally will recognize as ordinary income any excess of the fair market value of the common shares
at the end of each taxable year over their adjusted tax basis, and will recognize an ordinary loss in respect of any excess of
the adjusted tax basis of the common shares over their fair market value at the end of the taxable year (but only to the extent
of the net amount of income previously included as a result of the mark-to-market election). If a U.S. Holder makes the election,
the U.S. Holder’s tax basis in the common shares will be adjusted to reflect the income or loss amounts recognized. Any gain
recognized on a sale or other disposition of common shares in a year in which we are a PFIC will be treated as ordinary income
and any loss will be treated as an ordinary loss (but only to the extent of the net amount of income previously included as a result
of the mark to-market election). Distributions paid on common shares will be treated as discussed below under “Taxation
of Distributions.” Once made, the election cannot be revoked without the consent of the Internal Revenue Service unless
the common shares cease to be marketable.
Alternatively, a U.S. Holder can make
an election, if we provide the necessary information, to treat us and each Lower-tier PFIC as a qualified electing fund (a
“QEF Election”) in the first taxable year that we (and each Lowertier PFIC) are treated as a PFIC with respect to
the U.S. Holder. A U.S. Holder must make the QEF Election for each PFIC by attaching a separate properly completed IRS Form
8621 (Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund) for each PFIC
to its timely filed U.S. federal income tax return. Upon request of a U.S. Holder, we will provide the information necessary
for a U.S. Holder to make a QEF Election with respect to us and will use commercially reasonable efforts to cause each
Lower-tier PFIC which we control to provide such information with respect to such Lower-tier PFIC. However, no assurance can
be given that such QEF Election information will be available for any Lower-tier PFIC and we cannot guarantee that we will
continue to provide such determination or information in future years.
If a U.S. Holder makes a QEF Election
with respect to a PFIC, the U.S. Holder will be currently taxable on its pro rata share of the PFIC’s ordinary earnings
and net capital gain (at ordinary income and capital gain rates, respectively) for each taxable year that the entity is classified
as a PFIC. If a U.S. Holder makes a QEF Election with respect to us, any distributions paid by us out of our earnings and profits
that were previously included in the U.S. Holder’s income under the QEF Election will not be taxable to the U.S. Holder.
A U.S. Holder will increase its tax basis in its common shares by an amount equal to any income included under the QEF Election
and will decrease its tax basis by any amount distributed on the common shares that is not included in its income. In addition,
a U.S. Holder will recognize capital gain or loss on the disposition of common shares in an amount equal to the difference between
the amount realized and its adjusted tax basis in the common shares. U.S. Holders should note that if they make QEF Elections
with respect to us and Lower-tier PFICs, they may be required to pay U.S. federal income tax with respect to their common shares
for any taxable year significantly in excess of any cash distributions received on the shares for such taxable year. U.S. Holders
should consult their tax advisers regarding making QEF Elections in their particular circumstances.
Furthermore, if we were a PFIC or, with
respect to a particular U.S. Holder, were treated as a PFIC for the taxable year in which we paid a dividend or the prior taxable
year, the preferential dividend rate with respect to dividends paid to certain non-corporate U.S. Holders will not apply.
If we were a PFIC for any taxable year
during which a U.S. Holder held common shares, such U.S. Holder would be required to file an annual information report with such
U.S. Holder’s U.S. Federal income tax return on IRS Form 8621.
U.S. Holders should consult their tax
advisers concerning our PFIC status and the tax considerations relevant to an investment in a PFIC.
Taxation of Distributions
As discussed above under “Item 8.
Financial Information—Dividends and Dividend Policy,” we do not currently expect to make distributions on our common
shares. In the event that we do make distributions of cash or other property, subject to the PFIC rules described above, distributions
paid on common shares, other than certain pro rata distributions of common shares, will be treated as dividends to the extent
paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Because we
may not calculate our earnings and profits under U.S. federal income tax principles, we expect that distributions generally will
be reported to U.S. Holders as dividends. The U.S. dollar amount of any dividend will be treated as foreign-source dividend income
to U.S. Holders and will not be eligible for the dividends-received deduction generally available to U.S. corporations under the
Code. Dividends will be included in a U.S. Holder’s income on the date of the U.S. Holder’s receipt of the dividend.
Sale or Other Disposition of Common Shares
Subject to the PFIC rules described above,
for U.S. federal income tax purposes, gain or loss realized on the sale or other disposition of common shares will be capital gain
or loss, and will be long-term capital gain or loss if the U.S. Holder held the common shares for more than one year. The amount
of the gain or loss will equal the difference between the U.S. Holder’s tax basis in the common shares disposed of and the
amount realized on the disposition, in each case as determined in U.S. dollars. This gain or loss will generally be U.S.-source
gain or loss for foreign tax credit purposes. The deductibility of capital losses is subject to limitations.
Information Reporting and Backup Withholding
Payments of dividends and sales proceeds
that are made within the United States or through certain U.S.-related financial intermediaries generally are subject to information
reporting, and may be subject to backup withholding, unless (i) the U.S. Holder is a corporation or other exempt recipient or
(ii) in the case of backup withholding, the U.S. Holder provides a correct taxpayer identification number and certifies that it
is not subject to backup withholding.
Backup withholding is not an additional
tax. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the holder’s
U.S. federal income tax liability and may entitle it to a refund, provided that the required information is timely furnished to
the IRS.
Information Reporting With Respect to Foreign Financial
Assets
Certain U.S. Holders who are individuals
and certain entities may be required to report information relating to an interest in our common shares, subject to certain exceptions
(including an exception for common shares held in accounts maintained by certain U.S. financial institutions). U.S. Holders should
consult their tax advisers regarding whether or not they are obligated to report information relating to their ownership and disposition
of the common shares.
|
F.
|
Dividends
and paying agents
|
Not applicable.
Not applicable.
We are subject to the informational requirements
of the Exchange Act. Accordingly, we are required to file reports and other information with the SEC, including annual reports
on Form 20-F and reports on Form 6-K. The SEC maintains an Internet website that contains reports and other information about
issuers, like us, that file electronically with the SEC. The address of that website is www.sec.gov.
Under Bermuda law shareholders have the
right to inspect the bye-laws of the company, minutes of general meetings and the company’s audited financial statements,
which must be presented to the annual general meeting. The register of members of a company is also open to inspection by shareholders
and by members of the general public without charge. The register of members is required to be open for inspection for not less
than two hours in any business day (subject to the ability of a company to close the register of members for not more than thirty
days in a year).
As a foreign private issuer, we are exempt
under the Exchange Act from, among other things, the rules prescribing the furnishing and content of proxy statements, and our
executive officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions
contained in Section 16 of the Exchange Act. In addition, we will not be required under the Exchange Act to file periodic reports
and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the
Exchange Act.
|
I.
|
Subsidiary
information
|
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Credit Risk
We manage credit risk on a group basis.
Credit risk arises from cash and cash equivalents and deposits with banks, as well as from other receivables. Our policy is to
invest funds in low risk investments including interest bearing deposits. Only independent banks and financial institutions are
used and banks with which we currently hold term deposits have a minimum S&P rating of “A”. Receivables are not
past due and not impaired and include only well-known counterparties.
We hold cash and cash equivalents in our
principal operating currencies (CHF, USD and EUR).
Market Risk
In the ordinary course of our business
activities, we are exposed to various market risks that are beyond our control, including fluctuations in foreign exchange rates,
and which may have an adverse effect on the value of our financial assets and liabilities, future cash flows and profit. As a
result of these market risks, we could suffer a loss due to adverse changes in foreign exchange rates. Our policy with respect
to these market risks is to assess the potential of experiencing losses and the consolidated impact thereof, and to mitigate these
market risks.
Currency Risk
We operate internationally and are exposed
to foreign exchange risk arising from various exposures, primarily with respect to the US Dollar and Euro. Foreign exchange risk
arises from future commercial transactions, recognized assets and liabilities and net investments in foreign operations. To manage
foreign exchange risk we maintain foreign currency cash balances to cover anticipated future purchases of materials and services
in foreign currencies. We do not hedge our foreign exchange risk.
As of December 31, 2019, a 5% increase
or decrease in the USD/CHF exchange rate with all other variables held constant would have resulted in a CHF 19,664 (2018: CHF
10,893) increase or decrease in the net result. Also, a 5% increase or decrease in the EUR/CHF exchange rate with all other variables
held constant would have resulted in a CHF 28,841 (2018: CHF 13,416) increase or decrease in the net annual result.
We have subsidiaries in the United States
and Ireland, whose net assets are exposed to foreign currency translation risk. Due to the small size of these subsidiaries the
translation risk is not significant.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
Not applicable.
Not applicable.
|
D.
|
American
Depositary Shares
|
Not applicable.
Auris Medical Holding Ltd. (the “Company”)
is an exempted company incorporated in Bermuda and is subject to Bermuda law. The Company’s registered address is Clarendon
House, 2 Church Street, Hamilton HM11, Bermuda. These consolidated financial statements comprise the Company and its subsidiaries
(together referred to as the “Group” and individually as “Group entities”). The Company is the ultimate
parent of the following Group entities:
On April 22, 2014, the Company changed
its name from Auris Medical AG to Auris Medical Holding AG. On May 21, 2014 the domicile of Auris Medical Holding AG was transferred
from Basel to Zug. On March 13, 2018, the Company (“Auris OldCo”) merged (the “Merger”) into Auris Medical
NewCo Holding AG (“Auris NewCo”), a newly incorporated, wholly-owned Swiss subsidiary 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 (pre-2019 Reverse Share Split) common shares with a nominal value
of CHF 0.02 (pre-2019 Reverse Share Split) each. Pursuant to the Merger, the Company’s shareholders received one common
share with a nominal value of CHF 0.02 (pre-2019 Reverse Share Split) of Auris NewCo for every 10 of the Company’s common shares
held prior to the Merger, effectively resulting in a “reverse stock split” at a ratio of 10-for-1. Auris NewCo changed
its name to “Auris Medical Holding AG” following consummation of the Merger. Following shareholder approval at an
extraordinary general meeting of shareholders held on March 8, 2019 and upon the issuance of a certificate of continuance by the
Registrar of Companies in Bermuda on March 18, 2019, the Company discontinued as a Swiss company and, pursuant to Article 163
of the Swiss Federal Act on Private International Law and pursuant to Section 132C of the Companies Act 1981 of Bermuda (the “Companies
Act”), continued existence under the Companies Act as a Bermuda company with the name “Auris Medical Holding Ltd.”
(the “Redomestication”). The common shares of Auris Medical Holding Ltd. trade on the Nasdaq Capital Market under the trading
symbol “EARS.”
The Group is primarily involved in the
development of pharmaceutical products for the treatment of inner ear disorders and central nervous system disorders, in particular
vertigo and prevention of antipsychotic-induced weight gain and somnolence. These programs have gone through two Phase 1 trials
and have moved into proof-of-concept studies in 2019.
On May 1, 2019, the Company effected a
one-for-twenty reverse share split (the “2019 Reverse Share Split”) of the Company’s issued and outstanding
as well as unissued common shares. Unless indicated or the context otherwise requires, all per share amounts and numbers of common
shares in this report have been retrospectively adjusted for the 2019 Reverse Share Split.
