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, 2020 and 2019 and for each of the years in the three-year period ended December 31, 2020 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, 2017 and 2016 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,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands of CHF except for share and per share data)
|
|
Profit or Loss and Other Comprehensive Loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
174
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Research and development
|
|
|
(2,863
|
)
|
|
|
(3,325
|
)
|
|
|
(6,690
|
)
|
|
|
(19,211
|
)
|
|
|
(24,777
|
)
|
General and administrative
|
|
|
(2,594
|
)
|
|
|
(3,934
|
)
|
|
|
(4,264
|
)
|
|
|
(5,150
|
)
|
|
|
(5,447
|
)
|
Operating loss
|
|
|
(5,283
|
)
|
|
|
(7,259
|
)
|
|
|
(10,954
|
)
|
|
|
(24,361
|
)
|
|
|
(30,224
|
)
|
Interest income
|
|
|
—
|
|
|
|
18
|
|
|
|
—
|
|
|
|
54
|
|
|
|
68
|
|
Interest expense
|
|
|
(135
|
)
|
|
|
(29
|
)
|
|
|
(1,070
|
)
|
|
|
(1,640
|
)
|
|
|
(829
|
)
|
Foreign currency exchange gain/(loss), net
|
|
|
(333
|
)
|
|
|
(219
|
)
|
|
|
(140
|
)
|
|
|
(825
|
)
|
|
|
(100
|
)
|
Revaluation gain from derivative financial instruments
|
|
|
(2,250
|
)
|
|
|
664
|
|
|
|
1,350
|
|
|
|
3,372
|
|
|
|
291
|
|
Transaction costs
|
|
|
(220
|
)
|
|
|
—
|
|
|
|
(520
|
)
|
|
|
(1,027
|
)
|
|
|
—
|
|
Loss before tax
|
|
|
(8,221
|
)
|
|
|
(6,825
|
)
|
|
|
(11,334
|
)
|
|
|
(24,427
|
)
|
|
|
(30,794
|
)
|
Income tax gain/(loss)
|
|
|
21
|
|
|
|
194
|
|
|
|
(162
|
)
|
|
|
18
|
|
|
|
131
|
|
Income tax expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net loss attributable to owners of the Company
|
|
|
(8,200
|
)
|
|
|
(6,631
|
)
|
|
|
(11,496
|
)
|
|
|
(24,409
|
)
|
|
|
(30,663
|
)
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items that will never be reclassified to profit or loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remeasurements of defined benefits liability
|
|
|
(26
|
)
|
|
|
(72
|
)
|
|
|
1,277
|
|
|
|
272
|
|
|
|
(394
|
)
|
Items that are or may be reclassified to profit or loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation differences
|
|
|
89
|
|
|
|
16
|
|
|
|
(11
|
)
|
|
|
50
|
|
|
|
(20
|
)
|
Other comprehensive income/(loss)
|
|
|
63
|
|
|
|
(56
|
)
|
|
|
1,266
|
|
|
|
322
|
|
|
|
(414
|
)
|
Total comprehensive loss attributable to owners of the Company
|
|
|
(8,137
|
)
|
|
|
(6,687
|
)
|
|
|
(10,230
|
)
|
|
|
(24,087
|
)
|
|
|
(31,077
|
)
|
Net loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted(1)
|
|
|
(1.36
|
)
|
|
|
(2.28
|
)
|
|
|
(14.46
|
)
|
|
|
(111.61
|
)
|
|
|
(178.60
|
)
|
Weighted-average number of shares used to compute net loss per common share, basic and diluted
|
|
|
6,014,146
|
|
|
|
2,909,056
|
|
|
|
795,043
|
|
|
|
218,709
|
|
|
|
171,646
|
|
|
(1)
|
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.
|
|
|
As of December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands of CHF)
|
|
Statement of Financial Position Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
11,259
|
|
|
|
1,385
|
|
|
|
5,393
|
|
|
|
14,973
|
|
|
|
32,442
|
|
Total assets
|
|
|
20,799
|
|
|
|
9,226
|
|
|
|
9,877
|
|
|
|
17,826
|
|
|
|
35,658
|
|
Total liabilities
|
|
|
4,029
|
|
|
|
3,190
|
|
|
|
6,227
|
|
|
|
19,888
|
|
|
|
21,515
|
|
Share capital
|
|
|
114
|
|
|
|
1,650
|
|
|
|
710
|
|
|
|
19,350
|
|
|
|
13,732
|
|
Total shareholders’ (deficit)/equity attributable to owners of the Company
|
|
|
16,770
|
|
|
|
6,036
|
|
|
|
3,650
|
|
|
|
(2,162
|
)
|
|
|
14,143
|
|
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.
Summary of Risk Factors
An investment in our
ordinary shares is subject to a number of risks. The following summarizes some, but not all, of these risks. Please carefully consider
all of the information discussed in “Item 3. Key Information-D. Risk Factors” in this annual report for a more thorough
description of these and other risks.
|
●
|
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 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 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 depend entirely on the success of AM-125, AM-201, AM-301, Keyzilen® or Sonsuvi®, which
are still in clinical development. If our clinical trials are unsuccessful, we do not obtain regulatory approval or we are unable
to commercialize AM-125, AM-201, AM-301, Keyzilen® or Sonsuvi®, or we experience significant delays in doing so, our business,
financial condition and results of operations will be materially adversely affected.
|
|
●
|
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.
|
|
●
|
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 drug product candidates are prolonged or delayed, we may be unable to obtain required regulatory approvals, and therefore
be unable to commercialize our drug product candidates on a timely basis or at all.
|
|
●
|
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.
|
|
●
|
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.
|
|
●
|
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 cannot give any assurance that any of our drug product candidates will receive regulatory approval,
which is necessary before they can be commercialized.
|
|
●
|
We cannot give any assurance that our medical device candidate AM-301 will receive regulatory clearance,
which is necessary before it can be commercialized.
|
|
●
|
Substantial additional data may need to be generated in order to obtain marketing approval for
AM-125.
|
|
●
|
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.
|
|
●
|
Healthcare legislative or regulatory reform measures, including government restrictions on pricing
and reimbursement, may have a negative impact on our business and results of operations.
|
|
●
|
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.
|
|
●
|
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.
|
|
●
|
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 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.
|
|
●
|
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.
|
|
●
|
Our future growth and ability to compete depends on retaining our key personnel and recruiting
additional qualified personnel.
|
|
●
|
The price of our common shares may be volatile and may fluctuate due to factors beyond our control.
|
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 8.2 million, CHF 6.6 million and CHF 11.5 million
for the years ended December 31, 2020, 2019 and 2018, respectively. As of December 31, 2020, we had an accumulated deficit of CHF
160.6 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 are required for maintaining our business infrastructure and operating as a publicly listed company. 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, 2020, we incurred CHF 5.3 million in operating loss and capitalized development
expenditures of its AM-125 project of CHF 2.3 million, and we expect our total cash need in 2021 to be in the range of CHF 11.5 to 13
million for our expected total operating expenses of CHF 7 to 7.5 million and our expected capitalized research and development costs
of CHF 4.5 to 5.5 million. Further cash needs may arise in 2021 related to the manufacture of AM-301 as well as marketing and sale activities
as we intend to commercialize the product in selected markets; these cash needs may initially not be covered by cash flows from product
revenues.
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. On September 8, 2020, FiveT Capital Holding Ltd.,
or FiveT, provided a convertible loan to Altamira Medica AG, or Altamira, one of our subsidiaries. The loan had a principal amount of
CHF 1.5 million, a duration of 18 months, and carried an interest rate of 8% p.a. Under the terms of the agreement, FiveT had the right
to convert the loan or parts thereof including accrued interest into common shares of either Altamira or Auris Medical Holding Ltd., subject
to additional provisions and certain restrictions. On December 2, 2020, FiveT converted part of the loan and on March 4, 2021 the remaining
outstanding amount into common shares of Auris Medical Holding Ltd., thus retiring the loan.
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 or clearance for, and commercialize, AM-125, AM-201, AM-301, Keyzilen® or Sonsuvi®.
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 AM-125, AM-201, AM-301, Keyzilen® or Sonsuvi®,
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 AM-125, AM-201, AM-301, Keyzilen® or Sonsuvi®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, AM-201 and AM-301, 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 2021 to be in the range of CHF 11.5 to 13.0 million for our expected total operating expenses of CHF 7 to 7.5 million
and our expected capitalized research and development costs of CHF 4.5 to 5.5 million. As of December 31, 2020, our cash and cash
equivalents were CHF 11.3 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. If we receive regulatory approval or clearance 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 obtain 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 AM-125, AM-201, AM-301, Keyzilen® or Sonsuvi®, which are still in clinical
development. If our clinical trials are unsuccessful, we do not obtain regulatory approval or we are unable to commercialize AM-125,
AM-201, AM-301, Keyzilen® or Sonsuvi®, 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 AM-125, AM-201, AM-301, Keyzilen® or Sonsuvi®, which are still in clinical development. Our ability
to generate product revenues, which we do not expect to occur for at least the next few years, if ever, will depend heavily on
successful clinical development, obtaining regulatory approval or clearance and eventual commercialization of these product candidates.
We currently generate no revenues from sales of any products, and we may never be able to develop or commercialize a marketable
product. The success of AM-125, AM-201, AM-301, Keyzilen® or Sonsuvi® and our other product candidates will depend on
several factors, including the following:
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completing
clinical trials that demonstrate the efficacy and safety of our product candidates;
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receiving
marketing approvals or clearance from competent regulatory authorities;
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establishing
commercial manufacturing capabilities;
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launching
commercial sales, marketing and distribution operations;
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acceptance
of our product candidates by patients, the medical community and third-party payors;
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a
continued acceptable safety profile following approval;
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competing
effectively with other therapies; and
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qualifying
for, maintaining, enforcing and defending our intellectual property rights and claims.
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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 AM-125, AM-201, AM-301, Keyzilen® or Sonsuvi®, 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 has impacted 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. This temporarily happened in spring 2020 and again in early
2021. We expect to complete enrollment in the third quarter of 2021, 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 drug product candidates are prolonged
or delayed, we may be unable to obtain required regulatory approvals, and therefore be unable to commercialize our drug product
candidates on a timely basis or at all.
To
obtain the requisite regulatory approvals to market and sell any of our drug 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 drug 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:
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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;
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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;
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delays
in patient enrollment and variability in the number and types of patients available for clinical trials;
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the
inability to enroll a sufficient number of patients in trials to ensure adequate statistical power to detect statistically
significant treatment effects;
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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;
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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;
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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;
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lower
than anticipated retention rates of patients and volunteers in clinical trials;
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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;
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delays
relating to adding new clinical trial sites;
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difficulty
in maintaining contact with patients after treatment, resulting in incomplete data;
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errors
in survey design, data collection and translation;
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delays
in establishing the appropriate dosage levels;
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the
quality or stability of the product candidate falling below acceptable standards;
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the
inability to produce or obtain sufficient quantities of the product candidate to complete clinical trials; and
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exceeding
budgeted costs due to difficulty in accurately predicting costs associated with clinical trials.
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Any
delays in completing our clinical trials will increase our costs, slow down our drug 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 drug 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.
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.
If
we are required to conduct additional clinical trials or other testing of AM-125, AM-201, Keyzilen® or Sonsuvi® 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 AM-125, AM-201, Keyzilen® or Sonsuvi® or our
other drug product candidates, we may:
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be
delayed in obtaining marketing approval for our product candidates;
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not
obtain marketing approval at all;
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obtain
approval for indications or patient populations that are not as broad as intended or desired;
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obtain
approval with labeling that includes significant use or distribution restrictions or significant safety warnings, including
boxed warnings;
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be
subject to additional post-marketing testing or other requirements; or
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remove
the product from the market after obtaining marketing approval.
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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 AM-125, AM-201, Keyzilen® or Sonsuvi® 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 AM-125, AM-201, Keyzilen® or Sonsuvi® or any other drug 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 trial of AM-125 and AM-201 to date, adverse events included a low number of transient and dose-dependent nasal congestion
or discomfort. No treatment-related serious adverse events were observed. 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. 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:
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regulatory
authorities may withdraw approvals of such product;
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regulatory
authorities may require additional warnings on the label;
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we
may be required to create a medication guide outlining the risks of such side effects for distribution to patients;
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we
could be sued and held liable for harm caused to patients; and
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our
reputation and physician or patient acceptance of our products may suffer.
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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.
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 AM-125, AM-201, AM-301,
Keyzilen® or Sonsuvi®, with our current commercial focus being limited to AM-125, AM-201 and AM-301 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 drug 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 one drug product candidate, AM-125, in Phase II clinical development, and another,
AM-201, in Phase I clinical development. Additionally, we have two late-stage drug 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. We are not permitted to market or promote any of our drug 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 drug 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:
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the
FDA, EMA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;
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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;
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the
FDA, EMA or comparable foreign regulatory authorities may disagree with our interpretation of data from nonclinical trials
or clinical trials;
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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;
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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;
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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
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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.
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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.
We
cannot give any assurance that our medical device candidate AM-301 will receive regulatory clearance, which is necessary before
it can be commercialized.
Under
project code AM-301, we are developing a spray product for intranasal protection against airborne viruses or allergens. AM-301
is formulated as a gel emulsion and – unlike drug products – does not contain any active pharmaceutical ingredient.
The formulation is neither absorbed nor metabolized and does not have any pharmacological or immunological interaction with the
human body. Its effects – trapping of virus or allergen particles, coating of nasal mucosa tissues and humidification of
such tissues – are purely of physical-mechanical nature. We therefore consider AM-301 to be a medical device rather than
a drug product and that different regulatory requirements apply.
Unless
an exemption applies, any medical device that is to be marketed in the U.S. must first receive from the FDA either 510(k) clearance,
by filing a 510(k) premarket notification, or premarket application (PMA) approval, after submitting a PMA. Alternatively, the
device may be cleared through the de novo classification process by the FDA. Based on advice from regulatory consultants and our
own research, we expect AM-301 to be considered a Class II device by FDA and that the 510(k) pathway applies to AM-301’s
intended use of promoting alleviation of mild allergic symptoms triggered by the inhalation of various airborne allergens.
