Unaudited Condensed Consolidated Interim
Financial Statements as of September 30, 2017 and December 31, 2016 and for the Three and Nine Months Ended September 30, 2017
and 2016
Condensed Consolidated Interim Statement of Profit or Loss and
Other Comprehensive Loss
Condensed Consolidated Interim Statement of Financial Position
Condensed Consolidated Interim Statement of Changes in Equity
Condensed Consolidated Interim Statement of Cash Flows
Notes to the Condensed Consolidated Interim Financial Statements
Notes
to the Condensed Consolidated Interim Financial Statements
as
of September 30, 2017 and December 31, 2016 and for the Three Months and Nine Months Ended September 30, 2017 and 2016 (in CHF)
Auris Medical Holding AG (the “Company”)
is domiciled in Switzerland. The Company’s registered address is at Bahnhofstrasse 21, 6300 Zug. These condensed consolidated
interim financial statements comprise the Company and its subsidiaries (together referred to as the “Group” and individually
as “Group entities”). The Company is the ultimate parent of the following Group entities:
|
|
·
|
Auris Medical AG, Basel, Switzerland (100%) with a nominal share capital of CHF 2,500,000
|
|
|
·
|
Otolanum AG, Zug, Switzerland (100%) with a nominal share capital of CHF 100,000
|
|
|
·
|
Auris Medical Inc., Chicago, United States (100%) with a nominal share capital of USD 15,000
|
|
|
·
|
Auris Medical Ltd., Dublin, Ireland (100%) with a nominal share capital of EUR 100
|
The Group is primarily involved
in the development of pharmaceutical products for the treatment of inner ear disorders, in particular tinnitus, hearing loss and
vertigo. Its most advanced projects are in the late stage of clinical development.
Statement of compliance
These condensed consolidated interim financial
statements as of September 30, 2017 and December 31, 2016 and for the three and nine months ended September 30, 2017 have been
prepared in accordance with International Accounting Standard
Interim Financial Reporting
(“IAS 34”) and should
be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2016.
These condensed consolidated interim financial
statements include all adjustments, that are necessary to fairly state the results of the interim period and the Group believes
that the disclosures are adequate to make the information presented not misleading. Interim results are not necessarily indicative
of results to be expected for the full year. Management does not consider the business to be seasonal or cyclical.
Certain information and footnote disclosures
normally included in consolidated financial statements prepared in accordance with International Financial Reporting Standards
(“IFRS”), as issued by the International Accounting Standards Board, have been condensed or omitted as permitted by
IAS 34. The condensed consolidated statement of financial position as of December 31, 2016 was derived from the audited consolidated
financial statements.
The interim condensed consolidated financial
statements were authorized for issuance by the Company’s Audit Committee on
November
28, 2017
.
Functional and reporting currency
These interim condensed consolidated financial
statements are presented in Swiss Francs (“CHF”), which is the Company’s functional currency (“functional
currency”) and the Group’s reporting currency.
Significant accounting policies
The accounting policies applied by the
Group in these condensed consolidated interim financial statements are the same as those applied by the Group in its audited consolidated
financial statements as of and for the year ended December 31, 2016 and have been applied consistently to all periods presented
in these condensed consolidated interim financial statements, unless otherwise indicated.
New standards, amendments and interpretations
adopted by the Group
The
Group has not early adopted any standard, interpretation or amendment that was issued, but is not yet effective.
A number of new standards, amendments to
standards and interpretations are effective for the Group’s 2017 reporting year. The application of these new standards,
amendments to standards and interpretations does not have material impact on the financial statements of the Group.
The Group’s income tax expense recognized in the condensed
consolidated statement of profit or loss is presented as follows:
|
|
NINE MONTHS ENDED
|
|
|
September 30, 2017
|
|
September 30, 2016
|
|
Deferred income tax expense
|
—
|
|
(80,124)
|
|
Deferred income tax gain
|
24,573
|
|
80,124
|
|
Total income tax expense
|
24,573
|
|
—
|
The tax effect of taxable temporary differences that give rise
to deferred income tax liabilities or to deferred income tax assets as of September 30, 2017 and 2016 is presented as follows:
|
|
September 30, 2017
|
|
September 30, 2016
|
|
Deferred Tax liabilities
|
|
|
|
|
Intangible assets
|
(349,052)
|
|
(327,637)
|
|
Hercules Loan & Warrant
|
(53,309)
|
|
(80,124)
|
|
Total
|
(402,361)
|
|
(407,761)
|
|
Deferred Tax assets
|
|
|
|
|
Net operating loss (NOL)
|
230,352
|
|
80,124
|
|
Total
|
230,352
|
|
80,124
|
|
Deferred Tax, net
|
(172,009)
|
|
(327,637)
|
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
US$20.0 million with Hercules Capital, Inc. as administrative agent (“Hercules”) and the lenders party thereto. An
initial tranche of US$12.5 million was drawn on July 19, 2016, concurrently with the execution of the Hercules Loan and Security
Agreement. The loan matures on January 2, 2020 and bears interest at a minimum rate of 9.55% per annum, and is subject to the variability
of the prime interest rate. The loan is secured by a pledge of the shares of Auris Medical AG owned by the Company, all intercompany
receivables owed to the Company by its Swiss subsidiaries and a security assignment of the Company’s bank accounts.
The loan was initially recognized at transaction value with
deductions of the fair value of the warrant at transaction date and directly attributable transactions costs.
Subsequent to initial recognition, the loan is measured at amortized
cost using the effective interest method. Applying this method, the calculated value of the loan as of September 30, 2017 is CHF
11,032,733. Of the CHF 11,032,733 amortization payments due within the next 12 months in an amount of CHF 4,406,208 are reclassified
as current liabilities.