These consolidated financial statements
have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards
Board (“IFRS”).
These consolidated financial statements
were approved by the Board of Directors of the Company on March 17, 2020.
The consolidated financial statements
are prepared on the historical cost basis, except for the revaluation to fair value of certain financial liabilities. Historical
cost is generally based on the fair value of the consideration given in exchange for goods and services. The principal accounting
policies adopted are set out below.
In addition, for financial reporting purposes,
fair value measurements are categorized into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements
are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:
These consolidated financial statements
are presented in Swiss Francs (“CHF”), which is the Company’s functional (“functional currency”)
and the Group’s reporting currency.
The Redomestication
of the Company from Switzerland to Bermuda is a continuance of its business. Therefore, the consolidated financial statements present
the operation of Auris Medical Holding AG for the time before the Redomestication and of Auris Medical Holding Ltd for the time
following the Redomestication.
The Company effected
the 2019 Reverse Share Split of its common shares at a ratio of 1-for-20. No fractional common shares were issued as fractional
common shares were settled in cash. Impacted amounts and share information included in the consolidated financial statements and
notes thereto have been adjusted for the reverse share split as if such reverse share split occurred on the first day of the periods
presented. Certain amounts in the notes to the consolidated financial statements may be slightly different than previously reported
due to rounding of fractional shares as a result of the reverse share split.
The preparation of financial statements
in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting
policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are
reviewed on an ongoing basis. Revisions of accounting estimates are recognized in the period in which the estimates are revised
and in any future periods affected.
Information about judgments made in applying
accounting policies that have the most significant effects on the amounts recognized in the consolidated financial statements
are described below.
As disclosed in Note 20 the Group has
significant tax losses in Switzerland. These tax losses represent potential value to the Group to the extent that the Group is
able to create taxable profits in Switzerland prior to expiry of such losses. Tax losses may be used within 7 years from the year
the losses arose.
The Group also has tax losses in the United
States which may be used within 20 years of the end of the year in which losses arose, or for a shorter time period in accordance
with prevailing state law.
Other than a tax asset in the amount of
CHF 91,851, the Group has not recorded any deferred tax assets in relation to these tax losses. The key factors which have influenced
management in arriving at this evaluation are the fact that the business is still in a development phase and the Group has not
yet a history of making profits. Should management’s assessment of the likelihood of future taxable profits change, a deferred
tax asset will be recorded. Income tax gain reflects the reassessment of deferred tax assets and liabilities booked in the 2019
fiscal year.
The project stage forms the basis for
the decision as to whether costs incurred for the Group’s development projects can be capitalized. For AM-101, AM-111 and
AM-201 clinical development expenditures are not capitalized until the Group obtains regulatory approval (i.e. approval to commercially
use the product), as this is considered to be essentially the first point in time where it becomes probable that future revenues
can be generated. For the Group’s intranasal betahistine program for the treatment of vertigo (AM-125), however, the development
is primarily focused on the delivery route and formulation and not the drug itself (already an approved generic) and aims to demonstrate
higher bioavailability through intranasal delivery. Given the nature of the development approach and the fact that there is an
existing market in which oral betahistine for the treatment of vertigo has been approved, direct development expenditures have
been capitalized. In addition, the Group has capitalized certain milestone payments with regarding to license payments.
As of each reporting date, the Group estimates
the level of service performed by the vendors and the associated costs incurred for the services performed. As part of the process
of preparing the Group’s financial statements, the Group is required to estimate its accrued expenses. This process involves
reviewing contracts, identifying services that have been performed on the Group’s behalf and estimating the level of service
performed and the associated cost incurred for the service when it has not yet been invoiced or otherwise notified of the actual
cost.
The Group maintains a pension plan for
all employees in Switzerland through payments to a legally independent collective foundation. This pension plan qualifies under
IFRS as defined benefit pension plan.
The Group’s net obligation in respect
of defined benefit plans is calculated by estimating the amount of future benefit that employees have earned in return for their
service in the current and prior periods, discounting that amount and deducting the fair value of any plan assets. The Company
makes relevant actuarial assumptions with regard to the discount rate, future salary increases and life expectancy.
The Merger is not a business combination
and is accounted for as a reorganization. Therefore, the consolidated financial statements of the Company are a continuation of
the financial information of Auris OldCo except that the consolidated financial statements reflect a classification 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 resulting from the Merger.
The accounting policies set out below
have been applied consistently to all periods presented in these consolidated financial statements, unless otherwise indicated.
Subsidiaries are entities controlled by
the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the
entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries
are included in the consolidated financial statements from the date on which control commences until the date on which control
ceases.
All inter-company balances, transactions
and unrealized gains on transactions have been eliminated in consolidation. Unrealized losses are also eliminated unless the transaction
provides evidence of an impairment of the asset transferred.
A segment is a distinguishable component
of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses
that relate to transactions with any of the Group’s other components.
The Chief Executive Officer is determined
to be the Group’s Chief Operating Decision Maker (“CODM”). The CODM assesses the performance and allocates the
resources of the Group as a whole, as all of the Group’s activities are focusing on the development of pharmaceutical products
for the treatment and prevention of peripheral and central nervous
disorders. Financial information is only available for the Group as a whole. Therefore,
management considers there is only one operating segment under the requirements of IFRS 8, Operating Segments.
Items included in the financial statements
of Group entities are measured using the currency of the primary economic environment in which the entity operates. Foreign currency
transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions.
Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange
rates of monetary assets and liabilities denominated in foreign currencies are recognized in profit or loss. Non-monetary items
that are measured based on historical cost in a foreign currency are not re-translated.
Assets and liabilities of Group entities
whose functional currency is other than CHF are included in the consolidation by translating the assets and liabilities into the
reporting currency at the exchange rates applicable at the end of the reporting period. Income and expenses are translated at
average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing
on the transaction dates, in which case income and expenses are translated at the dates of the transaction).
These foreign currency translation differences
are recognized in Other Comprehensive Loss and presented in the foreign currency translation reserve in equity. When a foreign
operation is disposed of such that control is lost, the cumulative amount in the translation reserve related to that foreign operation
is reclassified to profit or loss as part of the gain or loss on disposal.
Average exchange rates for the year for the most significant
foreign currencies relative to CHF:
Property and equipment is measured at
historical costs less accumulated depreciation and any accumulated impairment losses. Historical costs include expenditures that
are directly attributable to the acquisition of the items. When parts of an item of tangible assets have different useful lives,
they are accounted for as separate tangible asset items (major components). Depreciation is calculated on a straight-line basis
over the expected useful life of the individual asset or the shorter remaining lease term for leasehold improvements. The applicable
estimated useful lives are as follows:
Subsequent costs are included in the asset’s
carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated
with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part
is derecognized. All other repairs and maintenance are charged to profit or loss during the financial period in which they are
incurred.
Depreciation methods, useful lives and
residual values are reviewed at each reporting date and adjusted if appropriate. When an asset is reviewed for impairment, the
asset’s carrying amount may be written down immediately to its recoverable amount, provided the asset’s carrying amount
is greater than its estimated recoverable amount. Management assesses the recoverable amount by assessing the higher of its fair
value less costs to sell or its value in use.
Cost and accumulated depreciation related
to assets retired or otherwise disposed are removed from the accounts at the time of retirement or disposal and any resulting
gain or loss is included in profit or loss in the period of disposition.
Expenditures on the Group’s research
programs are not capitalized, they are expensed when incurred.
Expenditures on the Group’s development
programs are generally not capitalized except if development costs can be measured reliably, the product or process is technically
and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete
development and to use or sell the asset. For the development projects of the Group, these criteria are generally only met when
regulatory approval for commercialization is obtained. This has been the general assessment for AM-101, AM-111 and AM-201. For
the AM-125 program for the treatment of Vertigo it is the Group’s assessment that the criteria mentioned above are met and
therefore direct development expenditures have been capitalized for AM-125 in 2018 and 2019. Intellectual property-related costs
for patents are part of the expenditure for research and development projects. Therefore, the costs for the prosecution and registration
of patents are expensed when incurred as long as the research and development project concerned does not meet the criteria for
capitalization. In case of AM-125, where in 2019 a US patent was issued and a related EU application was allowed, prosecution
and registration costs have been capitalized as the criteria have been met.
Intellectual property rights that are
acquired by the Group are capitalized as intangible assets if they are controlled by the Group, are separately identifiable and
are expected to generate future economic benefits, even if uncertainty exists as to whether the research and development will
ultimately result in a marketable product. Consequently, upfront and milestone payments to third parties for the exclusive use
of pharmaceutical compounds in specified areas of treatment are recognized as intangible assets.
Intangible assets acquired that have finite
useful lives are measured at cost less accumulated amortization and any accumulated impairment losses.
Subsequent expenditure is capitalized
only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure,
including expenditure on internally generated goodwill and brands, is recognized in profit or loss as incurred.
All licenses of the Group have finite
lives. Amortization will commence once the Group’s intangible assets are available for use which will be the case after
regulatory approvals are obtained and the related products are available for use. Amortization of licenses is calculated on a
straight line basis over the period of the expected benefit or until the license expires, whichever is shorter. The estimated
useful life is 10 years or the remaining term of patent protection. The Group assesses at each statement of financial position
date whether intangible assets which are not yet ready for use are impaired.
Property and equipment and intangible
assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash
flows (cash-generating units). An impairment loss is recognized as the amount by which the asset’s carrying amount exceeds
its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell or value in use.
Impairment losses are recognized in profit or loss. Assets that were previously impaired are reviewed for possible reversal of
the impairment at each reporting date. Any increase in the carrying amount of an asset will be based on the depreciated historical
costs had the initial impairment not been recognized.
The Group classifies its financial assets
in the following categories: loans and receivables based on the expected loss model. The classification depends on the nature
and purpose of the financial assets and is determined at the time of initial recognition. The date of initial application (i.e.
the date on which the Company has assessed its existing financial assets and financial liabilities in terms of IFRS 9 requirements)
is January 1, 2018. Accordingly, the Company has applied the requirements of IFRS 9 to instruments that continue to be recognized
at January 1, 2018 whereas for the year ended December 31, 2017 IAS 39 was applied.
The Group initially recognizes loans and
receivables and debt securities issued on the date when they are originated. All other financial assets and financial liabilities
are initially recognized on the trade date.
The Group derecognizes a financial asset
when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash
flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred,
or it neither transfers nor retains substantially all of the risks and rewards of ownership and does not retain control over the
transferred asset. Any interest in such derecognized financial assets that is created or retained by the Group is recognized as
a separate asset or liability.
The Group derecognizes a financial liability
when its contractual obligations are discharged, cancelled, or expired.
Financial assets and financial liabilities
are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right
to offset the amounts and intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.
These are non-derivative financial assets
with fixed or determinable payments that are not quoted in an active market. Loans and receivables are initially recognized at
fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortized
cost using the effective interest method, less expected losses.
The Group considers all short-term, highly
liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes
in value with original maturities of three months or less at the date of the purchase to be cash equivalents.