To
obtain 510(k) clearance, a company must submit a premarket notification demonstrating substantial equivalence between the proposed
device and a legally marketed “predicate” device, which is defined as a legally marketed device, that (i) was legally
marketed prior to May 28, 1976, for which the FDA has not yet called for submission of a PMA application; (ii) has been reclassified
from Class III to Class II or Class I; (iii) has been cleared through the 510(k) premarket notification process; or (iv) has been
previously determined to be exempt from the 510(k) process. Substantial equivalence means that the proposed device has the same
intended use and the same technological characteristics as the predicate device, or, if the new device has different technological
characteristics, that the device is as safe and effective as the predicate device and does not raise different questions of safety
and effectiveness. We have identified two such predicate devices and plan to reference them in our planned 510(k) submission.
AM-301
is also intended for use in the reduction of the intranasal infectious viral load following inspiration of airborne viruses such
as SARS-CoV-2. Since there may be no valid predicate device available for this intended use, we may have to submit a de novo request
to the FDA. Under the de novo pathway, we would have to prove that AM-301 does not present substantial risk to the patient (rather
than just demonstrating substantial equivalence with the safety of the relevant predicate device(s)), which may require additional
testing. The review by the FDA would take a minimum of 150 days in the de novo process compared to a minimum of 90 days in the
510(k) process and requires higher fees. Any device that has been classified through the de novo process may be marketed and used
as predicate for future 510(k) submissions. The FDA may also, instead of accepting a 510(k) submission, require us to submit a
PMA, which is typically a much more complex, lengthy and burdensome application than a 510(k). To support a PMA, the FDA would
likely require that we conduct one or more clinical studies to demonstrate that the device is safe and effective. In some cases
such studies may be requested for a 510(k) as well. We may not be able to meet the requirements to obtain 510(k) clearance or
PMA approval, in which case the FDA may not grant any necessary clearances or approvals. In addition, the FDA may place significant
limitations upon the intended use of our products as a condition to a 510(k) clearance or PMA approval. Product applications can
also be denied or withdrawn due to failure to comply with regulatory requirements or the occurrence of unforeseen problems following
clearance or approval. Any delays or failure to obtain FDA clearance or approval of new products we develop, any limitations imposed
by the FDA on new product use or the costs of obtaining FDA clearance or approvals could have a material adverse effect on our
business, financial condition and results of operations.
During
public health emergencies, FDA can use emergency authorities, including Emergency Use Authorizations (EUAs), to help make medical
products available as quickly as possible by allowing unapproved medical products to reach patients in need when there are no
adequate, FDA-approved and available alternatives. In addition to COVID-19 tests, the FDA has issued EUAs for other devices, such
as ventilators, respirators, face shields, and decontamination systems to treat COVID-19 patients and to protect healthcare workers.
Since AM-301 has been shown to significantly reduce the viral infectious load following inoculation of reconstituted human nasal
epithelia and based on its favorable safety and tolerability profile, we believe that the device may be eligible for and made
available under the EUA procedure. However, the FDA has broad discretion over the grant of EUAs, and there is no guarantee that
AM-301 will become available to the general public earlier than through the regular regulatory pathway.
Following
a preliminary review of our pre-submission for AM-301 by the FDA’s Center for Devices and Radiological Health (CDRH), we
were notified by the Agency that the Center for Drug Evaluation and Research (CDER) would be responsible for the review of our
product and that our pre-submission request for EUA was transferred to CDER. Based on additional feedback from the FDA, we decided
to update the pre-submission request for the 510(k) pathway by restricting the intended use to promoting alleviation of mild allergic
symptoms triggered by the inhalation of various airborne allergens given available precedence. In addition, we filed a pre-submission
Request for Designation (RFD) to the Agency’s Office of Combination Products (OCP) for the second intended use of reducing
the intranasal infectious viral load following inspiration of airborne viruses in order to determine the Agency component that
will have jurisdiction for AM-301. We believe that the product meets the FDA’s requirements for classification as a medical
device also for this second intended use and will therefore be reviewed by CDRH rather than CDER, however, there can be no guarantee
that the FDA will agree with our analysis.
Many
foreign countries in which we intend to market AM-301 have regulatory bodies and restrictions similar to those of the FDA. International
sales are subject to foreign government regulation, the requirements of which vary substantially from country to country. The
time required to obtain approval by a foreign country may be longer or shorter than that required for FDA clearance and the requirements
may differ.
In
particular, marketing of medical devices in the European Union (EU) is subject to compliance with the Medical Devices Directive
93/92/EEC (MDD). A medical device may be placed on the market within the EU only if it conforms to certain “essential requirements”
and bears the CE Mark. The most fundamental and essential requirement is that a medical device must be designed and manufactured
in such a way that it will not compromise the clinical condition or safety of patients, or the safety and health of users and
others. In addition, the device must achieve the essential performance(s) intended by the manufacturer and be designed, manufactured
and packaged in a suitable manner.
Manufacturers
must demonstrate that their devices conform to the relevant essential requirements through a conformity assessment procedure.
The nature of the assessment depends upon the classification of the device. The classification rules are mainly based on three
criteria: the length of time the device is in contact with the body, the degree of invasiveness and the extent to which the device
affects the anatomy. Conformity assessment procedures for all but the lowest risk classification of device involve a notified
body. Notified bodies are often private entities and are authorized or licensed to perform such assessments by government authorities.
Manufacturers usually have some flexibility to select a notified body for the conformity assessment procedures for a particular
class of device and to reflect their circumstances, e.g., the likelihood that the manufacturer will make frequent modifications
to its products. Conformity assessment procedures require an assessment of available clinical evidence, literature data for the
product and post-market experience in respect of similar products already marketed. Notified bodies also may review the manufacturer’s
quality systems. If satisfied that the product conforms to the relevant essential requirements, the notified body issues a certificate
of conformity, which the manufacturer uses as a basis for its own declaration of conformity and application of the CE Mark. Application
of the CE Mark allows the general commercializing of a product in the EU. The product can also be subjected to local registration
requirements depending on the country. We maintain CE Marking on all of our products that require such markings as well as local
registrations as required.
In
May 2017, the EU adopted a new Medical Devices Regulation (EU) 2017/745 (MDR), which will repeal and replace the MDD with effect
from May 26, 2021. The MDR clearly envisages, among other things, stricter controls of medical devices, including strengthening
of the conformity assessment procedures, increased expectations with respect to clinical data for devices and pre-market regulatory
review of high-risk devices. The MDR also envisages greater control over notified bodies and their standards, increased transparency,
more robust device vigilance requirements and clarification of the rules for clinical investigations. Under transitional provisions,
medical devices with notified body certificates issued under the MDD prior to May 26, 2021 may continue to be placed on the market
for the remaining validity of the certificate, until May 27, 2024 at the latest. After the expiry of any applicable transitional
period, only devices that have been CE marked under the MDR may be placed on the market in the EU.
Under
the MDD, AM-301 is classified as a Class I device which does not require a notified body for the conformity assessment procedure.
Under the MDR, AM-301 will be classified as a Class II device which will require a notified body. We expect to register AM-301
in the EU prior to the transition from the MDD to the MDR and plan to meet the requirements for conformity as Class II during
the transition period ending May 27, 2024.
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.
Whereas
various balance tests and questionnaires 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.
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.
For
the clinical investigation of AM-301 for the intended use of alleviation of allergic rhinitis symptoms, we are using the Total
Nasal Symptom Score (TNSS) questionnaire, which is routinely used in allergic rhinitis studies. To date, we did not have any interaction
with the FDA regarding its use in the context of the allergen challenge chamber that we are conducting to support the substantial
equivalence of AM-301 to one of the designated predicate devices. Also, we have received no regulatory guidance so far regarding
the use of acceptable endpoints for determining the efficacy of AM-301 for its intended use in the alleviation of intranasal viral
load. If we do not accurately predict which endpoints demonstrate the efficacy of AM-301, or if we fail to meet them, our development
efforts for AM-301 may be materially curtailed.
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:
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restrictions
on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product
recalls;
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fines,
warning letters or holds on clinical trials;
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refusal
by the FDA to approve pending applications or supplements to approved applications filed by us, or suspension or revocation
of product license approvals;
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product
seizure or detention, or refusal to permit the import or export of products; and
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injunctions
or the imposition of civil or criminal penalties.
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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.
Healthcare
legislative or regulatory reform measures, including government restrictions on pricing and reimbursement, may have a negative
impact on our business and results of operations.
In
the United States and some foreign jurisdictions, there have been, and continue to be, several legislative and regulatory changes
and proposed changes regarding the healthcare system that could prevent or delay marketing approval of product candidates, restrict
or regulate post-approval activities, and affect our ability to profitably sell any product candidates for which we obtain marketing
approval.
Among
policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare
systems with the stated goals of containing healthcare costs, improving quality and/or expanding access. In the United States,
the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative
initiatives. For example, in the United States, the Patient Protection and Affordable Care Act of 2010 (“ACA”) substantially
changed the way healthcare is financed by both the government and private insurers, and significantly affects the pharmaceutical
industry. Many provisions of the ACA impact the biopharmaceutical industry, including that in order for a biopharmaceutical product
to receive federal reimbursement under the Medicare Part B and Medicaid programs or to be sold directly to U.S. government agencies,
the manufacturer must extend discounts to entities eligible to participate in the drug pricing program under the Public Health
Services Act, or PHS. Since its enactment, there have been judicial and Congressional challenges and amendments to certain aspects
of the ACA. There is continued uncertainty about the implementation of the ACA, including the potential for further amendments
to the ACA and legal challenges to or efforts to repeal the ACA.
Additionally,
there has been heightened governmental scrutiny in the United States of pharmaceutical pricing practices in light of the rising
cost of prescription drugs and biologics. Such scrutiny has resulted in several recent congressional inquiries and proposed and
enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the
relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for
products. At the federal level, the now-departed Trump administration proposed numerous prescription drug cost control measures.
Similarly, the new Biden administration has made lowering prescription drug prices one of its priorities. The Biden administration
has not yet proposed any specific plans, but we expect that these will be forthcoming in the near term. 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. Other
examples of proposed changes include, but are not limited to, expanding post-approval requirements, changing the Orphan Drug Act,
and restricting sales and promotional activities for pharmaceutical products.
We
cannot be sure whether additional legislative changes will be enacted, or whether government regulations, guidance or interpretations
will be changed, or what the impact of such changes would be on the marketing approvals, sales, pricing, or reimbursement of our
drug candidates or products, if any, may be. We expect that these and other healthcare reform measures that may be adopted in
the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we receive for
any approved drug. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction
in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from
being able to generate revenue, attain profitability, or commercialize our drugs.
In
addition, FDA regulations and guidance may be revised or reinterpreted by the FDA in ways that may significantly affect our business
and our products. Any new regulations or guidance, or revisions or reinterpretations of existing regulations or guidance, may
impose additional costs or lengthen FDA review times for our product candidates. We cannot determine how changes in regulations,
statutes, policies, or interpretations when and if issued, enacted or adopted, may affect our business in the future. Such changes
could, among other things, require:
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additional
clinical trials to be conducted prior to obtaining approval;
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changes
to manufacturing methods;
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recalls,
replacements, or discontinuance of one or more of our products; and
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additional
recordkeeping.
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Such
changes would likely require substantial time and impose significant costs or could reduce the potential commercial value of our
product candidates. In addition, delays in receipt of or failure to receive regulatory clearances or approvals for any other products
would harm our business, financial condition, and results of operations.
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.
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:
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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;
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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;
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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;
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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;
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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
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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.
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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.
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:
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develop
and commercialize products that are safer, more effective, less expensive, or more convenient or easier to administer;
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obtain
quicker regulatory approval;
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establish
superior proprietary positions;
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have
access to more manufacturing capacity;
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implement
more effective approaches to sales and marketing; or
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form
more advantageous strategic alliances.
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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 AM-125, AM-201, Keyzilen® or Sonsuvi® 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 AM-125, AM-201, Keyzilen® or Sonsuvi® 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 AM-125,
AM-201, AM-301, Keyzilen® or Sonsuvi® 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 AM-125, AM-201, AM-301, Keyzilen® or Sonsuvi® or any of our product candidates that is approved for commercial sale
will depend on a variety of factors, including:
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how
clinicians and potential patients perceive our novel products;
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the
timing of market introduction;
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the
number and clinical profile of competing products;
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our
ability to provide acceptable evidence of safety and efficacy;
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the
prevalence and severity of any side effects;
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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;
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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;
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marketing
and distribution support;
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availability
of coverage, reimbursement and adequate payment from health maintenance organizations and other third-party payors, both public
and private; and
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other
potential advantages over alternative treatment methods.
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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 AM-125, AM-201, AM-301, Keyzilen® or Sonsuvi® 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 AM-125, AM-201, AM-301, Keyzilen® or Sonsuvi® could be smaller than
our estimates of the potential market opportunity. If the actual market for AM-125, AM-201, AM-301, Keyzilen® or Sonsuvi®
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 AM-125, AM-201, AM-301, Keyzilen® or Sonsuvi® 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.
In
August 2019 Xigen was acquired by Kuste Biopharma SAS, or Kuste, a French company. In February 2021, we were notified by Kuste
of its decision to terminate the license agreement under which we are developing Sonsuvi® effective May 10, 2021
due to the alleged lack of any development work since August 2018. We consider that the purported termination is without effect
and that the license agreement continues to be in full force and effect in accordance with its terms. 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 initial date of the agreement, if we were not progressing any activities with respect to the licensed compound.
Such period has passed for Sonsuvi® and we progressed the licensed compound sufficiently during the period. We have retained
legal counsel and intend to defend our interests, as appropriate and necessary.
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:
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we
may not be able to control the amount and timing of resources that the collaboration partner devotes to the product development
program;
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the
collaboration partner may experience financial difficulties;
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we
may be required to relinquish important rights such as marketing, distribution and intellectual property rights;
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a
collaboration partner could move forward with a competing product developed either independently or in collaboration with
third parties, including our competitors; or
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business
combinations or significant changes in a collaboration partner’s business strategy may adversely affect our willingness
to complete our obligations under any arrangement.