In connection with the loan facility, the
Company issued Hercules a warrant to purchase up to 241,117 of its common shares at an exercise price of US$3.94 per share. As
of July 19, 2016, the warrant was exercisable for 156,726 common shares. Upon Hercules making the second advance under the loan
facility, the warrant shall become exercisable for the additional 84,391 common shares. The warrant expires on July 19, 2023. The
fair value calculation of the warrant is based on the Black-Scholes option price model. Assumptions are made
regarding inputs such
as volatility and the risk free rate in order to determine the fair value of the warrant. As the warrant is part of the loan transaction,
its fair value was deducted from the loan proceeds and accounted for separately as non-current financial liability. Following the
initial recognition, the warrant is measured at fair value and the changes in fair value are shown as profit or loss.
As of September 30, 2017, the fair value of
the warrant amounts to CHF 51,733. Therefore, the fair value decreased by the total amount of CHF 65,399 in the current year (fair
value as of December 31, 2016: CHF 117,132).
Share capital
The issued share capital of the Company consisted of:
|
|
Common Shares
|
|
|
Number
|
|
|
2017
|
|
2016
|
|
As of January 1
|
34,329,704
|
|
34,303,891
|
|
Common shares issued for capital increase
with a nominal value of CHF 0.40 each
|
10,000,000
|
|
—
|
|
Common shares issued for restricted share
awards with a nominal value of CHF 0.40 each
|
—
|
|
25,813
|
|
Total, as of September 30
|
44,329,704
|
|
34,329,704
|
All shares have a nominal value of CHF 0.40 and are fully
paid in. As of June 30, 2017, the nominal value of the 44,329,704 issued shares amounted to CHF 17,731,881.60 (as of December
31, 2016, the nominal value of 34,329,704 issued shares amounted to CHF 13,731,881.60).
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
This management’s discussion and analysis
is designed to provide you with a narrative explanation of our financial condition and results of operations. We recommend that
you read this in conjunction with our unaudited condensed consolidated interim financial statements as of and for the three and
nine months ended September 30, 2017 and 2016 included as Exhibit 99.1 to this Report on Form 6-K, which have been prepared in
accordance with International Accounting Standard (“IAS”) 34,
Interim Financial Reporting
. We also recommend
that you read our management’s discussion and analysis and our audited consolidated financial statements and the notes thereto,
which appear in our Annual Report on Form 20-F for the year ended December 31, 2016 (the “Annual Report”) filed with
the U.S. Securities and Exchange Commission (the “SEC”) pursuant to the U.S. Securities and Exchange Act of 1934, as
amended.
Unless otherwise indicated or the context
otherwise requires, all references to “Auris Medical” or the “Company,” “we,” “our,”
“ours,” “us” or similar terms refer to Auris Medical Holding AG and its subsidiaries.
We prepare and report our consolidated financial
statements and financial information in accordance with International Financial Reporting Standards (“IFRS”) as issued
by the International Accounting Standards Board (the “IASB”). None of our financial statements were prepared in accordance
with generally accepted accounting principles in the United States (“U.S. GAAP”). We maintain our books and records
in Swiss Francs. We have made rounding adjustments to some of the figures included in this management’s discussion and analysis.
Accordingly, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that precede
them. Unless otherwise indicated, all references to currency amounts in this discussion and analysis are in Swiss Francs.
This discussion and analysis is dated as
of
November 28, 2017
.
Overview
We are a clinical-stage biopharmaceutical
company focused on the development of novel products for the treatment of inner ear and vestibular disorders. Our most advanced
product candidates are in Phase 3 clinical development. Keyzilen
®
(AM-101) is being developed for the treatment
of acute inner ear tinnitus and has received fast track designation from the FDA. In two Phase 2 clinical trials, Keyzilen
®
demonstrated a favorable safety profile and statistically significant improvement in tinnitus loudness and other patient reported
outcomes. In August 2016, we announced that the trial Efficacy and Safety of AM-101 in the Treatment of Acute Peripheral Tinnitus
2 (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 Tinnitus Functional Index (TFI),
compared to placebo.
Following analysis of the TACTT2 data, we
amended the protocol for the TACTT3 trial, the second Phase 3 clinical trial with Keyzilen
®
. TACTT3 is being conducted
in several European countries. Under the amended protocol, the trial size has been increased, certain patient subgroups have been
included in confirmatory testing and the TFI has been elevated from a key secondary endpoint to an alternate primary efficacy endpoint.
We completed recruitment under the amended protocol in September 2017 and expect to have top-line results from the expanded TACTT3
trial in the first quarter of 2018.
We are also developing AM-111 for acute
inner ear hearing loss. In November 2015 and in June 2016 we initiated two pivotal Phase 3 trials in the treatment of idiopathic
sudden sensorineural hearing loss (ISSNHL; aka sudden deafness), titled HEALOS and ASSENT.
HEALOS
enrolled 256 patients in Europe and Asia. 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 and statistically significant improvement in the AM-111 0.4 mg/mL treatment
group. We plan to discuss the HEALOS results and the regulatory pathway with health authorities. In addition, we will
terminate the ASSENT trial as it is very similar in design to the HEALOS trial and, based on the new findings, is no longer
adequate for testing AM-111.
The
hearing improvement at the three worst affected contiguous test frequencies at Day 28 was 38.4 dB for patients in the AM-111 0.4
mg/mL group compared to 33.4 dB for the placebo group (p=0.226). For patients in the AM-111 0.8 mg/mL group the improvement was
36.6 dB (p=0.448). Post-hoc analysis in the subpopulation of patients with profound hearing loss
1
(n=98) showed an
improvement at Day 28 of 42.7 dB in the AM-111 0.4 mg/mL group vs. 26.8 dB in the placebo group, which was statistically significant
(p=0.0176). The improvement was 37.3 dB in the AM-111 0.8 mg/mL group (p=0.126). In addition, AM-111 was well tolerated and the
primary safety endpoint was met. There was no significant difference in the occurrence of clinically relevant hearing deterioration
between either of the active treated groups and the placebo group at Day 28.
