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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
o REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 2017
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
OR
o
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
Date of event requiring this shell company report
Commission file number: 000-55917
AURIS MEDICAL HOLDING AG
(Exact name of Registrant as specified in its charter)
Switzerland
(Jurisdiction of incorporation)
Bahnhofstrasse 21
6300 Zug
Switzerland
(Address of principal executive offices)
Thomas Meyer
Tel: +41 (0)41 729 71 94
Bahnhofstrasse 21
6300 Zug
Switzerland
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Copies to:
Sophia Hudson
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, NY 10017
Phone: (212) 450 4000
Fax: (212) 701 5800
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class
Common Shares, nominal value CHF 0.02 per share
Name of each exchange on which registered
The Nasdaq Stock Market LLC
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital stock or common stock as of the close of the period covered by the annual report.
Common shares: 48,373,890*
* 4,837,389 shares if adjusted to reflect the 10:1 “reverse stock split” effected through a statutory merger in connection with our corporate reorganization on March 13, 2018.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
o Yes x No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
o Yes x No
x Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
o Yes x No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated
filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o
Accelerated filer o
Non-accelerated filer x
Emerging Growth Company x
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. o
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after
April 5, 2012.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP o
International Financial Reporting Standards as issued by
the International Accounting Standards Board x
Other o
If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to follow.
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes x No
o Item 17 o Item 18
Table of Contents
AURIS MEDICAL HOLDING AG
TABLE OF CONTENTS
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FORWARD-LOOKING STATEMENTS
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
A. Directors and senior management
B. Advisers
C. Auditors
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
A. Offer statistics
B. Method and expected timetable
ITEM 3. KEY INFORMATION
A. Selected Financial Data
B. Capitalization and indebtedness
C. Reasons for the offer and use of proceeds
D. Risk factors
ITEM 4. INFORMATION ON THE COMPANY
A. History and development of the Company
B. Business overview
C. Organizational structure
D. Property, plants and equipment
ITEM 4A. UNRESOLVED STAFF COMMENTS
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
A. Operating results
B. Liquidity and capital resources
C. Research and development, patents and licenses, etc.
D. Trend information
E. Off-balance sheet arrangements
F. Tabular disclosure of contractual obligations
G. Safe harbor
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and senior management
B. Compensation
C. Board practices
D. Employees
E. Share ownership
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major shareholders
B. Related party transactions
C. Interests of experts and counsel
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ITEM 8. FINANCIAL INFORMATION
A. Consolidated statements and other financial information
B. Significant changes
ITEM 9. THE OFFER AND LISTING
A. Offering and listing details
B. Plan of distribution
C. Markets
D. Selling shareholders
E. Dilution
F. Expenses of the issue
ITEM 10. ADDITIONAL INFORMATION
A. Share capital
B. Memorandum and articles of association
C. Material contracts
D. Exchange controls
E. Taxation
F. Dividends and paying agents
G. Statement by experts
H. Documents on display
I. Subsidiary information
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A. Debt securities
B. Warrants and rights
C. Other securities
D. American Depositary Shares
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
A. Defaults
B. Arrears and delinquencies
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
E. Use of Proceeds
ITEM 15. CONTROLS AND PROCEDURES
A. Disclosure Controls and Procedures
B. Management’s Annual Report on Internal Control over Financial Reporting
C. Attestation Report of the Registered Public Accounting Firm
D. Changes in Internal Control over Financial Reporting
ITEM 16. [RESERVED]
ITEM 16A. Audit committee financial expert
ITEM 16B. Code of ethics
ITEM 16C. Principal Accountant Fees and Services
ITEM 16D. Exemptions from the listing standards for audit committees
ITEM 16E. Purchases of equity securities by the issuer and affiliated purchasers
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99
108
108
108
114
114
114
115
115
115
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ITEM 16F. Change in registrant’s certifying accountant
ITEM 16G. Corporate governance
ITEM 16H. Mine safety disclosure
PART III
ITEM 17. Financial statements
ITEM 18. Financial statements
ITEM 19. Exhibits
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121
Unless otherwise indicated or the context otherwise requires, all references in this annual report on Form 20-F (the “Annual Report”) to “Auris Medical Holding AG” or
“Auris,” the “Company,” “we,” “our,” “ours,” “us” or similar terms refer to Auris Medical Holding AG (formerly Auris Medical AG), together with its subsidiaries, prior to our
corporate reorganization by way of the Merger (as defined below) on March 13, 2018 (i.e. to the transferring entity), and to Auris Medical Holding AG (formerly Auris Medical
NewCo Holding AG), together with its subsidiaries after the Merger (i.e. to the surviving entity). The trademarks, trade names and service marks appearing in this Annual Report
are property of their respective owners.
Unless indicated or the context otherwise requires, all references in this Annual Report to our common shares as of any date prior to March 13, 2018 refer to our common
shares (having a nominal value of CHF 0.40 each) prior to the 10:1 “reverse stock split” effected through the Merger and all references to our common shares as of, and after,
March 13, 2018 refer to our common shares (having a nominal value of CHF 0.02 each) after the 10:1 “reverse stock split” effected through the Merger.
The terms “dollar,” “USD” or “$” refer to U.S. dollars and the term “Swiss Franc” and “CHF” refer to the legal currency of Switzerland.
–––––––––––––
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FORWARD-LOOKING STATEMENTS
This Annual Report contains statements that constitute forward-looking statements. Many of the forward-looking statements contained in this Annual Report can be identified
by the use of forward-looking words such as “anticipate,” “believe,” “could,” “expect,” “should,” “plan,” “intend,” “will,” “estimate” and “potential,” among others, or the
negatives thereof.
Forward-looking statements appear in a number of places in this Annual Report and include, but are not limited to, statements regarding our intent, belief or current
expectations. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. Such statements are
subject to risks and uncertainties, and actual results may differ materially from those expressed or implied in the forward-looking statements due to various factors, including, but
not limited to, those identified under the section “Item 3. Key Information—D. Risk factors” in this Annual Report. These risks and uncertainties include factors relating to:
•
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•
•
•
•
•
•
•
•
•
•
•
•
our operation as a development-stage company with limited operating history and a history of operating losses;
our need for substantial additional funding to continue the development of our product candidates before we can expect to become profitable from sales of our products;
the outcome of our review of strategic options and of any action that we may pursue as a result of such review;
our dependence on the success of Keyzilen® (AM-101), AM-111 and AM-125, which are still in clinical development and may eventually prove to be unsuccessful, or
that the post-hoc analysis in the subpopulation of profound acute hearing loss patients in the HEALOS trial may not be considered acceptable for regulatory filing
purposes by relevant health authorities, which may impair our ability to raise additional funding to continue the development of our product candidates;
the chance that we may become exposed to costly and damaging liability claims resulting from the testing of our product candidates in the clinic or in the commercial
stage;
the chance our clinical trials may not be completed on schedule, or at all, as a result of factors such as delayed enrollment or the identification of adverse effects;
uncertainty surrounding whether any of our product candidates will receive regulatory approval, which is necessary before they can be commercialized;
if our product candidates obtain regulatory approval, our being subject to expensive, ongoing obligations and continued regulatory overview;
enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval and commercialization;
the chance that we do not obtain orphan drug exclusivity for AM-111, which would allow our competitors to sell products that treat the same conditions;
dependence on governmental authorities and health insurers establishing adequate reimbursement levels and pricing policies;
our products may not gain market acceptance, in which case we may not be able to generate product revenues;
our reliance on our current strategic relationships with INSERM or Xigen and the potential success or failure of strategic relationships, joint ventures or mergers and
acquisitions transactions;
our reliance on third parties to conduct our nonclinical and clinical trials and on third-party, single-source suppliers to supply or produce our product candidates;
our ability to obtain, maintain and protect our intellectual property rights and operate our business without infringing or otherwise violating the intellectual property
rights of others;
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•
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•
our ability to comply with the requirements under our term loan facility with Hercules, including repayment of amounts outstanding when due;
our ability to meet the continuing listing requirements of Nasdaq and remain listed on the Nasdaq Capital Market;
the chance that certain intangible assets related to our product candidates will be impaired; and
other risk factors discussed under “Item 3. Key Information—D. Risk factors”.
Our actual results or performance could differ materially from those expressed in, or implied by, any forward-looking statements relating to those matters. Accordingly, no
assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what impact they will have on our
results of operations, cash flows or financial condition. Except as required by law, we are under no obligation, and expressly disclaim any obligation, to update, alter or otherwise
revise any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future events or otherwise.
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ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
A. Directors and senior management
PART I
Not applicable.
B. Advisers
Not applicable.
C. Auditors
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
A. Offer statistics
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,
2017 and 2016 and for each of the years in the three-year period ended December 31, 2017 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, 2014 and 2013 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.
1
(13,254)
(1,362)
(14,616)
74
(53)
(104)
—
(14,699)
—
—
(14,699)
(58)
32
(26)
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2017
2016
2015
2014
2013
For the years ended December 31,
(in thousands of CHF except for share and per share data)
Profit or Loss and Other Comprehensive Loss:
Research and development
General and administrative
Operating loss
Interest income
Interest expense
Foreign currency exchange gain/(loss), net
Revaluation gain from derivative financial
instruments
Transaction costs
Loss before tax
Income tax gain
Income tax expense
(19,211)
(5,150)
(24,361)
54
(1,640)
(825)
3,372
(1,027)
(24,427)
18
—
(24,777)
(5,447)
(30,224)
68
(829)
(100)
291
(26,536)
(4,342)
(30,878)
37
(8)
1,144
(17,705)
(4,489)
(22,194)
52
(56)
4,012
—
—
(30,794)
(29,705)
131
—
—
—
(18,186)
—
(306)
(18,492)
Net loss attributable to owners of the Company
(24,409)
(30,663)
(29,705)
Other comprehensive loss:
Items that will never be reclassified to profit or
loss:
Remeasurements of defined benefits liability
272
(394)
(54)
(1,101)
Items that are or may be reclassified to profit or
loss:
Foreign currency translation differences
Other comprehensive income/(loss)
Total comprehensive loss attributable to owners of
the Company
Net loss per share(1)
50
322
(20)
(414)
(13)
(67)
(105)
(1,206)
(24,087)
(31,077)
(29,772)
(19,698)
(14,725)
Net loss per share, basic and diluted(2)
(0.56)
(0.89)
(0.92)
(0.66)
(1.01)
Weighted-average number of shares used to compute
net loss per common share, basic and diluted
43,741,870
34,329,280
32,299,166
27,692,494
14,917,064
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(1)For periods prior to the closing of our initial public offering, net loss per share includes preferred shares, which were converted on a one-for-one basis upon the closing of our
initial public offering.
(2)Basic net loss per common share and diluted net loss per common share are the same. See Note 21 to our audited consolidated financial statements included elsewhere in this
Annual Report.
2017
2016
2015
2014
2013
As of December 31,
Statement of Financial Position Data:
Cash and cash equivalents
Total assets
Total liabilities
Share capital
Total shareholders’ (deficit)/equity attributable to
owners of the Company
14,973
17,826
19,888
19,350
(2,162)
32,442
35,658
21,515
13,732
14,143
2
(in thousands of CHF)
50,237
52,812
8,070
13,722
44,741
56,934
59,493
6,210
11,604
53,283
23,866
26,252
17,219
6,487
9,034
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Exchange Rate Information
The following table sets forth, for the periods indicated, the high, low, average and period-end exchange rates for the purchase of U.S. dollars expressed in CHF per U.S.
Dollar. The rates were derived from the U.S. Federal Reserve Bank’s reported exchange rates. On March 16, 2018, the exchange rate as reported by the U.S. Federal Reserve
Bank was CHF 0.9532 to $1.00.
Period-end
Average for
period
Low
High
(CHF per U.S. dollar)
0.8904
0.9934
1.0017
1.0160
0.9738
0.9688
0.9968
0.9838
0.9738
0.9738
0.9430
0.9532
0.9269
0.9147
0.9628
0.9848
0.9842
0.9625
0.9821
0.9915
0.9870
0.9604
0.9355
0.9455
0.8856
0.8712
0.8488
0.9536
0.9456
0.9456
0.9732
0.9788
0.9738
0.9321
0.9232
0.9378
0.9814
0.9934
1.0305
1.0334
1.0266
0.9745
0.9990
1.0014
0.9928
0.9832
0.9438
0.9532
Year Ended December 31:
2013
2014
2015
2016
2017
Month Ended:
September 30, 2017
October 31, 2017
November 30, 2017
December 31, 2017
January 31, 2018
February 28, 2018
March, 2018 (through March 16, 2018)
B. Capitalization and indebtedness
Not applicable.
C. Reasons for the offer and use of proceeds
Not applicable.
D. Risk factors
You should carefully consider the risks and uncertainties described below and the other information in this Annual Report. Our business, financial condition or results of
operations could be materially and adversely affected if any of these risks occurs, and as a result, the market price of our common shares could decline. This Annual Report also
contains forward-looking statements that involve risks and uncertainties. See “Forward-Looking Statements.” Our actual results could differ materially and adversely from those
anticipated in these forward-looking statements as a result of certain factors.
Risks Related to Our Business and Industry
We are in the process of evaluating our clinical trial data following the failure of the Phase 3 trial for our lead product candidate, Keyzilen®. In addition, we are preparing
discussions with key health authorities on the regulatory pathway for our second lead product candidate AM-111, which did not meet the primary efficacy endpoint in a
Phase 3 trial, but showed in post-hoc analyses clinically meaningful and nominally significant treatment effects in a subpopulation. We cannot give any assurance that these
candidates will continue to be developed, receive regulatory approval or be successfully commercialized, and we are assessing strategic options focused on enhancing
shareholder value.
We do not have any products that have gained regulatory approval. We have two lead clinical-stage product candidates, (i) Keyzilen® (AM-101), which is being developed for
the treatment of acute inner ear tinnitus and (ii) AM-111, which is being developed for the treatment of acute inner ear hearing loss. On March 13, 2018, we announced that
preliminary top-line data from the TACTT3 Phase 3 clinical trial with Keyzilen® indicated that the study did not meet its primary efficacy endpoint of a statistically significant
improvement in the Tinnitus Functional Index score from baseline to Day 84 in the active treated group compared to placebo either in the overall population or in the otitis media
subpopulation. This followed our announcement in
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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. In addition, on November 28, 2017, we announced that the HEALOS Phase 3 clinical trial that investigated our other
lead product candidate, AM-111, in the treatment of acute inner ear hearing loss did not meet the primary efficacy endpoint of a statistically significant improvement in hearing
from baseline to Day 28 compared to placebo for either active treatment groups in the overall study population. However, 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.
As a result, we are in the process of evaluating strategic options for the Company focused on enhancing shareholder value. The review will include a thorough evaluation of
the Company's current development plan, including a review of the relevant Keyzilen® clinical trial data, the regulatory pathway for developing AM-111 for the indication of
treating profound acute hearing loss and the Company’s future direction, including whether we will continue to seek the development, regulatory approval and commercialization
of either Keyzilen® or AM-111 in the future, or pursue an alternative course of action. There is no guarantee that we will be successful in any pursuit of strategic options or if we
do continue our efforts to develop and commercialize either Keyzilen® or AM-111 in the future, or that any alternative course of action will lead to the success of our business.
If we continue development of our product candidates, we would need to conduct additional studies and trials in the future, in order to pursue regulatory approval. We will
need to raise additional capital to fund any such additional study, and we may be unable to secure such capital. If we are not able to raise additional capital, we may not be able to
complete the development, testing and commercialization of our product candidates. In addition, we may be forced to refinance our existing indebtedness or ramp down our
business activity. If we are not able to raise additional capital when needed, there would be substantial doubt as to our ability to continue as a going concern. See “-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 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 24.4 million, CHF 30.7 million and CHF 29.7 million for the years ended December 31, 2017, 2016 and 2015,
respectively. As of December 31, 2017, we had an accumulated deficit of CHF 136.1 million.
Our losses have resulted principally from expenses incurred in research and development of our product candidates, pre-clinical research and general and administrative
expenses that we have incurred while building our business infrastructure. We expect to continue to incur significant operating losses in the future as we continue our research and
development efforts for our product candidates in clinical development. In our financial year ended December 31, 2017, we incurred CHF 19.2 million in research and
development costs, and we expect that our total operating expense in 2018 will be in the range of CHF 10.0 to CHF 12.0 million.
To date, we have financed our operations through the initial public offering and a follow-on offering of our common shares, private placements of equity securities and short-
and long-term loans. On July 19, 2016, we entered into a Loan and Security Agreement with Hercules Technology Growth Capital, Inc., or Hercules. The agreement provides us
with a senior secured term loan facility for up to $20 million. As of December 31, 2017, we have drawn $12.5 million under the facility of which we have repaid $2.2 million.
We have no products approved for commercialization and have never generated any revenues from product sales. Biopharmaceutical product development is a highly
speculative undertaking and involves a substantial degree of risk. It may be several years, if ever, before we have a product candidate approved for commercialization and begin to
generate revenues from product sales.
We have never generated any revenue from product sales and may never be profitable.
We have no products approved for commercialization and have never generated any revenue. Our ability to generate revenue and achieve profitability depends on our ability
to successfully complete the development of, and obtain the marketing approvals necessary to commercialize, one or more of our product candidates. We do not anticipate
generating revenue from product sales unless and until we obtain regulatory approval for, and commercialize, Keyzilen®, AM-111 or AM-125. Our ability to generate future
revenue from product sales depends heavily on our success in many areas, including but not limited to:
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completing research and clinical development of our product candidates;
obtaining marketing approvals for our product candidates, including Keyzilen®, AM-111 or AM-125, 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 U.S. Food and Drug
Administration, or the FDA, the European Medicines Agency, or the EMA, or other regulatory agencies, domestic or foreign, to change our manufacturing processes, or to
perform clinical, nonclinical, or other types of trials in addition to those that we currently anticipate. In cases where we are successful in obtaining regulatory approvals to market
one or more of our product candidates, our revenue will be dependent, in part, upon the size of the markets in the territories for which we gain regulatory approval, the accepted
price for the product, the ability to obtain coverage and reimbursement at any price, and whether we own the commercial rights for that territory. If the number of our addressable
patients is not as significant as we estimate, the indication approved by regulatory authorities is narrower than we expect, or the treatment population is narrowed by competition,
physician choice or treatment guidelines, we may not generate significant revenue from sales of such products, even if approved. Additionally, if we are not able to generate
sufficient revenue from the sale of any approved products, we may never become profitable.
We may be unable to develop and commercialize Keyzilen®, AM-111, AM-125 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 quarterly or annual basis. Our failure to become and remain profitable would decrease the
value of our 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 continue our
ongoing trials of AM-125, may initiate new trials of Keyzilen® and AM-111 and initiate pre-clinical and clinical development of other product candidates. We expect that our total
operating expense in 2018 will be in the range of CHF 10.0 to 12.0 million. As of December 31, 2017, our cash and cash equivalents were CHF 15.0 million. We believe that our
existing cash and cash equivalents (including the net proceeds from the equity offering completed in January 2018) will enable us to fund our operating expenses and capital
expenditure requirements at least until the fourth quarter of 2018. 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
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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. Should the Company’s assets fall short of its liabilities as evidenced by
the Company’s standalone Swiss GAAP accounts, the board of directors will have to immediately take steps to restructure the business or if it fails to do, file for bankruptcy. If the
board of directors fails to take appropriate action, under Swiss law, in case of such over-indebtedness, the auditors may, according to Swiss law, file for bankruptcy on the
Company’s behalf. Our future funding requirements will depend on many factors, including but not limited to:
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the scope, rate of progress, results and cost of our clinical trials, nonclinical testing, and other related activities;
the cost of manufacturing clinical supplies, and establishing commercial supplies, of our product candidates and any products that we may develop;
the number and characteristics of product candidates that we pursue;
the cost, timing, and outcomes of regulatory approvals;
the cost and timing of establishing sales, marketing, and distribution capabilities; and
the terms and timing of any collaborative, licensing, and other arrangements that we may establish, including any required milestone and royalty payments thereunder.
We expect that we will require additional funding to continue our ongoing clinical development activities and seek to obtain regulatory approval for, and commercialize, our
product candidates. If we receive regulatory approval for any of our product candidates, and if we choose 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, such as our term loan agreement with Hercules, 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 our 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.
Risks Related to the Development and Clinical Testing of Our Product Candidates
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We depend entirely on the success of Keyzilen®, AM-111 and AM-125, which are still in clinical development. If our clinical trials are unsuccessful, we do not obtain
regulatory approval or we are unable to commercialize Keyzilen®, AM-111 and AM-125, or we experience significant delays in doing so, our business, financial condition and
results of operations will be materially adversely affected.
We currently have no products approved for sale and have invested a significant portion of our efforts and financial resources in the development of Keyzilen®,AM-111 and
AM-125, which are still in clinical development. Our ability to generate product revenues, which we do not expect will occur for at least the next few years, if ever, will depend
heavily on successful clinical development, obtaining regulatory approval and eventual commercialization of these product candidates. We currently generate no revenues from
sales of any drugs, and we may never be able to develop or commercialize a marketable drug. The success of Keyzilen®, AM-111, AM-125 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;
receiving marketing approvals from competent regulatory authorities;
establishing commercial manufacturing capabilities;
launching commercial sales, marketing and distribution operations;
acceptance of our product candidates by patients, the medical community and third-party payors,
a continued acceptable safety profile following approval;
competing effectively with other therapies; and
qualifying for, maintaining, enforcing and defending our intellectual property rights and claims.
If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize Keyzilen®,
AM-111 or AM-125, which would materially adversely affect our business, financial condition and results of operations.
Clinical drug development involves a lengthy and expensive process with uncertain timelines and uncertain outcomes, and results of earlier studies and trials may not be
predictive of future trial results. If clinical trials of our product candidates are prolonged or delayed, we may be unable to obtain required regulatory approvals, and therefore
be unable to commercialize our product candidates on a timely basis or at all.
To obtain the requisite regulatory approvals to market and sell any of our product candidates, we must demonstrate through extensive pre-clinical studies and clinical trials
that our products are safe and effective in humans. Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at
any time during the clinical trial process. The results of pre-clinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage
clinical trials. For example, positive results generated to date in clinical trials for our product candidates do not ensure that later clinical trials will demonstrate similar results.
Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through pre-clinical studies and initial clinical
trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles,
notwithstanding promising results in earlier trials. Our future clinical trial results may not be successful.
Clinical trials must be conducted in accordance with FDA, EMA and comparable foreign regulatory authorities’ legal requirements, regulations or guidelines, and are subject
to oversight by these governmental agencies and Institutional Review Boards, or IRBs, at the medical institutions where the clinical trials are conducted. In addition, clinical trials
must be conducted with supplies of our product candidates produced under current good manufacturing practices, or cGMP, and other requirements. We depend on medical
institutions and clinical research organizations, or CROs, to conduct our clinical trials in compliance with current good clinical practice, or cGCP, standards. To the extent the
CROs fail to enroll participants for our clinical trials, fail to conduct the trials to cGCP standards or are delayed for a significant time in the execution of trials, including
achieving full enrollment, we may be affected by increased costs, program delays or both, which may harm our business.
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To date, we have not completed all clinical trials required for the approval of any of our product candidates. Keyzilen® and AM-111 are in Phase 3 clinical development and
AM-125 is in Phase 1 clinical development.
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;
delays or failure to reach agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and
may vary significantly among different CROs and trial sites;
delays in patient enrollment and variability in the number and types of patients available for clinical trials;
the inability to enroll a sufficient number of patients in trials to ensure adequate statistical power to detect statistically significant treatment effects;
negative or inconclusive results, which may require us to conduct additional pre-clinical or clinical trials or to abandon projects that we expect to be promising;
safety or tolerability concerns could cause us to suspend or terminate a trial if we find that the participants are being exposed to unacceptable health risks;
regulators or IRBs requiring that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory
requirements or safety concerns, among others;
lower than anticipated retention rates of patients and volunteers in clinical trials;
our CROs or clinical trial sites failing to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all, deviating from
the protocol or dropping out of a trial;
delays relating to adding new clinical trial sites;
difficulty in maintaining contact with patients after treatment, resulting in incomplete data;
errors in survey design, data collection and translation;
delays in establishing the appropriate dosage levels;
the quality or stability of the product candidate falling below acceptable standards;
the inability to produce or obtain sufficient quantities of the product candidate to complete clinical trials; and
exceeding budgeted costs due to difficulty in accurately predicting costs associated with clinical trials.
Any delays in completing our clinical trials will increase our costs, slow down our product candidate development and approval process and jeopardize our ability to
commence product sales and generate revenues. Any of these occurrences may harm our business, financial condition and prospects significantly. In addition, many of the factors
that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.
Positive or timely results from pre-clinical or early-stage trials do not ensure positive or timely results in late-stage clinical trials or product approval by the FDA, the EMA or
comparable foreign regulatory authorities. Product candidates that show positive pre-clinical or early clinical results may not show sufficient safety or efficacy in later stage
clinical trials and therefore may fail to obtain regulatory approvals. For example, although Keyzilen® achieved favorable results in our Phase 2 efficacy trial, in August 2016, we
announced that the Phase 3 TACTT2 clinical trial of Keyzilen® did not meet its two co-primary efficacy endpoints of statistically significant changes in tinnitus loudness and
tinnitus burden compared to placebo. Additionally, on March 13, 2018, we announced that preliminary top-line data from the TACTT3 trial indicated that the study did not meet
its primary efficacy endpoint of a statistically significant improvement in the Tinnitus Functional Score from
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baseline to Day 84 in the active treated group compared to placebo either in the overall population or in the otitis media subpopulation. We are currently investigating the
outcomes, including those in TACTT2, the previously conducted sister trial.
Also, pre-clinical and clinical data are often susceptible to varying interpretations and analyses. Many companies that believed their product candidates performed
satisfactorily in pre-clinical studies and clinical trials have nonetheless failed to obtain marketing approval for the product candidates. The FDA, the EMA and comparable foreign
regulatory authorities have substantial discretion in the approval process and in determining when or whether regulatory approval will be obtained for any of our product
candidates. Even if we believe the data collected from clinical trials of our product candidates are promising, such data may not be sufficient to support approval by the FDA, the
EMA or any other regulatory authority.
In some instances, there can be significant variability in safety and/or efficacy results between different trials of the same product candidate due to numerous factors,
including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, adherence to the dosing regimen and other trial protocols
and the rate of dropout among clinical trial participants. In the case of our late-stage clinical product candidates, results may differ in general on the basis of the larger number of
clinical trial sites and additional countries and languages involved in Phase 3 clinical trials.
In the case of Keyzilen®, our endpoints in Phase 3 clinical trials are based on patient reported outcomes, some of which are captured daily from trial participants with
electronic diaries. Based on insights from our analysis of the TACTT2 trial, we believe the high frequency of tinnitus loudness ratings over an extended period of time may have
caused a number of patients to excessively focus on their tinnitus symptoms, thereby influencing the measured outcome. In addition, low compliance with daily reporting
requirements may impact the trials’ validity or statistical power.
Under the SPA with the FDA, we agreed to use the Tinnitus Functional Index, or TFI, as a co-primary efficacy endpoint in the TACTT2 trial and a secondary efficacy
endpoint in the TACTT3 trial. 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. We used a different tinnitus questionnaire in the previous clinical trials with Keyzilen® (Tinnitus Handicap Inventory 12, THI-12, a 12-item short version
of the 25-item Tinnitus Handicap Inventory, or THI). Unlike the THI-12, the TFI was developed and validated broadly in accordance with the FDA’s guidance for patient-reported
outcome measures and with the explicit aim of measuring treatment-related changes in tinnitus. In addition, the TFI covers all important domains of negative tinnitus impact
including sleep difficulties, whereas the THI-12 does not include any sleep-related item. In spite of the methodological superiority of the TFI and a 2011 study by Meikle et al.
showing a high correlation between THI and TFI scores with higher responsiveness to change of the latter, there is no assurance that outcomes with the TFI will be qualitatively
and quantitatively similar or the same as those that would result with the THI-12. In the TACTT2 trial, treatment with Keyzilen® did not result in a clinically meaningful change in
TFI in the overall trial population. The preliminary top-line data from the TACTT3 trial also 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.
For calculating the statistical power of the extended TACTT3 trial, we made certain hypotheses regarding the size of the true treatment effect of Keyzilen® over placebo and
the related standard deviations. For the TFI, those were based on actual outcomes for the subpopulation of otitis media-related tinnitus in the TACTT2 trial, whereas the standard
deviation was taken at the 80% confidence level (meaning that the probability is 80% that the true standard deviation is not higher). The statistical power for detecting a true
treatment effect of at least 5 TFI points in the overall trial population or of at least 7 TFI points in the subpopulation with otitis media related tinnitus was calculated at about 90%.
On March 13, 2018, we announced that preliminary top-line data from the TACTT3 trial indicated that the study did not meet its primary efficacy endpoint of a statistically
significant improvement in the Tinnitus Functional Score from baseline to Day 84 in the active treated group compared to placebo either in the overall population or in the otitis
media subpopulation. We are currently investigating the outcomes, including those in TACTT2, the previously conducted sister trial.
In the case of AM-111, we are evaluating the safety and efficacy in an idiopathic condition which implies a considerable heterogeneity in the etiology and natural history of
the condition. In addition, we are dealing with a limited availability of detailed and reliable data relating to the natural history of acute hearing loss, which implies substantial
uncertainty with regards to the design of clinical trials, e.g. for determining the number of patients required for statistical testing or the size of the expected treatment effect. For
example, a Phase 2 clinical trial with AM-111 showed a strong relationship between the level or severity of initial hearing loss and the size of the treatment effect for active-
treated patients compared to placebo-treated patients. Whereas a high spontaneous recovery rate and no treatment effects were observed in patients with mild to moderate hearing
loss at baseline, lower spontaneous recovery and meaningful treatment effects were observed in patients with severe to
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profound hearing loss. Accordingly, enrollment into the Phase 3 trials HEALOS and ASSENT was restricted to patients with severe-profound hearing loss at baseline. On
November 28, 2017, we announced that the HEALOS Phase 3 clinical trial that investigated AM-111 in the treatment of acute inner ear hearing loss did not meet the primary
efficacy endpoint of a statistically significant improvement in hearing from baseline to Day 28 compared to placebo for either active treatment groups in the overall study
population. However, a post-hoc analysis of the subpopulation with profound acute hearing loss (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 AM-111 0.4 mg/mL treatment group. Accordingly, in HEALOS we found
confirmation about the relationship between severity of hearing loss and the size of therapeutic effects; however, such therapeutic effects were not observed in the subgroup of
patients with severe initial hearing loss but rather, unlike in the Phase 2 trial, only in the subgroup with profound initial hearing loss. We understand from animal studies that the
pharmacological target for AM-111 is only activated in case of severe acute cochlear injury; however, activation of this target cannot be determined in humans, and we have to
rely on the measurement of hearing loss for assessing the severity of injury.
We plan to obtain guidance from the FDA and EMA on the regulatory path forward in light of the results from HEALOS. We expect that we will need to conduct at least one
more trial in order to confirm the therapeutic effects of AM-111 in patients with acute profound hearing loss.
Orphan drug designation for AM-111 was granted by the FDA and EMA for the treatment of acute sensorineural hearing loss, or ASNHL, an umbrella term that comprises
hearing loss from acute acoustic trauma, or AAT, surgery-induced trauma or ISSNHL. We estimate ISSNHL to be the largest of the three subgroups. The broader, more general
designation of ASNHL is based on the common pathophysiologic pathway shared by the three subgroups. Although we expect to obtain regulatory approval for the entire
indication of ASNHL based on confirmatory efficacy and safety data that covers only one or two rather than all three of the subgroups, there can be no assurance that regulatory
agencies will concur with this assumption at the time of the marketing approval procedure. In that case, it may not be sufficient to conduct trials in the subgroup of ISSNHL, as is
currently planned to gain the indication for ASNHL.
Based on our analysis of the TACTT2 clinical trial results, we amended our TACTT3 Phase 3 clinical trial of Keyzilen® and enrolled additional patients, which caused our
product development costs to increase. If we are required to conduct additional clinical trials or other testing of Keyzilen®, AM-111, AM-125 or any other product candidate that
we develop beyond the trials and testing that we contemplate, if we are unable to successfully complete clinical trials of our product candidates or other testing, if the results of
these trials or tests are unfavorable or are only modestly favorable or if there are safety concerns associated with Keyzilen®, AM-111 or our other product candidates, we may:
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be delayed in obtaining marketing approval for our product candidates;
not obtain marketing approval at all;
obtain approval for indications or patient populations that are not as broad as intended or desired;
obtain approval with labeling that includes significant use or distribution restrictions or significant safety warnings, including boxed warnings;
be subject to additional post-marketing testing or other requirements; or
remove the product from the market after obtaining marketing approval.
Our product development costs will also increase if we experience delays in testing or marketing approvals or if we are required to conduct additional clinical trials or other
testing of Keyzilen®, AM-111 or AM-125 and we may be required to obtain additional funds to complete clinical trials. We cannot assure you that our clinical trials will begin as
planned or be completed on schedule, if at all, or that we will not need to restructure our trials after they have begun. Significant clinical trial delays also could shorten any
periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do or shorten any
periods during which we have the exclusive right to commercialize our product candidates, which may harm our business and results of operations. In addition, some of the
factors that cause, or lead to, clinical trial delays may ultimately lead to the denial of regulatory approval of Keyzilen®, AM-111, AM-125 or any other product candidate.
If serious adverse, undesirable or unacceptable side effects are identified during the development of our product candidates or following approval, if any, we may need to
abandon our development of such product candidates, the
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commercial profile of any approved label may be limited, or we may be subject to other significant negative consequences following marketing approval, if any.
If our product candidates are associated with serious adverse, undesirable or unacceptable side effects, we may need to abandon their development or limit development to
certain uses or sub-populations in which such side effects are less prevalent, less severe or more acceptable from a risk-benefit perspective. Many compounds that initially showed
promise in pre-clinical or early-stage testing have later been found to cause side effects that restricted their use and prevented further development of the compound for larger
indications.
In our clinical trials of Keyzilen® and AM-111 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 AM-111 trials); all (Keyzilen®) or most (AM-111) 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;
regulatory authorities may require additional warnings on the label;
we may be required to create a medication guide outlining the risks of such side effects for distribution to patients;
we could be sued and held liable for harm caused to patients; and
our reputation and physician or patient acceptance of our products may suffer.
Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and could significantly harm our
business, results of operations and prospects.
We depend on enrollment of patients in our clinical trials for our product candidates. If we are unable to enroll patients in our clinical trials, our research and development
efforts could be materially adversely affected.
Successful and timely completion of clinical trials will require that we enroll a sufficient number of patient candidates. Trials may be subject to delays as a result of patient
enrollment taking longer than anticipated or patient withdrawal. Patient enrollment depends on many factors, including the size and nature of the patient population, eligibility
criteria for the trial, the proximity of patients to clinical sites, the design of the clinical protocol, the availability of competing clinical trials, the availability of new drugs approved
for the indication the clinical trial is investigating, and clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to other available
therapies.
The specific target population of patients and therapeutic time windows may make it difficult for us to enroll enough patients to complete our clinical trials in a timely and
cost-effective manner. Delays in the completion of any clinical trial of our product candidates will increase our costs, slow down our product candidate development and approval
process and delay or potentially jeopardize our ability to commence product sales and generate revenue. In addition, many of the factors that cause, or lead to, a delay in the
commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.
We may become exposed to costly and damaging liability claims, either when testing our product candidates in the clinic or at the commercial stage; and our product
liability insurance may not cover all damages from such claims.
We are exposed to potential product liability and professional indemnity risks that are inherent in the research, development, manufacturing, marketing and use of
pharmaceutical products. Currently, we have no products that have been approved for commercial sale; however, the current and future use of product candidates by us in clinical
trials, and the sale of any approved products in the future, may expose us to liability claims. These claims might be made by patients that use the product, healthcare providers,
pharmaceutical companies or others selling such products. Any claims against us, regardless of
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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 AM-111 for the treatment of ASNHL from the FDA and the EMA, and we may rely on obtaining and maintaining orphan
drug exclusivity for AM-111, 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 AM-111, we may be subject to earlier competition and our potential revenue will be reduced.
AM-111 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 AM-111 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.
Orphan drug designation neither shortens the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review or approval process.
The orphan drug designation for AM-111 relates to ASNHL, an umbrella term comprising acute acoustic trauma, ISSNHL and surgery-induced trauma based on a common
pathophysiologic pathway. Our Phase 3 late-stage program enrolled patients suffering from ISSNHL, which represent the largest of the three ASNHL subgroups.
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Due to our limited resources and access to capital, we must and have in the past decided to prioritize development of certain product candidates; these decisions may prove
to have been wrong and may adversely affect our revenues.
Because we have limited resources and access to capital to fund our operations, we must decide which product candidates to pursue and the amount of resources to allocate to
each. As such, we have been primarily focused on the development of Keyzilen®, AM-111 and AM-125 for the treatment of acute inner ear tinnitus, acute inner ear hearing loss
and vertigo, respectively. Our decisions concerning the allocation of research, collaboration, management and financial resources toward particular compounds, product
candidates or therapeutic areas may not lead to the development of viable commercial products and may divert resources away from better opportunities. Similarly, our potential
decisions to delay, terminate or collaborate with third parties in respect of certain product development programs may also prove not to be optimal and could cause us to miss
valuable opportunities. If we make incorrect determinations regarding the market potential of our product candidates or misread trends in the biopharmaceutical industry, in
particular for inner ear disorders, our business, financial condition and results of operations could be materially adversely affected.
Our research and development activities could be affected or delayed as a result of possible restrictions on animal testing.
Certain laws and regulations require us to test our product candidates on animals before initiating clinical trials involving humans. Animal testing activities have been the
subject of controversy and adverse publicity. Animal rights groups and other organizations and individuals have attempted to stop animal testing activities by pressing for
legislation and regulation in these areas and by disrupting these activities through protests and other means. To the extent the activities of these groups are successful, our research
and development activities may be interrupted, delayed or become more expensive.
Risks Related to Regulatory Approval of Our Product Candidates
We cannot give any assurance that any of our product candidates will receive regulatory approval, which is necessary before they can be commercialized.
Our future success is dependent on our ability to successfully develop, obtain regulatory approval for, and then successfully commercialize one or more product candidates.
We currently have two lead clinical-stage product candidates, (i) Keyzilen® (AM-101), which is being developed for the treatment of acute inner ear tinnitus and (ii) AM-111,
being developed for the treatment of acute inner ear hearing loss. Additionally, we have one product candidate, AM-125, in Phase I clinical development. We are not permitted to
market or promote any of our product candidates before we receive regulatory approval from the FDA, EMA or comparable foreign regulatory authorities, and we may never
receive such regulatory approval for any of our product candidates.
Although certain of our employees have prior experience with submitting marketing applications to the FDA, EMA or comparable foreign regulatory authorities, we as a
company have not submitted such applications for our product candidates. We cannot be certain that any of our product candidates will be successful in clinical trials or receive
regulatory approval. Applications for our product candidates could fail to receive regulatory approval for many reasons, including but not limited to the following:
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the FDA, EMA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;
the population studied in the clinical program may not be sufficiently broad or representative to assure safety in the full population for which we seek approval;
the FDA, EMA or comparable foreign regulatory authorities may disagree with our interpretation of data from nonclinical trials or clinical trials;
the data collected from clinical trials of our product candidates may not be sufficient to support the submission of a new drug application, or NDA, or other submission
or to obtain regulatory approval in the United States or elsewhere;
we may be unable to demonstrate to the FDA, EMA or comparable foreign regulatory authorities that a product candidate’s risk-benefit ratio for its proposed indication
is acceptable;
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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
the approval policies or regulations of the FDA, EMA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data
insufficient for approval.
In addition, no product for the treatment of acute inner ear tinnitus or acute inner ear hearing loss has been approved by the FDA or the EMA. Accordingly, our current
product candidates or any of our other future product candidates could take a significantly longer time to gain regulatory approval than expected or may never gain regulatory
approval. This could delay or eliminate any potential product revenue by delaying or terminating the potential commercialization of our product candidates.
We generally plan to seek regulatory approval to commercialize our product candidates in the United States, the European Union and in additional foreign countries where we
have commercial rights. To obtain regulatory approval in other countries, we must comply with numerous and varying regulatory requirements of such other countries regarding
safety, efficacy, chemistry, manufacturing and controls, clinical trials, commercial sales, pricing, and distribution of our product candidates. Even if we are successful in obtaining
approval in one jurisdiction, we cannot ensure that we will obtain approval in any other jurisdictions. Failure to obtain marketing authorization for our product candidates will
result in our being unable to market and sell such products, which would materially adversely affect our business, financial conditional and results of operations. If we fail to
obtain approval in any jurisdiction, the geographic market for our product candidates could be limited. Similarly, regulatory agencies may not approve the labeling claims that are
necessary or desirable for the successful commercialization of our product candidates.
Because we are developing therapies for which there is little clinical experience and, in some cases, using new endpoints, there is more risk that the outcome of our clinical
trials will not be favorable. Even if the results of our trials are favorable, there is risk that they will not be acceptable to regulators or physicians.
There are currently no drugs with proven efficacy for acute inner ear tinnitus or acute inner ear hearing loss. 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 or acute inner ear hearing loss, and regulators have not yet established what is required to be demonstrated
in a clinical trial in order to signify a clinically meaningful result and/or obtain marketing approval. We designed our Phase 3 trials for Keyzilen® and AM-111 to include
endpoints that we believe are clinically justified and meaningful. Specifically, with regard to Keyzilen®, the EMA indicated that a statistically significant improvement in tinnitus
loudness that is supported by several secondary variables would demonstrate a clinically meaningful result. The FDA indicated that an improvement in tinnitus loudness
supported by a co-primary efficacy point, such as the TFI questionnaire, would be clinically meaningful. The TACTT2 clinical trial with Keyzilen® did not meet the two co-
primary efficacy endpoints of statistically significant changes in tinnitus loudness and tinnitus burden compared to placebo. Further, the 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.
With regard to AM-111, the FDA and EMA have indicated that a 10 dB improvement in hearing thresholds 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 AM-111 will be approved even if it were to demonstrate such results in Phase 3
trials.
Some of our conclusions regarding the potential efficacy of AM-111 in our completed HEALOS clinical trial for the treatment of acute sensorineural hearing loss 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 AM-111 for the treatment of acute sensorineural hearing
loss, we performed retrospective analyses that we believe show treatment effects on the magnitude of hearing recovery in favor of AM-111 in case 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.
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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. As a result, even if the ASSENT trial provided further evidence of AM-111’s therapeutic benefits in the subgroup of profound acute hearing loss, the HEALOS results
and the retrospective analysis could negatively impact the evaluation by the EMA or the FDA, and we expect that such outcome may need to be confirmed prospectively in one or
more additional Phase 3 trials in order to gain regulatory market 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, the active pharmaceutical ingredient of Keyzilen®, is an isomer of Ketamine, and may be affected by the safety of the
drugs related to them. Although Ketamine has 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, Ketamine, or reconsideration of known toxicities of Ketamine in the setting of new indications, could result in increased regulatory scrutiny of
Keyzilen®. For example, Ketamine is regulated by the Drug Enforcement Administration, or DEA, under the Controlled Substances Act as a Schedule III drug. DEA scheduling is
a separate process that can delay when a drug may become available to patients beyond a New Drug Application, or 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 Controlled Substances
Act, 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.
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.
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
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the respective Member State’s pharmacovigilance system, requiring him 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;
fines, warning letters or holds on clinical trials;
refusal by the FDA to approve pending applications or supplements to approved applications filed by us, or suspension or revocation of product license approvals;
product seizure or detention, or refusal to permit the import or export of products; and
injunctions or the imposition of civil or criminal penalties.
If any of these events occurs, our ability to sell such product may be impaired, and we may incur substantial additional expense to comply with regulatory requirements,
which could materially adversely affect our business, financial condition and results of operations. The FDA’s or any other regulatory authority’s policies may change and
additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. If we are slow or unable to adapt to changes in
existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may
have obtained, which would adversely affect our business, prospects and ability to achieve or sustain profitability.
Enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and may affect the
prices we may set.
In the United States and the European Union, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system. These
changes could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any products for
which we obtain marketing approval.
For example, in March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation
Act, or collectively, the Health Care Reform Law, a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance
remedies against fraud and abuse, add new transparency requirements for health care and health insurance industries, impose new taxes and fees on the health industry and impose
additional health policy reforms. The Health Care Reform Law, among other things, increased rebates a manufacturer must pay to the Medicaid program, addressed a new
methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected,
established a Medicare Part D coverage gap discount program, in which manufacturers must provide 50% point-of-sale discounts on products covered under Part D and
implemented payment system reforms including a national pilot program on payment bundling to encourage hospitals, physicians and other providers to improve the coordination,
quality and efficiency of certain healthcare services through bundled payment models. Further, the law imposed a significant annual fee on companies that manufacture or import
branded prescription drug products, expanded eligibility criteria for Medicaid programs, and created a new Patient-Centered Outcomes Research Institute to oversee, identify
priorities in, and conduct comparative clinical effectiveness research, along with funding for such research. Substantial provisions affecting compliance were enacted, which may
affect our business practices with health care practitioners. Continued pressure on pharmaceutical pricing is expected and may also increase our regulatory burdens and operating
costs.
Other legislative changes have been proposed and adopted in the United States since the Health Care Reform Law was enacted. On August 2, 2011, the Budget Control Act
of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit
reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic
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reduction to several government programs. This includes aggregate reductions to Medicare payments to providers of 2% per fiscal year, which went into effect on April 1, 2013
and, due to subsequent legislative amendments to the statute, will remain in effect through 2025 unless additional Congressional action is taken. On January 2, 2013, President
Obama signed into law the American Taxpayer Relief Act of 2012, or the ATRA, which, among other things, further reduced Medicare payments to several providers, including
hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five
years. These laws may result in additional reductions in Medicare and other health care funding, which could have a material adverse effect on our customers and accordingly, our
financial operations. Additionally, there has been increasing legislative and enforcement interest in the United States with respect to specialty drug pricing practices. Specifically,
there have been several recent U.S. Congressional inquiries and proposed bills designed to, among other things, bring more transparency to drug pricing by requiring drug
companies to notify insurers and government regulators of price increases and provide an explanation of the reasons for the increase, reduce the out-of-pocket cost of prescription
drug, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. Moreover, U.S.
President Donald Trump has discussed the need for federal legislation, regulation or Executive Order to regulate the prices of medicines.
Furthermore, it is possible that following the inauguration of President Trump on January 20, 2017, legislation will be introduced and passed by the Republican-controlled
Congress repealing the Health Care Reform Law in whole or in part and signed into law by President Trump, consistent with statements made by him during his presidential
campaign and subsequently indicating his intention to do so within a short time following his inauguration. In May 2017, following the passage of the budget resolution for fiscal
year 2017, the U.S. House of Representatives passed legislation known as the American Health Care Act, which, if enacted, would have amended and repealed significant
portions of the Health Care Reform Law. The U.S. Senate considered but did not adopt other legislation to amend and/or replace elements of the Health Care Reform Law and
authority to act under the fiscal year 2017 budget resolution expired on September 30, 2017.
Because of the continued uncertainty about the implementation of the Health Care Reform Law, including the potential for further legal challenges or repeal of that
legislation, we cannot quantify or predict with any certainty the likely impact of the Health Care Reform Law or its repeal on our business model, prospects, financial condition or
results of operations, in particular on the pricing, coverage or reimbursement of any of our product candidates that may receive marketing approval. We also anticipate that
Congress, state legislatures, and third-party payors may continue to review and assess alternative healthcare delivery and payment systems and may in the future propose and
adopt legislation or policy changes or implementations effecting additional fundamental changes in the healthcare delivery system. We cannot assure you as to the ultimate
content, timing, or effect of changes, nor is it possible at this time to estimate the impact of any such potential legislation.
In the European Union, a new clinical trial regulation centralizes clinical trial approval, which eliminates redundancy, but in some cases this may extend timelines for clinical
trial approvals due to potentially longer wait times. The regulation requires specific consents for use of data in research which, among other measures, may increase the costs and
timelines for our product development efforts. The regulation also provides an obligation for clinical trial sponsors to make summaries of all trial results, accompanied by a
summary understandable to laypersons, as well as the clinical trial report publicly available in a new database. Beyond this obligation, the EMA adopted a new "Agency policy on
publication of clinical data" (in force since January 1, 2015) based on which the EMA makes available to the public all clinical trials submitted with the EMA as well as raw data
results ("individual patient data"). These publication requirements can conflict with legitimate secrecy interests of the sponsors and may lead to valuable clinical trial data falling
into the public domain.
On June 23, 2016, the UK public voted in a referendum to leave the European Union. The UK government subsequently announced its intention to serve notice of withdrawal
from the European Union no later than March 2017. As a consequence of such withdrawal notice, EU law will cease to apply to the UK from the date of entry into force of a
withdrawal agreement, or two years after UK’s submission of the withdrawal notification. As a result, the UK is likely to remain within the European Union for at least the next
two years, and, therefore there will likely be no major legal implications for the life sciences sector in the short term. In the long term, however, the effects may be more severe, in
particular if the UK cannot agree the terms of a continued close association with the European Union and/or chooses not to incorporate existing EU rules into national law and/or
to no longer align themselves with European law. The administrative burden for pharmaceutical companies could increase significantly because regulatory requirements, for
example clinical trial authorizations and marketing authorization applications, may need to be fulfilled under a new and different legal framework for the UK. Existing marketing
authorizations granted in the European Union under the centralized procedure prior to the exit may potentially not be recognized anymore by the UK.
Austerity measures in certain European nations may also affect the prices we are able to seek if our products are approved, as discussed below.
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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;
the U.S. False Claims Act imposes criminal and civil penalties, including civil whistleblower or qui tam actions, against individuals or entities for knowingly
presenting, or causing to be presented, to the U.S. government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal
an obligation to pay money to the federal government;
the U.S. Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for executing a scheme to defraud any healthcare
benefit program or making false statements relating to healthcare matters;
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, imposes obligations, including mandatory contractual terms, with
respect to safeguarding the privacy, security and transmission of individually identifiable health information;
the transparency requirements under the Health Care Reform Law require manufacturers of drugs, devices, biologics and medical supplies to report to the U.S.
Department of Health and Human Services information related to payments and other transfers of value made by such manufacturers to physicians and teaching
hospitals, and ownership and investment interests held by physicians or their immediate family members; and
analogous laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items
or services reimbursed by non-governmental third-party payors, including private insurers, and some state laws require pharmaceutical companies to comply with the
pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring
manufacturers to report information related to payments to physicians and other health care providers or marketing expenditures.
Similar laws exist in other jurisdictions.
In the European Union, there is currently no central European anti-bribery or similar legislation. However, more and more EU 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
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healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. Moreover, the Health Care Reform Law
provides that the government may assert that a claim including items or services resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent
claim for purposes of the False Claims Act.
Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that
governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or
other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be
subject to significant civil, criminal and administrative penalties, damages, fines, exclusion from U.S. government funded healthcare programs, such as Medicare and Medicaid,
and the curtailment or restructuring of our operations. If any of the physicians or other providers or entities with whom we expect to do business with are found to be not in
compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.
Risks Related to Commercialization of Our Product Candidates
We operate in highly competitive and rapidly changing industries, which may result in others discovering, developing or commercializing competing products before or
more successfully than we do.
The biopharmaceutical and pharmaceutical industries are highly competitive and subject to significant and rapid technological change. Our success is highly dependent on
our ability to discover, develop and obtain marketing approval for new and innovative products on a cost-effective basis and to market them successfully. In doing so, we face and
will continue to face intense competition from a variety of businesses, including large, fully integrated pharmaceutical companies, specialty pharmaceutical companies and
biopharmaceutical companies, academic institutions, government agencies and other private and public research institutions in Europe, the United States and other jurisdictions.
These organizations may have significantly greater resources than we do and conduct similar research, seek patent protection and establish collaborative arrangements for
research, development, manufacturing and marketing of products that compete with our product candidates.
We believe that our key competitors are Otonomy, Inc., or Otonomy, and Sound Pharmaceuticals, Inc., or Sound Pharma, both U.S. companies developing pharmaceutical
treatments for ear disorders. In October 2013, Otonomy announced the launch of a development program for the treatment of tinnitus, OTO-311, which is based on the NMDA
receptor antagonist gacyclidine and may directly compete with our Keyzilen® product candidate. According to a recent public filing, Otonomy intends to develop a polymer-based
formulation of gacyclidine that will provide a full course of treatment from a single intratympanic injection. Following a Phase 1 trial, Otonomy made adjustments to the
formulation, resulting in product candidate OTO-313, which the company plans to evaluate in a Phase 1/2 trial starting in 2019. OTO-313’s competitive strength will ultimately
depend on the demonstration of clinical efficacy and safety and its comparison with Keyzilen®. Further, we intend to rely on our patent applications with broad disclosures to
pursue claims relating to the use of polymers with NMDA antagonists in controlled-release topical compositions for the treatment of tinnitus. Otonomy is also developing OTO-
104, which is a polymer-based formulation of dexamethasone for intratympanic treatment of Ménière’s disease. In Phase 3 of clinical development, OTO-104 showed no
treatment effects in a North American study, but showed treatment effects in a European study, which had been terminated early. In March 2018 the company announced its
intention to conduct another Phase 3 study with OTO-104. If Otonomy’s drug product is approved prior to AM-125, we will have to compete against it in the treatment of
Ménière’s disease. In addition, OTO-104 is being evaluated by Otonomy for the treatment of certain types of hearing loss and may compete against AM-111.
In June 2006, Sound Pharma began clinical testing of an oral treatment for hearing loss (SPI-1005, ebselen). Its active substance mimics and prompts production of the
glutathione peroxidase enzyme. In February 2014, Sound Pharma announced positive outcomes from a placebo-controlled Phase 2 clinical trial with SPI-1005 in the prevention of
temporary inner ear hearing loss from listening to loud music with a mobile digital media player. Although AM-111 targets permanent rather than transient hearing loss, SPI-1005
may become competing products if Sound Pharma seeks and manages to demonstrate clinical efficacy also in the prevention and treatment of permanent inner ear hearing loss.
Sensorion is developing SENS-401, a 5-HT3 antagonist with anti-inflammatory properties, for the oral treatment of sudden sensorineural hearing loss. The project completed
Phase 1 of clinical development and obtained orphan drug designation from the EMA. The company announced its intention to initiate a Phase 2 clinical trial with SENS-401 in
the treatment of sudden sensorineural hearing loss. Sensorion is also developing SENS-111, a histamine H4 receptor antagonist, for the oral treatment of acute vertigo crises and
in 2017 initiated a Phase 2 trial to enroll patients with acute unilateral vestibulopathy. If successful, SENS-401 may compete against AM-111, and SENS-111 may compete
against AM-125.
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There are several companies developing treatments for hearing loss. Strekin AG, a privately held Swiss company, announced in April 2016 that it plans to develop STR001,
an agonist of the peroxisome proliferator, for surgery induced hearing loss and that it commenced a Phase 2 program in Germany and France. Nordmark, a German company, is
developing Ancrod, the biologically active substance from the venom of the Malayan Pit Viper (Calloselasma rhodostoma), for the treatment of sudden sensorineural hearing loss
and has initiated Phase 2 program. Both, STR001 and Ancrod have the potential to compete with AM-111.
There exist a variety of drug products that are licensed or used off-label for the treatment of vestibular disorders and Ménière’s disease, including steroids, diuretics, anti-
emetics or anti-nausea medications. In many countries outside the United States, oral betahistine is the standard of care and licensed for the treatment of Ménière’s disease and
vestibular vertigo. Although, we expect that AM-125 will offer benefits over oral betahistine due to the ability to bypass the strong first-pass metabolism associated with oral
intake and provide for a higher bioavailability and avoid gastric side effects, it may take time to change prescribing and usage patterns in favor of the newer product. In December
2016, Castle Creek Pharmaceuticals, LLC announced the in-licensing of Arlevert, a fixed-dose combination of cinnarizine, a calcium channel antagonist, and dimenhydrinate, an
antihistamine, from Hennig Arzneimittel GmbH & Co. KG, a German company, and its intention to develop it as a treatment for vertigo in the United States market. Arlevert is
approved and has been marketed for a long time in various countries outside the US.
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;
obtain quicker regulatory approval;
establish superior proprietary positions;
have access to more manufacturing capacity;
implement more effective approaches to sales and marketing; or
form more advantageous strategic alliances.
Should any of these occur, our business, financial condition and results of operations could be materially adversely affected.
The successful commercialization of our product candidates will depend in part on the extent to which governmental authorities and health insurers establish adequate
coverage and reimbursement levels and pricing policies.
The successful commercialization of Keyzilen®, AM-111, AM-125 or our other product candidates will depend, in part, on the extent to which coverage and reimbursement
for our products or procedures using our products will be available from government and health administration authorities, private health insurers and other third-party payors. To
manage healthcare costs, many governments and third-party payors increasingly scrutinize the pricing of new technologies and require greater levels of evidence of favorable
clinical outcomes and cost-effectiveness before extending coverage. In light of such challenges to prices and increasing levels of evidence of the benefits and clinical outcomes of
new technologies, we cannot be sure that coverage will be available for Keyzilen®, AM-111, AM-125 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.
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Third-party payors may deny coverage and reimbursement status altogether of a given drug product, or cover the product but may also establish prices at levels that are too
low to enable us to realize an appropriate return on our investment in product development. Because the rules and regulations regarding coverage and reimbursement change
frequently, in some cases at short notice, even when there is favorable coverage and reimbursement, future changes may occur that adversely impact the favorable status. Further,
the net reimbursement for drug products may be subject to additional reductions if there are changes to laws that presently restrict imports of drugs from countries where they may
be sold at lower prices than in the United States.
The unavailability or inadequacy of third-party coverage and reimbursement could have a material adverse effect on the market acceptance of our product candidates and the
future revenues we may expect to receive from those products. In addition, we are unable to predict what additional legislation or regulation relating to the healthcare industry or
third-party coverage and reimbursement may be enacted in the future, or what effect such legislation or regulation would have on our business.
Our products may not gain market acceptance, in which case we may not be able to generate product revenues, which will materially adversely affect our business,
financial condition and results of operations.