Non-derivative financial liabilities are
initially recognized at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these
liabilities are measured at amortized cost using the effective interest method.
All shares of the Company are registered
shares and classified as part of shareholders’ equity. Incremental costs directly attributable to the issue of the Company’s
shares, net of any tax effects, are recognized as a deduction from equity. The warrants are classified as a financial liability
at fair value through profit or loss and the cost allocated to the liability component will be immediately expensed to the income
statement.
The Company has not paid any dividends
since its inception and does not anticipate paying dividends in the foreseeable future.
When shares recognized as equity are repurchased,
the amount of the consideration paid, which includes directly attributable costs, net of any tax effects, is recognized as a deduction
from equity. Repurchased shares are classified as treasury shares and are presented in the treasury share reserve. When treasury
shares are sold or reissued subsequently, the amount received is recognized as an increase in equity and the resulting surplus
or deficit (calculated as the difference between initial cost and fair value) on the transaction is presented within share premium.
Financial assets are assessed at each
reporting date to determine whether there is objective evidence of impairment.
The Group considers evidence of impairment
for these assets at an individual asset level. An impairment loss is calculated as the difference between an asset’s carrying
amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate.
Losses are recognized in profit or loss and reflected in an allowance account. When the Group considers that there are no realistic
prospects of recovery of the asset, the relevant amounts are written off. If the amount of impairment loss subsequently decreases
and the decrease can be related objectively to an event occurring after the impairment was recognized, then the previously recognized
impairment loss is reversed through profit or loss.
Derivative financial instrument (asset)
is accounted as the cost to obtain the rights from a third party to issue shares under the purchase agreement and changes in fair
value are shown as profit or loss. The fair value calculation of the derivative financial instrument (asset) is adjusted on the
utilization of the asset based on total dollar amount of the purchase agreement.
Derivative financial instruments (liabilities)
are accounted at fair value and changes in fair value are shown as profit or loss. The fair value calculation of the derivative
financial instruments is based on the Black-Scholes option pricing model. Assumptions are made for volatility and the risk free
rate in order to estimate the fair value of the instrument. Transaction cost related to derivative financial instruments are recorded
through profit and loss.
Income tax expense comprises current and
deferred tax. It is recognized in profit or loss except to the extent that it relates to a business combination, or items recognized
directly in equity or in Other Comprehensive Income.
Current tax comprises the expected tax
payable or receivable on the taxable income or loss for the year and any adjustment to tax payable or receivable in respect of
previous years. It is measured using tax rates enacted or substantively enacted at the reporting date.
Deferred income tax is recognized, using
the balance sheet liability method, on temporary differences arising between the tax bases of assets and liabilities and their
carrying amounts in the consolidated financial statements. Deferred tax is not recognized for:
Deferred income tax is determined using
tax rates and laws that have been enacted or substantively enacted by the reporting date and are expected to apply when the related
deferred income tax asset is realized or the deferred income tax liability is settled.
Deferred income tax assets are recognized
to the extent that it is probable that future taxable profit will be available against which the temporary differences can be
utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable
that the related tax benefit will be realized.
Deferred tax assets and liabilities are
offset when there is a legally enforceable right to set off tax assets against tax liabilities and when they relate to income
taxes levied by the same taxation authority and the Group intends to settle its tax assets and liabilities on a net basis.
The Group maintains a pension plan for
all employees in Switzerland through payments to a legally independent collective foundation. This pension plan qualifies under
IFRS as defined benefit pension plan. There are no pension plans for the subsidiaries in Ireland and the United States.
The Group’s net obligation in respect
of defined benefit plans is calculated by estimating the amount of future benefit that employees have earned in return for their
service in the current and prior periods, discounting that amount and deducting the fair value of any plan assets.
The recognized asset is limited to the
present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions
to the plan. In order to calculate the present value of economic benefits, consideration is given to any minimum funding requirements.
Remeasurements of the net defined benefit
liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset
ceiling (if any, excluding interest), are recognized immediately in Other Comprehensive Income. Past service costs, including
curtailment gains or losses, are recognized immediately in general and administrative expenses within the operating results. Settlement
gains or losses are recognized in general and administrative expenses within the operating results. The Group determines the net
interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure
the defined benefit obligation at the beginning of the annual period or in case of any significant events between measurement
dates to the then-net defined benefit liability (asset), taking into account any changes in the net defined benefit liability
(asset) during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to
defined benefit plans are recognized in profit or loss.
The Company maintains various share-based
payment plans in the form of stock option plans for its employees, members of the Board of Directors as well as key service providers.
Stock options are granted at the Board’s discretion without any contractual or recurring obligations.
The share-based compensation plans qualify
as equity settled plans. The grant-date fair value of share-based payment awards granted to employees is recognized as an expense,
with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. Under
the Auris Medical Holding Ltd. Long Term Equity Incentive Plan (the “Equity Incentive Plan” or “EIP”),
50% of granted share options granted to employees vest after a period of service of two years from the grant date and the remaining
50% vest after a period of service of three years from the grant date. Share options granted to members of the Board of Directors
in 2019, 2018 and in 2017 vest after a period of one year after the grant date.
The amount recognized as an expense is
adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be
met, such that the amount ultimately recognized as an expense is based on the number of awards that meet the related service and
non-market performance conditions at the vesting date. Share-based payments that are not subject to any further conditions are
expensed immediately at grant date. In the year the options are exercised the proceeds received net of any directly attributable
transaction costs are credited to share capital (par value) and share premium.
Following the completion of the Company’s
initial public offering, option pricing and values are determined based on the Black Scholes option pricing model and assumptions
are made for inputs such as volatility of the Company’s stock and the risk free rate.
Provisions are recognized when the Group
has a present obligation (legal or constructive) as a result of a past event, where it is more likely than not that an outflow
of resources will be required to settle the obligation, and where a reliable estimate can be made of the amount of the obligation.
Provisions are not recognized for future operating losses. Provisions are measured at the present value of the expenditures expected
to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money
and the risks specific to the liability.
Basic earnings/(loss) per share are calculated
by dividing the net profit/(loss) attributable to owners of the Company by the weighted average number of shares outstanding during
the period. Diluted earnings/(loss) per share are calculated by dividing the net profit/(loss) attributable to the owners of the
Company by the weighted average number of shares outstanding during the period adjusted for the conversion of all dilutive potential
ordinary shares.
The Group adopted IFRS 16 Leases, which replaced IAS 17 Leases
and IFRIC 4 Determining whether an arrangement contains a lease, with effect from 1 January 2019. The standard stipulates that
all leases and the contractual rights and obligations should generally be recognized in the lessee’s statement of financial
position, unless the term of the lease is 12 months or less or the lease value is for a low value asset. The Company has only lease
obligations with lease terms of less than 12 months and therefore the Company has decided not to apply the new guidance to short-term
leases. In such cases, the leases will be accounted for as short term leases and the lease payments associated with them will be
recognized as an expense from short term leases. Under IFRS 16, a lessee can choose to apply the standard using either a full retrospective
or a modified retrospective approach. The Group has applied the modified retrospective approach.
In the current year, the following revised
standards have been adopted in these financial statements. Adoption has not had a material impact on the amounts reported in these
financial statements but may impact the accounting for future transactions and arrangements.
A number of new standards, amendments
to standards and interpretations are effective for annual periods beginning after January 1, 2020, and have not been applied
in preparing these consolidated financial statements.
The following table shows the carrying amounts of financial
assets and financial liabilities:
The carrying amount of cash and cash equivalents, other receivables,
trade and other payables and accrued expenses is a reasonable approximation of their fair value due to the short term nature of
these instruments. The Company’s loan shown in the previous year had floating rates of interest, thus the fair value approximates
carrying value.
The Group’s activities expose it to a variety of financial
risks: market risk, credit risk, interest rate and liquidity risk. The Group’s overall risk management program focuses on
the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance.
Management identifies, evaluates and controls financial risks. No financial derivatives have been used in 2019 and 2018 to hedge
risk exposures. The Group invests its available cash in instruments with the main objectives of preserving principal, meeting
liquidity needs and minimizing foreign exchange risks. The Group allocates its liquid assets to first tier Swiss or international
banks.
The Group’s principal source of liquidity is its cash
reserves which are mainly obtained through the issuance of new shares. The Group has succeeded in raising capital to fund its
development activities to date and has raised funds that will allow it to meet short term development expenditures. The Company
will require regular capital injections to continue its development work, which may be dependent on meeting development milestones,
technical results and/or commercial success. Management monitors rolling forecasts of the Group’s liquidity requirements
to ensure it has sufficient cash to meet operational needs. The ability of the Group to maintain adequate cash reserves to sustain
its activities in the medium term is highly dependent on the Group’s ability to raise further funds. Consequently, the Group
is exposed to continued liquidity risk.
The table below analysis the remaining contractual maturities
of financial liabilities, including estimated interest payments as of December 31, 2019 and 2018. The amounts disclosed in
the table are the undiscounted cash flows:
|
|
|
|
|
|
|
|
Non-cash changes
|
|
|
|
|
|
|
01.01.2019
|
|
|
Financing
Cash
Flows 1)
|
|
|
Fair
value
revaluation
|
|
|
Other
changes 2)
|
|
|
31.12.2019
|
|
Derivative financial instrument
|
|
|
675,328
|
|
|
|
—
|
|
|
|
(663,725
|
)
|
|
|
(7,250
|
)
|
|
|
4,353
|
|
Loans
|
|
|
1,435,400
|
|
|
|
(1,463,328
|
)
|
|
|
—
|
|
|
|
27,928
|
|
|
|
—
|
|
Total
|
|
|
2,110,728
|
|
|
|
(1,463,328
|
)
|
|
|
(663,725
|
)
|
|
|
20,678
|
|
|
|
4,353
|
|
|
|
|
|
|
|
|
|
Non-cash changes
|
|
|
|
|
|
|
01.01.2018
|
|
|
Financing
Cash
Flows 1)
|
|
|
Fair
value
revaluation
|
|
|
Other
changes 2)
|
|
|
31.12.2018
|
|
Derivative financial instrument
|
|
|
1,836,763
|
|
|
|
188,636
|
|
|
|
(1,350,071
|
)
|
|
|
—
|
|
|
|
675,328
|
|
Loans
|
|
|
10,126,406
|
|
|
|
(9,272,328
|
)
|
|
|
—
|
|
|
|
581,322
|
|
|
|
1,435,400
|
|
Total
|
|
|
11,963,169
|
|
|
|
(9,083,692
|
)
|
|
|
(1,350,071
|
)
|
|
|
581,322
|
|
|
|
2,110,728
|
|
|
1)
|
The
financing cash flows are from loan repayment and from issuance of new derivative
|
|
2)
|
Internal
Rate Return-Correction and Foreign Exchange-Difference
|
Credit risk
Credit risk is managed on a Group basis. Credit risk arises
from cash and cash equivalents and deposits with banks, as well as from other receivables. The Company’s policy is to invest
funds in low risk investments including interest bearing deposits. Other receivables were current as of December 31, 2019
and December 31, 2018, not impaired and included only well-known counterparties.