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 has agreed to sell us certain preclinical and clinical assets related to a formulation
for the intranasal application of Betahistine, which we refer to as AM-125, as well as intellectual property rights. We plan to
develop the formulation for the treatment of vertigo. The Otifex transaction closed in July 2017. We plan to initiate a second
Phase 1 clinical trial with AM-125 in the first half of 2018.
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. On July
19, 2016, we entered into a Loan and Security Agreement (the “Hercules Loan and Security Agreement”) for a secured
term loan facility of up to US$20.0 million with Hercules Capital, Inc. as administrative agent (“Hercules”) and the
lenders party thereto. We have no products approved for commercialization and have never generated any revenues from royalties
or product sales. As of September 30, 2017, we had cash and cash equivalents of CHF 20.2 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
®
,
AM-111, AM-125 or any of our other product candidates.
As of September 30, 2017, we had an accumulated
deficit of CHF 131.5 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.
Thomas Jung, MD, PhD, who joined Auris Medical in 2016 as Chief
Development Officer, has decided to leave the Company by the end of the year to pursue a new career opportunity.
Recent Developments
On May 9, 2017 and April 24, 2017, respectively,
we announced results from AMPACT 1 and AMPACT2 (
AM
-101 in the
P
ost-
Ac
ute Treatment of Peripheral
T
innitus
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. Participation in the AMPACT studies was offered to individuals who had completed
the TACTT2 and TACTT3 trials; they were given the choice to receive up to three treatment cycles with each cycle comprising three
intratympanic administrations of Keyzilen®, followed by a treatment-free observation period of 12 weeks. A total of 257 TACTT2
participants rolled over into AMPACT1 and provided safety data; 228 of these patients provided exploratory efficacy data. A total
of 485 TACTT3 participants rolled over into AMPACT2 and provided safety data; 422 of these patients provided exploratory efficacy
data. At the time of enrollment into the AMPACT studies, all patients were in the post-acute stage, i.e. more than three months
from tinnitus onset.
Both AMPACT1 and AMPACT2 confirmed the good
safety profile of Keyzilen
®
. The primary safety endpoint was the incidence of clinically relevant hearing deterioration
five weeks after the start of a treatment cycle. In line with the results from previous trials with Keyzilen
®
, such
incidence was low, amounting to 6% and 8% in AMPACT1 and AMPACT2, respectively. During the course of the studies, the patients’
hearing threshold at the average of 4, 6 and 8 kHz was essentially stable. In both studies, the vast majority of adverse events
that were considered related to the study drug
or treatment procedure were rated as either mild or moderate in intensity. Three and seven patients, respectively, experienced
a total of four and eight non-fatal, serious adverse events, none of which was considered related to the study drug. Confirming
previous data, 93% and 97%, respectively, of tympanic membranes were already closed at the time of the first follow-up visit.
1
Commonly defined
as hearing threshold of 90 dB or higher.
Exploratory efficacy analyses collected
in AMPACT1 show improvements in the TFI as well as other tinnitus metrics. The TFI decreased on average by 8.2 points (95% confidence
interval 6.2 to 10.1; baseline of 42.7 points) to the last follow-up visit. The more treatment cycles the study participants received,
the larger the reduction in the TFI was; the difference between three cycles and one cycle reached statistical significance. Similar
results were achieved on subjective tinnitus loudness and tinnitus annoyance. In addition, 41% of AMPACT1 participants achieved
a reduction in their tinnitus severity (extreme-severe-moderate-mild-none) by at least one grade and 28% reported that their tinnitus
severity had improved “much” or “very much” compared to baseline.
Exploratory efficacy analyses collected
in AMPACT2 show improvements in the TFI that were more pronounced for Stratum A patients (originally enrolled in TACTT3 during
the acute stage; i.e. up to three months from onset) compared to Stratum B patients (originally enrolled during the post-acute
stage). For Stratum A patients, the TFI decreased on average by 7.6 points (95% confidence interval 5.5 to 9.6; baseline of 40.3
points) to the last follow-up visit. For Stratum B patients, the TFI decreased on average by 3.5 points (1.4 to 5.6; baseline of
42.3 points) when enrolled in TACTT3 between three and six months from onset and by 2.5 points (-1.1 to 6.1; baseline of 45.3 points)
when enrolled in TACTT3 between six and 12 months from onset. Efficacy outcomes from AMPACT1 and AMPACT2 are of exploratory nature
and should be interpreted in conjunction with the design of the preceding TACTT1 and TACTT2 trials and their respective outcomes.
On July 20, 2015, the USPTO declared Patent
Interference No. 106,030 involving our issued U.S. patent No. 9,066,865 (the “865 Patent”) and Otonomy, Inc.’s
(“Otonomy”) U.S. patent application No. 13/848,636 (the “636 Application”). On January 26, 2017, the USPTO
issued a decision on the interference granting Auris benefit of priority. As a result of the decision, judgment was entered against
Otonomy and all claims in the ’636 Application were refused. In addition, claims 1-8 of the ’865 Patent were cancelled
as the result of the USPTO’s determination that the written description of the specification lacked full scope support for
treating middle or inner ear disease with fluoroquinolone. However, claim 9, which is directed to a method of treating viral and
bacterial infections with intratympanic injection of a fluoroquinolone antibiotic in a poloxamer 407 composition under certain
specifications, was affirmed. Otonomy appealed the decision on March 27, 2017 and we submitted a notice of cross-appeal on April
5, 2017.