Even if the FDA, the EMA or other regulatory authority approves the marketing of any product candidates that we develop, physicians, healthcare providers, patients or the
medical community may not accept or use them. Efforts to educate the medical community and third-party payors on the benefits of our product candidates may require
significant resources and may not be successful. If Keyzilen®, AM-111, AM-125 or any other product candidate that we develop does not achieve an adequate level of acceptance,
we may not generate significant product revenues or any profits from operations. The degree of market acceptance of Keyzilen®, AM-111, AM-125 or any of our product
candidates that is approved for commercial sale will depend on a variety of factors, including:
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•
•
•
•
•
•
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how clinicians and potential patients perceive our novel products;
the timing of market introduction;
the number and clinical profile of competing products;
our ability to provide acceptable evidence of safety and efficacy;
the prevalence and severity of any side effects;
relative convenience and ease of administration, particularly as Keyzilen® and AM-111 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;
cost-effectiveness;
patient diagnostics and screening infrastructure in each market, particularly as Keyzilen®, AM-111 and AM-125 are being developed for the treatment of acute inner
ear disorders and are thus dependent on a relatively rapid diagnosis and dosing process;
marketing and distribution support;
availability of coverage, reimbursement and adequate payment from health maintenance organizations and other third-party payors, both public and private; and
other potential advantages over alternative treatment methods.
If our product candidates fail to gain market acceptance, this will have a material adverse impact on our ability to generate revenues to provide a satisfactory, or any, return on
our investments. Even if some products achieve market acceptance, the market may prove not to be large enough to allow us to generate significant revenues.
In addition, the potential market opportunity of Keyzilen®, AM-111 and AM-125 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
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assumptions proves to be inaccurate, then the actual market for Keyzilen®, AM-111 and AM-125 could be smaller than our estimates of the potential market opportunity. If the
actual market for Keyzilen®, AM-111 and AM-125 is smaller than we expect, or if the products fail to achieve an adequate level of acceptance by physicians, health care payors
and patients, our product revenue may be limited and it may be more difficult for us to achieve or maintain profitability.
We have never commercialized a product candidate before and may lack the necessary expertise, personnel and resources to successfully commercialize our products on
our own or together with suitable partners.
We have never commercialized a product candidate, and we currently have no sales force, marketing or distribution capabilities. To achieve commercial success for
Keyzilen®, AM-111, AM-125 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
We have several areas of disagreement with Xigen, and consequently our relationship with Xigen may be adversely affected, we could potentially lose our right to
commercialize AM-111 and our business, commercialization prospects and financial condition may be adversely affected.
We have several areas of disagreement with Xigen S.A., or Xigen, with whom we have an agreement 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 differ from Xigen in our interpretation of the definition of the Area. We interpret “Area,”
as it pertains to pharmaceutical products, as not limited to local administration to the inner ear, but inclusive of the use of pharmaceutical products generally for the treatment of
ear disorders (and that the limitation of “local administration to the inner ear” applies only to “drug delivery devices and formulations”). Xigen has adopted the interpretation that
the license is limited to local administration for both pharmaceutical products and drug delivery and formulations. This difference in interpretation has no impact on our current or
planned use of AM-111 delivered locally via intratympanic treatment.
In addition, in October 2013, Xigen assigned certain of the patents relevant to the agreement to Xigen Inflammation Ltd., an unaffiliated entity organized in Cyprus. We
consider this transfer to be in breach of the agreement since our prior written approval was not sought, although Xigen Inflammation Ltd. has confirmed to us that the assignment
of patents is without prejudice to our license for local administration. In the past, Xigen has also requested from us quantities of AM-111 for certain analyses, although we believe
the quantities requested exceed what laboratories would generally require for such tests.
The agreement contains a confidentiality provision restricting the disclosure of the terms of the agreement. We believe that Xigen may have waived the confidentiality
provision of the agreement by disclosing the terms of the agreement to Xigen Inflammation Ltd., although Xigen has denied that any disclosure of the agreement has been made
to the assignee despite the assignee’s assurance that the assignment was without prejudice to our license for local administration. Despite this, in connection with our initial public
offering, we sought Xigen’s consent to disclose certain provisions of the agreement and file a redacted version of the agreement with the SEC. Xigen, however, was only willing
to provide its consent if we agreed to limit the scope of the definition of “Area,” desist from claims that the transfer of patents to Xigen Inflammation Ltd. was in breach of the
agreement and provide Xigen with certain quantities of the active substance of AM-111 for analysis.
We believe Xigen’s demands were unreasonable and unwarranted, and therefore we were not able to come to an agreement with Xigen prior to disclosing certain provisions
of the agreement in the prospectus relating to our initial public offering and filing a redacted version of the agreement. Xigen may consider such disclosure to be a breach of the
confidentiality provision of the agreement. The agreement is governed by Swiss law, and the venue is Solothurn, Switzerland. In the opinion of our Swiss counsel, while there can
be no assurances, this disclosure by us does not rise to the level of material breach that would allow Xigen to repudiate the agreement.
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We cannot predict the result of these disagreements with Xigen and any litigation that may result. While Xigen has taken no action as of the date of this Annual Report, Xigen
may attempt to repudiate the contract and initiate a claim for damages against us. According to our Swiss counsel, Xigen would have to show that it had suffered a loss due to the
disclosure of the redacted agreement and certain provisions of the agreement in the prospectus associated with our initial public offering, and the damages could be equal to the
amount of the effective direct damage that Xigen proves it has suffered.
These disagreements, and in particular any resulting litigation, could result in substantial legal expenses, distraction to our management and employees and potentially the
loss of our right to commercialize AM-111. No assurance can be given that these disagreements and any resulting litigation will not have a material adverse effect on our business,
commercialization prospects for AM-111 and our other product candidates and our financial condition. For a description of our agreement with Xigen, please see “Item 4.
Information on the Company—B. Business overview—Collaboration and License Agreements—Xigen.”
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 AM-111.
Good relationships with INSERM and Xigen are important for our business prospects. If our relationships with INSERM or Xigen were to deteriorate substantially or
INSERM or Xigen were to challenge our use of their intellectual property or our calculations of the payments we owe under our agreements, our business, financial condition,
commercialization prospects and results of operations could be materially adversely affected.
We may seek to form additional strategic alliances in the future with respect to our product candidates, and if we do not realize the benefits of such alliance, our business,
financial condition, commercialization prospects and results of operations may be materially adversely affected.
Our product development programs and the potential commercialization of our product candidates will require substantial additional cash to fund expenses and may require
expertise, such as sales and marketing expertise, which we do not currently possess. Therefore, in addition to our relationships with INSERM and Xigen, for our Keyzilen® and
AM-111 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
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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;
the collaboration partner may experience financial difficulties;
we may be required to relinquish important rights such as marketing, distribution and intellectual property rights;
a collaboration partner could move forward with a competing product developed either independently or in collaboration with third parties, including our competitors;
or
business combinations or significant changes in a collaboration partner’s business strategy may adversely affect our willingness to complete our obligations under any
arrangement.
We rely on third parties to conduct our nonclinical and clinical trials and perform other tasks for us. If these third parties do not successfully carry out their contractual
duties, meet expected deadlines, or comply with regulatory requirements, we may not be able to obtain regulatory approval for or commercialize our product candidates and
our business could be substantially harmed.
We have relied upon and plan to continue to rely upon third-party CROs to monitor and manage data for our ongoing nonclinical and clinical programs, including the clinical
trials of Keyzilen®, AM-111 and AM-125. 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.
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We currently rely on third-party suppliers and other third parties for production of our product candidates and our dependence on these third parties may impair the
advancement of our research and development programs and the development of our product candidates.
We currently rely on and expect to continue to rely on third parties, for the manufacturing and supply of chemical compounds for the clinical trials of our product candidates,
including Keyzilen®, AM-111 and AM-125, and others for the manufacturing and supply of pre-filled syringes. For the foreseeable future, we expect to continue to rely on such
third parties for the manufacture of any of our product candidates on a clinical or commercial scale, if any of our product candidates receives regulatory approval. Reliance on
third-party providers may expose us to different risks than if we were to manufacture product candidates ourselves. The facilities used by our contract manufacturers to
manufacture our product candidates must be approved by the FDA or other regulatory authorities pursuant to inspections that will be conducted after we submit our NDA or
comparable marketing application to the FDA or other regulatory authority. Although we have auditing rights with all our manufacturing counterparties, we do not have control
over a supplier’s or manufacturer’s compliance with these laws, regulations and applicable cGMP standards and other laws and regulations, such as those related to environmental
health and safety matters. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the
FDA or others, they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities. In addition, we have no control over the ability of our
contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or a comparable foreign regulatory authority does not approve
these facilities for the manufacture of our product candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which
would significantly impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved. Any failure to achieve and maintain compliance
with these laws, regulations and standards could subject us to the risk that we may have to suspend the manufacturing of our product candidates or that obtained approvals could
be revoked, which would adversely affect our business and reputation. Furthermore, third-party providers may breach agreements they have with us because of factors beyond our
control. They may also terminate or refuse to renew their agreements because of their own financial difficulties or business priorities, potentially at a time that is costly or
otherwise inconvenient for us. If we were unable to find adequate replacement or another acceptable solution in time, our clinical trials could be delayed or our commercial
activities could be harmed.
In addition, the fact that we are dependent on our suppliers and other third parties for the manufacture, storage and distribution of our product candidates means that we are
subject to the risk that our product candidates and, if approved, commercial products may have manufacturing defects that we have limited ability to prevent or control. The sale
of products containing such defects could result in recalls or regulatory enforcement action that could adversely affect our business, financial condition and results of operations.
Growth in the costs and expenses of components or raw materials may also adversely influence our business, financial condition and results of operations. Supply sources
could be interrupted from time to time and, if interrupted, that supplies could be resumed (whether in part or in whole) within a reasonable time frame and at an acceptable cost or
at all.
Our current and anticipated future dependence upon others for the manufacturing of Keyzilen®, AM-111, AM-125 and any other product candidate that we develop may
adversely affect our future profit margins and our ability to commercialize any products that receive marketing approval on a timely and competitive basis.
The drug substance and drug product for our product candidates are currently acquired from single-source suppliers. The loss of these suppliers, or their failure to supply
us with the drug substance or drug product, could materially and adversely affect our business.
We do not currently, and do not expect to in the future, independently conduct manufacturing activities for our product candidates, including Keyzilen®, AM-111 and AM-
125. We currently have a relationship with one supplier each, for the supply of the active pharmaceutical ingredients and the hyaluronic acid component of Keyzilen®, AM-111
and AM-125. We are reliant upon single source third-party contract manufacturing organizations to manufacture and supply the drug substance and drug product and components
thereof for each of Keyzilen®, AM-111 and AM-125. We do not currently have any other suppliers for the drug substance or drug product of our product candidates and, although
we believe that there are alternate sources of supply that could satisfy our clinical and commercial requirements, and we have performed some preliminary investigations to assess
this availability, we cannot assure you that identifying alternate sources and establishing relationships with such sources would not result in significant delay in the development
of our product candidates. Additionally, we may not be able to enter into supply arrangements with alternative suppliers on commercially reasonable terms, or at all. A delay in
the development of our product candidates or having to enter into a new agreement with a different third party on less favorable terms than we have with our current suppliers
could have a material adverse impact upon on our business.
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Risks Related to Intellectual Property
If we or our licensors are unable to obtain and maintain effective patent rights for our technologies, product candidates or any future product candidates, or if the scope of
the patent rights obtained is not sufficiently broad, we may not be able to compete effectively in our markets.
We rely upon a combination of patents, trade secret protection, and confidentiality agreements to protect the intellectual property related to our technologies and product
candidates. Our success depends in large part on our and our licensors’ ability to obtain and maintain patent and other intellectual property protection in the United States and in
other countries with respect to our proprietary technology and products.
We have sought to protect our proprietary position by filing patent applications in the United States and abroad related to our novel technologies and products that are
important to our business. This process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a
reasonable cost, in a timely manner or in all jurisdictions. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too
late to obtain patent protection. Moreover, in some circumstances, we do not have the right to control the preparation, filing and prosecution of patent applications, or to maintain
the patents, covering technology that we license from third parties. Therefore, these patents and applications may not be prosecuted and enforced in a manner consistent with the
best interests of our business.
The patent position of biotechnology and pharmaceutical companies generally is highly uncertain and involves complex legal and factual questions for which legal principles
remain unsolved. The patent applications that we own or in-license may fail to result in issued patents with claims that cover our product candidates in the United States or in
other foreign countries. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other
jurisdictions remain confidential for a period of time after filing, and some remain so until issued. We cannot be certain that we were the first to file any patent application related
to our product candidates, or whether we were the first to make the inventions claimed in our owned patents or pending patent applications, nor can we know whether those from
whom we license patents were the first to make the inventions claimed or were the first to file. As a result, the issuance, scope, validity, enforceability and commercial value of
our patent rights are highly uncertain. There is no assurance that all potentially relevant prior art relating to our patents and patent applications has been found, which can
invalidate a patent or prevent a patent from issuing from a pending patent application. Even if patents do successfully issue, and even if such patents cover our product candidates,
third parties may challenge their validity, enforceability, or scope, which may result in such patents being narrowed, found unenforceable or invalidated, which could allow third
parties to commercialize our technology or products and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products
without infringing third party patent rights. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property,
provide exclusivity for our product candidates, prevent others from designing around our claims or provide us with a competitive advantage. Any of these outcomes could impair
our ability to prevent competition from third parties, which may have an adverse impact on our business.
We, independently or together with our licensors, have filed several patent applications covering various aspects of our product candidates. We cannot offer any assurances
about which, if any, patents will issue, the breadth of any such patent or whether any issued patents will be found invalid and unenforceable or will be challenged by third parties.
Any successful opposition to these patents or any other patents owned by or licensed to us after patent issuance could deprive us of rights necessary for the successful
commercialization of any product candidates that we may develop. Further, if we encounter delays in regulatory approvals, the period of time during which we could market a
product candidate under patent protection could be reduced.
We may not have sufficient patent terms to effectively protect our products and business.
Patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after it is filed. Although various extensions may be available, the
life of a patent, and the protection it affords, is limited. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents
protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with
sufficient rights to exclude others from commercializing products similar or identical to ours or otherwise provide us with a competitive advantage. Even if patents covering our
product candidates are obtained, once the patent life has expired for a product, we may be open to competition from generic medications.
While patent term extensions under the Hatch-Waxman Act in the United States and under supplementary protection certificates in Europe may be available to extend the
patent exclusivity term for Keyzilen®, AM-111 and AM-125, we cannot
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provide any assurances that any such patent term extension will be obtained and, if so, for how long. Specifically, Xigen is concurrently developing other indications for XG-102,
the active substance of AM-111. Since for each product only a single patent can be selected for patent term extension, there may be a conflict of interest with respect to patent
selection for extending patent terms covering two different indications of XG-102. It is possible that Xigen may select a patent that does not provide the longest patent term for the
AM-111 indication developed by us. In addition, upon issuance in the United States any patent term can be adjusted based on certain delays caused by the applicant(s) or the U.S.
Patent and Trademark Office, or USPTO. For example, a patent term can be reduced based on certain delays caused by the patent applicant during patent prosecution.
While in the United States there is a possibility of obtaining market protection independent from any patent protection for up to 3 and 5 years from approval, and in the
European Union one may obtain data exclusivity of eight years from approval with an additional two years of market exclusivity (which can potentially be extended by one year),
there is no assurance that we can obtain such data exclusivity and market protection with respect to Keyzilen®, AM-111, AM-125, or any of our other product candidates. Our
issued patents and pending patent applications are expected to expire for Keyzilen® between 2025 and 2028 and for AM-111 between 2020 and 2027 and 2035, prior to any patent
term extensions to which we may be entitled under applicable laws.
Janssen, a subsidiary of Johnson & Johnson, has been testing Esketamine in a spray formulation for intranasal treatment of treatment-resistant depression in several clinical
trials to date, with a Phase 3 program expected to complete in early 2018. In November 2014, the FDA designated Esketamine a ‘breakthrough therapy’ for this indication. In the
event that Janssen’s confirmatory trials are successful and the company receives marketing authorization prior to us receiving marketing authorization for Keyzilen®, we would
lose the potential benefit of a five-year marketing exclusivity period that we would otherwise expect to obtain.
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 make 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. The effects of these changes are currently unclear as the USPTO must still implement various regulations, the courts have yet to address any of these
provisions and the applicability of the act and new regulations on specific patents discussed herein have not been determined and would need to be reviewed. 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
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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
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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 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®, AM-111 and AM-125 are approved, competitors could file ANDAs for generic versions of Keyzilen®, AM-111 and AM-125, or 505(b)(2) NDAs
that reference Keyzilen®, AM-111 and AM-125, respectively. If there are patents listed for Keyzilen®, AM-111 and AM-125 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 AM-111. 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
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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 AM-111 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 AM-111. 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;
the extent to which our technology and processes infringe on intellectual property of the licensor or partner that is not subject to the agreement;
the sublicensing of patent and other rights;
our diligence and commercialization obligations under the agreement and what activities satisfy those obligations;
the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors or partners and us and our collaborators;
and
the priority of invention of patented technology.
If disputes over intellectual property and other rights that we have licensed or co-own prevent or impair our ability to maintain our current licensing or exclusivity
arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates.
We may not be successful in obtaining or maintaining necessary rights to our product candidates through acquisitions and in-licenses.
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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.
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On July 20, 2015, the USPTO declared Patent Interference No. 106,030 involving our issued U.S. patent No. 9,066,865 (the “‘865 Patent”) and Otonomy’s U.S. patent
application No. 13/848,636 (the “‘636 Application”). The patent interference identified claims 1-9 in the ‘865 Patent as interfering with claims 38, 43 and 46-50 of the ‘636
Application. The ‘865 Patent discloses methods of treating inner or middle ear diseases with intratympanic injections of poloxamer-based compositions. The claims of the ‘865
Patent are directed to the use of fluoroquinolone antibiotics in poloxamer 407 compositions under certain specifications. On January 26, 2017, the USPTO issued a decision on the
interference granting Auris benefit of priority. As a result of the decision, judgment was entered against Otonomy and all claims in the ‘636 Application were refused. In addition,
claims 1-8 of the ‘865 Patent were cancelled as the result of the USPTO’s determination that the written description of the specification lacked full scope support for treating
middle or inner ear disease with fluoroquinolone. However, claim 9, which is directed to a method of treating viral and bacterial infections with intratympanic injection of a
fluoroquinolone antibiotic in a poloxamer 407 composition under certain specifications, was affirmed. On March 27, 2017, Otonomy submitted a notice of appeal to the United
States Court of Appeals for the Federal Circuit. To preserve its rights, Auris filed a notice of cross-appeal on April 5, 2017. Otonomy subsequently filed its opening brief on July
20, 2017, and Auris filed its principal and response brief on October 27, 2017. On January 5, 2018, Otonomy filed its opposition and reply brief. Auris filed its reply brief on
February 2, 2018.
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.
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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, Andrea Braun-
Scherhag, Head Regulatory & Quality Affairs and Hernan Levett, 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
our home country, Switzerland, may restrict our ability to attract, motivate and retain the required level of qualified personnel. In Switzerland, new legislation affecting public
companies has been passed that, among other things, (a) imposes an annual binding shareholders’ “say on pay” vote with respect to the compensation of executive management,
including executive officers and the board of directors, (b) prohibits severance, advances, transaction premiums and similar payments to executive officers and directors and (c)
requires companies to specify various compensation-related matters in their articles of association, thus requiring them to be approved by a shareholders’ vote. 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
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competition for personnel from other companies, universities, public and private research institutions and other organizations. If our recruitment and retention efforts are
unsuccessful in the future, it may be difficult for us to implement business strategy, which could have a material adverse effect on our business.
We expect to expand our sales and marketing, development, and regulatory capabilities, and as a result, we may encounter difficulties in managing our growth, which
could disrupt our operations.
We expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of sales and marketing, and to a lesser
extent, drug development and regulatory affairs. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial
systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources, we may not be able to effectively manage the
expansion of our operations or recruit and train additional qualified personnel. The expansion of our operations may lead to significant costs and may divert our management and
business development resources. Any inability to manage growth could delay the execution of our business plans or disrupt our operations.
Risks Related to Our Common Shares
The price of our common shares may be volatile and may fluctuate due to factors beyond our control.
The share price of publicly traded emerging biopharmaceutical and drug discovery and development companies has been highly volatile and is likely to remain highly volatile
in the future. The market price of our common shares may fluctuate significantly due to a variety of factors, including:
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positive or negative results of testing and clinical trials by us, strategic partners, or competitors;
delays in entering into strategic relationships with respect to development and/or commercialization of our product candidates or entry into strategic relationships on
terms that are not deemed to be favorable to us;
technological innovations or commercial product introductions by us or competitors;
changes in government regulations;
developments concerning proprietary rights, including patents and litigation matters;
public concern relating to the commercial value or safety of any of our product candidates;
financing or other corporate transactions;
publication of research reports or comments by securities or industry analysts;
general market conditions in the pharmaceutical industry or in the economy as a whole; or
other events and factors beyond our control.
Additionally, these factors may affect the liquidity of our common shares, which may hurt your ability to sell our common shares in the future. In addition, the stock market
in general has recently experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of individual
companies. Broad market and industry factors may materially affect the market price of companies’ stock, including ours, regardless of actual operating performance.
We have received a delisting notice from Nasdaq. Our common shares may be involuntarily delisted from trading on The Nasdaq Capital Market if we fail to regain
compliance with the minimum closing bid price requirement of $1.00 per share and other 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.
The quantitative listing standards of the Nasdaq Capital Market require, among other things, that listed companies maintain a minimum closing bid price of $1.00 per share.
We failed to satisfy this threshold for 30 consecutive trading days and on March 30, 2017, we received a letter from Nasdaq indicating that we have been provided an initial period
of 180 calendar days, or until September 26, 2017, in which to regain compliance. On September 27, 2017 we received an additional 180-day
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compliance period that will end on March 26, 2018. If we do not regain compliance by March 26, 2018, the Nasdaq staff will provide written notice that our common shares are
subject to delisting.
To address the non-compliance, on March 13, 2018, Auris Medical Holding AG merged into Auris Medical NewCo Holding AG (the "Merger"), a newly incorporated,
wholly-owned Swiss subsidiary (“Auris NewCo”) following shareholder approval at an extraordinary general meeting of shareholders held on March 12, 2018. Following the
Merger, Auris NewCo, the surviving company had a share capital of CHF 122,347.76, divided into 6,117,388 common shares with a nominal value of CHF 0.02 each. Pursuant to
the Merger, our shareholders received one common share with a nominal value of CHF 0.02 of Auris NewCo for every 10 common shares in Auris Medical Holding AG held
prior to the Merger, effectively resulting in a “reverse share split” at a ratio of 10-for-1.
In connection with the Merger, the Swiss Federal Tax Administration has taken the position (on the basis of a tax ruling) that, as a result of the Merger the existing Capital
Contribution Reserves will be offset against the retained losses. This leads to a reduced amount of Capital Contribution Reserves on the level of the surviving company . We do
not intend to make distributions in the foreseeable future, but if the position of the tax authorities were to prevail, it is likely that any distributions exceeding the reduced amount
of Capital Contributions Reserves would be treated as taxable dividends for Swiss tax purposes. If we ever decide to declare dividends, we expect to challenge the view under the
tax ruling.
Auris NewCo changed its name to Auris Medical Holding AG as part of the consummation of the Merger, effective March 13, 2018. On March 14, 2018 the common shares
of Auris NewCo began trading on the Nasdaq Capital Market under the trading symbol “EARS”. There is no guarantee that the Merger or any other corporate action that we may
attempt will solve the non-compliance with the minimum bid price requirement or that the price of our common shares will not fall below the minimum bid price requirement in
the future in the event that we regain compliance.
In addition to the minimum closing bid price requirement, we are required to comply with certain other Nasdaq continued listing requirements, including a series of financial
tests relating to shareholder equity, market value of listed securities and number of market makers and shareholders. If we fail to maintain compliance with any of those
requirements, our common shares could be delisted from Nasdaq’s Capital Market. On January 11, 2018, we received a letter from Nasdaq indicating that we have been provided
an initial period of 180 calendar days, or until July 10, 2018 to regain compliance with Nasdaq’s market value of listed securities requirement.
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;
the market price of our common shares;
our ability to obtain financing for the continuation of our operations;
the number of institutional and general investors that will consider investing in our common shares;
the number of investors in general that will consider investing in our common shares;
the number of market makers in our common shares;
the availability of information concerning the trading prices and volume of our common shares; and
the number of broker-dealers willing to execute trades in shares of our common shares.
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.
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
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the Securities and Exchange Act of 1934, as amended (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 shares of 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”.
Stockholders 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 majority 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 62.9% of our common shares.
Depending on the level of attendance at our general meetings of shareholders, these shareholders may be in a position to determine the outcome of decisions taken at any such
general meeting. Any shareholder or group of shareholders controlling more than 50% of the shares represented at our general meetings of shareholders may control any
shareholder resolution requiring an absolute majority of the shares represented, including the election of members to the board of directors of our company, certain decisions
relating to our capital structure, the approval of certain significant corporate transactions and certain amendments to our articles of association. 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 28% of our common shares 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. We
have also entered into a registration rights agreement pursuant to which we have agreed under certain circumstances to file a registration statement to register the resale of
common shares held by certain of our shareholders, as well as to cooperate in certain public offerings of such common shares. We have also filed registration statements to
register all 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
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to certain limitations applicable to affiliates. If a large number of our 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 and shareholders 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 limitation pursuant to Swiss law
or by our articles of association. 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 Swiss corporation. The rights of our shareholders may be different from the rights of shareholders in companies governed by the laws of U.S. jurisdictions.
We are a Swiss corporation. Our corporate affairs are governed by our articles of association and by the laws governing companies incorporated in Switzerland. The rights of
our shareholders and the responsibilities of members of our board of directors may be different from the rights and obligations of shareholders and directors of companies
governed by the laws of U.S. jurisdictions. In the performance of its duties, our board of directors is required by Swiss law to consider the interests of our company, our
shareholders, our employees and other stakeholders, in all cases with due observation of the principles of reasonableness and fairness. It is possible that some of these parties will
have interests that are different from, or in addition to, your interests as a shareholder. Swiss corporate law limits the ability of our shareholders to challenge resolutions made or
other actions taken by our board of directors in court. Our shareholders generally are not permitted to file a suit to reverse a decision or an action taken by our board of directors
but are instead only permitted to seek damages for breaches of fiduciary duty. As a matter of Swiss law, shareholder claims against a member of our board of directors for breach
of fiduciary duty would have to be brought in Zug, Switzerland, or where the relevant member of our board of directors is domiciled. In addition, under Swiss law, any claims by
our shareholders against us must be brought exclusively in Zug, Switzerland.
Our common shares are issued under the laws of Switzerland, which may not protect investors in a similar fashion afforded by incorporation in a U.S. state.
We are organized under the laws of Switzerland. There can be no assurance that Swiss law will not change in the future or that it will serve to protect investors in a similar
fashion afforded under corporate law principles in the U.S., which could adversely affect the rights of investors.
U.S. shareholders may not be able to obtain judgments or enforce civil liabilities against us or our executive officers or members of our board of directors.
We are organized under the laws of Switzerland and our jurisdiction of incorporation is Zug, Switzerland. Moreover, a number of our directors and executive officers and a
number of directors of each of our subsidiaries are not residents of the United States, and all or a substantial portion of the assets of such persons are located outside the United
States. As a result, it may not be possible for investors to effect service of process within the United States upon us or upon such persons or to enforce against them judgments
obtained in U.S. courts, including judgments in actions predicated upon the civil liability provisions of the federal securities laws of the United States. We have been advised by
our Swiss counsel that there is doubt as to the enforceability in Switzerland of original actions, or in actions for enforcement of judgments of U.S. courts, of civil liabilities to the
extent predicated upon the federal and state securities laws of the United States. Original actions against persons in Switzerland based solely upon the U.S. federal or state
securities laws are governed, among other things, by the principles set forth in the Swiss Federal Act on International Private Law. This statute provides that the application of
provisions of non-Swiss law by the courts in Switzerland shall be precluded if the result is incompatible with Swiss public policy. Also, mandatory provisions of Swiss law may
be applicable regardless of any other law that would otherwise apply.
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Switzerland and the United States do not have a treaty providing for reciprocal recognition and enforcement of judgments in civil and commercial matters. The recognition
and enforcement of a judgment of the courts of the United States in Switzerland is governed by the principles set forth in the Swiss Federal Act on Private International Law. This
statute provides in principle that a judgment rendered by a non-Swiss court may be enforced in Switzerland only if:
•
•
•
•
•
the non-Swiss court had jurisdiction pursuant to the Swiss Federal Act on Private International Law;
the judgment of such non-Swiss court has become final and non-appealable;
the judgment does not contravene Swiss public policy;
the court procedures and the service of documents leading to the judgment were in accordance with the due process of law; and
no proceeding involving the same position and the same subject matter was first brought in Switzerland, or adjudicated in Switzerland, or was earlier adjudicated in a
third state and this decision is recognizable in Switzerland.
Our status as a Swiss corporation means that our shareholders enjoy certain rights that may limit our flexibility to raise capital, issue dividends and otherwise manage
ongoing capital needs.
Swiss law reserves for approval by shareholders certain corporate actions over which a board of directors would have authority in some other jurisdictions. For example, the
payment of dividends and cancellation of treasury shares must be approved by shareholders. Swiss law also requires that our shareholders themselves resolve to, or authorize our
board of directors to, increase our share capital. While our shareholders may authorize share capital that can be issued by our board of directors without additional shareholder
approval, Swiss law limits this authorization to 50% of the issued share capital at the time of the shareholders’ authorization. The authorization, furthermore, has a limited
duration of up to two years and must be renewed by the shareholders from time to time thereafter in order to be available for raising capital. Additionally, Swiss law grants pre-
emptive rights to existing shareholders to subscribe for new issuances of shares. In certain circumstances, including those explicitly described in our articles of association, our
board of directors may withdraw such pre-emptive rights. Shareholders who believe pre-emptive rights were improperly withdrawn may sue us for damages or may attempt to
block the registration of the issuance of new shares in the commercial register which may delay or exclude the share issuance. Swiss law also does not provide as much flexibility
in the various rights and regulations that can attach to different categories of shares as do the laws of some other jurisdictions. These Swiss law requirements relating to our capital
management may limit our flexibility, and situations may arise where greater flexibility would have provided benefits to our shareholders.
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 Securities Exchange Act of 1934, as amended, or 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 Swiss laws and regulations with regard to such matters and intend to furnish quarterly 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.
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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.
Swiss 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.
Although Swiss law also requires that we adopt a compensation committee, we follow home country requirements with respect to such committee. 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. We follow Swiss law requirements with respect to disclosure of compensation for our directors and executive officers. Swiss 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).
In addition, in accordance with Swiss 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).
Furthermore, in accordance with Swiss law and generally accepted business practices, our articles of association do not provide quorum requirements generally applicable to
general meetings of shareholders. 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. Our articles of association provide for an independent proxy holder
elected by our shareholders, who may represent our shareholders at a general meeting of shareholders, and we must provide shareholders with an agenda and other relevant
documents for the general meeting of shareholders. However, Swiss law does not have a regulatory regime for the solicitation of proxies and company solicitation of proxies is
prohibited for public companies in Switzerland, 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.
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We are an “emerging growth company,” and we cannot be certain if the reduced reporting requirements applicable to “emerging growth companies” will make our
common shares less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act. For as long as we continue to be an “emerging growth company,” we may take advantage of exemptions
from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including not being required to comply with the
auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, exemptions from the requirements of holding a nonbinding advisory vote on executive
compensation and shareholder approval of any golden parachute payments not previously approved. We could be an “emerging growth company” until 2019, although
circumstances could cause us to lose that status earlier, including if the market value of our common shares held by non-affiliates exceeds $700 million as of any June 30 (the end
of our second fiscal quarter) before that time, in which case we would no longer be an “emerging growth company” as of the following December 31 (our fiscal year end). We
cannot predict if investors will find our common shares less attractive because we may rely on these exemptions. If some investors find our common shares less attractive as a
result, there may be a less active trading market for our common shares and the price of our common shares may be more volatile.
We believe that we were a “passive foreign investment company,” or PFIC, for U.S. federal income tax purposes for our 2017 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 2017 taxable year, and we expect to be a PFIC for
our current year and for the foreseeable future. In addition, we may, directly or indirectly, hold equity interests in other PFICs. Under the Internal Revenue Code of 1986, as
amended, or the Code, 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 “Item 10. 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 will be required to disclose changes made in our internal controls and procedures and our management will be required to assess the effectiveness of these controls
annually. However, for as long as we are an “emerging growth company” under the JOBS Act, our independent registered public accounting firm will not be required to attest to
the effectiveness of our internal controls over financial reporting pursuant to Section 404. We could be an “emerging growth company” until 2019. 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.
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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 our 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.
ITEM 4. INFORMATION ON THE COMPANY
A. History and development of the Company
We are a clinical-stage biopharmaceutical company focused on the development of novel products for the treatment of inner ear disorders. We have two lead clinical-stage
product candidates, (i) Keyzilen® (AM-101), which is being developed for the treatment of acute inner ear tinnitus and (ii) AM-111, being developed for the treatment of acute
inner ear hearing loss and has been granted orphan drug status by the FDA and the EMA and has been granted fast track designation by the FDA. AM-125 is being developed for
the treatment of vestibular disorders. In addition, we are pursuing early stage projects for the treatment of tinnitus.
Our product candidates Keyzilen® and AM-111 are injected under local anesthesia into the middle ear by a technique called intratympanic injection. Once injected into the
middle ear, the active substance, which is formulated in a biocompatible gel, diffuses into the inner ear. The procedure is short, safe, has a long history of use and allows for
highly targeted drug delivery with minimal systemic exposure. It is performed by an ear, nose and throat, or ENT, specialist on an outpatient basis over one or more visits.
Our product candidate AM-125 is administered with a metered spray into the nose. Intranasal application allows for the active substance to reach the blood stream rapidly
while avoiding the substantial “first-pass” metabolism associated with the current standard oral intake of betahistine.
Keyzilen® is targeting acute inner ear 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.
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 support the positive safety profile established in the Phase 2 trials.
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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.
On March 13, 2018, we announced that preliminary top-line data from the TACTT3 trial indicated that the study did not meet its primary efficacy endpoint of a statistically
significant improvement in the Tinnitus Functional Score from baseline to Day 84 in the active treated group compared to placebo either in the overall population or in the otitis
media subpopulation. We are currently investigating the outcomes, including those in TACTT2, the previously conducted sister trial. See “Item 4. Information on the Company –
Business Overview – Keyzilen® Phase 3 Clinical Program.”
We are also developing AM-111 for acute inner ear hearing loss. In our Phase 2 clinical trial, AM-111 showed a favorable safety profile. Furthermore, in patients with severe
to profound ASNHL, we observed a clinically relevant improvement in hearing threshold, speech discrimination and a higher rate of complete tinnitus remission compared with
placebo. On November 28, 2017, we announced that the HEALOS Phase 3 clinical trial that investigated AM-111 in the treatment of acute inner ear hearing loss did not meet the
primary efficacy endpoint of a statistically significant improvement in hearing from baseline to Day 28 compared to placebo for either active treatment groups in the overall study
population. However, a post-hoc analysis of the subpopulation with profound acute hearing loss revealed a clinically meaningful and nominally significant improvement in the
AM-111 0.4 mg/mL treatment group. At the same time, we announced that ASSENT, the second Phase 3 clinical trial investigating AM-111, 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.
On March 13, 2018, we merged into Auris NewCo, a newly incorporated, wholly-owned Swiss subsidiary following shareholder approval at an extraordinary general meeting
of shareholders held on March 12, 2018. Following the Merger, Auris NewCo, the surviving company, had a share capital of CHF 122,347.76, divided into 6,117,388 common
shares with a nominal value of CHF 0.02 each. Pursuant to the Merger, our shareholders received one common share with a nominal value of CHF 0.02 of Auris NewCo for every
10 of our common shares held prior to the Merger, effectively resulting in a “reverse stock split” at a ratio of 10-for-1. Auris NewCo changed its name to “Auris Medical Holding
AG” as part of the consummation of the Merger, effective March 13, 2018. On March 14, 2018 the common shares of Auris NewCo began trading on the Nasdaq Capital Market
under the trading symbol “EARS.”
We are a stock corporation organized under the laws of Switzerland. 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.” Our principal office is located at Bahnhofstrasse 21, 6300 Zug, Switzerland, telephone number +41 41 729 71 94.
On August 11, 2014, we completed our initial public offering of common shares, selling an aggregate of 10,113,235 common shares, which included 713,235 common shares
sold on August 19, 2014 pursuant to an over-allotment option granted to the underwriters. All of these common shares were sold at a price to the public of $6.00 per share,
yielding gross proceeds of $60.7 million. On May 18, 2015, we completed an underwritten offering of 5,275,000 shares at an offering price of $4.75 per share, yielding gross
proceeds of $25.1 million.
On June 1, 2016, we entered into a Controlled Equity Offering Sales Agreement with Cantor Fitzgerald & Co., or Cantor, pursuant to which we may offer and sell, from time
to time, having an aggregate offering price of up to $35 million through Cantor. In the year ended December 31, 2017, we did not offer or sell any common shares under the
Controlled Equity Offering Sales Agreement. The Controlled Equity program terminated upon consummation of the Merger on March 13, 2018.
On July 19, 2016, we entered into a Loan and Security Agreement with Hercules for a secured term loan facility of up to $20.0 million. An initial tranche of $12.5 million
was drawn on July 19, 2016, concurrently with the execution of the loan agreement. The loan matures on January 2, 2020 and bears interest at a minimum rate of 9.55% per
annum, and is subject to the
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variability of the prime interest rate. In connection with the loan facility, we issued Hercules a warrant to purchase up to 241,117 of our common shares at an exercise price of
$3.94 per share. As of March 13, 2018, following the consummation of the Merger, the warrant was exercisable for 15,673 common shares at an exercise price of $39.40 per
common share. The warrant expires on July 19, 2023. The loan is secured by a pledge of the shares of Auris Medical AG, our principal operating subsidiary, all intercompany
receivables owed to us by our Swiss subsidiaries and a security assignment of our bank accounts.
On February 2, 2017, we entered into an asset purchase agreement with Otifex Therapeutics Pty. Ltd, or Otifex, an Australian company, under which we purchased certain
preclinical and clinical assets related to a formulation for the intranasal application of Betahistine, which we refer to as AM-125. See “Item 4. Information on the Company -
Business Overview - AM-125 in Vestibular Disorders.”
On February 21, 2017, we completed a public offering of 10,000,000 common shares and 11,350,000 warrants, which included 1,350,000 warrants issued pursuant to an
over-allotment option granted to the underwriter. Each warrant entitles its holder to purchase 0.70 of a common share. The net proceeds to the Company from the Offering were
approximately $9.1 million, after deducting underwriting discounts and other estimated offering expenses payable by us. As of March 13, 2018, following the consummation of
the Merger, the outstanding warrants issued in connection with the February 2017 offering were exercisable for an aggregate of 794,500 common shares at an exercise price of
$12.00 per common share.
On October 10, 2017, we entered into a purchase agreement (the “Commitment Purchase Agreement”) and a Registration Rights Agreement (the “Registration Rights
Agreement”) with Lincoln Park Capital Fund, LLC (“LPC”). Pursuant to the Commitment Purchase Agreement, LPC agreed to subscribe for up to $13,500,000 of our common
shares over the 30-month term of the Commitment Purchase Agreement. Pursuant to the Registration Rights Agreement, we agreed to file registration statements with the SEC to
register the resale of the common shares purchased by LPC. As of March 12, 2018, we had issued an aggregate of 2,600,000 common shares to LPC pursuant to the Commitment
Purchase Agreement. The Commitment Purchase Agreement terminated upon consummation of the Merger on March 13, 2018. Additionally, on October 16, 2017, we issued
1,744,186 of our common shares to LPC for an aggregate price of $1,500,000.
On January 30, 2018, we completed a public offering of 12,499,999 common shares, and concurrent offering of 7,499,999 warrants, each warrant entitling its holder to
purchase one common share. The net proceeds to the Company from the offerings were approximately $4.9 million, after deducting placement agent fees and other estimated
offering expenses payable by us. As of March 13, 2018, following consummation of the Merger, the outstanding warrants issued in the January 2018 offering were exercisable for
an aggregate of 749,999.9 common shares at an exercise price of $5.00 per common share.
B. Business overview
Strategy
Our goal is to become the leading biopharmaceutical company focused on developing and commercializing novel therapeutics to treat inner ear and related disorders. The key
elements of our strategy to achieve this goal are:
•
•
•
Target inner ear disorders that have a defined pathophysiology and that are amenable to treatment. We are focusing on inner ear disorders for which the
pathophysiology is defined, can be effectively targeted and where affected patients seek medical attention proactively.
Use drug delivery techniques and proprietary drug formulations for effective, safe and rapid targeted administration. We are developing treatments for inner ear
disorders based on targeted drug delivery. Where the target is inside the inner ear, such as in case of acute inner ear hearing loss or tinnitus, we employ intratympanic
injections into the middle ear. This short outpatient procedure allows us to deliver therapeutic concentrations of drug in a highly targeted fashion with only minimal
systemic exposure. We are using proprietary, fully biocompatible and biodegradable gel formulations for optimum middle ear tolerance and effective diffusion of
active substances into the inner ear. Where the target is localized not only in the inner ear, but also in the brain, as in the case of vertigo, we are using a spray
formulation for intranasal drug delivery to reach it more effectively than with oral administration.
Build an efficient commercial infrastructure to maximize the value of our product candidates. We intend to build commercial operations in select markets. In those
markets, we expect our commercial operations to include
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specialty sales forces targeting ENTs and specialists in neurotology both in hospitals and in private practice. In other markets, we expect to seek partnerships that
would maximize our products’ commercial potential.
The Inner Ear
We have focused our drug discovery and development efforts on targeting the inner ear, which is comprised of the cochlea, the organ of hearing, and the vestibular system,
the organ of balance. The snail-shaped cochlea is the sensory organ at the periphery of the auditory system, which transmits sound along the auditory pathway up to the brain for
hearing. Acute insults to the cochlea from a variety of sources – for example, loud noise, infection or insufficient blood supply – may lead to excessive levels of glutamate, the
principal neurotransmitter in the cochlea as well as other pathological processes. This in turn may damage cochlear hair cells, which tune and amplify sound inside the cochlea or
convert mechanical movement into neural signals, as well as cochlear neurons. Such damage may result in the symptoms of inner ear hearing loss and/or inner ear tinnitus that
can be transitory as natural repair mechanisms set in or that become permanent when hair cells or neurons die or are permanently injured.
Because the cochlea is located deep inside the head and because it is separated from the middle ear by a combination of bone and membranes, the interior of the cochlea is a
challenging location for drug delivery. We have chosen to deliver certain of our products via intratympanic injection across the ear drum (also known as the tympanic membrane)
into the middle ear cavity. By formulating our products with biocompatible gels, we facilitate the diffusion of active substances across the round window membrane into the
cochlea at clinically meaningful concentrations.
The vestibular system communicates with the cochlea and consists of three semi-circular canals and the vestibule. It is responsible for the sensations of balance and motion.
The vestibular system uses the same kinds of fluids and detection cells (hair cells) as the cochlea and sends information to the brain regarding the altitude, rotation, and linear
motion of the head. The vestibular system works with the visual system to keep objects in view when the head is moved. Joint and muscle receptors are also important in
maintaining balance. The brain receives, interprets, and processes the information from all these systems to create the sensation of balance.
When vestibular input from each ear is equal, the system is in balance, and there is no sense of movement. When inputs are unequal, the brain interprets this as movement. As
a result, compensatory eye movements and postural adjustments occur to maintain balance. However, when some pathology (e.g., inflammation or trauma) disrupts signaling
unilaterally, the result is an imbalance in vestibular input that can lead to vertigo.
Market
Inner ear disorders, including hearing loss, tinnitus, Meniere’s Disease and balance disorders, are common and often inter-related conditions. Chronic inner ear disorders such
as tinnitus and hearing loss are highly prevalent. According to the National Institute on Deafness and Other Communication Disorders, or NIDCD, 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%) US 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. Furthermore, according to the 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. Approximately 615,000 individuals in the United
States are currently diagnosed with Meniere’s disease and 45,500 cases are newly diagnosed each year.
According to a 2011 publication by Hall et al. in the journal BMC Health Services Research, among the tinnitus patients seen by physicians who reported seeing at least one
tinnitus patient in the previous three months, approximately 36% of patients sought medical treatment during the first three months following the onset of the disorder.
The market for ear disorders is underserved despite the fact that according to a 2007 report by the consulting firm NeuroInsights, hearing loss ranks among the top ten
neurologic disorders by worldwide prevalence, ranking above attention deficit disorders, Alzheimer’s disease and multiple sclerosis. There are three main reasons for this:
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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.
Heterogeneity of inner ear disorders. Hearing loss and tinnitus 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.
There has been a dearth of knowledge about the pathophysiology of tinnitus and hearing loss, which has hindered the pharmaceutical industry in pursuing therapeutics in this area.
Lack of clinical trial paradigms. Historically, there have been challenges regarding the clinical endpoints used in measuring changes in tinnitus. Since tinnitus usually is
perceived only by the patient affected by it, there is 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 patient
reported outcomes, or 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.
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 Localized Delivery Solution for the Inner Ear for the Treatment of Tinnitus and Hearing Loss
The inner ear is a protected part of the body, analogous to the eye. It is hidden in the temporal bone, behind the middle ear and the ear drum. In addition, it is very tiny: the
cochlea measures about the size of the fingernail on the little finger. Therefore, therapeutically targeting the inner ear is not easy. There is currently no FDA or EMA approved
drug therapy for the treatment of tinnitus or hearing loss on the market.
The blood labyrinth barrier is a major physiological divider separating the inner ear from systemic circulation, critically preserving the inner ear’s microenvironment.
Systemic drug dose levels capable of having a therapeutic effect on the inner ear are often high enough to cause adverse side effects.
An alternative approach is to administer drugs locally by intratympanic injection to maximize efficacy and minimize systemic side effects. With intratympanic administration,
the drug is injected via a needle through the anesthetized ear drum into the middle ear cavity. The drug then diffuses across the semi-permeable round window membrane (RWM)
into the inner ear. Our lead product candidates are administered by intratympanic injection. We chose this approach after thorough evaluation of all available alternatives because
it offers the optimal combination of access, convenience, physician familiarity and safety. We formulated our product candidates specifically with intratympanic delivery in mind.
One of the key shortcomings of current intratympanic approaches is the use of injectable solutions that may easily drain off via the Eustachian tube, thus preventing or
reducing effective diffusion into the cochlea. With our proprietary gel formulations for intratympanic injections we overcome this “draining off,” facilitate contact with the RWM
and achieve effective diffusion into the cochlea.
Both Keyzilen® and AM-111 are formulated in a viscous gel of sodium hyaluronate that is biocompatible, biodegradable, and isotonic (that is, having the same salt
concentration and therefore not causing any pressure build up on either side of the RWM). The gel has a physiologic or near-physiologic pH which helps minimize potential
irritation to the ear. We selected its viscosity in a way that the free movement of the ossicular chain, which transfers the vibrations of the eardrum to the inner ear, is not impacted.
The presence of highly viscous gels in the middle ear may cause transient conductive hearing loss.
In addition, in the case of AM-111, we are employing D-TAT, a peptidic active transporter technology that allows the transport of a large molecule to the inner ear that would
normally be blocked by the RWM. This novel use of D-TAT brings
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peptides not only behind the RWM but inside cells in the inner ear. To our knowledge, we are the first company to be delivering intracellular peptides to the inner ear using an
active transporter such as D-TAT.
The intratympanic injection procedure by which our therapeutics are delivered to the RWM is a minimally invasive procedure that is relatively simple to perform by an
experienced ENT specialist. Most ENT physicians and neurotologists have a high degree of comfort with intratympanic injection and it is well-accepted by patients. A billable
procedure, intratympanic injection is routinely reimbursed under a broader reimbursement code. For the injection, patients lie on a stretcher or on a reclined exam chair, treated
ear up; the injection is performed under local anesthesia of the eardrum by an ENT specialist using a microscope. Following the procedure, patients rest for 20 to 30 minutes to
ensure maximum physical contact of the drug with the RWM. The tympanic membrane heals rapidly, usually within a few days, and the procedure may be performed several
times. Often performed in children suffering from ear infections, the reversible opening of the eardrum is one of the most frequent ENT procedures.
Our Targeted Delivery Solution for the Treatment of Vestibular Disorders
In vestibular disorders, the target for pharmacologic intervention may not only be in the inner ear, but also in central parts of the vestibular system, i.e., the brain. In such
case, a treatment may be best delivered systemically, provided that the active substance can reach these targets. Intranasal administration is a non-invasive route for drug delivery,
which allows for drugs to be absorbed into the systemic circulation through the nasal mucosa. This route may be used in a range of acute or chronic conditions requiring
considerable systemic exposure. It offers advantages such as ease of administration, rapid onset of action, and avoidance of first-pass metabolism.
Our Product Candidates
The following table summarizes our product development pipeline(1):
(1)Dates of key milestones are indicative and subject to change.
Keyzilen® in Tinnitus
__________________
Our clinical program with Keyzilen®, Esketamine gel for injection, is in Phase 3 clinical trials in acute inner ear tinnitus. Esketamine is a potent, small molecule non-
competitive NMDA receptor antagonist. Keyzilen® is formulated in a biocompatible gel and delivered via intratympanic injection. It has demonstrated a favorable safety profile
and positive effect on patient reported outcomes associated with tinnitus in two Phase 2 clinical trials. The Phase 3 clinical development program comprises two pivotal clinical
trials with highly similar design, one in North America (TACTT2) and one in Europe, which we refer to as TACTT3.
Tinnitus
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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 patients in the United
States have tinnitus symptoms severe enough to seek medical attention and about two million patients cannot function on a normal day-to-day basis. In addition, tinnitus is now
the number one service-connected disability for all veterans, before hearing loss, and annual service-connected disability payments for tinnitus to veterans from all periods of
service were expected to exceed $2.75 billion by the end of 2016.
Tinnitus is categorized as acute during the first three months and chronic when it persists for more than three months. The distinction between acute and chronic is based on
the clinical observation that spontaneous recovery or complete remission of tinnitus is much more likely to occur in the first days, weeks and months following its onset. The
chances of spontaneous recovery decline exponentially as the acute phase progresses. In the chronic stage, improvement is much more unlikely, and the therapeutic focus shifts
from curing to managing the disorder. In some cases, tinnitus originates inside the cochlea, or the periphery of the auditory system, but then becomes “centralized,” that is, the
phantom sound persists even long after the initial source of the sensation has been removed.
Tinnitus is a symptom that can be triggered by a variety of diseases or incidents such as noise trauma, infection, inflammation, vascular problems, temporomandibular joint
dysfunction, head trauma or whiplash injury. In the majority of cases the tinnitus originates in the cochlea, but the precise mechanisms of tinnitus generation are still the subject of
considerable debate and remain to be fully elucidated. In our development we are focusing on one particular, well-defined type of tinnitus generation based on glutamate
excitotoxicity.
Acoustic trauma and other insults to the inner ear may trigger increased levels of extra-cellular glutamate, which in turn cause excessive activation of cochlear NMDA
receptors. This process results in damage or killing of sensory cells and is thought to be responsible for abnormal spontaneous “firing” of auditory nerve fibers, which may be
perceived as tinnitus. Under normal circumstances, the NMDA receptors are thought to play no role in the auditory nerve’s transmission of nerve pulses that carry sound
information. In case of a trauma such as excessive sound exposure these receptors may become pathologically active, and thus tinnitus is triggered.
Current Therapies and Unmet Need
Tinnitus treatments may be categorized according to whether they treat the underlying cause or provide symptomatic relief. It is rarely possible to treat the underlying cause.
When it is possible, treatment often involves a surgical procedure to resect tumors or vascular abnormalities. In contrast, treatments to provide symptomatic relief are highly
diverse, reflecting the general lack of understanding of the underlying pathophysiology.
Currently, the most widely employed treatment options include counseling, cognitive behavioral therapy, various forms of sound therapies, tinnitus retraining therapy, or TRT,
herbal and vitamin supplements, ginkgo biloba, vasodilators, steroids, benzodiazepines and tricyclic antidepressants.
Sound-based therapies and TRT are some of the most commonly employed treatments for tinnitus. TRT is a non-pharmacological intervention that employs low-level sound
emitted by a so-called “masking device” worn behind or in the ear. TRT also incorporates patient counseling to help habituate patients to their tinnitus. In those cases in which it is
effective, TRT takes one to two years before patients “learn” to ignore tinnitus without the aid of a masking device. TRT can cost $2,500 to $3,000, including the masking
devices. After an initial period of enthusiasm in the 1980s, masking devices declined in popularity among clinicians because it became clear that many patients who agreed to try
them were nonusers six months later. While classic sound based therapies are based on broadband sound, newer therapies use sound individually tailored to the hearing loss and
tinnitus characteristics.
Although there are no approved drugs in the United States for the treatment of tinnitus, there is widespread off-label use of drugs approved for other indications. The U.K.
Royal National Institute for the Deaf 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.
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Our Solution – Keyzilen® (AM-101)
Therapeutic rationale for Keyzilen® in tinnitus
The active pharmaceutical ingredient 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.
The NMDA receptor was first validated as a target for the treatment of tinnitus using an animal behavioral model of tinnitus triggered by salicylate, the active substance of
aspirin. Salicylate is known to trigger temporary tinnitus when administered in high doses. The animal model demonstrated that local administration of different NMDA
antagonists to the inner ear allowed for suppression of salicylate induced tinnitus. Together with INSERM, we developed a much more clinically relevant model of tinnitus
induced by acute acoustic trauma, or AAT. Unlike salicylate-induced tinnitus, AAT triggers glutamate excitotoxicity and may lead to irreversible damage to sensory cells. It does
not result in tinnitus in all cases, but where it sets in, it may be permanent. In our pre-clinical trials, we demonstrated that Keyzilen® was able to suppress this type of tinnitus.
Further pre-clinical work demonstrated that tinnitus could be suppressed even when drug was administered after the onset of tinnitus.
Toxicology and tolerability studies confirmed that Keyzilen® had no impact on hearing, even at much higher doses than those needed for suppressing tinnitus. Animal
biodistribution studies showed rapid diffusion of the active substance into the cochlea. Concentrations decreased over several days due to clearance.
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. The development of Keyzilen® has benefitted from
the long-standing clinical use of Ketamine and Esketamine as well as the wealth of published pharmacology, pharmacokinetic and safety data. 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.
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. Patient reported outcomes, or 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 Tinnitus Functional Index (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 acute acoustic trauma (AAT) or sudden
deafness (also called idiopathic sudden sensorineural hearing loss or ISSNHL) and after unsuccessful steroid treatment. The primary objective of the
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trial was to evaluate the safety of intratympanically delivered Keyzilen®. This first clinical 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
TACTT0 was conducted at 28 European sites between March 2009 and May 2011. This trial was a double-blind, randomized, placebo controlled, multiple dose, parallel
group, Phase 2 clinical trial. 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,
and with a MML of at least 5 dB. 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 (approximately eighty per treatment group). The improvement in the MML was the primary efficacy endpoint.
The improvement in subjective tinnitus loudness and in tinnitus annoyance were co-primary efficacy endpoints. Trial outcomes are described by van de Heyning and colleagues in
a 2014 article in Otology & Neurotology.
In this trial, 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.
Overall, the trial failed to demonstrate a treatment benefit based on the change in the MML as there was no difference in outcomes between treatment groups. However, post-
hoc efficacy analysis. based on PROs in the subgroup of patients with tinnitus caused by AAT or OM (n=118), that is, patients with well-established cochlear origin of tinnitus,
demonstrated superiority of the high dose of Keyzilen® with respect to placebo for the change in the co-primary efficacy endpoint tinnitus loudness, sleep difficulties (e.g., falling
asleep), and the THI-12 questionnaire from baseline to Day 90. When restricting the OM + AAT population to unilateral cases (71% of the subgroup), the treatment effects
became more pronounced in these measures; in addition, the improvement in tinnitus annoyance also became nominally significant. The improvement in PROs was gradual over
the 90 day observation period. At Day 90 the mean improvement in tinnitus loudness was 48% in the Keyzilen® 0.81 mg/mL group compared to 9% in the placebo group. 64% of
patients in the high dose group rated their tinnitus severity at Day 90 compared to baseline as “much improved” or “very much improved”, compared with 34% of patients in the
placebo group. The majority of placebo treated patients reported only “somewhat improved” tinnitus severity. The improvements were dose dependent as the low-dose of
Keyzilen® overall showed improvement between the high-dose and the placebo groups.
In case of ISSNHL related tinnitus, no treatment effects were evident as an unexpectedly high rate of spontaneous remission and substantial heterogeneity in outcomes were
observed. 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
with established cochlear origin (such as AAT and OM).
TACTT1
TACTT1, our second double-blind, randomized, placebo-controlled Phase 2 clinical trial, was conducted between 2011 and 2013 in the United States, Belgium, Germany and
Poland to complement the TACTT0 trial, notably by evaluating efficacy trends with different treatment schemes and by obtaining additional data on concentrations of Esketamine
and its primary metabolite in the bloodstream.
Enrollment consisted of 85 patients suffering from acute inner ear tinnitus following AAT or OM. Tinnitus after barotrauma and middle ear surgery were added as traumatic
cases in addition to AAT.
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. Unlike TACTT0, this
trial allowed bilateral treatment where tinnitus was present in both ears. Subjective tinnitus loudness was selected as the primary efficacy measure, while the highly variable MML
was monitored as a secondary read out.
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As described by Staecker and colleagues in an article in Audiology & Neurotology in 2015, TACTT1 further confirmed the safety and tolerability outcomes observed in the
preceding trials. It further demonstrated the gradual improvement in PROs in Keyzilen® treated groups that had already been observed in TACTT0. The primary efficacy analysis
showed no statistically significant trend for improvement in subjective tinnitus loudness related to the number of injections.
When comparing the improvement in tinnitus loudness in patients with unilateral tinnitus following traumatic injury to the cochlea or OM, treatment effects in TACTT1 were
smaller than in TACTT0. The observed differences suggest that repeated and concentrated application of Keyzilen® and hence concentrated inhibition of cochlear NMDA
receptors provides superior treatment benefits. Over the two Phase 2 clinical trials, Keyzilen® 0.81 mg/mL showed a statistically significant improvement in the AAT and OM
group of patients when compared against placebo.
As in the TACTT0 trial, psychoacoustic measures such as MML were marked by high variability, confirming their limited suitability and reliability as efficacy outcome
measure.
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) has randomized approximately 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 new drug application, or
NDA, filing. Although we do not have any plans to seek a label for such use, the FDA considered such unintended use likely to occur.
On August 18, 2016, we announced that the Phase 3 TACTT2 clinical trial did not meet the two co-primary efficacy endpoints of statistically significant changes in tinnitus
loudness and the TFI questionnaire compared to placebo.