The Group has been holding cash and cash equivalents in the
Group’s principal operating currencies (CHF, USD and EUR) with international banks of high credit rating.
The Group’s maximum exposure to credit risk is represented
by the carrying amount of each financial asset in the consolidated statement of financial position:
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Financial assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
1,384,720
|
|
|
|
5,393,207
|
|
Other receivables
|
|
|
80,040
|
|
|
|
80,040
|
|
Total
|
|
|
1,464,760
|
|
|
|
5,473,247
|
|
As of December 31, 2019 and December 31, 2018 other
receivables consisted in a bank account for credit card liabilities.
Market risk
Currency risk
The Group operates internationally and is exposed to foreign
exchange risk arising from various exposures, primarily with respect to US Dollar and Euro. Foreign exchange risk arises from
future commercial transactions, recognized assets and liabilities and net investments in foreign operations. The summary of quantitative
data about the exposure of the Group’s financial assets and liabilities to currency risk was as follows:
|
|
2019
|
|
|
2018
|
|
in CHF
|
|
USD
|
|
|
EUR
|
|
|
USD
|
|
|
EUR
|
|
Cash and cash equivalents
|
|
|
1,041,695
|
|
|
|
125,631
|
|
|
|
3,618,778
|
|
|
|
208,507
|
|
Other receivables
|
|
|
154,063
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Trade and other payables
|
|
|
(51,527
|
)
|
|
|
(526,637
|
)
|
|
|
(1,646,910
|
)
|
|
|
(76,184
|
)
|
Accrued expenses
|
|
|
(750,949
|
)
|
|
|
(175,826
|
)
|
|
|
(82,847
|
)
|
|
|
(370,145
|
)
|
Loan and borrowings
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,435,400
|
)
|
|
|
—
|
|
Derivative financial instruments
|
|
|
—
|
|
|
|
—
|
|
|
|
(675,328
|
)
|
|
|
—
|
|
Net statement of financial position exposure -asset/(liability)
|
|
|
393,282
|
|
|
|
(576,832
|
)
|
|
|
(221,707
|
)
|
|
|
(237,822
|
)
|
As of December 31, 2019, a 5% increase or decrease in
the USD/CHF exchange rate with all other variables held constant would have resulted in a CHF 19,664 (2018: CHF 10,886) increase
or decrease in the net result. Also, a 5% increase or decrease in the EUR/CHF exchange rate with all other variables held constant
would have resulted in a CHF 28,841(2018: CHF 13,413) increase or decrease in the net result.
The Company has subsidiaries in the United States and Ireland,
whose net assets are exposed to foreign currency translation risk. Due to the small size of the subsidiaries the translation risk
is not significant.
Capital risk management
The Company and its subsidiaries are subject to capital maintenance
requirements under local law in the country in which it operates. To ensure that statutory capital requirements are met, the Company
monitors capital, at the entity level, on an interim basis as well as annually. From time to time the Company may take appropriate
measures or propose capital increases to ensure the necessary capital remains intact.
6. Segment information
Geographical information
The Group’s non-current assets by the Company’s
country of domicile were as follows:
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Switzerland
|
|
|
6,852,286
|
|
|
|
3,812,001
|
|
Total
|
|
|
6,852,286
|
|
|
|
3,812,001
|
|
Non-current assets exclude financial instruments.
7. Property and Equipment
|
|
Production
equipment
|
|
|
Office
furniture
and
EDP
|
|
|
Leasehold
improvements
|
|
|
Total
|
|
At cost
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 1, 2018
|
|
|
289,888
|
|
|
|
233,706
|
|
|
|
236,462
|
|
|
|
760,056
|
|
Additions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Disposals
|
|
|
—
|
|
|
|
—
|
|
|
|
(236,462
|
)
|
|
|
(236,462
|
)
|
As of December 31, 2018
|
|
|
289,888
|
|
|
|
233,706
|
|
|
|
—
|
|
|
|
523,594
|
|
Additions
|
|
|
63,600
|
|
|
|
—
|
|
|
|
—
|
|
|
|
63,600
|
|
Disposals
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
As of December 31, 2019
|
|
|
353,488
|
|
|
|
233,706
|
|
|
|
—
|
|
|
|
587,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 1, 2018
|
|
|
(237,923
|
)
|
|
|
(205,628
|
)
|
|
|
(63,606
|
)
|
|
|
(507,157
|
)
|
Charge for the year
|
|
|
(32,485
|
)
|
|
|
(13,663
|
)
|
|
|
(26,565
|
)
|
|
|
(72,713
|
)
|
Disposals
|
|
|
—
|
|
|
|
—
|
|
|
|
90,171
|
|
|
|
90,171
|
|
As of December 31, 2018
|
|
|
(270,408
|
)
|
|
|
(219,291
|
)
|
|
|
—
|
|
|
|
(489,699
|
)
|
Charge for the year
|
|
|
(20,083
|
)
|
|
|
(10,740
|
)
|
|
|
—
|
|
|
|
(30,823
|
)
|
Disposals
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
As of December 31, 2019
|
|
|
(290,491
|
)
|
|
|
(230,031
|
)
|
|
|
—
|
|
|
|
(520,522
|
)
|
Net book value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2018
|
|
|
19,480
|
|
|
|
14,415
|
|
|
|
—
|
|
|
|
33,895
|
|
As of December 31, 2019
|
|
|
62,997
|
|
|
|
3,675
|
|
|
|
—
|
|
|
|
66,672
|
|
As of December 31, 2019, and 2018 no items of property
and equipment were pledged. Refer to note 24 for security provided to Hercules Capital, Inc. under the Loan and Security Agreement.
8. Intangible assets
|
|
Licenses
|
|
|
IP & Data rights
|
|
|
Patents
|
|
|
Internally generated
|
|
|
Total
|
|
At cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 1, 2018
|
|
|
1,482,520
|
|
|
|
146,580
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,629,100
|
|
As of December 31, 2018
|
|
|
1,482,520
|
|
|
|
193,989
|
|
|
|
—
|
|
|
|
1,858,731
|
|
|
|
3,535,240
|
|
Additions
|
|
|
—
|
|
|
|
—
|
|
|
|
239,593
|
|
|
|
2,990,780
|
|
|
|
3,230,373
|
|
As of December 31, 2019
|
|
|
1,482,520
|
|
|
|
193,989
|
|
|
|
239,593
|
|
|
|
4,849,511
|
|
|
|
6,765,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization and impairment losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2018
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
As of December 31, 2019
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2018
|
|
|
1,482,520
|
|
|
|
193,989
|
|
|
|
—
|
|
|
|
1,858,731
|
|
|
|
3,535,240
|
|
As of December 31, 2019
|
|
|
1,482,520
|
|
|
|
193,989
|
|
|
|
239,593
|
|
|
|
4,849,511
|
|
|
|
6,765,613
|
|
Intangible assets comprise upfront and milestone
payments related to licenses. In 2013 a milestone of CHF 1,125,000 related to the AM-111 program was recorded. Amortization
will commence once the intangible assets are available for use, which will be the case after regulatory approvals are obtained
and the related products are available for use.
On February 2, 2017, the Company entered
into an asset purchase agreement with Otifex Therapeutics Pty Ltd (“Otifex”), pursuant to which the Company agreed
to purchase and Otifex has agreed to sell to the Company certain pre-clinical and clinical assets related to a formulation for
the intranasal application of Betahistine, which the Company refers to as AM-125, as well as intellectual property rights. The
Otifex transaction closed in July 2017 and the Company recorded CHF 146,580 as intangibles related to this transaction.
On December 6, 2018, in two related
transactions, the Company acquired an Orphan Drug Designation for betahistine in the treatment of obesity associated with
Prader-Willi syndrome (PWS). In a related transaction, on May 15, 2019, the Company acquired two U.S. Patents relating to the
use of betahistine for the treatment of depression and attention-deficit / hyperactivity disorder (ADHD), respectively. The
Company recorded CHF 47,409 related to these transactions.
In 2019, a US patent on AM-125 was
issued and a related EU application was allowed. As a consequence, prosecution and registration costs of CHF 239,593 have
been capitalized.
Commencing with the business year 2018, the Company recorded
intangibles related to direct development expenditure of its AM-125 program. The capitalized amount for the year ended December
31, 2019 was CHF 3,230,373 (2018: CHF 1,858,731).
No amortization or impairment was recorded
in 2019 and 2018.
9. Other receivables
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Value added tax receivable
|
|
|
26,438
|
|
|
|
96,853
|
|
Withholding tax receivable
|
|
|
24,113
|
|
|
|
18,526
|
|
Deposit credit cards
|
|
|
80,040
|
|
|
|
80,040
|
|
Other
|
|
|
204,708
|
|
|
|
124,955
|
|
Total other receivables
|
|
|
335,299
|
|
|
|
320,374
|
|
Other receivables were not considered impaired in the years
under review.
10. Prepayments
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Advance payments to suppliers
|
|
|
40,461
|
|
|
|
212,207
|
|
Clinical projects and related activities
|
|
|
265,842
|
|
|
|
—
|
|
Insurance
|
|
|
114,016
|
|
|
|
139,076
|
|
Other
|
|
|
13,912
|
|
|
|
—
|
|
Total prepayments
|
|
|
434,231
|
|
|
|
351,283
|
|
11. Cash and cash equivalents
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Cash in bank accounts
|
|
|
1,383,182
|
|
|
|
5,392,599
|
|
Cash on hand
|
|
|
1,538
|
|
|
|
608
|
|
Total cash and cash equivalents
|
|
|
1,384,720
|
|
|
|
5,393,207
|
|
12. Capital and reserves
Share capital
The issued share capital of the Company at December 31
consisted of:
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
|
Number
|
|
|
CHF
|
|
|
Number
|
|
|
CHF
|
|
Common shares with a par value of CHF 0.40 each
|
|
|
4,125,949
|
|
|
|
1,650,380
|
|
|
|
—
|
|
|
|
—
|
|
Common shares with a nominal
value of CHF 0.02 (pre-2019 Reverse Share Split) each
|
|
|
—
|
|
|
|
—
|
|
|
|
35,516,785
|
|
|
|
710,336
|
|
Total
|
|
|
4,125,949
|
|
|
|
1,650,380
|
|
|
|
35,516,785
|
|
|
|
710,336
|
|
|
|
Common Shares (Number)
|
|
|
|
2019
|
|
|
2018
|
|
As of January 1
|
|
|
1,775,839
|
|
|
|
2,418,695
|
|
Common shares issued for the follow-on offering
|
|
|
2,350,110
|
|
|
|
640,000
|
|
Adjustment during the Merger:
|
|
|
|
|
|
|
|
|
Issuance of Auris NewCo Shares
|
|
|
—
|
|
|
|
305,869
|
|
Cancellation of Auris OldCo Shares
|
|
|
—
|
|
|
|
(3,058,695
|
)
|
Common shares issued for
capital increase
|
|
|
—
|
|
|
|
1,469,970
|
|
Total, as of December 31
|
|
|
4,125,949
|
|
|
|
1,775,839
|
|
All shares have a par value of CHF 0.40 and are fully paid
in. As of December 31, 2019, the par value of the 4,125,949 issued shares amounted to CHF 1,650,379.60 (as of December 31,
2018, the par value of 1,775,839 issued shares was CHF 0.40 and amounted to CHF 710,335.60).