On October 10, 2017, we entered into a purchase
agreement (the “Commitment Purchase Agreement”) and a Registration Rights Agreement (the “Registration Rights
Agreement”) with Lincoln Park Capital Fund, LLC (“LPC”). Pursuant to the Commitment Purchase Agreement, LPC has
agreed to subscribe for up to $13,500,000 of our common shares over the 30-month term of the Commitment Purchase Agreement. Regular
purchases may be made from time to time under the Commitment Purchase Agreement subject to certain amount limitations. The purchase
price for regular purchases is equal to the lesser of (i) the lowest sale price of our common shares on the purchase date and (ii)
the average of the three (3) lowest closing sale prices of our common shares during the ten (10) business days prior to the purchase
date, as reported on the Nasdaq Capital Market. We also have the right, at our sole discretion, to require LPC to make additional
purchases, subject to certain amount limitations, at a purchase price equal to the lesser of (i) $1.50 per common share or (ii)
97% of the purchase price, provided that the closing price of the common shares is not below $0.70. Pursuant to the Registration
Rights Agreement, we have agreed to file registration statements with the SEC to register the resale of the common shares purchased
by LPC.
On October 16, 2017, we issued 1,744,186
of our common shares to LPC for an aggregate price of $1,500,000
pursuant to our effective
shelf registration statement on Form F-3 (Registration No. 333-217305).
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 and statistically significant improvement in the AM-111 0.4 mg/mL treatment group.
We plan to discuss the HEALOS results and the regulatory pathway with health authorities. In addition, we will terminate the ASSENT
trial as it is very similar in design to the HEALOS trial and, based on the new findings, is no longer adequate for testing AM-111.
Collaboration and License Agreements
There have been no material changes to our
collaboration and license agreements from those reported in “Item 5—Operating and Financial Review and Prospects–Operating
results—Collaboration and License Agreements” in the Annual Report.
Research and Development Expense
Our research and development expense is
highly dependent on the development phases of our research projects and therefore may fluctuate substantially from period to period.
Our research and development expense mainly relates to the following key programs:
|
|
·
|
Keyzilen
®
(AM-101)
. We are conducting a Phase 3 clinical development program with Keyzilen
®
comprising two Phase 3 trials and two open label follow-on trials. In August 2016, we announced that the 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. We completed enrollment under the
amended TACTT3 trial in September 2017 and expect top-line results in the first quarter of 2018. We announced top-line data from
AMPACT1 and AMPACT2 on May 9 and April 24, 2017, respectively. We anticipate that our research and development expenses in connection
with these clinical trials will be lower in 2017 than in 2016, reflecting the lower number of active trials.
|
|
|
·
|
AM-111
.
We are conducting a Phase 3 clinical development program with AM-111 comprising two Phase 3 trials in the treatment of ISSNHL,
titled HEALOS and ASSENT. On November 28, 2017, we announced that the HEALOS trial did
not meet the primary efficacy endpoint of a statistically significant improvement in hearing from baseline to Day 28 compared to
placebo for either active treatment groups in the overall study population. However, a post-hoc analysis of the subpopulation with
profound acute hearing loss revealed a clinically and statistically significant improvement in the AM-111 0.4 mg/mL treatment group.
We plan to discuss the HEALOS results and the regulatory pathway with health authorities. In addition, we will terminate the ASSENT
trial as it is very similar in design to the HEALOS trial and, based on the new findings, is no longer adequate for testing AM-111.
|
|
|
·
|
AM-125
.
In the first half of 2018,
we plan to initiate a second Phase 1 trial in healthy volunteers to further test the safety and tolerability and the pharmacokinetics
of AM-125. We expect to obtain the results of the study in summer 2018.
|
Other research and development expenses
mainly relate to our pre-clinical studies of AM-102 (second generation tinnitus treatment). The expenses mainly consist of costs
for production of the pre-clinical compounds and costs paid to academic and other research institutions in conjunction with pre-clinical
testing.
For a discussion of our other key financial
statement line items, please see “Item 5—Operating and Financial Review and Prospects–Operating results—Financial
Operations Overview” in the Annual Report.
Results of Operations
The numbers below have been derived from
our unaudited condensed consolidated interim financial statements as of and for the three and nine months ended September 30, 2017
and 2016. The discussion below should be read along with this financial information, and it is qualified in its entirety by reference
to them.