Baseline values for tinnitus loudness and TFI were 6.44 and 52.4 points in the Keyzilen® group, and 6.47 and 50.2 points in the placebo group. Treatment with Keyzilen®
resulted in a reduction in tinnitus loudness of 0.63 points, compared to a reduction of 0.80 points for placebo (p-value of 0.321). With respect to tinnitus burden, treatment with
Keyzilen® resulted in a 9.67 point reduction, as measured by the TFI, compared to a reduction of 10.63 points for placebo (p-value of 0.565). A reduction of 13 points as
measured by the TFI was defined as clinically meaningful by the developers of the TFI. By convention, a p-value that is less than 0.05 is considered statistically significant.
Keyzilen® was well tolerated with no drug-related serious adverse events. The trial’s primary safety endpoint, incidence of clinically meaningful hearing deterioration, was
low with no statistically significant difference from the placebo group (p-value of 0.82), supporting the safety profile of Keyzilen®.
We believe we have identified two principal sources for the outcome: (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. We believe the daily capture of tinnitus loudness and annoyance may have caused a number of patients to
excessively focus on their tinnitus symptoms. With respect to variability, our analysis subsequent to the unblinding of the trial data has shown positive
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outcomes at numerous sites, including many of the high enrolling study centers, but inconclusive or contradictory outcomes at other sites.
However, the TACTT2 trial data show treatment effects on TFI in favor of Keyzilen® for specific subgroups. In the pre-specified subgroup of patients suffering from tinnitus
following otitis media, treatment with Keyzilen® resulted in a reduction of 14.76 points in the TFI from baseline, as compared to 6.19 points for placebo (p-value of 0.048). In
active-treated patients who suffered at baseline from severe or extreme tinnitus (a subgroup independent of tinnitus etiology that was not pre-specified), as determined by the
Patient Global Impression of Severity, a 15.53 point reduction was observed, as compared to 11.48 points for placebo (p-value of 0.238).
Based on the outcomes from the TACTT2 trial, we amended our protocol for the TACTT3 Phase 3 clinical trial of Keyzilen® in two steps. Under the final, amended trial
protocol, the change in TFI score was elevated from a key secondary endpoint to a primary efficacy endpoint, the trial size was increased to enhance statistical sensitivity to the
effects of treatment, and the subgroup of patients with otitis media-related tinnitus was included in confirmatory statistical testing along with the overall study population. The
change in tinnitus loudness was downgraded from a primary to a secondary efficacy endpoint. As in TACTT2, tinnitus loudness was initially rated on a daily basis; however, the
rating frequency was subsequently reduced in between study visits in order to lighten the burden of patients and reduce the potential impact of the frequent measures. Enrollment
into the TACTT3 trial was resumed in early 2017 and completed in September 2017.
On March 13, 2018, we announced that 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. We are currently investigating the outcomes, including those in TACTT2, the previously conducted sister trial. Following such review, we intend to reassess
our development plans for Keyzilen® and make appropriate adjustments as needed.
AM-111 in Hearing Loss
AM-111 is being developed for the treatment of ASNHL. 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.
AM-111 contains a synthetic D-form peptide (Brimapitide or D-JNKI-1) that protects sensorineural structures in the inner ear from stress-induced damage. AM-111 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 for acute acoustic trauma. The latter is known as ISSNHL for idiopathic sudden sensorineural hearing loss. Together they can be defined as acute
sensorineural hearing loss or 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.
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ASNHL involves a variety of pathologic processes such as massive release of free reactive oxygen species, excessive and pathological stimulation of receptors on neurons by
neurotransmitters like glutamate, and inflammation. These reactions, in turn, can damage sensorineural structures of the inner ear such as the sensitive inner and outer hair cells
and nerve cells that line the interior of the cochlea. If the stress incident is severe enough, it may lead to permanent cochlear injury with irreversible loss of hair cells and nerve
cells. Cell death occurs primarily through so-called programmed cell death, which is driven by damaged cells (apoptosis), and to a lesser extent also through necrosis, which is a
passive consequence of gross injury to the cell.
JNK is a signal transmitting enzyme that is stress-activated and regulates a number of important cellular activities. Stresses to the cochlea such as those described above, if
severe enough, can activate the JNK signal transduction pathway, leading to the activation of transcription factors such as c-jun and c-fos that are found in the cell nucleus. This
activation, in turn, activates genes encoding inflammatory molecules or promoting cell death.
Current Therapies and Unmet Need
Sensorineural hearing loss may have a serious impact on people’s personal and professional lives. Severe to profound hearing loss can result in high societal costs, mostly due
to reduced work productivity, as reported in 2000 in the International Journal of Technology Assessment in Healthcare. Yet no treatment currently exists that has unequivocal
evidence of efficacy for AAT or ISSNHL. There is no FDA- or EMA-approved drug on the market for sensorineural hearing loss. The only remaining therapeutic option is a
hearing aid or, in cases of deafness or near-deafness, a cochlear implant.
A patient with the acute form of hearing loss may recover on his or her own, especially if the loss is of low or moderate intensity and severity. This is due to intrinsic repair
mechanisms inside the cochlea. However, in other cases the patient may recover only partially or not at all. In those cases, in the absence of effective treatment, acute hearing loss
will become chronic and irreversible. There is currently no possibility to regrow or replace sensory structures inside the inner ear that are not recovered in the weeks immediately
following the loss.
For ASNHL, non-specific treatments are frequently prescribed, mostly on an off-label empirical basis. These may include glucocorticoids and steroids such as prednisolone
or dexamethasone; vasodilators such as pentoxyfilline; rheologics; ionotropics and local anesthetics; antioxidants and thrombolytics.
In the United States, most frequently oral prednisolone is administered for the treatment of ASNHL. Corticosteroids are intended to reduce inflammation and swelling in the
ear that may be related to hearing loss. The U.S. treatment guideline issued in 2012 by the American Academy of Otolaryngology/Head & Neck Surgery for ISSNHL lists oral
steroids and hyperbaric oxygen as treatment options, but refrains from recommending them in light of the low evidence level for their efficacy. Indeed, Nosrati-Zarenoe and
Hultcrantz presented in 2012 in the journal Otology and Neurotology the results of a Swedish placebo controlled trial with oral prednisolone in the treatment of ISSNHL that
showed no therapeutic effect on hearing loss from active treatment.
Our Solution – AM-111
We are developing AM-111 as a treatment for acute inner ear hearing loss. AM-111 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 S.A. (Switzerland). Like Keyzilen®, AM-111 is delivered in a biocompatible gel formulation via intratympanic injection. We have
established the safety and preliminary efficacy of AM-111 in a Phase 2 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. AM-111 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 AM-111 in hearing loss
The proprietary active pharmaceutical ingredient of AM-111 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 AM-111 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. AM-111 was shown to remain
pharmacologically active for several days inside the cochlea. The D-form is necessary for AM-111 to cross the RWM.
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By attenuating inflammation and protecting cells from apoptosis, we believe that AM-111 reinforces natural recovery processes and helps to prevent or minimize permanent
damage respectively chronic hearing loss. AM-111’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 AM-111 in close collaboration with academic partners and various contract research organizations, or CROs.
Brimapitide was invented by Xigen S.A. 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.
AM-111 Clinical Development
We have successfully completed two clinical trials of AM-111 that demonstrated its favorable safety profile and efficacy in treating 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. We initiated two pivotal Phase 3 trials in the treatment of idiopathic sudden sensorineural hearing loss, titled
HEALOS and ASSENT. HEALOS enrolled patients in Europe and Asia and ASSENT has enrolled patients in the U.S., Canada and South Korea.
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 AM-111 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. AM-111 was well tolerated by all trial participants, regardless of the dose. The
Phase 1/2 trial provided the first indications of therapeutic benefit of AM-111 in humans.
Phase 2 Clinical Trial
To further evaluate the efficacy and safety of AM-111 we conducted a Phase 2b clinical trial between March 2009 and 2012. Since pre-clinical tests had demonstrated AM-
111’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. AM-111 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.
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AM-111 demonstrated a favorable safety profile in this trial. There were no statistically significant differences in the occurrence of clinically relevant hearing deterioration in
the treated ear. Also, there were no apparent differences in the frequency of adverse events between placebo and AM-111 treated patients at any time points, no systemic side
effects and no negative impact on balance or tinnitus. There were transient procedure related effects such as ear discomfort or pain, incision site complications or middle ear
infection in less than 5% of cases.
Overall, the trial did not meet its primary efficacy endpoint. Analysis of PTA improvement by hearing loss severity in accordance with a commonly used hearing loss
classification revealed unexpectedly strong spontaneous recovery for lesser severities: by Day 7, placebo-treated patients enrolling with mild-to-moderate hearing loss (PTA <60
dB) had recovered more than three quarters of their initial loss, whereas for patients with severe to profound hearing loss (PTA ≥60 dB), it was only about one quarter. Post-hoc
analyses in the severe-to-profound hearing loss subgroup demonstrated superiority of AM-111 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 AM-111 2.0 mg/mL group overall showed improvement between the AM-111 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 prepared and initiated a Phase 3 clinical program including confirmatory testing of AM-111 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 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 US practice guideline for sudden sensorineural hearing loss, as 72 hours.
The first Phase 3 trial, called HEALOS, started enrollment in November 2015. The trial enrolled a total of 256 patients in several European and Asian countries. On
November 28, 2017, we announced that the HEALOS Phase 3 clinical trial that investigated AM-111 in the treatment of acute inner ear hearing loss did not meet the primary
efficacy endpoint of a statistically significant improvement in hearing from baseline to Day 28 compared to placebo for either active treatment groups in the overall study
population. However, a post-hoc analysis of the subpopulation with profound acute hearing loss (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 AM-111 0.4 mg/mL treatment group. Further, patients treated with AM-111
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 AM-111 0.8 mg/mL tended to be somewhat less pronounced than those observed for AM-111 0.4 mg/mL. AM-111 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 AM-111, 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 of which 32 belonged to the subgroup of profound acute hearing loss. We expect to obtain outcomes from the trial in late March or
early April 2018 and expect to meet with the FDA and EMA during the second quarter 2018 for a discussion of the regulatory path forward.
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. According to the NIDCD, more than four out of
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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 US for problems of dizziness or vertigo. 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 BPPV, 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 US neurotologists and 16% of generalists use betahistine and 20-30% of neurotologists use it often
or always when treating patients with Meniere’s disease.
Various studies and meta-analyses have demonstrated therapeutic benefits of betahistine in both the treatment of vertigo as well as in supporting vestibular rehabilitation.
However, the evidence for therapeutic benefits is variable, and it has been suggested that efficacy could be increased with higher doses and / or longer treatment periods. It is well
known that orally administered betahistine is rapidly and almost completely metabolized into 2-pyridylacetic acid, also known as 2-PAA, which lacks pharmacological activity.
As a consequence the bioavailability of oral betahistine is estimated to be very low.
Our Solution - AM-125
On February 2, 2017, we entered into an asset purchase agreement with Otifex, pursuant to which we have purchased various assets related to betahistine dihydrochloride in a
spray formulation, which we intend to develop for intranasal treatment of vertigo under the name AM-125.
The assets include data from a randomized placebo controlled dose escalating Phase 1 clinical trial in 40 healthy volunteers. The trial demonstrated good tolerability of
intranasal betahistine and significantly higher betahistine concentrations in blood plasma than reported for oral betahistine administration. Comparing the betahistine
concentrations in plasma with those from an independent Phase 1 clinical trial with oral betahistine showed a relative bioavailability for intranasal administration that was 20-40
times higher than with oral administration.
We have discussed the regulatory requirements for AM-125 during a Pre-IND meeting with the FDA and in the context of scientific advice meetings with two European
health authorities to further define the development program. In 2018, we intend to conduct a second Phase 1 clinical trial with AM-125 in order to determine the maximum
tolerated dose with single and repeated dosing and to generate additional data on the relative bioavailability compared to oral betahistine. The trial will take place in Europe. We
will also generate additional toxicology data specifically with intranasal delivery in animals. Later in 2018 we intend to file an Investigational New Drug application with the
FDA; in addition we plan to initiate a Phase 2 clinical trial in
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late 2018. We believe that, if approved, AM-125 could become the first betahistine product for the treatment of vertigo in the United States.
Competition
We may face competition from different sources with respect to our product candidates Keyzilen® (AM-101), AM-111 and AM-125 and our pipeline products or any product
candidates that we may seek to develop or commercialize in the future. Because there are a variety of means to block the activity of NMDA receptors or the JNK pathway, our
patents and other proprietary protections for Keyzilen® and AM-111 may not prevent development or commercialization of all viable product candidates that are different from
our lead product candidates.
Any product candidates that we successfully develop and commercialize will compete with existing therapies, even if they are not licensed specifically for use in our target
therapeutic indications or if they lack clear proof of efficacy.
There exist no FDA or EMA approved products for the treatment of acute inner ear tinnitus or acute inner ear hearing loss; however, some drug products such as
pentoxifylline, gingko biloba, corticosteroids, betahistine, trimetazidine or piracetam are frequently prescribed off-label. Some of them are even licensed as tinnitus or hearing loss
treatments in certain countries of the European Union. A variety of drug products that are licensed or used off-label for the treatment of vestibular disorders and Meniere’s disease
exist, including steroids, diuretics, anti-emetics or anti-nausea medications. In many countries outside the United States, oral betahistine is the standard of care and licensed for the
treatment of Meniere’s disease and vestibular vertigo.
Possible competitors may be biotechnology and pharmaceutical companies as well as academic institutions, government agencies and private and public research institutions,
which may in the future develop products to treat acute inner ear tinnitus or hearing loss or vertigo. Any product candidates that we successfully develop and commercialize will
compete with new therapies that may become available in the future. We believe that the key competitive factors affecting the success of our product candidates, if approved, are
likely to be efficacy, safety, convenience, price, tolerability and the availability of reimbursement from government and other third-party payors.
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 Tinnitus Retraining Therapy (TRT) or tinnitus
maskers as well as more recent approaches like transcranial magnetic stimulation, vagus nerve stimulation, or customized sound therapy. Based on publicly available information,
we have further identified the following drug product candidates that are currently in clinical development:
•
•
Autifony Therapeutics Ltd. has a Kv3 potassium channel agonist product candidate (AUT00063) that is designed for oral administration. In 2014 Autifony initiated a
Phase 2 study with AUT00063 in patients with post-acute tinnitus. Following an interim analysis, Autifony announced in October 2015 that it would halt enrollment in
its Phase 2 trial due to a lack of efficacy.
Otonomy Inc. acquired an early stage NMDA receptor antagonist product candidate (NST-001, gacyclidine) from Neurosystec Inc. in October 2013 and, according to
public information, is planning to develop it as OTO-311 for intratympanic injection. According to public information, Otonomy intends to develop a polymer-based
formulation of gacyclidine for the treatment of tinnitus that will provide a full course of treatment from a single intratympanic injection. OTO-311 has been evaluated
in a Phase 1 trial. Following a change in formulation, Otonomy is planning to initiate a Phase 1/2 trial with the modified drug product OTO-313 in 2019.
Based on publicly available information, OTO-311 will target a similar group of tinnitus patients. Its competitive strength will ultimately depend on the demonstration of
clinical efficacy and safety and its comparison with Keyzilen®. Further, we intend to rely on our patent applications with broad disclosures to pursue claims relating to the use of
polymers with NMDA antagonists in controlled-release topical compositions for the treatment of tinnitus. Further 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
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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:
•
•
•
•
•
•
•
•
Autifony Therapeutics Ltd. has a Kv3 potassium channel agonist product candidate (AUT00063) that is designed for oral administration. Autifony conducted a Phase 2
trial with AUT00063 in the treatment of speech-in-noise deficits in elderly patients. Autifony announced in August 2016 that the study showed no treatment benefit for
AUT00063. In July 2016, the company announced a pilot trial with AUT00063 in adult cochlear implant users in the United Kingdom.
GenVec, Inc. is developing CGF166, E1-, E3-, E4-deleted human adenovector serotype 5 (Ad5) backbone in collaboration with Novartis and has initiated a Phase 1/2
study for the treatment of hearing loss and vestibular dysfunction. The first patient was treated in October 2014.
Nordmark, a German company, is developing Ancrod, the biologically active substance from the venom of the Malayan Pit Viper (Calloselasma rhodostoma), for the
treatment of sudden sensorineural hearing loss and has initiated a Phase 2 program.
Sound Pharmaceuticals, Inc. has a product candidate (SPI-1005, ebselen), that mimics and prompts production of the enzyme glutathione peroxidase and is designed
for oral administration. In a Phase 2 clinical trial SP-1005 was tested for the prevention of noise-induced hearing loss in young adults. The study showed a reduction in
the temporary hearing threshold that in one dose was better by 2.75 dB than in the placebo group.
Otologic Pharmaceutics, Inc. has a product candidate (HPN-07) designed for treatment of acute hearing loss by way of oral administration. A Phase 1 trial was
completed in December 2015. A Phase 2 clinical trial is under preparation.
Sensorion, a French company, is developing SENS-401 (R-azasetron besylate) for the treatment of sudden sensorineural hearing loss by way of oral administration.
The company plans to initiate a Phase 2 trial in 2018. Sensorion has received orphan drug designation by the EMA for sudden sensorineural hearing loss.
Southern Illinois University has an antioxidant product candidate (D-methionine) that is designed for oral administration in the prevention and treatment of noise
induced hearing loss and currently being tested in a late stage study with the Department of Defense.
Strekin AG, a privately held Swiss company, has an agonist of the peroxisome proliferator (STR001) that it plans to develop for surgery induced haring loss. A Phase 2
trial was initiated in 2016. Strekin has received orphan drug designation by the EMA for sudden sensorineural hearing loss.
We believe that AM-111 is the only product candidate administered after an incidence of acute hearing loss that so far has demonstrated in a randomized, placebo controlled
clinical trial a clinically relevant and significant improvement in hearing. To our knowledge, we are also the only company to have obtained orphan drug designation for a product
candidate in the treatment of ASNHL in the United States. To the extent that other drug developers demonstrate clinical efficacy for their product candidates in the prevention and
treatment of permanent hearing loss from ASNHL, our competitive position may be weakened, and the market exclusivity under the orphan drug designation may be
circumvented.
Vestibular Disorders
There are a number of product candidates in clinical development by third parties that aim to prevent or treat vertigo. Based on publicly available information, we have
identified the following drug product candidates that are currently in clinical development:
•
Otonomy is developing a polymer-based formulation for the steroid dexamethasone (Otividex; OTO-104) for patients with Meniere’s disease. In August 2017
Otonomy announced that a Phase 3 clinical trial conducted in the United States had failed to show a treatment effect of OTO-104 against placebo and that a European
Phase 3 clinical trial was terminated early. In November 2017 the company announced that the European study showed a statistically significant reduction in the count
of definitive vertigo days.
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•
•
•
Sensorion is developing SENS-111, a histamine H4 receptor antagonist, for the oral treatment of acute vertigo crises. A Phase 2 trial started enrolling patients with
acute unilateral vestibulopathy in 2017.
Sound Pharmaceuticals, Inc. has a product candidate (SPI-1005, ebselen), that mimics and prompts production of the enzyme glutathione peroxidase and is designed
for oral administration. In October 2017 Sound Pharmaceuticals announced a Phase 2 clinical trial with SP-1005 to treat patients with Meniere’s disease.
Castle Creek Pharmaceuticals, LLC, a U.S. company, announced in December 2016 the in-licensing of Arlevert, a fixed-dose combination of cinnarizine, a calcium
channel antagonist, and dimenhydrinate, an antihistamine, from Hennig Arzneimittel GmbH & Co. KG, a German company, and its intention to develop it as a
treatment for vertigo for the U.S. market. Arlevert is approved and has been marketed for a long time in various countries outside the U.S. The current status of the
program, which no longer appears on Castle Creek’s website, is unclear.
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 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.
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. For more
information, please see “Item 3. Key Information—D. Risk factors—Risks Related to Intellectual Property.”
As of December 31, 2017, we own five issued U.S. patents and nine pending U.S. patent applications along with foreign counterparts of such patents and applications in
various jurisdictions. We co-own four of our issued U.S. patents, and one of our pending patent applications with INSERM, along with their foreign counterparts, pursuant to the
terms of our co-ownership and exploitation agreement. In addition, we co-own two of our pending applications with Xigen pursuant to the terms of our collaboration and license
agreement.
In addition, as of December 31, 2017, we have exclusively licensed from Xigen twelve issued U.S. patents and three 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 acute sensorineural hearing loss.
With respect to our issued patents in the United States and Europe, 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.
The patent portfolios for our two leading product candidates as well as other related filings as of December 31, 2017 are summarized below.
Keyzilen®
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We are the owner or co-owner of patents and patent applications relating to Ketamine or its use in inner ear tinnitus. In particular, we have an agreement entitled “Co-
Ownership/Exploitation Agreement” with INSERM with respect to its Ketamine patent portfolio. We have rights to four issued U.S. patents and one pending U.S. applications
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.
AM-111
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 twelve issued U.S. patents and three pending U.S. applications 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 AM-111 are expected to expire between 2020 and 2027, prior to any patent term extensions to which we may
be entitled under applicable laws. In addition, we co-own two patent families with Xigen related to use of JNK ligand peptides for the treatment of Meniere’s disease or tinnitus.
We have several areas of disagreement with Xigen, including (i) our interpretation of the scope of the exclusive worldwide license granted to us by Xigen, (ii) the assignment
by Xigen of certain of the patents covered by the license and (iii) Xigen’s refusal to grant its consent for the disclosure of certain provisions of our agreement in the prospectus
associated with our initial public offering and the filing of a redacted version of the agreement with the SEC. Although the difference in interpretation over the scope of the license
has no impact on our current or planned use of AM-111 and we have been assured by Xigen and its assignee that the assignment of patents is without prejudice to our license,
these areas of disagreement could adversely affect our relationship with Xigen and our business, commercialization prospects and financial conditions. Although Xigen has not
taken any action as of the date of this Annual Report, any resulting litigation could result in substantial legal expenses and potentially the loss of our right to commercialize AM-
111. For a discussion of these issues, please refer to “Item 3. Key Information—D. Risk factors —Risks Related to our Reliance on Third Parties—We have several areas of
disagreement with Xigen, and consequently our relationship with Xigen may be adversely affected, we could potentially lose our right to commercialize AM-111 and our
business, commercialization prospects and financial condition may be adversely affected.”
Additional Patents and Applications
In addition to the Keyzilen® and AM-111 patent portfolios, we own one issued and four U.S. patent applications directed to poloxamer-based compositions with actives
including fluoroquinolone antibiotics, steroids, or gacyclidine. Although these applications are not directed to our Keyzilen® or AM-111 products, they can provide a competitive
advantage in the relevant market.
On July 20, 2015, the USPTO declared Patent Interference No. 106,030 involving our issued U.S. patent No. 9,066,865 (the “‘865 Patent”) and Otonomy’s U.S. patent
application No. 13/848,636 (the “‘636 Application”). The patent interference identified claims 1-9 in the ‘865 Patent as interfering with claims 38, 43 and 46-50 of the ‘636
Application. The ‘865 Patent discloses methods of treating inner or middle ear diseases with intratympanic injections of poloxamer-based compositions. The claims of the ‘865
Patent are directed to the use of fluoroquinolone antibiotics in poloxamer 407 compositions under certain specifications. On January 26, 2017, the USPTO issued a decision on the
interference granting Auris benefit of priority. As a result of the decision, judgment was entered against Otonomy and all claims in the ‘636 Application were refused. In addition,
claims 1-8 of the ‘865 Patent were cancelled as the result of the USPTO’s determination that the written description of the specification lacked full scope support for treating
middle or inner ear disease with fluoroquinolone. However, claim 9, which is directed to a method of treating viral and bacterial infections with intratympanic injection of a
fluoroquinolone antibiotic in a poloxamer 407 composition under certain specifications, was affirmed. On March 27, 2017, Otonomy submitted a notice of appeal to the United
States Court of Appeals for the Federal Circuit. To preserve its rights, Auris filed a notice of cross-appeal on April 5, 2017. Otonomy subsequently filed its opening brief on July
20, 2017, and Auris filed its principal and response brief on October 27, 2017. On January 5, 2018, Otonomy filed its opposition and reply brief. Auris filed its reply brief on
February 2, 2018. See “Item 3. Key Information—D. Risk factors—Risks Related to Intellectual Property.
We have acquired one United States patent from Otifex directed to intranasal application of betahistine for eustachian tube dysfunction and we have filed a patent application
directed at the application of the formulation for vestibular disorders.
Proprietary Rights
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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.
Janssen, a subsidiary of Johnson & Johnson, has been testing Esketamine in a spray formulation for intranasal treatment of treatment-resistant depression in several clinical
trials to date, with a Phase 3 program starting in 2015. In November 2014, the FDA designated Esketamine a ‘breakthrough therapy’ for this indication. In the event that Janssen’s
confirmatory trials are successful and the company receives marketing authorization prior to us receiving marketing authorization for Keyzilen®, we would lose the potential
benefit of a five year market exclusivity period that we would otherwise expect to obtain.
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 AM-111 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.
We have obtained U.S. trademark registrations for Auris, Auris Medical, Auris Medical Cochlear Therapies (and Design) and Keyzilen®.
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 Institut National de la Santé et de la Recherche Médicale, or 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.
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
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In October 2003, we entered into a collaboration and license agreement with Xigen S.A., or 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 active pharmaceutical ingredient for AM-111 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 AM-111. In October 2013, Xigen assigned certain of the patents relevant to the agreement to Xigen Inflammation Ltd, Cyprus, an unaffiliated party.
There have been several areas of disagreement with Xigen, primarily related to interpreting the definition of the Area, the transfer of patents to Xigen Inflammation Ltd. and
to the disclosure of certain provisions of the agreement in the context of our initial public offering. For a discussion of these issues, please refer to “Item 3. Key Information—D.
Risk factors —Risks Related to our Reliance on Third Parties—We have several areas of disagreement with Xigen, and consequently our relationship with Xigen may be
adversely affected, we could potentially lose our right to commercialize AM-111 and our business, commercialization prospects and financial condition may be adversely
affected.”
Manufacturing
We currently rely on and expect to continue to rely on third parties for the supply of raw materials and to manufacture drug supplies for clinical trials of our product
candidates, including Keyzilen®, AM-111 and AM-125. For the foreseeable future, we expect to continue to rely on such third parties for the manufacture of any of our product
candidates on a clinical or commercial scale, if any of our product candidates receives regulatory approval. Reliance on third-party providers may expose us to more risk than if
we were to manufacture product candidates ourselves. The facilities used by our contract manufacturers to manufacture our product candidates must be approved by the FDA or
other regulatory authorities pursuant to inspections that will be conducted after we submit our NDA or comparable marketing application to the FDA or other regulatory authority.
We do not have control over a supplier’s or manufacturer’s compliance with these laws, regulations and applicable cGMP standards and other laws and regulations, such as those
related to environmental health and safety matters. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict
regulatory requirements of the FDA or others, they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities. In addition, we
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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, that supplies could be resumed (whether in part or in whole) within a reasonable timeframe and at an acceptable cost or
at all.
Commercialization Strategy
Given our current stage of product development, we currently do not have a commercialization infrastructure. If any of our product candidates is granted marketing approval,
we intend to focus our initial commercial efforts in the United States and select European markets, which we believe represent the largest market opportunities for us. In those
markets, we expect our commercial operations to include our own specialty sales force that we will specifically develop to target ENTs and specialists in neurotology, both in
hospitals and in private practice. In other markets, we expect to seek partnerships that would maximize our products’ commercial potential.
Government Regulation
Product Approval Process
The clinical testing, manufacturing, labeling, storage, distribution, record keeping, advertising, promotion, import, export and marketing, among other things, of our product
candidates are subject to extensive regulation by governmental authorities in the United States and other countries. The U.S. Food and Drug Administration, or FDA, under the
Federal Food, Drug, and Cosmetic Act, or FDCA, regulates pharmaceutical products in the United States. The steps required before a drug may be approved for marketing in the
United States generally include:
•
•
•
•
•
•
•
the completion of pre-clinical laboratory tests and animal tests conducted under GLP regulations;
the submission to the FDA of an Investigational New Drug, or IND, application for human clinical testing, which must become effective before human clinical trials
commence;
the performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the product candidate for each proposed indication and
conducted in accordance with cGCP;
the submission to the FDA of a New Drug Application, or NDA;
the FDA’s acceptance of the NDA;
satisfactory completion of an FDA inspection of the manufacturing facilities at which the product is made to assess compliance with cGMPs; and
the FDA’s review and approval of an NDA prior to any commercial marketing or sale of the drug in the United States.
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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 institutional review board, or 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 typically are typically conducted in three sequential phases prior to approval, but the phases may overlap. These phases generally include the following:
Phase 1.
Phase 1 clinical trials represent the initial introduction of a product candidate into human subjects, frequently healthy volunteers. In Phase 1, the product
candidate is usually tested for safety, including adverse effects, dosage tolerance, absorption, distribution, metabolism, excretion and pharmacodynamics.
Phase 2.
Phase 2 clinical trials usually involve studies in a limited patient population to (1) evaluate the efficacy of the product candidate for specific indications, (2)
determine dosage tolerance and optimal dosage and (3) identify possible adverse effects and safety risks.
Phase 3.
If a product candidate is found to be potentially effective and to have an acceptable safety profile in Phase 2 studies, the clinical trial program will be expanded
to Phase 3 clinical trials to further demonstrate clinical efficacy, optimal dosage and safety within an expanded patient population at geographically dispersed
clinical study sites.
Phase 4 clinical trials are conducted after approval to gain additional experience from the treatment of patients in the intended therapeutic indication and to document a
clinical benefit in the case of drugs approved under accelerated approval regulations, or when otherwise requested by the FDA in the form of post-market requirements or
commitments. Failure to promptly conduct any required Phase 4 clinical trials could result in withdrawal of approval.
The results of pre-clinical studies and clinical trials, including negative or ambiguous results as well as positive findings, together with detailed information on the
manufacture, composition and quality of the product, are submitted to the FDA in the form of an NDA requesting approval to market the product. The NDA must be accompanied
by a significant user fee payment. The FDA has substantial discretion in the approval process and may refuse to accept any application or decide that the data is insufficient for
approval and require additional pre-clinical, clinical or other studies.
In addition, under the Pediatric Research Equity Act, or PREA, an NDA or supplement to an NDA must contain data to assess the safety and effectiveness of the drug for the
claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective.
The FDA may grant deferrals for submission of data or full or partial waivers. Unless otherwise required by regulation, PREA does not apply to any drug for an indication for
which orphan designation has been granted. However, if only one indication for a product has orphan designation, a pediatric assessment may still be required for any applications
to market that same product for the non-orphan indication(s).
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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, or PDUFA, 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 Active Pharmaceutical Ingredient, or 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.
Special Protocol Assessment
The FDA and an IND sponsor may agree in writing on the design and size of clinical studies intended to form the primary basis of a claim of effectiveness in an NDA. This
process is known as a special protocol assessment, or SPA. Upon a specific request for an SPA by an IND sponsor, the FDA will evaluate the protocol. If an SPA agreement is
reached, however, it is not a guarantee of product approval by the FDA or approval of any permissible claims about the product. The FDA retains significant latitude and
discretion in interpreting the terms of the SPA agreement and the data and results from any study that is the subject of the SPA agreement. In particular, the SPA agreement is not
binding on the FDA if previously unrecognized public health concerns later come to light, other new scientific concerns regarding product safety or efficacy arise, the IND
sponsor fails to comply with the protocol agreed upon, or the relevant data, assumptions, or information provided by the IND sponsor when requesting an SPA agreement change,
are found to be false statements or misstatements, or are found to omit relevant facts. An SPA agreement may not be changed by the sponsor or the FDA after the trial begins
except with the written agreement of the sponsor and the FDA, or if the FDA determines that a substantial scientific issue essential to determining the safety or effectiveness of
the drug was identified after the testing began.
Orphan Drug Designation
Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biological product intended to treat a rare disease or condition, which is a disease or
condition that affects fewer than 200,000 individuals in the US, or if it affects more than 200,000 individuals in the US there is no reasonable expectation that the cost of
developing and making a drug product available in the US for this type of disease or condition will be recovered from sales of the product. Orphan product designation must be
requested before submitting an NDA. After the FDA grants orphan product designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by
the FDA. Orphan product designation does not convey any advantage in or shorten the duration of the regulatory review and approval process.
If a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to
orphan product exclusivity, which means that the FDA may not approve any other applications to market the same drug or biological product for the same indication for seven
years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan exclusivity. The designation of such drug also entitles a party to
financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers. Competitors, however, may receive approval of
different products for the indication for which the orphan product has exclusivity or obtain approval for the same product but for a different indication for which the orphan
product has exclusivity. Orphan product exclusivity also could block the approval of one of our products for seven years if a competitor
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obtains approval of the same drug or biological product as defined by the FDA or if our drug candidate is determined to be contained within the competitor’s product for the same
indication or disease. If a drug product designated as an orphan product receives marketing approval for an indication broader than what is designated, it may not be entitled to
orphan product exclusivity. Orphan drug status in the European Union has similar but not identical benefits in that jurisdiction.
DEA Regulation
The Drug Enforcement Administration, or DEA, regulates drugs that are controlled substances. Controlled substances are those drugs that appear on one of the five schedules
promulgated and administered by the DEA under the Controlled Substances Act, or CSA, such as Ketamine, which is a Schedule III controlled substance. The CSA governs,
among other things, the inventory, distribution, recordkeeping, handling, security and disposal of controlled substances. Any drug that acts on the central nervous system has the
potential to become a controlled substance, and scheduling by the DEA is a separate process that may delay the commercial launch of a drug even after FDA approval of the
NDA. Companies with a scheduled drug are subject to periodic and ongoing inspections by the DEA and similar state drug enforcement authorities to assess ongoing compliance
with the DEA’s regulations. Any failure to comply with these regulations could lead to a variety of sanctions, including the revocation or a denial of renewal of any DEA
registration, injunctions, or civil or criminal penalties.
Post-Approval Requirements
Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements
relating to recordkeeping, periodic reporting, product distribution, advertising and promotion and reporting of adverse experiences with the product. After approval, most changes
to the approved product, such as adding new indications or other labeling claims are subject to prior FDA review and approval. There also are continuing, annual user fee
requirements for any marketed products and the establishments at which such products are manufactured, as well as new application fees for supplemental applications with
clinical data.
In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA
and state agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. Changes to the
manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any
deviations from cGMP and impose reporting and documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use.
Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance.
Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the
product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with
manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-
market studies or clinical trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, among
other things:
•
•
•
•
•
restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls;
fines, warning letters or holds on post-approval clinical trials;
refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation of product license approvals;
product seizure or detention, or refusal to permit the import or export of products; or
injunctions or the imposition of civil or criminal penalties.
The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be promoted only for the approved
indications and in accordance with the provisions of the approved label. 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.
Foreign Regulation
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In order to market any product outside of the United States, we would need to comply with numerous and varying regulatory requirements of other countries and jurisdictions
regarding quality, safety and efficacy and governing, among other things, clinical trials, marketing authorization, commercial sales and distribution of our products. Whether or
not we obtain FDA approval for a product, we would need to obtain the necessary approvals by the comparable foreign regulatory authorities before we can commence clinical
trials or marketing of the product in foreign countries and jurisdictions. Although many of the issues discussed above with respect to the United States apply similarly in the
context of the European Union, the approval process varies between countries and jurisdictions and can involve additional product testing and additional administrative review
periods. The time required to obtain approval in other countries and jurisdictions might differ from and be longer than that required to obtain FDA approval. Regulatory approval
in one country or jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country or jurisdiction may negatively
impact the regulatory process in others.
Other Healthcare Laws
In addition to FDA restrictions on marketing of pharmaceutical products, federal and state healthcare laws govern certain business practices in the biopharmaceutical
industry. These laws include, but are not limited to, anti-kickback, false claims, data privacy and security, and transparency statutes and regulations.
The federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration, directly or indirectly, to
induce, or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any good, facility, item or service reimbursable under Medicare, Medicaid or
other federal healthcare programs. The term “remuneration” has been broadly interpreted to include anything of value, including for example, gifts, discounts, the furnishing of
supplies or equipment, credit arrangements, payments of cash, waivers of payment, ownership interests and providing anything at less than its fair market value. The Anti-
Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers and formulary managers on the
other. Although there are a number of statutory exceptions and regulatory safe harbors protecting certain common activities from prosecution, the exceptions and safe harbors are
drawn narrowly, and our practices may not in all cases meet all of the criteria for a statutory exception or safe harbor protection. Practices that involve remuneration that may be
alleged to be intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exception or safe harbor. Failure to meet all of
the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the Anti-Kickback Statute. Instead, the
legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all of its facts and circumstances. Several courts have interpreted the
statute’s intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federal healthcare covered business, the statute has
been violated. A person or entity does not need to have actual knowledge of the statute or the specific intent to violate it in order to have committed a violation. In addition, 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 civil False Claims Act (discussed below). Further, the civil monetary penalties statute imposes penalties against any person or entity who, among other things, is determined
to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or
is false or fraudulent.
The federal false claims laws, including the civil False Claims Act, prohibit, among other things, any person or entity from knowingly presenting, or causing to be presented,
a false or fraudulent claim for payment or approval to the federal government or knowingly making, using or causing to be made or used a false record or statement material to a
false or fraudulent claim to the federal government. A claim includes “any request or demand” for money or property presented to the U.S. government. Several pharmaceutical
and other healthcare companies have been prosecuted under these laws for, among other things, allegedly providing free product to customers with the expectation that the
customers would bill federal programs for the product. Other companies have been prosecuted for causing false claims to be submitted because of the companies’ marketing of
the product for unapproved, and thus non-covered, uses. The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, prohibits knowingly and willfully
executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors and knowingly and willfully falsifying, concealing
or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of, or payment for, healthcare benefits, items or
services.
In addition, we may be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. HIPAA, as amended
by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and their implementing regulations, imposes certain requirements on certain types of
individuals and entities relating to the privacy, security and transmission of individually identifiable health information. In addition, certain state laws
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govern the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus
complicating compliance efforts.
Additionally, the federal Physician Payments Sunshine Act requires that certain manufacturers of drugs, devices, biologicals and medical supplies for which payment is
available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) report information related to certain payments or other transfers of
value made or distributed to physicians and teaching hospitals, or to entities or individuals at the request of, or designated on behalf of, the physicians and teaching hospitals and
to report annually certain ownership and investment interests held by physicians and their immediate family members.
Also, many states have similar healthcare statutes or regulations that apply to items and services reimbursed under Medicaid and other state programs, or, in several states,
apply regardless of the payor. Certain states require the posting of information relating to clinical studies, pharmaceutical companies to implement a comprehensive compliance
program that includes a limit on expenditures for, or payments to, individual medical or health professionals and track and report gifts and other payments made to physicians and
other healthcare providers. If our operations are found to be in violation of any of the health regulatory laws described above or any other laws that apply to us, we may be subject
to penalties, including potentially significant criminal, civil and/or administrative penalties, damages, fines, disgorgement, individual imprisonment, exclusion of products from
reimbursement under government programs, contractual damages, reputational harm, administrative burdens, diminished profits and future earnings and the curtailment or
restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations. To the extent that any of our products will be
sold in a foreign country, we may be subject to similar foreign laws and regulations, which may include, for instance, applicable post-marketing requirements, including safety
surveillance, anti-fraud and abuse laws and implementation of corporate compliance programs and reporting of payments or transfers of value to healthcare professionals.
Pharmaceutical Coverage, Pricing and Reimbursement
In both domestic and foreign markets, our sales of any approved products will depend in part on the availability of coverage and adequate reimbursement from third-party
payors. Third-party payors include government authorities, managed care providers, private health insurers and other organizations. Patients who are prescribed treatments for
their conditions and providers performing the prescribed services generally rely on third-party payors to reimburse all or part of the associated healthcare costs. Patients are
unlikely to use our products, if approved, unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our products. Sales of our
products will therefore depend substantially, both domestically and abroad, on the extent to which the costs of our products will be paid by third-party payors. These third-party
payors are increasingly focused on containing healthcare costs by challenging the price and examining the cost-effectiveness of medical products and services.
In addition, significant uncertainty exists as to the coverage and reimbursement status of newly approved healthcare product candidates. The market for our product
candidates for which we may receive regulatory approval will depend significantly on access to third-party payors’ drug formularies, or lists of medications for which third-party
payors provide coverage and reimbursement. The industry competition to be included in such formularies often leads to downward pricing pressures on pharmaceutical
companies. Also, third-party payors may refuse to include a particular branded drug in their formularies or otherwise restrict patient access to a branded drug when a less costly
generic equivalent or other alternative is available. Furthermore, third-party payor reimbursement to providers for our product candidates may be subject to a bundled payment
that also includes the procedure administering our products. To the extent there is no separate payment for our product candidates, there may be further uncertainty as to the
adequacy of reimbursement amounts.
Because each third-party payor individually approves coverage and reimbursement levels, obtaining coverage and adequate reimbursement is a time-consuming, costly and
sometimes unpredictable process. We may be required to provide scientific and clinical support for the use of any product to each third-party payor separately with no assurance
that approval would be obtained, and we may need to conduct expensive pharmacoeconomic studies in order to demonstrate the cost-effectiveness of our products. This process
could delay the market acceptance of any product and could have a negative effect on our future revenues and operating results. We cannot be certain that our product candidates
will be considered cost-effective. Because coverage and reimbursement determinations are made on a payor-by-payor basis, obtaining acceptable coverage and reimbursement
from one payor does not guarantee the Company will obtain similar acceptable coverage or reimbursement from another payor. If we are unable to obtain coverage of, and
adequate reimbursement and payment levels for, our product candidates from third-party payors, physicians may limit how much or under what circumstances they will prescribe
or administer them and patients may decline to purchase them. This in turn could affect our ability to successfully commercialize our products and impact our profitability, results
of operations, financial condition and future success.
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Furthermore, in many foreign countries, particularly the countries of the European Union, the pricing of prescription drugs is subject to government control. In some non-U.S.
jurisdictions, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country.
For example, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide
reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a
system of direct or indirect controls on the profitability of the Company placing the medicinal product on the market. We may face competition for our product candidates from
lower-priced products in foreign countries that have placed price controls on pharmaceutical products. In addition, there may be importation of foreign products that compete with
our own products, which could negatively impact our profitability.
Healthcare Reform
In the United States and foreign jurisdictions, there have been, and we expect there will continue to be, a number of legislative and regulatory changes to the healthcare
system that could affect our future results of operations as we begin to directly commercialize our products.
In particular, there have been and continue to be a number of initiatives at the U.S. federal and state level that seek to reduce healthcare costs. Initiatives to reduce the federal
deficit and to reform healthcare delivery are increasing cost-containment efforts. We anticipate that Congress, state legislatures and the private sector will continue to review and
assess alternative benefits, controls on healthcare spending through limitations on the growth of private health insurance premiums and Medicare and Medicaid spending, the
creation of large insurance purchasing groups, price controls on pharmaceuticals and other fundamental changes to the healthcare delivery system. Any proposed or actual
changes could limit or eliminate our spending on development projects and affect our ultimate profitability.
In the future, there may continue to be additional proposals relating to the reform of the United States healthcare system, some of which could further limit the prices we are
able to charge for our products candidates, or the amounts of reimbursement available for our product candidates. If future legislation were to impose direct governmental price
controls and access restrictions, it could have a significant adverse impact on our business. Managed care organizations, as well as Medicaid and other government agencies,
continue to seek price discounts. Some states have implemented, and other states are considering, price controls or patient access constraints under the Medicaid program, and
some states are considering price-control regimes that would apply to broader segments of their populations that are not Medicaid-eligible. Due to the volatility in the current
economic and market dynamics, we are unable to predict the impact of any unforeseen or unknown legislative, regulatory, payor or policy actions, which may include cost
containment and healthcare reform measures. Such policy actions could have a material adverse impact on our profitability.
The federal Drug Supply Chain Security Act imposes obligations on manufacturers of pharmaceutical products, among others, related to product tracking and tracing.
Manufacturers will be required to provide certain information regarding the drug product to individuals and entities to which product ownership is transferred, label drug product
with a product identifier, and keep certain records regarding the drug product. Further, under this new legislation, manufacturers will have drug product investigation, quarantine,
disposition, and notification responsibilities related to counterfeit, diverted, stolen, and intentionally adulterated products, as well as products that are the subject of fraudulent
transactions or which are otherwise unfit for distribution such that they would be reasonably likely to result in serious health consequences or death.
C. Organizational structure
The registrant corporation, Auris Medical Holding AG, has four wholly-owned subsidiaries 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 headquarters are in Zug, Switzerland. We also lease approximately 5,900 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
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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.
A. Operating results
Overview
We are a clinical-stage biopharmaceutical company focused on the development of novel products for the treatment of inner ear and vestibular disorders. We have two lead
clinical-stage product candidates, (i) Keyzilen® (AM-101), which is being developed for the treatment of acute inner ear tinnitus and (ii) AM-111, being developed for the
treatment of acute inner ear hearing loss. Keyzilen ® (AM-101) is being developed for the treatment of acute inner ear tinnitus and has received fast track designation from the
FDA. In two Phase 2 clinical trials, Keyzilen ® demonstrated a favorable safety profile and statistically significant improvement in tinnitus loudness and other patient reported
outcomes. In August 2016, we announced that the trial Efficacy and Safety of AM-101 in the Treatment of Acute Peripheral Tinnitus 2 (TACTT2), the first of two pivotal Phase 3
clinical trials with Keyzilen ® , did not meet the two co-primary endpoints of statistically significant changes in tinnitus loudness and tinnitus burden as measured by the Tinnitus
Functional Index (TFI), compared to placebo.
Based on the outcomes from the TACTT2 trial, we amended our protocol for the TACTT3 Phase 3 clinical trial of Keyzilen® in two steps. Under the final, amended trial
protocol, the change in TFI score was elevated from a key secondary endpoint to a primary efficacy endpoint, the trial size was increased to enhance statistical sensitivity to the
effects of treatment, and the subgroup of patients with otitis media-related tinnitus was included in confirmatory statistical testing along with the overall study population. The
change in tinnitus loudness was downgraded from a primary to a secondary efficacy endpoint. As in TACTT2, tinnitus loudness was initially rated on a daily basis; however, the
rating frequency was subsequently reduced in between study visits in order to lighten the burden of patients and reduce the potential impact of the frequent measures. Enrollment
into the TACTT3 trial was resumed in early 2017 and completed in September 2017. On March 13, 2018, we announced that 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. We are currently investigating the outcomes, including those in TACTT2,
the previously conducted sister trial.
We are also developing AM-111 for acute inner ear hearing loss. In November 2015 and in June 2016 we initiated two pivotal Phase 3 trials in the treatment of idiopathic
sudden sensorineural hearing loss (ISSNHL; aka sudden deafness), titled HEALOS and ASSENT.
HEALOS enrolled 256 patients in Europe and Asia. On November 28, 2017, we announced that the HEALOS trial did not meet the primary efficacy endpoint of a
statistically significant improvement in hearing from baseline to Day 28 compared to placebo for either active treatment groups in the overall study population. However, a post-
hoc analysis of the subpopulation with profound acute hearing loss revealed a clinically and statistically significant improvement in the AM-111 0.4 mg/mL treatment group. We
plan to discuss the HEALOS results and the regulatory pathway with health authorities. In addition, we terminated the ASSENT trial as it is very similar in design to the
HEALOS trial and, based on the new findings, is no longer adequate for testing AM-111.
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, 2017, we had cash and cash equivalents
of CHF 15.0 million. Based on our current plans, we do not expect to generate royalty or product revenues unless and until we obtain marketing approval for, and commercialize,
Keyzilen®, AM-111 or any of our other product candidates.
As of December 31, 2017, we had an accumulated deficit of CHF 136.1 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
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INSERM
In 2006, we entered into a co-ownership/exploitation agreement with the Institut National de la Santé et de la Recherche Médicale, or 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 S.A., or 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.
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 has
agreed to sell us certain preclinical and clinical assets related to a formulation for the intranasal application of betahistine, which we refer to as AM-125, as well as associated
intellectual property rights. We plan to develop the formulation for the treatment of vertigo. The Otifex transaction closed in July 2017. We plan to initiate a second Phase 1
clinical trial with AM-125 in the first half of 2018.
Financial Operations Overview
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;
costs for production of pre-clinical compounds and drug substances by contract manufacturers;
fees and other costs paid to contract research organizations in connection with additional pre-clinical testing and the performance of clinical trials;
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costs of related facilities, materials and equipment;
costs associated with obtaining and maintaining patents;
costs related to the preparation of regulatory filings and fees; and
depreciation and amortization of tangible and intangible fixed assets used to develop our product candidates.
We expect that our operating expenses in 2018 will be in the range of CHF 10.0 to 12.0 million, the majority of which we expect to be research and development expense.
Our research and development expense mainly relates to the following key programs:
•
•
•
Keyzilen® (AM-101). We conducted a Phase 3 clinical development program with Keyzilen® comprising two Phase 3 trials and two open label follow-on trials. We
completed enrollment of the last of these trials (TACTT3) in September 2017. On March 13, 2018, we announced that preliminary top-line data from the TACTT3 trial
indicated that the study did not meet its primary efficacy endpoint of a statistically significant improvement in the Tinnitus Functional 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 are currently investigating the outcomes,
including those in TACTT2, the previously conducted sister trial. We anticipate that our research and development expenses in connection with the Keyzilen® trials
will be lower in 2018 than in 2017, reflecting the completion of trials.
AM-111. We conducted a Phase 3 clinical development program with AM-111 comprising two Phase 3 trials in the treatment of ISSNHL, titled HEALOS and
ASSENT. On November 28, 2017, we announced that the HEALOS trial did not meet the primary efficacy endpoint of a statistically significant improvement in
hearing from baseline to Day 28 compared to placebo for either active treatment groups in the overall study population. However, a post-hoc analysis of the
subpopulation with profound acute hearing loss revealed a clinically and statistically significant improvement in the AM-111 0.4 mg/mL treatment group. We plan to
discuss the HEALOS results and the regulatory pathway with health authorities. In addition, we terminated the ASSENT trial as it is very similar in design to the
HEALOS trial and, based on the new findings, is no longer adequate for testing AM-111.
AM-125. In the first half of 2018, we plan to initiate a second Phase 1 trial in healthy volunteers to further test the safety and tolerability and the pharmacokinetics of
AM-125. We expect to obtain the results of the study in summer 2018.
Other research and development expenses mainly relate to our pre-clinical studies of AM-102 (second generation tinnitus treatment). The expenses mainly consist of costs for
production of the pre-clinical compounds and costs paid to academic and other research institutions in conjunction with pre-clinical testing.
For the years ended December 31, 2017, 2016 and 2015, we spent CHF 6.5 million, CHF 15.3 million and CHF 19.7 million, respectively, on research and development
expenses related to Keyzilen®. For the same time periods, we spend CHF 11.4 million, CHF 9.4 million and CHF 6.4 million, respectively, on research and development expenses
related to AM-111. In addition, we incurred research and development expenses related to our earlier stage products. These expenses exclude the milestone payment to Xigen for
AM-111 as it was capitalized. Research and development expenses are expected to remain at significant levels as we advance the clinical development of Keyzilen®, AM-111 and
AM-125. 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;
the cost of manufacturing clinical supplies, and establishing commercial supplies, of our product candidates and any products that we may develop;
the number and characteristics of product candidates that we pursue;
the cost, timing, and outcomes of regulatory approvals and payer discussions;
the cost and timing of establishing sales, marketing, and distribution capabilities; and
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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 Keyzilen®, AM-111 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 preclinical and clinical studies beyond those which we currently anticipate will be required for the completion of clinical development or if we experience significant
delays in enrollment in any clinical trials, we could be required to expend significant additional financial resources and time on the completion of the clinical development.
General and administrative expense
Our general and administrative expense consists principally of:
•
•
•
•
•
salaries for general and administrative staff and related expenses, including employee benefits;
business development expenses, including travel expenses;
administration expenses including professional fees for auditors and other consulting expenses not related to research and development activities, professional fees for
lawyers not related to the protection and maintenance of our intellectual property and IT expenses;
cost of facilities, communication and office expenses; and
depreciation and amortization of tangible and intangible fixed assets not related to research and development activities.
Interest income
Our policy is to invest funds in low risk investments including interest bearing deposits. Saving and deposit accounts generate a small amount of interest income.
Interest expense
Our interest expense consists principally of bank charges and interest expenses due to the Loan and Security Agreement with Hercules.
Revaluation gain from derivative financial instruments
In connection with the Hercules Loan and Security Agreement, the Company issued Hercules a warrant to purchase up to 241,117 of its common shares at an exercise price
of $3.94 per share. Revaluation gain/(loss) show the changes in fair value of the warrant issued to Hercules. As of March 13, 2018, following the consummation of the Merger, the
Hercules warrant was exercisable for up to 15,673 common shares at an exercise price of $39.40 per common share.
On February 21, 2017, we issued 10,000,000 warrants, each warrant entitling its holder to purchase 0.70 of a common share at an exercise price of $1.20. Additionally, the
underwriter was granted a 30-day option to purchase up to 1,500,000 additional common shares and/or 1,500,000 additional warrants. On February 15, 2017, the underwriter
partially exercised its option for 1,350,000 warrants. Revaluation gain/(loss) show the changes in fair value of the warrant issued in connection with this offering. As of March 13,
2018, following the consummation of the Merger, the outstanding warrants issued in the February 2017 offering were exercisable for up to 794,500 common shares at an exercise
price of $12.00 per common share.
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
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Transaction costs relates to the fees and transaction costs allocated to the warrants (derivative financial instrument) related to the public offering completed on February 21,
2017 and fees and transaction costs allocated to the Commitment Purchase Agreement entered in on October 10, 2017, representing LPC’s commitment to purchase shares at the
option of the Company, subject to certain restrictions (derivative financial instrument).
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.
We determine the net interest expense or income on the net defined benefit liability or 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 or asset, taking into account any changes in the net defined benefit liability or 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.
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.
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Comparison of the years ended December 31, 2017 and 2016
Research and development
General and administrative
Operating loss
Interest income
Interest expense
Foreign currency exchange gain/(loss), net
Revaluation gain/(loss) from derivative financial instruments
Transaction Costs
Loss before tax
Income tax gain
Net loss attributable to owners of the Company
Other comprehensive loss:
Items that will never be reclassified to profit or loss
Remeasurements of defined benefits liability
Items that are or may be reclassified to profit or loss
Foreign currency translation differences
Other comprehensive income/(loss)
Total comprehensive loss attributable to owners of the Company
Research and development expense
Research and development expense
Clinical projects
Preclinical projects
Drug manufacture and substance
Employee benefits
Other research and development expenses
Total
Year Ended December 31,
2017
2016
(in thousands of CHF)
(19,211)
(5,150)
(24,361)
54
(1,640)
(825)
3,372
(1,027)
(24,427)
18
(24,409)
272
50
322
(24,087)
(24,777)
(5,447)
(30,224)
68
(829)
(100)
291
—
(30,794)
131
(30,662)
(394)
(20)
(414)
(31,076)
Year Ended December 31,
2017
2016
(in thousands of CHF)
Change
%
(12,366)
(643)
(2,027)
(2,774)
(1,402)
(19,211)
(16,639)
(546)
(2,609)
(2,855)
(2,128)
(24,777)
Change
%
(22)%
(5)%
(19)%
(21)%
98 %
725 %
1,059 %
— %
(21)%
(86)%
(20)%
(169)%
(350)%
(178)%
(22)%
(26)%
18 %
(22)%
(3)%
(34)%
(22)%
Research and development expense decreased by 22% from CHF 24.8 million in 2016 to CHF 19.2 million in 2017. 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 2016 and 2017 are mainly due to
the following factors:
•
•
•
•
Clinical projects. In 2017, we incurred lower service and milestone costs for our Keyzilen ® studies, mainly reflecting the completion of TACTT2, AMPACT1 and AMPACT2
and progression towards completion of TACTT3 were partly offset by higher AM-111 related expenses due to progression of our HEALOS and ASSENT trials.
Preclinical projects. In 2017 preclinical expenses increased by 18% due to an increase in activities in our early stage program AM-102.
Drug manufacture and substance. In 2017 costs related to raw material purchases and expenses decreased by 22% mainly due to lower costs for process validation related to
Keyzilen ®, which were partly offset by increases related to AM-111.
Employee benefits. Employee benefit costs decreased in 2017 due to lower headcount and lower recruiting fees.
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General and administrative expense
General and administrative expense
Employee benefits
Business development
Travel expenses
Administration expenses
Lease expenses
Depreciation tangible assets
Capital tax (expenses)/income
Total
Year Ended December 31,
2017
2016
(in thousands of CHF)
Change
%
(2,098)
(162)
(199)
(2,522)
(81)
(69)
(18)
(5,150)
(2,175)
(46)
(159)
(2,970)
(64)
(39)
5
(5,447)
(4)%
255 %
26 %
(15)%
28 %
75 %
(440)%
(5)%
General and administrative expenses decreased by 5% from CHF 5.4 million in 2016 to CHF 5.2 million in 2017.
•
•
•
Employee benefits. In 2017, headcount was similar to 2016 and in line with the planned organization of administrative staff and the management team. Employee benefits
expenses decreased as a result of lower personnel cost due to certain positions temporarily being unfilled and lower recruiting fees.
Business development. Business development expenses increased from CHF 0.05 million to CHF 0.2 million as a result of higher consulting fees.
Administration expenses. The decrease of 15% from CHF 3.0 million in 2016 to CHF 2.5 million in 2017, primarily due to lower consultancy fees.
Interest income
Interest income decreased in 2017 compared to 2016 due to lower amounts earned on short-term deposits.
Interest expense
Interest expense increased substantially in 2017 to CHF 1.6 million compared to CHF 0.8 million in 2016, as a result of the Hercules Loan and Security Agreement. On June
19, 2016, we drew $12.5 million under the facility. The loan was initially recognized at transaction value less the fair value of the warrant as of the transaction date and less
directly attributable transactions costs. Following the initial recognition, the loan is measured at amortized cost using the effective interest method. Changes in amortized cost as
well as interest paid to Hercules are recognized as interest expense. In addition, we recognized bank charges as interest expense.
Foreign currency exchange gain/(loss), net
Foreign currency exchange gains/(loss), net increased in 2017 mainly due to the depreciation of the U.S. dollar against the Swiss Franc which triggered a net foreign
unrealized currency loss on U.S. dollar denominated cash and cash equivalents
Revaluation gain/(loss) from derivative financial instruments
In connection with the Hercules Loan and Security Agreement, the Company issued Hercules a warrant to purchase up to 241,117 of its common shares at an exercise price
of $3.94 per share. As of March 13, 2018, following the consummation of the Merger, the warrant was exercisable for 15,673 common shares at an exercise price of $39.40 per
common share. The fair value of the warrant on December 31, 2017 amounted to CHF 23,350. The revaluation gain of the derivative for 2017 amounted to CHF 93,782 (2016:
revaluation gain of CHF 291,048).