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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 AM-125, AM-201, AM-301, Keyzilen® or Sonsuvi®. 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 AM-125, AM-201, AM-301, Keyzilen® or Sonsuvi®, 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 AM-125, AM-201, AM-301, Keyzilen®
or Sonsuvi® 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.
Certain
ingredients, primary packaging and the final 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 ingredients, primary packaging or the final 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 AM-125, AM-201, AM-301, Keyzilen® or Sonsuvi®. We currently have a relationship with one supplier each, for
the supply of the API of Keyzilen®, Sonsuvi®, AM-125 and AM-201 and for the key component of AM-301.
We are reliant upon single source third-party contract manufacturing organizations to manufacture and supply the drug substance,
certain other ingredients, primary packaging and final product for each of AM-125, AM-201, AM-301, Keyzilen® or Sonsuvi®.
We do not currently have any other suppliers for the drug substance, certain other ingredients, primary packaging and final 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 AM-125, AM-201, AM-301, Keyzilen® or Sonsuvi®, 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 AM-125, AM-201, AM-301, Keyzilen® or Sonsuvi®, 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:
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the
scope of rights granted under the agreement and other interpretation-related issues;
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the
extent to which our technology and processes infringe on intellectual property of the licensor or partner that is not subject
to the agreement;
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the
sublicensing of patent and other rights;
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our
diligence and commercialization obligations under the agreement and what activities satisfy those obligations;
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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
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the
priority of invention of patented technology.
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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. For example, during the last year, our common shares have traded as high
as $6.60 in December 2020 and as low as $0.65 in March 2020. The market price of our common shares may fluctuate significantly
in the future due to a variety of factors, including:
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positive
or negative results of testing and clinical trials by us, strategic partners, or competitors;
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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;
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technological
innovations or commercial product introductions by us or competitors;
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changes
in government regulations;
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developments
concerning proprietary rights, including patents and litigation matters;
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public
concern relating to the commercial value or safety of any of our product candidates;
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financing
or other corporate transactions;
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publication
of research reports or comments by securities or industry analysts;
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general
market conditions in the pharmaceutical industry or in the economy as a whole;
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our
ability to maintain the listing of our common shares on Nasdaq; or
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other
events and factors beyond our control.
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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, 2019 and 2020, 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. In 2020, we regained compliance as
our share price increased. 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:
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the
liquidity of our common shares;
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the
market price of our common shares;
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our
ability to obtain financing for the continuation of our operations;
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the
number of institutional and general investors that will consider investing in our common shares;
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the
number of investors in general that will consider investing in our common shares;
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the
number of market makers in our common shares;
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the
availability of information concerning the trading prices and volume of our common shares; and
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the
number of broker-dealers willing to execute trades in shares of our common shares.
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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
5.0% 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 5.0% 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 246,102 common shares at a weighted average exercise price
of $60.03 per share, an equity commitment to sell up to $8.9 million of additional common shares to Lincoln Park Capital Fund, LLC (“LPC”)
pursuant to the commitment purchase agreement we entered into on April 23, 2020 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 $21.8 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.
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
2020 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
2020 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 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:
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●
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directors
only to be removed for cause;
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restrictions
on the time period in which directors may be nominated;
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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
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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.
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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.
Although
it is presently anticipated that the ES Act will have no material impact on 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.
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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, rhinology and allergy and CNS disorders. We are focusing on the development of intranasal betahistine for the
treatment of vertigo (AM-125, in Phase 2) and for the prevention of antipsychotic-induced weight gain and somnolence (AM-201,
post Phase 1b). Through our affiliate Altamira Medica, we are developing a nasal spray for protection against airborne viruses
and allergens (AM-301). 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 AM-125, AM-201 and AM-301 are administered with a metered spray into the nose. In case of AM-125 and AM-201,
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. In case of AM-301, the spray delivers the formulation
directly to the site of action within the nasal cavity.
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.
AM-125
We
are developing AM-125 for the intranasal treatment of acute peripheral vertigo. In February 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 72 healthy volunteers. The randomized double blind placebo controlled
trial 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. 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.).
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). Starting three days after neurosurgery, trial participants self-administer AM-125 or placebo
3 x daily for four weeks; they are then followed for a further two weeks. The trial is being conducted in several countries ex
US.
In
September 2020 we announced the results of an interim analysis from Part A of the trial, which comprised a dose escalation –
1, 10 or 20 mg or placebo – in 33 patients. The interim analysis showed a dose-dependent improvement in balance as well
as good safety and tolerability of ascending doses of AM-125. At the highest dose of 20 mg (3 x daily), AM-125-treated patients
improved their performance of the “Tandem Romberg” and the “Standing on Foam” balance tests from baseline
to 14 days post-surgery (primary endpoint) on average 1.9 to 2.4 times more than placebo-treated patients (6.0 vs. 3.1 and 10.5
vs. 4.3 seconds, respectively). In contrast to placebo, the improvement from baseline was statistically significant for AM-125
20 mg and for all active dose groups, respectively (p<0.02 and p<0.01 to p<0.05, respectively). These positive results
were supported by similar improvements in additional efficacy measures, including additional objective as well as clinician- and
patient-reported outcomes.
Based
on the results from the interim analysis, we selected the two highest doses, 10 and 20 mg, for testing against placebo in 72 patients
in Part B of the trial. As we remained blinded to treatment allocation during the interim analysis, the corresponding data from
Part A will be pooled with those from Part B. Prior to starting Part B of the trial in October 2020, we tested oral betahistine
(48 mg) open label for reference purposes.
Enrollment
into TRAVERS has been impacted by the COVID-19 pandemic, as the type of neurosurgery required for participation in the trial is
classified as an elective procedure and hence was postponed and as many participating sites temporarily reduced or suspended clinical
research activities. The effect was particularly felt in the spring of 2020 and then again in early 2021. We expect to complete
enrollment in the third quarter of 2021.
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 expect to have further exchanges with regulatory agencies following conclusion of the TRAVERS trial,
upon which we aim to obtain an IND. We believe that, if approved, AM-125 could become the first betahistine product for the treatment
of acute peripheral vertigo in the United States.
AM-201
Intranasal betahistine could
have many other therapeutic uses beyond the treatment of acute peripheral vertigo. Under the product code AM-201, we are developing intranasal
betahistine for the prevention of antipsychotic induced weight gain and drowsiness. In 2019, we initiated a Phase 1b trial in Europe to
evaluate AM-201’s safety and therapeutic effects in this indication. Participants received either AM-201 (1, 2.5, 5, 10, 20 or 30
mg) or placebo in parallel with oral olanzapine (10 mg) once a day for four weeks. In October 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. The trial then proceeded to the next higher and final dose level of 30 mg tested
in an additional 30 healthy volunteers. In May 2020, we announced that at AM-201 30 mg, the mean weight gain from baseline to the end
of the treatment period was 2.8 kg compared against 3.7 kg in control subjects; the primary efficacy endpoint of mean reduction in weight
gain was 0.9 kg and statistically significant (p<0.02; n=81 with pre-specified Bayesian augmented controls). As expected, intranasal
delivery of betahistine allowed for substantially higher concentrations in blood plasma compared with levels previously reported for oral
betahistine. We expect to file for an IND in alignment with the IND filing for AM-125.
AM-301
In
September 2020 we announced the launch of the development of AM-301, a drug-free nasal spray for protection against airborne viruses
and allergens through a newly created subsidiary, Altamira Medica Ltd. AM-301 is a gel emulsion which works by forming a protective
layer on the nasal mucosa that acts as a mechanical barrier against airborne viruses allergens. The barrier consists of two elements:
(1) a mucoadhesive film lining the nasal cavity and preventing contact of airborne viruses or allergens with the nasal mucosa
to reduce the risk of viral infection or allergic reactions; (2) the trapping / binding of such viruses or allergens through electrostatic
effects, allowing for their removal e.g. through mucociliary clearance. In addition, the product helps to humidify and thus maintain
the nasal mucosa’s function in clearing viruses and allergens from the nasal cavity.
The
key component of AM-301 is a naturally occurring substance. Through a specialized testing laboratory, we performed an experiment
with SARS-CoV-2, where the key component was added in various concentrations to a suspension of the virus for various time periods.
Unbound virus particles were then collected from the suspension and transferred onto cell cultures for incubation, allowing for
viral replication. The experiment showed that after only 5 minutes of contact between AM-301’s key component and the virus
suspension the viral infectious load was reduced by up to 99%.
Following
formulation development, we tested AM-301 for its capability to prevent or mitigate SARS-CoV-2 infection of nasal epithelial cells,
which are part of the nasal mucosa and the first barrier against continuously inhaled substances such as pathogens and allergens.
The experiment was performed over four days on reconstituted human nasal epithelia, which are frequently used to study the effects
of human respiratory viruses. In saline-treated control cultures, SARS-CoV-2 replicated efficiently, resulting in a rapid increase
in viral titer (as measured by the Median Tissue Culture Infectious Dose, TCID50). In contrast, daily treatment with AM-301, beginning
right before inoculation, showed effective protection against viral infection. 48 hours post-infection, average virus titers were
90.0% lower than those observed in controls (p<0.01). 72 hours and 96 hours post-infection, average virus titers were 99.2
and 99.4% lower, respectively (p<0.001). Even when unbound virus was not removed daily through apical washing, allowing the
virus to accumulate in the culture for 4 days, the reduction in viral titer was 92.4% compared to saline-treated controls (p<0.001).
Based
on these in vitro results, we believe that AM-301 could help to reduce the risks of exposure from airborne transmission
of SARS-CoV-2. It is estimated that about 90% of air is inhaled via the nose, and it has been established that infection with
SARS-CoV-2 via the nose is a major transmission pathway for Covid-19. We are currently conducting and planning additional studies
to evaluate further AM-301’s effects against SARS-CoV-2 as well as other types of viruses.
In
January 2021 we announced the initiation of a clinical investigation of AM-301 in allergic rhinitis. The clinical investigation
is an open-label randomized cross-over study that will enroll 36 patients with allergic rhinitis to grass pollen. Study participants
will be administered a single dose of AM-301 nasal spray or a comparator product (one puff into each nostril) prior to controlled
pollen exposure for four hours in an allergen challenge chamber. The challenge will be repeated with the alternate treatment following
a wash-out period. The difference in the Total Nasal Symptom Score (TNSS) between the two treatments over the 4-hour exposure
will serve as the primary efficacy endpoint; the investigation shall aim to demonstrate clinical non-inferiority of AM-301 to
the comparator product.
We
believe that AM-301 could provide help to people suffering from allergic rhinitis by reducing their exposure to airborne allergen
particles e.g. from pollens, house dust or animal hair. We are currently conducting and planning additional studies to evaluate
further AM-301’s preventative effects for allergy management.
Since
AM-301 does not contain any active substance, we believe that it will be regulated and marketed as an “over-the-counter”
medical device. Following the conduct of further studies in safety and efficacy, the Company is targeting submission of regulatory
applications to the U.S. Food and Drug Administration (“FDA”) and regulatory authorities in other jurisdictions in
2021.
Keyzilen®
We
are developing Keyzilen®, Esketamine gel for injection, for the treatment of 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 so far 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.
In
March 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. In April 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. In September 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. In November 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.
In
December 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®).
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 biomedical company focused on developing and commercializing novel therapeutics and medical devices
to address unmet medical needs in neurotology, rhinology and allergy and CNS disorders. The key elements of our strategy to achieve
this goal are:
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Target
disorders that have a defined pathophysiology and that are amenable to treatment or prevention. We are focusing on disorders
for which the pathophysiology is defined, can be effectively targeted and where affected patients or patients at risk seek
medical attention proactively.
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Use
delivery techniques and proprietary formulations for effective, safe and rapid targeted administration. All our product
candidates are designed for 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. 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. When the target are the mucosal membranes inside the nose as for
protection against airborne viruses and allergens, we are using a spray formulation as well.
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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. Also, we have leveraged our experience in
nasal spray products into the development of AM-301 for protection against airborne viruses and allergens.
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Targeting
the nose and the inner ear
We
have focused our development efforts on targeting the nose and the inner ear. The nose is the first organ of the respiratory system
and is also the principal organ in the olfactory system. The main function of the nose is breathing, bringing warm humidified
air into the lungs. Filtering of the air by nasal hair in the nostrils prevents large particles from entering the lungs. The interior
of the nose, which is called the nasal cavity, is lined by the nasal mucosa, one of the anatomical structures which form the physical
barriers of the body’s immune system. These barriers provide mechanical protection from the invasion of infectious and allergenic
pathogens. Sneezing is a reflex to expel unwanted particles from the nose that irritate the mucosal lining.
Through
the intake of air, the nasal cavity and nasal mucosa are exposed to a variety of airborne pathogens such as viruses and bacteria
and allergens such as pollen, house dust mites or animal hair. Unless they are neutralized by the immune system, these pathogens
may cause infections. In case of allergens, the body may develop sensitivity to them, resulting in an inflammatory reaction including
the release of certain chemicals such as histamine affecting the nasal mucosa. This inflammatory condition is called allergic
rhinitis. Its main symptoms include nasal itching and sneezing, runny nose, and nasal congestion.
The
nose is an interesting site for the delivery of therapeutics both for drugs acting locally and acting systemically, i.e. those
drugs intended to be distributed within the whole body. The nasal cavity is highly vascularized and provides a large surface area
for drug absorption. In addition, the nasal route allows for avoiding hepatic first-pass metabolism and degradation of a drug
in the gastrointestinal tract when taken orally since the active substance will be absorbed directly into the blood circulation.
Further, intranasal delivery is convenient, non-invasive and suitable for self-administration.
The
inner ear 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
Allergic
rhinitis is a very frequent condition. According to results from the National Health Interview Survey published in 2010 by Schiller
and colleagues, roughly 7.8% of people 18 and over in the U.S. have hay fever. In 2010, 11.1 million visits to physician offices
resulted with a primary diagnosis of allergic rhinitis, as shown by the National Ambulatory Medical Care Survey. Besides de-sensitization
(allergen-specific immunotherapy), there is no cure for allergic rhinitis. In most cases treatment aims to relieve symptoms. Antihistamines
relieve symptoms of allergic rhinitis by blocking or reducing the action of histamines, which the body releases when under attack
from allergens. However, antihistamines can sometimes cause drowsiness. The most effective and safest way to prevent or decrease
the allergic symptoms is to avoid, remove, or protect against exposure to airborne allergens. In 2020, the market size for “over
the counter” allergy medicines in the US was estimated at USD 4 billion.