Comparison
of the three months ended September 30, 2017 and 2016
|
|
Three months ended September
30
|
|
|
|
|
2017
|
|
2016
|
|
Change
|
|
|
(in thousands of CHF)
|
|
%
|
|
Research and development
|
(4,221)
|
|
(6,344)
|
|
(33%)
|
|
General and administrative
|
(1,336)
|
|
(1,198)
|
|
12%
|
|
Operating loss
|
(5,557)
|
|
(7,542)
|
|
(26%)
|
|
Interest income
|
8
|
|
18
|
|
(56%)
|
|
Interest expense
|
(417)
|
|
(404)
|
|
3%
|
|
Foreign currency exchange gain / loss, net
|
2
|
|
(192)
|
|
(101%)
|
|
Revaluation (loss) / gain from derivative instrument
|
(56)
|
|
228
|
|
(125%)
|
|
Loss before tax
|
(6,020)
|
|
(7,892)
|
|
(24%)
|
|
Income tax gain
|
8
|
|
—
|
|
n/a
|
|
Net loss attributable to owners of the Company
|
(6,012)
|
|
(7,892)
|
|
(24%)
|
|
Other comprehensive income:
|
|
|
|
|
|
|
Items that will never be reclassified to profit or loss
|
|
|
|
|
|
|
Remeasurements of defined benefit liability
|
94
|
|
23
|
|
309%
|
|
Items that are or may be reclassified to profit or loss
|
|
|
|
|
|
|
Foreign currency translation differences
|
(5)
|
|
6
|
|
(183%)
|
|
Other comprehensive income
|
89
|
|
29
|
|
207%
|
|
Total comprehensive income attributable to owners of the Company
|
(5,923)
|
|
(7,863)
|
|
(25%)
|
Comparison of the nine months ended
September 30, 2017 and 2016
|
|
Nine months ended
September 30
|
|
|
|
|
2017
|
|
2016
|
|
Change
|
|
|
(in thousands of CHF)
|
|
%
|
|
Research and development
|
(14,926)
|
|
(19,763)
|
|
(24%)
|
|
General and administrative
|
(3,997)
|
|
(4,145)
|
|
(4%)
|
|
Operating loss
|
(18,923)
|
|
(23,908)
|
|
(21%)
|
|
Interest income
|
54
|
|
44
|
|
23%
|
|
Interest expense
|
(1,248)
|
|
(410)
|
|
204%
|
|
Foreign currency exchange gain / loss, net
|
(929)
|
|
(1,177)
|
|
(21%)
|
|
Revaluation gain from derivative instrumen
|
1,705
|
|
228
|
|
648%
|
|
Transaction cos
|
(506)
|
|
—
|
|
n/a
|
|
Loss before t
|
(19,847)
|
|
(25,223)
|
|
(21%)
|
|
Income tax gain
|
25
|
|
—
|
|
n/a
|
|
Net loss attributable to owners of the Company
|
(19,822)
|
|
(25,223)
|
|
(21%)
|
|
Other comprehensive income:
|
|
|
|
|
|
|
Items that will never be reclassified to profit or loss
|
|
|
|
|
|
|
Remeasurements of defined benefit liabili
|
378
|
|
(584)
|
|
(165%)
|
|
Items that are or may be reclassified to profit and loss
|
|
|
|
|
|
|
Foreign currency translation differences
|
55
|
|
32
|
|
72%
|
|
Other comprehensive gain/(loss)
|
433
|
|
(552)
|
|
(178%)
|
|
Total comprehensive loss attributable to owners of the Company
|
(19,389)
|
|
(25,775)
|
|
(25%)
|
Research and development expense
|
|
Three months ended September 30
|
|
|
|
|
2017
|
|
2016
|
|
Change
|
|
|
(in thousands of CHF)
|
|
%
|
|
Clinical projects
|
(2,598)
|
|
(3,905)
|
|
(33%)
|
|
Pre-clinical projects
|
(124)
|
|
(363)
|
|
(66%)
|
|
Drug manufacturing and substance
|
(621)
|
|
(736)
|
|
(16%)
|
|
Employee benefits
|
(624)
|
|
(805)
|
|
(22%)
|
|
Other research and development expenses
|
(254)
|
|
(535)
|
|
(53%)
|
|
Total
|
(4,221)
|
|
(6,344)
|
|
(33%)
|
Research and development expenses amounted
to CHF 4.2 million in the three months ended September 30, 2017. This represents a decrease of about CHF 2.1 million from research
and development expenses of CHF 6.3 million for the three months ended September 30, 2016. Research and development expenses reflected
the following:
|
|
·
|
Clinical projects.
In the three months ended September 30, 2017 clinical expenses were lower than in the three months
ended September 30, 2016 by CHF 1.3 million. Service and milestone costs were lower for our Keyzilen
®
studies, mainly
reflecting the completion of TACTT2, AMPACT1 and AMPACT2, and progression towards completion of TACTT3.
|
|
|
·
|
Pre-clinical projects
. In the three months ended September 30, 2017, pre-clinical expenses decreased due to a temporary
decrease in activity levels.
|
|
|
·
|
Drug manufacture and substance.
In the three months ended September 30, 2017, drug manufacture and substance related
costs decreased over the three months ended September 30, 2016, due to a temporary decrease in project activities.
|
|
|
·
|
Employee benefits
. Employee expenses were lower in the three months ended September 30, 2017 than in the same period
in 2016 primarily due to lower recruiting fees.
|
|
|
·
|
Other research and development expenses
. Other research and development expenses were lower in the three months ended
September 30, 2017 compared with the corresponding period in 2016 primarily due to lower quality assurance and regulatory-related
expenses.
|
|
|
Nine months ended September 30
|
|
|
|
|
2017
|
|
2016
|
|
Change
|
|
|
(in thousands of CHF)
|
|
%
|
|
Clinical projects
|
(9,741)
|
|
(13,297)
|
|
(27%)
|
|
Pre-clinical projects
|
(418)
|
|
(562)
|
|
(26%)
|
|
Drug manufacturing and substance
|
(1,675)
|
|
(1,838)
|
|
(9%)
|
|
Employee benefits
|
(2,118)
|
|
(2,235)
|
|
(5%)
|
|
Other research and development expenses
|
(974)
|
|
(1,831)
|
|
(47%)
|
|
Total
|
(14,926)
|
|
(19,763)
|
|
(24%)
|
Research and development expenses amounted
to CHF 14.9 million in the nine months ended September 30, 2017. This represents a decrease of about CHF 4.9 million from research
and development expenses of CHF 19.8 million for the nine months ended September 30, 2016. Research and development expenses reflected
the following:
|
|
·
|
Clinical projects.