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On February 21, 2017, we issued 10,000,000 warrants, each warrant entitling its holder to purchase 0.70 of a common share at an exercise price of $1.20. Additionally, the
underwriter was granted a 30-day option to purchase up to 1,500,000 additional common shares and/or 1,500,000 additional warrants. On February 15, 2017, the underwriter
partially exercised its option for 1,350,000 warrants. As of December 31, 2017, the fair value of the warrants amounted CHF 1,813,412. Since its initial recognition, the fair value
of the warrants have decreased by CHF 3,278,404, resulting in a gain in the corresponding amount (fair value as of February 21, 2017: CHF 5,090,463). As of March 13, 2018,
following the consummation of the Merger, the outstanding warrants issued in the February 2017 offering were exercisable for 794,500 common shares at an exercise price of
$12.00 per common share.
Transaction costs
Transaction costs increased by CHF 1.0 million in 2017 compared to 2016. The increase relates to the fees and transaction costs related to the warrants issued as part of the
public offering completed on February 21, 2017 and for obtaining the Commitment Purchase Agreement entered in October 10, 2017 representing LPC’s commitment to purchase
shares at the option of the Company, subject to certain restrictions.
Income tax gain
Income tax gain reflects the reassessment of deferred tax assets and liabilities booked in the 2014 and 2015 fiscal years.
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 by 169% from 2016 to 2017. The increase was due a change in the discount rate and a change in demographic assumptions.
Foreign currency translation differences
Foreign currency translation differences decreased by 350% from 2016 to 2017. The decrease was primarily related to changes in the opening and closing balance of the
group’s currency translation differences.
Comparison of the years ended December 31, 2016 and 2015
Research and development
General and administrative
Operating loss
Interest income
Interest expense
Foreign currency exchange gain/(loss), net
Revaluation gain from derivative financial instruments
Loss before tax
Income tax expense
Net loss attributable to owners of the Company
Other comprehensive loss:
Items that will never be reclassified to profit or loss
Remeasurements of defined benefits liability, net of taxes of CHF 0
Items that are or may be reclassified to profit or loss
Foreign currency translation differences, net of taxes of CHF 0
Other comprehensive loss
Total comprehensive loss attributable to owners of the Company
76
Year Ended December 31,
2016
2015
(in thousands of CHF)
(24,777)
(5,447)
(30,224)
68
(829)
(100)
291
(30,794)
131
(30,662)
(394)
(20)
(414)
(31,076)
Change
%
(7)%
25 %
(2)%
84 %
10,363 %
(109)%
— %
4 %
— %
3 %
630 %
54 %
518 %
4 %
(26,536)
(4,342)
(30,878)
37
(8)
1,144
—
(29,705)
—
(29,705)
(54)
(13)
(67)
(29,772)
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Research and development expense
Research and development expense
Clinical projects
Preclinical projects
Drug manufacture and substance
Employee benefits
Other research and development expenses
Total
Year Ended December 31,
2016
2015
(in thousands of CHF)
Change
%
(16,639)
(546)
(2,609)
(2,855)
(2,128)
(24,777)
(20,808)
(468)
(1,866)
(2,140)
(1,253)
(26,535)
(20)%
17 %
40 %
33 %
70 %
(7)%
Research and development expense decreased by 7% from CHF 26.5 million in 2015 to CHF 24.8 million in 2016. 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 2015 and 2016 are mainly due to the
following factors:
•
•
•
•
Clinical projects. In 2016 we incurred lower clinical expenses related to our Phase 3 clinical program with Keyzilen® than in 2015. Expenses decreased in 2016 primarily due
to lower service and milestone costs charged by contracted service providers, reflecting the completion of the TACTT2 trial and progress in our open label follow-on studies
AMPACT1 and AMPACT2. The decrease of Keyzilen ® related expenses was partially offset by an increase of cost related to our Phase 3 clinical program with AM-111
reflecting the progress in recruitment in HEALOS and the initiation of patient recruitment in the ASSENT trial.
Preclinical projects. In 2016 preclinical expenses increased due to an increase in activities in our early stage program AM-102.
Drug manufacture and substance. In 2016, drug manufacturing expenses increased due to the validation of the Keyzilen® drug product manufacturing process, work
performed for the AM-111 drug product validation as well as the production of clinical supplies for the AM-111 trials.
Employee benefits. Employee benefits increased in 2016 due to an increase in headcount and higher compensation expenses.
General and administrative expense
General and administrative expense
Employee benefits
Administration expenses
Other
Total
Year Ended December 31,
2016
2015
(in thousands of CHF)
Change
%
(2,175)
(2,970)
(302)
(5,447)
(1,503)
(2,387)
(452)
(4,342)
45 %
24 %
(33)%
25 %
General and administrative expenses increased by 25% from CHF 4.3 million in 2015 to CHF 5.4 million in 2016.
•
•
Employee benefits. Headcount continued to increase in 2016 in line with the expansion of administrative staff and the management team. Employee benefits also reflect an
increase in share-based payments and pension charges.
Administration expenses. The increase reflects higher legal, consulting and auditing expenses associated with operating as a public company.
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•
Other. In 2016, these expenses, which comprise facility, business development and travel costs, decreased from previous year’s level.
Interest income
Interest income increased due to higher interest rates on short-term deposits.
Interest expense
Interest expense increased substantially in 2016, as a result of the Hercules Loan and Security Agreement. On June 19, 2016, we drew $12.5 million under the facility. The
loan was initially recognized at transaction value less the fair value of the warrant as of the transaction date and less directly attributable transactions costs. Following the initial
recognition, the loan is measured at amortized cost using the effective interest method. Changes in amortized cost as well as interest paid to Hercules are recognized as interest
expense. In addition, we recognized bank charges as interest expense.
Foreign currency exchange gains/(losses), net
Foreign currency exchange gains/(loss), net decrease in 2016 due to lower foreign exchange losses on the Company’s U.S. dollar denominated cash and cash equivalents.
Revaluation gain/(loss) from derivative financial instruments
In connection with the Hercules Loan and Security Agreement, the Company issued Hercules a warrant to purchase up to 241,117 of its common shares at an exercise price
of $3.94 per share. As of December 31, 2016, the warrant was exercisable for 156,726 common shares and the fair value of the warrant amounted to CHF 117,132. Since its initial
recognition, the fair value decreased by CHF 291,048 resulting in a gain in the corresponding amount (fair value as of July 19, 2016: CHF 408,180).
Income tax gain
Income tax gain reflects the reassessment of deferred tax assets and liabilities booked in the 2014 and 2015 fiscal years.
Remeasurements of defined benefits liability
Remeasurements of the net defined benefits liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling
(if any, excluding interest), increased by 630% from 2015 to 2016. The increase was due a change in the discount rate and a change in demographic assumptions.
Foreign currency translation differences
Foreign currency translation differences increased by 54% from 2015 to 2016. The increase 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, 2017 and 2016
The table below summarizes our consolidated statement of cash flows for the years ended December 31, 2017 and 2016:
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Net cash used in operating activities
Net cash used in investing activities
Net cash from financing activities
Net effect of currency translation on cash
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
Year Ended December 31,
2017
2016
(in thousands of CHF)
(24,276)
(99)
8,221
(1,315)
32,422
14,973
(29,454)
(177)
11,439
397
50,237
32,442
The decrease in cash used in operating activities from CHF 29.5 million in 2016 to CHF 24.3 million in 2017 reflects the impact of lower operating expenses primarily driven
by lower research and development related expenses.
Cash used in investing activities reflects, in both 2017 and 2016, cash used in the purchase of property, plant and equipment (manufacturing equipment, leasehold
improvements and office furniture) offset by interest received.
Cash from financing activities in 2017 includes the net proceeds of the February 2017 public offering of common shares and warrants to purchase common shares. The net
proceeds to us from the offering were approximately CHF 9.1 million, after deducting underwriting discounts and other offering expenses payable by us. Cash from financing
activities in 2017, also includes the principal amortization and interest payments due to the financing parties under the Hercules Loan and Security Agreement. In addition, cash
from financing activities in 2017 includes the issuance of shares under the Commitment Purchase Agreement and a Registration Rights Agreement with LPC which resulted in net
proceeds of CHF 2.3 million.
Comparison of the years ended December 31, 2016 and 2015
The table below summarizes our consolidated statement of cash flows for the years ended December 31, 2016 and 2015:
Cash used in operating activities
Net cash used in investing activities
Net cash from financing activities
Net effect of currency translation on cash
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
Year Ended December 31,
2016
2015
(in thousands of CHF)
(29,454)
(177)
11,439
397
50,237
32,442
(28,727)
(43)
20,919
1,155
56,934
50,237
The increase in cash used in operating activities from CHF 28.8 million in 2015 to CHF 29.5 million in 2016 reflects the change in working capital.
Cash used in investing activities reflects, in both 2016 and 2015, cash used in the purchase of property, plant and equipment (manufacturing equipment, leasehold
improvements and office furniture) offset by interest received.
Cash from financing activities in 2016 reflects the net proceeds (CHF 12.0 million) from the drawdown of a $12.5 million tranche under the Loan and Security Agreement
with Hercules and accounts for interest payments to Hercules as well as share issuance cost incurred in connection with restricted shares issued as a management bonus. Cash
from financing activities in 2015 reflects the net proceeds (CHF 21.1 million) from our public offering of 5,275,000 common shares at a price of $4.75 per share. The proceeds
were partially offset by issuance costs associated with the offering.
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Cash and funding sources
The table below summarizes our sources of financing for the years ended December 31, 2017, 2016 and 2015.
2017
2016
2015
Total
Equity Capital and
Preferred Shares
Loans
Total
(in thousands of CHF)
11,491
—
21,071
32,562
—
11,987
—
11,987
11,491
11,987
21,071
44,549
On October 10, 2017, we entered into the Commitment Purchase Agreement and a Registration Rights Agreement with LPC. Pursuant to the Commitment Purchase
Agreement, LPC agreed to subscribe for up to $13,500,000 of our common shares over the 30-month term of the Commitment Purchase Agreement. As of March 12, 2018, we
had issued an aggregate of 2,600,000 common shares for an aggregate proceeds of $1,774,655 to LPC pursuant to the Commitment Purchase Agreement. The Commitment
Purchase Agreement terminated upon consummation of the Merger on March 13, 2018.
On October 16, 2017, we issued 1,744,186 common shares to LPC for an aggregate proceeds of $1,500,000.
On February 21, 2017, we completed a public offering of 10,000,000 common shares with a nominal value of CHF 0.40 each and 10,000,000 warrants, each warrant entitling
its holder to purchase 0.70 of a common share. The net proceeds to us from the offering were approximately CHF 9.1 million, after deducting underwriting discounts and other
estimated offering expenses payable by us. The underwriter was granted a 30-day option to purchase up to 1,500,000 additional common shares and/or 1,500,000 additional
warrants. On February 15, 2017, the underwriter partially exercised its option in the amount of 1,350,000 warrants. As of March 13, 2018, following the consummation of the
Merger, the outstanding warrants issued in the February 2017 offering were exercisable for up to 794,500 common shares at an exercise price of $12.00 per common share.
On July 19, 2016, the Company entered into 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 matures on January 2,
2020 and bears interest at a minimum rate of 9.55% per annum, and is subject to the variability of the prime interest rate. The loan is secured by a pledge of the shares of Auris
Medical AG owned by the Company, all intercompany receivables owed to the Company by its Swiss subsidiaries and a security assignment of the Company’s bank accounts. In
connection with the loan facility, we issued Hercules a warrant to purchase up to 241,117 of our common shares at an exercise price of $3.94 per share. As of March 13, 2018,
following consummation of the Merger, the warrant is exercisable for 15,673 common shares at an exercise price of $3.94 per common share.
On June 1, 2016, we entered into a Controlled Equity Offering Sales Agreement with Cantor, pursuant to which we may offer and sell, from time to time common shares,
with a nominal value of CHF 0.40 per share, having an aggregate offering price of up to $35 million through Cantor. In the year ended December 31, 2017, we did not offer or sell
any common shares under the Controlled Equity Offering Sales Agreement. The Controlled Equity Offering program terminated upon consummation of the Merger on March 13,
2018.
On May 20, 2015, we completed a public offering of 5,275,000 common shares at a price to the public of $4.75 per share. The net proceeds of the public offering were CHF
21.1 million.
In addition, subsequent to December 31, 2017, we completed a public offering of 12,499,999 common shares with a nominal value of CHF 0.40 each and concurrent offering
of 7,499,999 warrants, each warrant entitling its holder to purchase one common share. The net proceeds to the Company from the January 2018 were approximately $4.9 million,
after deducting placement agent fees and other estimated offering expenses payable by the Company. As of March 13, 2018, following the consummation of the Merger, the
outstanding warrants issued in the January 2018 offering were exercisable for up to 749,999.9 common shares at an exercise price of $5.00 per common share.
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.
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Funding requirements
We expect that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements into the fourth quarter of 2018. We
have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. Our future funding requirements
will depend on many factors, including but not limited to:
•
•
•
•
•
•
the scope, rate of progress, results and cost of our clinical trials, nonclinical testing, and other related activities;
the cost of manufacturing clinical supplies, and establishing commercial supplies, of our product candidates and any products that we may develop;
the number and characteristics of product candidates that we pursue;
the cost, timing, and outcomes of regulatory approvals;
the cost and timing of establishing sales, marketing, and distribution capabilities; and
the terms and timing of any collaborative, licensing, and other arrangements that we may establish, including any required milestone and royalty payments thereunder.
We expect that we will require additional funding to complete our development programs with Keyzilen®, AM-111 and AM-125, obtain regulatory approval for them and to
commercialize our product candidates Keyzilen ® , AM-111, AM-125 or any other product candidate. If we receive regulatory approval for Keyzilen ®, AM-111 or AM-125, and if
we choose not to grant any licenses to partners, we expect to incur significant commercialization expenses related to product manufacturing, sales, marketing and distribution,
depending on where we choose to commercialize. Additional funds may not be available on a timely basis, on favorable terms, or at all, and such funds, if raised, may not be
sufficient to enable us to continue to implement our long-term business strategy. If we are not able to raise capital when needed, we could be forced to delay, reduce or eliminate
our product development programs or commercialization efforts. Likewise, if we are unable to refinance amounts outstanding under our existing term loan facility before such
amounts are due we may be unable to repay such amounts, which could result in foreclosure of the collateral pledged to secure such loan.
We may raise additional capital through the sale of equity or convertible debt securities. In such an event, your ownership interest will be diluted, and the terms of these new
securities may include liquidation or other preferences that adversely affect your rights as a holder of our common shares. We may also seek to refinance out outstanding
indebtedness.
For more information as to the risks associated with our future funding needs, see “Item 3. Key Information—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
Expenditures on the research programs of the Company are not capitalized, they are expensed when incurred.
Expenditures on the Company’s development programs are generally not capitalized except if development costs can be measured reliably, the product or process is
technically and commercially feasible, future economic benefits are probable, and the Company intends to and has sufficient resources to complete development and to use or sell
the asset. For the development projects of the Company, these criteria are generally only met when regulatory approval for commercialization is obtained. Given the
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current stage of the development projects, no development expenditures have yet been capitalized. 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.
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Deferred income tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized.
Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off tax assets against tax liabilities and when they relate to income taxes levied by
the same taxation authority and the Company intends to settle its tax assets and liabilities on a net basis.
Employee benefits
The Company maintains a pension plan for all employees employed in Switzerland through payments to an independent collective foundation. Under IFRS, the pension plan
qualifies as a defined benefit plan. There are no pension plans for the subsidiaries in Ireland and the United States.
The Company’s net obligation in respect of defined benefit plans is calculated by estimating the amount of future benefit that employees have earned in return for their
service in the current and prior periods, discounting that amount and deducting the fair value of any plan assets.
The recognized asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the
plan. In order to calculate the present value of economic benefits, consideration is given to any minimum funding requirements.
Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling
(if any, excluding interest), are recognized immediately in OCI. The Company determines the net interest expense (income) on the net defined benefit liability (asset) for the
period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability (asset), taking into
account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments. Net interest expense and other expenses related
to defined benefit plans are recognized in profit or loss.
Share-based compensation
Share Options
The Company maintains various share-based payment plans in the form of stock option plans for its employees, members of the Board of Directors as well as key service
providers. Stock options are granted at the Board’s discretion without any contractual or recurring obligations.
The share-based compensation plans qualify as equity settled plans. The grant-date fair value of share-based payment awards granted to employees is recognized as an
expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The vesting of share options is conditional on
the employee completing a period of service of three and four years respectively, from the grant date, in accordance with Plans A and C. Under the Company's equity incentive
plan (the "Equity Incentive Plan" or "EIP") adopted in August 2014 and amended in April 2017 and assumed by Auris NewCo following the Merger, 50% of granted share
options granted to employees vest after a period of service of two years from the grant date and the remaining 50% vest after a period of service of three years from the grant date.
Share options granted to members of the Board of Directors in 2015 and 2016 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 (nominal value) and share premium.
Valuation of share options
The fair value of our share options is determined by our Management and our Board of Directors, and takes into account numerous factors to determine a best estimate of
the fair value of our share options as of each grant date.
In our historical financing rounds, we have mainly relied on the prior sale of stock method where the Company and new investors negotiate the Company’s valuation at
arm’s length. Typical considerations in this method may include the type and
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amount of equity sold, the estimated volatility, the estimated time to liquidity, the relationship of the parties involved, the timing compared to the common shares valuation date
and the financial condition and structure of the Company at the time of the sale.
Following the completion of our initial public offering, option pricing and values are determined based on the Black Scholes option pricing model and assumptions are
made for inputs such as volatility of our stock and the risk free rate.
Recent accounting pronouncements
See Note 4 to our audited financial statements included elsewhere in this Annual Report for a full description of recent accounting pronouncements, including the expected
dates of adoption and effects on the Company’s financial condition, results of operations and cash flows.
JOBS Act exemptions
On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for an “emerging
growth company.” As an emerging growth company, we are electing to take advantage of the following exemptions:
•
•
•
•
not providing an auditor attestation report on our system of internal controls over financial reporting;
not providing all of the compensation disclosure that may be required of non-emerging growth public companies under the U.S. Dodd-Frank Wall Street Reform and
Consumer Protection Act;
not disclosing certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the Chief
Executive Officer’s compensation to median employee compensation; and
not complying with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a
supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis).
These exemptions will apply until 2019 or until we no longer meet the requirements of being an “emerging growth company,” whichever is earlier. We would cease to be an
emerging growth company if we have more than $1.07 billion in annual revenue, have more than $700 million in market value of our common shares held by non-affiliates or
issue more than $1.0 billion of non-convertible debt over a three-year period.
C. Research and development, patents and licenses, etc.
See “Item 4. Information on the Company—A. History and Development of the Company,” “Item 4. Information on the Company—B. Business Overview” and Item 5.
Operating and Financial Review and Prospects—A. Operating Results—Results of Operations.”
D. Trend information
See “Item 5. Operating and Financial Review and Prospects.”
E. Off-balance sheet arrangements
As of the date of this Annual Report, we do not have any, and during the periods presented we did not have any, off-balance sheet arrangements except for the operating lease
mentioned below.
F. Tabular disclosure of contractual obligations
The following table presents information relating to our contractual obligations as of December 31, 2017:
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Operating lease obligations (1)
Loan and Borrowings (2)
Derivative Financial Instruments (3)
Total
___________________
Less Than
1 Year
Payments Due by Period
1-3 Years
3-5 Years
(in thousands of CHF)
161
4,542
322
6,213
4,703
6,535
124
—
1,837
1,961
More than
5 Years
Total
—
—
—
—
607
10,755
1,837
13,199
(1)Operating lease obligations consist of payments pursuant to an operating lease agreements relating to our lease of office space and are not accounted for on the balance sheet.
The lease term of our lease in Basel, Switzerland, is 5 years and expires on September 30, 2021, with an option to extend for another five years.
(2)Loan obligations consist of amortization payments and the end of term fee due under the Hercules Loan and Security Agreement converted to CHF at an exchange rate of CHF
0.9725 to US$1.00. The secured term loan under the Hercules Loan and Security Agreement has a maturity date of January 2, 2020, with an interest-only period through July
1, 2017, and amortized payments of principal and interest thereafter in equal monthly instalments until the maturity date. The loan bears interest at a minimum rate of 9.55%
per annum, and is subject to the variability of the prime interest rate. Interest payments are not included in the table presented above.
(3)Derivative Financial instruments relate to the warrants issued in connection with the Hercules Loan and Security Agreement and the warrants issued in the public offering in
February 2017.
Under the terms of our collaboration and license agreement with Xigen, we are obliged to make development milestone payments on an indication-by-indication basis of up
to CHF 1.5 million upon the successful completion of a Phase 2 clinical trial and regulatory milestone payments on a product-by-product basis of up to CHF 2.5 million, subject
to a mid-twenties percentage reduction for smaller indications, e.g., those qualifying for orphan drug status, upon receiving marketing approval for a product. The milestones are
not included in the table above as they have not met the recognition criteria for provisions and the timing of these is not yet determinable as it is dependent upon the achievement
of earlier mentioned milestones.
Under the terms of the asset purchase agreement with Otifex Therapeutics Pty Ltd, we are obliged to make a development milestone payment of $200,000 if use of the
purchased formulation is supported by the results from toxicology studies over three to six months.
G. Safe harbor
See “Forward-Looking Statements.”
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and senior management
From the 2017 annual general meeting to our extraordinary meeting of shareholders held on March, 12, 2018, our board of directors was composed of Thomas Meyer
(Chairman), Armando Anido, Mats Blom, Oliver Kubli, Berndt A.E. Modig and Calvin W. Roberts (Antoine Papiernik was elected at the 2017 annual meeting and resigned
effective as of September 26, 2017). Mr. Kubli and Mr. Modig did not stand for re-election at the March 12, 2018 meeting. All other directors were re-elected and Alain Munoz
was elected as new director at the March 12, 2018 meeting. The election of directors at the extraordinary meeting of shareholders prior to the Merger were implemented by the
surviving company on March 13, 2018, following the consummation of the Merger. Our directors have been elected for a one year term and, accordingly, the term will expire at
the time of our 2019 annual general meeting.
The following table presents information about our executive officers and directors as of March 13, 2018, following the consummation of the Merger.
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Executive Officers(1)
Thomas Meyer
Andrea Braun-Scherhag
Hernan Levett
Non-Executive Directors(2)(3)
Armando Anido
Mats Blom
Alain Munoz
Calvin W. Roberts
Name
Position
Chairman, Director and Chief Executive
Officer
Head Regulatory & Quality Affairs
Chief Financial Officer
Director
Director
Director
Director
Age
50
51
42
60
53
68
65
Initial Year of
Appointment
2003
2016
2017
2016
2017
2018
2015
(1)Effective April 30, 2017, Anne Sabine Zoller resigned from her position as General Counsel of the Company and, effective December 31, 2017, Thomas Jung resigned from
his position as Chief Development Officer of the Company.
(2)Effective September 26, 2017, Antoine Papiernik resigned from the board of directors of the Company.
(3)Mr. Kubli and Mr. Modig did not stand for re-election at the General Meeting held on March 12, 2018.
Unless otherwise indicated, the current business addresses for our executive officers and directors is Auris Medical Holding AG, Bahnhofstrasse 21, 6300 Zug, Switzerland.
Executive Officers
Thomas Meyer, Founder, Chairman of the Board of Directors and Chief Executive Officer: Mr. Meyer founded Auris Medical in April 2003. Prior to founding us, he
was the Chief Executive Officer of Disetronic Group, a leading Swiss supplier of precision infusion and injection systems. He worked for Disetronic in various functions starting
in 1988, becoming member of the Board of Directors in 1996, Deputy Chief Executive Officer in 1999 and Chief Executive Officer in early 2000. Prior to joining Disetronic, he
advised several Swiss companies in strategy, marketing and corporate finance. He holds a Ph.D. (Dr.rer.pol.) in business administration from the University of Fribourg,
Switzerland.
Andrea Braun-Scherhag, Head Regulatory & Quality Affairs: Ms. Braun leads the Company’s regulatory affairs, quality and pharmacovigilance departments. Prior to
joining the Company, Ms. Braun was Head of Global Regulatory Affairs and Vice President at Alvotech. Prior to Alvotech, she spent 15 years in various regulatory affairs
functions at Roche, most recently as Head of EU Regulatory Affairs, and five years in regulatory affairs at DSM Nutritional Products. Ms. Braun received her state examination in
pharmacy from the University of Heidelberg, Germany, and holds a Ph.D. in immunology from the University of Basel, Switzerland.
Hernan Levett, Chief Financial Officer: Mr. Levett joined the Company on January 1, 2017 as Chief Financial Officer. Prior to joining Auris Medical, Mr. Levett served as
Head of Group Controlling at Acino Pharma AG. Prior to Acino, he served as Vice President of Finance and Administration Europe at InterMune International AG and spent 10
years at Novartis, most recently as Chief Financial Officer of Novartis Chile SA. Mr. Levett is a certified public accountant and holds an accounting degree from the University of
Buenos Aires, Argentina.
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 serves 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 was a member of the Board of Directors and Chairman of the
Compensation Committee of Aviragen Therapeutics (until it merged with Vaxart). He was a member of the Board of Directors of Adolor Corporation until it was sold to Cubist
Pharmaceuticals. Mr. Anido holds a BS in Pharmacy and an MBA from West Virginia University.
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Mats Blom, Director: Mats Blom has been a member of our Board of Directors since April 2017. Mr. Blom is Executive Vice President and Chief Financial Officer (CFO)
of Zealand Pharma A/S. Prior to joining Zealand, he served as CFO of Swedish Orphan International, an orphan drug company acquired by BioVitrum in 2009. In addition, Mr.
Blom has extensive managerial experience and has held CFO positions at Active Biotech AB and Anoto Group AB. Previously, he served as a management consultant at Gemini
Consulting and Ernst & Young. Mats Blom holds a BA in Business Administration and Economics from the University of Lund and an MBA from IESE University of
Navarra, Barcelona.
Alain Munoz, Director: Mr. Munoz, MD, has been a member of our Board of Directors since March 2018 and previously served on our Board of Directors between 2007
and 2015. Mr. Munoz is an entrepreneur and independent management consultant in the pharmaceutical and biotechnology industry. From 1990 to 2000, Dr. Munoz worked with
the Fournier Group, as Research and Development Director and then Senior Vice President of the Pharmaceutical Division. He joined Fournier from Sanofi Research, where he
started as Director in the cardiovascular and anti-thrombotic products department and then as Vice President international development. Dr. Munoz is qualified in cardiology and
anesthesiology from the University Hospital of Montpellier, France where he was head of the clinical cardiology department. He has been a member of the Scientific Committee
of the French drug agency. He is advisor to Kurma partners and serves on the Board of Valneva SA (VLA.PA), Hybrigenics S.A. (ALHYG.PA) and Zealand Pharma A/S.
(ZEAL.CO).
Calvin W. Roberts, Director: Mr. Roberts, MD, has been a member of our Board of Directors since April 2015. Mr. Roberts is Chief Medical Officer at Bausch + Lomb and
Senior Vice President and Chief Medical Officer, Eye Care of Valeant Pharmaceuticals. He joined Bausch + Lomb in 2011. Dr. Roberts is a specialist in cataract and refractive
surgery and has been a pioneer in the use of ophthalmic non-steroidals. Since 1982 he has been a Clinical Professor of Ophthalmology at Weill Medical College of Cornell
University. In addition, he had a private ophthalmology practice in New York City between 1998 and 2008 and is the author of over 50 peer-reviewed articles. Dr. Roberts has
been a member of the Board of Directors and the Audit Committee of Alimera Sciences, Inc., since it was founded in 2003.
B. Compensation
For the year ended December 31, 2017, 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 2,310,786 (2016: CHF 2,235,682).
For the year ended December 31, 2017, 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 94,839 (2016: CHF 88,838).
Compensation awarded to the Board of Directors in 2017
The total compensation of the members of the board of directors in 2017 is outlined below:
In CHF
Cash Compensation
Social Contributions
Stock Options(6)
Total
Thomas Meyer, PhD, Chairman(1)
James I. Healy, MD, PhD, Vice-Chairman(2)
Armando Anido, MBA
Wolfgang Arnold, MD(2)
Mats Blom, MBA(3)
Oliver Kubli, CFA
Berndt A.E. Modig, MBA
Antoine Papiernik, MBA(4)(5)
Calvin W. Roberts, MD
Total
—
10,636
50,105
10,010
34,336
41,700
55,904
20,327
48,018
271,036
—
662
3,119
362
—
2,596
—
0
2,989
9,728
—
0
11,371
0
11,371
11,371
11,371
0
11,371
56,855
—
11,298
64,595
10,372
45,707
55,667
67,275
20,327
62,378
337,619
(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)Dr. Healy and Dr. Arnold did not stand for re-election at the 2017 Annual shareholders’ meeting and their terms therefore ended on April 13, 2017.
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(3)Elected on April 13, 2017.
(4)As the internal regulations applicable to Sofinnova Capital VII FCPR did not allow for payment of a compensation or the grant of equity instruments to fund managers, the
compensation payable to Mr. Papiernik was paid to Sofinnova Capital VII FCPR. Instead of an option grant, the grant date fair value of the options (less applicable taxes and
charges) was paid to Sofinnova Capital VII FCPR in cash.
(5)Resigned effective as of September 26, 2017.
(6)In 2017, 53,140 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 2017
The total compensation and the highest individual compensation to our executive officers in 2017 are outlined below:
in CHF
Thomas Meyer, PhD
Chief Executive Officer(3)
Executive Officers Total(4)
Fixed Cash
Compensation
Variable
Compensation(1)
Social contributions and
fringe benefits
Stock
Options(2)
Total
363,600
1,277,638
—
155,118
60,490
238,948
127,895
301,463
551,985
1,973,167
(1)The variable compensation is paid in cash. Dr. Meyer waived his short-term incentive for 2017.
(2)2017 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, 2017, we had three executive officers. Dr. Zoller and Dr. Jung retired from their functions as executive officers effective as of April 30, 2017 and December
31, 2017, respectively. Mr. Levett was appointed an executive officer effective as of January 1, 2017. The compensation to the retired executive officers for their services in
2017 is included in the executive officer total compensation.
Employment Agreements
We have entered into employment agreements with our executive officers Thomas Meyer, Andrea Braun-Scherhag and Hernan Levett. The employment agreements provide
for the compensation that our executive officers are entitled to receive, including certain equity grants, and contain termination notice periods of seven days for the first three
months and then afterwards six-months’ notice. The Company will have title to the intellectual property rights developed in connection with the executive officer’s employment,
if any. There is an 18 month non-compete period following the end of employment in our agreement with Mr. Meyer and a 12 month non-compete period following the end of
employment in our agreement with Mr. Levett.
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.
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Equity Incentive Plans
Equity Incentive Plan
In August 2014, as amended in April 2017, we established an equity incentive plan (the “Equity Incentive Plan” or “EIP”) with the purpose of motivating and rewarding
those employees and other individuals who are expected to contribute significantly to our success, and advancing the interests of our shareholders by enhancing our ability to
attract, retain and motivate individuals. As of March 13, 2018, following the consummation of the Merger, the maximum number of shares available for issuance under the EIP
was 915,000 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
nominal value of a share of common stock on the grant date. The EIP was assumed by Auris NewCo following the Merger.
Plan administration. The EIP is administered by our compensation committee. Approval of the committee is required for all grants of awards under the EIP. The committee
may delegate to one or more officers the authority to grant options and stock appreciation rights, and the committee may delegate to another committee (which may consist of
solely one director) the authority to grant all types of awards.
Eligibility. Any director, employee, consultant or any other individual who provides services to us or any of our affiliates is eligible to be selected to receive an award under
the EIP.
Awards. Awards include options, stock appreciation rights, restricted stock, restricted stock units, performance awards and other stock-based awards.
Vesting period. The committee determines the time or times at which an option becomes vested and exercisable, provided that the minimum vesting period is 12 months. The
committee may specify in an award agreement that an “in-the-money” option be automatically exercised on its expiration date. For restricted stock and restricted stock units, the
award agreement will specify the vesting schedule and, with respect to restricted stock units, the delivery schedule.
Accelerated vesting. Subject to any additional vesting conditions that may be specified in an individual award agreement, the EIP provides that upon a change of control of
the Company (as defined in the EIP) the committee may cause options and stock appreciation rights to be cancelled in consideration of full acceleration of the award or a
substitute award with equal intrinsic value (as defined in the EIP). It also provides that the committee may decide, or include in any award agreement, the circumstances in which,
and the extent to which, an award may be exercised, settled, vested, paid or forfeited in the event of a participant’s termination of service prior to exercise or settlement of an
award.
Amendment. Our board of directors has the authority to amend the EIP subject, in certain circumstances, to required shareholder approval or the consent of an affected
participant.
Prior Plans
In 2013 we established Stock Option Plan C, or Plan C, and in 2008 we established Stock Option Plan A, or Plan A and Stock Option Plan B, or Plan B. We refer to Plan A,
Plan B and Plan C together as the Prior Plans. Each of the Prior Plans permits the grant of options, or Options, which are subject to transfer restrictions. As of December 31, 2017,
there were 50,000 common shares underlying outstanding Options granted pursuant to Plan A and 121,250 common shares underlying outstanding Options granted pursuant to
Plan C. There are no outstanding Options under Plan B, which was abolished in 2015. Following our initial public offering, we ceased issuing any new grants under Stock Option
Plan C and adopted a new omnibus equity incentive plan under which we have the discretion to grant a broad range of equity-based awards to eligible participants. Plan A and
Plan C were assumed by Auris NewCo following the Merger.
Plan Administration. Under each of the Prior Plans, an Option, which can only be granted with the approval of our board of directors, is evidenced by an option agreement
signed by the participant to indicate his or her acceptance of the Option subject to the terms and conditions of the applicable Prior Plan.
Eligibility. Under Plan A and Plan C, Options may be granted to directors, employees, advisors and agents of the Company.
Option Exercise Price. The exercise price of each Option is set forth in the applicable option agreement. As of March 13, 2018, following the consummation of the Merger,
the exercise prices for currently granted and unexercised Options range from USD 8.20 to USD 59.80.
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Vesting Period. Under Plan A and Plan C, the option period commences on the date of grant and lasts for five years and six years, respectively. Options granted under Plan A
vested and became immediately exercisable upon the closing of our initial public offering. Under Plan C, Options vest four years after grant.
Amendment. Our board of directors has the authority to amend each of the Prior Plans.
Indemnification
Subject to Swiss law, Article 17 of our articles of association provides for indemnification of the existing and former members of our board of directors, executive
management, and their heirs, executors and administrators, against liabilities arising in connection with the performance of their duties in such capacity, and permits us to advance
the expenses of defending any act, suit or proceeding to members of our board of directors and executive management. We also have entered into indemnification agreements with
each of the members of our board of directors and executive officers in the form filed as Exhibit 4.3 to this Annual Report.
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.
C. Board practices
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 articles of association require our directors to retire once they have reached 75 years of age, subject to a special exception being granted by the general meeting of
shareholders for up to two additional terms of office. The current members of our board of directors were appointed at a shareholders meeting held on March 12, 2018 for a one-
year term ending at the next general meeting of shareholders. The election of directors at the extraordinary meeting of shareholders prior to the Merger were implemented by the
surviving company on March 13, 2018, following the consummation of the Merger.
We are a foreign private issuer. As a result, in accordance with the Nasdaq stock exchange listing requirements, we comply with 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;
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•
•
•
•
•
•
•
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. Swiss law requires that we adopt a compensation committee, so in accordance with Nasdaq Listing Rule 5615(a)(3), we follow home
country requirements with respect to the compensation committee. 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.
D. Employees
As of December 31, 2017, we had 24 employees (20.9 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.
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E. Share ownership
See “Item 7. Major Shareholders and Related Party Transactions—A. Major shareholders.”
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major shareholders
The following table presents information relating to the beneficial ownership of our common shares as of March 20, 2018, following the consummation of the Merger, 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 20, 2018
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 20, 2018 are deemed outstanding for purposes of computing the percentage ownership of the
person holding such rights, but are not deemed outstanding for purposes of computing the percentage ownership of any other person, except with respect to the percentage
ownership of all executive officers and directors as a group. As of March 20, 2018, 5,090,525 common shares, or approximately 83.2%, are held by three holders in the United
States. Unless otherwise indicated below, the address for each beneficial owner is Auris Medical Holding AG, Bahnhofstrasse 21, 6300 Zug, Switzerland.
The percentage of common shares beneficially owned is based on 6,117,388 common shares issued and outstanding as of March 20, 2018. The number of outstanding
common shares reflect the 10:1 “reverse stock split” effected through the Merger. 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.
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5% Shareholders
Sofinnova Venture
Partners VIII, L.P. (1)
Sofinnova Capital VII FCPR (2)
Lincoln Park Capital Fund, LLC (3)
Anson Investments Master Fund LP (4)
Sabby Volatility Warrant Master Fund, Ltd. (5)
Empery Asset Management, LP (6)
Executive Officers and Directors
Thomas Meyer, Ph.D. (7)
Armando Anido, M.B.A (8)
Mats Blom, M.B.A. (9)
Oliver Kubli, C.F.A.(10)
Berndt A.E. Modig, M.B.A. (11)
Alain Munoz (12)
Calvin W. Roberts, M.D.(12)
Andrea Braun-Scherhag, Ph.D. (13)
Hernan Levett, CPA
___________________
Shareholder
Shares Beneficially Owned
Number
Percent
921,818
338,445
360,763
333,950
399,740
474,429
772,895
3,296
2,546
222,244
4,296
2,657
9,821
1,042
—
14.73%
5.53%
5.76%
5.33%
6.38%
7.69%
12.56%
*
*
3.63%
*
*
*
*
—
*
Indicates beneficial ownership of less than 1% of the total outstanding common shares.
(1) Based on 9,218,175 common shares reported on a Form 13D/A filed with the SEC on March 9, 2017 (prior to the Merger) by Sofinnova Venture Partners VIII, L.P., a
Delaware limited partnership (“SVP VIII”), Sofinnova Management VIII, L.L.C., a Delaware limited liability company (“SM VIII”), Dr. Srinivas Akkaraju , Dr. Michael F.
Powell , Dr. James I. Healy , and Dr. Anand Mehra. Consists of 7,818,175 common shares and warrants to purchase an additional 1,400,000 common shares. Drs. Powell,
Healy and Mehra, the managing members of SM VIII, which is the general partner of SVP VIII, share the power to vote or dispose of these shares and therefore may be
deemed to have voting and investment power with respect to such shares. Dr. Akkaraju is no longer a managing member of SM VIII. Each of the managing members of SM
VIII disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein, if any. The address for Sofinnova Venture Partners VIII, L.P. and
Sofinnova Management VIII, L.L.C. is 2800 Sand Hill Road, Suite 150, Menlo Park, California 94025, USA. The number of common shares shown in the table reflect the
10-1 “reverse stock split” effected through the Merger.
(2) Based on 3,384,450 common shares reported on a Form 13D/A filed with the SEC on March 5, 2018 (prior to the Merger) by Sofinnova Capital VII FCPR. Consists of
3,384,450 common shares held by Sofinnova Capital VII FCPR ("SC VII"), Sofinnova Partners SAS, a French corporation ("SP SAS"), and Denis Lucquin, Antoine
Papiernik and Monique Saulnier, the managing partners of SP SAS. Rafaèle Tordjman ceased to be a managing partner of SP SAS on February 28, 2017. All of the managing
partners of SP SAS disclaim beneficial ownership of such shares except to the extent of their pecuniary interest therein. The address for Sofinnova Capital VII FCPR is 16-18
Rue du Quatre Septembre, 75002 Paris, France. The number of common shares shown in the table reflect the 10-1 “reverse stock split” effected through the Merger.
(3) Based on 3,607,630 common shares information provided to the Company in connection with the registration statement on Form F-1 filed with the SEC on February 9, 2018
by the Company. Joshua Scheinfeld and Jonathan Cope, the principals of Lincoln Park are deemed to be beneficial owners of all the common shares owned by Lincoln Park.
Messrs. Scheinfeld and Cope have shared voting and disposition power over such shares. The address of Lincoln Park Capital Fund, LLC is 440 N. Wells Street, Suite 410,
Chicago, Illinois 60654.
(4) Based on 3,339,499 common shares information provided to the Company in connection with the registration statement on Form F-1 filed with the SEC on February 9, 2018
by the Company. Anson Advisors Inc and Anson Funds Management LP, the Co-Investment Advisers of Anson Investments Master Fund LP (“Anson”), hold voting and
dispositive power over the common shares held by Anson. Bruce Winson is the managing member of Anson Management GP LLC, which is the general partner of Anson
Funds Management LP. Moez Kassam and Adam Spears are directors of Anson Advisors Inc. Mr.
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Winson, Mr. Kassam and Mr. Spears each disclaim beneficial ownership of such common shares except to the extent of their pecuniary interest therein. The principal
business address of Anson is 190 Elgin Ave; George Town, Grand Cayman.
(5) Based on 3,997,399 common shares information provided to the Company in connection with the registration statement on Form F-1 filed with the SEC on February 9, 2018
by the Company. The address of Sabby Volatility Warrant Master Fund, Ltd. is c/o Ogier Fiduciary Services (Cayman) Limited, 89 Nexus Way, Camana Bay, Grand Cayman
KY1-9007, Cayman Islands. This shareholder has indicated that Hal Mintz has voting and investment power over the shares held by it. This shareholder has indicated that
Sabby Management, LLC serves as its investment manager, that Hal Mintz is the manager of Sabby Management, LLC and that each of Sabby Management, LLC and Hal
Mintz disclaims beneficial ownership over such shares except to the extent of any pecuniary interest therein.
(6) Based on 4,744,290 common shares information provided to the Company in connection with the registration statement on Form F-1 filed with the SEC on February 9, 2018
by the Company. Consists of 2,109,624 common shares beneficially held by Empery Asset Master Ltd ("EAM"), 887,447 common shares beneficially held by Empery Tax
Efficient, LP ("ETE") and 1,747,669 common shares beneficially held by Empery Tax Efficient II, LP ("ETE II"). Empery Asset Management LP, the authorized agent of
EAM, ETE and ETE II, has discretionary authority to vote and dispose of the shares held by EAM, ETE and ETE II and may be deemed to be the beneficial owner of these
shares. Martin Hoe and Ryan Lane, in their capacity as investment managers of Empery Asset Management LP, may also be deemed to have investment discretion and voting
power over the shares held by EAM, ETE and ETE II, Mr. Hoe and Mr. Lane each disclaim any beneficial ownership of these shares. The address of EAM, ETE and ETE II
is c/o Empery Asset Management, LP, 1 Rockefeller Plaza, Suite 1205, New York, New York 10020.
(7) Consists of 724,250 common shares, warrants to purchase 35,000 common shares, options to purchase 6,000 common shares under the Company’s Stock Option Plan C, and
options to purchase 7,645 common shares under the Company’s EIP.
(8) Consists of options to purchase common shares under the Company’s EIP.
(9) Consists of options to purchase common shares under the Company’s EIP.
(10) Based on 2,169,625 common shares reported on a Schedule 13G/A filed with the SEC on February 12, 2018 (prior to the Merger) by Swisscanto Fondsleitung AG,
Swisscanto Holding AG and Zurcher Kantonalbank. Swisscanto Fondsleitung AG, Swisscanto Holding AG and Zurcher Kantonalbank sponsor BB Adamant Global Biotech,
BB Adamant Global Generika, BB Adamant Global Medtech and Services and Swisscanto (CH) Equity Fund Global Health Care (collectively, the “ZKB Funds”).
Investment power over the 216,963 common shares held by the ZKB Funds is exercised by Bellevue Asset Management AG, an independent manager. The address of
Swisscanto Fondsleitung AG, Swisscanto Holding AG and Zurcher Kantonalbank is Bahnhofstrasse 9, 8001 Zurich, Switzerland. The number of common shares shown in
the table reflect the 10-1 “reverse stock split” effected through the Merger.
Oliver Kubli is a Senior Portfolio manager for the ZKB Funds. He disclaims beneficial ownership of such shares except to the extent of his pecuniary interest
therein. Also consists of 1,875 common shares acquired by Mr. Kubli pursuant to the exercise of Plan A options, options to purchase an additional 625 common shares under
the Company’s Stock Option Plan C, and options to purchase an additional 2,782 common shares under the Company’s Equity Incentive Plan held by Mr. Kubli.
(11) Consists of options to purchase common shares under the Company’s EIP.
(12) Consists of 1,250 common shares owned by Alain Munoz, options to purchase an additional 625 common shares under the Company's Stock Option Plan C, and 782 options
to purchase common shares under the Company's EIP.
(13) Consists of 1,525 common shares jointly owned by Calvin W. Roberts and Andrea Colvin Roberts. Also, consists of 2,000 common shares held by Calvin W. Roberts, MD
PC Pension Plan, 1,000 common shares held by The David Roberts Trust and 1,000 common shares held by The Joanna Roberts Trust. Calvin Roberts is a trustee for each of
Calvin W. Roberts, MD PC Pension Plan, The David Roberts Trust and The Joanna Roberts Trust. Also, consists of options to purchase an additional 4,296 common shares
under the Company’s EIP.
(14) Consists of 430 common shares owned by Andrea Braun-Scherhag and 612 options to purchase common shares under the Company’s EIP.
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Holders
As of March 20, 2018, we had eight shareholders of record of our common stock.
Significant Changes in Ownership by Major Shareholders
We have experienced significant changes in the percentage ownership held by major shareholders as a result of our public offerings. Prior to our initial public offering in
August 2014, our principal shareholders were Thomas Meyer (34.9%), Sofinnova Venture Partners VIII, L.P. (19.3%), Sofinnova Capital VII FCPR (18.6%), the ZKB Funds
(11.4%) and entities affiliated with Idinvest Partners (9.1%).
In August 2014, we completed our initial public offering and listed our common shares on the Nasdaq Global Market. In the initial public offering, we issued and sold
10,113,325 common shares, including 713,235 common shares sold to the underwriters pursuant to the underwriters’ over-allotment option. In May 2015, we completed a public
offering of 5,275,000 common shares. In February 2017, we completed a public offering of 10,000,000 common shares and warrants to purchase 7,000,000 common shares. In
January 2018, we completed a public offering of 12,499,999 common shares and a concurrent offering of warrants to purchase 7,499,000 common shares. While none of our
existing shareholders sold common shares in the public offerings, certain shareholders purchased common shares in certain of the public offerings. The percentage ownership held
by certain shareholders decreased as a result of the issuance of the common shares sold by us in the public offerings.
Additionally, in February/March 2018 (prior to the Merger), Sofinnova Capital VII FCPR sold 2,000,000 of our common shares.
B. Related party transactions
The following is a description of related party transactions we have entered into since January 1, 2017 with any of our members of our board of directors or management and the
holders of more than 5% of our common shares.
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 articles of association require us to
indemnify our directors and executive officers to the fullest extent permitted by law.
Employment Agreements
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.”
Registration Rights Agreement
We have entered into a registration rights agreement with certain of our existing shareholders pursuant to which granted them customary registration rights for the resale of
the common shares held by certain of our existing shareholders.
Demand registration rights. Certain of our shareholders that are party to the Registration Rights Agreement (the “RRA Shareholders”) are entitled to request that we effect up
to an aggregate of two demand registrations under the Registration Rights Agreement, covering the RRA Shareholders’ ordinary shares that are subject to transfer restrictions
under Rule 144 (“registrable securities”). The demand registration rights are subject to certain customary conditions and limitations, including customary underwriter cutback
rights and deferral rights. No demand registration rights exist while a shelf registration is in effect.
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Piggyback registration rights. If we propose to register any ordinary shares (other than in a shelf registration or on a registration statement on Form F-4, S-4 or S-8), the RRA
Shareholders are entitled to notice of such registration and to include their registrable securities in that registration. The registration of RRA Shareholders’ registrable securities
pursuant to a piggyback registration does not relieve us of the obligation to effect a demand registration. The managing underwriter has the right to limit the number of registrable
securities included in a piggyback registration if the managing underwriter believes it would interfere with the successful marketing of the ordinary shares.
Form F-3 registration rights. One or more RRA Shareholders have the right to request that we file a registration statement on Form F-3. RRA Shareholders will have the
right to cause us to undertake underwritten offerings from the shelf registration, but no more than one underwritten offering in a six-month period. Each underwritten takedown
constitutes a demand registration for purposes of the maximum number of demand registrations we are obligated to effectuate.
Subject to limited exceptions, the Registration Rights Agreement provides that we must pay all registration expenses in connection with a demand, piggyback or shelf
registration. The Registration Rights Agreement contains customary indemnification and contribution provisions.
Controlled Equity OfferingSM
Thomas Meyer, our Chief Executive Officer, or the Share Lender, has entered into a share lending agreement with Cantor to facilitate the timely settlement of common shares
sold under the Controlled Equity Offering Sales Agreement with Cantor. Pursuant to the terms of the share lending agreement, the Share Lender will lend common shares to
Cantor so that those common shares may be delivered by Cantor to purchasers of common shares sold in any offering under the Controlled Equity Offering Sales Agreement.
Cantor will return common shares to the Share Lender upon the issuance of new common shares by the Company to Cantor. Neither the Company nor the Share Lender received
any compensation for this arrangement. In the year ended December 31, 2017, we did not offer or sell any common shares under the Controlled Equity Offering Sales Agreement.
The Controlled Equity Offering program terminated upon consummation of the Merger on March 13, 2018.
Merger
Thomas Meyer, our Chief Executive Officer, entered into a shares transfer agreement with the Company to facilitate the rounding up of fractional shares resulting from the
exchange ratio used in the Merger. Pursuant to the terms of the share transfer agreement, Mr. Meyer has committed to transfer, at no consideration, a common share to any
shareholder entitled to a fraction of a common share as part of the Merger. Pursuant to the share transfer agreement, the Company nor the Mr. Meyer will receive any
compensation for this arrangement. Any expenses incurred by Mr. Meyer in connection with the transfers under such agreement were borne by the Company.
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. The standalone financial statements of the Company have
been prepared in accordance in Swiss law and have been filed as Exhibit 99.8 to our predecessor's report on Form 6-K filed with the SEC on February 2, 2017.
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.
On July 20, 2015, the USPTO declared Patent Interference No. 106,030 involving our issued U.S. patent No. 9,066,865 (the “‘865 Patent”) and Otonomy’s U.S. patent
application No. 13/848,636 (the “‘636 Application”). The patent interference identified claims 1-9 in the ‘865 Patent as interfering with claims 38, 43 and 46-50 of the ‘636
Application. The ‘865 Patent
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discloses methods of treating inner or middle ear diseases with intratympanic injections of poloxamer-based compositions. The claims of the ‘865 Patent are directed to the use of
fluoroquinolone antibiotics in poloxamer 407 compositions under certain specifications. On January 26, 2017, the USPTO issued a decision on the interference granting Auris
benefit of priority. As a result of the decision, judgment was entered against Otonomy and all claims in the ‘636 Application were refused. In addition, claims 1-8 of the ‘865
Patent were cancelled as the result of the USPTO’s determination that the written description of the specification lacked full scope support for treating middle or inner ear disease
with fluoroquinolone. However, claim 9, which is directed to a method of treating viral and bacterial infections with intratympanic injection of a fluoroquinolone antibiotic in a
poloxamer 407 composition under certain specifications, was affirmed. On March 27, 2017, Otonomy submitted a notice of appeal to the United States Court of Appeals for the
Federal Circuit. To preserve its rights, Auris filed a notice of cross-appeal on April 5, 2017. Otonomy subsequently filed its opening brief on July 20, 2017, and Auris filed its
principal and response brief on October 27, 2017. On January 5, 2018, Otonomy filed its opposition and reply brief. Auris filed its reply brief on February 2, 2018.
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, require
the approval of the annual general meeting of shareholders.
B. Significant changes
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
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A. Offering and listing details
The following table sets forth the high and low closing prices as reported in USD by Nasdaq for the periods presented:
High
Low
Year Ended December 31:
2015
2016
2017
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Month Ended:
September 30, 2017
October 31, 2017
November 30, 2017
December 31, 2017
January 31, 2018
February 28, 2018
Year Ended December 31, 2016:
Year Ended December 31, 2017:
March, 2018 (through March 13, 2018)
* On March 13, 2018, we effected the equivalent of a 10:1 “reverse stock split” through the Merger.
B. Plan of distribution
Not applicable.
C. Markets
6.38
7.79
1.39
7.96
4.42
5.45
1.77
1.39
0.93
0.97
0.95
0.83
0.95
0.95
0.66
0.65
0.38
0.32
3.02
0.90
0.38
3.20
3.10
1.55
0.84
0.66
0.60
0.62
0.38
0.64
0.74
0.38
0.38
0.37
0.24
0.25
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.
D. Selling shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the issue
Not applicable.
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ITEM 10. ADDITIONAL INFORMATION
A. Share capital
Not applicable.
B. Memorandum and articles of association
When we refer to our articles of association in this annual report on Form 20-F, we refer to Auris Newco’s articles of association dated as of March 12, 2018, which became
our articles of association following the Merger.
We are registered with the commercial register of the canton of Zug, Switzerland, under the company number CHE-108.297.413. Our purpose as stated in article 2 of our
articles of association is to hold investments of all kinds in Switzerland and abroad, particularly in relation to pharmaceutical products and services. Moreover, our corporation
may transact any business conducive to developing the corporation or furthering the corporation’s purpose. We may also arrange financing for our own or third-party account, in
particular we may grant loans to Group companies, as well as provide guarantees or surety bonds of any sort of such financing.
Ordinary Capital Increase, Authorized and Conditional Share Capital
Under Swiss law, we may increase our share capital (Aktienkapital) with a resolution of the general meeting of shareholders (ordinary capital increase) that must be carried
out by the board of directors within three months in order to become effective. In the case of subscription and increase against payment of contributions in cash, a resolution
passed by an absolute majority of the shares represented at the general meeting of shareholders is required. In the case of subscription and increase against contributions in kind or
to fund acquisitions in kind, when shareholders’ statutory pre-emptive rights are withdrawn or where transformation of reserves into share capital is involved, a resolution passed
by two-thirds of the shares represented at a general meeting of shareholders and the absolute majority of the nominal amount of the shares represented is required.
Our shareholders, by a resolution passed by two-thirds of the shares represented at a general meeting of shareholders and the absolute majority of the nominal amount of the
shares represented, may empower our board of directors to issue shares of a specific aggregate nominal amount up to a maximum of 50% of the share capital in the form of:
•
•
conditional capital (bedingtes Kapital) for the purpose of issuing shares in connection with, among other things, (i) option and conversion rights granted in connection
with loans, warrants, convertible bonds or other financial market instruments issued by the Company or one of our subsidiaries or (ii) grants of rights to employees,
members of our board of directors or consultants of the Group to subscribe for new shares (conversion or option rights); and/or
authorized capital (genehmigtes Kapital) to be utilized by the board of directors within a period determined by the shareholders but not exceeding two years from the
date of the shareholder approval.
Pre-emptive Rights
Pursuant to the Swiss Code of Obligations, or CO, shareholders have pre-emptive rights (Bezugsrechte) to subscribe for new issuances of shares. With respect to conditional
capital in connection with the issuance of conversion rights, convertible bonds or similar debt instruments, shareholders have advance subscription rights
(Vorwegzeichnungsrechte) for the subscription of conversion rights, convertible bonds or similar debt instruments.
A resolution passed at a general meeting of shareholders by two-thirds of the shares represented and the absolute majority of the nominal value of the shares represented may
authorize our board of directors to withdraw or limit pre-emptive rights and/or advance subscription rights in certain circumstances.
If pre-emptive rights are granted, but not exercised, the board of directors may allocate the pre-emptive rights as it elects.
With respect to our authorized share capital, the board of directors is authorized by our articles of association to withdraw or to limit the pre-emptive rights of shareholders,
and to allocate them to third parties or to the Company, in the event that the newly issued shares are used for a purpose set forth in our articles of association.
Our Authorized Share Capital
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The provision adopted on January 30, 2018, (article 3a of the articles of association) reads as follows (translation of the binding original German version):
“The Board of Directors is authorized at any time until 29 January 2020 to increase the share capital by a maximum aggregate amount of CHF 61,000.00 through the
issuance of not more than 3,050,000 registered shares, which will have to be fully paid-in, with a nominal value of CHF 0.02 each.
Increases in partial amounts are permitted. The Board of Directors may issue new shares also by means of underwriting or in any other manner by one or more banks and
subsequent offer to shareholders or third parties. The Board of Directors determines the type of contributions, the issue price, the time of the issue, the conditions for the exercise
of the pre-emptive rights, the allocation of pre-emptive rights which have not been exercised, and the date on which the dividend entitlement starts. The Board of Directors is
authorized to permit, to restrict or to deny the trade with pre-emptive rights.
If pre-emptive rights are granted, but not exercised, the Board of Directors may use the respective shares in the interest of the Corporation.
The Board of Directors is authorized to restrict or to exclude the pre-emptive rights of the shareholders, and to allocate them to third parties or to the Corporation, in the
event of use of the shares for the purpose of: a) expanding the shareholder base in certain capital markets or in the context of the listing, admission to official trading or
registration of the shares at domestic or international stock exchanges; b) granting an over-allotment option (“greenshoe“) to one or several underwriters in connection with a
placement of shares; c) share placements, provided the issue price is determined by reference to the market price; d) the participation of employees, Members of the Board of
Directors or consultants of the Corporation or of one of its Group companies according to one or several equity incentive plans issued by the Board of Directors; e) the
acquisition of companies, company assets, participations, the acquisition of products, intellectual property rights, licenses or new investment projects or for public or private
share placements for the financing and/or refinancing of such transactions; f) for raising equity capital in a fast and flexible manner as such transaction would be difficult to
carry out, or could be carried out only at less favorable terms, without the exclusion of the pre-emptive rights of the existing shareholders; or g) the acquisition of a participation
in the Corporation by a strategic partner (including in the case of a public takeover offer)."
Within the limits of Swiss law, the general meeting of shareholders may increase or alter the authorization granted to the board of directors. See “Ordinary Capital Increase,
Authorized and Conditional Share Capital.”