On May 15, 2019, the Company completed a public offering of
(i) 440,000 common shares with a par value of CHF 0.40 each, together with warrants to purchase 440,000 common shares, and (ii)
1,721,280 pre-funded warrants, with each pre-funded warrant exercisable for one common share, together with warrants to purchase
1,721,280 common shares, including 110,000 common shares and warrants to purchase 110,000 common shares sold pursuant to a partial
exercise by the underwriters of the underwriters’ over-allotment option (the “May 2019 Registered Offering”).
The exercise price for the pre-funded warrants is CHF 0.01 per common share and for the warrants is CHF 4.34. The net proceeds to us from the May 2019 Registered Offering were approximately $7.7 million, after deducting
underwriting discounts and other offering expenses payable by us. There is no obligation for the company to repay any of the funds
received in case pre-funded warrants will not be exercised.
Related to the May 2019 Registered Offering, the Company had
transaction costs amounting to CHF 874,595. The transaction costs of CHF 874,595 were charged to equity for the issuance of the
common shares.
On November 30, 2018, as amended
on April 5, 2019, the Company entered into a sales agreement (the “A.G.P. Sales Agreement”) with A.G.P./Alliance Global
Partners (“A.G.P.”). Pursuant to the terms of the A.G.P. Sales Agreement, the Company may offer and sell its common
shares, from time to time through A.G.P. by any method deemed to be an “at-the-market” offering as defined in Rule
415(a)(4) promulgated under the Securities Act. Pursuant to the A.G.P. Sales Agreement, the Company may sell common shares up
to a maximum aggregate offering price of $25.0 million. As of December 31, 2019 the Company had sold 98,954 of its common shares
for an aggregate offering price of $ 978,415. The related transaction costs of CHF 71,161 were charged to equity.
On November 27, 2018 and December 11, 2018, the Company
entered into purchase agreements with FiveT Capital AG, providing for the issuance and sale by us of an aggregate of 165,750 of
its common shares for an aggregate purchase price of CHF 1.6 million in two separate registered direct offerings.
On July 17, 2018 the Company completed a public
offering of 897,435 common shares with a nominal value of CHF 0.40, Series A warrants each entitling its holder to purchase
0.35 of a common share for an aggregate of 314,102 common shares, and Series B warrants entitling its holder to purchase 0.25
of a common share for an aggregate of 224,358 common shares (the “July 2018 Registered Offering”). As of December
31, 2019, the exercise price for the Series A Warrants was CHF 7.80 per common share and the exercise price for the Series B
Warrants was CHF 3.95 per common share (which exercise price was automatically adjusted due to the May 2019 Registered
Offering). The net proceeds to the Company from the July 2018 Registered Offering were approximately CHF 6.2 million, after
deducting underwriting discounts and other offering expenses payable by us. The Company had transaction costs amounting to
CHF 851,692. The transactions costs were recorded as CHF 742,833 in equity for the issuance of the common shares and CHF
108,809 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 a purchase agreement
(the “2018 Commitment Purchase Agreement”) and a registration rights agreement (the “2018 Registration Rights
Agreement”) with Lincoln Park Capital 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. As of the date
of these consolidated financial statements, the Company has issued an aggregate of 89,880 common shares for aggregate proceeds
of CHF 286,450 to LPC under the 2018 Commitment Purchase Agreement. The 2018 Commitment Purchase Agreement replaces the 2017 Commitment
Purchase Agreement (as defined below), 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 (pre-merger) common shares for aggregate proceeds of CHF 1.7 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 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. During the financial year 2019, the Company had sold 89,880 of its common shares for an aggregate offering price of $ 286,450.
The related transaction costs of CHF 2,859 were charged to equity.
On January 30, 2018, the Company completed a public
offering of 62,499 common shares and concurrent offering of 37,499 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 CHF 4.5 million, after deducting placement agent fees and other estimated offering expenses payable
by the Company. As of December 31, 2019, the outstanding warrants issued in the January 2018 Registered Offering were exercisable
for up to 37,501 common shares (assuming the Company rounds up fractional common shares to the next whole common share) at an
exercise price of $100.00 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.
On October 10, 2017, the Company entered into a purchase agreement
(the “2017 Commitment Purchase Agreement”) and a Registration Rights Agreement (the “2017 Registration Rights
Agreement”) with LPC. Pursuant to the 2017 Commitment Purchase Agreement, LPC had agreed to subscribe for up to $13,500,000
of the Company’s common shares over the 30-month term of the 2017 Commitment Purchase Agreement. As of March 12, 2018, the Company
had issued an aggregate of 13,000 common shares to LPC pursuant to the Commitment Purchase Agreement. The Commitment Purchase
Agreement terminated upon consummation of the Merger on March 13, 2018. The related transaction cost of CHF 25,701 were recorded
in equity.
The transaction costs for obtaining the 2017 Commitment Purchase
Agreement were recorded as CHF 265,205 in transaction costs in the statement of profit or loss and comprehensive income / (loss).
The commitment fee of CHF 290,400 ($ 300,000) represents the fair value of the right to require LPC to purchase common shares within
the 2017 Commitment Purchase Agreement. The proportion of the commitment fee CHF 35,073 related to cash received from common shares
issued pursuant to the 2017 Commitment Purchase Agreement as a percentage of the total contract value of $ 13.5 million is recognized
in equity as if this proportion of the commitment fee was incorporated into the strike price of the option. The remaining portion
of the commitment fee of CHF 255,327 was derecognized through transaction costs in the statement of profit and loss and comprehensive
income / (loss) as the 2017 Commitment Purchase Agreement did not have any significant future value as of December 31, 2017 due
the fact that the 2017 Commitment Purchase Agreement terminated upon consumption of Merger on March 13, 2018.
Additionally, on October 16, 2017, the Company issued 1,744,186
(pre-merger) of its common shares to LPC for aggregate proceeds of CHF 1,446,150 ($1,500,000) pursuant to the Company’s effective
shelf registration statement on Form F-3. The related transaction cost of CHF 63,056 were recorded in equity.
On February 21, 2017, the Company completed a public offering
(the “February 2017 Offering”) of 10,000,000 (pre-merger) common shares with a nominal value of CHF 0.40 each and 10,000,000
(pre-merger) warrants, each warrant entitling its holder to purchase 0.70 of a common share. The gross proceeds to the Company
from the February 2017 Offering were CHF 9,998,305 ($10,000,000). The Company had transaction costs amounting to CHF 903,919.
The transactions costs were recorded as CHF 397,685 in equity for the issuance of the common shares and CHF 506,234 to finance
expense in the statement of profit or loss and comprehensive loss for the issuance of the warrants.
Issuance of common shares with restrictions
For the business year 2015, 129 restricted common shares
with a nominal value of CHF 0.40 were awarded and issued on January 7, 2016 under the Equity Incentive Plan for the purpose
of share based bonus payments. The shares are fully vested and became freely tradable on January 7, 2019. The Company
recorded a payroll charge of CHF 188,092 in 2015.
Authorized share capital
On January 24, 2019, our board of directors determined that
it would be in our best interest to change our legal seat and jurisdiction of incorporation, respectively, from Switzerland to
Bermuda (the “Redomestication”). The Company’s Memorandum of Continuance and the Bye-laws that were adopted
at an extraordinary meeting of shareholders held on March 8, 2019 provided for an authorized share capital of 200,000,000 common
shares and 20,000,000 preference shares. Following a reverse share split at a ratio of 20-for-1 on May 1, 2019 and as of December
31, 2019, our authorized share capital consists of 10,000,000 common shares, par value CHF 0.40 per share, and 20,000,000 preference
shares, par value CHF 0.02 per share.
13. Share-based compensation
Description
In 2014, the Group introduced an equity incentive plan
(the (“EIP”) as amended in 2017 and 2019. In September 2019, all employees and directors of the Company opted-in
to forfeit all option grants received prior to 2019 in exchange for new options (the “September 2019 Conversion
Grant”). The number of new options was calculated on a value neutral basis using the Black-Scholes model. Including the
September 2019 Conversion Grant, the Company granted 390,620 options in 2019 (2018: 45,560) under the EIP. Plan C was
terminated in 2019. The last outstanding options under Plan C were replaced by the September 2019 Conversion Grant.
Holders of vested options are entitled to purchase common shares
of the Company. Under the Equity Incentive Plan, the Board of Directors defined the exercise price as the average daily closing
price of the Company’s shares during the 30 days preceding the date of grant. All options are to be settled by the physical
delivery of shares. The key terms and conditions related to the grants under these programs at December 31, 2019 are as follows:
Plan
|
|
Number
of
options outstanding
|
|
|
Vesting conditions
|
|
Contractual life of
options
|
Equity Incentive Plan Board
|
|
|
62,566
|
|
|
1 year service from grant date
|
|
6 years
|
Equity Incentive Plan Employees / Board
|
|
|
122,782
|
|
|
2 years’ service from grant date (50%)
|
|
8 years
|
Equity Incentive Plan Employees / Board
|
|
|
122,782
|
|
|
3 years’ service from grant date (50%)
|
|
8 years
|
Measurement of fair values
The fair value of the options was measured based on the Black-Scholes
formula.
|
|
Stock Option Plan
|
|
|
Equity Incentive
Plan
2019
|
|
|
Equity Incentive
Plan
2019
|
|
|
Equity Incentive
Plan 2018
|
|
Equity Incentive
Plan 2018
|
Fair value at grant date
|
|
|
USD 0.715 (1 year vesting) 1)
USD 1.006 (2 year vesting) 1)
USD 1.193 (3 year vesting) 1)
|
|
|
|
USD 1.495 (1 year vesting) 2)
USD 2.196 (2 year vesting) 2)
USD 2.596 (3 year vesting) 2)
|
|
|
USD 0.340 (1 year vesting) 1)
USD 0.449 (2 year
vesting) 1)
USD 0.514 (3 year vesting) 1)
|
|
USD 1.074 (1 year vesting) 2)
USD 1.299 (2 year
vesting) 2)
USD 1.390 (3 year vesting) 2)
|
Share price at grant date
|
|
|
USD 1.76
|
|
|
|
USD 3.35
|
|
|
USD 0.64
|
|
USD 1.46
|
Exercise price
|
|
|
USD 2.07
|
|
|
|
USD 5.75
|
|
|
USD 0.66
|
|
USD 1.58
|
Expected volatility
|
|
|
119.41%
|
|
|
|
156.26 %
|
|
|
137.06%
|
|
93.38%
|
Expected life
|
|
|
1,2 and 3 years
|
|
|
|
1,2 and 3 years
|
|
|
1,2 and 3 years
|
|
1,2 and 3 years
|
Expected dividends
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
—
|
Risk-free interest rate
|
|
|
1.62%
|
|
|
|
2.29%
|
|
|
3.06%
|
|
2.92%
|
1)
|
October
grants for the respective year
|
|
|
2)
|
April
grants for the respective year
|
The Company uses its own historic volatility to calculate expected
volatility. The expected life of all options is assumed to correspond to the vesting period.