In the nine months ended September 30, 2017 clinical expenses were lower than in the nine months
ended September 30, 2016. Lower service and milestone costs for our Keyzilen
®
studies, mainly reflecting the completion
of TACTT2, AMPACT1 and AMPACT2 and progression towards completion of TACTT3 were partly offset by higher AM-111 related expenses
due to progression of our HEALOS and ASSENT trials.
|
|
|
·
|
Pre-clinical projects
. In the nine months ended September 30, 2017, pre-clinical expenses decreased primarily due to
lower expenses related to AM-111 pre-clinical projects.
|
|
|
·
|
Drug manufacture and substance.
In the nine months ended September 30, 2017, drug manufacture and substance related
costs decreased over the nine months ended September 30, 2016, due to lower costs related to raw material purchases and expenses
for process validation related to Keyzilen
®
, which were partly offset by increases related to AM-111.
|
|
|
·
|
Employee benefits
. Employee expenses were slightly lower in the nine months ended September 30, 2017 than in the same
period in 2016 due to lower payroll-related expenses.
|
|
|
·
|
Other research
and development expenses
. Other research and development expenses decreased by CHF
0.9 million in the nine months ended September 30, 2017 compared with the corresponding
period in 2016 due to lower intellectual property, regulatory and quality assurance-related
expenses.
|
General and administrative expense
|
|
Three months ended September 30
|
|
|
|
|
2017
|
|
2016
|
|
Change
|
|
|
(in thousands of CHF)
|
|
%
|
|
Employee benefits
|
(512)
|
|
(634)
|
|
(19%)
|
|
Lease expenses
|
(18)
|
|
(10)
|
|
80%
|
|
Business development
|
(68)
|
|
0
|
|
n/a
|
|
Travel and representation
|
(31)
|
|
(76)
|
|
(59%)
|
|
Administration expenses
|
(691)
|
|
(473)
|
|
46%
|
|
Depreciation tangible assets
|
(15)
|
|
(8)
|
|
88%
|
|
Capital tax expenses
|
(0)
|
|
3
|
|
n/a
|
|
Total
|
(1,336)
|
|
(1,198)
|
|
11%
|
General and administrative expense amounted
to CHF 1.3 million in the three months ended September 30, 2017 compared to CHF 1.2 million in the same period in the previous
year, mainly as a result of higher administration costs partly offset by lower employee benefits-related expenses.
|
|
Nine months ended September 30
|
|
|
|
|
2017
|
|
2016
|
|
Change
|
|
|
(in thousands of CHF)
|
|
%
|
|
Employee benefits
|
(1,642)
|
|
(1,653)
|
|
(1%)
|
|
Lease expenses
|
(62)
|
|
(31)
|
|
100%
|
|
Business development
|
(124)
|
|
(34)
|
|
265%
|
|
Travel and representation
|
(125)
|
|
(160)
|
|
(22%)
|
|
Administration costs
|
(1,987)
|
|
(2,259)
|
|
(12%)
|
|
Depreciation tangible assets
|
(52)
|
|
(28)
|
|
86%
|
|
Capital tax expenses
|
(5)
|
|
20
|
|
(125%)
|
|
Total
|
(3,997)
|
|
(4,145)
|
|
(4%)
|
General and administrative expense amounted
to CHF 4.0 million in the nine months ended September 30, 2017 compared to CHF 4.1 million in the same period in the previous year,
mainly as a result of lower administration costs partly offset by higher business development expenses.
Interest income
Interest income decreased in the three
months ended September 30, 2017 compared to the three months ended September 30, 2016, due to lower balances on short-term deposits.
Interest income increased in the nine months
ended September 30, 2017 compared to the nine months ended September 30, 2016, due to a higher return on short-term deposits.
Interest expense
Interest expense was at the same level
in the three months ended September 30, 2017 compared to the prior year period and increased by CHF 0.8 million in the nine months
ended September 30, 2017. The increase mainly relates to interest expense paid for the US$ 12.5 million loan drawn on July
19, 2016, under the Hercules Loan and Security Agreement.
Foreign currency exchange gain / (loss), net
For the three months ended September 30,
2017, foreign currency exchange gain resulted in a slightly positive result of CHF 1,650 compared to the unrealized loss of CHF
0.2 million in the same period in the previous year.
For the nine months ended September 30,
2017, the depreciation of the U.S. dollar against the Swiss Franc triggered a net foreign unrealized currency loss on U.S. dollar
denominated cash and cash equivalents of CHF 0.9 million compared to the unrealized loss of CHF 1.2 million in the same period
in the previous year.
Revaluation gain / (loss) from derivative
financial instruments
In connection with the Hercules Loan and
Security Agreement, we issued Hercules a warrant to purchase up to 241,117 of its common shares at an exercise price of US$ 3.94
per share. As of September 30, 2016, the warrant was exercisable for 156,726 common shares. As of September 30, 2017 the fair value
of the warrant amounted to CHF 51,733. The revaluation gain of the derivative for the nine months ended September 30 2017 amounted
to CHF 65,399, which is a decrease of CHF 162,791 when comparing to the same period in 2016. Since its initial recognition, the
fair value decreased by CHF 356,447 resulting in a revaluation gain in the corresponding amount (fair value as of July 19, 2016:
CHF 408,180).
On February 21, 2017, we issued 10,000,000
warrants, each warrant entitling its holder to purchase 0.70 of a common share at an exercise price of US$ 1.20. Additionally,
the underwriter was granted a 30-day option to purchase up to 1,500,000 additional common shares and/or 1,500,000 additional warrants.
On February 15, 2017, the underwriter partially exercised its option for 1,350,000 warrants. As of September 30, 2017, the fair
value of the warrants amounted CHF 3,450,844. Since its initial recognition, the fair value of the warrants have decreased by CHF 1,639,619,
resulting in a gain in the corresponding amount (fair value as of February 21, 2017: CHF 5,090,463). The increase in fair
value of the warrants for the three months ended in September 30, 2017 amounted to CHF 60,503.