Infections
from airborne viruses are very common. Viruses known to spread by airborne transmission (and also other routes) include rhinoviruses
(cause common cold symptoms), influenza viruses (type A, type B, H1N1), varicella viruses (cause chickenpox), measles virus, mumps
virus, enterovirus, norovirus, coronaviruses among others. Worldwide and nearly year-round, human rhinovirus (HRV) is the most
common cause of upper respiratory tract infection and is responsible for more than one-half of cold-like illnesses. The treatment
of HRV infection remains primarily supportive, including over-the-counter products aimed at symptom relief. Revenues in the US
for could and cough remedies such as antihistamines, antibiotics, decongestants, expectorants and bronchodilators are expected
to exceed USD 12 billion in 2021. According to the US Centers for Disease Control and Prevention (CDC), influenza has resulted
in 9-45 million illnesses, 140,000-810,000 hospitalizations and 12,000- 61,000 deaths annually since 2010. Protection against
influenza may be achieved by seasonal vaccination (“flu shots”); in case of infection, there are a number of approved
antiviral drugs available such as oseltamivir, zanamivir, peramivir or baloxavir marboxil.
The
current COVID-19 pandemic has highlighted the large impact that viral infections can have on health, quality of life and economic
activity. Since outbreak, more than 110 million people have been reported as infected and more than 2.5 million deaths have been
counted globally. Thanks to massive and urgent efforts by public and private entities, vaccines could be developed in record time;
in addition, dozens of potential treatments have been under development. However, it is uncertain at this point when and to what
extent the COVID-19 pandemic can be ended or significantly mitigated in its effects as vaccine roll-outs take time and mutations
of SARS-CoV-2 have developed which appear to reduce the protective effects of the newly developed vaccines.
Inner
ear disorders, including hearing loss, tinnitus, and vertigo, 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. According
to data from the National Health and Nutrition Examination Survey published by Agrawal and colleagues in the journal Archives
of Internal Medicine in 2013, 35.4% of the US population aged 40 years and older is suffering from vestibular dysfunction (i.e.
failing the “Standing on Foam” test).
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. There are three main reasons for this:
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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.
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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.
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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.
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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.
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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
Product Candidates
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
In
February 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:
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Dynamic
conditions: tandem gait, timed “up and go”, 10 meter walking or other tests
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Other
outcome measures target the interaction between inner ear and ocular sensory input. Nystagmography 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 second Phase 1 clinical trial with AM-125 in 72 healthy volunteers. The randomized double blind placebo controlled
trial 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. 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.).
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). Starting three days after neurosurgery, trial participants self-administer AM-125 or placebo
3 x daily for four weeks; they are then followed for a further two weeks. The trial is being conducted in several countries ex
US.
In
September 2020 we announced the results of an interim analysis from Part A of the trial, which comprised a dose escalation –
1, 10 or 20 mg or placebo – in 33 patients. The interim analysis showed a dose-dependent improvement in balance as well
as good safety and tolerability of ascending doses of AM-125. At the highest dose of 20 mg (3 x daily), AM-125-treated patients
improved their performance of the “Tandem Romberg” and the “Standing on Foam” balance tests from baseline
to 14 days post-surgery (primary endpoint) on average 1.9 to 2.4 times more than placebo-treated patients (6.0 vs. 3.1 and 10.5
vs. 4.3 seconds, respectively). In contrast to placebo, the improvement from baseline was statistically significant for AM-125
20 mg and for all active dose groups, respectively (p<0.02 and p<0.01 to p<0.05, respectively). These positive results
were supported by similar improvements in additional efficacy measures, including additional objective as well as clinician- and
patient-reported outcomes.
Based
on the results from the interim analysis, we selected the two highest doses, 10 and 20 mg, for testing against placebo in 72 patients
in Part B of the trial. As we remained blinded to treatment allocation during the interim analysis, the corresponding data from
Part A will be pooled with those from Part B. Prior to starting Part B of the trial in October 2020, we tested oral betahistine
(48 mg) open label for reference purposes.
Enrollment
into TRAVERS has been impacted by the COVID-19 pandemic, as the type of neurosurgery required for participation in the trial is
classified as an elective procedure and hence was postponed and as many participating sites temporarily reduced or suspended clinical
research activities. The effect was particularly felt in the spring of 2020 and then again in early 2021.
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 expect to have further exchanges with regulatory agencies following conclusion of the TRAVERS trial,
upon which we aim to obtain an IND. We believe that, if approved, AM-125 could become the first betahistine product for the treatment
of acute peripheral vertigo in the United States.
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
In
May 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 therapeutic effects in this indication. Participants received either AM-201 (1,
2.5, 5, 10, 20 or 30 mg) or placebo in parallel with oral olanzapine (10 mg) once a day for four weeks. In October 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. The trial then proceeded to the next higher and final dose
level of 30 mg tested in an additional 30 healthy volunteers. In May 2020, we announced that at AM-201 30 mg, the mean weight gain from
baseline to the end of the treatment period was 2.8 kg compared against 3.7 kg in control subjects; the primary efficacy endpoint of mean
reduction in weight gain was 0.9 kg and statistically significant (p<0.02; n=81 with pre-specified Bayesian augmented controls). As
expected, intranasal delivery of betahistine allowed for substantially higher concentrations in blood plasma compared with levels previously
reported for oral betahistine. We expect to file for an IND in alignment with the IND filing for AM-125.
AM-301
in the protection against airborne allergens and viruses
Allergic
rhinitis and upper respiratory airway infections
Through
the intake of air, the mucosa-lined nasal cavity as the uppermost part of the respiratory system is exposed to a variety of airborne
pathogens such as viruses and bacteria. Unless they are neutralized by the immune system, these pathogens may cause infections.
Viruses known to spread by airborne transmission (and also other routes) include rhinoviruses (cause common cold symptoms), influenza
viruses (type A, type B, H1N1), varicella viruses (cause chickenpox), measles virus, mumps virus, enterovirus, norovirus, coronaviruses
among others.
Further,
the nasal cavity is exposed to allergens such as pollen, house dust mites or animal hair. The body may develop sensitivity to
such allergens, resulting in an inflammatory reaction (allergic rhinitis), including the release of certain chemicals such as
histamine which affect the nasal mucosa. The main symptoms of allergic rhinitis include nasal itching and sneezing, runny nose,
and nasal congestion.
The
nasal mucosa is one of the anatomical structures which form the physical barriers of the body’s immune system. The mucosal
lining of the nasal cavity represents the outer surface of the body to the ambient air and its contents and is prepared for it
as the first line of defense. These barriers provide mechanical protection from the invasion of infectious and allergenic pathogens.
Nasal mucociliary clearance provides another defense mechanism: mucus secreted by the nasal mucosa traps inhaled allergens, pathogens
and other particles and is then transported with the trapped matter by the ciliated cells of the respiratory epithelium to the
pharynx, where it is swallowed.
Proper
humidification helps to maintain the nasal mucosa’s function in clearing viruses and allergens from the nasal cavity. Further
protection may be achieved by wearing face masks or avoidance of exposure to potential sources of infection or allergens.
Our
solution – AM-301
In
September 2020 we announced the launch of the development of AM-301, a drug-free nasal spray for protection against airborne viruses
and allergens through a newly created subsidiary, Altamira Medica Ltd. AM-301 is a gel emulsion which works by forming a protective
layer on the nasal mucosa that acts as a mechanical barrier against airborne viruses allergens. The barrier consists of two elements:
(1) a mucoadhesive film lining the nasal cavity and preventing contact of airborne viruses or allergens with the nasal mucosa
to reduce the risk of viral infection or allergic reactions; (2) the trapping / binding of such viruses or allergens through electrostatic
effects, allowing for their removal e.g. through mucociliary clearance. In addition, the product helps to humidify and thus maintain
the nasal mucosa’s function in clearing viruses and allergens from the nasal cavity.
The
key component of AM-301 is a naturally occurring substance. Through a specialized testing laboratory, we performed an experiment
with SARS-CoV-2, where the key component was added in various concentrations to a suspension of the virus for various time periods.
Unbound virus particles were then collected from the suspension and transferred onto cell cultures for incubation, allowing for
viral replication. The experiment showed that after only 5 minutes of contact between AM-301’s key component and the virus
suspension the viral infectious load was reduced by up to 99%.
Following
formulation development, we tested AM-301 for its capability to prevent or mitigate SARS-CoV-2 infection of nasal epithelial cells,
which are part of the nasal mucosa and the first barrier against continuously inhaled substances such as pathogens and allergens.
The experiment was performed over four days on reconstituted human nasal epithelia, which are frequently used to study the effects
of human respiratory viruses. In saline-treated control cultures, Sars-CoV-2 replicated efficiently, resulting in a rapid increase
in viral titer (as measured by the Median Tissue Culture Infectious Dose, TCID50). In contrast, daily treatment with AM-301, beginning
right before inoculation, showed effective protection against viral infection. 48 hours post-infection, average virus titers were
90.0% lower than those observed in controls (p<0.01). 72 hours and 96 hours post-infection, average virus titers were 99.2
and 99.4% lower, respectively (p<0.001). Even when unbound virus was not removed daily through apical washing, allowing the
virus to accumulate in the culture for 4 days, the reduction in viral titer was 92.4% compared to saline-treated controls (p<0.001).
Based
on these in vitro results, we believe that AM-301 could help to reduce the risks of exposure from airborne transmission
of SARS-CoV-2. It is estimated that about 90% of air is inhaled via the nose, and it has been established that infection with
SARS-CoV-2 via the nose is a major transmission pathway for Covid-19. We are currently conducting and planning additional studies
to evaluate further AM-301’s effects against SARS-CoV-2 as well as other types of viruses.
In
January 2021 we announced the initiation of a clinical investigation of AM-301 in allergic rhinitis. The clinical investigation
is an open-label randomized cross-over study that will enroll 36 patients with allergic rhinitis to grass pollen. Study participants
will be administered a single dose of AM-301 nasal spray or a comparator product (one puff into each nostril) prior to controlled
pollen exposure for four hours in an allergen challenge chamber. The challenge will be repeated with the alternate treatment following
a wash-out period. The difference in the Total Nasal Symptom Score (TNSS) between the two treatments over the 4-hour exposure
will serve as the primary efficacy endpoint; the investigation shall aim to demonstrate clinical non-inferiority of AM-301 to
the comparator product.
We
believe that AM-301 could provide help to people suffering from allergic rhinitis by reducing their exposure to airborne allergen
particles e.g. from pollens, house dust or animal hair. We are currently conducting and planning additional studies to evaluate
further AM-301’s preventative effects for allergy management.
Since
AM-301 does not contain any active substance, we believe that it will be regulated and marketed as an “over-the-counter”
medical device. Following the conduct of further studies in safety and efficacy, the Company is targeting submission of regulatory
applications to the U.S. Food and Drug Administration (“FDA”) and regulatory authorities in other jurisdictions in
2021.
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. In 2012,
9.7% of all veterans received service-related disability compensation for the condition.
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.
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 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.
In
August 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.
In
March 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. In
April 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. In September 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 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 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 was no apparent difference in the frequency of adverse
events between placebo and Sonsuvi® treated patients at any time point, 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. In November 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, AM-201, AM-301 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.
Possible
competitors may be biotechnology, pharmaceutical and medical device 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, hearing
loss, vertigo, allergic rhinitis or viral infections. 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:
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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 February 2020 the company announced that a new Phase 3 trial with OTO-104 had failed to reach its primary
efficacy endpoint.
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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.
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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:
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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.
In November 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; in January
2021, the FDA accepted the resubmission of an amended NDA. If approved, AM-201 will compete against ALKS 3831.
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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.
Allergic
rhinitis and upper respiratory airway infections
We
believe that our main competitors for AM-301 are Marinomed Biotech AG or Marinomed, Trutek Corp. or Trutek, Nasaleze Ltd. or Nasaleze,
Nasus Pharma Ltd. or Nasus Pharma, and larger companies such as GSK, Bayer, Sanofi, Procter & Gamble, Reckitt Benckiser, and
Johnson & Johnson. These companies already market a variety of OTC drug or drug-free products for the management of allergic
rhinitis and/or protection against certain viruses. E.g. Nasaleze and Nasus Pharma market nasal sprays based on hydroxypropylmethylcellulose
(HPMC) powder which serves to establish a barrier on the nasal mucosa. Marinomed is marketing through various licensees a nasal
spray based on carrageenan, a sulfated polymer from red seaweed, for protection against certain respiratory viral infections.
Trutek is marketing a gel that is applied around the nostrils and above the upper lip to prevent airborne particles from entering
the nose. Other marketed products include nasal sprays, tablets or lozenges (e.g. based on corticosteroids or antihistamines).
Some of the aforementioned drugs or medicinal products are marketed globally, whereas others are marketed only regionally. We
believe that we will be able to differentiate AM-301 against competing products based on its triple mode of action devoid of any
active substance, its extended nasal residence time, and utility in protecting against deleterious effects of both airborne allergens
and viruses.
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 candidate that is currently in clinical development:
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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. In July 2020 Otonomy announced the results from a Phase 1/2
trial and in November 2020 the initiation of a Phase 2 trial for the first quarter of 2021. Based on publicly available
information, OTO-313 will target a similar group of tinnitus patients.
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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:
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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.
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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 fourth quarter of 2021. Sensorion has received orphan drug designation by the EMA for sudden sensorineural hearing
loss.
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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.
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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; however, no results have been published
so far. Strekin has received orphan drug designation by the EMA for sudden sensorineural
hearing loss.