The total expense recognized for equity-settled share-based
payment transactions were CHF 228,920 in 2019 (2018: CHF 42,757, 2017: CHF 354,851).
Share based compensation loss related to employee stock options
amounted to CHF 226,601 in 2019 (2018: CHF 27,730, 2017: CHF 354,851).
Share based compensation expense of CHF 2,319 related to the
purchase of intangibles was capitalized for the year ended December 31, 2019 (2018: CHF 15,027, 2017: Nil).
The number and weighted average exercise prices (in CHF) of
options under the share option programs for Stock Option Plan C and the EIP are as follows:
|
|
2019
|
|
|
2018
|
|
|
|
Number of
options
|
|
|
Weighted average
exercise price
|
|
|
Weighted average
remaining term
|
|
|
Number of
options
|
|
|
Weighted average
exercise price
|
|
|
Weighted average
remaining term
|
|
Outstanding at January 1
|
|
|
992,777
|
|
|
|
1.10
|
|
|
|
7.45
|
|
|
|
225,154
|
|
|
|
17.40
|
|
|
|
6.88
|
|
Replacement of historical grants
|
|
|
(992,777
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
New grant with new exercise price
|
|
|
39,191
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Expired during the year
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,000
|
)
|
|
|
—
|
|
|
|
—
|
|
Forfeited during the year
|
|
|
(66,567
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(139,360
|
)
|
|
|
—
|
|
|
|
—
|
|
Exercised during the year
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Granted during the year
|
|
|
351,429
|
|
|
|
3.30
|
|
|
|
—
|
|
|
|
911,983
|
|
|
|
1.04
|
|
|
|
7.73
|
|
Outstanding at December 31
|
|
|
324,053
|
|
|
|
3.01
|
|
|
|
—
|
|
|
|
992,777
|
|
|
|
1.10
|
|
|
|
7.45
|
|
Exercisable at December 31
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
63,314
|
|
|
|
26.28
|
|
|
|
5.08
|
|
The range of exercise prices for outstanding options was CHF
2.00 to CHF 5.56 as of December 31, 2019 and CHF 13.20 to CHF 1,196.00 as of December 31, 2018.
14. Trade and other payables
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Trade accounts payable - third parties
|
|
|
906,501
|
|
|
|
1,810,445
|
|
Other
|
|
|
31,746
|
|
|
|
25,890
|
|
Total trade and other payables
|
|
|
938,247
|
|
|
|
1,836,335
|
|
15. Accrued expenses
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Accrued research and development costs including milestone payments
|
|
|
1,019,563
|
|
|
|
700,866
|
|
Professional fees
|
|
|
108,519
|
|
|
|
315,657
|
|
Accrued vacation & overtime
|
|
|
23,377
|
|
|
|
54,557
|
|
Employee benefits incl. share based payments
|
|
|
47,916
|
|
|
|
146,949
|
|
Other
|
|
|
140,447
|
|
|
|
72,850
|
|
Total accrued expenses
|
|
|
1,339,822
|
|
|
|
1,290,879
|
|
16. Research and development expense
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Pre-clinical projects
|
|
|
182,346
|
|
|
|
873,453
|
|
|
|
642,821
|
|
Clinical projects
|
|
|
993,085
|
|
|
|
846,235
|
|
|
|
12,365,768
|
|
Drug manufacturing and substance
|
|
|
481,453
|
|
|
|
2,185,292
|
|
|
|
2,027,184
|
|
Employee benefits and expenses
|
|
|
1,373,543
|
|
|
|
1,652,791
|
|
|
|
2,773,516
|
|
Lease expenses from short-term lease
|
|
|
26,057
|
|
|
|
65,921
|
|
|
|
111,680
|
|
Patents and trademarks
|
|
|
168,367
|
|
|
|
634,986
|
|
|
|
603,892
|
|
Regulatory projects
|
|
|
80,347
|
|
|
|
398,426
|
|
|
|
632,387
|
|
Depreciation tangible assets
|
|
|
20,083
|
|
|
|
32,485
|
|
|
|
53,594
|
|
Total research and development expense
|
|
|
3,325,281
|
|
|
|
6,689,589
|
|
|
|
19,210,842
|
|
Research and development expense was capitalized in the amount
of CHF 3,230,373 during 2019 compared to CHF 1,858,731 in 2018.
17. General and administrative expense
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Employee benefits and expenses
|
|
|
1,010,708
|
|
|
|
1,084,112
|
|
|
|
2,097,853
|
|
Business development
|
|
|
113,959
|
|
|
|
43,816
|
|
|
|
161,985
|
|
Travel expenses
|
|
|
102,679
|
|
|
|
70,944
|
|
|
|
199,484
|
|
Administration expenses
|
|
|
2,653,914
|
|
|
|
2,797,526
|
|
|
|
2,522,217
|
|
Lease expenses from short-term lease
|
|
|
27,362
|
|
|
|
52,416
|
|
|
|
81,277
|
|
Depreciation tangible assets
|
|
|
10,740
|
|
|
|
186,520
|
|
|
|
69,190
|
|
Capital tax expenses
|
|
|
14,501
|
|
|
|
29,200
|
|
|
|
18,403
|
|
Total general and administrative expenses
|
|
|
3,933,863
|
|
|
|
4,264,534
|
|
|
|
5,150,409
|
|
18. Employee benefits
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Salaries
|
|
|
1,832,382
|
|
|
|
2,542,952
|
|
|
|
3,761,171
|
|
Pension costs
|
|
|
130,792
|
|
|
|
108,978
|
|
|
|
378,588
|
|
Other social benefits
|
|
|
217,448
|
|
|
|
188,138
|
|
|
|
277,468
|
|
Share based payments costs
|
|
|
226,601
|
|
|
|
27,730
|
|
|
|
354,851
|
|
Recruitment costs
|
|
|
—
|
|
|
|
—
|
|
|
|
125,731
|
|
Other personnel expenditures
|
|
|
(22,973
|
)
|
|
|
(130,895
|
)
|
|
|
(26,439
|
)
|
Total employee benefits
|
|
|
2,384,250
|
|
|
|
2,736,903
|
|
|
|
4,871,370
|
|
Benefit plans
The Company participates in a retirement plan (the “Plan”)
organized as an independent collective foundation, that covers all of its employees in Switzerland, including management. The
collective foundation is governed by a foundation board. The board is made up of an equal number of employee and employer representatives
of the affiliated companies. The Company has no direct influence on the investment strategy of the collective foundation. Moreover,
certain elements of the employee benefits are defined in the same way for all affiliated companies. This is mainly related to
the annuity factors at retirement and to interest allocated on retirement savings. The employer itself cannot determine the benefits
or how they are financed directly. The foundation board of the collective foundation is responsible for the determination of the
investment strategy, for making changes to the pension fund regulations and in particular, also for defining the financing of
the pension benefits.
The old age benefits are based on retirement savings for each
employee, coupled with annual retirement credits and interest (there is no possibility to credit negative interest). At retirement
age, the insured members can choose whether to take a pension for life, which includes a spouse’s pension, or a lump sum.
In addition to retirement benefits, the plan benefits also include disability and death benefits. Insured members may also buy
into the scheme to improve their pension provision up to the maximum amount permitted under the rules of the plan and may withdraw
funds early for the purchase of a residential property for their own use subject to limitations under Swiss law. On leaving the
Company, retirement savings are transferred to the pension institution of the new employer or to a vested benefits institution.
This type of benefit may result in pension payments varying considerably between individual years. In defining the benefits, the
minimum requirements of the Swiss Law on Occupational Retirement, Survivors and Disability Pension Plans (BVG) and its implementing
provisions must be observed. The BVG defines the minimum pensionable salary and the minimum retirement credits. In Switzerland,
the minimum interest rate applicable to these minimum retirement savings is set by the Swiss Federal Council at least once every
two years. The rate was 1.00% in 2017, 1.00% in 2018 and 1.00% in 2019.
The assets are invested by the collective foundation in a diversified
portfolio that respects the requirements of the Swiss BVG. Under the Plan, both the Company and the employee share the costs equally.
The structure of the plan and the legal provisions of the BVG mean that the employer is exposed to actuarial risks. The main risks
are investment risk, interest risk, disability risk and the risk of longevity. Through the affiliation to a collective foundation,
the Company has minimized these risks, since they are shared between a much greater number of participants.
The following tables present information about the net defined
benefit liability and its components:
Change in defined benefit obligation
|
|
2019
|
|
|
2018
|
|
Defined benefit obligation at January 1
|
|
|
3,085,625
|
|
|
|
7,999,617
|
|
Service costs
|
|
|
138,580
|
|
|
|
90,162
|
|
Plan participants’ contribution
|
|
|
107,618
|
|
|
|
144,287
|
|
Interest cost
|
|
|
27,335
|
|
|
|
50,845
|
|
Actuarial losses
|
|
|
145,385
|
|
|
|
(1,911,382
|
)
|
Transfer-out amounts
|
|
|
(445,457
|
)
|
|
|
(3,367,834
|
)
|
Transfer-in amounts of new employees
|
|
|
28,861
|
|
|
|
79,930
|
|
Defined benefit obligation at December 31
|
|
|
3,087,947
|
|
|
|
3,085,625
|
|
The defined benefit obligation includes only liabilities for
active employees. The weighted average modified duration of the defined benefit obligation at December 31, 2019 is 22.6 years
(2018: 21.8 years).
Change in fair value of plan assets
|
|
2019
|
|
|
2018
|
|
Fair value of plan assets at January 1
|
|
|
2,437,338
|
|
|
|
6,036,647
|
|
Interest income
|
|
|
22,198
|
|
|
|
36,304
|
|
Return on plan assets excluding interest income
|
|
|
73,375
|
|
|
|
(634,190
|
)
|
Employer contributions
|
|
|
107,618
|
|
|
|
146,245
|
|
Plan participants’ contributions
|
|
|
107,618
|
|
|
|
146,245
|
|
Transfer-out amounts
|
|
|
(445,457
|
)
|
|
|
(3,367,834
|
)
|
Transfer-in amounts of new employees
|
|
|
28,861
|
|
|
|
79,930
|
|
Administration expense
|
|
|
(4,051
|
)
|
|
|
(6,009
|
)
|
Fair value of plan assets at December 31
|
|
|
2,327,500
|
|
|
|
2,437,338
|
|
Net defined benefit liability recognized in the statement
of financial position
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Present value of funded defined benefit obligation
|
|
|
3,087,947
|
|
|
|
3,085,625
|
|
Fair value of plan assets
|
|
|
(2,327,500
|
)
|
|
|
(2,437,338
|
)
|
Net defined benefit liability
|
|
|
760,447
|
|
|
|
648,287
|
|
Defined Benefit Cost
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Service cost
|
|
|
138,580
|
|
|
|
90,162
|
|
|
|
348,172
|
|
Net interest expense
|
|
|
5,137
|
|
|
|
14,541
|
|
|
|
12,994
|
|
Administration expense
|
|
|
4,051
|
|
|
|
6,009
|
|
|
|
17,422
|
|
Total defined costs for the year recognized in profit
or loss
|
|
|
147,768
|
|
|
|
110,712
|
|
|
|
378,588
|
|
Remeasurement of the Defined Benefit Liability
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Actuarial loss (gain) arising from changes in financial assumptions
|
|
|
360,541
|
|
|
|
(119,117
|
)
|
|
|
(150,552
|
)
|
Actuarial loss arising from experience adjustments
|
|
|
(215,156
|
)
|
|
|
(1,792,265
|
)
|
|
|
211,331
|
|
Actuarial gain arising from demographic assumptions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Return on plan assets excluding interest income
|
|
|
(73,375
|
)
|
|
|
634,190
|
|
|
|
(332,759
|
)
|
Total defined
benefit cost for the year recognized in the other comprehensive loss
|
|
|
72,010
|
|
|
|
(1,277,192
|
)
|
|
|
(271,980
|
)
|
Assumptions
At December 31
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Discount rate
|
|
|
0.30
|
%
|
|
|
0.95
|
%
|
|
|
0.80
|
%
|
Future salary increase
|
|
|
1.10
|
%
|
|
|
1.10
|
%
|
|
|
1.10
|
%
|
Pension indexation
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Mortality and disability rates
|
|
|
BVG2015G
|
|
|
|
BVG2015G
|
|
|
|
BVG2015G
|
|
Sensitivity analysis
Reasonably possible changes at the reporting date to one of
the relevant actuarial assumptions, holding other assumptions constant, would have affected the defined benefit obligation by
the amounts shown below.