Our Conditional Share Capital
Conditional Share Capital for Warrants and Convertible Bonds
The provision adopted on January 30, 2018 (article 3b of the articles of association) reads as follows (translation of the binding original German version):
"The Corporation’s share capital shall be increased by a maximum aggregate amount of CHF 42,700.00 through the issuance of not more than 2,135,000 registered shares,
which will have to be fully paid-in, with a nominal value of CHF 0.02 each, by the exercise of option and conversion rights which are granted in connection with bonds, similar
obligations, loans or other financial market instruments or contractual obligations of the Corporation or one of its Group companies, and/or by the exercise of option rights
issued by the Corporation or one of its Group companies (“Financial Instruments”). The pre-emptive rights of shareholders are excluded. The holders of Financial Instruments
are entitled to the new shares. The conditions of the Financial Instruments shall be determined by the Board of Directors.
When issuing Financial Instruments the Board of Directors is authorized to limit or exclude the advance subscription rights of shareholders:
a.
b.
c.
a) for the purpose of financing or refinancing the acquisition of enterprises, divisions thereof, or of participations, products, intellectual property rights, licenses,
cooperations or of newly planned investments of the Corporation;
b) if the issue occurs on domestic or international capital markets including private placements; or
c) for purposes of an underwriting of the Financial Instruments by a banking institution or a consortium of banks with subsequent offering to the public.
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To the extent that the advance subscription rights are excluded, i) the Financial Instruments are to be placed at market conditions; ii) the exercise period, the conversion
period or the exchange period of the Financial Instruments may not exceed 10 years as of the date of the issue; and iii) the conversion price, the exchange price or other exercise
price of the Financial Instruments must be determined by reference to the market price."
Conditional Share Capital for Equity Incentive Plans
The provision adopted on January 30, 2018 (last paragraph of article 3b of the articles of association) reads as follows (translation of the binding original German version):
“The Corporation’s share capital shall, to the exclusion of the pre-emptive rights and advance subscription rights of shareholders, be increased by a maximum aggregate
amount of CHF 18,300.00 through the issuance of not more than 915,000 registered shares, which shall be fully paid-in, with a nominal value of CHF 0.02 each, by issuance of
shares upon the exercise of options or pre-emptive rights thereof, which have been issued or granted to employees, Members of the Board of Directors or consultants of the
Corporation or of one of its Group companies according to one or several equity incentive plans or regulations issued by the Board of Directors. The details shall be determined
by the Board of Directors.”
Uncertificated Securities
Our shares are uncertificated securities (Wertrechte, within the meaning of art. 973c of the CO) and, when administered by a financial intermediary (Verwahrungsstelle,
within the meaning of the Federal Act on Intermediated Securities, “FISA”), qualify as intermediated securities (Bucheffekten, within the meaning of the FISA). In accordance
with art. 973c of the CO, we maintain a non-public register of uncertificated securities (Wertrechtebuch). We may at any time convert uncertificated securities into share
certificates (including global certificates), one kind of certificate into another, or share certificates (including global certificates) into uncertificated securities. If registered in our
share register, a shareholder may at any time request from us a written confirmation in respect of the shares. Shareholders are not entitled, however, to request the printing and
delivery of certificates.
Participation certificates and profit sharing certificates
The Company has not issued any non-voting equity securities, such as participation certificates (Partizipationsscheine) or profit sharing certificates (Genussscheine), nor has
it issued any preference shares (Vorzugsaktien).
No Additional Capital Contributions
Under Swiss law, shareholders are not obliged to make any capital contribution in excess of the subscription amount.
General Meeting of Shareholders
Ordinary/extraordinary meetings and powers
The general meeting of shareholders is our supreme corporate body. Under Swiss law, ordinary and extraordinary general meetings of shareholders may be held. Under Swiss
law, an ordinary general meeting of shareholders must be held annually within six months after the end of a corporation’s financial year. In our case, this means on or before
June 30.
The following powers are vested exclusively in the general meeting of shareholders:
•
•
•
•
adopting and amending our articles of association;
electing the members of the board of directors, the chairman of the board of directors, the members of the compensation committee, the auditors and the independent
proxy;
approving the annual report, the annual statutory financial statements and the consolidated financial statements, and deciding on the allocation of profits as shown on
the balance sheet, in particular with regard to dividends and bonus payments to members of the board of directors;
approving the compensation of members of the board of directors and executive management, which under Swiss law is not necessarily limited to the executive
officers;
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•
•
•
discharging the members of the board of directors and executive management from liability with respect to their tenure in the previous financial year;
dissolving the Company with or without liquidation;
deciding matters reserved to the general meeting of shareholders by law or our articles of association or that are presented to it by the board of directors.
An extraordinary general meeting of shareholders may be called by a resolution of the board of directors or, under certain circumstances, by the Company’s auditor, liquidator
or the representatives of convertible bond holders, if any. In addition, the board of directors is required to convene an extraordinary general meeting of shareholders if
shareholders representing at least ten percent of the share capital request such general meeting of shareholders in writing. Such request must set forth the items to be discussed and
the proposals to be acted upon. The board of directors must convene an extraordinary general meeting of shareholders and propose financial restructuring measures if, based on
the Company’s stand-alone annual statutory balance sheet, half of our share capital and reserves are not covered by our assets.
Voting and Quorum Requirements
Shareholder resolutions and elections (including elections of members of the board of directors) require the affirmative vote of the absolute majority of shares represented at
the general meeting of shareholders, unless otherwise stipulated by law.
A resolution of the general meeting of the shareholders passed by two-thirds of the shares represented at the meeting, and the absolute majority of the nominal value of the
shares represented is required for:
•
•
•
•
•
•
•
•
amending the Company’s corporate purpose;
creating or cancelling shares with preference rights or amending rights attached to such shares;
cancelling or amending the transfer restrictions of registered shares;
creating authorized or conditional share capital;
increasing the share capital out of equity, against contributions in kind or for the purpose of acquiring specific assets and granting specific benefits;
limiting or suppressing shareholder’s pre-emptive rights;
changing our domicile;
dissolving or liquidating the Company.
The same voting requirements apply to resolutions regarding transactions among corporations based on Switzerland’s Federal Act on Mergers, Demergers, Transformations
and the Transfer of Assets, or the Merger Act (including a merger, demerger or conversion of a corporation) see “Compulsory Acquisitions; Appraisal Rights.”
In accordance with Swiss law and generally accepted business practices, our articles of association do not provide quorum requirements generally applicable to general
meetings of shareholders. To this extent, our practice 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.
Notice
General meetings of shareholders must be convened by the board of directors at least twenty days before the date of the meeting. The general meeting of shareholders is
convened by way of a notice appearing in our official publication medium, currently the Swiss Official Gazette of Commerce. Registered shareholders may also be informed by
ordinary mail. The notice of a general meeting of shareholders must state the items on the agenda, the proposals to be acted upon and, in case of elections, the names of the
nominated candidates. Except in the limited circumstances listed below, a resolution may not be passed at a general meeting without proper notice. This limitation does not apply
to proposals to convene an extraordinary general meeting of shareholders or to initiate a special investigation. No previous notification is required for proposals
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concerning items included in the agenda or for debates that do not result in a vote. The notice period for a general meeting of shareholders may be waived if all shareholders are
present or represented at such meeting.Agenda Requests
Pursuant to Swiss law, one or more shareholders whose combined shareholdings represent the lower of (i) one tenth of the share capital or (ii) an aggregate nominal value of
at least CHF 1,000,000, may request that an item be included in the agenda for an ordinary general meeting of shareholders. To be timely, the shareholder’s request must be
received by us at least 45 calendar days in advance of the meeting. The request must be made in writing and contain, for each of the agenda items, the following information:
•
•
•
a brief description of the business desired to be brought before the ordinary general meeting of shareholders and the reasons for conducting such business at the
ordinary general meeting of shareholders;
the name and address, as they appear in the share register, of the shareholder proposing such business; and
all other information required under the applicable laws and stock exchange rules.
Our business report, the compensation report and the auditor’s report must be made available for inspection by the shareholders at our registered office no later than 20 days
prior to the general meeting of shareholders. Shareholders of record are notified of this in writing.
Voting Rights
Each of our shares entitles a holder to one vote, regardless of its nominal value. The shares are not divisible. The right to vote and the other rights of share ownership may
only be exercised by shareholders (including any nominees) or usufructuaries who are entered in our share register at cut-off date determined by the board of directors. Those
entitled to vote in the general meeting of shareholders may be represented by the independent proxy holder (annually elected by the general meeting of shareholders), another
registered shareholder or third person with written authorization to act as proxy or the shareholder’s legal representative. The chairman has the power to decide whether to
recognize a power of attorney. The Board of Directors issues the regulations on the determination of shareholder status, on proxies and voting instructions, and on the issue of
voting cards.
Dividends and Other Distributions
Our board of directors may propose to shareholders that a dividend or other distribution be paid but cannot itself authorize the distribution. Dividend payments require a
resolution passed by an absolute majority of the shares represented at a general meeting of shareholders. In addition, our auditors must confirm that the dividend proposal of our
board of directors conforms to Swiss statutory law and our articles of association.
Under Swiss law, we may pay dividends only if we have sufficient distributable profits brought forward from the previous business years (Gewinnvortrag), or if we have
distributable reserves (frei verfügbare Reserven), each as evidenced by our audited stand-alone statutory balance sheet prepared pursuant to Swiss law, and after allocations to
reserves required by Swiss law and the articles of association have been deducted. We are not permitted to pay interim dividends out of profit of the current business year.
Distributable reserves are generally booked either as “free reserves” (freie Reserven) or as “reserve from capital contributions” (Reserven aus Kapitaleinlagen). Under the
CO, if our general reserves (allgemeine Reserve) amount to less than 20% of our share capital recorded in the commercial register (i.e., 20% of the aggregate nominal value of our
issued capital), then at least 5% of our annual profit must be retained as general reserves. The CO permits us to accrue additional general reserves. Further, a purchase of our own
shares (whether by us or a subsidiary) reduces the distributable reserves in an amount corresponding to the purchase price of such own shares. Finally, the CO under certain
circumstances requires the creation of revaluation reserves which are not distributable.
Distributions out of issued share capital (i.e., the aggregate nominal value of our issued shares) are not allowed and may be made only by way of a share capital reduction.
Such a capital reduction requires a resolution passed by an absolute majority of the shares represented at a general meeting of shareholders. The resolution of the shareholders
must be recorded in a public deed and a special audit report must confirm that claims of our creditors remain fully covered despite the reduction in the share capital recorded in
the commercial register. The share capital may be reduced below CHF 100,000 only if and to the extent that at the same time the statutory minimum share capital of CHF 100,000
is reestablished by sufficient new fully paid-up capital. Upon approval by the general meeting of shareholders of the capital reduction, the board of directors must give public
notice of
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the capital reduction resolution in the Swiss Official Gazette of Commerce three times and notify creditors that they may request, within two months of the third publication,
satisfaction of or security for their claims. The reduction of the share capital may be implemented only after expiration of this time limit.
Our board of directors determines the date on which the dividend entitlement starts. Dividends are usually due and payable shortly after the shareholders have passed the
resolution approving the payment, but shareholders may also resolve at the ordinary general meeting of shareholders to pay dividends in quarterly or other installments.
Transfer of Shares
Shares in uncertificated form (Wertrechte) may only be transferred by way of assignment. Shares that constitute intermediated securities (Bucheffekten) may only be
transferred when a credit of the relevant intermediated securities to the acquirer’s securities account is made in accordance with the relevant provisions of the FISA. Article 4 of
our articles of association provides that in the case of securities held with an intermediary such as a registrar, transfer agent, trust corporation, bank or similar entity, any transfer,
grant of a security interest or usufructuary right in such intermediated securities and the appurtenant rights associated therewith requires the cooperation of the intermediary in
order for such transfer, grant of a security interest or usufructuary right to be valid against us.
Voting rights may be exercised only after a shareholder has been entered in our share register (Aktienbuch) with his or her name and address (in the case of legal entities, the
registered office) as a shareholder with voting rights. Any acquirer of our shares who is not registered in our share register as a shareholder with voting rights will still be entitled
to dividends and other rights with financial value with respect to such shares.
Inspection of Books and Records
Under the CO, a shareholder has a right to inspect our share register with respect to his own shares and otherwise to the extent necessary to exercise his shareholder rights. No
other person has a right to inspect our share register. Our books and correspondence may be inspected with the express authorization of the general meeting of shareholders or by
resolution of the board of directors and subject to the safeguarding of our business secrets.
Special Investigation
If the shareholders’ inspection rights as outlined above prove to be insufficient in the judgment of the shareholder, any shareholder may propose to the general meeting of
shareholders that specific facts be examined by a special commissioner in a special investigation. If the general meeting of shareholders approves the proposal, we or any
shareholder may, within 30 calendar days after the general meeting of shareholders, request a court in Zug, Switzerland, our registered office, to appoint a special commissioner. If
the general meeting of shareholders rejects the request, one or more shareholders representing at least 10 percent of the share capital or holders of shares in an aggregate nominal
value of at least CHF 2,000,000 may request that the court appoint a special commissioner. The court will issue such an order if the petitioners can demonstrate that the board of
directors, any member of the board of directors or our executive management infringed the law or our articles of association and thereby caused damages to the Company or the
shareholders. The costs of the investigation would generally be allocated to us and only in exceptional cases to the petitioners.
Compulsory Acquisitions; Appraisal Rights
Business combinations and other transactions that are governed by the Swiss Merger Act (i.e., mergers, demergers, transformations and certain asset transfers) are binding on
all shareholders. A statutory merger or demerger requires approval of two-thirds of the shares represented at a general meeting of shareholders and the absolute majority of the
nominal value of the shares represented.
Swiss corporations may be acquired by an acquirer through the direct acquisition of the share capital of the Swiss corporation. The Swiss Merger Act provides for the
possibility of a so-called “cash-out” or “squeeze-out” merger if the acquirer controls 90% of the outstanding shares. In these limited circumstances, minority shareholders of the
corporation being acquired may be compensated in a form other than through shares of the acquiring corporation (for instance, through cash or securities of a parent corporation
of the acquiring corporation or of another corporation). Following a statutory merger or demerger, pursuant to the Merger Act, shareholders can file an appraisal action against the
surviving company. If the consideration is deemed inadequate, the court will determine an adequate compensation payment.
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In addition, under Swiss law, the sale of “all or substantially all of our assets” by us may require the approval of two-thirds of the number of shares represented at a general
meeting shareholders and the absolute majority of the nominal value of the shares represented. Whether a shareholder resolution is required depends on the particular transaction,
including whether the following test is satisfied:
•
•
•
a core part of the Company’s business is sold without which it is economically impracticable or unreasonable to continue to operate the remaining business;
the Company’s assets, after the divestment, are not invested in accordance with the Company’s statutory business purpose; and
the proceeds of the divestment are not earmarked for reinvestment in accordance with the Company’s business purpose but, instead, are intended for distribution to the
Company’s shareholders or for financial investments unrelated to the Company’s business.
Board of Directors
Our articles of association provide that the board of directors shall consist of at least three and not more than nine members.
The members of the board of directors and the chairman are elected annually by the general meeting of shareholders for a period until the completion of the subsequent
ordinary general meeting of shareholders and are eligible for re-election. Each member of the board of directors must be elected individually. Unless an exception is granted by
the general meeting of shareholders, only persons who have not completed their seventy-fifth year of age on the election date are eligible for election. Under Swiss law, a member
of the Board of Directors is not required to be a shareholder.
Powers
The board of directors has the following non-delegable and inalienable powers and duties:
•
•
•
•
•
•
•
•
the ultimate direction of the business of the Company and issuing of the relevant directives;
laying down the organization of the Company;
formulating accounting procedures, financial controls and financial planning, to the extent required for the governance of the Company;
nominating and removing persons entrusted with the management and representation of the Company and regulating the power to sign for the Company;
the ultimate supervision of those persons entrusted with management of the Company, with particular regard to adherence to law, our articles of association, and
regulations
and directives of the Company;
issuing the annual report and the compensation report, and preparing for the general meeting of shareholders and carrying out its resolutions; and
informing the court in case of over-indebtedness.
The board of directors may, while retaining such non-delegable and inalienable powers and duties, delegate some of its powers, in particular direct management, to a single or
to several of its members, managing directors, committees or to third parties who need be neither members of the board of directors nor shareholders. Pursuant to Swiss law and
Article 13 of our articles of association, details of the delegation and other procedural rules such as quorum requirements must be set in the organizational rules issued by the
board of directors.
Indemnification of Executive Management and Directors
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Subject to Swiss law, Article 17 of our articles of association provides for indemnification of the existing and former members of the board of directors, executive
management and their heirs, executors and administrators, against liabilities arising in connection with the performance of their duties in such capacity, and permits us to advance
the expenses of defending any act, suit or proceeding to our directors and executive management.
In addition, under general principles of Swiss employment law, an employer may be required to indemnify an employee against losses and expenses incurred by such
employee in the proper execution of their duties under the employment agreement with the employer.
We have entered into indemnification agreements with each of the members of our board of directors and executive management. The indemnification agreements and our
articles of association require us to indemnify our directors and executive officers to the fullest extent permitted by law.
Conflict of Interest, Management Transactions
Swiss law does not provide for a general provision regarding conflicts of interest. However, the CO contains a provision that requires our directors and executive
management to safeguard the Company’s interests and imposes a duty of loyalty and duty of care on our directors and executive management. This rule is generally understood to
disqualify directors and executive management from participation in decisions that directly affect them. Our directors and executive officers are personally liable to us for breach
of these provisions. In addition, Swiss law contains provisions under which directors and all persons engaged in the Company’s management are liable to the Company, each
shareholder and the Company’s creditors for damages caused by an intentional or negligent violation of their duties. Furthermore, Swiss law contains a provision under which
payments made to any of the Company’s shareholders or directors or any person associated with any such shareholder or director, other than payments made at arm’s length, must
be repaid to the Company if such shareholder or director acted in bad faith.
Our board of directors has adopted a Code of Business Conduct and Ethics that covers a broad range of matters, including the handling of conflicts of interest.
Principles of the Compensation of the Board of Directors and the Executive Management
Pursuant to Swiss law, our shareholders must annually resolve on the approval of the compensation of the board of directors and the persons whom the board of directors has,
fully or partially, entrusted with the management of the Company. The board of directors must issue, on an annual basis, a written compensation report that must be reviewed
together with a report on our business by our auditor. The compensation report must disclose all compensation, loans and other forms of indebtedness granted by the Company,
directly or indirectly, to current or former members of the board of directors and executive management to the extent related to their former role within the Company or not on
customary market terms.
The disclosure concerning compensation, loans and other forms of indebtedness must include the aggregate amount for the board of directors and the executive management
as well as the particular amount for each member of the board of directors and executive officer, specifying the name and function of each respective person.
Certain forms of compensation are prohibited for members of our board of directors and executive management, such as:
•
•
•
•
•
severance payments provided for either contractually or in the articles of association (compensation due until the termination of a contractual relationship does not
qualify as severance payment);
advance compensation;
incentive fees for the acquisition or transfer of corporations or parts thereof by the Company or by companies being, directly or indirectly, controlled by us;
loans, other forms of indebtedness, pension benefits not based on occupational pension schemes and performance-based compensation not provided for in the articles
of association; and
equity securities and conversion and option rights awards not provided for in the articles of association.
Compensation to members of the board of directors and executive management for activities in entities that are, directly or indirectly, controlled by the Company is prohibited
if the compensation (i) would have been prohibited if it was paid directly by
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the Company, (ii) is not provided for in the articles of association or (iii) has not been approved by the general meeting of shareholders.
The general meeting of shareholders annually votes on the proposals of the board of directors with respect to:
•
•
the maximum aggregate amount of compensation of the board of directors for the subsequent term of office; and
the maximum aggregate amount of compensation of the executive management for the subsequent financial year.
The board of directors may submit for approval at the general meeting of shareholders deviating or additional proposals relating to the same or different periods.
In the event that at the general meeting of shareholders the shareholders do not approve a proposal of the board of directors, the board of directors must form a new proposal
for the maximum aggregate compensation and the particular compensation for each individual, taking into account all relevant factors, and submit the new proposal for approval
by the same general meeting of shareholders, at a subsequent extraordinary general meeting or the next ordinary general meeting of shareholders.
In addition to fixed compensation, members of the board of directors and executive management may be paid variable compensation, depending on the achievement of
certain performance criteria. The performance criteria may include individual targets, targets of the Company or parts thereof and targets in relation to the market, other
companies or comparable benchmarks, taking into account the position and level of responsibility of the recipient of the variable compensation. The board of directors or, where
delegated to it, the compensation committee shall determine the relative weight of the performance criteria and the respective target values.
Compensation may be paid or granted in the form of cash, shares, financial instruments, in kind, or in the form of other types of benefits. The board of directors or, where
delegated to it, the compensation committee shall determine grant, vesting, exercise and forfeiture conditions.
Borrowing Powers
Neither Swiss law nor our articles of association restrict in any way our power to borrow and raise funds. The decision to borrow funds is made by or under the direction of
our board of directors, and no approval by the shareholders is required in relation to any such borrowing.
Repurchases of Shares and Purchases of Own Shares and Other Limitations on the Rights to Own Securities
The CO limits our right to purchase and hold our own shares. We and our subsidiaries may purchase shares only if and to the extent that (i) we have freely distributable
reserves in the amount of the purchase price; and (ii) the aggregate nominal value of all shares held by us does not exceed 10 percent of our share capital. Pursuant to Swiss law,
where shares are acquired in connection with a transfer restriction set out in the articles of association, the foregoing upper limit is 20 percent. We currently do not have any
transfer restriction in our articles of association. If we own shares that exceed the threshold of 10 percent of our share capital, the excess must be sold or cancelled by means of a
capital reduction within two years.
Shares held by us or our subsidiaries are not entitled to vote at the general meeting of shareholders but are entitled to the economic benefits applicable to the shares generally,
including dividends and pre-emptive rights in the case of share capital increases.
Swiss law and/or our articles of association do not impose any restrictions on the exercise of voting or any other shareholder right by shareholders resident outside
Switzerland.
Notification and Disclosure of Substantial Share Interests
The disclosure obligations generally applicable to shareholders of Swiss corporations under the Swiss Financial Market Infrastructure Act do not apply to us since our shares
are not listed on a Swiss exchange.
Pursuant to art. 663c of the CO, Swiss corporations whose shares are listed on a stock exchange must disclose their significant shareholders and their shareholdings in the
notes to their balance sheet, where this information is known or ought to
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be known. Significant shareholders are defined as shareholders and groups of shareholders linked through voting rights who hold more than five percent of all voting rights.
C. Material contracts
Except as otherwise disclosed in this annual report on Form 20-F (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.
D. Exchange controls
There are no Swiss governmental laws, decrees or regulations that restrict, in a manner material to us, the export or import of capital, including any foreign exchange
controls, or that generally affect the remittance of dividends or other payments to non-residents or non-citizens of Switzerland who hold our common shares.
E. Taxation
The following summary contains a description of the material 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 Switzerland and regulations thereunder and on the tax laws of the United States and regulations thereunder as of the date hereof, which are subject to
change.
Swiss Tax Considerations
This summary of material Swiss tax consequences is based on Swiss law and regulations and the practice of the Swiss tax administration as in effect on the date hereof, all of
which are subject to change (or subject to changes in interpretation), possibly with retroactive effect. The summary does not purport to take into account the specific
circumstances of any particular shareholder or potential investor and does not relate to persons in the business of buying and selling common shares or other securities. The
summary is not intended to be, and should not be interpreted as, legal or tax advice to any particular potential shareholder/s, and no representation with respect to the tax
consequences to any particular shareholder/s is made.
Current and prospective shareholders are advised to consult their own tax advisers in light of their particular circumstances as to the Swiss tax laws, regulations and
regulatory practices that could be relevant for them in connection with the acquiring, owning and selling or otherwise disposing of common shares and receiving dividends and
similar cash or in-kind distributions on common shares (including dividends on liquidation proceeds and stock dividends) or distributions on common shares based upon a capital
reduction (Nennwertrückzahlungen) or reserves paid out of capital contributions (Reserven aus Kapitaleinlagen) and the consequences thereof under the tax laws, regulations and
regulatory practices of Switzerland.
Taxation of Auris Medical Holding AG
Auris Medical Holding AG is a Swiss based company, taxed as a holding company in the Canton of Zug. The Company is taxed at a current effective income tax rate of
7.83% (including direct federal as well as cantonal/communal taxes), whereby a participation relief applies to dividend income from qualifying subsidiaries, and a current annual
capital tax rate of 0.003% which is levied on the net equity of the Company.
Switzerland is currently in the process of reforming certain elements of its corporate tax law which may impact the taxation of Auris Medical Holding AG (including the
abolition of the holding privilege at cantonal/communal level). Whether and when such new rules will enter into force is not known.
Taxation of Common Shares: Swiss Federal Withholding Tax on Dividends and Distributions
Dividend payments and similar cash or in-kind distributions on the common shares (including dividends on liquidation proceeds and stock dividends) that the Company
makes to shareholders are subject to Swiss federal withholding tax (Verrechnungssteuer) at a rate of 35% on the gross amount of the dividend. The Company is required to
withhold the Swiss federal withholding tax from the dividend and remit it to the Swiss Federal Tax Administration. Distributions based upon a capital reduction
(Nennwertrückzahlungen) and reserves paid out of capital contributions (Reserven aus Kapitaleinlagen) are not subject to Swiss federal withholding tax.
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The Swiss federal withholding tax may also apply to gains realized upon a repurchase of shares by the Company, on the difference between the repurchase price and the
nominal value of the shares (Nennwertprinzip); a different basis of taxation may apply under the capital contribution principle (Kapitaleinlageprinzip).
The Swiss federal withholding tax is refundable or creditable in full to a Swiss tax resident corporate and individual shareholder as well as to a non-Swiss tax resident
corporate or individual shareholder who holds the common shares as part of a trade or business carried on in Switzerland through a permanent establishment or fixed place of
business situated for tax purposes in Switzerland, if such person is the beneficial owner of the distribution and, in the case of a Swiss tax resident individual who holds the
common shares as part of his private assets, duly reports the gross distribution received in his individual income tax return or, in the case of a person who holds the common
shares as part of a trade or business carried on in Switzerland through a permanent establishment or fixed place of business situated for tax purposes in Switzerland, recognizes the
gross dividend distribution for tax purposes as earnings in the income statements and reports the annual profit in the Swiss income tax return.
If a shareholder who is not a Swiss resident for tax purposes and does not hold the common shares in connection with the conduct of a trade or business in Switzerland
through a permanent establishment or fixed place of business situated, for tax purposes in Switzerland, receives a distribution from the Company, the shareholder may be entitled
to a full or partial refund or credit of Swiss federal withholding tax incurred on a taxable distribution if the country in which such shareholder is resident for tax purposes has
entered into a treaty for the avoidance of double taxation with Switzerland and the further prerequisites of the treaty for a refund have been met. Shareholders not resident in
Switzerland should be aware that the procedures for claiming treaty benefits (and the time required for obtaining a refund or credit) may differ from country to country.
On 27 May 2015, Switzerland signed an agreement with the European Union (EU) to meet the Organisation for Economic Co-operation and Development's (OECD) global
standard for the automatic exchange of financial account information. The agreement came into force on January 1, 2017 and exempts intercompany payments of dividends,
interest and royalties from any withholding tax in the source state.
Individual and Corporate Income Tax on Dividends
Swiss resident individuals holding the common shares as part of their private assets who receive dividends and similar distributions (including stock dividends and liquidation
proceeds), which are not repayments of the nominal value (Nennwertrückzahlungen) of the common shares or reserves paid out of capital contributions (Reserven aus
Kapitaleinlagen) are required to report such payments in their individual income tax returns and are liable to Swiss federal, cantonal and communal income taxes on any net
taxable income for the relevant tax period. Furthermore, for the purpose of the Direct Federal Tax, dividends, shares in profits, liquidation proceeds and pecuniary benefits from
shares (including bonus shares) are included in the tax base for only 60% of their value (Teilbesteuerung), if the investment amounts to at least 10% of nominal capital of the
Company. Most Swiss cantons have introduced similar partial taxation measures at cantonal and communal levels.
Swiss resident individuals as well as non-Swiss resident individual taxpayers holding the common shares in connection with the conduct of a trade or business in Switzerland
through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland, are required to recognize dividends, distributions based upon a capital
reduction (Nennwertrückzahlungen) and reserves paid out of capital contributions (Reserven aus Kapitaleinlagen) in their income statements for the relevant tax period and are
liable to Swiss federal, cantonal and communal individual or corporate income taxes, as the case may be, on any net taxable earnings accumulated (including the payment of
dividends) for such period. Furthermore, for the purpose of the Direct Federal Tax, dividends, shares in profits, liquidation proceeds and pecuniary benefits from shares (including
bonus shares) are included in the tax base for only 50% (Teilbesteuerung), if the investment is held in connection with the conduct of a trade or business or qualifies as an opted
business asset (gewillkürtes Geschäftsvermögen) according to Swiss tax law and amounts to at least 10% of nominal capital of the Company. All cantons have introduced similar
partial taxation measures at cantonal and communal levels.
Swiss resident corporate taxpayers as well as non-Swiss resident corporate taxpayers holding the common shares in connection with the conduct of a trade or business
through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland, are required to recognize dividends, distributions based upon a capital
reduction (Nennwertrückzahlungen) and reserves paid out of capital contributions (Reserven aus Kapitaleinlagen) in their income statements for the relevant tax period and are
liable to Swiss federal, cantonal and communal corporate income taxes on any net taxable earnings accumulated for such period. Swiss resident corporate taxpayers as well as
non-Swiss resident corporate taxpayers holding the common shares in connection with the conduct of a trade or business through a permanent establishment or fixed place of
business situated, for tax purposes, in Switzerland may be eligible for participation relief (Beteiligungsabzug)
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in respect of dividends and distributions based upon a capital reduction (Nennwertrückzahlungen) and reserves paid out of capital contributions (Reserven aus Kapitaleinlagen) if
the common shares held by them as part of a Swiss business have an aggregate market value of at least CHF 1 million or represent at least 10% of the share capital of the
Company or give entitlement to at least 10% of the profits and reserves of the Company, respectively.
Recipients of dividends and similar distributions on the common shares (including stock dividends and liquidation proceeds) who neither are residents of Switzerland nor
during the current taxation year have engaged in a trade or business in Switzerland and who are not subject to taxation in Switzerland for any other reason are not subject to Swiss
federal, cantonal or communal individual or corporate income taxes in respect of dividend payments and similar distributions because of the mere holding of the common shares.
Wealth and Annual Capital Tax on Holding of Common Shares
Swiss resident individuals and non-Swiss resident individuals holding the common shares in connection with the conduct of a trade or business in Switzerland through a
permanent establishment or fixed place of business situated, for tax purposes, in Switzerland, are required to report their common shares as part of their wealth and will be subject
to cantonal and communal wealth tax to the extent the aggregate taxable net wealth is allocable to Switzerland.
Swiss resident corporate taxpayers and non-Swiss resident corporate taxpayers holding the common shares in connection with the conduct of a trade or business in
Switzerland through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland, will be subject to cantonal and communal annual capital tax
on the taxable capital to the extent the aggregate taxable capital is allocable to Switzerland.
Individuals and corporate taxpayers not resident in Switzerland for tax purposes and not holding the common shares in connection with the conduct of a trade or business in
Switzerland through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland, are not subject to wealth or annual capital tax in Switzerland
because of the mere holding of the common shares.
Capital Gains on Disposal of Common Shares
Swiss resident individuals who sell or otherwise dispose of the common shares realize a tax-free capital gain, or a non-deductible capital loss, as the case may be, provided
that they hold the common shares as part of their private assets. Under certain circumstances, the sales proceeds may be recharacterised into taxable investment income (e.g.,
professional securities dealer, etc.).
Capital gains realized on the sale of the common shares held by Swiss resident individuals who do not hold the common
shares as part of their private assets and Swiss resident corporate taxpayers, as well as non-Swiss resident individuals and corporate taxpayers holding the common shares in
connection with the conduct of a trade or business in Switzerland through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland, will be
subject to Swiss federal, cantonal and communal individual or corporate income tax, as the case may be. This also applies to Swiss resident individuals who, for individual
income tax purposes, are deemed to be professional securities dealers for reasons of, inter alia, frequent dealing and debt-financed purchases. Capital gains realized by resident
individuals who hold the common shares as business assets might be entitled to reductions or partial taxations similar to those mentioned above for dividends (Teilbesteuerung) if
certain conditions are met (e.g., holding period of at least one year and participation of at least 10% of nominal capital of the Company).
Swiss resident corporate taxpayers as well as non-Swiss resident corporate taxpayers holding the common shares in connection with the conduct of a trade or business,
through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland, are required to recognize such capital gain in their income statements for
the relevant tax period. Corporate taxpayers may qualify for participation relief on capital gains (Beteiligungsabzug), if the common shares sold during the tax period represent at
least 10% of the Company’s share capital or if the common shares sold give entitlement to at least 10% of the Company’s profit and reserve and were held for at least one year.
The tax relief applies to the difference between the sale proceeds of common shares by the Company and the initial costs of the participation (Gestehungskosten).
Individuals and corporations not resident in Switzerland for tax purposes and not holding the common shares in connection with the conduct of a trade or business in
Switzerland through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland, are not subject to Swiss federal, cantonal and communal
individual income or corporate income tax, as the case may be, on capital gains realized on the sale of the common shares.
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Gift and Inheritance Tax
Transfers of common shares may be subject to cantonal and/or communal inheritance or gift taxes if the deceased or the donor or the recipient were resident in a Canton
levying such taxes and, in international circumstances where residency requirements are satisfied, if the applicable tax treaty were to allocate the right to tax to Switzerland.
Swiss Issuance Stamp Duty
The Company is subject to paying to the Swiss Federal Tax Administration a 1% Swiss federal issuance stamp tax (Emissionsabgabe) on any increase of the nominal capital
of the Company (with or without issuance of shares) or any other equity contributions received by the Company (regardless of whether or not any compensation is paid to the
shareholder in connection with the contribution). Certain costs incurred in connection with the issuance of shares (if any) may be deductible. There are several exemptions from
issuance stamp tax that may apply under certain circumstances (e.g., certain intercompany reorganizations).
Swiss Securities Transfer Tax
The purchase or sale (or other financial transfer) of the common shares, whether by Swiss residents or non-Swiss residents, may be subject to Swiss securities transfer tax of
up to 0.15%, calculated on the purchase price or the proceeds if the purchase or sale occurs through or with a Swiss bank or other Swiss securities dealer as defined in the Swiss
Federal Stamp Duty Act as an intermediary or party to the transaction unless an exemption applies.
Material U.S. Federal Income Tax Considerations for U.S. Holders
The following is a description of the material U.S. federal income tax consequences to the U.S. Holders described below of owning and disposing of common shares, but it
does not purport to be a comprehensive description of all tax considerations that may be relevant to a particular person’s decision to hold the common shares. This discussion
applies only to a U.S. Holder that holds common shares as capital assets for U.S. federal
income tax purposes. In addition, it does not describe all of the tax consequences that may be relevant in light of the U.S. Holder’s particular circumstances, including alternative
minimum tax consequences, the potential application of the provisions of the Code, known as the Medicare contribution tax and tax consequences applicable to U.S. Holders
subject to special rules, such as:
•
•
•
•
•
•
•
•
•
certain financial institutions;
dealers or traders in securities who use a mark-to-market method of tax accounting;
persons holding common shares as part of a straddle, wash sale, conversion transaction or persons entering into a constructive sale with respect to the common shares;
persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar;
entities classified as partnerships for U.S. federal income tax purposes;
tax-exempt entities, including an “individual retirement account” or “Roth IRA”;
persons that own or are deemed to own ten percent or more of our stock by vote or value;
persons who acquired our common shares pursuant to the exercise of an employee stock option or otherwise as compensation; or
persons holding shares in connection with a trade or business conducted outside of the United States.
If an entity that is classified as a partnership for U.S. federal income tax purposes holds common shares, the U.S. federal income tax treatment of a partner will generally
depend on the status of the partner and the activities of the partnership. Partnerships holding common shares and partners in such partnerships should consult their tax advisers as
to their particular U.S. federal income tax consequences of holding and disposing of the common shares.
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This discussion is based on the Code, administrative pronouncements, judicial decisions, final, temporary and proposed Treasury regulations, and the income tax treaty
between Switzerland and the United States, or the Treaty, 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 who is eligible for the benefits of the Treaty and is:
•
•
•
an individual who is a citizen or resident of the United States;
a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state therein or the District of Columbia; or
an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.
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 2017 taxable year, and we expect to be a PFIC for our current taxable year and for the
foreseeable future. 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 "Risks Related to Our Business and Industry--We have received a delisting
notice from
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Nasdaq" 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.”
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 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 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 information will be available for any Lower-tier PFIC.
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. 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). The amount of a
dividend will include any amounts withheld by us in respect of Swiss taxes. 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. The amount of any dividend income paid in Swiss Francs will be the U.S. dollar amount calculated by reference to
the exchange rate in effect on the date of receipt, regardless of whether the payment is in fact converted into U.S. dollars. If the dividend is converted into U.S. dollars on the date
of receipt, a U.S. Holder should not be required to recognize foreign currency gain or loss in respect of the dividend income. A U.S. Holder may have foreign currency gain or
loss if the dividend is converted into U.S. dollars after the date of receipt.
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Subject to applicable limitations, some of which vary depending upon the U.S. Holder’s circumstances, Swiss income taxes withheld from dividends on common shares at a
rate not exceeding the rate provided by the Treaty may be creditable against the U.S. Holder’s U.S. federal income tax liability. Swiss taxes withheld in excess of the rate
applicable under the Treaty will not be eligible for credit against a U.S. Holder’s federal income tax liability. The rules governing foreign tax credits are complex, and U.S.
Holders should consult their tax advisers regarding the creditability of foreign taxes in their particular circumstances. In lieu of claiming a foreign tax credit, U.S. Holders may, at
their election, deduct foreign taxes, including the Swiss withholding tax, in computing their taxable income, subject to generally applicable limitations under U.S. law. An election
to deduct foreign taxes instead of claiming foreign tax credits applies to all foreign taxes paid or accrued in the taxable year.
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.
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.
The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the holder’s U.S. federal income tax liability and may entitle it to
a refund, provided that the required information is timely furnished to the IRS.
Information Reporting With Respect to Foreign Financial Assets
Certain U.S. Holders who are individuals and certain entities may be required to report information relating to an interest in our common shares, subject to certain exceptions
(including an exception for common shares held in accounts maintained by certain U.S. financial institutions). U.S. Holders should consult their tax advisers regarding whether or
not they are obligated to report information relating to their ownership and disposition of the common shares.
F. Dividends and paying agents
Not applicable.
G. Statement by experts
Not applicable.
H. Documents on display
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. You may inspect and copy reports and other information filed with the SEC at the Public Reference Room at 100 F Street, N.E.,
Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. In addition, 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.
Additionally, pursuant to Swiss law, any shareholder of record has the right to receive a free copy of this Annual Report and to inspect this Annual Report at any time at our
registered offices in Zug.
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
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required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered
under the Exchange Act.
I.
Subsidiary information
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Credit Risk
We manage credit risk on a group basis. Credit risk arises from cash and cash equivalents and deposits with banks, as well as from other receivables. Our policy is to invest
funds in low risk investments including interest bearing deposits. Only independent banks and financial institutions are used and banks with which we currently hold term
deposits have a minimum S&P rating of “A”. Receivables are not past due and not impaired and include only well-known counterparties.
We hold cash and cash equivalents in our principal operating currencies (CHF, USD and EUR).
Market Risk
In the ordinary course of our business activities, we are exposed to various market risks that are beyond our control, including fluctuations in foreign exchange rates, and
which may have an adverse effect on the value of our financial assets and liabilities, future cash flows and profit. As a result of these market risks, we could suffer a loss due to
adverse changes in foreign exchange rates. Our policy with respect to these market risks is to assess the potential of experiencing losses and the consolidated impact thereof, and
to mitigate these market risks.
Interest rate risk
Interest expense pursuant to borrowings under the loan and security agreement with Hercules Capital, Inc. is subject to the variability of the prime rate as reported by the Wall
Street Journal. An increase or decrease of the prime rate reported effective December 31, 2017 by 50 basis points, with all other factors held constant, would have resulted in a
CHF 52,185 increase or decrease of the net annual result (2016: CHF 28,276).
Other than the interest rate risk related to the loan and security agreement, we are not currently exposed to significant interest rate risk because we have no fixed rate financial
liabilities at fair value through profit or loss and no derivatives. Our only variable interest-bearing financial asset is cash at banks. The effect of an increase or decrease in interest
rates would only have an immaterial effect in profit or loss.
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, 2017, a 5% increase or decrease in the USD/CHF exchange rate with all other variables held constant would have resulted in a CHF 832,032 (2016: CHF
872,443) 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
89,403 (2016: CHF 180,595) increase or decrease in the net annual result.
We have subsidiaries in the United States and Ireland, whose net assets are exposed to foreign currency translation risk. Due to the small size of these subsidiaries the
translation risk is not significant.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A. Debt securities
Not applicable.
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B. Warrants and rights
Not applicable.
C. Other securities
Not applicable.
D. American Depositary Shares
Not applicable.
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ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
PART II
A. Defaults
No matters to report.
B. Arrears and delinquencies
No matters to report.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
E. Use of Proceeds
Not applicable.
ITEM 15. CONTROLS AND PROCEDURES
A. Disclosure Controls and Procedures
As of the end of the period covered by this Annual Report, an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined
in Rule 13a-15(e) under the Exchange Act) was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief
Financial Officer, our principal executive officer and principal financial officer, respectively. There are inherent limitations to the effectiveness of any system of disclosure
controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure
controls and procedures can only provide reasonable assurance of achieving their control objectives.
Based on the evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective, as of the end of the
period covered by this Annual Report, in providing a reasonable level of assurance that information we are required to disclose in reports that we file or submit under the
Exchange Act is recorded, processed, summarized, and reported within the time periods in SEC rules and forms, including providing a reasonable level of assurance that
information required to be disclosed by us in such reports is accumulated and communicated to our management, including our principal executive officer and our principal
financial officer, as appropriate to allow timely decisions regarding required disclosure.
B. Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange
Act. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting based upon criteria established in Internal Control – Integrated Framework (2013) by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our internal control over financial
reporting was effective as of December 31, 2017.
C. Attestation Report of the Registered Public Accounting Firm
This Annual Report does not include an attestation report of our registered public accounting firm due to an exemption provided to emerging growth companies under the
JOBS Act.
D. Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the period covered by
this Annual Report that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.
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ITEM 16. [RESERVED]
ITEM 16A. Audit committee financial expert
Our board of directors has determined that Mats Blom is the audit committee financial expert, as that term is defined by the SEC, and is independent for the purposes of SEC
and Nasdaq rules.
ITEM 16B. Code of ethics
Code of Business Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics which covers a broad range of matters including the handling of conflicts of interest, compliance issues and other
corporate policies such as insider trading and equal opportunity and non-discrimination standards. Our Code of Business Conduct applies to all of our directors, executive officers
and employees. We have published our Code of Business Conduct and Ethics on our website, www.aurismedical.com. The information contained on our website is not a part of
this Annual Report.
ITEM 16C. Principal Accountant Fees and Services
Audit fees
Audit-related fees
Total fees
2017
191
153
344
2016
231
117
348
At the ordinary annual general meeting on April 22, 2014, the shareholders appointed Deloitte AG as the Company’s auditor for the year ended December 31, 2014. Deloitte
AG’s was reelected at the ordinary annual general meeting on April 22, 2015, April 8, 2016, April 13, 2017 and the extraordinary meeting of shareholders on March 12, 2018. On
March 13, 2018 following the consummation of the Merger, the successor company implemented the election of Deloitte AG.
In 2017, we were billed CHF 190,550, by Deloitte AG in connection with our annual filing as well as interim reviews, group audit, and statutory audits plus CHF 153,446 in
connection with audit related services in the context of registration statement fillings and issuance of shares and other statutory required audit reports. In 2016, we were billed
CHF 182,304, by Deloitte AG in connection with audit services for our annual filing as well as interim reviews, group audit, and statutory audits plus CHF 123,696 in connection
with audit-related services for work in connection with our controlled equity offering program Further, we were billed CHF 42,000 by KPMG AG in connection with our annual
filing.
Pre-Approval Policies and Procedures
To ensure the independence and objectivity of the Company’s external auditors, the provision of all non-audit services by the external auditors are pre- approved by the Audit
Committee.
Pre-Approval Policies and Procedures
To ensure the independence and objectivity of the Company’s external auditors, the provision of all non-audit services by the external auditors are pre- approved by the Audit
Committee.
ITEM 16D. Exemptions from the listing standards for audit committees
Not applicable.
ITEM 16E. Purchases of equity securities by the issuer and affiliated purchasers
In 2017, no purchases of our equity securities were made by or on behalf of Auris Medical Holding AG or any affiliated purchaser.
ITEM 16F. Change in registrant’s certifying accountant
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Not applicable.
ITEM 16G. Corporate governance
Summary of Significant Corporate Governance Differences From Nasdaq Listing Standards
Our common shares are listed on the Nasdaq Capital Market, or Nasdaq. We are therefore required to comply with certain of the Nasdaq’s corporate governance listing
standards, or the Nasdaq Standards. As a foreign private issuer, we may follow our home country’s corporate governance practices in lieu of certain of the Nasdaq Standards. Our
corporate governance practices differ in certain respects from those that U.S. companies must adopt in order to maintain a Nasdaq listing. A brief, general summary of those
differences is provided as follows.
Independent Directors
Swiss law does not require that a majority of our board of directors consist 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 will not be subject to Nasdaq Listing Rule 5605(b)(2), which requires that
independent directors must regularly have scheduled meetings at which only independent directors are present.
Audit Committee
We relied on the phase-in rules of the SEC and Nasdaq with respect to the independence of our audit committee. These rules require all members of our audit committee must
meet the independence standard for audit committee members within one year of our initial public offering. All current members of our audit committee meet the independence
requirements.
Compensation Committee
Although Swiss law also requires that we have a compensation committee, we will follow home country requirements with respect to such committee. As a result, our
practice will vary from the requirements of Nasdaq Listing Rule 5605(d), which sets forth certain requirements as to the responsibilities, composition and independence of
compensation committees.
Nominating and Corporate Governance Committee
As permitted by the listing requirements of Nasdaq, we have also opted out of the requirements of Nasdaq Listing Rule 5605(e), which requires an issuer to have independent
director oversight of director nominations.
Quorum requirements
In accordance with Swiss law and generally accepted business practices, our articles of association do not provide quorum requirements generally applicable to general
meetings of shareholders. 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.
Solicitation of proxies
Our articles of association provide for an independent proxy holder elected by our shareholders, who may represent our shareholders at a general meeting of shareholders,
and we must provide shareholders with an agenda and other relevant documents for the general meeting of shareholders. However, Swiss law does not have a regulatory regime
for the solicitation of proxies and company solicitation of proxies is prohibited for public companies in Switzerland, thus our practice will vary from the requirement of Nasdaq
Listing Rule 5620(b), which sets forth certain requirements regarding the solicitation of proxies.
Shareholder approval
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.
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Third Party Compensation
We follow Swiss law requirements with respect to disclosure of compensation for our directors and executive officers. Swiss law does not require that we disclose
information regarding third party compensation of our directors or director nominees. As a result, our practice varies from the third-party compensation disclosure requirements
of Nasdaq Listing Rule 5250(b)(3).
ITEM 16H. Mine safety disclosure
Not applicable.
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PART III
ITEM 17. Financial statements
We have responded to Item 18 in lieu of this item.
ITEM 18. Financial statements
Financial Statements are filed as part of this Annual Report, see page F-1.
ITEM 19. Exhibits
(a) The following documents are filed as part of this registration statement:
1.1*
2.1
2.2*
2.3
4.1†
4.2†
4.3
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12*
4.13*
4.14
Articles of Association of Auris Medical Holding AG
Form of Registration Rights Agreement between Auris Medical Holding AG and the shareholders listed therein (incorporated by reference to exhibit 4.1 of the Auris
Medical Holding AG registration statement on Form F-1 (Registration no. 333-197105) filed with the Commission on July 21, 2014)
Warrant Agreement, dated as of March 13, 2018, between Auris Medical Holding AG and Hercules Capital, Inc.
Registration Rights Agreement, dated as of October 10, 2017 between Auris Medical Holding AG and Lincoln Park
Capital Fund, LLC (incorporated by reference to exhibit 10.3 of the Auris Medical Holding AG report on Form 6-K
filed with the Commission on October 11, 2017)
Collaboration and License Agreement, dated October 21, 2003, between Auris Medical AG and Xigen SA (incorporated by reference to exhibit 10.1 of the Auris
Medical Holding AG registration statement on Form F-1 (Registration no. 333-197105) filed with the Commission on June 27, 2014)
Co-Ownership and Exploitation Agreement, dated September 29, 2003, between Auris Medical AG and INSERM (incorporated by reference to exhibit 10.2 of the
Auris Medical Holding AG registration statement on Form F-1 (Registration no. 333-197105) filed with the Commission on June 27, 2014)
Form of Indemnification Agreement (incorporated by reference to exhibit 99.4 of the Auris Medical Holding AG report on Form 6-K filed with the Commission on
May 11, 2016)
Stock Option Plan A (incorporated by reference to exhibit 10.11 of the Auris Medical Holding AG registration statement on Form F-1 (Registration no. 333-197105)
filed with the Commission on June 27, 2014)
Stock Option Plan C (incorporated by reference to exhibit 10.12 of the Auris Medical Holding AG registration statement on Form F-1 (Registration no. 333-197105)
filed with the Commission on June 27, 2014)
Equity Incentive Plan, as amended (incorporated by reference to exhibit 99.1 to the Auris Medical Holding AG registration statement on Form S-8 (Registration no.
333-217306) filed with the Commission on April 14, 2017)
English language translation of Lease Agreement between Auris Medical AG and PSP Management AG (incorporated by reference to exhibit 4.8 of the Auris
Medical Holding AG and report on Form 20-F for the year ended December 31, 2016 filed with the Commission on March 14, 2017)
Controlled Equity OfferingSM Sales Agreement, dated as of June 1, 2016, between Auris Medical Holding AG and Cantor Fitzgerald & Co. (incorporated by
reference to exhibit 1.1 of the Auris Medical Holding AG report on Form 6-K filed with the Commission on June 1, 2016)
Share Lending Agreement, dated as of June 1, 2016, between Thomas Meyer and Cantor Fitzgerald & Co. (incorporated by reference to exhibit 10.1 of the Auris
Medical Holding AG report on Form 6-K filed with the Commission on June 1, 2016)
Loan and Security Agreement, dated as of July 19, 2016, between Auris Medical Holding AG, the several banks and other financial institutions or entities from time
to time parties to the agreement and Hercules Capital, Inc. (incorporated by reference to exhibit 10.1 of the Auris Medical Holding AG report on Form 6-K filed with
the Commission on July 19, 2016)
Consent and Waiver, dated as of March 8, 2018, between Auris Medical Holding AG, the several banks and other financial institutions or entities from time to time
parties to the agreement and Hercules Capital, Inc.
Joinder Agreement dated as of March 13, 2018 to the Loan and Security Agreement, dated as of July 19, 2016, between Auris Medical Holding AG, the several
banks and other financial institutions or entities from time to time parties to the agreement and Hercules Capital, Inc.
Share Pledge Agreement, dated July 19, 2016, between Auris Medical Holding AG and Hercules Capital, Inc. (incorporated by reference to exhibit 10.3 of the Auris
Medical Holding AG report on Form 6-K filed with the Commission on July 19, 2016)
121
Table of Contents
4.15
4.16
4.17
4.18
4.19
4.20
4.21
Claims Security Assignment Agreement, dated July 19, 2016, between Auris Medical Holding AG and Hercules Capital, Inc. (incorporated by reference to exhibit
10.4 of the Auris Medical Holding AG report on Form 6-K filed with the Commission on July 19, 2016)
Bank Account Claims Security Assignment Agreement, dated July 19, 2016, between Auris Medical Holding AG and Hercules Capital, Inc. (incorporated by
reference to exhibit 10.5 of the Auris Medical Holding AG report on Form 6-K filed with the Commission on July 19, 2016)
Purchase Agreement, dated as of October 10, 2017 between Auris Medical Holding AG and Lincoln Park Capital
Fund, LLC (incorporated by reference to exhibit 10.1 of the Auris Medical Holding AG report on Form 6-K filed
with the Commission on October 11, 2017)
Purchase Agreement, dated as of October 10, 2017 between Auris Medical Holding AG and Lincoln Park Capital
Fund, LLC (incorporated by reference to exhibit 10.2 of the Auris Medical Holding AG report on Form 6-K filed
with the Commission on October 11, 2017)
Placement Agency Agreement, dated as of January 28, 2018, between Auris Medical Holding AG and Ladenburg
Thalmann & Co. Inc. (incorporated by reference to exhibit 1.1 of the Auris Medical Holding AG report on Form 6-K
filed with the Commission on January 30, 2018)
Securities Purchase Agreement, dated as of January 26, 2018 by and among Auris Medical Holding AG and the
investors named therein (incorporated by reference to exhibit 10.1 of the Auris Medical Holding AG report on Form
6-K filed with the Commission on January 30, 2018)
Agreement and Plan of Merger, dated as of February 9, 2018 by and among Auris Medical Holding AG and Auris Medical NewCo Holding AG (incorporated by
reference to exhibit 99.3 of the Auris Medical Holding AG report on Form 6-K filed with the Commission on February 9, 2018)
4.22*
Share Transfer Agreement, dated as of February 9, 2018 by and between Thomas Meyer and Auris Medical Holding AG
8.1
12.1*
12.2*
13.1*
13.2*
List of subsidiaries (incorporated by reference to exhibit 21.1 of the Auris Medical Holding AG registration statement on Form F-1 (Registration no. 333-197105)
filed with the Commission on June 27, 2014)
Certification of Thomas Meyer pursuant to 17 CFR 240.13a-14(a)
Certification of Hernan Levett pursuant to 17 CFR 240.13a-14(a)
Certification of Thomas Meyer pursuant to 17 CFR 240.13a-14(b) and 18 U.S.C.1350
Certification of Hernan Levett pursuant to 17 CFR 240.13a-14(b) and 18 U.S.C. 1350
___________________
*
Filed herewith
† Confidential treatment requested as to portions of the exhibit. Confidential materials omitted and filed separately with the Securities and Exchange Commission.
(b) Financial Statement Schedules
None.
122
Table of Contents
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual
Report on its behalf.
Signatures
Date: March 22, 2018
AURIS MEDICAL HOLDING AG
By:
/s/ Thomas Meyer
Name:
Thomas Meyer
Title:
Chief Executive Officer
123
Audited Consolidated Financial Statements — Auris Medical Holding AG
As of December 31, 2017 and 2016 and for the years ended December 31, 2017, 2016, and 2015
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Statement of Profit or Loss and Other Comprehensive Income / (Loss)
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the consolidated financial statements
F-1
F-2
F-3
F-4
F-5
F-6
F-7
Table of Contents
To the Shareholders and the Board of Directors of Auris Medical Holding AG
Opinion on the Financial Statements
Report of Independent Registered Public Accounting Firm
We have audited the accompanying consolidated statements of financial position of Auris Medical Holding AG and its subsidiaries (the “Company”) as of December 31, 2017 and
2016, and the related consolidated statements of profit or loss and other comprehensive income / (loss), changes in equity, and cash flows for each of the three years in the period
ended December 31, 2017, and the related notes (collectively referred to as the "financial statements"). In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Auris Medical Holding AG and its subsidiaries as of December 31, 2017 and 2016, and the results of their operations, and their cash
flows for each of the three years in the period ended December 31, 2017, in conformity with International Financial Reporting Standards as issued by the International Accounting
Standards Board.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit
of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose
of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.
Deloitte AG
/s/ Matthias Gschwend
Auditor in Charge
Zurich, Switzerland
March 22, 2018
We have served as the Company's auditor since 2014.
/s/ Adrian Kaeppeli
F-2
Table of Contents
AURIS MEDICAL HOLDING AG
Consolidated Statement of Profit or Loss and Other Comprehensive Income / (Loss)
For the Years Ended December 31, 2017, 2016 and 2015
(in CHF)
Research and development
General and administrative
Operating loss
Interest income
Interest expense
Note
16
17
19
19
Foreign currency exchange (loss)/gain, net
Revaluation gain from derivative financial instruments
19, 24, 25
Transaction costs
Loss before tax
Income tax gain
Net loss attributable to owners of the Company
Other comprehensive income/(loss):
Items that will never be reclassified to profit or loss
Remeasurements of defined benefit liability,
net of taxes of CHF 0
Items that are or may be reclassified to profit or loss
Foreign currency translation differences,
net of taxes of CHF 0
Other comprehensive income/(loss), net of taxes of CHF 0
Total comprehensive loss attributable to owners of the Company
Basic and diluted loss per share
20
18
21
2017
(19,210,842)
(5,150,409)
(24,361,251)
53,570
(1,640,394)
(824,592)
3,372,186
(1,026,766)
2016
(24,776,763)
(5,446,512)
(30,223,275)
67,565
(828,547)
(100,097)
291,048
—
2015
(26,536,176)
(4,341,570)
(30,877,746)
36,562
(7,985)
1,144,106
—
—
(24,427,247)
(30,793,306)
(29,705,063)
17,773
131,055
—
(24,409,474)
(30,662,251)
(29,705,063)
271,980
(394,102)
(53,916)
50,497
322,477
(19,723)
(413,825)
(12,712)
(66,628)
(24,086,997)
(31,076,076)
(29,771,691)
(0.56)
(0.89)
(0.92)
The accompanying notes form an integral part of these consolidated financial statements.
F-3
Table of Contents
ASSETS
Non-current assets
Property and equipment
Intangible assets
Other non-current receivables
Total non-current assets
Current assets
Other receivables
Prepayments
Cash and cash equivalents
Total current assets
Total assets
EQUITY AND LIABILITIES
Equity
Share capital
Share premium
Foreign currency translation reserve
Accumulated deficit
AURIS MEDICAL HOLDING AG
Consolidated Statement of Financial Position
As of December 31, 2017 and 2016
(in CHF)
Note
December 31, 2017 December 31, 2016
7
8
9
10
11
12
24
24, 25
18
20
24
14
15
252,899
1,629,100
76,710
1,958,709
241,281
652,913
14,973,369
15,867,563
369,294
1,482,520
114,778
1,966,592
296,531
952,595
32,442,222
33,691,348
17,826,272
35,657,940
19,349,556
114,648,228
(33,047)
13,731,881
112,838,815
(83,544)
(136,126,946)
(112,344,303)
(2,162,209)
14,142,849
5,584,297
1,836,763
1,962,970
178,809
9,562,839
4,542,109
1,200,820
4,682,713
10,425,642
19,988,481
17,826,272
10,151,498
117,132
2,092,434
196,582
12,557,646
2,212,706
1,837,997
4,906,742
8,957,445
21,515,091
35,657,940
Total shareholders' (deficit)/equity attributable to owners of the Company
Non-current liabilities
Loan
Derivative financial instruments
Employee benefit liability
Deferred tax liabilities
Total non-current liabilities
Current liabilities
Loan
Trade and other payables
Accrued expenses
Total current liabilities
Total liabilities
Total equity and liabilities
The accompanying notes form an integral part of these consolidated financial statements.