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Frequency
Therapeutics is developing FX-322, a small molecule for the regeneration cochlear hair cells through activation of progenitor
cells already present in the cochlea. After a Phase 1/2 trial had showed improvement in some measures of hearing loss, the
company initiated a Phase 2 clinical trial in patients with mild to moderately severe acquired SNHL, and two Phase 1b trials
in patients with severe SNHL or mild to moderately severe age-related hearing loss. Results from the trials are expected through
2021. If successful, STR001 and FX-322 may compete against Sonsuvi®.
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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 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, 2020, we own eleven issued U.S. patents and seven pending U.S. patent applications along with foreign counterparts
of particular patents and applications in various jurisdictions. We co-own three 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, 2020, 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.
AM-301
In
2020, we filed two provisional US patent applications relating to the formulation and use of AM-301; we expect to file additional
one or more provisional applications in 2021 and to convert the most recent provisional application into a non-provisional application.
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 three 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 seven 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
2023 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 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®.
In August 2019 Xigen was acquired by Kuste Biopharma SAS, or Kuste, a French company. In February 2021, we were notified by Kuste
of its decision to terminate the agreement effective May 10, 2021 due to the alleged lack of any development work since August
2018. We consider that the purported termination is without effect and that the agreement continues to be in full force and effect
in accordance with its terms. We have retained legal counsel and intend to defend our interests, as appropriate and necessary.
Manufacturing
We
currently rely on and expect to continue to rely on third parties for the supply of raw materials and to manufacture supplies
for clinical trials of our product candidates, including AM-125, AM-201, AM-301, Keyzilen® and Sonsuvi®.
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 or clearance. 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 drug 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.
For
the commercialization of our AM-301 nasal spray device, which we intend to initiate in 2021 subject to regulatory clearance and
approvals, respectively, we plan to rely on commercial partners with presence in “over-the-counter” markets and /
or providers of “go to market” services. We may be unable to secure appropriate or timely support and as a result
experience a delay of the product launch or product sales below our expectations. Further, as an “OTC” product, the
purchase of AM-301 by consumers is unlikely to be eligible for reimbursement by health insurance plans and will therefore have
to be purchased out of their own pockets. We expect the lack of reimbursement coverage to reduce the pool of potential buyers.
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 and medical devices
in the United States.
The
steps required before a drug may be approved for marketing in the United States generally include:
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the
completion of pre-clinical laboratory tests and animal tests conducted under GLP regulations;
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the
submission to the FDA of an IND application for human clinical testing, which must become effective before human clinical
trials commence;
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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;
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the
submission to the FDA of a NDA;
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the
FDA’s acceptance of the NDA;
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satisfactory
completion of an FDA inspection of the manufacturing facilities at which the product is made to assess compliance with cGMPs;
and
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the
FDA’s review and approval of an NDA prior to any commercial marketing or sale of the drug in the United States.
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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:
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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.
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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.
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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.
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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.
Device
Approval Process
Unless
an exemption applies, any medical device that is to be marketed in the U.S. must first receive from the FDA either 510(k) clearance,
by filing a 510(k) premarket notification, or premarket application (PMA) approval, after submitting a PMA. Alternatively, the
device may be cleared through the de novo classification process by the FDA. Based on advice from regulatory consultants and our
own research, we expect AM-301 to be considered a Class II device by FDA and that the 510(k) pathway applies to AM-301’s
intended use of promoting alleviation of mild allergic symptoms triggered by the inhalation of various airborne allergens.
To
obtain 510(k) clearance, a company must submit a premarket notification demonstrating substantial equivalence between the proposed
device and a legally marketed “predicate” device, which is defined as a legally marketed device, that (i) was legally
marketed prior to May 28, 1976, for which the FDA has not yet called for submission of a PMA application; (ii) has been reclassified
from Class III to Class II or Class I; (iii) has been cleared through the 510(k) premarket notification process; or (iv) has been
previously determined to be exempt from the 510(k) process. Substantial equivalence means that the proposed device has the same
intended use and the same technological characteristics as the predicate device, or, if the new device has different technological
characteristics, that the device is as safe and effective as the predicate device and does not raise different questions of safety
and effectiveness. We have identified two such predicate devices and plan to reference them in our planned 510(k) submission.
AM-301
is also intended for use in the reduction of the intranasal infectious viral load following inspiration of airborne viruses such
as SARS-CoV-2. Since there may be no valid predicate device available for this intended use, we may have to submit a de novo request
to the FDA. Under the de novo pathway, we would have to prove that AM-301 does not present substantial risk to the patient rather
than just demonstrating substantial equivalence with the safety of the relevant predicate device(s), which may require additional
testing. The review by the FDA would take a minimum of 150 days in the de novo process compared to a minimum of 90 days in the
510(k) process and requires higher fees. Any device that has been classified through the de novo process may be marketed and used
as predicate for future 510(k) submissions.
Many
foreign countries in which we intend to market AM-301 have regulatory bodies and restrictions similar to those of the FDA. International
sales are subject to foreign government regulation, the requirements of which vary substantially from country to country. The
time required to obtain approval by a foreign country may be longer or shorter than that required for FDA clearance and the requirements
may differ.
In
particular, marketing of medical devices in the European Union (EU) is subject to compliance with the Medical Devices Directive
93/92/EEC (MDD). A medical device may be placed on the market within the EU only if it conforms to certain “essential requirements”
and bears the CE Mark. The most fundamental and essential requirement is that a medical device must be designed and manufactured
in such a way that it will not compromise the clinical condition or safety of patients, or the safety and health of users and
others. In addition, the device must achieve the essential performance(s) intended by the manufacturer and be designed, manufactured
and packaged in a suitable manner.
Manufacturers
must demonstrate that their devices conform to the relevant essential requirements through a conformity assessment procedure.
The nature of the assessment depends upon the classification of the device. The classification rules are mainly based on three
criteria: the length of time the device is in contact with the body, the degree of invasiveness and the extent to which the device
affects the anatomy. Conformity assessment procedures for all but the lowest risk classification of device involve a notified
body. Notified bodies are often private entities and are authorized or licensed to perform such assessments by government authorities.
Manufacturers usually have some flexibility to select a notified body for the conformity assessment procedures for a particular
class of device and to reflect their circumstances, e.g., the likelihood that the manufacturer will make frequent modifications
to its products. Conformity assessment procedures require an assessment of available clinical evidence, literature data for the
product and post-market experience in respect of similar products already marketed. Notified bodies also may review the manufacturer’s
quality systems. If satisfied that the product conforms to the relevant essential requirements, the notified body issues a certificate
of conformity, which the manufacturer uses as a basis for its own declaration of conformity and application of the CE Mark. Application
of the CE Mark allows the general commercializing of a product in the EU. The product can also be subjected to local registration
requirements depending on the country. We maintain CE Marking on all of our products that require such markings as well as local
registrations as required.
In
May 2017, the EU adopted a new Medical Devices Regulation (EU) 2017/745 (MDR), which will repeal and replace the MDD with effect
from May 26, 2021. The MDR clearly envisages, among other things, stricter controls of medical devices, including strengthening
of the conformity assessment procedures, increased expectations with respect to clinical data for devices and pre-market regulatory
review of high-risk devices. The MDR also envisages greater control over notified bodies and their standards, increased transparency,
more robust device vigilance requirements and clarification of the rules for clinical investigations. Under transitional provisions,
medical devices with notified body certificates issued under the MDD prior to May 26, 2021 may continue to be placed on the market
for the remaining validity of the certificate, until May 27, 2024 at the latest. After the expiry of any applicable transitional
period, only devices that have been CE marked under the MDR may be placed on the market in the EU.
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.
Pharmaceutical
Coverage, Pricing and Reimbursement
In
both domestic and foreign markets, our sales of any approved drug 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 another 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.
Other
Regulatory Requirements
Maintaining
substantial compliance with appropriate federal, state and local statutes and regulations requires the expenditure of substantial
time and financial resources. Drug manufacturers are required to register their establishments with the FDA and certain state
agencies, and after approval, the FDA and these state agencies conduct periodic unannounced inspections to ensure continued compliance
with ongoing regulatory requirements, including cGMPs. In addition, after approval, some types of changes to the approved product,
such as adding new indications, manufacturing changes and additional labeling claims, are subject to further FDA review and approval.
The
FDA may require post-approval testing and surveillance programs to monitor safety and the effectiveness of approved products that
have been commercialized. Any drug products manufactured or distributed by us pursuant to FDA approvals are subject to continuing
regulation by the FDA, including:
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record-keeping
requirements;
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reporting
of adverse experiences with the drug;
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providing
the FDA with updated safety and efficacy information;
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reporting
on advertisements and promotional labeling;
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drug
sampling and distribution requirements; and
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complying
with electronic record and signature requirements.
|
In
addition, the FDA strictly regulates labeling, advertising, promotion and other types of information on products that are placed
on the market. There are numerous regulations and policies that govern various means for disseminating information to health-care
professionals as well as consumers, including to industry sponsored scientific and educational activities, information provided
to the media and information provided over the Internet. Drugs may be promoted only for the approved indications and in accordance
with the provisions of the approved label.
The
FDA has very broad enforcement authority and the failure to comply with applicable regulatory requirements can result in administrative
or judicial sanctions being imposed on us or on the manufacturers and distributors of our approved products, including warning
letters, refusals of government contracts, clinical holds, civil penalties, injunctions, restitution and disgorgement of profits,
recall or seizure of products, total or partial suspension of production or distribution, withdrawal of approvals, refusal to
approve pending applications, and criminal prosecution resulting in fines and incarceration. The FDA and other agencies actively
enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted
off-label uses may be subject to significant liability. In addition, even after regulatory approval is obtained, later discovery
of previously unknown problems with a product may result in restrictions on the product or even complete withdrawal of the product
from the market.
Other
Healthcare Laws
Because
of our current and future arrangements with healthcare professionals, principal investigators, consultants, customers and third-party
payors, we will also be subject to healthcare regulation and enforcement by the federal government and the states and foreign
governments in which we will conduct our business, including our clinical research, proposed sales, marketing and educational
programs. Failure to comply with these laws, where applicable, can result in the imposition of significant civil penalties, criminal
penalties, or both. The U.S. laws that may affect our ability to operate, among others, include: the federal Health Insurance
Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical
Health Act, which governs the conduct of certain electronic healthcare transactions and protects the security and privacy of protected
health information; certain state laws governing the privacy and security of health information in certain circumstances, some
of which are more stringent than HIPAA and many of which differ from each other in significant ways and may not have the same
effect, thus complicating compliance efforts; the federal healthcare programs’ Anti-Kickback Statute, which prohibits, among
other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly,
in exchange for or to induce 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 federal healthcare programs such as the Medicare and Medicaid programs; federal false
claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented,
claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent; federal criminal laws that
prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;
the Physician Payments Sunshine Act, which requires manufacturers of drugs, devices, biologics, and medical supplies to report
annually to the U.S. Department of Health and Human Services information related to payments and other transfers of value to physicians
(defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, and ownership and
investment interests held by physicians and their immediate family members; and state law equivalents of each of the above federal
laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including
commercial insurers.
In
addition, many states have similar laws and regulations, such as anti-kickback and false claims laws that may be broader in scope
and may apply regardless of payor, in addition to items and services reimbursed under Medicaid and other state programs. Additionally,
to the extent that our products are sold in a foreign country, we may be subject to similar foreign laws.
C.
|
Organizational
structure
|
The
registrant corporation, Auris Medical Holding Ltd., had seven wholly-owned subsidiaries as of December 31, 2020, 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, rhinology and allergy and CNS disorders. We are focusing on the development of intranasal betahistine for the
treatment of vertigo (AM-125, in Phase 2) and for the prevention of antipsychotic-induced weight gain and somnolence (AM-201,
post Phase 1b). Through our affiliate Altamira Medica, we are developing a nasal spray for protection against airborne viruses
and allergens (AM-301).
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, 2020, we had cash and cash equivalents of CHF 11.3 million. Based on our current
plans, we do not expect to generate royalty or product revenues unless and until we obtain marketing approval or clearance for,
and commercialize, AM-125, AM-201, AM-301, Keyzilen®, or Sonsuvi®, or any of our other product candidates.
As
of December 31, 2020, we had an accumulated deficit of CHF 160.6 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
We
expect our regular total cash need in 2021 to be in the range of CHF 11.5 to 13.0 million for our expected total operating expenses
of CHF 7 to 8 million and our expected capitalized research and development costs of CHF 4.5 to 5 million. Further cash needs
may arise in 2021 related to the manufacture of AM-301 as well as marketing and sale activities as we intend to commercialize
the product in selected markets; these cash needs may initially not be covered by cash flows from product revenues.
Research
and development expense
Research
and development expense consists principally of:
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salaries
for research and development staff and related expenses, including employee benefits;
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costs
for production of pre-clinical compounds, drug substances and drug products by contract manufacturers;
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fees
and other costs paid to contract research organizations in connection with additional pre-clinical testing and the performance
of clinical trials;
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costs
of related facilities, materials and equipment;
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costs
associated with obtaining and maintaining patents;
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costs
related to the preparation of regulatory filings and fees; and
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depreciation
and amortization of tangible and intangible fixed assets used to develop our product candidates.
|
Our
research and development expense mainly relates to the following key programs:
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●
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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. In September 2020 we announced the results of an interim
analysis from Part A of the trial, which comprised a dose escalation – 1, 10 or 20 mg or placebo – in 33 patients.
The interim analysis showed a dose-dependent improvement in balance as well as good safety and tolerability of ascending doses
of AM-125. Based on the results from the interim analysis, we selected the two highest doses, 10 and 20 mg, for testing against
placebo in 72 patients in Part B of the trial. Prior to starting Part B of the trial in October 2020, we tested oral betahistine
(48 mg) open label for reference purposes. Enrollment into TRAVERS has been impacted by the COVID-19 pandemic, as the
type of neurosurgery required for participation in the trial is classified as an elective procedure and hence was postponed
and as many participating sites temporarily reduced or suspended clinical research activities. The effect was particularly
felt in spring 2020 and then again in early 2021. We expect to complete enrollment in the third quarter of 2021.