December 31,
|
|
2019
|
|
|
2018
|
Change in assumption
|
|
|
0.25% increase
|
|
|
0.25% increase
|
Discount rate
|
|
|
(148,884)
|
|
|
(138,606)
|
Salary increase
|
|
|
14,395
|
|
|
13,121
|
Pension indexation
|
|
|
74,976
|
|
|
65,943
|
Change in assumption
|
|
|
+ 1 year
|
|
|
+ 1 year
|
Life expectancy
|
|
|
73,484
|
|
|
60,369
|
19. Finance income and finance expense
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Interest income
|
|
|
17,882
|
|
|
|
—
|
|
|
|
53,570
|
|
Net foreign currency exchange gain
|
|
|
1,343,153
|
|
|
|
1,103,067
|
|
|
|
1,912,681
|
|
Revaluation gain from derivative financial instruments
|
|
|
663,725
|
|
|
|
1,350,071
|
|
|
|
3,372,186
|
|
Total finance income
|
|
|
2,024,760
|
|
|
|
2,453,138
|
|
|
|
5,338,437
|
|
Interest expense (incl. Bank charges)
|
|
|
28,628
|
|
|
|
1,070,177
|
|
|
|
1,640,394
|
|
Net foreign currency exchange loss
|
|
|
1,562,725
|
|
|
|
1,242,938
|
|
|
|
2,737,273
|
|
Total finance expense
|
|
|
1,591,353
|
|
|
|
2,313,115
|
|
|
|
4,377,667
|
|
Finance income, net
|
|
|
433,407
|
|
|
|
140,023
|
|
|
|
960,770
|
|
In 2019, net foreign currency exchange gains contain translation
gains of CHF 7,744 (2018: CHF 264,029; 2017: CHF 1,315,029) which arose on the Company’s USD and EUR denominated cash and
cash equivalents. In 2019, finance expenses include interest paid to Hercules Capital, Inc. under the Loan and Security Agreement
in an amount of CHF 3,745 (2018: CHF 435,993; 2017: CHF 1,182,369).
20. Taxation
The Group’s income tax expense recognized in the consolidated
statement of profit or loss and other comprehensive loss was as follows:
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Deferred income tax expense
|
|
|
(213,355
|
)
|
|
|
(294,056
|
)
|
|
|
(21,415
|
)
|
Deferred income tax gain
|
|
|
407,192
|
|
|
|
131,879
|
|
|
|
39,188
|
|
|
|
|
193,837
|
|
|
|
(162,177
|
)
|
|
|
17,773
|
|
The Group’s effective income tax expense differed from
the expected theoretical amount computed by applying the Group’s applicable weighted average tax rate of 12.5% in 2019
(2018: 21.1%, 2017: 21.7%) as summarized in the following table:
Reconciliation
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Loss before income tax
|
|
|
(6,825,738
|
)
|
|
|
(11,334,224
|
)
|
|
|
(24,427,247
|
)
|
Income tax at statutory tax rates applicable to results in the respective countries
|
|
|
854,636
|
|
|
|
2,397,177
|
|
|
|
5,311,030
|
|
Effect of unrecognized temporary differences
|
|
|
89,974
|
|
|
|
140,371
|
|
|
|
193,598
|
|
Effect of unrecognized taxable losses
|
|
|
(913,309
|
)
|
|
|
(2,553,594
|
)
|
|
|
(5,429,935
|
)
|
Effect of utilization of previously unrecognized taxable losses
|
|
|
193,155
|
|
|
|
—
|
|
|
|
—
|
|
Effect of impairment of deferred tax assets
|
|
|
(131,055
|
)
|
|
|
—
|
|
|
|
—
|
|
Effect of previously unrecognised deferred tax asset
|
|
|
20,977
|
|
|
|
114,116
|
|
|
|
39,189
|
|
Effect of expenses deductible for tax purposes
|
|
|
—
|
|
|
|
—
|
|
|
|
9,696
|
|
Effect of expenses not considerable for tax purposes
|
|
|
(29,549
|
)
|
|
|
—
|
|
|
|
—
|
|
Effect of changes in local tax legislation and/or local tax rates
|
|
|
110,758
|
|
|
|
—
|
|
|
|
—
|
|
Effect of impact from application of different tax rates
|
|
|
(1,750
|
)
|
|
|
(260,247
|
)
|
|
|
(105,805
|
)
|
Effect of unrecognized taxable losses in equity
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Income tax gain/(loss)
|
|
|
193,837
|
|
|
|
(162,177
|
)
|
|
|
17,773
|
|
The tax effect of taxable temporary differences that give rise
to deferred income tax liabilities or to deferred income tax assets as of December 31 is presented below:
Deferred Tax Liabilities
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Intangible assets
|
|
|
(212,844
|
)
|
|
|
(627,540
|
)
|
Hercules Loan Facility
|
|
|
—
|
|
|
|
(889
|
)
|
Derivative financial asset
|
|
|
(26,156
|
)
|
|
|
(17,763
|
)
|
Total
|
|
|
(239,000
|
)
|
|
|
(646,192
|
)
|
Deferred Tax Asset
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Net operating loss (NOL)
|
|
|
91,851
|
|
|
|
305,206
|
|
Total
|
|
|
91,851
|
|
|
|
305,206
|
|
|
|
|
|
|
|
|
|
|
Deferred Tax, net
|
|
|
(147,149
|
)
|
|
|
(340,986
|
)
|
Deferred Tax 2019
|
|
Opening Balance
|
|
|
Recognized in Profit or Loss
|
|
|
Recognized in Equity
|
|
|
Closing Balance
|
|
Intangible assets
|
|
|
(627,540
|
)
|
|
|
414,696
|
|
|
|
—
|
|
|
|
(212,844
|
)
|
Hercules Loan Facility
|
|
|
(889
|
)
|
|
|
889
|
|
|
|
—
|
|
|
|
—
|
|
Derivative financial asset
|
|
|
(17,763
|
)
|
|
|
(8,393
|
)
|
|
|
—
|
|
|
|
(26,156
|
)
|
Net operating loss (NOL)
|
|
|
305,206
|
|
|
|
(213,355
|
)
|
|
|
—
|
|
|
|
91,851
|
|
Total
|
|
|
(340,986
|
)
|
|
|
193,837
|
|
|
|
—
|
|
|
|
(147,149
|
)
|
Deferred Tax 2018
|
|
Opening Balance
|
|
|
Recognized in Profit or Loss
|
|
|
Recognized in Equity
|
|
|
Closing Balance
|
|
Intangible assets
|
|
|
(349,052
|
)
|
|
|
(276,293
|
)
|
|
|
(2,195
|
)
|
|
|
(627,540
|
)
|
Hercules Loan Facility
|
|
|
(47,477
|
)
|
|
|
46,588
|
|
|
|
—
|
|
|
|
(889
|
)
|
Derivative financial asset
|
|
|
—
|
|
|
|
(17,763
|
)
|
|
|
—
|
|
|
|
(17,763
|
)
|
Net operating loss (NOL)
|
|
|
217,720
|
|
|
|
85,291
|
|
|
|
2,195
|
|
|
|
305,206
|
|
Total
|
|
|
(178,809
|
)
|
|
|
(162,177
|
)
|
|
|
—
|
|
|
|
(340,986
|
)
|
As of December 31, 2019, the Group had total gross tax
loss carry forwards amounting to CHF 151.5 million (2018: CHF 151.4 million), of which CHF 150.4 million related to Auris Medical
AG, Auris Medical Holding Ltd. and Otolanum AG in Switzerland and CHF 1,1 million to Auris Medical Inc. in the United States (2018:
CHF 150.3 million for Auris Medical AG and Otolanum AG and CHF 1.1 million for Auris Medical Inc.).
The Group’s tax loss carry-forwards with their expiry
dates are as follows:
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Within 1 year
|
|
|
22,405,533
|
|
|
|
8,173,993
|
|
Between 1 and 3 years
|
|
|
49,120,938
|
|
|
|
41,980,704
|
|
Between 3 and 7 years
|
|
|
78,872,116
|
|
|
|
100,136,349
|
|
More than 7 years
|
|
|
1,054,465
|
|
|
|
1,070,993
|
|
Total
|
|
|
151,453,052
|
|
|
|
151,362,039
|
|
The tax effect of the major unrecognized temporary differences
and loss carry-forwards is presented in the table below:
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Deductible temporary differences
|
|
|
|
|
|
|
Employee benefit plan
|
|
|
99,162
|
|
|
|
143,271
|
|
Stock option plans
|
|
|
568
|
|
|
|
148,407
|
|
Total potential tax assets
|
|
|
99,730
|
|
|
|
291,678
|
|
Taxable unrecognized temporary differences
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
—
|
|
|
|
—
|
|
Total unrecognized potential tax liabilities
|
|
|
—
|
|
|
|
—
|
|
Offsetting potential tax liabilities with potential tax assets
|
|
|
—
|
|
|
|
—
|
|
Net potential tax assets from temporary differences not recognized
|
|
|
99,730
|
|
|
|
291,678
|
|
Potential tax assets from loss carry-forwards not recognized
|
|
|
19,611,272
|
|
|
|
31,387,022
|
|
Total potential tax assets from loss carry-forwards and temporary differences not recognized
|
|
|
19,711,002
|
|
|
|
31,678,700
|
|
21. Loss per share
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Loss attributable to owners of the Company
|
|
|
(6,631,901
|
)
|
|
|
(11,496,401
|
)
|
|
|
(24,409,474
|
)
|
Weighted average number of shares outstanding *
|
|
|
2,909,056
|
|
|
|
795,043
|
|
|
|
218,709
|
|
Basic and diluted loss per share
|
|
|
(2.28
|
)
|
|
|
(14.46
|
)
|
|
|
(111.61
|
)
|
*
|
The basic and diluted loss per share for the year ended December 31, 2018 and the year ended December 31, 2017 is revised to reflect
the reverse-split ratio of 10 to 1 following the Merger on March 13, 2018 and the reverse-split ratio of 20 to 1 following the
“reverse share split” on May 1, 2019.
|
For the years ended December 31, 2019 and 2018 basic and
diluted loss per share is based on the weighted average number of shares issued and outstanding and excludes shares to be issued
under the Stock Option Plans (Note 13) and the warrant issued to Hercules (Note 24) as they would be anti-dilutive. As of December 31,
2019, the Company has 324,053 options outstanding under its stock option plans. The average number of options outstanding between
January 1, 2019 and December 31, 2019 was 812,167 (459,645 for the period between January 1, 2018 and December 31, 2018).