F-4
Table of Contents
AURIS MEDICAL HOLDING AG
Consolidated Statement of Changes in Equity
As of December 31, 2017, 2016 and 2015
(in CHF)
As of January 1, 2015
Total comprehensive loss
Net loss
Other comprehensive loss
Total comprehensive loss
Transactions with owners of the Company
Capital increase from follow-on offering
Transaction costs
Share issuance costs
Share based payments
Share options exercised
Balance at December 31, 2015
As of January 1, 2016
Total comprehensive loss
Net loss
Other comprehensive loss
Total comprehensive loss
Transactions with owners of the Company
Issue of bonus shares
Share issuance costs
Share based payments
Balance at December 31, 2016
As of January 1, 2017
Total comprehensive loss
Net loss
Other comprehensive income
Total comprehensive income/(loss)
Transactions with owners of the Company
Capital increase
Transaction costs
Share based payments
Balance at December 31, 2017
Note
Share
Capital
Share
Premium
Foreign
Currency
Translation
Reserve
Accumulated
Deficit
Total
Equity / (Deficit)
11,604,156
93,861,171
(51,109)
(52,131,426)
53,282,793
—
—
—
—
—
—
—
(29,705,063)
(29,705,063)
(12,712)
(12,712)
(53,916)
(66,628)
(29,758,979)
(29,771,691)
12
13
13
13
13
13
13
2,110,000
19,604,877
—
—
—
7,400
(643,796)
(211,142)
—
51,800
—
—
—
—
—
—
—
—
311,671
—
21,714,877
(643,796)
(211,142)
311,671
59,200
13,721,556
112,662,910
(63,821)
(81,578,733)
44,741,912
13,721,556
112,662,910
(63,821)
(81,578,733)
44,741,912
—
—
—
—
—
—
—
(30,662,251)
(30,662,251)
(19,723)
(19,723)
(394,102)
(413,825)
(31,056,353)
(31,076,076)
10,325
—
—
177,767
(1,862)
—
—
—
—
—
—
290,783
188,092
(1,862)
290,783
13,731,881
112,838,815
(83,544)
(112,344,303)
14,142,849
13,731,881
112,838,815
(83,544)
(112,344,303)
14,142,849
—
—
—
—
—
—
—
(24,409,474)
(24,409,474)
50,497
50,497
271,980
322,477
(24,137,494)
(24,086,997)
5,617,675
—
—
2,330,928
(521,515)
—
—
—
—
—
—
354,851
19,349,556
114,648,228
(33,047)
(136,126,946)
7,948,603
(521,515)
354,851
(2,162,209)
The accompanying notes form an integral part of these consolidated financial statements.
F-5
Table of Contents
AURIS MEDICAL HOLDING AG
Cash flows from operating activities
Net loss
Adjustments for:
Depreciation
Unrealized foreign currency exchange loss/(gain), net
Net interest expense/(income)
Share based payments
Transaction costs
Employee benefits
Revaluation gain derivative financial instruments
Income tax gain
Changes in:
Other receivables
Prepayments
Trade and other payables
Accrued expenses
Net cash used in operating activities
Cash flows from investing activities
Purchase of property and equipment
Purchase of intangibles
Interest received
Net cash used in investing activities
Cash flows from financing activities
Proceeds from exercise of options
Share issuance costs
Proceeds from issue of loan with warrant
Proceeds from follow-on offering
Transaction costs
Repayment of loan
Interest paid
Net cash from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of the period
Net effect of currency translation on cash
Cash and cash equivalents at end of the period
Consolidated Statement of Cash Flows
For the Years Ended December 31, 2017, 2016, and 2015
(in CHF)
Note
2017
2016
2015
(24,409,474)
(30,662,251)
(29,705,063)
16, 17
19
13
24, 25
20
7
8
19
12
12
24
12, 25
12
19, 24
122,784
776,165
1,568,781
354,851
1,026,766
142,514
(3,372,186)
(17,773)
(23,807,572)
93,328
299,684
(637,177)
(224,028)
97,600
99,091
748,840
290,783
—
122,501
(291,048)
(131,055)
92,777
(1,167,227)
(36,390)
311,671
—
111,321
—
—
(29,725,539)
(30,392,911)
277,483
(771,551)
632,474
133,522
(146,244)
84,126
(2,028,862)
3,756,744
(24,275,765)
(29,453,611)
(28,727,147)
(6,389)
(146,580)
53,570
(99,399)
—
—
—
13,039,066
(1,548,281)
(2,087,076)
(1,182,369)
8,221,340
(16,153,824)
32,442,222
(1,315,029)
14,973,369
(244,324)
—
67,553
(176,771)
—
(1,862)
11,986,671
—
—
—
(546,170)
11,438,639
(18,191,743)
50,237,300
396,665
32,442,222
(79,920)
—
36,562
(43,358)
59,200
(211,142)
—
21,071,081
—
—
(172)
20,918,967
(7,851,538)
56,934,325
1,154,513
50,237,300
The accompanying notes form an integral part of these consolidated financial statements.
F-6
Table of Contents
1. Reporting entity
AURIS MEDICAL HOLDING AG
Auris Medical Holding AG (the “Company”) is a corporation (Aktiengesellschaft) organized in accordance with Swiss law and domiciled in Switzerland. The Company’s
registered address is Bahnhofstrasse 21, 6300 Zug. These consolidated financial statements comprise the Company and its subsidiaries (together referred to as the “Group” and
individually as “Group entities”). The Company is the ultimate parent of the following Group entities:
•
•
•
•
Auris Medical AG, Basel, Switzerland (100%) with a nominal share capital of CHF 2,500,000
Otolanum AG, Zug, Switzerland (100%) with a nominal share capital of CHF 100,000
Auris Medical Inc., Chicago, United States (100%) with a nominal share capital of USD 15,000
Auris Medical Ltd., Dublin, Ireland (100%) with a nominal share capital of EUR 100
On April 22, 2014, the Company changed its name from Auris Medical AG to Auris Medical Holding AG. On May 21, 2014 the domicile of Auris Medical Holding AG was
transferred from Basel to Zug. On March 13, 2018, the Company merged (the “Merger”) into Auris Medical NewCo Holding AG (“Auris NewCo”), a newly incorporated,
wholly-owned Swiss subsidiary following shareholder approval at an extraordinary general meeting of shareholders held on March 12, 2018. Following the Merger, Auris
NewCo, the surviving company, had a share capital of CHF 122,347.76, divided into 6,117,388 common shares with a nominal value of CHF 0.02 each. Pursuant to the Merger,
the Company’s shareholders received one common share with a nominal value of CHF 0.02 of Auris NewCo for every 10 of our common shares held prior to the Merger,
effectively resulting in a “reverse stock split” at a ratio of 10-for-1. Auris NewCo changed its name to “Auris Medical Holding AG” following consummation of the Merger. On
March 14, 2018 the common shares of Auris NewCo began trading on the Nasdaq Capital Market under the trading symbol “EARS.”
The Group is primarily involved in the development of pharmaceutical products for the treatment of inner ear and vestibular disorders, in particular tinnitus and hearing loss. Its
most advanced projects are in the late stage of clinical development.
2. Basis of preparation
Statement of compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards
Board (“IFRS”).
These consolidated financial statements were approved by the Board of Directors of the Company on March 20, 2018.
Basis of measurement
The consolidated financial statements are prepared on the historical cost basis, except for the revaluation to fair value of certain financial liabilities. Historical cost is generally
based on the fair value of the consideration given in exchange for goods and services. The principal accounting policies adopted are set out below.
In addition, for financial reporting purposes, fair value measurements are categorized into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements
are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:
•
•
•
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date
Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and
Level 3 inputs are unobservable inputs for the asset or liability.
Functional and reporting currency
These consolidated financial statements are presented in Swiss Francs (“CHF”), which is the Company’s functional (“functional currency”) and the Group’s reporting currency.
F-7
Table of Contents
Use of estimates and judgments
The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting
policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions of accounting estimates are recognized in the period in which the estimates are revised and in
any future periods affected.
Information about judgments made in applying accounting policies that have the most significant effects on the amounts recognized in the consolidated financial statements are
described below.
Income taxes
As disclosed in Note 20 the Group has significant tax losses in Switzerland. These tax losses represent potential value to the Group to the extent that the Group is able to create
taxable profits in Switzerland prior to expiry of such losses. Tax losses may be used within 7 years from the year the losses arose.
The Group also has tax losses in the United States which may be used within 20 years of the end of the year in which losses arose, or for a shorter time period in accordance with
prevailing state law.
Other than a tax asset in the amount of CHF 217,720, the Group has not recorded any deferred tax assets in relation to these tax losses. The key factors which have influenced
management in arriving at this evaluation are the fact that the business is still in a development phase and the Group has not yet a history of making profits. Should management’s
assessment of the likelihood of future taxable profits change, a deferred tax asset will be recorded. Income tax gain reflects the reassessment of deferred tax assets and liabilities
booked in the 2017 fiscal year.
Development expenditures
The project stage forms the basis for the decision as to whether costs incurred for the Group’s development projects can be capitalized. Generally clinical development
expenditures are not capitalized until the Group obtains regulatory approval (i.e. approval to commercially use the product), as this is considered to be essentially the first point in
time where it becomes probable that future revenues can be generated. Given the current stage of the Group’s development projects, no development expenditures have yet been
capitalized. The Group has capitalized certain milestone payments with regard to license payments.
As of each reporting date, the Group estimates the level of service performed by the vendors and the associated costs incurred for the services performed. As part of the process of
preparing the Group’s financial statements, the Group is required to estimate its accrued expenses. This process involves reviewing contracts, identifying services that have been
performed on the Group’s behalf and estimating the level of service performed and the associated cost incurred for the service when it has not yet been invoiced or otherwise
notified of the actual cost.
Employee benefits
The Group maintains a pension plan for all employees in Switzerland through payments to a legally independent collective foundation. This pension plan qualifies under IFRS as
defined benefit pension plan.
The Group’s net obligation in respect of defined benefit plans is calculated by estimating the amount of future benefit that employees have earned in return for their service in the
current and prior periods, discounting that amount and deducting the fair value of any plan assets. The Company makes relevant actuarial assumptions with regard to the discount
rate, future salary increases and life expectancy.
3. Significant accounting policies
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, unless otherwise indicated.
Basis of consolidation
F-8
Table of Contents
Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has
the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on
which control commences until the date on which control ceases.
Transactions eliminated on consolidation
All inter-company balances, transactions and unrealized gains on transactions have been eliminated in consolidation. Unrealized losses are also eliminated unless the transaction
provides evidence of an impairment of the asset transferred.
Segment reporting
A segment is a distinguishable component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses
that relate to transactions with any of the Group’s other components.
The Chief Executive Officer is determined to be the Group’s Chief Operating Decision Maker (“CODM”). The CODM assesses the performance and allocates the resources of the
Group as a whole, as all of the Group’s activities are focusing on the development of pharmaceutical products for the treatment of inner ear and vestibular 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.
Foreign currency
Foreign currency transactions
Items included in the financial statements of Group entities are measured using the currency of the primary economic environment in which the entity operates. Foreign currency
transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in profit or
loss. Non-monetary items that are measured based on historical cost in a foreign currency are not re-translated.
Foreign operations
Assets and liabilities of Group entities whose functional currency is other than CHF are included in the consolidation by translating the assets and liabilities into the reporting
currency at the exchange rates applicable at the end of the reporting period. Income and expenses are translated at average exchange rates (unless this average is not a reasonable
approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transaction).
These foreign currency translation differences are recognized in Other Comprehensive Loss and presented in the foreign currency translation reserve in equity. When a foreign
operation is disposed of such that control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain
or loss on disposal.
Closing rates for the most significant foreign currencies relative to CHF:
Currency
CHF
USD
EUR
Geographical area
Reporting
entities
Swiss Franc
Dollar
Europe
Switzerland
United States
Europe
December 31, 2017 December 31, 2016 December 31, 2015
3
1
1
1.0000
0.9725
1.1713
1.0000
1.0196
1.0723
1.0000
1.0014
1.0875
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Table of Contents
Average exchange rates for the year for the most significant foreign currencies relative to CHF:
Geographical area
Reporting
entities
Swiss Franc
Dollar
Europe
Switzerland
United States
Europe
2017
2016
2015
3
1
1
1.0000
0.9849
1.1116
1.0000
0.9855
1.0901
1.0000
0.9613
1.0659
Currency
CHF
USD
EUR
Property and equipment
Property and equipment is measured at historical costs less accumulated depreciation and any accumulated impairment losses. Historical costs include expenditures that are
directly attributable to the acquisition of the items. When parts of an item of tangible assets have different useful lives, they are accounted for as separate tangible asset items
(major components). Depreciation is calculated on a straight-line basis over the expected useful life of the individual asset or the shorter remaining lease term for leasehold
improvements. The applicable estimated useful lives are as follows:
Production equipment
Office furniture and electronic data processing equipment (“EDP”)
Leasehold improvements
5 years
3 years
5 years
Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated
with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and
maintenance are charged to profit or loss during the financial period in which they are incurred.
Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. When an asset is reviewed for impairment, the asset’s
carrying amount may be written down immediately to its recoverable amount, provided the asset’s carrying amount is greater than its estimated recoverable amount. Management
assesses the recoverable amount by assessing the higher of its fair value less costs to sell or its value in use.
Cost and accumulated depreciation related to assets retired or otherwise disposed are removed from the accounts at the time of retirement or disposal and any resulting gain or
loss is included in profit or loss in the period of disposition.
Intangible assets
Research and development
Expenditures on the Group’s research programs are not capitalized, they are expensed when incurred.
Expenditures on the Group’s development programs are generally not capitalized except if development costs can be measured reliably, the product or process is technically and
commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. For the
development projects of the Group, these criteria are generally only met when regulatory approval for commercialization is obtained. Given the current stage of the development
projects, no development expenditures (other than certain milestone payments) have been capitalized in 2014 and 2015. Intellectual property-related costs for patents are part of
the expenditure for 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.
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Licenses, intellectual property and data rights
Intellectual property rights that are acquired by the Group are capitalized as intangible assets if they are controlled by the Group, are separately identifiable and are expected to
generate future economic benefits, even if uncertainty exists as to whether the research and development will ultimately result in a marketable product. Consequently, upfront and
milestone payments to third parties for the exclusive use of pharmaceutical compounds in specified areas of treatment are recognized as intangible assets.
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 Group have finite lives. Amortization will commence once the Group’s intangible assets are available for use which will be the case after regulatory approvals
are obtained and the related products are available for use. Amortization of licenses is calculated on a straight line basis over the period of the expected benefit or until the license
expires, whichever is shorter. The estimated useful life is 10 years or the remaining term of patent protection. The Group assesses at each statement of financial position date
whether intangible assets which are not yet ready for use are impaired.
Impairment of non-financial assets
Property and equipment and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). An impairment loss
is recognized as the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell or
value in use. Impairment losses are recognized in profit or loss. Assets that were previously impaired are reviewed for possible reversal of the impairment at each reporting date.
Any increase in the carrying amount of an asset will be based on the depreciated historical costs had the initial impairment not been recognized.
Financial instruments
The Group classifies its financial assets in the following categories: loans and receivables and available-for-sale financial assets. The classification depends on the nature and
purpose of the financial assets and is determined at the time of initial recognition.
Recognition and derecognition of non-derivative financial assets and liabilities
The Group initially recognizes loans and receivables and debt securities issued on the date when they are originated. All other financial assets and financial liabilities are initially
recognized on the trade date.
The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a
transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred, or it neither transfers nor retains substantially all of the risks and
rewards of ownership and does not retain control over the transferred asset. Any interest in such derecognized financial assets that is created or retained by the Group is
recognized as a separate asset or liability.
The Group derecognizes a financial liability when its contractual obligations are discharged, cancelled, or expired.
Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the
amounts and intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.
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Table of Contents
Non-derivative financial assets and liabilities—measurement
Loans and receivable
These are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are initially recognized at fair value
plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortized cost using the effective interest method, less any impairment
losses.
Cash and cash equivalents
The Group considers all short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in
value with original maturities of three months or less at the date of the purchase to be cash equivalents.
Non-derivative financial liabilities - measurement
Non-derivative financial liabilities are initially recognized at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these liabilities are
measured at amortized cost using the effective interest method.
Share capital
All shares of the Company are registered shares and classified as part of shareholders’ equity. Incremental costs directly attributable to the issue of the Company’s shares, net of
any tax effects, are recognized as a deduction from equity. The warrants are classified as a financial liability at fair value through profit or loss and the cost allocated to the
liability component will be immediately expensed to the income statement.
The Company has not paid any dividends since its inception and does not anticipate paying dividends in the foreseeable future.
Repurchase and reissue of ordinary shares (treasury shares)
When shares recognized as equity are repurchased, the amount of the consideration paid, which includes directly attributable costs, net of any tax effects, is recognized as a
deduction from equity. Repurchased shares are classified as treasury shares and are presented in the treasury share reserve. When treasury shares are sold or reissued subsequently,
the amount received is recognized as an increase in equity and the resulting surplus or deficit (calculated as the difference between initial cost and fair value) on the transaction is
presented within share premium.
Impairment of non-derivative financial assets
Financial assets are assessed at each reporting date to determine whether there is objective evidence of impairment.
Objective evidence that financial assets are impaired includes:
•
•
•
•
•
default or delinquency by a debtor;
indications that a debtor or issuer will enter bankruptcy;
adverse changes in the payment status of borrowers or issuers;
the disappearance of an active market for a security; or
observable data indicating that there is measurable decrease in expected cash flows from a group of financial assets.
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Table of Contents
Financial assets measured at amortized cost
The Group considers evidence of impairment for these assets at an individual asset level. An impairment loss is calculated as the difference between an asset’s carrying amount
and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognized in profit or loss and reflected in an
allowance account. When the Group considers that there are no realistic prospects of recovery of the asset, the relevant amounts are written off. If the amount of impairment loss
subsequently decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, then the previously recognized impairment loss is
reversed through profit or loss.
Derivative Financial Instruments
Derivative financial instruments are accounted at fair value and changes in fair value are shown as profit or loss. The fair value calculation of the derivative financial instruments
is based on the Black-Scholes option pricing model. Assumptions are made for volatility and the risk free rate in order to estimate the fair value of the instrument. Transaction
cost related to derivative financial instruments are recorded through profit and loss.
Income tax
Income tax expense comprises current and deferred tax. It is recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly
in equity or in Other Comprehensive Income.
Current tax
Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to tax payable or receivable in respect of previous
years. It is measured using tax rates enacted or substantively enacted at the reporting date.
Deferred 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 Group 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 reporting date and are expected to apply when the related
deferred income tax asset is realized or the deferred income tax liability is settled.
Deferred income tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized.
Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off tax assets against tax liabilities and when they relate to income taxes levied by the
same taxation authority and the Group intends to settle its tax assets and liabilities on a net basis.
Employee benefits
The Group maintains a pension plan for all employees in Switzerland through payments to a legally independent collective foundation. This pension plan qualifies under IFRS as
defined benefit pension plan. There are no pension plans for the subsidiaries in Ireland and the United States.
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Table of Contents
The Group’s net obligation in respect of defined benefit plans is calculated by estimating the amount of future benefit that employees have earned in return for their service in the
current and prior periods, discounting that amount and deducting the fair value of any plan assets.
The recognized asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan.
In order to calculate the present value of economic benefits, consideration is given to any minimum funding requirements.
Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if
any, excluding interest), are recognized immediately in Other Comprehensive Income. Past service costs, including curtailment gains or losses, are recognized immediately in
general and administrative expenses within the operating results. Settlement gains or losses are recognized in general and administrative expenses within the operating results. The
Group determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit
obligation at the beginning of the annual period or in case of any significant events between measurement dates to the then-net defined benefit liability (asset), taking into account
any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to
defined benefit plans are recognized in profit or loss.
Share-based compensation
The Company maintains various share-based payment plans in the form of stock option plans for its employees, members of the Board of Directors as well as key service
providers. Stock options are granted at the Board’s discretion without any contractual or recurring obligations.
The share-based compensation plans qualify as equity settled plans. The grant-date fair value of share-based payment awards granted to employees is recognized as an
expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The vesting of share options is conditional on
the employee completing a period of service of three and four years respectively, from the grant date, in accordance with Stock Option Plans A and C. Under the Auris Medical
Holding AG Long Term Equity Incentive Plan (the “Equity Incentive Plan” or “EIP”), 50% of granted share options granted to employees vest after a period of service of two
years from the grant date and the remaining 50% vest after a period of service of three years from the grant date. Share options granted to members of the Board of Directors in
2017, 2016 and in 2015 vest after a period of one year after the grant date. Stock Option Plan B was created to provide shares for share based compensation plans; it was used in
the years 2008, 2009 and 2014 and has been abolished in 2015.
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 (nominal value) and share premium.
Valuation of share options
Following the completion of our initial public offering, option pricing and values are determined based on the Black Scholes option pricing model and assumptions are made for
inputs such as volatility of our stock and the risk free rate.
Provisions
Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, where it is more likely than not that an outflow of resources
will be required to settle the obligation, and where a reliable estimate can be made of the amount of the obligation. Provisions are not recognized for future operating losses.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the
time value of money and the risks specific to the liability.
F-14
Table of Contents
Leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net
of any incentives received from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease.
Earnings/(loss) per share
Basic earnings/(loss) per share are calculated by dividing the net profit/(loss) attributable to owners of the Company by the weighted average number of shares outstanding during
the period. Diluted earnings/(loss) per share are calculated by dividing the net profit/(loss) attributable to the owners of the Company by the weighted average number of shares
outstanding during the period adjusted for the conversion of all dilutive potential ordinary shares.
4. New standards, amendments and interpretations adopted by the group
In the current year, the following revised standards have been adopted in these financial statements. Adoption has not had a significant impact on the amounts reported in these
financial statements but may impact the accounting for future transactions and arrangements.
IAS 7 amendments
IAS 12 amendments
Statement of Cash Flows, Disclosure Initiative
Income taxes, Recognition of Deferred Tax Assets for Unrealized Losses
A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after January 1, 2018, and have not been applied in preparing
these consolidated financial statements.
Standard/Interpretation
New standards, interpretations or amendments
Impact
Effective date
Planned
application by the Group
IFRS 9
IFRS 15
IFRS 16
IFRS 2
IFRS 1 / IAS 28
IAS 40
IFRIC 22
Financial instruments
Revenue from Contracts with Customers and the related clarifications
Leases
Amendment to IFRS 2, Classification and Measurement of Share-based
Payment Transaction
Amendment to IFRS 1 and IAS 28, Investment in Associates and Joint
Ventures and First-time Adoption of International Reporting Standards
Amendment to IAS 40, Transfers of Investment Property
Foreign Currency Transactions and Advance Consideration
2)
3)
4)
1)
1)
1)
1)
January 1, 2018
January 1, 2018
January 1, 2019
January 1, 2018
January 1, 2018
January 1, 2018
January 1, 2018
FY 2018
FY 2018
FY 2019
FY 2018
FY 2018
FY 2018
FY 2018
1)The impact on the consolidated financial statements of the Group cannot yet be determined with sufficient reliability.
2)IFRS 9, Financial Instruments
IFRS 9 introduces a single approach for the classification and measurement of financial assets according to their cash flow characteristics and the business model
they are managed in, and provides a new impairment model based on expected credit losses. IFRS 9 also includes new regulations regarding the application of hedge
accounting to better reflect an entity's risk management activities especially with regard to managing non-financial risks. The Group plans to adopt the new standard on the
required effective date and will not restate comparative information. During 2017, the Group has performed an impact assessment of all three aspects of IFRS 9. This
assessment is based on currently available information and may be subject to changes arising from further reasonable and supportable information being made available to the
Group in 2018 when the Group will adopt IFRS 9. The Group does not expect a significant impact on its balance sheet or equity on applying the classification and
measurement requirements of IFRS 9. Further, the Group does not apply hedge
F-15
Table of Contents
accounting. IFRS 9 requires the Group to record expected credit losses on all of its loans and trade receivables, either on a 12-month or lifetime basis. The Group will apply
the simplified approach and record lifetime expected losses. Due to the nature of its receivables, the Group does not expect a significant impact on its balance sheet or equity
on applying the impairment model under the IFRS 9 standard.
3)IFRS 15, Revenue from Contracts with Customers
According to the new standard, revenue is recognized to depict the transfer of promised goods or services to a customer in an amount that reflects the consideration
to which the Company expects to be entitled in exchange for those goods or services. Revenue is recognized when, or as, the customer obtains control of the goods or
services. The new revenue standard will supersede all current revenue recognition requirements under IFRS. The Group is focused on the development of pharmaceutical
products for the treatment of inner ear disorders. As a clinical stage company it currently has no revenue from contracts with customers. The adoption of IFRS 15 is not
expected to have any impact on the Group’s revenue and profit or loss.
4)IFRS 16, Leases
The new standard eliminates the current classification model for lessee's lease contracts as either operating or finance leases and, instead, introduces a single lessee
accounting model requiring lessees to recognize right-of-use assets and lease liabilities for leases with a term of more than twelve months. This brings the previous off-
balance leases on the balance sheet in a manner largely comparable to current finance lease accounting. A lessee can choose to apply the standard using either a full
retrospective or a modified retrospective approach. Adoption of IFRS 16 will result in the Group recognizing right of use assets and lease liabilities for all contracts that are,
or contain, a lease. For leases currently classified as operating leases, under current accounting requirements the Group does not recognize related assets or liabilities, and
instead spreads the lease payments on a straight-line basis over the lease term, disclosing in its annual financial statements the operating lease commitment. The Group is
expecting that current leasing arrangements relating to office space will be capitalized under IFRS 16. In 2018, the Group will continue to assess the potential effect of IFRS
16 on its consolidated financial statements.
5. Financial instruments and risk management
The following table shows the carrying amounts of financial assets and financial liabilities:
Financial assets
Cash and cash equivalents
Loans and receivables
Other receivables
Total financial assets
Financial liabilities
At amortized cost
Trade and other payables
Accrued expenses
Loan
At fair value through profit and loss
Derivative financial instruments
Total financial liabilities
December 31, 2017 December 31, 2016
14,973,369
32,422,222
79,840
15,053,209
134,900
32,557,122
1,200,820
4,395,609
10,126,406
1,836,763
17,559,598
1,837,997
4,652,033
12,364,204
117,132
18,971,366
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Table of Contents
Fair values
The carrying amount of cash and cash equivalents, other receivables, trade and other payables and accrued expenses is a reasonable approximation of their fair value due to the
short term nature of these instruments. In respect of the Company’s loan which has floating rates of interest, the fair value approximates carrying value.
Financial risk factors
The Group’s activities expose it to a variety of financial risks: market risk, credit risk, interest rate and liquidity risk. The Group’s overall risk management program focuses on the
unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance. Management identifies, evaluates and controls
financial risks. No financial derivatives have been used in 2017 and 2016 to hedge risk exposures. The Group invests its available cash in instruments with the main objectives of
preserving principal, meeting liquidity needs and minimizing foreign exchange risks. The Group allocates its liquid assets to first tier Swiss or international banks.
Liquidity risk
The Group’s principal source of liquidity is its cash reserves which are mainly obtained through the issuance of new shares. The Group has succeeded in raising capital to fund its
development activities to date and has raised funds that will allow it to meet short term development expenditures. The Company will require regular capital injections to continue
its development work, which may be dependent on meeting development milestones, technical results and/or commercial success. Management monitors rolling forecasts of the
Group’s liquidity requirements to ensure it has sufficient cash to meet operational needs. The ability of the Group to maintain adequate cash reserves to sustain its activities in the
medium term is highly dependent on the Group’s ability to raise further funds. Consequently, the Group is exposed to continued liquidity risk.
The table below analyses the remaining contractual maturities of financial liabilities, including estimated interest payments as of December 31, 2017 and 2016. The amounts
disclosed in the table are the undiscounted cash flows:
December 31, 2017
Trade and other payables
Accrued expenses
Loan and borrowings
Derivative financial instruments
Total
December 31, 2016
Trade and other payables
Accrued expenses
Loan and borrowings
Derivative financial instruments
Total
Carrying
amount
Less than 3
months
Between 3
months and
2 years
2 years
and later
1,200,820
4,395,609
10,126,406
1,836,763
17,559,598
1,200,820
4,395,609
1,349,531
—
—
—
9,446,716
—
6,945,960
9,446,716
—
—
1,166,225
1,836,763
3,002,988
Carrying
amount
Less than 3
months
Between 3
months and
2 years
2 years
and later
1,837,997
4,652,033
12,364,204
117,132
18,971,366
1,837,997
3,632,752
311,013
—
—
1,019,281
8,725,772
—
5,781,762
9,745,053
—
—
6,834,249
117,132
6,951,381
Total
1,200,820
4,395,609
11,962,472
1,836,763
19,395,664
Total
1,837,997
4,652,033
15,871,034
117,132
22,478,196
F-17
Table of Contents
Fair value measurement
Financial
assets /
liabilities
Derivative
financial
liabilities
Fair values as at
December 31,
2017
December 31,
2016
Liability
1,836,763
Liability
117,132
Fair value
hierarchy
Valuation technique(s) and key input(s)
Level 2 Black-Scholes option pricing model
The share price is determined by our NASDAQ quoted-price.
The strike price and maturity are coming from the contract.
The volatility assumption is driven by our historic quoted
share price and the risk free rate is estimated based on
observable yield curves at the end of each reporting period.
01.01.2017
Financing
Cash Flows 1)
Fair value
revaluation
Other
changes 2)
31.12.2017
Non-cash changes
Derivative financial instrument
117,132
5,091,817
(3,372,186)
—
1,836,763
Loans
12,364,204
(2,087,076)
—
(150,722)
10,126,406
Total
12,481,336
3,004,741
(3,372,186)
(150,722)
11,963,169
1) The financing cash flows are from loan repayment and from issuance of new derivative
2) Internal rate of return changes and fx-difference
Credit risk
Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents and deposits with banks, as well as from other receivables. The Company’s policy is to
invest funds in low risk investments including interest bearing deposits. Other receivables were current as of December 31, 2017 and December 31, 2016, not impaired and
included only well-known counterparties.
The Group has been holding cash and cash equivalents in the Group’s principal operating currencies (CHF, USD and EUR) with international banks of high credit rating.
The Group’s maximum exposure to credit risk is represented by the carrying amount of each financial asset in the consolidated statement of financial position:
Financial assets
Cash and cash equivalents
Other receivables
Total
December 31, 2017
December 31, 2016
14,973,369
79,840
15,053,209
32,442,222
134,900
32,577,122
As of December 31, 2017 and December 31, 2016 other receivables consisted of other non-current receivables from third party and deposits for rent.
Market risk
Currency risk
The Group operates internationally and is exposed to foreign exchange risk arising from various exposures, primarily with respect to US Dollar and Euro. Foreign exchange risk
arises from future commercial transactions, recognized assets and
F-18
Table of Contents
liabilities and net investments in foreign operations. The summary of quantitative data about the exposure of the Group’s financial assets and liabilities to currency risk was as
follows:
in CHF
Cash and cash equivalents
Trade and other payables
Accrued expenses
Loan and borrowings
Derivative financial instruments
Net statement of financial position exposure -asset/(liability)
USD
2017
EUR
USD
2016
EUR
13,901,698
(365,999)
(1,750,752)
(10,126,406)
(1,836,763)
(178,222)
116,942
(426,050)
(1,692,946)
—
—
(2,002,054)
31,124,874
(501,249)
(1,031,096)
(12,364,204)
(117,132)
17,111,193
444,075
(847,892)
(2,964,552)
—
—
(3,368,369)
As of December 31, 2017, a 5% increase or decrease in the USD/CHF exchange rate with all other variables held constant would have resulted in a CHF 8,662 (2016: CHF
872,443) 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
117,320 (2016: CHF 180,595) increase or decrease in the net result.
The Company has subsidiaries in the United States and Ireland, whose net assets are exposed to foreign currency translation risk. Due to the small size of the subsidiaries the
translation risk is not significant.
Interest rate risk
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 Capital, Inc. as administrative
agent (“Hercules”) and the lenders party thereto. An initial tranche of $12.5 million was drawn on July 19, 2016, concurrently with the execution of the loan agreement. The loan
matures on January 2, 2020 and bears interest at a minimum rate of 9.55% per annum, and is subject to the variability of the prime interest rate. The Company’s exposure to
interest rates on financial assets and financial liabilities is resulting from loan and cash at banks. As of December 31, 2017 an increase or decrease in interest rates on financial
obligations by 50 basis points with all other variables held constant would have resulted in a CHF 62,500 (2016: 28,276) increase or decrease in the net result.
Capital risk management
The Company and its subsidiaries are subject to capital maintenance requirements under local law in the country in which it operates. To ensure that statutory capital requirements
are met, the Company monitors capital, at the entity level, on an interim basis as well as annually. From time to time the Company may take appropriate measures or propose
capital increases to ensure the necessary capital remains intact.
6. Segment information
Geographical information
The Group’s non-current assets by the Company’s country of domicile were as follows:
Switzerland
Total
Non-current assets exclude financial instruments.
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December 31, 2017
December 31, 2016
1,958,709
1,958,709
1,966,592
1,966,592
Table of Contents
7. Property and Equipment
At cost
As of January 1, 2016
Additions
As of December 31, 2016
Additions
As of December 31, 2017
Accumulated depreciation
As of January 1, 2016
Charge for the year
As of December 31, 2016
Charge for the year
As of December 31, 2017
Net book value
As of December 31, 2016
As of December 31, 2017
Production
equipment
Office
furniture
and EDP
Leasehold
improvements
Total
283,499
—
283,499
6,389
289,888
(127,629)
(56,700)
(184,329)
(53,594)
(237,923)
208,712
24,994
233,706
—
233,706
(149,873)
(33,837)
(183,710)
(21,918)
(205,628)
17,132
219,330
236,462
—
236,462
(9,271)
(7,063)
(16,334)
(47,272)
(63,606)
99,170
51,965
49,996
28,078
220,128
172,856
509,343
244,324
753,667
6,389
760,056
(286,773)
(97,600)
(384,373)
(122,784)
(507,157)
369,294
252,899
As of December 31, 2017, and 2016 no items of property and equipment were pledged. Refer to note 24 for security provided to Hercules Capital, Inc under the Loan and
Security Agreement.
8. Intangible assets
At cost
As of January 1, 2016
As of December 31, 2016
As of December 31, 2017
Accumulated amortization and impairment losses
As of December 31, 2016
As of December 31, 2017
Net book value
As of December 31, 2016
As of December 31, 2017
Licences
IP & Data rights
Total
1,482,520
1,482,520
1,482,520
—
—
1,482,520
1,482,520
—
—
146,580
—
—
—
146,580
1,482,520
1,482,520
1,629,100
—
—
1,482,520
1,629,100
Intangible assets comprise upfront and milestone payments related to licenses. In 2013 a milestone of CHF 1,125,000 related to the AM-111 program was recorded. Amortization
will commence once the intangible assets are available for use, which will be the case after regulatory approvals are obtained and the related products are available for use.
On February 2, 2017, the Company entered into an asset purchase agreement with Otifex Therapeutics Pty Ltd (“Otifex”), pursuant to which the Company agreed to purchase and
Otifex has agreed to sell to the Company certain pre-clinical and clinical assets related to a formulation for the intranasal application of Betahistine, which the Company refers to
as AM-125, as well as intellectual property rights. The Otifex transaction closed in July 2017 and the Company recorded CHF 146,580 as intangibles related to this transaction.
No amortization or impairment was recorded in 2017 and 2016.
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9. Other receivables
Value added tax receivable
Withholding tax receivable
Deposit credit cards
Other
Total other receivables
Other receivables were not considered impaired in the years under review.
10. Prepayments
Advance payments to supplier
Clinical projects and related activities
Insurance
Other
Total prepayments
11. Cash and cash equivalents
Cash in bank accounts
Cash on hand
Total cash and cash equivalents
12. Capital and reserves
Share capital
December 31, 2017
December 31, 2016
63,452
18,115
79,840
79,874
241,281
December 31, 2017
December 31, 2016
442,828
—
200,246
9,839
652,913
132,570
23,644
79,900
60,417
296,531
759,716
41,681
151,198
—
952,595
December 31, 2017
December 31, 2016
14,972,761
608
14,973,369
32,441,968
254
32,442,222
The issued share capital of the Company at December 31 consisted of:
Common shares with a nominal value of CHF 0.40 each
Total
December 31, 2017
December 31, 2016
Number
CHF
Number
48,373,890
48,373,890
19,349,556
19,349,556
34,329,704
34,329,704
CHF
13,731,881
13,731,881
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Table of Contents
As of January 1
Common shares issued or for stock options exercises with a
nominal value of CHF 0.40 each
Common shares issued for the follow-on offering with a
nominal value of CHF 0.40 each
Restricted shares issue for bonus purposes
nominal value of CHF 0.40 each
Total, as of December 31
Common Shares (Number)
2017
2016
34,329,704
34,303,891
14,044,186
—
25,813
48,373,890
34,329,704
All shares have a nominal value of CHF 0.40 and are fully paid in. As of December 31, 2017, the nominal value of the 48,373,890 issued shares amounted to CHF 19,349,556.00
(as of December 31, 2016, the nominal value of 34,329,704 issued shares amounted to CHF 13,731,881.60).
On October 10, 2017, the Company entered into a purchase agreement (the “Commitment Purchase Agreement”) and a Registration Rights Agreement (the “Registration Rights
Agreement”) with Lincoln Park Capital Fund, LLC (“LPC”). Pursuant to the Commitment Purchase Agreement, LPC has agreed to subscribe for up to $13,500,000 of our
common shares over the 30-month term of the Commitment Purchase Agreement. Regular purchases may be made from time to time under the Commitment Purchase Agreement
subject to certain amount limitations. As of December 31, 2017, the Company has issued an aggregate of 2,300,000 common shares for aggregate proceeds of CHF 1,594,611
($1,630,415) to LPC pursuant to the Commitment Purchase Agreement. The related transaction cost of CHF 25,701 were recorded in equity.
The transaction costs for obtaining the Commitment Purchase Agreement were recorded as CHF 265,205 in transaction costs in the statement of profit or loss and comprehensive
income / (loss). The commitment fee of CHF 290,400 (US$ 300,000) represents the fair value of the right to require LPC to purchase common shares within the Commitment
Purchase Agreement. The proportion of the commitment fee CHF 35,073 related to cash received from common shares issued pursuant to the Commitment Purchase Agreement
as a percentage of the total contract value of US$ 13.5 million is recognized in equity as if this proportion of the commitment fee was incorporated into the strike price of the
option. The remaining portion of the commitment fee of CHF 255,327 was derecognized through transaction costs in the statement of profit and loss and comprehensive income /
(loss) as the Commitment Purchase Agreement did not have any significant future value as of December 31, 2017 due the fact that the Commitment Purchase Agreement
terminated upon consumption of Merger on March 13, 2018.
Additionally, on October 16, 2017, the Company issued 1,744,186 of its common shares to LPC for aggregate proceeds of CHF 1,446,150 ($1,500,000) pursuant to our effective
shelf registration statement on Form F-3. The related transaction cost of CHF 63,056 were recorded in equity.
On February 21, 2017, the Company completed a public offering (the “February 2017 Offering”) of 10,000,000 common shares with a nominal value of CHF 0.40 each and
10,000,000 warrants, each warrant entitling its holder to purchase 0.70 of a common share. The gross proceeds to the Company from the February 2017 Offering were
CHF 9,998,305 (US$10,000,000). The Company had transaction costs amounting to CHF 903,919. The transactions costs were recorded as CHF 397,685 in equity for the
issuance of the common shares and CHF 506,234 to finance expense in the statement of profit or loss and comprehensive loss for the issuance of the warrants.
On May 20, 2015, the Company completed a public offering of 5,275,000 shares, yielding net proceeds after underwriting discounts of USD 23.6 million (CHF 21.7 million).
Offering costs associated with the follow-on amounted to CHF 643,796. Following the offering (and settlement of the employee options mentioned below) there were 34,329,704
common shares of the Company outstanding as of December 31, 2016.
Issuance of common shares with restrictions
For the business year 2015, 25,813 restricted common shares with a nominal value of CHF 0.40 were awarded and issued on January 7, 2016 under the Equity Incentive Plan for
the purpose of share based bonus payments. The shares are fully vested on
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the grant date but remain subject to transfer restrictions for a period until January 7, 2019. The Company recorded a payroll charge of CHF 188,092 in 2015.
Controlled Equity Offering
On June 1, 2016, we entered into a Controlled Equity OfferingSM Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. (“Cantor”), pursuant to which we may
offer and sell, from time to time common shares, with a nominal value of CHF 0.40 per share, having an aggregate offering price of up to $35 million through Cantor. In 2017, we
did not offer or sell any common shares under the Sales Agreement. The Controlled Equity Offering program terminated upon consummation of the Merger on March 13, 2018.
Authorized share capital
On April 13, 2017, the annual general meeting of shareholders revised the provisions related to authorized and contingent capital of the Company and approved an increase and
extension of the authorized share capital. As of December 31, 2017, the Company’s authorized capital amounted to CHF 8,860,000 and allowed to Board of Directors, subject to
the terms and conditions set forth in the Articles of Association, to issue up to 22,150,000 fully paid registered shares with a nominal value of CHF 0.40 each.
Conditional share capital
The share capital may be increased by the issuance of up to 6,500,000 fully paid registered Common Shares with a nominal value of CHF 0.40 per share and to the maximum
amount of CHF 2,600,000 in execution of subscription rights, which may be granted to employees, members of the Board of Directors as well as key service providers (see Note
13 for further reference).
The Company’s share capital may be further increased by the issuance of up to 15,650,000 fully paid registered Common Shares with a nominal value of CHF 0.40 per share and
to the maximum amount of CHF 6,260,000 in execution of conversion rights in connection with warrants and convertible bonds of the Company. For the terms of the warrant
issued to Hercules, refer to Note 24.
13. Share based compensation
Description
On November 21, 2008, the Company established share option programs (“Stock Option Plans A and B”) for employees, members of the Board of Directors as well as key
service providers to purchase shares in the Company. Stock Option Plan A was amended and superseded by an updated version effective November 24, 2009, and replaced with
amendments by Stock Option Plan C for any future option grants effective April 5, 2013. Grants under Stock Option Plan A and subsequently under Stock Option Plan C were
offered in each year with vesting periods of three and four years; grants under Stock Option Plan B were made in 2008, 2009 and 2014 only. Stock Option Plan B was abolished in
2015 and no grants under Stock Option Plan B were made in 2015. In 2014, the Group introduced a further equity incentive plan, the EIP. The Company granted 1,918,100
options in 2017 (2016: 555,660) under the EIP.
Holders of vested options are entitled to purchase common shares of the Company. For the stock option plans that were in place before the IPO, the exercise price corresponded to
the value per share at the most recent financing round. Under the Equity Incentive Plan, the Board of Directors defined the exercise price as the average daily closing price of the
Company’s shares during the 30 days preceding the date of grant. All options are to be settled by the physical delivery of shares. The key terms and conditions related to the
grants under these programs are as at December 31, 2017 as follows:
Plan
Stock option Plan A
Stock option Plan C
Equity Incentive Plan Board
Equity Incentive Plan Employees / Board*
Number of
options outstanding
Vesting conditions
50,000 3 years' service from grant date
121,250 4 years' service from grant date
368,200 1 year service from grant date
856,045 2 years' service from grant date (50%)
Contractual life of
options
5 years
6 years
8 years
8 years
Equity Incentive Plan Employees / Board*
* 25,000 options issued to Bettina Stubinski, the former Chief Medical Officer of the Company, have vested early, on December 29, 2016 and expired on March 29, 2017.
856,045 3 years' service from grant date (50%)
8 years
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Measurement of fair values
The fair value of the options was measured based on the Black-Scholes formula.
Equity Incentive
Plan 2017
USD 0.198 (1 year vesting) 1)
USD 0.287 (2 year vesting) 1)
USD 0.352 (3 year vesting) 1)
USD 0.76
USD 0.82
72.85%
1,2 and 3 years
—
2.38%
Stock Option Plan
Equity Incentive
Plan 2017
USD 0.233 (1 year vesting) 2)
USD 0.335 (2 year vesting) 2)
USD 0.406 (3 year vesting) 2)
USD 0.72
USD 0.82
93.01%
1,2 and 3 years
—
2.19%
Equity Incentive
Plan 2016
USD 0.308 (1 year vesting) 1)
USD 0.472 (2 year vesting) 1)
USD 0.583 (3 year vesting) 1)
USD 1.03
USD 1.39
100.93%
1,2 and 3 years
—
1.84%
Equity Incentive
Plan 2016
USD 1.094 (1 year vesting) 2)
USD 1.560 (2 year vesting) 2)
USD 1.888 (3 year vesting) 2)
USD 3.66
USD 3.92
82.00%
1,2 and 3 years
—
1.83%
Fair value at grant date
Share price at grant date
Exercise price
Expected volatility
Expected life
Expected dividends
Risk-free interest rate
1) October grants for the respective year
2) April grants for the respective year
The Company uses its own historic volatility to calculate expected volatility. The expected life of all options is assumed to correspond to the vesting period.
The total expense recognized for equity-settled share-based payment transactions were CHF 354,851 in 2017 (2016: CHF 290,783, 2015: 311,671).
The number and weighted average exercise prices (in CHF) of options under the share option programs for Stock Option Plan A, Stock Option Plan C and the EIP are as follows:
Outstanding at January 1
Expired during the year
Forfeited during the year
Exercised during the year
Granted during the year
Outstanding at December 31
Exercisable at December 31
2017
2016
Number of
options
Weighted average
exercise price
Weighted average
remaining term
Number of
options
Weighted average
exercise price
Weighted average
remaining term
1,038,140
(67,500)
(637,200)
—
1,918,100
2,251,540
326,510
3.36
—
—
—
0.82
1.74
4.48
6.14
—
—
—
7.70
6.88
4.24
629,010
(17,500)
(129,030)
—
555,660
1,038,140
199,005
4.92
—
—
—
1.99
3.36
4.56
5.42
—
—
—
7.81
6.14
3.11
The range of exercise prices for outstanding options was CHF 0.8 to CHF 5.81 as of December 31, 2017 and CHF 1.35 to CHF 6.01 as of December 31, 2016.
14. Trade and other payables
Trade accounts payable - third parties
Other
Total trade and other payables
December 31, 2017
December 31, 2016
1,032,557
168,263
1,200,820
1,733,319
104,678
1,837,997
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15. Accrued expenses
Accrued research and development costs including milestone payments
Professional fees
Accrued vacation & overtime
Employee benefits incl. share based payments
Board of Directors fees
Other
Total accrued expenses
16. Research and development expense
Pre-clinical projects
Clinical projects
Drug manufacturing and substance
Employee benefits and expenses
Lease expenses
Patents and trademarks
Regulatory projects
Depreciation tangible assets
Total research and development expense
17. General and administrative expense
Employee benefits and expenses
Business development
Travel expenses
Administration expenses
Lease expenses
Depreciation tangible assets
Capital tax expenses
Total general and administrative expenses
December 31, 2017
December 31, 2016
4,060,048
227,363
69,455
217,649
—
108,198
4,682,713
4,307,089
316,470
115,749
138,960
1,529
26,945
4,906,742
December 31, 2017
December 31, 2016
December 31, 2015
642,821
12,365,768
2,027,184
2,773,516
111,680
603,892
632,387
53,594
19,210,842
546,429
16,639,304
2,608,814
2,854,624
84,344
941,836
1,043,287
58,125
24,776,763
468,326
20,808,025
1,866,148
2,140,664
42,953
824,201
331,822
54,037
26,536,176
December 31, 2017
December 31, 2016
December 31, 2015
2,097,853
161,985
199,484
2,522,217
81,277
69,190
18,403
5,150,409
2,174,543
45,649
158,774
2,969,796
63,695
39,475
(5,420)
5,446,512
1,502,900
72,562
257,454
2,386,791
59,665
38,740
23,458
4,341,570
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Table of Contents
18. Employee benefits
Salaries
Pension costs
Other social benefits
Share based payments costs
Recruitment costs
Other personnel expenditures
Total employee benefits
Benefit plans
December 31, 2017
December 31, 2016
December 31, 2015
3,761,171
378,588
277,468
354,851
125,731
(26,439)
4,871,370
3,662,180
342,805
301,537
290,783
391,035
40,827
5,029,167
2,833,741
282,517
191,079
311,671
—
24,557
3,643,565
The Company participates in a retirement plan (the “Plan”) organized as an independent collective foundation, that covers all of its employees in Switzerland, including
management. The collective foundation is governed by a foundation board. The board is made up of an equal number of employee and employer representatives of the affiliated
companies. The Company has no direct influence on the investment strategy of the collective foundation. Moreover, certain elements of the employee benefits are defined in the
same way for all affiliated companies. This is mainly related to the annuity factors at retirement and to interest allocated on retirement savings. The employer itself cannot
determine the benefits or how they are financed directly. The foundation board of the collective foundation is responsible for the determination of the investment strategy, for
making changes to the pension fund regulations and in particular, also for defining the financing of the pension benefits.
The old age benefits are based on retirement savings for each employee, coupled with annual retirement credits and interest (there is no possibility to credit negative interest). At
retirement age, the insured members can choose whether to take a pension for life, which includes a spouse’s pension, or a lump sum. In addition to retirement benefits, the plan
benefits also include disability and death benefits. Insured members may also buy into the scheme to improve their pension provision up to the maximum amount permitted under
the rules of the plan and may withdraw funds early for the purchase of a residential property for their own use subject to limitations under Swiss law. On leaving the Company,
retirement savings are transferred to the pension institution of the new employer or to a vested benefits institution. This type of benefit may result in pension payments varying
considerably between individual years. In defining the benefits, the minimum requirements of the Swiss Law on Occupational Retirement, Survivors and Disability Pension Plans
(BVG) and its implementing provisions must be observed. The BVG defines the minimum pensionable salary and the minimum retirement credits. In Switzerland, the minimum
interest rate applicable to these minimum retirement savings is set by the Swiss Federal Council at least once every two years. The rate was 1.75% in 2015, 1.25% in 2016 and
1.00% in 2017.
The assets are invested by the collective foundation in a diversified portfolio that respects the requirements of the Swiss BVG. Under the Plan, both the Company and the
employee share the costs equally. The structure of the plan and the legal provisions of the BVG mean that the employer is exposed to actuarial risks. The main risks are
investment risk, interest risk, disability risk and the risk of longevity. Through the affiliation to a collective foundation, the Company has minimized these risks, since they are
shared between a much greater number of participants.
The following tables present information about the net defined benefit liability and its components:
F-26
Table of Contents
Change in defined benefit obligation
Defined benefit obligation at January 1
Service costs
Plan participants' contribution
Interest cost
Actuarial losses
Transfer-out amounts
Transfer-in amounts of new employees
Defined benefit obligation at December 31
2017
2016
7,122,841
348,172
236,074
50,494
60,781
(440,950)
622,205
7,999,617
5,427,776
319,173
218,275
62,916
417,937
(1,276,315)
1,953,079
7,122,841
The defined benefit obligation includes only liabilities for active employees. The weighted average modified duration of the defined benefit obligation at December 31, 2017 is
20.9 years (2016: 21.7 years).
Change in fair value of plan assets
Fair value of plan assets at January 1
Interest income
Return on plan assets excluding interest income
Employer contributions
Plan participants' contributions
Transfer-out amounts
Transfer-in amounts of new employees
Administration expense
Fair value of plan assets at December 31
Net defined benefit liability recognized in the statement of financial position
Present value of funded defined benefit obligation
Fair value of plan assets
Net defined benefit liability
Defined Benefit Cost
Service cost
Net interest expense
Administration expense
Total defined costs for the year recognized in profit or loss
F-27
2017
2016
5,030,407
37,500
332,759
236,074
236,074
(440,950)
622,205
(17,422)
6,036,647
3,851,943
47,994
23,835
220,306
218,275
(1,276,315)
1,953,079
(8,710)
5,030,407
December 31, 2017
December 31, 2016
7,999,617
(6,036,647)
1,962,970
7,122,841
(5,030,407)
2,092,434
2017
2016
2015
348,172
12,994
17,422
378,588
319,173
14,922
8,710
342,805
261,778
14,873
5,866
282,517
Table of Contents
Remeasurement of the Defined Benefit Liability
Actuarial loss (gain) arising from changes in financial assumptions
Actuarial loss arising from experience adjustments
Actuarial gain arising from demographic assumptions
Return on plan assets excluding interest income
Total defined benefit cost for the year recognized in the other comprehensive loss
2017
2016
2015
(150,552)
211,331
—
(332,759)
(271,980)
412,396
264,417
(258,876)
(23,835)
394,102
(167,623)
175,375
—
46,164
53,916
Assumptions
At December 31
Discount rate
Future salary increase
Pension indexation
Mortality and disability rates
Sensitivity analysis
2017
2016
2015
0.80%
1.10%
0.00%
0.70%
1.10%
0.00%
1.10%
1.10%
0.00%
BVG2015G
BVG2015G
BVG 2010G
Reasonably possible changes at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant, would have affected the defined benefit
obligation by the amounts shown below.
December 31,
Change in assumption
Discount rate
Salary increase
Pension indexation
Change in assumption
Life expectancy
19. Finance income and finance expense
Interest income
Net foreign currency exchange gain
Revaluation gain from derivative financial instruments
Total finance income
Interest expense (incl. Bank charges)
Net foreign currency exchange loss
Total finance expense
Finance income/(expense), net
2017
2016
0.25 % increase
0.25 % increase
(354,477)
49,707
189,965
+ 1 year
182,977
(324,057)
42,181
201,221
+ 1 year
167,161
2017
2016
2015
53,570
1,912,681
3,372,186
5,338,437
1,640,394
2,737,273
4,377,667
960,770
67,565
843,950
291,048
1,202,563
828,547
944,047
1,772,594
(570,031)
36,562
1,806,206
—
1,842,768
7,985
662,100
670,085
1,172,683
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Table of Contents
In 2017, net foreign currency exchange gains contain translation gains of CHF 1,315,029 (2016: CHF 396,665; 2015: CHF 1,154,513) which arose on the Company’s USD and
EUR denominated cash and cash equivalents. In 2017, interest expenses include interest paid to Hercules Capital, Inc. under the Loan and Security Agreement in an amount of
CHF 1,182,369 (2016: CHF 546,170; 2015: CHF 0).
20. Taxation
The Group’s income tax expense recognized in the consolidated statement of profit or loss and other comprehensive loss was as follows:
Deferred income tax expense
Deferred income tax gain
2017
2016
2015
(21,415)
39,188
17,773
—
131,055
131,055
(32,761)
32,761
—
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 21.7% in
2017 (2016: 21.5%, 2015: 21.9%) as summarized in the following table:
Reconciliation
Loss before income tax
Income tax at statutory tax rates applicable to results in the respective countries
Effect of unrecognized temporary differences
Effect of unrecognized taxable losses
Effect of previously unrecognised deferred tax asset
Effect of expenses deductible for tax purposes
Effect of expenses not considerable for tax purposes
Effect of impact from application of different tax rates
Effect of unrecognized taxable losses in equity
Income tax gain
2017
2016
2015
(24,427,247)
(30,793,306)
(29,705,063)
5,311,030
193,598
6,629,237
(27,072)
6,493,569
(105,395)
(5,429,935)
(6,360,837)
(6,438,609)
39,189
9,696
—
(105,805)
—
17,773
131,055
2,505
23,716
(267,695)
146
131,055
—
—
—
—
50,435
—
The tax effect of taxable temporary differences that give rise to deferred income tax liabilities or to deferred income tax assets as of December 31 is presented below:
Deferred Tax Liabilities
Intangible assets
Hercules Loan Facility
Total
Deferred Tax Asset
Net operating loss (NOL)
Total
Deferred Tax, net
December 31, 2017
December 31, 2016
(349,052)
(47,477)
(396,529)
(327,637)
(76,390)
(404,027)
December 31, 2017
December 31, 2016
217,720
217,720
207,445
207,445
(178,809)
(196,582)
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Table of Contents
Intangible assets
Hercules Loan Facility
Net operating loss (NOL)
Total
Intangible assets
Hercules Loan Facility
Net operating loss (NOL)
Total
Deferred Tax 2017 Opening Balance
Recognized in
Profit or Loss
Recognized in
Equity
Closing Balance
(327,637)
(76,390)
207,445
(196,582)
(21,415)
28,913
10,275
17,773
—
—
—
—
(349,052)
(47,477)
217,720
(178,809)
Deferred Tax 2016 Opening Balance
Recognized in
Profit or Loss
Recognized in
Equity
Closing Balance
(327,637)
—
—
(327,637)
—
(76,390)
207,445
131,055
—
—
—
—
(327,637)
(76,390)
207,445
(196,582)
As of December 31, 2017, the Group had total gross tax loss carry forwards amounting to CHF 142 million (2016: CHF 115.4 million), of which CHF 140.9 million related to
Auris Medical AG, Auris Medical Holding AG and Otolanum AG in Switzerland and CHF 1.1 million to Auris Medical Inc. in the United States (2016: CHF 114.3 million for
Auris Medical AG and Otolanum AG and CHF 1.1 million for Auris Medical Inc.).
The Group’s tax loss carry-forwards with their expiry dates are as follows:
Within 1 year
Between 1 and 3 years
Between 3 and 7 years
More than 7 years
Total
December 31, 2017
December 31, 2016
1,754,398
31,089,191
108,055,089
1,072,260
141,970,938
1,859,601
9,928,391
102,542,641
1,087,543
115,418,176
The tax effect of the major unrecognized temporary differences and loss carry-forwards is presented in the table below:
Deductible temporary differences
Employee benefit plan
Stock option plans
Total potential tax assets
Taxable unrecognized temporary differences
Property and equipment
Total unrecognized potential tax liabilities
Offsetting potential tax liabilities with potential tax assets
Net potential tax assets from temporary differences not recognized
Potential tax assets from loss carry-forwards not recognized
Total potential tax assets from loss carry-forwards and temporary differences not recognized
F-30
December 31, 2017
December 31, 2016
433,816
400,764
834,580
—
—
—
834,580
29,959,963
30,794,543
450,227
—
450,227
—
—
—
450,227
25,082,968
25,533,195
Table of Contents
21. Loss per share
Loss attributable to owners of the Company
Weighted average number of shares outstanding
Basic and diluted loss per share
December 31, 2017
December 31, 2016
December 31, 2015
(24,409,474)
43,741,870
(0.56)
(30,662,251)
34,329,280
(0.89)
(29,705,063)
32,299,166
(0.92)
For the years ended December 31, 2017 and 2016 basic and diluted loss per share is based on the weighted average number of shares issued and outstanding and excludes shares
to be issued under the Stock Option Plans (Note 13) and the warrant issued to Hercules (Note 24) as they would be anti-dilutive. As of December 31, 2017, the Company has
2,251,540 options outstanding under its stock option plans. The average number of options outstanding between January 1, 2017 and December 31, 2017 was 1,676,526 (769,529
for the period between January 1, 2016 and December 31, 2016). As of December 31, 2017, the Company issued warrants to purchase up to 8,186,117 of its common shares
outstanding.