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AM-201
for Antipsychotic-Induced Weight Gain. We conducted a Phase 1b trial in Europe with AM-201
in antipsychotic-induced weight gain. Participants received either AM-201 (1, 2.5, 5,
10, 20 or 30 mg) or placebo in parallel with oral olanzapine (10 mg) once a day for four
weeks. In October 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. The trial
then proceeded to the next higher and final dose level of 30 mg tested in an additional
30 healthy volunteers. In May 2020, we announced that at AM-201 30 mg, the mean weight
gain from baseline to the end of the treatment period was 2.8 kg compared against 3.7
kg in control subjects; the primary efficacy endpoint of mean reduction in weight gain
was 0.9 kg and statistically significant (p<0.02; n=81 with pre-specified Bayesian
augmented controls).
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AM-301
for Protection Against Airborne Allergens and Viruses: In September 2020 we announced the launch of the development of AM-301,
a drug-free nasal spray for protection against airborne viruses and allergens. Following formulation development, we tested
AM-301 in vitro in reconstituted human nasal epithelia infected with SARS-CoV-2. Daily treatment with AM-301, beginning right
before inoculation, showed effective protection against viral infection: 48 hours post-infection, average virus titers were
90.0% lower than those observed in controls (p<0.01). 72 hours and 96 hours post-infection, average virus titers were 99.2
and 99.4% lower, respectively (p<0.001). In January 2021 we initiated an open-label randomized cross-over study with AM-301
that will enroll 36 patients with allergic rhinitis to grass pollen. Study participants will be administered a single dose
of AM-301 nasal spray or a comparator product prior to controlled pollen exposure for four hours in an allergen challenge
chamber. The challenge will be repeated with the alternate treatment following a wash-out period. We expect results from the
study in the second quarter of 2021. In addition, various pre-clinical and clinical assessments are either planned or ongoing
in 2021.
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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 thereof. Pending such funding, we expect our research and development expenses in connection with the Sonsuvi®
program to remain minimal.
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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.
In March 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.
In April 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. In September 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, 2020, 2019 and 2018, we also spent CHF 2.7 million, 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). For the year ended December 31, 2020, we spent CHF 0.8 million on research and development expenses related to AM-301.
For the same time periods, we spent CHF 0.1 million, CHF 0.5 million, and CHF 1.7 million, respectively, on research and development
expenses related to Keyzilen®. For the same time periods, we spent CHF 0.1 million, CHF 0.1 million, and CHF 1.5
million, respectively, on research and development expenses related to Sonsuvi®. 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, AM-201, and AM-301. 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:
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the
scope, rate of progress, results and cost of our clinical trials, nonclinical testing, and other related activities;
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the
cost of manufacturing clinical supplies, and establishing commercial supplies, of our product candidates and any products
that we may develop;
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the
number and characteristics of product candidates that we pursue;
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the
cost, timing, and outcomes of regulatory approvals and payer discussions;
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the
cost and timing of establishing sales, marketing, and distribution capabilities; and
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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 AM-125, AM-201, AM-301, Keyzilen®,
and Sonsuvi®, 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:
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salaries
for general and administrative staff and related expenses, including employee benefits;
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business
development expenses, including travel expenses;
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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;
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cost
of facilities, communication and office expenses; and
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depreciation
and amortization of tangible and intangible fixed assets not related to research and development activities.
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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
In 2020, our interest expense consisted principally of interest on
the convertible loan provided by FiveT. In 2019, our interest expense consisted 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. In March 2021, we issued common shares in full satisfaction of the convertible
loan provided by FiveT.
Revaluation
loss/gain from derivative financial instruments
Expenses
related to fair value measurement of derivatives embedded in the FiveT convertible loan of CHF 2,248,257 were recorded as financial
expenses in profit or loss.
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, 2020, 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, 2020, the fair value of the warrants amounted to CHF 0. The revaluation loss of the derivative for the twelve months ended
December 31, 2020 amounted to CHF 0, compared to 2019 where there was a revaluation gain of CHF 166,301. 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 warrants in connection with a direct offering of 62,499 common shares, each warrant entitling its holder
to purchase 0.6 common share at an exercise price of $100.00 per common share. As of December 31, 2020, 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, 2020, the fair value of the warrants amounted CHF 6,318. The revaluation
loss of the derivative for the twelve months ended December 31, 2020 amounted to CHF 1,965, compared to 2019 where there was a
revaluation gain of CHF 285,298. Since its initial recognition on January 30, 2018, the fair value of the warrants has decreased
by CHF 2,477,429 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 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 in connection with the July 2018 Registered Offering of 897,435 common shares. The original exercise price
was 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 amounted 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. On June 18, 2020, the outstanding warrants expired without further warrants being exercised. As a result, no further
revaluation gain or loss was recognized for the year ended December 31, 2020 (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 are shown
as costs if they are not directly attributable to the equity transaction. Transaction costs increased by CHF 219,615 in the year ended
December 31, 2020 compared to the previous year, due to the write off of the remaining capitalized derivate financial instrument related
to a commitment purchase agreement with LPC dated May 2, 2018 (the “2018 Commitment Purchase Agreement”). The agreement was
formally still effective as of December 31, 2020, but no more in use.
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, 2020 and 2019
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
Change
|
|
|
|
(in thousands of CHF)
|
|
|
%
|
|
Other operating income
|
|
|
174
|
|
|
|
—
|
|
|
|
100
|
%
|
Research and development
|
|
|
(2,863
|
)
|
|
|
(3,325
|
)
|
|
|
(14
|
)%
|
General and administrative
|
|
|
(2,594
|
)
|
|
|
(3,934
|
)
|
|
|
(34
|
)%
|
Operating loss
|
|
|
(5,283
|
)
|
|
|
(7,259
|
)
|
|
|
(27
|
)%
|
Interest income
|
|
|
—
|
|
|
|
18
|
|
|
|
(100
|
)%
|
Interest expense
|
|
|
(135
|
)
|
|
|
(29
|
)
|
|
|
366
|
%
|
Foreign currency exchange loss, net
|
|
|
(333
|
)
|
|
|
(219
|
)
|
|
|
52
|
%
|
Revaluation gain / (loss) from derivative financial instruments
|
|
|
(2,250
|
)
|
|
|
664
|
|
|
|
(439
|
)%
|
Transaction Costs
|
|
|
(220
|
)
|
|
|
—
|
|
|
|
(100
|
)%
|
Loss before tax
|
|
|
(8,221
|
)
|
|
|
(6,825
|
)
|
|
|
20
|
%
|
Income tax gain/(loss)
|
|
|
21
|
|
|
|
194
|
|
|
|
(89
|
)%
|
Net loss attributable to owners of the Company
|
|
|
(8,200
|
)
|
|
|
(6,631
|
)
|
|
|
24
|
%
|
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
|
|
|
(26
|
)
|
|
|
(72
|
)
|
|
|
(64
|
)%
|
Items that are or may be reclassified to profit or loss
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation differences, net of taxes of CHF 0
|
|
|
89
|
|
|
|
16
|
|
|
|
456
|
%
|
Other comprehensive loss
|
|
|
63
|
|
|
|
(56
|
)
|
|
|
(213
|
)%
|
Total comprehensive loss attributable to owners of the Company
|
|
|
(8,137
|
)
|
|
|
(6,687
|
)
|
|
|
22
|
%
|
Research
and development expense
|
|
Year
Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
Change
|
|
|
|
(in
thousands of CHF)
|
|
|
%
|
|
Research
and development expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical
projects
|
|
|
(477
|
)
|
|
|
(993
|
)
|
|
|
(52
|
)%
|
Pre-clinical
projects
|
|
|
(243
|
)
|
|
|
(182
|
)
|
|
|
34
|
%
|
Drug
manufacture and substance
|
|
|
(615
|
)
|
|
|
(481
|
)
|
|
|
28
|
%
|
Employee
benefits
|
|
|
(1,121
|
)
|
|
|
(1,374
|
)
|
|
|
(18
|
)%
|
Other
research and development expenses
|
|
|
(407
|
)
|
|
|
(295
|
)
|
|
|
38
|
%
|
Total
|
|
|
(2,863
|
)
|
|
|
(3,325
|
)
|
|
|
(14
|
)%
|
Research
and development expense decreased by 14% from CHF 3.3 million in 2019 to CHF 2.9 million in 2020. 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 2019 and 2020 are mainly due to the following factors:
|
●
|
Capitalization
of internal costs for AM-125. In the year ended December 31, 2020, we capitalized direct costs related to our AM-125 program
for a total amount of CHF 2.3 million, compared to CHF 3.2 million in the year ended December 31, 2019.
|
|
●
|
Clinical
projects. In the year ended December 31, 2020, we incurred lower service and milestone costs for our studies with intranasal
betahistine, mainly reflecting the completion of our Phase 1b trial with AM-201.
|
|
●
|
Pre-clinical
projects. In the year ended December 31, 2020, pre-clinical expenses increased by 33% principally due to the initiation
of project AM-301.
|
|
●
|
Drug
manufacture and substance. In the year ended December 31, 2020, drug manufacture and substance expenses increased by 28%
mainly due to AM-301 project activities.
|
|
●
|
Employee
benefits. Employee benefit costs decreased in 2020 due to lower headcount and lower recruiting fees. In addition, we received
reimbursements under the Swiss short-time work scheme, which was used for three months in connection with a temporary reduction
in project activities due to the COVID-19 pandemic.
|
|
●
|
Other
research and development expenses. Other research and development expenses increased by CHF 0.1 million in the year ended
December 31, 2020 compared to the year ended December 31, 2019 primarily due to AM-301 regulatory costs.
|
General
and administrative expense
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
Change
|
|
|
|
(in thousands of CHF)
|
|
|
%
|
|
General and administrative expense
|
|
|
|
|
|
|
|
|
|
Employee benefits
|
|
|
(811
|
)
|
|
|
(1,011
|
)
|
|
|
(20
|
)%
|
Business development
|
|
|
(96
|
)
|
|
|
(114
|
)
|
|
|
(16
|
)%
|
Travel expenses
|
|
|
(29
|
)
|
|
|
(103
|
)
|
|
|
(72
|
)%
|
Administration expenses
|
|
|
(1,646
|
)
|
|
|
(2,653
|
)
|
|
|
(38
|
)%
|
Lease expenses
|
|
|
(14
|
)
|
|
|
(27
|
)
|
|
|
(48
|
)%
|
Depreciation tangible assets
|
|
|
(4
|
)
|
|
|
(11
|
)
|
|
|
(64
|
)%
|
Capital tax expenses
|
|
|
6
|
|
|
|
(15
|
)
|
|
|
(133
|
)%
|
Total
|
|
|
(2,594
|
)
|
|
|
(3,934
|
)
|
|
|
(34
|
)%
|
General
and administrative expenses decreased by 34% from CHF 3.9 million in 2019 to CHF 2.6 million in the year ended December 31, 2020.
The decrease is related to lower employee benefits due to lower headcount and reimbursements under the Swiss short-time work scheme,
which was used for three months in connection with a temporary reduction in company activities due to the COVID-19 pandemic. Administration
costs decreased mainly due to lower consultancy costs (redomestication in the previous period) and lower headcount.
Interest
income
Interest
income decreased in the year ended December 31, 2020 compared to year the ended December 31, 2019 due to no interest earned in
the year ended December 31, 2020 on short-term deposits.
Interest
expense
Interest expense in 2020 includes interest related to the convertible
loan agreement with FiveT Capital. This compares to CHF 0.03 million in the year ended December 31, 2019 which was related to the Hercules
loan.
Foreign
currency exchange gain/(loss), net
Foreign
currency exchange loss increased in 2020 mainly due to the depreciation of the USD and EUR against the Swiss Franc.
Revaluation
gain/(loss) from derivative financial instruments
Expenses related to fair
value measurement of derivatives embedded in the FiveT convertible loan of CHF 2,250,222 were recorded as financial expenses in profit
or loss for the financial year 2020.
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, 2020, 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, 2020, the fair value of the
warrants amounted to CHF 0. The revaluation loss of the derivative for the twelve months ended December 31, 2020 amounted to CHF
0, compared to 2019 where there was a revaluation gain of CHF 166,301. 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 warrants in connection with a direct offering of 62,499 common shares, each warrant entitling its holder
to purchase 0.6 common share at an exercise price of $100.00 per common share. As of December 31, 2020, 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, 2020, the fair value of the warrants amounted CHF 6,318. The revaluation
loss of the derivative for the twelve months ended December 31, 2020 amounted to CHF 1,965, compared to 2019 where there was a
revaluation gain of CHF 285,298. Since its initial recognition on January 30, 2018, the fair value of the warrants has decreased
by CHF 2,477,429 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 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 in connection with the July 2018 Registered Offering of 897,435 common shares. The original exercise price was 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. On June 18, 2020, the outstanding warrants expired without
further warrants being exercised. As a result, no further revaluation gain or loss was recognized for the year ended December 31, 2020
(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 64% from 2019 to 2020. The loss in 2020 is primarily
due to an actuarial loss arising from experience adjustment.
Foreign
currency translation differences
Foreign
currency translation differences increased by 456% from 2019 to 2020. The increase 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, 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 loss, net
|
|
|
(219
|
)
|
|
|
(140
|
)
|
|
|
57
|
%
|
Revaluation loss from derivative financial instruments
|
|
|
664
|
|
|
|
1,350
|
|
|
|
(51
|
)%
|
Transaction Costs
|
|
|
—
|
|
|
|
(520
|
)
|
|
|
(100
|
)%
|
Loss before tax
|
|
|
(6,825
|
)
|
|
|
(11,334
|
)
|
|
|
(40
|
)%
|
Income tax gain/(expense)
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
Remeasurements of defined benefits liability
|
|
|
(72
|
)
|
|
|
1,277
|
|
|
|
(106
|
)%
|
Items that are or may be reclassified to profit or loss
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation differences
|
|
|
16
|
|
|
|
(11
|
)
|
|
|
(245
|
)%
|
Other comprehensive income/(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 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 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 increased by 79% due to an increase in activities in
our intranasal betahistine program.
|
|
●
|
Drug
manufacture and substance. In the year ended December 31, 2019, costs related to raw material purchases and expenses decreased
by 78% mainly due to higher costs for process validation related to lower AM-111 project activities and the capitalization
of directs 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 regulatory 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
|
)
|
|
|
(48
|
)%
|
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 increased in the year ended December 31, 2019 compared to year the ended December 31, 2018 due to interest earned in the
year ended December 31, 2019 on short-term deposits.