Transaction costs
Transaction costs increased by CHF 0.5
million in the nine months ended September 30, 2017 compared to the previous period. The increase relates to the fees and transaction
costs related to the public offering completed on February 21, 2017 that were allocated to the derivative financial instrument.
Cash flows
Comparison of the three months ended
September 30, 2017 and 2016
The table below summarizes our cash flows
for the three months ended September 30, 2017 and 2016:
|
|
Three months ended September 30
|
|
2017
|
|
2016
|
|
|
(in thousands of CHF)
|
|
Cash used in operating activities
|
(4,762)
|
|
(6,795)
|
|
Net cash (used in) / from investing activities
|
(63)
|
|
18
|
|
Net cash (used in) / from financing activities
|
(1,308)
|
|
11,748
|
|
Net effect of currency translation on cash
|
92
|
|
(226)
|
|
Cash and cash equivalents at beginning of the period
|
26,239
|
|
32,781
|
|
Cash and cash equivalents at end of the period
|
20,198
|
|
37,527
|
The decrease in net cash used in operating
activities from CHF 6.8 million in the three months ended September 30, 2016, to CHF 4.8 million in the three months ended September
30, 2017, was mainly due to lower operating expenses compared to the same period in 2016.
Comparison of the nine months ended September
30, 2017 and 2016
The table below summarizes our cash flows
for the nine months ended September 30, 2017 and 2016:
|
|
Nine months ended September 30
|
|
2017
|
|
2016
|
|
|
(in thousands of CHF)
|
|
Cash used in operating activities
|
(17,827)
|
|
(23,238)
|
|
Net cash (used in) / from investing activities
|
(93)
|
|
33
|
|
Net cash from financing activities
|
7,164
|
|
11,746
|
|
Net effect of currency translation on cash
|
(1,487)
|
|
(1,251)
|
|
Cash and cash equivalents at beginning of the period
|
32,442
|
|
50,237
|
|
Cash and cash equivalents at end of the period
|
20,198
|
|
37,527
|
The decrease in net cash used in operating
activities from CHF 23.2 million in the nine months ended September 30, 2016, to CHF 17.8 million in the nine months ended September
30, 2017, was mainly due to lower operating expenses.
Cash flow from financing activities in
the nine months ended September 30, 2017, includes the net proceeds of the public offering of 10,000,000 common shares with a nominal
value of CHF 0.40 each and 10,000,000 warrants, each warrant entitling its holder to purchase 0.70 of a common share. The net proceeds
to us from the offering were approximately CHF 9.1 million, after deducting underwriting discounts and other offering expenses
payable by us. Cash from financing activities in the nine months ended September 30, 2017, also includes the loan amortization
and interest payments due to the financing parties under the Hercules Loan and Security Agreement.
Cash and funding sources
On June 1, 2016, we entered into a Controlled
Equity Offering
SM
Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. (“Cantor”),
pursuant to which we may offer and sell, from time to time common shares, with a nominal value of CHF 0.40 per share, having an
aggregate offering price of up to US$35 million through Cantor. Any common shares offered and sold will be issued pursuant to our
shelf registration statement on Form F-3 (Registration No. 333-206710) as supplemented by a prospectus supplement, dated June
1, 2016. In the nine months ended September 30, 2017, we did not offer or sell any common shares under the Sales Agreement.
On July 19, 2016, we entered into the Hercules
Loan and Security Agreement for a secured term loan facility of up to US$20.0 million. An initial tranche of US$12.5 million was
drawn on July 19, 2016, concurrently with the execution of the loan agreement. The loan matures on January 2, 2020 and bears interest
at a minimum rate of 9.55% per annum, and is subject to the variability of the prime interest rate. In connection with the loan
facility, we issued Hercules a warrant to purchase up to 241,117 of our common shares at an exercise price of US$3.94 per share.
As of July 19, 2016, the warrant was exercisable for 156,726 common shares. Upon Hercules making the second advance under the loan
facility, the warrant shall become exercisable for the additional 84,391 common shares. The warrant expires on July 19, 2023. The
loan is secured by a pledge of the shares of Auris Medical AG, our principal operating subsidiary, owned by us, all intercompany
receivables owed to us by our Swiss subsidiaries and a security assignment of our bank accounts.
On February 21, 2017, we completed a public
offering of 10,000,000 common shares with a nominal value of CHF 0.40 each and 10,000,000 warrants, each warrant entitling its
holder to purchase 0.70 of a common share. The net proceeds to us from the offering were approximately CHF 9.1 million, after deducting
underwriting discounts and other estimated offering expenses payable by us. The underwriter was granted a 30-day option to purchase
up to 1,500,000 additional common shares and/or 1,500,000 additional warrants. On February 15, 2017, the underwriter partially
exercised its option in the amount of 1,350,000 warrants.
On October 10, 2017, we entered into the
Commitment Purchase Agreement and a Registration Rights Agreement with LPC. Pursuant to the Commitment Purchase Agreement, LPC
has agreed to subscribe for up to $13,500,000 of our common shares over the 30-month term of the Commitment Purchase Agreement.
Regular purchases may be made from time to time under the Commitment Purchase Agreement subject to certain amount limitations.
The purchase price for regular purchases is equal to the lesser of (i) the lowest sale price of our common shares on the purchase
date and (ii) the average of the three (3) lowest closing sale prices of our common shares during the ten (10) business days prior
to the purchase date, as reported on the Nasdaq Capital Market. We also have the right, at our sole discretion, to require LPC
to make additional purchases, subject to certain amount limitations, at a purchase price equal to the lesser of (i) $1.50 per common
share or (ii) 97% of the purchase price, provided that the closing price of the common shares is not below $0.70.