22. Commitments and contingencies
Operating lease commitments
On October 1, 2016, the Group entered into a lease for a new office space under an operating lease agreement. The lease has a five year fixed term, subject to a one-time
cancellation option effective as per September 30, 2019. Effective December 31, 2017, the Group entered into a termination agreement related to a lease entered into on April 1,
2013.
The future minimum lease payments under non-cancellable operating leases that are not accounted for in the statement of financial position were as follows:
Within one year
Between one and five years
Total
December 31, 2017
December 31, 2016
161,110
446,051
607,161
161,110
607,161
768,271
Office lease expenses of CHF 192,957, CHF 148,039 and CHF 107,450 were booked in 2017, 2016 and 2015, respectively, in the consolidated statement of profit or loss and
other comprehensive loss.
23. Related party transactions
For purposes of these consolidated financial statements, parties are considered to be related if one party has the ability to control the other party or exercise significant influence
over the other party in making financial or operational decisions. Also, parties under common control of the Group are considered to be related. Key management personnel are
also related parties. In considering each possible related party relationship, attention is directed to the substance of the relationship, and not merely the legal form.
Compensation of the members of the Board of Directors and Management
In 2017, the total compensation paid to management amounted to CHF 1,973,167 (2016: CHF 1,871,406; 2015: CHF 1,619,208). The fees paid to members of the Board of
Directors in 2017 for their activities as board members totaled CHF 337,619 (2016: CHF 364,276; 2015: CHF 329,827).
Up to the Company’s IPO, non-executive directors received part or all of their remuneration in stock options; travel and out of pocket expenses were reimbursed in cash by the
Group. Executive directors and directors delegated and remunerated by a shareholder for its representation on the Board were not entitled to any specific remuneration for their
Board membership and work. Following the IPO, the Board’s remuneration policy was modified in that all non-executive directors received remuneration for their work as
members of the Board as well as of the newly constituted Compensation Committee and Audit Committee.
F-31
Table of Contents
Executive Management
Board of Directors
2017
2016
2015
2017
2016
2015
2017
Total
2016
2015
Short term benefits
1,576,864
1,554,850
1,363,796
280,762
325,493
268,810
1,857,626
1,880,343
1,632,606
Post-employee benefits years
Share-based payment charge
Total
94,839
190,659
88,838
217,981
78,721
176,691
1,862,362
1,861,669
1,619,208
—
—
—
72,647
353,409
103,380
428,873
61,017
329,827
94,839
263,306
88,838
321,361
78,721
237,708
2,215,771
2,290,542
1,949,035
In 2017, CHF 263,306 (2016: CHF 321,361; 2015: CHF 237,708) was expensed for grants of stock options to members of the Board of Directors and management. The 2017
share based payment charge shown above excludes adjustments for instruments forfeited in 2017 due to termination of service. Contributions to pension schemes amounted to
CHF 94,839, CHF 88,838 and CHF 78,721 during the years 2017, 2016 and 2015, respectively. No termination benefits or other long term benefits were paid.
Members of the Board of Directors and management held 1,782,605, 656,355 and 457,510 stock options as of December 31, 2017, 2016, and 2015, respectively.
For the business year 2015, the Company granted 25,813 restricted shares to employees under the Equity Incentive Plan. The grant price for the 2015 awards was the closing price
of our shares on January 7, 2016 (USD 7.08) and resulted in a total payroll charge of CHF 188,092 in 2015. These shares vest upon grant and have a sale restriction for a period of
3 years. For the 2017 and 2016 business year, no restricted shares were issued.
Controlled Equity OfferingSM
Thomas Meyer, our Chief Executive Officer, or the Share Lender, has entered into a share lending agreement with Cantor to facilitate the timely settlement of common shares sold
under the Controlled Equity Offering Sales Agreement with Cantor. Pursuant to the terms of the share lending agreement, the Share Lender will lend common shares to Cantor so
that those common shares may be delivered by Cantor to purchasers of common shares sold in the offering. Cantor will return common shares to the Share Lender upon the
issuance of new common shares by the Company to Cantor. Neither the Company nor the Share Lender received any compensation for this arrangement. In the year ended
December 31, 2017, we did not offer or sell any common shares under the Controlled Equity Offering Sales Agreement. The Controlled Equity Offering program terminated upon
consummation of the Merger on March 13, 2018.
24. Loan and Warrant
On July 19, 2016, the Company entered into a Loan and Security Agreement (the “Hercules Loan and Security Agreement”) for a secured term loan facility of up to $20.0 million
with Hercules Capital, Inc. as administrative agent (“Hercules”) and the lenders party thereto. An initial tranche of $12.5 million was drawn on July 19, 2016, concurrently with
the execution of the Hercules Loan and Security Agreement. The loan matures on January 2, 2020 and bears interest at a minimum rate of 9.55% per annum, and is subject to the
variability of the prime interest rate. The loan is secured by a pledge of the shares of Auris Medical AG owned by the Company, all intercompany receivables owed to the
Company by its Swiss subsidiaries and a security assignment of the Company’s bank accounts.
The loan was initially recognized at transaction value with deductions of the fair value of the warrant at transaction date and directly attributable transactions costs. Subsequent to
initial recognition, the loan is measured at amortized cost using the effective interest method. Applying this method, the calculated value of the loan as of December 31, 2017 is
CHF 10,126,406. Of the CHF 10,126,406 amortization payments due within the next 12 months in an amount of CHF 4,542,109 are reclassified as current liabilities.
In connection with the loan facility, the Company issued Hercules a warrant to purchase up to 241,117 of its common shares at an exercise price of $3.94 per share. As of July 19,
2016, the warrant was exercisable for 156,726 common shares. Upon Hercules making the second advance under the loan facility, the warrant shall become exercisable for the
additional 84,391 common shares. The warrant expires on July 19, 2023. The fair value calculation of the warrant is based on the Black-Scholes option price model. Assumptions
are made regarding inputs such as volatility and the risk free rate in order to determine the fair value of the warrant. As the warrant is part of the loan transaction, its fair value was
deducted from the loan proceeds and accounted for separately as non-current financial liability. Following the initial recognition, the warrant is measured at fair value and the
changes in fair value are shown as profit or loss.
F-32
Table of Contents
As of December 31, 2017 the fair value of the warrant amounts to CHF 23,350. Therefore, the fair value decreased by the total amount of CHF 93,782 in the current year (2016:
CHF 291,048).
As of March 13, 2018, following the consummation of the Merger, the warrant was exercisable for 15,673 common shares at an exercise price of $39.40 per common share.
25. Warrants from Public Offering
On February 21, 2017, the Company completed a public offering (the “February 2017 Offering”) of 10,000,000 common shares with a nominal value of CHF 0.40 each and
10,000,000 warrants, each warrant entitling its holder to purchase 0.70 of a common share. The net proceeds to the Company from the February 2017 Offering were
approximately CHF 9.1 million (US$ 9.1 million), after deducting underwriting discounts and other estimated offering expenses payable by us. The Company had transaction
costs amounting to CHF 903,919. The transactions costs were recorded as CHF 397,685 in equity for the issuance of the common shares and CHF 506,234 to finance expense in
the statement of profit or loss and comprehensive loss for the issuance of the warrants.
The underwriter was granted a 30-day option to purchase up to 1,500,000 additional common shares and/or 1,500,000 additional warrants. On February 15, 2017, the underwriter
partially exercised its 30-day option to purchase additional common shares and/or warrants in the amount of 1,350,000 warrants.
Consequently, the Company issued warrants to purchase up to 7,945,000 of its common shares at an exercise price of US$1.2 per share. The warrants are exercisable during a
five-year period beginning on date of issuance. The fair value calculation of the warrants is based on the Black-Scholes option price model. Assumptions are made regarding
inputs such as volatility and the risk free rate in order to determine the fair value of the warrant. If a warrant is exercised, the Company will receive variable proceeds because the
Company’s functional currency is CHF and the exercise price is in USD, which results in the warrants being considered liability instruments. Therefore, the warrants were
assigned fair values using the Black-Scholes model. The residual value was assigned to the common share sold along with each warrant in accordance with IAS 32 Financial
instruments. The gross proceeds from the February 2017 offering were CHF 9,998,305 of which CHF 5,091,817 (fair value as of February 21, 2017) was assigned to the warrants
and CHF 4,906,488 was assigned to equity.
As of December 31, 2017, the fair value of the warrants amounted to CHF 1,813,413. The fair value decreased by CHF 3,278,404 since the initial recognition.
As of March 13, 2018, following the consummation of the Merger, the outstanding warrants issued in the February 2017 Offering are excisable for up to 794,500 common shares
at an exercise price of $12.00 per common share.
26. Events after the balance sheet date
Interference Proceedings
On July 20, 2015, the USPTO declared Patent Interference No. 106,030 involving our issued U.S. patent No. 9,066,865 (the “‘865 Patent”) and Otonomy’s U.S. patent
application No. 13/848,636 (the “‘636 Application”). The patent interference identified claims 1-9 in the ‘865 Patent as interfering with claims 38, 43 and 46-50 of the ‘636
Application. The ‘865 Patent discloses methods of treating inner or middle ear diseases with intratympanic injections of poloxamer-based compositions. The claims of the ‘865
Patent are directed to the use of fluoroquinolone antibiotics in poloxamer 407 compositions under certain specifications. On January 26, 2017, the USPTO issued a decision on the
interference granting Auris benefit of priority. As a result of the decision, judgment was entered against Otonomy and all claims in the ‘636 Application were refused. In addition,
claims 1-8 of the ‘865 Patent were cancelled as the result of the USPTO’s determination that the written description of the specification lacked full scope support for treating
middle or inner ear disease with fluoroquinolone. However, claim 9, which is directed to a method of treating viral and bacterial infections with intratympanic injection of a
fluoroquinolone antibiotic in a poloxamer 407 composition under certain specifications, was affirmed. On March 27, 2017, Otonomy submitted a notice of appeal to the United
States Court of Appeals for the Federal Circuit. To preserve its rights, Auris filed a notice of cross-appeal on April 5, 2017. Otonomy subsequently filed its opening brief on July
20, 2017, and Auris filed its principal and response brief on October 27, 2017. On January 5, 2018, Otonomy filed its opposition and reply brief. Auris filed its reply brief on
February 2, 2018.
F-33
Table of Contents
Equity Offering
As of March 12, 2018, we had issued an aggregate of 300,000 common shares to LPC pursuant to the Commitment Purchase Agreement.
On January 30, 2018, we completed a public offering of 12,499,999 common shares with a nominal value of CHF 0.40 each and concurrent offering of 7,499,999 warrants,
each warrant entitling its holder to purchase one common share. The net proceeds to the Company from the offering were approximately $4.9 million, after deducting placement
agent fees and other estimated offering expenses payable by the Company. As of March 13, 2018, following the consummation of the Merger, the outstanding warrants issued in
the January 2018 offering were exercisable for up to 749,999.9 common shares at an exercise price of $5.00 per common share.
Merger
On March 13, 2018, the Company merged into Auris NewCo AG, a newly incorporated, wholly-owned Swiss subsidiary following shareholder approval at an extraordinary
general meeting of shareholders held on March 12, 2018. Following the Merger, Auris NewCo, the surviving company, had a share capital of CHF 122,347.76, divided into
6,117,388 common shares with a nominal value of CHF 0.02 each. Pursuant to the Merger, shareholders received one common share with a nominal value of CHF 0.02 of Auris
NewCo for every 10 of the Company’s common shares held prior to the Merger, effectively resulting in a “reverse stock split” at a ratio of 10-for-1. Auris NewCo changed its
name to “Auris Medical Holding AG” following consummation of the Merger. On March 14, 2018 the common shares of Auris NewCo began trading on the Nasdaq Capital
Market under the trading symbol “EARS.”
Related Party Transaction
On February 9, 2018, Thomas Meyer, our Chief Executive Officer, entered into a shares transfer agreement with the Company to facilitate the rounding up of fractional
shares resulting from the exchange ratio used in the Merger. Pursuant to the terms of the share transfer agreement, Mr. Meyer has committed to transfer, at no consideration, a
common share to any shareholder entitled to a fraction of a common share as part of the Merger. Pursuant to the share transfer agreement, the Company nor the Mr. Meyer will
receive any compensation for this arrangement. Any expenses incurred by Mr. Meyer in connection with the transfers under such agreement were borne by the Company.
TACTT3 Data read-out
On March 13, 2018, the Company 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. The Company is currently investigating the outcomes, including those in TACTT2, the previously conducted sister trial. Following this analysis,
the Company will assess if the intangible asset recorded in our financial statements for a total amount of CHF 157,520 related to the acquisition of the technical file will need to
be impaired or not.
F-34
Statuten
Articles of Association
Auris Medical Holding AG
I Firma, Sitz, Dauer, Zweck
I Corporate Name, Domicile, Duration, Purpose
Firma
Art. 1
Unter der Firma
Auris Medical Holding AG
Auris Médical Holding SA
Auris Medical Holding Ltd.
Art. 1
Incorporated under the name
Auris Medical Holding AG
Auris Médical Holding SA
Auris Medical Holding Ltd.
Corporate name
Dauer, Sitz
besteht auf unbestimmte Zeit eine Aktiengesellschaft mit Sitz in
Zug.
is a stock corporation, formed for an indefinite duration and
domiciled in Zug.
Duration,
domicile
Zweigniederlassungen Die Gesellschaft kann im In- und Ausland Zweigniederlassungen
und Vertretungen errichten.
Art. 2
Zweck
Zweck der Gesellschaft ist die Beteiligung an Unternehmungen aller
Art im In- und Ausland, die insbesondere in Beziehung zu
pharmazeutischen Produkten und Dienstleistungen stehen. Die
Gesellschaft kann
im Übrigen alle Geschäfte betreiben, die
bestimmt oder geeignet sind, das Unternehmen zu entwickeln oder
den Gesellschaftszweck zu fördern.
vornehmen,
insbesondere
Die Gesellschaft kann auch Finanzierungen für eigene oder fremde
an
Rechnung
Konzerngesellschaften oder an Dritte gewähren sowie Garantien
oder Bürgschaften aller Art
für Verbindlichkeiten gegenüber
Konzerngesellschaften ausrichten. Diese Darlehen, Garantien oder
Bürgschaften können auch ohne Vergütung oder Entschädigung
gewährt werden. Die Gesellschaft kann zudem an Cash-Pooling-
Operationen innerhalb des Konzerns teilnehmen.
Darlehen
The Corporation may establish branches and representative
agencies in Switzerland and abroad.
Branch
establishments
Purpose
Art. 2
The Corporation's purpose
in business
is
organizations of all kinds in Switzerland and abroad, particularly in
relation to pharmaceutical products and services. Moreover, the
Corporation may transact any business conducive to developing
the Corporation or furthering the Corporation's purpose.
to participate
The Corporation may also arrange financing for its own or third
party account, in particular it may grant loans to companies of the
Group or to third parties, as well as guarantees or surety bonds of
any sort for obligations towards companies of the Group. These
loans or guarantees may also be granted without any
remuneration or compensation. The Corporation may in addition
participate in cash-pooling operations within the Group.
II Aktienkapital
Art. 3
II Share Capital
Art. 3
Aktienkapital,
Stückelung
Das Aktienkapital beträgt CHF 122‘347.76 und ist eingeteilt in
6‘117‘388 Namenaktien zu je CHF 0.02 Nennwert. Die Aktien sind
vollständig liberiert.
The share capital totals CHF 122,347.76 and is divided into
6,117,388 registered shares with a nominal value of CHF 0.02 each.
The shares are fully paid-in.
Share capital,
denominations
Art. 3a
Art. 3a
Genehmigtes
Aktienkapital
Der Verwaltungsrat ist ermächtigt, jederzeit bis zum 29. Januar 2020
das Aktienkapital im Maximalbetrag von CHF 61‘000.00 durch
Ausgabe von höchstens 3‘050‘000 vollständig zu liberierenden
Namenaktien mit einem Nennwert von je CHF 0.02 zu erhöhen.
Erhöhungen in Teilbeträgen sind gestattet. Der Verwaltungsrat kann
neue Aktien auch mittels Festübernahme oder auf eine andere Weise
durch eine oder mehrere Banken und anschliessendem Angebot an
Aktionäre oder Dritte ausgeben. Der Verwaltungsrat legt die Art der
Einlagen, den Ausgabebetrag, den Zeitpunkt der Ausgabe, die
Bedingungen für die Ausübung der Bezugsrechte sowie die Zuteilung
der Bezugsrechte, welche nicht ausgeübt wurden, und den Beginn der
Dividendenberechtigung fest. Der Verwaltungsrat ist ermächtigt, den
Handel mit Bezugsrechten zu ermöglichen, zu beschränken oder
auszuschliessen.
Authorized share
capital
The Board of Directors is authorized at any time until 29 January
2020 to increase the share capital by a maximum aggregate amount
of CHF 61,000.00 through the issuance of not more than 3,050,000
registered shares, which will have to be fully paid-in, with a nominal
value of CHF 0.02 each.
Increases in partial amounts are permitted. The Board of Directors
may issue new shares also by means of underwriting or in any other
manner by one or more banks and subsequent offer to shareholders
or third parties. The Board of Directors determines the type of
contributions, the issue price, the time of the issue, the conditions
for the exercise of the pre-emptive rights, the allocation of pre-
emptive rights which have not been exercised, and the date on
which the dividend entitlement starts. The Board of Directors is
authorized to permit, to restrict or to deny the trade with pre-emptive
rights.
Aktien, für welche Bezugsrechte eingeräumt, aber nicht ausgeübt
werden, können vom Verwaltungsrat anderweitig im Interesse der
Gesellschaft verwendet werden.
If pre-emptive rights are granted, but not exercised, the Board of
Directors may use the respective shares in the interest of the
Corporation.
Der Verwaltungsrat ist berechtigt, das Bezugsrecht der Aktionäre zu
beschränken oder aufzuheben und Dritten, oder der Gesellschaft,
zuzuweisen im Fall der Verwendung der Aktien: a) für Zwecke der
Erweiterung des Aktionärskreises in bestimmten Investorenmärkten
oder im Rahmen der Kotierung, Handelszulassung oder
Registrierung der Aktien an inländischen oder ausländischen
Börsen; b) im Zusammenhang mit einem Aktienangebot, um die
einer oder mehreren Banken gewährte Mehrzuteilungsoption (Over-
Allotment Option) abzudecken; c) für Aktienplatzierungen, wenn der
Ausgabebetrag der neuen Aktien unter Berücksichtigung des
Marktpreises festgesetzt wird; d) für die Beteiligung von
Mitarbeitern, Mitgliedern des Verwaltungsrats und Beratern der
Gesellschaft oder ihrer Tochtergesellschaften nach Massgabe eines
oder mehrerer vom Verwaltungsrat erlassenen Reglemente; e) für
die Übernahme von Unternehmen, Unternehmensteilen oder
Beteiligungen, den Erwerb von Produkten, Immaterialgüterrechten,
Lizenzen oder neue Investitionsvorhaben oder im Falle einer
privaten oder öffentlichen Aktienplatzierung für die Finanzierung
und/oder Refinanzierung solcher Transaktionen; f) für die rasche
und flexible Beschaffung von Eigenkapital, welche ohne Entzug des
Bezugsrechts nur schwer oder zu schlechteren Bedingungen
möglich wäre, oder g) für den Erwerb einer Beteiligung an der
Gesellschaft durch einen strategischen Partner (einschliesslich im
Falle eines öffentlichen Übernahmeangebots).
The Board of Directors is authorized to restrict or to exclude the
pre-emptive rights of the shareholders, and to allocate them to
third parties or to the Corporation, in the event of use of the
shares for the purpose of: a) expanding the shareholder base in
certain capital markets or in the context of the listing, admission
to official trading or registration of the shares at domestic or
international stock exchanges; b) granting an over-allotment
option (“greenshoe“) to one or several underwriters in connection
with a placement of shares; c) share placements, provided the
issue price is determined by reference to the market price; d) the
participation of employees, Members of the Board of Directors or
consultants of the Corporation or of one of its Group companies
according to one or several equity incentive plans issued by the
Board of Directors; e) the acquisition of companies, company
assets, participations, the acquisition of products, intellectual
property rights, licenses or new investment projects or for public
or private share placements for the financing and/or refinancing
of such transactions; f) for raising equity capital in a fast and
flexible manner as such transaction would be difficult to carry out,
or could be carried out only at less favorable terms, without the
exclusion of the pre-emptive rights of the existing shareholders;
or g) the acquisition of a participation in the Corporation by a
strategic partner (including in the case of a public takeover offer).
Art. 3b
Art. 3b
Das Aktienkapital wird im Maximalbetrag von CHF 42‘700.00 durch
Ausgabe von höchstens 2‘135‘000 vollständig zu liberierenden
Namenaktien mit einem Nennwert von je CHF 0.02 erhöht durch
Ausübung von Options- und Wandelrechten, welche in Verbindung
mit Anleihensobligationen, ähnlichen Obligationen, Darlehen oder
anderen Finanzmarktinstrumenten oder vertraglichen
Verpflichtungen der Gesellschaft oder einer ihrer
Konzerngesellschaften ausgegeben werden, und/oder durch
Ausübung von Optionsrechten, welche von der Gesellschaft oder
einer ihrer Konzerngesellschaften ausgegeben werden
(„Finanzinstrumente“). Das Bezugsrecht der Aktionäre ist
ausgeschlossen. Zum Bezug der neuen Aktien sind die jeweiligen
Inhaber von Finanzinstrumenten berechtigt. Die Bedingungen der
Finanzinstrumente sind durch den Verwaltungsrat festzulegen.
The Corporation’s share capital shall be increased by a maximum
aggregate amount of CHF 42,700.00 through the issuance of not
more than 2,135,000 registered shares, which will have to be fully
paid-in, with a nominal value of CHF 0.02 each, by the exercise
of option and conversion rights which are granted in connection
with bonds, similar obligations, loans or other financial market
instruments or contractual obligations of the Corporation or one of
its Group companies, and/or by the exercise of option rights
issued by the Corporation or one of its Group companies
(“Financial Instruments”). The pre-emptive rights of shareholders
are excluded. The holders of Financial Instruments are entitled to
the new shares. The conditions of the Financial Instruments shall
be determined by the Board of Directors.
Der Verwaltungsrat kann bei der Ausgabe von Finanzinstrumenten
das Vorwegzeichnungsrecht der Aktionäre ganz oder teilweise
ausschliessen:
When issuing Financial Instruments the Board of Directors is
authorized to limit or exclude the advance subscription rights of
shareholders:
Conditional share
capital for
financing
purposes
Bedingtes Kapital zu
Finanzierungszwecken
a) zur Finanzierung und Refinanzierung des Erwerbs von
Unternehmen, Unternehmensteilen oder Beteiligungen, Produkten,
Immaterialgüterrechten, Lizenzen, Kooperationen oder von neuen
Investitionsvorhaben der Gesellschaft;
b) wenn die Ausgabe auf nationalen oder internationalen
Kapitalmärkten einschliesslich Privatplatzierungen erfolgt, oder
c) zum Zwecke einer Festübernahme der Finanzinstrumente durch
eine Bank oder ein Bankkonsortium mit anschliessendem öffentlichem
Angebot.
a) for the purpose of financing or refinancing the acquisition of
enterprises, divisions thereof, or of participations, products,
intellectual property rights, licenses, cooperations or of newly
planned investments of the Corporation;
b) if the issue occurs on domestic or international capital markets
including private placements; or
c) for purposes of an underwriting of the Financial Instruments by a
banking institution or a consortium of banks with subsequent
offering to the public.
Soweit das Vorwegzeichnungsrecht ausgeschlossen ist, sind i) die
Finanzinstrumente zu Marktbedingungen zu platzieren; ist ii) die
Ausübungs-, Wandel- oder Tauschfrist der Finanzinstrumente auf
höchstens 10 Jahre ab dem Zeitpunkt der Emission anzusetzen und
ist iii) der Umwandlungs-, Tausch- oder sonstige Ausübungspreis der
Finanzinstrumente unter Berücksichtigung des Marktpreises
festzulegen.
To the extent that the advance subscription rights are excluded, i)
the Financial Instruments are to be placed at market conditions; ii)
the exercise period, the conversion period or the exchange period of
the Financial Instruments may not exceed 10 years as of the date of
the issue; and iii) the conversion price, the exchange price or other
exercise price of the Financial Instruments must be determined by
reference to the market price.
Bedingtes Kapital
für
Beteiligungspläne
Das Aktienkapital wird unter Ausschluss des Bezugs- und
Vorwegzeichnungsrechts im Maximalbetrag von CHF 18‘300.00 durch
Ausgabe von höchstens 915‘000 vollständig zu
liberierenden
Namenaktien mit einem Nennwert von je CHF 0.02 erhöht durch
Ausgabe von Aktien
infolge Ausübung von Optionen oder
diesbezüglichen Bezugsrechten, welche Mitarbeiterinnen und
Mitarbeitern, Mitgliedern des Verwaltungsrates oder Beratern der
Gesellschaft oder einer ihrer Konzerngesellschaften im Rahmen eines
oder mehrerer
erlassenen
den
Aktienbeteiligungsprogramme oder Reglemente ausgegeben bzw.
eingeräumt werden. Der Verwaltungsrat regelt die Einzelheiten.
Verwaltungsrat
durch
The Corporation’s share capital shall, to the exclusion of the pre-
emptive rights and advance subscription rights of shareholders, be
increased by a maximum aggregate amount of CHF 18,300.00
through the issuance of not more than 915,000 registered shares,
which shall be fully paid-in, with a nominal value of CHF 0.02 each,
by issuance of shares upon the exercise of options or pre-emptive
rights thereof, which have been issued or granted to employees,
Members of the Board of Directors or consultants of the Corporation
or of one of its Group companies according to one or several equity
incentive plans or regulations issued by the Board of Directors. The
details shall be determined by the Board of Directors.
Conditional share
capital for equity
incentive plans
Art. 4
Art. 4
Aktienbuch,
Aktienzertifikate
und Bucheffekten
Die Gesellschaft oder von ihr beauftragte Dritte führen ein Aktienbuch.
Darin werden die Eigentümer (inklusive, falls anwendbar, Nominees)
und Nutzniesser der Aktien mit Namen und Vornamen, Wohnort und
Adresse (bei juristischen Personen mit Firma und Sitz), der Anzahl
und Beschreibung der gehaltenen Aktien, dem Datum, zu welchem
eine Person ins Aktienbuch eingetragen wurde wie auch das Datum,
an welchem eine Person ihre Aktionärseigenschaft aufgegeben hat,
eingetragen. Jeder Aktionär hat der Gesellschaft allfällige
Adressänderungen zur Eintragung ins Aktienbuch zu melden.
The Corporation shall maintain, itself or through a third party, a
share register. The share register shall list the name, first name and
address (in the case of legal entities, the company name and
registered offices) of the owners (including, if applicable, nominees)
and usufructuaries of the shares, the number and description of the
shares held, the date on which each person was entered in the
register and the date on which any person ceased to be a
shareholder. The shareholders shall notify the Corporation of any
change of their address.
Share register,
share certificates
and intermediated
securities
Als Aktionär gilt, wer im Aktienbuch als Aktionär eingetragen ist. Ist die
Eintragung eines Erwerbers aufgrund falscher Angaben erfolgt, kann
dieser nach Anhörung vom Verwaltungsrat aus dem Aktienbuch
gestrichen werden.
Die Gesellschaft gibt ihre Namenaktien in Form von Einzelurkunden,
Globalurkunden oder Wertrechten aus. Der Gesellschaft steht es im
Rahmen der gesetzlichen Vorgaben frei, ihre in einer dieser Formen
ausgegebenen Namenaktien jederzeit und ohne Zustimmung der
Aktionäre in eine andere Form umzuwandeln. Die Gesellschaft trägt
dafür die Kosten.
Whoever is registered in the share register as shareholder is
deemed to be a shareholder of the Corporation. The Board of
Directors may, after having heard the concerned owner of the
shares, cancel entries which were based on untrue information.
The Corporation may issue its registered shares in the form of single
certificates, global certificates or uncertificated securities. Under the
conditions set forth by statutory law, the Corporation may convert its
registered shares from one form into another form at any time and
without the approval of the shareholders. The Corporation shall bear
the cost of any such conversion.
Falls Namenaktien in der Form von Einzelurkunden oder
Globalurkunden ausgegeben werden, tragen sie die Unterschrift von
zwei Mitgliedern des Verwaltungsrates. Beide Unterschriften können
Faksimile Unterschriften sein.
Der Aktionär hat keinen Anspruch auf Umwandlung von in bestimmter
Form ausgegebenen Namenaktien in eine andere Form. Jeder
Aktionär kann jedoch von der Gesellschaft jederzeit die Ausstellung
einer Bescheinigung über die von ihm gemäss Aktienbuch gehaltenen
Namenaktien verlangen.
If registered shares are issued in the form of single certificates or
global certificates, they shall be signed by two members of the
Board of Directors. Both signatures may be affixed in facsimile.
The shareholder has no right to request a conversion of the form of
the registered shares. Each shareholder may, however, at any time
request a written confirmation from the Corporation of the registered
shares held by such shareholder, as reflected in the share register.
Werden Bucheffekten im Auftrag der Gesellschaft oder des Aktionärs
von einer Verwahrungsstelle, einem Registrar, Transfer Agenten, einer
Trust Gesellschaft, Bank oder einer ähnlichen Gesellschaft verwaltet
(die Verwahrungsstelle), so setzt Wirksamkeit gegenüber der
Gesellschaft voraus, dass diese Bucheffekten und die damit
verbundenen Rechte unter Mitwirkung der Verwahrungsstelle
übertragen oder daran Sicherheiten bestellt werden.
If intermediated securities are administered on behalf of the
Corporation or a shareholder by an intermediary, registrar, transfer
agent, trust company, bank or similar entity (“Intermediary”), any
transfer or grant of a security interest in such intermediated
securities and the appurtenant rights associated therewith, in order
for such transfer or grant of a security interest to be valid against the
Corporation, requires the cooperation of the Intermediary.
Art. 5
Bezugsrecht
[aufgehoben]
III Organisation der Gesellschaft
i) Generalversammlung
Art. 6
Art. 5
[annulled]
III Organization of the Corporation
i) General Meeting of Shareholders
Art. 6
Pre-emptive rights
Arten der
Generalversammlung
Die ordentliche Generalversammlung findet jedes Jahr innerhalb
von sechs Monaten nach Schluss des Geschäftsjahres statt.
The ordinary General Meeting of shareholders shall be held
annually within six months of the close of the financial year.
Types of General
Meetings
Ausserordentliche Generalversammlungen
statt, insbesondere
finden nach Bedarf
Extraordinary General Meetings of shareholders shall be held as
required, in particular:
der Generalversammlung
oder
des
a) by resolution of the General Meeting of shareholders or the
a) auf Beschluss
Verwaltungsrats,
b) auf Begehren der Revisionsstelle,
c) wenn es von einem oder mehreren Aktionären, die zusammen
mindestens 10 % des Aktienkapitals vertreten, schriftlich
die
verlangt
Verhandlungsgegenstände, die gestellten Anträge sowie die
weiteren Angaben, die gemäss anwendbaren Gesetzes- oder
Kotierungsvorschriften notwendig sind, enthalten.
schriftliche
Antrag
wird.
Der
soll
d) wenn es Gesetz oder Statuten vorsehen.
Board of Directors,
b) at the request of the auditors,
c) if requested by one or more shareholders who together
represent at least 10 % of the issued share capital, by
application in writing. The application shall contain an agenda,
the respective motions as well as any other information required
under the applicable laws and stock exchange rules.
d) if required by law or by these Articles of Association.
Einberufung
Bekanntmachung
Art. 7
Art. 7
Die Einberufung der Generalversammlung erfolgt durch den
Verwaltungsrat oder, wenn die gesetzlichen oder statutarischen
Voraussetzungen gegeben sind, durch die Revisionsstelle, die
Liquidatoren oder die Vertreter der Anleihensgläubiger.
The General Meeting of shareholders shall be called by the Board
of Directors or, if required under statutory or articled provisions, by
the auditors, liquidators or the representatives of the Bond owners.
Calling of
General
Meeting
Die Generalversammlung ist unter Bekanntgabe von Ort, Zeit,
Verhandlungsgegenständen, Anträgen des Verwaltungsrates zu
den Verhandlungsgegenständen, Anträgen auf Änderung der
Statuten und Art des Ausweises über den Aktienbesitz mindestens
einmalige
dem Versammlungstag
vor
20 Tage
durch
Bekanntmachung
Handelsamtsblatt
Schweizerischen
einzuberufen. In der Einberufung sind zudem die Anträge der
Aktionäre bekanntzugeben, welche die Durchführung der
Generalversammlung
eines
Verhandlungsgegenstandes nach den Bestimmungen von Art. 8
verlangt haben, sowie bei Wahlgeschäften die Namen des oder der
zur Wahl vorgeschlagenen Kandidaten anzugeben.
Traktandierung
oder
die
im
Announcement
The General Meeting of shareholders is to be called at least twenty
days before the day appointed for the Meeting by a notice
published once in the Swiss Official Gazette of Commerce
(Schweizerisches Handelsamtsblatt), stating time, place, agenda,
resolutions put forward by the Board of Directors for the agenda
items, any resolutions to amend these Articles and method of
proving shareholder status. The announcement is to include the
motions put forward by those shareholders who have requested
the General Meeting of shareholders to be held or that an item be
included in the Agenda in accordance with Article 8 and, in the
event of elections, the name(s) of the candidate(s) that has or have
been put on the ballot for election.
Die Einladung der Aktionäre kann zudem schriftlich an deren im
Aktienbuch eingetragene Adresse erfolgen, wobei der Fristenlauf
mit dem Tag beginnt, welcher der Postaufgabe folgt.
An invitation may also be sent to the shareholders at their address
registered in the share register; whereby the convocation period
begins at the day following the date of posting.
Universalversammlung Über Gegenstände, die nicht in dieser Weise angekündigt sind,
kann, unter Vorbehalt der gesetzlichen Bestimmungen über die
Universalversammlung, kein Beschluss gefasst werden, es sei
denn
ausserordentlichen
Generalversammlung oder die Durchführung einer Sonderprüfung.
die Einberufung
einer
über
Subject to the statutory provisions on the universal meeting of all
shareholders, matters not announced in this way shall not be
eligible for resolution except the calling of an extraordinary
General Meeting of shareholders or the carrying out of a special
audit.
Universal
meeting of all
shareholders
Art. 8
Art. 8
Traktandierung
An einer Generalversammlung darf nur über die Gegenstände
abgestimmt werden, die
At any General Meeting of shareholders only such business shall
be conducted as shall have been brought before the meeting
Agenda
a) vom Verwaltungsrat oder im Auftrag des Verwaltungsrates
oder
b) von einem oder von mehreren Aktionären im Verfahren
gemäss diesem Art. 8 traktandiert werden.
Das Traktandierungsbegehren eines Aktionärs für die ordentliche
Generalversammlung muss mindestens 45 Kalendertage vor der
Versammlung bei der Gesellschaft eingereicht werden. Das
Traktandierungsbegehren muss
in schriftlicher Form gestellt
werden und bezüglich jedem vorgebrachten Traktandum die
nachfolgenden Informationen enthalten:
a) by the Board of Directors or at its direction, or
b) by any shareholder of the Corporation in accordance with the
procedure set forth in this Article 8.
To be timely for consideration at the ordinary General Meeting of
shareholders, a shareholder's application must be received by the
Corporation at least 45 calendar days in advance of the meeting.
The application must be made in writing and contain, for each of
the agenda items, the following information:
a) eine kurze Beschreibung des gewünschten Traktandums
sowie der Gründe, weshalb dieses Traktandum von der
Generalversammlung behandelt werden soll;
b) der Name und die Adresse des traktandierenden Aktionärs,
a) a brief description of the business desired to be brought
before the Ordinary General Meeting of shareholders and the
reasons for conducting such business at the Ordinary General
Meeting of shareholders;
wie sie im Aktienbuch registriert sind; und
b) the name and address, as they appear in the share register, of
c) sämtliche weiteren Informationen, welche unter den
anwendbaren Gesetzes- und Kotierungsbestimmungen verlangt
werden.
the shareholder proposing such business; and
c) all other information required under the applicable laws and
stock exchange rules.
Art. 9
Art. 9
Vorsitz
Die Generalversammlung steht unter der Leitung des Präsidenten
des Verwaltungsrates oder, wenn er verhindert ist, eines andern
vom Verwaltungsrat bezeichneten Mitgliedes.
The General Meeting of shareholders shall be chaired by the
Chairman of the Board of Directors, or, in the event of his/her
incapacity, by another Board Member designated by the Board.
Chair
Protokollführer,
Stimmenzähler
Der Vorsitzende bezeichnet den Protokollführer und die nötigen
Stimmzähler, welche nicht Aktionäre zu sein brauchen.
The Chairman shall appoint a secretary to take the minutes and
any necessary scrutineers, who need not be shareholders.
Secretary,
scrutineers
Protokoll
Über die Verhandlungen wird ein Protokoll geführt, das vom
Vorsitzenden und vom Protokollführer zu unterzeichnen ist.
The proceedings shall be recorded in the minutes, which shall be
signed by the Chairman and the secretary.
Minutes
Art. 10
Art. 10
Stimmrecht
eingetragenen Aktionären, Nutzniessern
Jede Aktie verfügt, unabhängig von ihrem Nennwert, über eine
Stimme. Die Rechte an den Aktien sind unteilbar. Das Stimmrecht
und die übrigen Mitgliedschaftsrechte können nur von den im
Aktienbuch
oder
Nominees geltend gemacht werden. Vorbehalten bleiben die
gesetzliche Vertretung sowie nach Massgabe der Statuten die
rechtsgeschäftliche Stellvertretung. Stimmberechtigt
in der
Generalversammlung sind diejenigen Aktionäre, Nutzniesser und
Nominees, die an dem vom Verwaltungsrat bezeichneten Stichtag
im Aktienbuch eingetragen sind.
Each share entitles to one vote, regardless of its nominal value.
The shares are not divisible. The right to vote and the other
member
rights may only be exercised by shareholders,
beneficiaries or nominees who are registered in the share register.
Reserved are the legal representation and power of attorneys in
accordance with the provision of these Articles of Association.
Those entitled to vote in the General Meeting of shareholders are
the shareholders, beneficiaries and nominees who are entered in
the share register at such cut-off date as shall be determined by the
Board of Directors.
Voting rights
Stellvertretung
Jeder Aktionär kann seine Aktien an der Generalversammlung
durch den unabhängigen Stimmrechtsvertreter, durch einen
anderen Aktionär oder eine Drittperson mittels schriftlicher
Vollmacht oder durch seinen gesetzlichen Vertreter vertreten
lassen. Über die Anerkennung der Vollmacht entscheidet der
Vorsitzende.
Any shareholder may appoint the independent proxy, another
registered shareholder or third person with written authorization or
his legal representative to act as proxy to represent his shares at
the General Meeting of shareholders. The Chairman decides
whether to recognize the power of attorney.
Representation
Unabhängiger
Stimmrechtsvertreter
unabhängige
Stimmrechtsvertreter wird
Der
der
Generalversammlung für eine Amtsdauer bis zum Abschluss der
nächsten ordentlichen Generalversammlung gewählt und kann
wiedergewählt werden. Hat die Gesellschaft keinen unabhängigen
den
Stimmrechtsvertreter,
nächste
unabhängigen
Generalversammlung.
bezeichnet
Stimmrechtsvertreter
der Verwaltungsrat
von
die
für
The independent proxy shall be elected for a term of office until
completion of the next ordinary General Meeting of shareholders by
the General Meeting of shareholders and shall be eligible for re-
election. If the Corporation does not have an independent proxy the
Board of Directors shall appoint the independent proxy for the next
General Meeting of shareholders.
Independent proxy
Bestimmungen
Der Verwaltungsrat erlässt die Bestimmungen betreffend Ausweis
über Aktienbesitz, Vollmachten und Stimminstruktionen sowie die
Ausgabe von Stimmkarten.
The Board of Directors shall issue the regulations on the method of
proving shareholder status, on proxies and voting instructions, and
on the issue of voting cards.
Regulations
Art. 11
Art. 11
Beschlüsse, Wahlen Die Generalversammlung fasst ihre Beschlüsse und vollzieht ihre
Wahlen mit der absoluten Mehrheit der vertretenen Aktienstimmen,
soweit das Gesetz nicht zwingend etwas anderes bestimmt.
Resolutions and elections made by the General Meeting of
shareholders shall require the absolute majority of the share votes
represented, unless otherwise stipulated by law.
Resolutions,
elections
Spezialquorum
Special quorum
Ein Beschluss der Generalversammlung, der mindestens zwei Drittel
der vertretenen Stimmen und die absolute Mehrheit der
Aktiennennwerte der vertretenen Stimmen auf sich vereinigt, ist
erforderlich für:
A resolution of the General Meeting of the shareholders passed by
at least two thirds of the share present or represented, and the
absolute majority of the nominal value of the share present or
represented is required for:
a) die Änderung des Gesellschaftszwecks,
a) amending the Corporation’s purpose,
b) Einführung oder Aufhebung von Vorzugsaktien oder die Änderung
b) creating or cancelling shares with preference rights or amending
von Vorzugsrechten solcher Aktien,
rights attached to such shares,
c) die Aufhebung oder Änderung der Beschränkungen der
c) cancelling or amending the transfer restrictions of registered
Übertragbarkeit von Namenaktien,
shares,
d) eine genehmigte oder bedingte Kapitalerhöhung,
d) creating authorized or conditional share capital,
e) die Kapitalerhöhung aus Eigenkapital, gegen Sacheinlage oder
zwecks Sachübernahme und die Gewährung von besonderen
Vorteilen,
e) increasing the share capital out of equity, against contributions in
kind or for the purpose of acquiring specific assets and granting
specific benefits,
f) die Einschränkung oder Aufhebung des Bezugsrechtes,
g) die Verlegung des Sitzes der Gesellschaft,
f) limiting or suppressing shareholder’s pre-emptive rights,
g) changing of the Company’s domicile,
h) die Auflösung der Gesellschaft mit oder ohne Liquidation.
h) dissolving or liquidating the Company.
Abstimmung
Abstimmungen und Wahlen erfolgen offen durch Handerheben,
wenn der Vorsitzende nichts anderes anordnet. Der Vorsitzende
kann bestimmen, dass Abstimmungen oder Wahlen elektronisch
oder schriftlich durchgeführt werden.
Bei schriftlichen Abstimmungen und Wahlen kann der Vorsitzende
anordnen, dass zur Beschleunigung der Stimmenauszählung nur die
Stimmzettel derjenigen Aktionäre eingesammelt werden, die sich der
Stimme enthalten oder eine Nein-Stimme abgeben wollen, und dass
der
alle
Generalversammlung vertretenen Aktien als Ja-Stimmen gewertet
werden.
der Abstimmung
Zeitpunkt
übrigen
im
in
Voting and elections shall be by show of hands unless otherwise
ordered by the Chairman. The Chairman may decide that voting or
elections shall be conducted electronically or by written ballots.
Voting
In the case of written ballots, the Chairman may rule that only the
ballots of those shareholders shall be collected who choose to
abstain or to cast a negative vote, and that all other shares
represented at the General Meeting at the time of vote shall be
counted in favor, in order to expedite the counting of votes.
Stimmen-
gleichheit
Bei Stimmengleichheit entscheidet die Stimme des Vorsitzenden.
In the event of an equality of votes, the Chairman shall have the
casting vote.
Equality of votes
Art. 12
Art. 12
Befugnisse
Der Generalversammlung
Befugnisse zu:
stehen
folgende
unübertragbare
The General Meeting of shareholders shall have the following
powers which shall not be delegated:
a) Festsetzung und Änderung der Statuten,
a) issuing and amending the Articles of Association,
b) Wahl der Mitglieder des Verwaltungsrates, des Präsidenten des
Verwaltungsrats, der Mitglieder des Vergütungsausschusses und
der Revisionsstelle,
b) electing the Members of the Board of Directors, the Chairman of
the Board of Directors, the members of the Compensation
Committee, the auditors and the independent proxy,
c) Genehmigung des Jahresberichtes, der Jahresrechnung und der
Konzernrechnung sowie Beschlussfassung über die Verwendung
des Bilanzgewinnes,
insbesondere die Festsetzung der
Dividenden,
c) approving the annual report, the annual financial statements and
the consolidated financial statements, and deciding on the
allocation of profits as shown on the balance sheet, in particular
with regard to dividends,
d) Genehmigung der Vergütung des Verwaltungsrats und der
Geschäftsleitung gemäss Artikel 22 dieser Statuten,
e) Entlastung der Mitglieder des Verwaltungsrates und der
Geschäftsleitung,
d) approving the compensation of the Board of Directors and of the
executive management pursuant to Article 22 of these Articles of
Association,
e) discharging the Members of the Board of Directors and of the
f) Auflösung der Gesellschaft mit oder ohne Liquidation,
executive management,
Powers
g) Beschlussfassung
der
Generalversammlung durch das Gesetz oder die Statuten
vorbehalten sind oder ihr durch den Verwaltungsrat vorgelegt
werden.
die Gegenstände,
über
die
f) dissolving the Corporation with or without liquidation,
g) deciding matters reserved to the General Meeting of shareholders
by law or by these Articles of Association or which are presented
to it by the Board of Directors.
ii) Verwaltungsrat
Art. 13
ii) Board of Directors
Art. 13
Mitgliederzahl
Der Verwaltungsrat besteht aus mindestens drei, maximal neun
Mitgliedern.
The Board of Directors shall consist of at least three and not exceed
nine members.
Number
Konstituierung
des
Vergütungsausschusses
Vorbehältlich der Wahl des Präsidenten des Verwaltungsrats und der
die
Mitglieder
Generalversammlung konstituiert sich der Verwaltungsrat selbst. Er
bezeichnet den Sekretär, der dem Verwaltungsrat nicht angehören
muss. Ist das Präsidium des Verwaltungsrats vakant, bezeichnet der
Verwaltungsrat aus seiner Mitte einen Präsidenten
für die
verbleibende Amtsdauer.
durch
Except for the election of the Chairman of the Board of Directors
and the members of the Compensation Committee by the General
Meeting of shareholders, the Board of Directors shall constitute
itself. It shall appoint the secretary, who does not need to be a Board
member. If the office of the Chairman of the Board of Directors is
vacant, the Board of Directors shall appoint a new Chairman from
among its members for the remaining term of office.
Constitution
Reglement
Der Verwaltungsrat erlässt ein Organisationsreglement.
The Board of Directors shall issue organizational rules.
Regulations
Art. 14
Art. 14
Amtsdauer
Die Mitglieder des Verwaltungsrats und der Präsident des
Verwaltungsrats werden von der Generalversammlung jährlich für
die Dauer bis zum Abschluss der nächsten ordentlichen
Generalversammlung gewählt und sind wieder wählbar. Die Wahl
erfolgt für jedes Mitglied einzeln.
The Members of the Board of Directors and the Chairman of the
Board of Directors shall be elected annually by the General Meeting
of shareholders for a period until the completion of the next General
Meeting of shareholders and shall be eligible for re-election. Each
Member of the Board of Directors shall be elected individually.
Wählbar sind nur Personen, die im Zeitpunkt der Wahl das
fünfundsiebzigste Lebensjahr noch nicht vollendet haben. Die
Generalversammlung kann in besonderen Fällen Ausnahmen von
dieser Regelung vorsehen und ein Mitglied des Verwaltungsrats für
eine oder mehrere Amtsperioden, höchstens aber insgesamt für
zwei weitere Amtsjahre wählen.
Ersatzwahlen erfolgen in der Regel an der nächsten ordentlichen
Generalversammlung.
Only persons who have not completed their seventy-fifth year of age
on the election date are eligible for election. The General Meeting of
shareholders may, under special circumstances, grant an exception
from this rule and may elect a Member of the Board of Directors for
one or several terms of office provided that the total number of these
additional terms of office does not exceed two.
Elections to fill vacancies shall be generally held at the next ordinary
General Meeting of shareholders.
Art. 15
Art. 15
Term of office
Befugnisse
Der Verwaltungsrat vertritt die Gesellschaft nach aussen und fasst
diejenigen Beschlüsse, die nicht nach Gesetz, Statuten oder
Reglement einem anderen Organ der Gesellschaft übertragen sind.
The Board of Directors represents the Corporation externally and
shall pass those resolutions which, according to law, these Articles
of Association or regulations of the Corporation, are not covered by
another executive body.
Powers
Unübertragbare
Aufgaben
Er hat insbesondere folgende unübertragbare und unentziehbare
Aufgaben:
The Board of Directors has the following non-delegable and
inalienable duties:
Exclusive
powers
a) Oberleitung der Gesellschaft und Erteilung der nötigen
a) the ultimate direction of the business of the Corporation and
Weisungen,
issuing of the relevant directives,
b) Festlegung der Organisation,
c) Ausgestaltung des Rechnungswesens, der Finanzkontrolle sowie
der Finanzplanung,
d) Ernennung und Abberufung der mit der Geschäftsführung und der
der
Regelung
Personen
und
Vertretung
betrauten
Zeichnungsberechtigung,
e) Oberaufsicht über die mit der Geschäftsführung betrauten
Personen, namentlich im Hinblick auf die Befolgung der Gesetze,
Statuten, Reglemente und Weisungen,
f) Erstellen des Geschäftsberichtes und des Vergütungsberichtes
sowie Vorbereitung der Generalversammlung und Ausführung
ihrer Beschlüsse,
g) Benachrichtigung des Richters im Falle der Überschuldung.
Delegation
Der Verwaltungsrat kann, unter Vorbehalt der unübertragbaren
Aufgaben, einen Teil seiner Befugnisse, vor allem die unmittelbare
Geschäftsführung, an einzelne oder mehrere seiner Mitglieder
(Delegierte, Ausschüsse) oder an Dritte, die nicht Mitglieder des
Verwaltungsrats oder Aktionäre sein müssen, übertragen. Die
Einzelheiten der Delegation werden im Organisationsreglement
geregelt.
b) laying down the organization of the Corporation,
c) formulating accounting procedures, financial controls and financial
planning,
d) nominating and
management and
regulating the power to sign for the Corporation,
removing persons entrusted with
representation of
the
the Corporation and
e) the ultimate supervision of
those persons entrusted with
management of
to
adherence to law, these Articles of Association, and regulations
and directives of the Corporation,
the Corporation, with particular regard
f) issuing the annual report and the compensation report, and
preparing for the General Meeting of shareholders and carrying
out its resolutions,
g) informing the court in case of indebtedness.
The Board of Directors may, while retaining its exclusive powers,
delegate some of its powers, in particular direct management, to a
single or
(managing directors,
committees) or to third parties, who need be neither Members of the
Board of Directors nor shareholders. Details of the delegation shall
be determined in the organizational rules.
to several of
its members
Delegation
Art. 16
Art. 16
Einberufung
Der Verwaltungsrat versammelt sich auf Einladung seines
Präsidenten, so oft die Geschäfte es erfordern, oder auf
Verlangen eines seiner Mitglieder.
Vorsitz
Den Vorsitz des Verwaltungsrates führt der Präsident oder, wenn
er verhindert ist, der Vizepräsident oder ein anderes Mitglied.
The Board of Directors shall meet at the Chairman's invitation whenever
business so requires or if requested by one of its members.
Calling of Board
Meetings
The Board of Directors shall be chaired by the Chairman or, in the event
of his/her incapacity, by the Vice Chairman or another Member of the
Board of Directors.
Chair
Beschluss-
fähigkeit und
Beschluss-fassung
Beschlussfähigkeit
Verwaltungsrats richten sich nach dem Organisationsreglement.
Bei Stimmengleichheit entscheidet die Stimme des Vorsitzenden.
(Präsenz) und Beschlussfassung des
The number of members who must be present to constitute a quorum
and the modalities for the passing of resolutions by the Board of
Directors shall be laid down in the organizational rules.
Quorum
In the event of an equality of votes, the chairman of the meeting shall
have the casting vote.
Zirkulations-
beschluss
Protokoll
Beschlüsse können auf dem Zirkularweg schriftlich oder per
Telefax oder E-Mail gefasst werden, wenn kein Mitglied
mündliche Beratung verlangt. Zirkulationsbeschlüsse bedürfen
der Zustimmung der absoluten Mehrheit der Mitglieder des
Verwaltungsrats.
Board resolutions may be passed by circular, i.e. in writing or by
facsimile or email, unless a member requests oral debate. Resolutions
passed by circular require the agreement of the absolute majority of the
Members of the Board of Directors.
Circulatory
resolutions
Verhandlungen,
Über
des
Verwaltungsrats ist ein Protokoll zu führen, das vom Vorsitzenden
und vom Sekretär zu unterzeichnen ist.
und Wahlen
Beschlüsse
Proceedings, resolutions and elections at Board Meetings shall be
recorded in the minutes, which shall be signed by the chairman of the
meeting and the secretary.
Minutes
Art. 17
Art. 17
Schadlos-haltung,
Versicherungs-
leistungen
des
zivil-,
sowie
gestützt
oder Untersuchungen
ausschliesslich Verantwortlichkeiten
Verwaltungsrats
und
deren Erben, Konkurs-
Soweit gesetzlich zulässig, hält die Gesellschaft aktuelle und
der
ehemalige Mitglieder
Geschäftsleitung
oder
Nachlassmassen aus Gesellschaftsmitteln für Schäden, Verluste
und Kosten aus drohenden, hängigen oder abgeschlossenen
straf-,
Klagen, Verfahren
verwaltungsrechtlicher oder anderer Natur (beispielsweise und
nicht
auf
Vertragsrecht, Haftpflichtrecht und anderes anwendbares
ausländisches Recht und alle angemessenen Anwalts-, Prozess-
und anderen Kosten und Auslagen) schadlos, welche ihnen oder
ihren Erben, Konkurs- oder Nachlassmassen entstehen oder
entstehen können aufgrund a) von
tatsächlichen oder
behaupteten Handlungen, Zustimmungen oder Unterlassungen
im Zusammenhang mit der Ausübung ihrer Pflichten oder
behaupteten Pflichten; b)
ihrer Tätigkeit als Mitglied des
Verwaltungsrats oder der Geschäftsleitung; oder c) ihrer Tätigkeit
im Auftrag der Gesellschaft als Mitglied des Verwaltungsrats oder
der Geschäftsleitung, Arbeitnehmer oder Agent einer anderen
Kapitalgesellschaft, Personengesellschaft, eines Trusts oder
anderer Gesellschaftsformen. Diese Pflicht zur Schadloshaltung
besteht nicht, soweit in einem endgültigen und rechtskräftigen
Entscheid eines zuständigen Gerichts, Schiedsgerichts oder
einer zuständigen Verwaltungsbehörde entschieden worden ist,
dass eine der genannten Personen ihre Pflichten als Mitglied des
Verwaltungsrats oder der Geschäftsleitung absichtlich oder
grobfahrlässig verletzt hat.
Indemnification,
insurance
coverage
The Corporation shall indemnify and hold harmless, to the fullest extent
permitted by law, the current and former Members of the Board of
Directors, the executive management, and their heirs, executors and
administrators out of the assets of the Corporation from against all
damages, losses, liabilities and expenses in connection with threatened,
pending or completed actions, proceedings or investigations, whether
civil, criminal, administrative or other (including, but not limited to,
liabilities under contract, tort and statute or any applicable foreign law or
regulation and all reasonable legal and other costs and expenses
properly payable) which they or any of them, their heirs, executors or
administrators, shall or may incur or sustain by or reason of a) any act
done or alleged to be done, concurred or alleged to be concurred in or
omitted or alleged to be omitted in or about the execution of their duty, or
alleged duty; or b) serving as a Member of the Board of Directors or
member of the executive management of the Corporation; or c) serving
at the request of the Corporation as director, officer, or employee or
agent of another corporation, partnership, trust or other enterprise. This
indemnity shall not extend to any matter in which any of the said persons
is found, in a final judgment or decree of a court, arbitral tribunal or
governmental or administrative authority of competent jurisdiction not
subject to appeal, to have committed an intentional or grossly negligent
breach of said person's duties as Member of the Board of Directors or
member of the executive management.
Ohne den vorstehenden Absatz einzuschränken, schiesst die
Gesellschaft aktuellen und ehemaligen Mitgliedern des
Verwaltungsrates und der Geschäftsleitung die Gerichts- und
Anwaltskosten vor, die im Zusammenhang mit zivil-, straf- oder
verwaltungsrechtlichen Verfahren oder im Zusammenhang mit
Untersuchungen, wie im vorstehenden Absatz beschrieben,
anfallen. Die Gesellschaft kann solche Kostenvorschüsse
ablehnen oder zurückfordern, sofern ein zuständiges Gericht
oder eine zuständige Verwaltungsbehörde rechtskräftig feststellt,
dass das entsprechende Mitglied des Verwaltungsrats oder der
Geschäftsleitung eine vorsätzliche oder grobfahrlässige
Verletzung seiner Pflichten als Mitglied des Verwaltungsrats oder
der Geschäftsleitung begangen hat.
Die Gesellschaft kann Haftpflichtversicherungen für die Mitglieder
des Verwaltungsrates oder der Geschäftsleitung abschliessen.
Die Bezahlung der Versicherungsprämien wird von der
Gesellschaft oder ihren Tochtergesellschaften übernommen.
Without limiting the foregoing, the Corporation shall advance to existing
and former Members of the Board of Directors and executive
management court costs and attorney fees in connection with civil,
criminal, administrative or investigative proceedings as described in the
preceding paragraph. The Corporation may reject and/or recover such
advanced costs if a court or governmental or administrative authority of
competent jurisdiction not subject to appeal holds that the Member of the
Board of Directors or member of the executive management in question
has committed an intentional or grossly negligent breach of his statutory
duties as a Member of the Board of Directors or member of the
executive management.