Interest
expense
Interest
expense related to the Hercules Loan and Security Agreement 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, 2020, 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, 2020, the fair value of the
warrants amounted to CHF 0. The revaluation loss of the derivative for the twelve months ended December 31, 2020 amounted to CHF
0, compared to 2019 where there was a revaluation gain of CHF 166,301. 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 warrants in connection with a direct offering of 62,499 common shares, each warrant entitling its holder to purchase
0.6 common share at an exercise price of $100.00 per common share. As of December 31, 2020, 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, 2020, the fair value of the warrants amounted CHF 6,318. The revaluation loss
of the derivative for the twelve months ended December 31, 2020 amounted to CHF 1,965, compared to 2019 where there was a revaluation
gain of CHF 285,298. Since its initial recognition on January 30, 2018, the fair value of the warrants has decreased by CHF 2,477,429
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 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 in connection with the July 2018 Registered Offering of 897,435 common shares. The original exercise price was 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. On June 18, 2020, the outstanding warrants expired without further warrants being exercised. As a result, no further
revaluation gain or loss was recognized for the year ended December 31, 2020 (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), 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.
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, 2020 and 2019
The
table below summarizes our consolidated statement of cash flows for the years ended December 31, 2020 and 2019:
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands of CHF)
|
|
Net cash used in operating activities
|
|
|
(4,844
|
)
|
|
|
(8,393
|
)
|
Net cash used in investing activities
|
|
|
(2,315
|
)
|
|
|
(3,001
|
)
|
Net cash from financing activities
|
|
|
16,961
|
|
|
|
7,378
|
|
Net effect of currency translation on cash
|
|
|
72
|
|
|
|
8
|
|
Cash and cash equivalents at the beginning of the period
|
|
|
1,385
|
|
|
|
5,393
|
|
Cash and cash equivalents at the end of the period
|
|
|
11,259
|
|
|
|
1,385
|
|
The
decrease in cash used in operating activities from CHF 8.4 million in 2019 to CHF 4.8 million in 2020 reflects the impact of lower
operating expenses primarily driven by lower project activities as the COVID-19 pandemic weighed on enrollment rates for the TRAVERS
trial with AM-125, the conclusion of the Phase 1b trial with AM-201 and lower consultancy costs.
Cash
used in investing activities decreased from CHF 3.0 million in 2019 to CHF 2.3 million in 2020. The decrease is due to lower investments
in intangible assets in 2020.
The
cash inflow from financing activities increased from CHF 7.4 million to CHF 17.0 million due to higher proceeds from equity issues,
the exercise of warrants as well the provision of the FiveT convertible loan.
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)
|
|
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 million in 2018. 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.
Cash
and funding sources
The
table below summarizes our sources of financing for the years ended December 31, 2020, 2019 and 2018.
|
|
Equity Capital and Preference Shares
|
|
|
Loans
|
|
|
Total
|
|
|
|
(in thousands of CHF)
|
|
2020
|
|
|
15,438
|
|
|
|
1,550
|
|
|
|
16,988
|
|
2019
|
|
|
8,845
|
|
|
|
—
|
|
|
|
8,845
|
|
2018
|
|
|
15,441
|
|
|
|
—
|
|
|
|
15,441
|
|
Total
|
|
|
39,724
|
|
|
|
1,550
|
|
|
|
41,274
|
|
On
December 3, 2020, the Company entered into securities purchase agreements with several institutional investors for the purchase
and sale of 2,000,000 common shares at an offering price of $4.00 per share, pursuant to a registered direct offering. The net
proceeds of the offering were approximately $7.3 million.
On
September 8, 2020, FiveT provided a convertible loan to our subsidiary Altamira. The loan had a principal amount of CHF 1.5 million,
a duration of 18 months, and carried an interest rate of 8% p.a. Under the terms of the agreement, FiveT had the right to convert
the loan or parts thereof including accrued interest into common shares of either Altamira or Auris Medical Holding Ltd., subject
to additional provisions and certain restrictions. On December 2, 2020, FiveT converted principal of CHF 895,455 into 737,000
shares of Auris Medical Holding Ltd. at a pre-defined maximum conversion price of $1.35 per share. At December 31, 2020, the remaining
principal amount outstanding together with accrued interest was CHF 636,465. Under the terms and conditions of the convertible
loan, we had the right to repay the convertible loan and accrued interest at 130% after the first six months at the earliest On
March 4, 2021, FiveT converted the remaining outstanding amount under the loan, thus retiring the loan.
Due
to the COVID-19 pandemic, in 2020 Swiss banks granted special loans under certain conditions with a guarantee by the Swiss Government.
Our Company was eligible for a loan of CHF 50,000, which was granted on March 26, 2020. The loan is interest-free and may be repaid
at any time with a maximum term of five years.
On
April 23, 2020, the Company entered into a purchase agreement and a Registration Rights Agreement with Lincoln Park Capital Fund,
LLC (the “2020 Commitment Purchase Agreement”). Pursuant to the purchase agreement, LPC agreed to subscribe for up
to USD 10,000,000 of our common shares over the 30-month term of the purchase agreement. In 2020, we issued 1,200,000 of our common
shares to LPC for an aggregate amount of USD 1.1 million. The 2020 Commitment Purchase Agreement effectively replaced the 2018
Commitment Purchase Agreement. Under the 2018 Commitment Purchase Agreement LPC agreed to purchase common shares for up to $10,000,000
over the 30-month term of the Purchase Agreement. Prior to its termination we had issued 587,500 common shares for aggregate proceeds
of $1.8 million to LPC under the 2018 Commitment Purchase Agreement. The 2018 Commitment 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.
Under
the 2020 Commitment Purchase Agreement, we have the right, from time to time at our sole discretion over the 30-month period from
and after May 12, 2020, to require LPC to subscribe for up to 150,000 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 300,000 of our common shares if the total number of outstanding common shares on the purchase date exceeds 10,000,000, (ii)
the Regular Purchase Share Limit shall be increased to 350,000 of our common shares if the closing sale price of our common shares
is not below $1.00 on the purchase date and the total number of outstanding common shares on the purchase date exceeds 12,500,000
and (iii) the Regular Purchase Share Limit shall be increased to 400,000 of our common shares if the closing sale price of our
common shares is not below $1.00 on the purchase date and the total number of outstanding common shares on the purchase date exceeds
15,000,000. 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 $150,000 in any single Regular Purchase (which dollar threshold shall not be
adjusted for any reorganization, recapitalization, non-cash dividend, stock split or other similar transaction), 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 2020 Commitment 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)
$150,000. We may not require LPC to purchase in any single Regular Purchase common shares having an aggregate purchase price greater
than $1,000,000 (which dollar threshold shall not be adjusted for any reorganization, recapitalization, non-cash dividend, stock
split or other similar transaction). 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 the sum of (x) the U.S. Dollar equivalent of the then applicable par value per common
share and (y) $0.01 (which dollar amount shall not be 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.
In
addition to Regular Purchases described above, we may also direct LPC to purchase “accelerated amounts” and/or “additional
accelerated amounts” on any business day on which we have properly submitted a Regular Purchase Notice, and/or an Accelerated
Purchase (as defined elsewhere in this prospectus) has been completed and all of the shares to be purchased thereunder have been
properly delivered to LPC in accordance with the 2020 Commitment Purchase Agreement prior to such time on such business day, and
provided that the closing price of our common shares on such business day is not less than $1.00 per share. In all instances,
we may not issue common shares to LPC under the 2020 Commitment Purchase Agreement if it would result in LPC beneficially owning
more than 4.99% of our outstanding common shares. The net proceeds under the 2020 Commitment Purchase Agreement will depend on
the frequency and prices at which we issue our common shares to LPC.
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. In December 2020, 1,263,845 warrants were exercised at a total exercise price of CHF 5.5
million; at December 31, 2020 a total of 897,435 warrants were still outstanding. Subsequently, in March 2021, the remaining warrants
were exercised for CHF 3.9 million.
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. In 2020, we sold
1,628,827 shares under the ATM for aggregate proceeds of $1.9 million. As of the date of this Annual Report, we have sold 1,758,618
of our common shares for an aggregate offering price of $3.2 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, 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 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. 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 June 30, 2020, the
outstanding Series B warrants from the July 17, 2018 offering expired without further warrants being exercised.
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 proceed 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 warrants, each warrant entitling
its holder to purchase 0.6 common shares. 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, 2020, 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, 2020, 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 2021 to be in the range of CHF 11.5 to 13.0 million
for our expected total operating expenses of CHF 4.5 to 5.5 million and our expected capitalized research and development costs
of CHF 7 to 7.5 million. Further cash needs may arise in 2021 related to the manufacture of AM-301 as well as marketing and sales
activities as we intend to commercialize the product in selected markets; these cash needs may initially not be covered by cash
flows from product revenues.
As
of the date of this Annual Report we have warrants outstanding, which are exercisable for an aggregate of 246,102 common shares
at a weighted average exercise price of $60.03 per share, an equity commitment to sell up to $8.9 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 $21.8 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 AM-125, AM-201, AM-301, Keyzilen®,
and Sonsuvi®, obtain regulatory approval for them and to commercialize our product candidates AM-125, AM-201, AM-301,
Keyzilen ®, Sonsuvi® or any other product candidate. If we receive regulatory approval for AM-125,
AM-201, AM-301, Keyzilen ®, or Sonsuvi®, 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 AM-201, AM-301, Keyzilen®, and Sonsuvi® clinical development expenditures are not
capitalized until the Company obtains regulatory approval or clearance (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,
Australia 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
Stock
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 from 2016 onwards 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 stock options
The
fair value of our stock 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.
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.”
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, 2020:
|
|
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)
|
|
|
26
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
26
|
|
Loan (2)
|
|
|
50
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
50
|
|
Total
|
|
|
76
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
76
|
|
(1)
|
Lease
obligations consist of payments pursuant to short-term lease agreement until the date of termination of the contract as of June
30, 2021.
|
(2)
|
In
March 2020 the Company obtained an interest-free “COVID-19” loan from UBS Switzerland, guaranteed by the Swiss
government. The loan may be repaid at any time with a maximum term of 5 years. The company decided to repay the loan as of
June 30, 2021.
|
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.
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
|
|
53
|
|
2003
|
|
Elmar
Schaerli
|
|
Chief
Financial Officer
|
|
49
|
|
2019
|
|
|
|
|
|
|
|
|
|
Non-Executive
Directors
|
|
|
|
|
|
|
|
Armando
Anido
|
|
Director
|
|
63
|
|
2016
|
|
Mats
Blom
|
|
Director
|
|
56
|
|
2017
|
|
Alain
Munoz
|
|
Director
|
|
70
|
|
2018
|
|
Calvin
W. Roberts
|
|
Director
|
|
68
|
|
2015
|
|
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 is currently the Chairman of the Board of Directors of
PharmaTrail Ltd. He holds a Ph.D. (Dr.rer.pol.) in business administration from the University of Fribourg, 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. He is currently a member of the Board of Directors of Hansa Biopharma AB (HNSA) and Pephexia Therapeutics ApS. 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 serves on the Board of Zealand
Pharma A/S (ZEAL.CO) Amryt Pharma Plc (AMYT.L ) and OxThera AB. He is a member of the scientific advisory board of Valneva (VLA.PA).
Calvin
W. Roberts, Director: Mr. Roberts, MD, has been a member of our Board of Directors since April 2015. Mr. Roberts is President
and CEO of Lighthouse Guild International, a not for profit provider of services to the blind and visually impaired. Previously,
he was Senior Vice President and Chief Medical Officer, Eye Care at Bausch Health Companies Inc. (NYSE: BHC). 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 was a member
of the Board of Directors and the Audit Committee of Alimera Sciences, Inc. (NASDAQ: ALIM) from its founding in 2003 until 2019,
and of Iveric Bio Corporation (NASDAQ: ISEE) since 2019.
For the year ended
December 31, 2020, 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 947,701 (2019: CHF 1,214,846).
For the year ended
December 31, 2020, 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 CHF 26,870 (2019: CHF 42,560).
Compensation
awarded to the Board of Directors in 2020
The
total compensation of the members of the board of directors in 2020 is outlined below:
In CHF
|
|
Cash
Compensation
|
|
|
Social
Contributions
|
|
|
Stock
Options(2)
|
|
|
Total
|
|
Thomas Meyer, PhD, Chairman(1)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Armando Anido, MBA
|
|
|
40,869
|
|
|
|
—
|
|
|
|
14,287
|
|
|
|
55,156
|
|
Mats Blom, MBA
|
|
|
40,869
|
|
|
|
—
|
|
|
|
14.287
|
|
|
|
55,156
|
|
Alain Munoz, MD
|
|
|
40,869
|
|
|
|
—
|
|
|
|
14,287
|
|
|
|
55,156
|
|
Calvin W. Roberts, MD
|
|
|
40,869
|
|
|
|
—
|
|
|
|
14,287
|
|
|
|
55,156
|
|
Total
|
|
|
163,476
|
|
|
|
—
|
|
|
|
57,148
|
|
|
|
220,624
|
|
(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
2020, 43,605 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 2020
The
total compensation and the highest individual compensation to our executive officers in 2020 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
|
|
|
|
46,230
|
|
|
|
69,470
|
|
|
|
177,048
|
|
|
|
656,347
|
|
Executive Officers Total(4)
|
|
|
401,681
|
|
|
|
46,230
|
|
|
|
74,326
|
|
|
|
204,840
|
|
|
|
727,077
|
|
(1)
|
The
variable compensation is paid in shares of the company.
|
(2)
|
2020
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, 2020, we had two executive officers.
|
Employment
Agreements
We
have entered into employment and/or consulting agreements with our executive officers Thomas Meyer and Elmar Schaerli. The employment
and/or consulting agreements provide for the compensation that Messrs. Meyer and Schaerli are entitled to receive, including certain
equity grants, and the employment agreement of Mr. Meyer contains a termination notice period of 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. Since January 15, 2021, the maximum number of shares available
for issuance under the EIP is 1,500,000 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.