On October 16, 2017, we issued 1,744,186
of our common shares to LPC for an aggregate price of $1,500,000.
Funding requirements
We expect that our existing cash and cash
equivalents will enable us to fund our operating expenses and capital expenditure requirements into the second quarter of 2018
.
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
®
, AM-111 and AM-125, obtain regulatory approval for them
and to commercialize our product candidates Keyzilen
®
, AM-111, AM-125 or any other product candidate. If we receive
regulatory approval for Keyzilen
®
, AM-111 or AM-125, and if we choose not to grant any licenses to partners, we
expect to incur significant commercialization expenses related to product manufacturing, sales, marketing and distribution, depending
on where we choose to commercialize. Additional funds may not be available on a timely basis, on favorable terms, or at all, and
such funds, if raised, may not be sufficient to enable us to continue to implement our long-term business strategy. If we are not
able to raise capital when needed, we could be forced to delay, reduce or eliminate our product development programs or commercialization
efforts. Likewise, if we are unable to refinance amounts outstanding under our existing term loan facility before such amounts
are due we may be unable to repay such amounts, which could result in foreclosure of the collateral pledged to secure such loan.
We may raise additional capital through
the sale of equity or convertible debt securities. In such an event, your ownership interest will be diluted, and the terms of
these new securities may include liquidation or other preferences that adversely affect your rights as a holder of our common shares.
For more information as to the risks associated
with our future funding needs, see “Item 3—Key Information—Risk factors” in the Annual Report.
Contractual Obligations and Commitments
The following table presents information
relating to our contractual obligations as of September 30, 2017:
|
|
|
Payments Due by Period
|
|
|
|
Less Than
1 Year
|
|
Between 1 and 3 Years
|
|
Between 3 and 5 Years
|
|
Total
|
|
|
|
(in thousands of CHF)
|
|
Operating lease obligations (1)
|
|
|
161
|
|
|
|
298
|
|
|
|
149
|
|
|
|
608
|
|
|
Long-term debt obligations (2)
|
|
|
4,406
|
|
|
|
7,359
|
|
|
|
-
|
|
|
|
11,765
|
|
|
Derivative Financial Instruments (3)
|
|
|
-
|
|
|
|
-
|
|
|
|
3,503
|
|
|
|
3,503
|
|
|
Total
|
|
|
4,567
|
|
|
|
7,657
|
|
|
|
3,652
|
|
|
|
15,877
|
|
_______________________
|
|
(1)
|
Operating lease obligations consist of payments pursuant to non-cancellable operating lease agreements relating to leases of
our office space and are not accounted for on the balance sheet. The lease term is 5 years. The lease expires on September 30,
2021 with an option to extend for another five years.
|
|
|
(2)
|
Long-term debt obligations consist of amortization payments and the end of term fee due under the Hercules Loan and Security
Agreement converted to CHF at an exchange rate of CHF 0.9680 to US$1.00. The secured term loan under the Hercules Loan and Security
Agreement has a maturity date of January 2, 2020, with an interest-only period through July 1, 2017, and amortized payments of
principal and interest thereafter in equal monthly instalments until the maturity date. The loan bears interest at a minimum rate
of 9.55% per annum, and is subject to the variability of the prime interest rate. Interest payments are not included in the table
presented above.
|
|
|
(3)
|
Derivative Financial instruments relate to the warrants issued in connection with the Hercules Loan and Security Agreement
and the warrants issued in the public offering in February 2017.
|
Under the terms of our collaboration and
license agreement with Xigen, we are obliged to make development milestone payments on an indication-by-indication basis of up
to CHF 1.5 million upon the successful completion of a Phase 2 clinical trial and regulatory milestone payments on a product-by-product
basis of up to CHF 2.5 million, subject to a mid-twenties percentage reduction for smaller indications, e.g., those qualifying
for orphan drug status, upon receiving marketing approval for a product. The milestones are not included in the table above as
they have not met the recognition criteria for provisions and the timing of these is not yet determinable as it is dependent upon
the achievement of earlier mentioned milestones.
Under the terms of the asset purchase agreement
with Otifex Therapeutics Pty Ltd, we are obliged to make a development milestone payment of $200,000 if use of the purchased formulation
is supported by the results from toxicology studies over three to six months.
Off-Balance Sheet Arrangements
As of the date of this discussion and analysis,
we do not have any, and during the periods presented we did not have any, off-balance sheet arrangements except for the Operating
Lease mentioned in “Item 5—Operating and Financial Review and Prospects—Tabular disclosure of contractual obligations”
in the Annual Report.
Significant Accounting Policies and Use of Estimates and
Judgment
There have been no material changes to
the significant accounting policies and estimates described in “Item 5—Operating and Financial Review and Prospects–Operating
results—Significant accounting policies and use of estimates and judgment” in the Annual Report.
Recent Accounting Pronouncements
There are no IFRS standards as issued by
the IASB or interpretations issued by the IFRS interpretations committee that are effective for the first time for the financial
year beginning on or after January 1, 2017 that would be expected to have a material impact on our financial position.
JOBS Act Exemption
On April 5, 2012, the JOBS Act was
signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for an “emerging
growth company”. As an emerging growth company, we are not required to provide an auditor attestation report on our system
of internal controls over financial reporting. This exemption will apply for a period of five years following the completion of
our initial public offering (2019) or until we no longer meet the requirements of being an “emerging growth company,”
whichever is earlier. We would cease to be an emerging growth company if we have more than US$1.0 billion in annual revenue, have
more than US$700 million in market value of our common shares held by non-affiliates or issue more than US$1.0 billion of non-convertible
debt over a three-year period.