As of December 31, 2019, the Company issued warrants to purchase up to 2,488,520 of its common shares issued and outstanding.
22. Commitments and contingencies
Lease commitments
In August 2018, the Group assigned its lease agreement for
its office space entered into on October 1, 2016 to a third party and entered into a new lease agreement for new office space
with a lease term of less than 12 months.
The future minimum lease payments under non-cancellable lease term that are not accounted for in the statement of financial position were as follows:
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Within one year
|
|
|
24,980
|
|
|
|
24,374
|
|
Between one and five years
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
|
24,980
|
|
|
|
24,374
|
|
Office lease expenses of CHF 49,314, CHF 118,337 and CHF 192,957
were recorded in 2019, 2018 and 2017, respectively, in the consolidated statement of profit or loss and other comprehensive loss.
23. Related party transactions
For purposes of these consolidated financial statements, parties
are considered to be related if one party has the ability to control the other party or exercise significant influence over the
other party in making financial or operational decisions. Also, parties under common control of the Group are considered to be
related. Key management personnel are also related parties. In considering each possible related party relationship, attention
is directed to the substance of the relationship, and not merely the legal form.
Ante Treuhand AG (“Ante Treuhand”) provides
the Chief Financial Officer to the Company. The Chief Financial Officer is an employee of Ante Treuhand and is not paid
directly by the Company. Fees paid to Ante Treuhand for CFO services starting November 2019 were CHF 11,770. Fees paid to
Ante Treuhand for other services provided during the year ended December 31, 2019 were CHF 28,611.
Compensation of the members of the Board of Directors
and Management
In 2019, the total compensation paid to management amounted
to CHF 934,179 (2018: CHF 1,403,250; 2017: CHF 1,973,167). The fees paid to members of the Board of Directors in 2019 for their
activities as board members totaled CHF 170,755 (2018: CHF 287,384; 2017: CHF 337,619).
|
|
Executive Management
|
|
|
Board of Directors
|
|
|
Total
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Short term benefits
|
|
|
717,905
|
|
|
|
1,002,707
|
|
|
|
1,576,864
|
|
|
|
170,755
|
|
|
|
200,421
|
|
|
|
280,762
|
|
|
|
888,660
|
|
|
|
1,203,128
|
|
|
|
1,857,626
|
|
Post-employee benefits years
|
|
|
42,560
|
|
|
|
55,278
|
|
|
|
94,839
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
42,560
|
|
|
|
55,278
|
|
|
|
94,839
|
|
Share-based payment charge
|
|
|
109,912
|
|
|
|
204,224
|
|
|
|
190,659
|
|
|
|
49,323
|
|
|
|
60,657
|
|
|
|
72,647
|
|
|
|
159,235
|
|
|
|
264,881
|
|
|
|
263,306
|
|
Total
|
|
|
870,377
|
|
|
|
1,262,209
|
|
|
|
1,862,362
|
|
|
|
220,078
|
|
|
|
261,078
|
|
|
|
353,409
|
|
|
|
1,090,455
|
|
|
|
1,523,287
|
|
|
|
2,215,771
|
|
In 2019, CHF 159,235 (2018: CHF 264,881; 2017: CHF 263,306) was
expensed for grants of stock options to members of the Board of Directors and management. The 2019 share based payment charge shown
above excludes adjustments for instruments forfeited in 2019 due to termination of service. Contributions to pension schemes amounted
to CHF 42,560, CHF 55,278 and CHF 94,839 during the years 2019, 2018 and 2017, respectively. No termination benefits or other
long term benefits were paid.
Members of the Board of Directors and management held 271,999,
703,235 and 1,782,605 stock options as of December 31, 2019, 2018, and 2017, respectively.
24. 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. Prior to its payoff in January 2019, the loan matured on January 2, 2020 and bore interest at a minimum rate of 9.55%
per annum, and was subject to the variability of the prime interest rate. The loan was 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 Hercules Loan and Security Agreement were amended to eliminate the $5 million liquidity covenant in exchange for a repayment
of $5 million principal amount outstanding under the Hercules Loan and Security Agreement. 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 was measured at amortized cost using the effective interest method. On January
31, 2019, the Company made the final payment to Hercules under the facility, comprising the last amortization payment as well
as an end of term charge. With the final payment, all covenants and collaterals in favor of Hercules have been lifted. In addition,
Hercules agreed to return the warrant held by Hercules exercisable for 783 common shares at an exercise price of $788.00 per common
share for no consideration to the Company in exchange for the Company’s payment to Hercules. As of December 31, 2019 the
fair value of the warrant amounted to CHF 0.00. The revaluation gain of the derivative for the twelve months ended December, 2019
amounted to CHF 3,804, which is a decrease of CHF 15,742 when comparing to the same period in 2018. Since its initial recognition
as of July 19, 2016, the fair value decreased by CHF 408,180 resulting in a revaluation gain in the corresponding amount (fair
value as of July 19, 2016: CHF 408,180).
25. Warrants from Public Offering
On February 21, 2017, the Company completed a public offering
(the “February 2017 Offering”) of 10,000,000 (pre-merger) common shares with a nominal value of CHF 0.40 each and 10,000,000
(pre-merger) warrants, each warrant entitling its holder to purchase 0.70 of a common share. The net proceeds to the Company from
the February 2017 Offering were approximately CHF 9.1 million ($ 9.1 million), after deducting underwriting discounts and
other estimated offering expenses payable by us. The Company had transaction costs amounting to CHF 903,919. The transactions costs
were recorded as CHF 397,685 in equity for the issuance of the common shares and CHF 506,234 to finance expense in the statement
of profit or loss and comprehensive loss for the issuance of the warrants.
The underwriter was granted a 30-day option to purchase up to
1,500,000 (pre-merger) additional common shares and/or 1,500,000 (pre-merger) additional warrants. On February 15, 2017, the underwriter
partially exercised its 30-day option to purchase additional common shares and/or warrants in the amount of 1,350,000 (pre-merger)
warrants.
Consequently, the Company issued warrants to purchase up to
7,945,000 (pre-merger) of its common shares at an exercise price of $ 1.20 per share. The warrants are exercisable during a five-year
period beginning on date of issuance. The fair value calculation of the warrants 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.
If a warrant is exercised, the Company will receive variable proceeds because the Company’s functional currency is CHF and
the exercise price is in USD, which results in the warrants being considered liability instruments. Therefore, the warrants were
assigned fair values using the Black-Scholes model. The residual value was assigned to the common share sold along with each warrant
in accordance with IAS 32 Financial instruments. The gross proceeds from the February 2017 offering were CHF 9,998,305 of which
CHF 5,091,817 (fair value as of February 21, 2017) was assigned to the warrants and CHF 4,906,488 was assigned to equity.
As of December 31, 2019, the outstanding
warrants issued in the 2017 February Offering are exercisable for up to 39,725 common shares at an exercise price of $240.00.
As of December 31, 2019, the fair value of the warrants amounted to CHF 0.00 (2018: 166,301). The fair value decreased by CHF 166,301 resulting in a revaluation gain of the same amount for the year ended December 31, 2019.
On January 30, 2018, the Company issued
37,499 warrants in connection with a direct offering of 62,499 common shares, each warrant entitling its holder to purchase
one common share at an exercise price of $100.00 per common share. As of December 31, 2019, the outstanding warrants issued
in such offering were exercisable for up to 37,501 common shares at an exercise price of $100.00 per common share. As of
December 31, 2019 the fair value of the warrants amounted to CHF 4,353 (2018: CHF 289,651). The revaluation gain of the derivative for the
twelve months ended December 31, 2019 amounted to CHF 285,298, which is a decrease of CHF 1,908,798 when comparing to the
same period in 2018. Since its initial recognition on January 30, 2018, the fair value of the warrants has decreased by CHF
2,479,394 resulting in a gain in the corresponding amount (fair value as of January 30, 2018: CHF 2,483,747).
On July 17, 2018, the Company issued 314,102
Series A warrants and 224,358 Series B warrants in connection with the July 2018 Registered Offering of 897,435 common shares,
each warrant entitling its holder to purchase one common share at an original exercise price of CHF 7.80 per common share. Revaluation
gain/(loss) show the changes in fair value of the outstanding Series B warrant issued in connection with this offering.
As of December 31, 2019, 145,226 Series A warrants were exercised
for an aggregate amount of CHF 1,132,762 and 143,221 Series B warrants were exercised for an aggregate amount of CHF 1,117,125.
As of December 31, 2019, 143,221 Series B exercised warrants
were subject to revaluation at the time that they were exercised and the fair value amounts to CHF 3,005,348 (2018: CHF 3,005,348).
Since its initial recognition on July 17, 2018 the fair value of the warrants has increased by CHF 2,433,099, resulting in a loss
in the corresponding amounts (fair value as of July 17, 2018: CHF 572,249).
As of December 31, 2019, the number of Series B warrants outstanding
subject to revaluation were 34,535 and the fair value amounted to CHF 0.00 (2018: CHF 215,572). The fair value decreased by CHF
215,572 resulting in a revaluation gain of the same amount for the year ended December 31, 2019 (fair value as of July 17, 2018:
CHF 137,987).
26. Events after the balance sheet date
The COVID-19 outbreak will delay enrollment of patients into
our “TRAVERS” phase 2 trial with AM-125. Candidates for trial participation undergo certain types of neurosurgery,
which are elective procedures. Due to the COVID-19 outbreak, the sites participating in the “TRAVERS” trial have postponeed
elective procedures and temporarily reduced or suspended clinical research activities. As a result, enrollment came to a halt towards
the end of March 2020. Although sites are expected to catch up on enrollment once COVID-19 related restrictions are relaxed, the
Company expects that the interim analysis following Part A of the trial will be completed only in the third quarter of 2020, at
the earliest.
The COVID-19 outbreak and its impact on the global financial markets
may limit our ability to raise additional funds to continuously fund our operations and complete the research and development of
all of our product candidates. However, we have an equity commitment to sell up to $8.2 million of additional common shares to
LPC and an at-the-market offering program in place with A.G.P. for $ 25.0 million, under which $1.4 million have been issued as
of the date of this Annual Report.
F-37
Auris Medical (NASDAQ:EARS)
Historical Stock Chart
From Mar 2024 to Apr 2024
Auris Medical (NASDAQ:EARS)
Historical Stock Chart
From Apr 2023 to Apr 2024