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, 2020, we had 9 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 15, 2021 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 15, 2021 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 15, 2021 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.
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 12,869,587 common shares issued and outstanding as of March 15, 2021.
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
|
|
|
|
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
Executive
Officers and Directors
|
|
|
|
|
|
|
|
|
Thomas
Meyer, Ph.D. (1)
|
|
|
755,442
|
|
|
|
5.87
|
%
|
Armando
Anido, M.B.A (2)
|
|
|
15,713
|
|
|
|
*
|
|
Mats
Blom, M.B.A. (3)
|
|
|
15,697
|
|
|
|
*
|
|
Alain
Munoz, M.D. (4)
|
|
|
15,530
|
|
|
|
*
|
|
Calvin
W. Roberts, M.D. (5)
|
|
|
15,725
|
|
|
|
*
|
|
Elmar
Schaerli, CPA
|
|
|
—
|
|
|
|
*
|
|
All
current directors and executive officers as a group (7 persons)
|
|
|
818,107
|
|
|
|
6.36
|
%
|
*
|
Indicates
beneficial ownership of less than 1% of the total outstanding common shares.
|
(1)
|
Consists
of 638,179 common shares, warrants to purchase 91,494 common shares and options to purchase 25,769 common shares under the
EIP.
|
(2)
|
Consists
of options to purchase common shares under the Company’s EIP.
|
(3)
|
Consists
of options to purchase common shares under the Company’s EIP.
|
(4)
|
Consists
of 62 common shares owned by Alain Munoz and options to purchase common shares under the Company’s EIP.
|
(5)
|
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.
|
Holders
As of March 15, 2021, we had four shareholders of record of our common
shares.
Significant
Changes in Ownership by Major Shareholders
None
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 were CHF 173,030
in 2020 compared to CHF 11,770 in 2019 (for two months). Fees paid to Ante Treuhand for other services provided during the year
ended December 31, 2020 were CHF 3,025 compared to CHF 28,611 in 2019.
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
|
Not
applicable.
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, 2020,
our authorized share capital consisted of 25,000,000 common shares, par value CHF 0.01 per share, and 20,000,000 preference shares, par
value CHF 0.02 per share, and there were 11,417,159 common shares issued and outstanding, excluding 1,038,537 common shares issuable upon
exercise of options and 1,143,537 common shares issuable upon exercise of warrants, and no preference shares issued and outstanding. All
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
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BERMUDA
CORPORATE LAW
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Mergers
and similar arrangements
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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.
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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
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(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.
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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 company
carries the right to vote in respect of an amalgamation or merger whether or not is otherwise carries the right to vote.
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DELAWARE
CORPORATE LAW
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BERMUDA
CORPORATE LAW
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Shareholders’
suits
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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.
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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.
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Shareholder
vote on board and management compensation
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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.
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The Bye-laws contains
a provision that the board of directors has the power to determine the remuneration, if any, of the directors.
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Annual
vote on board renewal
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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.
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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.
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Classified boards
are permitted.
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Provision for staggered
boards of directors may be included in a company’s bye-laws.
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DELAWARE
CORPORATE LAW
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BERMUDA
CORPORATE LAW
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Indemnification
of directors and executive management and limitation of liability
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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.
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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.
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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.
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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.
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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.
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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.
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DELAWARE
CORPORATE LAW
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BERMUDA
CORPORATE LAW
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Directors’
fiduciary duties
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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.
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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.
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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.
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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.
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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.
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Shareholder
action by written consent
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A Delaware
corporation may, in its certificate of incorporation, eliminate the right of shareholders to act by written consent.
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The
Companies Act provides that shareholders may take action by written consent, except 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.
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DELAWARE
CORPORATE LAW
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BERMUDA
CORPORATE LAW
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Shareholder
proposals
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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.
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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.
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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.
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Cumulative
voting
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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.
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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.
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Removal
of directors
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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.
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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.
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Transactions
with interested shareholders
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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.
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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.”
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Dissolution;
Winding up
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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.
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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.
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DELAWARE
CORPORATE LAW
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BERMUDA
CORPORATE LAW
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Variation
of rights of shares
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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.
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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.
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Amendment
of governing documents
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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.
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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.
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Inspection
of Books and Records
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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.
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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.
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DELAWARE
CORPORATE LAW
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BERMUDA
CORPORATE LAW
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Payment
of dividends
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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.
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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.
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Creation
and issuance of new shares
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All creation of
shares requires 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.
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The authorized share
capital of a Bermuda company is determined by the company’s shareholders.
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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.
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
With
the deletion of Auris Medical Holding AG from the Swiss Commercial Register as of December 9, 2020, our taxability in Switzerland
has ceased.
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:
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certain financial
institutions;
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dealers or traders
in securities who use a mark-to-market method of tax accounting;
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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;
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persons whose functional
currency for U.S. federal income tax purposes is not the U.S. dollar;
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entities classified
as partnerships for U.S. federal income tax purposes;
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tax-exempt entities,
including an “individual retirement account” or “Roth IRA”;
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persons that own
or are deemed to own ten percent or more of our stock by vote or value;
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persons who acquired
our common shares pursuant to the exercise of an employee stock option or otherwise as compensation; or
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persons holding
shares in connection with a trade or business conducted outside of the United States.
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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:
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an individual who
is a citizen or resident of the United States;
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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
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an estate the income
of which is subject to U.S. federal income taxation regardless of its source.
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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.
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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 2020 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 Lower-tier 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.
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Dividends and
paying agents
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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.
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Subsidiary information
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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, 2020, a 5% increase or decrease in the USD/CHF exchange rate with all other variables held constant would
have resulted in a CHF 455,241 (2019: CHF 19,664) 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 13,648 (2019: CHF 28,841) increase or
decrease in the net annual result.
We
have subsidiaries in the United States, Ireland and Australia, 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.
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American Depositary
Shares
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Not
applicable.
The Company is primarily
involved in the development of therapeutics that address important unmet medical needs in neurotology, rhinology and allergy and
CNS disorders. The Company is focusing on the development of intranasal betahistine for the treatment of vertigo (AM-125, in Phase
2) and for the prevention of antipsychotic-induced weight gain and somnolence (AM-201, post Phase 1b). Through its affiliate Altamira
Medica, the Company is developing a nasal spray for protection against airborne viruses and allergens (AM-301). In addition, it
has two Phase 3 programs under development, subject to its 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.
The Company records the costs associated
with research, nonclinical and clinical trials, and manufacturing process development as incurred. These costs are a significant
component of the Company’s research and development expenses, with a substantial portion of the Company’s on-going
research and development activities being conducted by third party service providers, including contract research and manufacturing
organizations.
The Company accrues for expenses resulting
from obligations under agreements with contract research organizations (“CROs”), contract manufacturing organizations
(“CMOs”), and other outside service providers for which payment flows do not match the periods over which materials
or services are provided to the Company. Accrued expenses are recorded based on estimates of services received and efforts expended
pursuant to agreements established with CROs, CMOs, and other outside service providers. These estimates are typically based on
contracted amounts applied to the proportion of work performed and determined through analysis with internal personnel and external
service providers as to the progress or stage of completion of the services. The Company makes significant judgments and estimates
in determining the accrued expense balance in each reporting period. In the event advance payments are made to a CRO, CMO, or outside
service provider, the payments will be recorded as prepayments which will be expensed as the contracted services are performed.
Inputs, such as the services performed, the number of patients enrolled, or the trial duration, may vary from the Company’s
estimates. As actual costs become known, the Company adjusts its prepayments and accrued expenses.
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
therapeutics for the treatment and prevention of ear, nose, throat and related 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.
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 Group has been holding cash and cash equivalents in the Group’s
principal operating currencies (CHF, USD, EUR and AUD) with international banks of high credit rating.
As of December 31, 2020,
a 5% increase or decrease in the USD/CHF exchange rate with all other variables held constant would have resulted in a CHF 455,241 (2019:
CHF 19,664) 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 13,648 (2019: CHF 28,841) increase or decrease in the net result.
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 was CHF 0.01 per common share and for the warrants 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. All pre-funded warrants were exercised in 2019. In December 2020, 1,263,845 warrants were exercised, leaving 897,435 warrants outstanding
as of December 31, 2020. These remaining warrants were exercised in March 2021.
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. In 2020, we sold 1,628,827 shares under the ATM. As of the date of this Annual Report, we have sold 1,758,618 of our common
shares for an aggregate offering price of $3.2 million pursuant to the A.G.P. Sales Agreement. In 2019, we sold 98,954 shares for
an aggregate offering price of $978,415. The related transaction costs of CHF 71,161 were charged to equity.
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). 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 June 18, 2020, the Series B warrants expired without
further warrants being exercised. 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 transaction costs were recorded as CHF 742,833 in equity for the issuance of 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 warrants, each warrant entitling its holder to
purchase 0.6 common shares (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, 2020, 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. As of December 31, 2019 the outstanding warrants were exercisable for up to 37,501 common shares 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.
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 under the EIP. Plan C was terminated in 2019. The last outstanding options under Plan C were replaced by the September 2019 Conversion
Grant. In 2020, the Company granted 726,637 options under the EIP.
In 2020, CHF 2,248,257
of the revaluation loss from derivative financial instruments is related to the revaluation of the financial derivatives embedded
in the FiveT convertible loan (note 25), both at partial conversion and at year-end. CHF 1,965 of the revaluation loss is related
to the revaluation of outstanding warrants from public offerings (note 26). In 2019 and 2018 there was a revaluation gain from
derivative financial instruments of CHF 663,725 and CHF 1,350,071 respectively. In 2020, net foreign currency exchange gains contain
translation gains of CHF 71,525 (2019: CHF 7,744; 2018: CHF 264,029) which arose on the Company’s USD and EUR denominated
cash and cash equivalents. In 2020, finance expenses did not include any interest paid (2019: CHF 3,745; 2018: CHF 435,993).
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 12.1% in 2020 (2019: 12.5%, 2018: 21.1%) as summarized in the following table:
The tax effect of
the major unrecognized temporary differences and loss carryforwards is presented in the table below:
For the years ended
December 31, 2020 and 2019 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) as they would be anti-dilutive. As of December 31,
2020, the Company has 1,038,537 options outstanding under its stock option plans. The average number of options outstanding between
January 1, 2020 and December 31, 2020 was 633,314 (812,167 for the period between January 1, 2019 and December 31, 2019).
As of December 31, 2020, the Company had warrants to purchase up to 1,143,537 of its common shares issued and outstanding
(as of December 31, 2019, the Company had warrants to purchase up to 2,488,520 common shares).
Office lease expenses
of CHF 50,260, CHF 49,314 and CHF 118,337 were recorded in 2020, 2019 and 2018, respectively, in the consolidated statement of
profit or loss and other comprehensive loss.
In 2020, CHF 261,988
(2019: CHF 159,235; 2018: CHF 264,881) was expensed for grants of stock options to members of the Board of Directors and management.
The 2020 share based payment charge shown above excludes adjustments for instruments forfeited in 2020 due to termination of service.
Contributions to pension schemes amounted to CHF 26,870, CHF 42,560 and CHF 55,278 during the years 2020, 2019 and 2018, respectively.
No termination benefits or other long-term benefits were paid.
Members of the Board
of Directors and management held 769,101, 271,999 and 703,235 stock options as of December 31, 2020, 2019, and 2018, respectively.
On September 7, 2020, our affiliate Altamira Medica AG (“Altamira”)
and Auris Medical Holding Ltd. (“the Company”) entered into a convertible loan agreement with Five T Capital Holding AG (“FiveT”)
to raise CHF 1,500,000 to fund the initial development of AM-301. The loan has a term of 18 months and carries interest at 8% p.a., which
shall not be paid in cash but added to the loan outstanding amount. At maturity, the unconverted outstanding amount of the loan including
accrued interest shall become payable in cash. Altamira may choose to repay the total outstanding amount including the accrued interest
at 130%, first time after 6 months with a prior written notice of 1 month. Prior to the expiry of the repayment notice period, the lender
may convert the repayment amount.
Under the convertible loan agreement FiveT has the right to convert
the outstanding principal amount including interest into the Company’s common shares or alternatively into Altamira shares. The
pricing of a conversion into our common shares is at the lower of 150% of the share price at close of the disbursement date ($1.35 fixed
on September 8, 2020) and 95% of the average price of our common share at close of the 5 trading dates preceding the date of the conversion
notice. However, the conversion price shall not be less than the higher of the par value and the backward-looking 3-month floor price
of 75% of the average closing price of our common shares. The pricing of a conversion into Altamira shares is at the lower of CHF 3.00
and the issue price of a qualified financing round, meaning that a third-party investor will hold at least 10% of Altamira shares after
completion of such financing round. The convertible loan agreement further contains a limitation on the conversion rights in the sense
that they may not result in an ownership interest of more than 9.99% in the Company or 49.99% in Altamira. By December 31, 2020, an amount
of CHF 895,455 has been converted into 737,000 common shares of the Company (at a conversion price of $1.35).
The carrying amount of the host contract at initial recognition is
the difference between the carrying amount of the hybrid contract and the fair value of the embedded derivatives. The host is then subsequently
measured at amortized cost, using the effective interest rate method. As of December 31, 2020, the carrying amount (including accrued
interest) of the host for the unconverted outstanding loan amounted to CHF 473,920 and is included in the balance sheet under current
liabilities. The fair value of the embedded derivatives of the outstanding loan units amounted to CHF 310,439 and is included in current
derivative financial instruments. Expenses related to fair value measurement of embedded derivatives of CHF 2,248,257 as well as effective
interest and transaction costs of CHF 127,418 were recorded as financial expenses in profit or loss.
On July 17, 2018,
the Company issued 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 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, 143,221 Series B exercised warrants were subject to revaluation at the time that they were exercised and the fair value amounted
to 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). On June 18, 2020, the Series B
warrants expired without further warrants being exercised.
Due to the expiry
on June 18, 2020, no Series B warrants were outstanding and subject to revaluation on December 31, 2020. 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. Accordingly,
there was no revaluation gain or loss on these warrants for the year ended December 31, 2020 (2019: revaluation gain of CHF 215,572).