The Corporation may procure directors' and officers' liability insurance
for Members of the Board of Directors and members of the executive
management of the Corporation. The insurance premiums shall be
charged to and paid by the Corporation or its subsidiaries.
iii) Vergütungsausschuss
Art. 18
iii) Compensation Committee
Art. 18
Mitgliederzahl
Der Vergütungsausschuss besteht aus mindestens zwei und
höchstens drei Mitgliedern des Verwaltungsrats.
The Compensation Committee shall consist of at least two and not
more than three members of the Board of Directors.
Composition
Konstituierung
Der Verwaltungsrat bezeichnet einen Vorsitzenden.
The Board of Directors shall appoint a chairman.
Amtsdauer
Befugnisse
Regelung der
Leistungsziele,
Zielwerte und
Vergütungen
Constitution
Term of office
Powers
Die Mitglieder des Vergütungsausschusses werden von der
Generalversammlung jährlich für die Dauer bis zum Abschluss der
nächsten ordentlichen Generalversammlung gewählt und sind wieder
des
wählbar. Die Wahl
im
Vergütungsausschusses
Vergütungsausschuss,
der
führen, bezeichnet der
Mindestanzahl von zwei Mitgliedern
für die
Verwaltungsrat
verbleibende Amtsdauer.
fehlende Mitglieder aus seiner Mitte
jedes Mitglied
Vakanzen
einer Unterschreitung
einzeln.
zu
erfolgt
Bei
die
für
The members of the Compensation Committee shall be elected by
the General Meeting of shareholders annually for a period until
completion of the next ordinary General Meeting of shareholders and
shall be eligible for re-election. Each Member of the Compensation
Committee shall be elected individually. If there are vacancies on the
Compensation Committee and the number of members falls below
the minimum of two, the Board of Directors shall appoint the missing
members from among its members for the remaining term of office.
Art. 19
Art. 19
Der Vergütungsausschuss unterstützt den Verwaltungsrat bei der
Festsetzung und Überprüfung der Vergütungsstrategie der
Gesellschaft und der Leistungsziele und bei der Vorbereitung der
Anträge zuhanden der Generalversammlung betreffend die
Vergütung des Verwaltungsrats und der Geschäftsleitung, und kann
dem Verwaltungsrat Vorschläge zu weiteren Vergütungsfragen
unterbreiten.
Der Verwaltungsrat kann dem Vergütungsausschuss weitere
Aufgaben und Befugnisse zuweisen.
Der Verwaltungsrat kann in einem Reglement festlegen, für welche
Funktionen des Verwaltungsrats und der Geschäftsleitung der
Vergütungsausschuss, gemeinsam mit dem Präsidenten des
Verwaltungsrats oder alleine, Vorschläge für die Leistungsziele,
Zielwerte und Vergütungen der Mitglieder des Verwaltungsrats und
der Geschäftsleitung unterbreitet, und für welche Funktionen er im
Rahmen dieser Statuten und der vom Verwaltungsrat erlassenen
Vergütungsrichtlinien die Leistungsziele, Zielwerte und Vergütungen
festsetzt.
in preparing
the proposals
The Compensation Committee shall support the Board of Directors in
establishing and reviewing the Corporation’s compensation strategy
and
the General Meeting of
shareholders regarding compensation of the Members of the Board
of Directors and the members of the executive management, and
may submit proposals
in other
to
compensation-related issues.
The Board of Directors may delegate further tasks and powers to the
Compensation Committee.
the Board of Directors
to
The Board of Directors may determine in a charter for which
positions of the Board of Directors and of the executive management
the Compensation Committee shall, together with the Chairman of
the Board of Directors or on its own, submit proposals for the
performance metrics, target levels and compensation of Members of
the Board of Directors and members of the executive management,
and for which positions it shall determine, in accordance with these
Articles of Association and the compensation guidelines established
by the Board of Directors, the performance metrics, target levels and
compensation.
Determination of
performance
targets, target
levels and
compensation
iv) Revisionsstelle
iv) Auditors
Zusammen-
setzung,
Amtsdauer
Befugnisse
Art. 20
Art. 20
Die Generalversammlung wählt jedes Jahr die Revisionsstelle im
Sinne von Art. 727 ff. OR. Die Revisionsstelle muss von der
Gesellschaft unabhängig sein und die vom Gesetz geforderten
besonderen fachlichen Voraussetzungen erfüllen.
The ordinary General Meeting of shareholders shall each year
appoint the auditors as defined in Art. 727 et seq. Swiss Code of
Obligations. The auditors shall be independent from the Corporation
and meet the special professional standards required by law.
Composition, term
of office
Die Revisionsstelle prüft die Jahresrechnung der Gesellschaft, die
Konzernrechnung sowie den Vergütungsbericht, und erstattet dem
Verwaltungsrat und der Generalversammlung schriftlich Bericht. Sie
hat die im Gesetz festgehaltenen Befugnisse und Pflichten.
the consolidated
The auditors shall audit the annual financial statements of the
Corporation,
the
compensation report, and prepare a written report to the Board of
Directors and to the General Meeting of shareholders. It disposes of
the duties and entitlements laid down in the law.
financial statements and
Powers
IV Vergütung des Verwaltungsrats und der Geschäftsleitung
IV Compensation of the Board of Directors and the Executive Management
Art. 21
Art. 21
Genehmigung der
Vergütung
Die Generalversammlung genehmigt
Verwaltungsrats in Bezug auf:
jährlich die Anträge des
The General Meeting of shareholders shall approve annually the
proposals of the Board of Directors in relation to:
Approval of
compensation
a) den maximalen Gesamtbetrag der Vergütung des Verwaltungsrats
a) the maximum aggregate amount of compensation of the Board of
für die folgende Amtsperiode,
Directors for the following term of office;
b) den maximalen Gesamtbetrag der Vergütung der Geschäftsleitung
b) the maximum aggregate amount of the compensation of the
für das folgende Geschäftsjahr.
executive management for the following financial year.
Der Verwaltungsrat kann der Generalversammlung abweichende und
zusätzliche Anträge
in Bezug auf die gleichen oder andere
Zeitperioden zur Genehmigung vorlegen.
The Board of Directors may submit for approval by the General
Meeting of shareholders deviating or additional proposals relating to
the same or different periods.
Weiteres Verfahren im
Falle eines
ablehnenden
Aktionärsentscheids
Lehnt die Generalversammlung einen Antrag des Verwaltungsrats
ab, setzt der Verwaltungsrat den entsprechenden (maximalen)
Gesamtbetrag oder (maximale) Teilbeträge unter Berücksichtigung
aller relevanten Faktoren fest, und unterbreitet den oder die so
festgesetzten Beträge derselben Generalversammlung, einer
nachfolgenden ausserordentlichen Generalversammlung oder der
nächsten ordentlichen Generalversammlung zur Genehmigung.
In the event the General Meeting of shareholders does not approve
a proposal of the Board of Directors, the Board of Directors shall
determine, taking into account all relevant factors, the respective
(maximum) aggregate amount or partial (maximum) amounts, and
submit the amount(s) so determined for approval by the same
General Meeting of shareholders, a subsequent extraordinary
General Meeting or
the next ordinary General Meeting of
shareholders.
Further procedure
in the event of a
negative
shareholder vote
Ausrichtung von
Vergütung vor
Genehmigung
Zusatzbetrag bei
Wechseln in der
Geschäftsleitung
Die Gesellschaft oder von ihr kontrollierte Gesellschaften können
Vergütungen vor der Genehmigung durch die Generalversammlung
unter Vorbehalt der nachträglichen Genehmigung durch die
Generalversammlung ausrichten.
The Corporation or any company controlled by it may pay out
compensation prior to approval by the General Meeting of
shareholders subject to subsequent approval by the General
Meeting of shareholders.
Payment of
compensation
prior to
approval
Die Gesellschaft oder von ihr kontrollierte Gesellschaften sind
ermächtigt,
jedem Mitglied, das während einer von der
Generalversammlung bereits genehmigten Vergütungsperiode in
die Geschäftsleitung eintritt, während der Dauer der bereits
genehmigten
Zusatzbetrag
auszurichten. Der Zusatzbetrag darf 40% der zuletzt von der
Generalversammlung genehmigten Gesamtbeträge der fixen und
variablen Vergütungen der Geschäftsleitung je Vergütungsperiode
nicht übersteigen.
Vergütungsperiode(n)
einen
The Corporation or any company controlled by it shall be
authorized to pay to any executive who becomes a member during
a compensation period
the General Meeting of
for which
shareholders has already approved the compensation of the
executive management a supplementary amount during the
compensation period(s) already approved. The supplementary
amount shall not exceed 40% of the aggregate amounts of fixed
and variable compensation of the executive management last
approved by
the General Meeting of shareholders per
compensation period.
Supplementary
amount for
changes to the
executive
management
Art. 22
Art. 22
Allgemeine
Vergütungsgrundsätze
Zusätzlich zu einer fixen Vergütung kann den Mitgliedern des
Verwaltungsrats und der Geschäftsleitung eine variable Vergütung,
die sich nach der Erreichung bestimmter Leistungsziele richtet,
ausgerichtet werden.
In addition to a fixed compensation, Members of the Board of
Directors and members of the executive management may be paid
a variable compensation, depending on the achievement of certain
performance criteria.
General
compensation
principles
Leistungsziele
Die Leistungsziele können persönliche Ziele, Ziele der Gesellschaft
oder bereichsspezifische Ziele und im Vergleich zum Markt,
anderen Unternehmen
vergleichbaren Richtgrössen
berechnete Ziele umfassen, unter Berücksichtigung von Funktion
und Verantwortungsstufe des Empfängers der variablen Vergütung.
Der Verwaltungsrat oder, soweit an
ihn delegiert, der
Vergütungsausschuss legen die Gewichtung der Leistungsziele
und die jeweiligen Zielwerte fest.
oder
The performance criteria may include individual targets, targets of
the Corporation or parts thereof and targets in relation to the
market, other companies or comparable benchmarks, taking into
account position and level of responsibility of the recipient of the
variable compensation. The Board of Directors or, where delegated
to it, the Compensation Committee shall determine the relative
weight of the performance criteria and the respective target values.
Performance
targets
Arten der
Vergütung
an
ihn
oder,
legen
soweit
delegiert,
Zuteilungs-, Ausübungs-
Die Vergütung kann in Form von Geld, Aktien, Finanzinstrumenten
oder Sach- oder Dienstleistungen ausgerichtet werden. Der
der
Verwaltungsrat
Vergütungsausschuss
und
Verfallsbedingungen sowie Wartefristen fest. Sie können vorsehen,
dass aufgrund des Eintritts im Voraus bestimmter Ereignisse wie
einem Kontrollwechsel oder der Beendigung eines Arbeits- oder
Mandatsverhältnisses Wartefristen oder Ausübungsbedingungen
weitergelten, verkürzt oder aufgehoben werden, Vergütungen unter
Annahme der Erreichung der Zielwerte ausgerichtet werden oder
Vergütungen verfallen.
Compensation may be paid or granted in the form of cash, shares,
financial instruments, in kind, or in the form of other types of benefits.
The Board of Directors or, where delegated to it, the Compensation
Committee shall determine grant, vesting, exercise and forfeiture
conditions; they may provide for continuation, acceleration or
removal of vesting and exercise conditions, for payment or grant of
compensation assuming target achievement or for forfeiture in the
event of pre-determined events such as a change-of-control or
termination of an employment or mandate agreement.
Types of
compensation
Zuteilung von
Optionsrechten
und anderen
aktienbasierten
Vergütungen
Der Verwaltungsrat oder der Vergütungsausschuss kann im Rahmen
eines Aktienbeteiligungsprogramms sowie eines hierzu von ihm
erlassenen Reglements über die Zuteilung von Optionsrechten oder
andere
des
Vergütungen
Verwaltungsrates und der Geschäftsleitung grundsätzlich nach freiem
Ermessen entscheiden.
an Mitglieder
aktienbasierte
The Board of Directors or the Compensation Committee may under
an equity incentive plan and based on the regulations issued by it for
this purpose determine at its own discretion to grant option rights or
other share based compensations to Members of the Board of
Directors or members of the executive management.
Grant of option
rights and other
share based
compensation
Zuteilungen erfolgen individuell und ohne irgendwelche Ansprüche
der Empfänger auf wiederkehrende Leistung zu begründen. Sie
haben im Rahmen folgender Vorgaben zu erfolgen:
a) Zuteilungen sind ausschliesslich möglich an Mitglieder des
Verwaltungsrates, welche noch im Amt sind, oder an Mitglieder der
Geschäftsleitung in ungekündigtem Arbeitsverhältnis und nach
Ablauf der Probezeit,
b) der Ausgabepreis oder die Regeln zu seiner Bestimmung werden
festgelegt, wobei Zuteilungen auch gratis erfolgen können,
c) der Ausübungspreis entspricht mindestens dem Nennwert der
zugrundeliegenden Aktien,
d) die Wartefrist für die Ausübung von Optionsrechten beläuft sich auf
mindestens zwölf Monate,
Grants are made individually and do not constitute any claim
whatsoever by beneficiaries for recurring awards. They shall be
made pursuant to the following principles:
a) grants are awarded only to Members of the Board of Directors
whose term has not expired or to members of the executive
management in a non-terminated employment agreement and
after conclusion of the probation period;
b) the issue price or the principles for the determination of the issue
price shall be set out, whereby grants may be made free of
charge;
c) the exercise price shall at least be equal to the nominal value of
the underlying shares;
d) exercise shall be subject to a vesting period of at least twelve
months;
e) nach Ablauf der Wartefrist können Optionsrechte bis längstens 10
Jahre ab Zuteilung ausgeübt werden; nicht ausgeübte
Optionsrechte verfallen ersatzlos.
e) vested option rights shall be exercised within a maximum of ten
years after the grant date; unexercised option rights shall lapse
without compensation.
Der Verwaltungsragt oder der Vergütungsausschuss bestimmt die
Bedingungen und Voraussetzungen, einschliesslich einer allfälligen
Beschleunigung, Verkürzung oder Aufhebung der Sperrfrist im Fall
bestimmter Ereignisse wie einem Kontrollwechsel sowie allfällige
Rückforderungsmechanismen.
The Board of Directors or the Compensation Committee shall
determine more detailed terms and requirements, including any
acceleration, curtailing or waiving of the vesting period in specific
circumstances such as a change of control, as well as any claw-back
provisions.
Ausrichtung
Die Vergütung kann durch die Gesellschaft oder durch von ihr
kontrollierte Gesellschaften ausgerichtet werden.
Compensation may be paid by the Corporation or companies
controlled by it.
Payment
V Verträge mit Mitgliedern des Verwaltungsrats und der Geschäftsleitung
V Agreements with Members of the Board of Directors and the Executive Management
Art. 23
Art. 23
Verträge mit
Mitgliedern des
Verwaltungsrats
Die Gesellschaft oder von ihr kontrollierte Gesellschaften können mit
Mitgliedern des Verwaltungsrats unbefristete oder befristete Verträge
über deren Vergütung abschliessen. Die Dauer und Beendigung
richten sich nach Amtsdauer und Gesetz.
The Corporation or companies controlled by it may enter into
agreements for a fixed term or for an indefinite term with members of
the Board of Directors relating to their compensation. Duration and
termination shall comply with the term of office and the law.
Agreements with
Members of the
Board of Directors
Verträge mit
Mitgliedern der
Geschäftsleitung
Die Gesellschaft oder von ihr kontrollierte Gesellschaften können mit
Mitgliedern der Geschäftsleitung unbefristete oder befristete
Arbeitsverträge abschliessen. Befristete Arbeitsverträge haben eine
Höchstdauer von einem Jahr. Eine Erneuerung
ist zulässig.
Unbefristete Arbeitsverträge haben eine Kündigungsfrist von
maximal zwölf Monaten.
The Corporation or companies controlled by it may enter into
employment agreements with members of
the executive
management for a fixed term or for an indefinite term. Employment
agreements for a fixed term may have a maximum duration of 1 year.
Renewal is possible. Employment agreements for an indefinite term
may have a termination notice period of not more than 12 months.
Agreements with
members of the
executive
management
Beendigung
Mitglieder der Geschäftsleitung, die einer Kündigungsfrist
unterliegen, können von ihrer Arbeitspflicht befreit werden. Die
Gesellschaft oder von
ihr kontrollierte Gesellschaften können
Aufhebungsvereinbarungen abschliessen.
Members of executive management who are subject to a termination
notice may be released
their obligation of work. The
Corporation or companies controlled by it may enter into termination
agreements.
from
Termination
Konkurrenzverbote Die Gesellschaft oder von ihr kontrollierte Gesellschaften können
für die Zeit nach Beendigung eines
Konkurrenzverbote
Arbeitsvertrags für eine Dauer von bis zu einem Jahr vereinbaren.
Ein solches Konkurrenzverbot wird grundsätzlich nicht abgegolten.
The Corporation or companies controlled by it may enter into non-
the
compete agreements
employment agreement for a duration of up to one year. Such non-
compete agreement shall not be compensated in principle.
termination of
time after
the
for
Non-compete
agreements
Art. 24
Art. 24
Darlehen,
Kredite
Darlehen oder Kredite an ein Mitglied des Verwaltungsrates oder der
Geschäftsleitung dürfen nur zu Marktbedingungen gewährt werden
und zum Zeitpunkt ihrer Gewährung den Betrag der letzten dem
betreffenden Mitglied ausgerichteten gesamten Jahresvergütung
nicht übersteigen.
Loans or credits to a Member of the Board of Directors or member of
the executive management may only be granted at market conditions
and may, at the time of grant, not exceed the respective member’s
most recent total annual compensation.
Loans , credits
VI Mandate ausserhalb der Gesellschaft
VI Mandates Outside the Corporation
Art. 25
Art. 25
Höchstzahl an
Mandaten
Kein Mitglied des Verwaltungsrats oder der Geschäftsleitung kann
in börsenkotierten
zusätzliche Mandate
mehr als
nicht-kotierten
in
zusätzliche
Gesellschaften
Gesellschaften wahrnehmen.
sechs
zehn
und
No Member of
the executive
management may hold more than six additional mandates in listed
companies and ten additional mandates in non-listed companies.
the Board of Directors or of
Maximum number
of mandates
Ausgenommene
Mandate
Die folgenden Mandate fallen nicht unter diese Beschränkung:
The following mandates are not subject to these limitations:
a) Mandate in Unternehmen, die durch die Gesellschaft kontrolliert
a) mandates in companies which are controlled by the Corporation or
werden oder die Gesellschaft kontrollieren;
which control the Corporation;
b) Mandate in Vereinen, gemeinnützigen Organisationen, Stiftungen,
Trusts sowie Personalfürsorgestiftungen. Kein Mitglied des
Verwaltungsrats oder der Geschäftsleitung kann mehr als zehn
solche Mandate wahrnehmen.
b) mandates in associations, charitable organizations, foundations,
trusts and employee welfare foundations. No Member of the
Board of Directors or of the executive management shall hold
more than ten such mandates.
Exempt
mandates
VII Jahresrechnung und Gewinnverwendung
VII Annual Financial Statements and Profit Allocation
Art. 26
Art. 26
Geschäftsjahr
Das Geschäftsjahr beginnt mit dem 1. Januar und endet am 31.
Dezember.
The financial year shall commence on 1 January and shall end on 31
December.
Financial year
Art. 27
Art. 27
Jahresrechnung
Die Jahresrechnung, bestehend aus der Erfolgsrechnung, der Bilanz
und dem Anhang, sowie die Konzernrechnung werden nach den
gesetzlichen Vorschriften und nach allgemein anerkannten
kaufmännischen und branchenüblichen Grundsätzen aufgestellt.
The annual financial statements, consisting of income statement,
balance sheet and the notes, as well as the consolidated financial
statements, shall be prepared according to law and generally
recognized commercial and accounting principles.
Annual financial
statements
Art. 28
Art. 28
Gewinnverwendung Über
den
die
Generalversammlung im Rahmen der gesetzlichen Vorschriften,
insbesondere Art. 671 ff OR.
ausgewiesenen
Bilanzgewinn
verfügt
The allocation of the net profit disclosed shall fall to the General
Meeting of shareholders within the limits of the statutory provisions,
in particular Article 671 et seq. Swiss Code of Obligations.
Allocation of
profits
VIII Auflösung, Liquidation
Art. 29
VIII Dissolution, Liquidation
Art. 29
Auflösung,
Liquidation, Fusion Die Generalversammlung kann jederzeit Auflösung und Liquidation
oder Fusion mit einer anderen Gesellschaft nach den gesetzlichen
Vorschriften beschliessen.
The General Meeting of shareholders may at any time decide to
dissolve and liquidate the Corporation or merge it with another
company pursuant to the relevant statutory provisions.
Dissolution,
liquidation,
merger
Unter Vorbehalt abweichender Anordnung der Generalversammlung
besorgt der Verwaltungsrat die Liquidation; er kann dabei Aktiven
freihändig veräussern.
Unless otherwise ordered by the General Meeting of share- holders,
the Board shall perform the liquidation, with power for the sale of
assets on the open market.
IX Bekanntmachungen
Art. 30
IX Notices
Art. 30
Publikations-organ Publikationsorgan für Bekanntmachungen der Gesellschaft ist das
Schweiz. Handelsamtsblatt; der Verwaltungsrat kann weitere
Publikationsorgane bezeichnen.
The publishing medium for notices of the Corporation is the Swiss
Official Gazette of Commerce (Schweizerisches Handelsamtsblatt);
the Board of Directors may select additional publishing mediums.
Publishing
medium
Im Falle von Abweichungen zwischen der deutschen und englischen Version dieser
Statuten hat die deutsche Fassung Vorrang. Die englische Version ist eine Übersetzung
der deutschen Fassung.
In the event of discrepancies between the German and English version of these Articles
of Association, the German text shall prevail. The English version is a translation of the
German text.
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE US SECURITIES ACT OF
1933, AS AMENDED (THE “ACT”), ANY US STATE SECURITIES LAWS, OR UNDER THE SECURITIES LAWS OF ANY OTHER JURISDICTION,
AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND SUCH OTHER LAWS AS MAY BE APPLICABLE OR, SUBJECT TO SECTION 11 HEREOF, AN OPINION OF
COUNSEL (WHICH MAY BE COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.
Exhibit 2.2
WARRANT AGREEMENT
To Purchase the Common Shares of
AURIS MEDICAL HOLDING AG
(reg. no. CHE-474.294.374)
Dated as of March 13, 2018 (the “Effective Date”)
WHEREAS, effective as of March 13, 2018 the former Auris Medical Holding AG (“Old Auris”) merged into Auris Medical NewCo Holding AG (the
“Company”), a corporation organized under the laws of Switzerland and registered in the commercial register of the canton of Zug under registration number
CHE-474.294.374 (the “Merger”); and
WHEREAS, the Company changed its name to Auris Medical Holding AG upon effectiveness of the Merger; and
WHEREAS, the Company, as successor-in-interest to Old Auris, is party to a certain Loan and Security Agreement dated July 19, 2016 (as amended and
in effect from time to time, the “Loan Agreement”) with Hercules Capital, Inc., a Maryland USA corporation, as administrative agent, Hercules Capital, Inc. as a
lender (the “Warrantholder”), and the other lender parties thereto; and
WHEREAS, pursuant to the Loan Agreement and as additional consideration to the Warrantholder for, among other things, its agreements therein, Old
Auris entered into a certain Warrant Agreement with the Warrantholder dated July 19, 2016, providing for the Warrantholder’s right to purchase certain Common
Shares of Old Auris (the “Old Auris Warrant”); and
WHEREAS, the Company, as successor-by-merger to Old Auris, has assumed the Old Auris Warrant and the obligations of Old Auris thereunder,
which Old Auris Warrant is now exercisable for certain Common Shares of the Company; and
WHEREAS, the parties desire to exchange the Old Auris Warrant for, and replace it with, this Warrant Agreement (this “Warrant”, “Warrant
Agreement”, or “Agreement”);
NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and Warrantholder agree as follows:
SECTION 1.
GRANT OF THE RIGHT TO PURCHASE COMMON SHARES.
(a) For value received, the Company hereby grants to the Warrantholder, and the Warrantholder is entitled, upon the terms and subject to the conditions
hereinafter set forth, to subscribe for and
purchase, from the Company, up to the number of fully paid and non-assessable Common Shares (as defined below) as determined pursuant to Section 1(b)
below, at a purchase price per share equal to the Exercise Price (as defined below). The number and Exercise Price of such shares are subject to adjustment as
provided in Section 8. As used herein, the following terms shall have the following meanings:
“Act” means the US Securities Act of 1933, as amended.
“Charter” means the Company’s Articles of Association, or other constitutional document, as may be amended and in effect from time to time.
Exhibit 2.2
“CHF” means Swiss Francs.
“Common Shares” means the Company’s common shares with a nominal value of CHF 0.02 each, as presently constituted under the Charter, and
any class, series or other designation of Company share capital for or into which such common shares may be converted or exchanged in a reorganization,
recapitalization or similar transaction.
“Dollars” or “$” means United States Dollars.
“Exercise Price” means $39.40, subject to adjustment from time to time in accordance with the provisions of this Warrant; provided that
notwithstanding anything herein to the contrary, the Exercise Price shall not be adjusted below the nominal value of the Common Shares subject hereto
(currently CHF 0.02).
“Liquid Sale” means the closing of a Merger Event in which the consideration received by the Company and/or its shareholders, as applicable,
consists solely of cash and/or Marketable Securities.
“Marketable Securities” in connection with a Merger Event means securities meeting all of the following requirements: (i) the issuer thereof is
then subject to the reporting requirements of Section 13 or Section 15(d) of the US Securities Exchange Act of 1934, as amended (the “Exchange Act”),
or any comparable applicable law(s) of any other jurisdiction, and is then current in its filing of all required reports and other information under the Act
and the Exchange Act or such comparable law(s); (ii) the class and series, or other designation, of shares or other security of the issuer that would be
received by the Warrantholder in connection with the Merger Event were the Warrantholder to exercise this Warrant on or prior to the closing thereof is
then traded on a national securities exchange or over-the-counter market in the US or other jurisdiction, and (iii) following the closing of such Merger
Event, Warrantholder would not be restricted from publicly re-selling all of the issuer’s shares and/or other securities that would be received by
Warrantholder in such Merger Event were Warrantholder to exercise this Warrant in full on or prior to the closing of such Merger Event, except to the
extent that any such restriction (x) arises solely under US federal or state securities laws, rules or regulations, or the securities laws of any other
jurisdiction, and (y) does not extend beyond six (6) months from the closing of such Merger Event.
“Merger Event” means any of the following: (i) a sale, lease or other transfer of all or substantially all assets of the Company, (ii) any merger or
consolidation involving the Company in which the Company is not the surviving entity or in which the outstanding Common Shares of the Company are
otherwise converted into or exchanged for share capital or other securities or property of another entity and in which the holders of a majority of the
outstanding Common Shares of the Company immediately prior to such merger or consolidation do not hold a majority of the voting power of the
surviving entity or other entity immediately following such merger or consolidation, or (iii) any sale by holders of the outstanding voting equity securities
of the Company in a single transaction or series of related transactions of shares constituting a majority of the outstanding combined voting power of the
Company.
“Purchase Price” means, with respect to any exercise of this Warrant, an amount equal to the then-effective Exercise Price multiplied by the
number of Common Shares as to which this Warrant is then exercised.
Exhibit 2.2
“Rule 144” means Rule 144 promulgated under the Act, as amended.
“US” means the United States of America.
(b) Number of Shares. This Warrant shall be exercisable for such number of Common Shares as shall equal (x) $617,500.00, divided by (y) the
Exercise Price, subject to adjustment from time to time in accordance with the provisions of this Warrant.
SECTION 2.
TERM OF THE AGREEMENT.
The term of this Agreement and the right to purchase Common Shares as granted herein shall commence on the Effective Date and, subject to Section
8(a) below, shall be exercisable for a period ending upon July 19, 2023.
SECTION 3.
EXERCISE OF THE PURCHASE RIGHTS.
(a) Exercise. The purchase rights set forth in this Agreement are exercisable by the Warrantholder, in whole or in part, at any time, or from time to time,
prior to the expiration of the term set forth in Section 2, by tendering to the Company at its principal office a notice of exercise in the form attached hereto as
Exhibit I (the “Notice of Exercise”), duly completed and executed; provided, that any single exercise shall be for no less than $300,000 of Common Shares (or if,
on account of one or more prior exercises of this Warrant, the Warrantholder’s purchase rights hereunder shall then be for less than $300,000 of Common Shares,
such exercise shall be for all Common Shares then subject to purchase hereunder). Promptly upon receipt of the Notice of Exercise and the payment of the
Purchase Price in accordance with the terms set forth below, and in no event later than three business (3) days thereafter, the Company shall issue to the
Warrantholder the number of Common Shares purchased either by delivering a certificate to the Warrantholder or its designee evidencing such Common Shares or
by causing its transfer agent to establish book entries evidencing such Common Shares, and in any case shall execute the acknowledgment of exercise in the form
attached hereto as Exhibit II (the “Acknowledgment of Exercise”) indicating the number of shares which remain subject to future purchases under this Warrant, if
any.
The Purchase Price shall be paid in cash by wire transfer (in Dollars or Swiss francs) to a bank account in Switzerland specified by the Company
(the “Bank Account”). Upon partial exercise of this Warrant prior to the expiration or earlier termination hereof, the Company shall, upon request, promptly issue
an amended Agreement representing the remaining number of shares purchasable hereunder. All other terms and conditions of such amended Agreement shall be
identical to those contained herein, including, but not limited to the Effective Date hereof.
(b) Exercise Prior to Expiration and Liquid Sale. (x) To the extent this Warrant is not previously exercised as to all Common Shares subject hereto prior
to its expiration, and if the then-current fair market value of one Common Share is greater than the Exercise Price then in effect, this Warrant shall be deemed
automatically exercised on a cash basis pursuant to Section 3(a) (even if not surrendered) as of the business day prior to its expiration determined in accordance
with Section 2 and (y) to the extent this Warrant is not previously exercised as to all Common Shares subject thereto prior to a Liquid Sale, where the fair market
value per Common Share (as determined as of the closing of such Liquid Sale) to be paid to the holders thereof is greater than the Exercise Price then in effect,
this Warrant shall be deemed automatically exercised on a cash basis pursuant to Section 3(a) (even if not surrendered) as of the business day prior to the closing
of such Liquid Sale. To the extent this Warrant or any portion hereof is deemed automatically exercised pursuant to this Section 3(b), the Company agrees to
promptly notify the Warrantholder of the number of Common Shares if any, the Warrantholder is to receive by reason of such automatic exercise. In the case of
each such automatic exercise, promptly following the Warrantholder’s receipt of such notification from the Company, the Warrantholder shall deliver a Notice of
Exercise to the Company and payment of the Purchase Price to the Bank Account. Following receipt of the Purchase Price and the Notice of Exercise, the
Company agrees to issue to the Warrantholder the number of Common Shares if any, the Warrantholder is to receive by reason of such automatic exercise by
causing its transfer agent to establish book entries evidencing such Common Shares.
Exhibit 2.2
For purposes of the automatic exercise referenced above, the current fair market value of Common Shares and Marketable Securities shall mean with
respect to each Common Share or Marketable Security:
(i)
(ii)
at all times when the Common Shares or relevant Marketable Security, as applicable, shall be traded on a national securities exchange, inter-
dealer quotation system or over-the-counter bulletin board service, the volume-weighted average of the closing prices over a thirty (30) trading
day period ending three days before the day the current fair market value of the securities is being determined; or
if the current fair market value of a Common Shares or relevant Marketable Security, as applicable, cannot be determined as described in the
foregoing clause (i), the current fair market value of a Common Shares or relevant Marketable Security, as applicable, shall be determined in
good faith by the Company’s Board of Directors.
SECTION 4.
RESERVATION OF SHARES.
During the term of this Agreement, the Company will at all times have authorized and reserved a sufficient number of its Common Shares as contingent
capital (bedingtes Kapital) to provide for the exercise of the rights to purchase Common Shares as provided for herein. The Company acknowledges that
compensation for damages may not be sufficient remedy for the Warrantholder in case of the Company’s failure to comply with its obligation under this Section 4
and therefore expressly confirms that the Warrantholder may in such case request specific performance (Realerfüllung) upon due exercise of its purchase rights
pursuant to Section 3 hereof from time to time by obligating the Company to deliver such number of shares as would have been issued to the Warrantholder in
connection with such exercise of its purchase rights from time to time.
SECTION 5.
NO FRACTIONAL SHARES OR SCRIP.
No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Agreement, but in lieu of any fractional share the
Company shall make a cash payment therefor in amount equal to (a) such fraction, multiplied by (b)(i) the then-fair market value of a Common Share as
determined in accordance with Section 3(b) above, minus (ii) the then-effective Exercise Price.
SECTION 6.
NO RIGHTS AS SHAREHOLDER
Without limitation of any provision hereof, Warrantholder agrees that this Agreement does not entitle the Warrantholder to any voting rights or other
rights as a shareholder of the Company prior to the Warrantholder’s ownership of the respective Common Shares.
SECTION 7.
[RESERVED].
SECTION 8.
ADJUSTMENT RIGHTS.
The Exercise Price and the number of Common Shares purchasable hereunder are subject to adjustment from time to time, as follows:
(a)
Merger Event. In connection with a Merger Event that is a Liquid Sale, this Warrant shall, on and after the closing thereof,
automatically and without further action on the part of any party or other person, represent the right to receive the consideration payable on or in respect
of all Common Shares that are issuable hereunder as of immediately prior to the closing of such Liquid Sale less the Purchase Price for all such Common
Shares (such consideration to include both the consideration payable at the closing of such Liquid Sale and all deferred consideration payable thereafter, if
any, including, but not limited to, payments of amounts deposited at such closing into escrow and payments in the nature of earn-outs, milestone
payments or other performance-based payments (“Deferred Payments”)), and such Liquid Sale consideration shall be paid to Warrantholder as and when
it is paid to the holders of the outstanding Common Shares. To the extent that the maximum aggregate consideration per outstanding Common Share
(including, without limitation, all Deferred Payments) in such Liquid Sale (assuming for such determination that all Common Shares for which this
Warrant is then exercisable are issued and outstanding) that could, without discount to present value, be paid for, on or in respect of each such outstanding
Common Share in accordance with the definitive transaction documents therefor is equal to or
Exhibit 2.2
less than the Exercise Price in effect as of immediately prior to the initial closing thereof, then this Warrant shall, effective on and as of such initial
closing, terminate and be of no further force or effect.
In connection with a Merger Event that is not a Liquid Sale, the Company shall cause the successor or surviving entity to assume this Warrant and the
obligations of the Company hereunder on the closing thereof, and thereafter this Warrant shall be exercisable for the same number and type of securities or other
property as the Warrantholder would have received in consideration for the Common Shares issuable hereunder had it exercised this Warrant in full as of
immediately prior to such closing, at an aggregate Exercise Price no greater than the aggregate Exercise Price in effect as of immediately prior to such closing,
and subject to further adjustment from time to time in accordance with the provisions of this Warrant. The provisions of this Section 8(a) shall similarly apply to
successive Merger Events.
(b)
Reclassification of Shares. Except for Merger Events subject to Section 8(a), if the Company at any time shall, by
combination, reclassification, exchange or subdivision of securities or otherwise, change any of the securities as to which purchase rights under this
Agreement exist into the same or a different number of securities of any other class or classes of securities, this Agreement shall thereafter represent the
right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities which were
subject to the purchase rights under this Agreement immediately prior to such combination, reclassification, exchange, subdivision or other change. The
provisions of this Section 8(b) shall similarly apply to successive combination, reclassification, exchange, subdivision or other change.
(c)
Subdivision or Combination of Shares. If the Company at any time shall combine or subdivide its Common Shares, (i) in the case of a
subdivision, the Exercise Price shall be proportionately decreased and the number of shares for which this Warrant is exercisable shall be proportionately
increased, or (ii) in the case of a combination, the Exercise Price shall be proportionately increased and the number of shares for which this Warrant is exercisable
shall be proportionately decreased.
(d)
Stock Dividends. If the Company at any time while this Agreement is outstanding and unexpired shall:
(i)
pay a dividend with respect to the outstanding Common Shares payable in additional Common Shares, then the Exercise Price
shall be adjusted, from and after the date of determination of shareholders entitled to receive such dividend or distribution, to that price determined by multiplying
the Exercise Price in effect immediately prior to such date of determination by a fraction (A) the numerator of which shall be the total number of Common Shares
outstanding immediately prior to such dividend or distribution, and (B) the denominator of which shall be the total number of Common Shares outstanding
immediately after such dividend or distribution, and the number of Common Shares for which this Warrant is exercisable shall be proportionately increased; or
(ii)
make any other dividend or distribution on or with respect to Common Shares, except any dividend or distribution (A) in cash,
or (B) specifically provided for in any other clause of this Section 8, then, in each such case, provision shall be made by the Company such that the Warrantholder
shall receive upon exercise or conversion of this Warrant a proportionate share of any such distribution as though it were the holder of the Common Shares as of
the record date fixed for the determination of the shareholders of the Company entitled to receive such distribution.
(e) Notice of Certain Events. If: (i) the Company shall declare any dividend or distribution upon its outstanding Common Shares, payable in
capital shares or other Company securities, cash, or other property (provided that Warrantholder in its capacity as lender under the Loan Agreement consents to
such dividend); (ii) the Company shall offer for subscription pro rata to the holders of its Common Shares any additional shares of stock of any class or other
rights; (iii) there shall be any Merger Event; or (iv) there shall be any voluntary dissolution, liquidation or winding up of the Company; then, in connection with
each such event, the Company shall give the Warrantholder notice thereof at the same time and in the same manner as it gives notice thereof to the holders of
outstanding Common Shares.
SECTION 9.
(a)
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
Exhibit 2.2
Reservation of Common Shares. The Company covenants and agrees that all Common Shares, if any, that may be issued upon the exercise of
the rights represented by this Warrant will, upon issuance, be validly issued and outstanding, fully paid and non-assessable. The Company further covenants and
agrees that the Company will, at all times during the term hereof, have authorized and reserved, free from preemptive rights, a sufficient number of Common
Shares to provide for the exercise of the rights represented by this Warrant. If at any time during the term hereof the number of authorized but unissued Common
Shares shall not be sufficient to permit exercise of this Warrant in full, the Company will take such corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued Common Shares to such number of shares as shall be sufficient for such purposes.
(b)
Due Authority. The execution and delivery by the Company of this Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the Common Shares, have been duly authorized by all necessary corporate action on the
part of the Company. This Agreement: (1) does not violate the Company's Charter or current bylaws; (2) except as could not reasonably be expected to have a
Material Adverse Effect (as defined in the Loan Agreement), does not contravene any law or governmental rule, regulation or order applicable to it; and (3)
except as could not reasonably be expected to have a Material Adverse Effect, does not and will not contravene any provision of, or constitute a default under, any
indenture, mortgage, contract or other instrument to which it is a party or by which it is bound. This Agreement constitutes a legal, valid and binding agreement of
the Company, enforceable in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to
or affecting creditors’ rights generally (including, without limitation, fraudulent conveyance laws) and by general principles of equity, regardless of whether
considered in a proceeding in equity or at law.
(c)
Consents and Approvals. No consent or approval of, giving of notice to, registration with, or taking of any other action in respect of any state,
federal or other governmental authority or agency is required with respect to the execution, delivery and performance by the Company of its obligations under this
Agreement, except for any filing of notices pursuant to Regulation D under the Act and any filing required by applicable state securities law, which filings will be
effective by the time required thereby.
(d)
(e)
(f)
[Intentionally Omitted].
[Intentionally Omitted].
Exempt Transaction. Subject to the accuracy of the Warrantholder's representations in Section 10, the issuance of the Common Shares upon
exercise of this Agreement will constitute a transaction exempt from (i) the registration requirements of Section 5 of the Act, in reliance upon Section 4(2)
thereof, (ii) the qualification requirements of applicable US state securities laws, and (iii) the registration and/or qualification requirements of any other securities
laws applicable to the Company.
(g)
(h)
[Intentionally Omitted].
Information Rights. At all times (if any) prior to the earlier to occur of (x) the date on which all Common Shares issued on exercise of this
Warrant have been sold, or (y) the expiration or earlier termination of this Warrant, when the Company shall not be required to file reports pursuant to Section 13
or 15(d) of the Exchange Act or comparable applicable law of another jurisdiction or shall not have timely filed all such required reports, Warrantholder shall be
entitled to receive the same information as is distributed by the Company to all of its shareholders. All such information shall be held and treated by the
Warrantholder in confidence in accordance with the provisions of Section 11.12 of the Loan Agreement (regardless of whether the Loan Agreement is then in
effect).
(i)
Rule 144 Compliance. The Company shall, at all times prior to the earlier to occur of (x) the date of sale or other disposition by Warrantholder
of this Warrant or all Common Shares issued on exercise of this Warrant or (y) the expiration or earlier termination of this Warrant if the Warrant has not been
exercised in full or in part on such date, use all commercially reasonable efforts to timely file all reports required under the Exchange Act
Exhibit 2.2
and otherwise cooperate with the Warrantholder if the Warrantholder decides to sell or otherwise dispose of this Warrant and the Common Shares issued on
exercise hereof pursuant to Rule 144. If the Warrantholder proposes to sell Common Shares issuable upon the exercise of this Agreement in compliance with Rule
144, then, upon Warrantholder’s written request to the Company, the Company shall furnish to the Warrantholder, within five (5) business days after receipt of
such request, a written statement confirming the Company’s compliance with the filing and other requirements of such Rule.
(j)
SECTION 10.
This Agreement has been entered into by the Company in reliance upon the following representations and covenants of the Warrantholder:
REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
(a)
Investment Purpose. This Warrant and the shares issued on exercise hereof will be acquired for investment and not with a view to the sale or
distribution of any part thereof in violation of applicable US federal and state securities laws, and the Warrantholder has no present intention of selling or
engaging in any public distribution of the same except pursuant to a registration or exemption.
(a)
Private Issue. The Warrantholder understands (i) that the Common Shares issuable upon exercise of this Agreement are not, as of the Effective
Date, registered under the Act or qualified under applicable US state securities laws, and (ii) that the Company's reliance on exemption from such registration is
predicated on the representations set forth in this Section 10.
(b)
Financial Risk. The Warrantholder has such knowledge and experi-ence in financial and business matters as to be capable of evaluating the
merits and risks of its investment, and has the ability to bear the economic risks of its investment.
(c)
Accredited Investor. Warrantholder is an "accredited investor" within the meaning of Rule 501 of Regulation D promulgated under the Act, as
presently in effect (“Regulation D”).
(d)
No Short Sales. Warrantholder has not at any time on or prior to the Effective Date engaged in any short sales or equivalent transactions in
the Common Shares. Warrantholder agrees that at all times from and after the Effective Date and on or before the expiration or earlier termination of this Warrant,
it shall not engage in any short sales or equivalent transactions in the Common Shares.
SECTION 11.
TRANSFERS.
Subject to compliance with applicable US federal and state securities laws, this Agreement and all rights hereunder are transferable, in whole or in part,
without charge to the holder hereof (except for transfer taxes) upon surrender of this Agreement properly endorsed. Each taker and holder of this Agreement, by
taking or holding the same, consents and agrees that this Agreement, when endorsed in blank, shall be deemed negotiable, and that the holder hereof, when this
Agreement shall have been so endorsed, shall be treated by the Company and all other persons dealing with this Agreement as the absolute owner hereof for any
purpose and as the person entitled to exercise the rights represented notified to the Company by a notice of transfer in the form attached hereto as Exhibit III (the
"Transfer Notice"), at its principal offices and the payment to the Company of all transfer taxes and other governmental charges imposed on such transfer. Until
the Company receives such Transfer Notice, the Company may treat the initial owner hereof as the owner for all purposes. Notwithstanding anything herein or in
any legend to the contrary, the Company shall not require an opinion of counsel in connection with any sale, assignment or other transfer by Warrantholder of this
Warrant (or any portion hereof or any interest herein) or of any Common Shares issued upon any exercise hereof to an affiliate (as defined in Regulation D) of
Warrantholder, provided that the restrictive legend will remain on such transferred Warrant, and provided further that such affiliate shall be, at the time of such
sale, assignment or transfer, an “accredited investor” as defined in Regulation D and shall, at the Company’s request, represent same to the Company in writing.
Exhibit 2.2
SECTION 12.
MISCELLANEOUS.
(a)
Effective Date. The provisions of this Agreement shall be construed and shall be given effect in all respects as if it had been executed and
delivered by the Company on the date hereof. This Agreement shall be binding upon any successors or assigns of the Company.
(b)
Remedies. In the event of any default hereunder, the non-defaulting party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a result of any such default, and/or an action for specific performance for any default
where Warrantholder will not have an adequate remedy at law and where damages will not be readily ascertainable.
(c)
No Impairment of Rights. The Company will not, by amendment of its Charter or through any other means, avoid or seek to avoid the
observance or performance of any of the terms of this Agreement, but will at all times in good faith assist in the carrying out of all such terms and in the taking of
all such actions as may be necessary or appropriate in order to protect the rights of the Warrantholder against impairment.
(d)
(e)
Additional Documents. The Company agrees to supply such other documents as the Warrantholder may from time to time reasonably request.
Attorneys’ Fees. In any litigation, arbitration or court proceeding between the Company and the Warrantholder relating hereto, the prevailing
party shall be entitled to reasonable attorneys’ fees and expenses and all costs of proceedings incurred in enforcing this Agreement. For the purposes of this
Section 12(e), reasonable attorneys’ fees shall include without limitation fees incurred in connection with the following: (i) contempt proceedings; (ii) discovery;
(iii) any motion, proceeding or other activity of any kind in connection with an insolvency proceeding; (iv) garnishment, levy, and debtor and third party
examinations; and (v) post-judgment motions and proceedings of any kind, including without limitation any activity taken to collect or enforce any judgment.
(f)
Severability. In the event any one or more of the provisions of this Agreement shall for any reason be held invalid, illegal or unenforceable, the
remaining provisions of this Agreement shall be unimpaired, and the invalid, illegal or unenforceable provision shall be replaced by a mutually acceptable valid,
legal and enforceable provision, which comes closest to the intention of the parties underlying the invalid, illegal or unenforceable provision.
(g)
Notices. Except as otherwise provided herein, any notice, demand, request, consent, approval, declaration, service of process or other
communication that is required, contemplated, or permitted under this Agreement or with respect to the subject matter hereof shall be in writing, and shall be
deemed to have been validly served, given, delivered, and received upon the earlier of: (a) personal delivery to the party to be notified, (b) when sent by
confirmed telex, electronic transmission or facsimile if sent during normal business hours of the recipient, if not, then on the next business day, (c) five days after
having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one day after deposit with a nationally recognized overnight
courier, specifying next day delivery, with written verification of receipt, and shall be addressed to the party to be notified as follows:
If to Warrantholder:
Hercules CAPITAL, INC.
Legal Department
Attention: Chief Legal Officer and Bryan Jadot
400 Hamilton Avenue, Suite 310
Palo Alto, CA 94301
Facsimile: 650-473-9194
Telephone: 650-289-3060
If to the Company:
Auris Medical Holding AG
Attention: General Counsel
Bahnhofstrasse 21
6300 Zug, Switzerland
Facsimile: +41 61 201 13 51
Telephone: +41 41 729 71 94
Email: rad@aurismedical.com
Exhibit 2.2
or to such other address as each party may designate for itself by like notice.
(h)
Entire Agreement; Amendments. This Agreement constitutes the entire agreement and understanding of the parties hereto in respect of
the subject matter hereof, and supersedes and replaces in their entirety any prior proposals, term sheets, letters, negotiations or other documents or
agreements, whether written or oral, with respect to the subject matter hereof. None of the terms of this Agreement may be amended except by an
instrument executed by each of the parties hereto.
(i)
Headings. The various headings in this Agreement are inserted for convenience only and shall not affect the meaning or interpretation of this
Agreement or any provisions hereof.
(j)
Advice of Counsel. Each of the parties represents to each other party hereto that it has discussed (or had an opportunity to discuss) with its
counsel this Agreement and, specifically, the provisions of Sections 12(n), 12(o) and 12(p).
(k)
No Strict Construction. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity
or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof
shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement.
(l)
No Waiver. No omission or delay by Warrantholder at any time to enforce any right or remedy reserved to it, or to require performance of any
of the terms, covenants or provisions hereof by Warrantholder at any time designated, shall be a waiver of any such right or remedy to which Warrantholder is
entitled, nor shall it in any way affect the right of Warrantholder to enforce such provisions thereafter during the term of this Agreement.
(m)
Survival. All agreements, representations and warranties contained in this Agreement or in any document delivered pursuant hereto shall be
for the benefit of Warrantholder and shall survive the execution and delivery of this Agreement and the expiration or other termination of this Agreement.
(n)
Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of New York,
excluding conflict of laws principles that would cause the application of laws of any other jurisdiction. For the avoidance of doubt, matters involving the rights of
shareholders and the issuance of Common Shares shall be governed by the laws of Switzerland.
(o)
Consent to Jurisdiction and Venue. All judicial proceedings arising in or under or related to this Agreement may be brought in any state or
federal court of competent jurisdiction located in the State of New York. By execution and delivery of this Agreement, each party hereto generally and
unconditionally: (a) consents to personal jurisdiction in New York County, State of New York; (b) waives any objection as to jurisdiction or venue in New York
County, State of New York; (c) agrees not to assert any defense based on lack of jurisdiction or venue in the aforesaid courts; and (d) irrevocably agrees to be
bound by any judgment rendered thereby in connection with this Agreement. Service of process on any party hereto in any action arising out of or relating to this
Agreement shall be effective if given in accordance with the requirements for notice set forth in Section 12(g), and shall be deemed effective and received as set
forth in Section 12(g). Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of either party to bring
proceedings in the courts of any other jurisdiction.
Exhibit 2.2
(p)
Mutual Waiver of Jury Trial. Because disputes arising in connection with complex financial transactions are most quickly and economically
resolved by an experienced and expert person and the parties wish applicable state and federal laws to apply (rather than arbitration rules), the parties desire that
their disputes arising under or in connection with this Warrant be resolved by a judge applying such applicable laws. EACH OF THE COMPANY AND
WARRANTHOLDER SPECIFICALLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY OF ANY CAUSE OF ACTION, CLAIM, CROSS-
CLAIM, COUNTERCLAIM, THIRD PARTY CLAIM OR ANY OTHER CLAIM (COLLECTIVELY, "CLAIMS") ASSERTED BY THE COMPANY
AGAINST WARRANTHOLDER OR ITS ASSIGNEE OR BY WARRANTHOLDER OR ITS ASSIGNEE AGAINST THE COMPANY RELATING TO THIS
WARRANT. This waiver extends to all such Claims, including Claims that involve persons or entities other the Company and Warrantholder; Claims that arise
out of or are in any way connected to the relationship between the Company and Warrantholder; and any Claims for damages, breach of contract, specific
performance, or any equitable or legal relief of any kind, arising out of this Agreement.
(q)
Counterparts. This Agreement and any amendments, waivers, consents or supplements hereto may be executed in any number of counterparts
(including by facsimile or electronic delivery (PDF), and by different parties hereto in separate counterparts, each of which when so delivered shall be deemed an
original, but all of which counterparts shall constitute but one and the same instrument.
(r)
Specific Performance. The parties hereto hereby declare that it is impossible to measure in money the damages which will accrue to
Warrantholder by reason of the Company’s failure to perform any of the obligations under this Agreement and agree that the terms of this Agreement shall be
specifically enforceable by Warrantholder. If Warrantholder institutes any action or proceeding to specifically enforce the provisions hereof, any person against
whom such action or proceeding is brought hereby waives the claim or defense therein that Warrantholder has an adequate remedy at law, and such person shall
not offer in any such action or proceeding the claim or defense that such remedy at law exists.
(s)
Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant is lost, stolen, mutilated or destroyed, the Company may, on such terms as to
indemnity or otherwise as it may reasonably impose (which shall, in the case of a mutilated Warrant, include the surrender thereof), issue a new Warrant of like
denomination and tenor as this Warrant so lost, stolen, mutilated or destroyed. Any such new Warrant shall constitute an original contractual obligation of the
Company, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by anyone.
(t)
(u)
Language. The official language of this Warrant and of all notices and other communications between the parties hereunder shall be English.
Legends. To the extent required by applicable laws, this Warrant and the Common Shares issuable hereunder (and the securities issuable,
directly or indirectly, upon conversion of such Common Shares, if any) may be imprinted with a restricted securities legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE US SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), ANY US
STATE SECURITIES LAWS, OR UNDER THE SECURITIES LAWS OF ANY OTHER JURISDICTION, AND MAY NOT BE SOLD, PLEDGED
OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT AND LAWS, OR
PURSUANT TO RULE 144 AND/OR OTHER EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
(v)
Termination of Old Auris Warrant. This Warrant is issued in exchange for and replacement of the Old Auris Warrant. Effective upon
the Warrantholder’s receipt of this Warrant executed by the Company, the Old Auris Warrant shall automatically terminate and be of no further force or
effect. Promptly following such receipt, the Warrantholder shall at its expense return the Old Auris Warrant to the Company for cancellation.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement to be executed by its officers thereunto duly authorized as of the
Effective Date.
Exhibit 2.2
COMPANY: AURIS MEDICAL HOLDING AG
By:
Name:
Title:
WARRANTHOLDER: HERCULES CAPITAL, INC.
By:
Name:
Title:
EXHIBIT I
NOTICE OF EXERCISE
Exhibit 2.2
To: [____________________________]
(1) The undersigned Warrantholder hereby irrevocably elects to purchase [_______] Common Shares of a par value of CHF 0.02 each of [_________________],
pursuant to the terms of the Agreement dated the [___] day of [______, _____] between Auris Medical Holding AG and the Warrantholder (the "Agreement") and
by reference to article [_______] of the Charter, and tenders herewith payment of the aggregate Purchase Price of CHF [_______] in full, together with all
applicable taxes and charges, if any.
(2)
Please issue said Common Shares in the name of the undersigned or in such other name as is specified below and conform in writing to the undersigned
such issuance.
(3)
Capitalized terms used but not defined herein shall have the meaning ascribed to such term in the Agreement.
_________________________________
(Name)
_________________________________
(Address)
WARRANTHOLDER: HERCULES CAPITAL, INC.
By: ______________________________
Name: ______________________________
Title: ______________________________
1.
ACKNOWLEDGMENT OF EXERCISE
EXHIBIT II
Exhibit 2.2
The undersigned [____________________________________], hereby acknowledge receipt of the "Notice of Exercise" from Hercules Capital, Inc. to purchase
[____] Common Shares of [_________________], pursuant to the terms of the Agreement, and further acknowledges that [______] shares remain subject to
purchase under the terms of the Agreement.
COMPANY: [_________________]
By: ________________________________
Title: ________________________________
Date: ________________________________
EXHIBIT III
TRANSFER NOTICE
Exhibit 2.2
(To transfer or assign the foregoing Agreement execute this form and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Agreement and all rights evidenced thereby are hereby transferred and assigned to
_________________________________________________________________
(Please Print)
whose address is___________________________________________________
_________________________________________________________________
Dated: ____________________________________
Holder's Signature: _______________________________
Holder's Address: _______________________________
_____________________________________________________
Signature Guaranteed: ____________________________________________
NOTE: The signature to this Transfer Notice must correspond with the name as it appears on the face of the Agreement, without alteration or
enlargement or any change whatever. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of
authority to assign the foregoing Agreement.
CONSENT AND WAIVER
EXECUTION VERSION
This Consent and Waiver (this “Consent”), dated as of March 8, 2018 (the “Effective Date”), is entered into by and among (a) AURIS
MEDICAL HOLDING AG, a company organized under the laws of Switzerland (“Borrower”), (b) the several banks and other financial institutions
or entities party hereto as a lender (collectively, referred to as “Lender”), and (c) HERCULES CAPITAL, INC., a Maryland corporation, in its
capacity as administrative agent for itself and Lender (in such capacity, the “Agent”). To the extent not otherwise defined herein, the capitalized
terms used herein shall have the meanings assigned to them in the Loan Agreement (as defined below).
WITNESSETH:
WHEREAS, Borrower, Lender and the Agent are parties to a Loan and Security Agreement dated as of July 19, 2016 (the “Loan
Agreement”);
WHEREAS, Borrower has notified Lender and the Agent that Borrower intends to enter into a merger transaction whereby Borrower will
merge with and into AURIS MEDICAL NEWCO HOLDING AG, a company organized under the laws of Switzerland (“NewCo”) with NewCo
surviving the merger (the “Merger”). The Merger is to be effectuated in accordance with Swiss law pursuant to the terms of a Merger Agreement
dated February 9, 2018 by and between Borrower and NewCo in the form attached hereto as Exhibit A (the “Merger Agreement”);
WHEREAS, Section 7.9 of the Loan Agreement prohibits the occurrence of the Merger. Borrower has requested that Lender and Agent
consent to the occurrence of the Merger;
NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged the parties hereto agree as follows:
1.
Consent. In reliance upon the representations, warranties and covenants of Borrower herein, in the Loan Agreement and the
other Loan Documents, and in the Merger Agreement, Lender and the Agent hereby consent to the consummation of the Merger in
accordance with the terms of the Merger Agreement, and (ii) waive compliance by Borrower with the provisions of Section 7.9 of the Loan
Agreement which would otherwise prohibit consummation of the Merger (and any Event of Default under Section 9.2 which would arise
from such non-compliance). The foregoing consent and waiver is expressly subject to and conditioned on each of the following terms and
conditions:
A.
The Merger shall be consummated on or before March 31, 2018 (the “Closing”) upon substantially the terms contained in the Merger
Agreement and without any material amendment or modification thereto (it being agreed that any amendment or modification to the
Merger Agreement which may be adverse to the interests of Lender or the Agent shall be deemed to be material) and in accordance
with resolutions duly adopted by the Board of Directors of Borrower and NewCo and applicable law.
B.
C.
D.
E.
F.
No Event of Default (other than any Event of Default waived herein) shall have occurred on or after the date hereof prior to the
Closing of the Merger and no Event of Default (other than any Event of Default waived herein) shall exist immediately prior to, or
after giving effect to, the Closing of the Merger.
No cash consideration shall be paid by Borrower in connection with the Merger.
The assets of NewCo acquired by means of the Merger shall be free and clear of any and all Liens (other than Liens that will be
released simultaneously with the Closing of the Merger).
Borrower shall deliver to the Agent true and complete copies of the final Merger Agreement and all other documents, instruments and
agreements executed in connection with the Merger promptly after the Closing of the Merger.
On or before the date that is 5 (five) business days after the consummation of the Merger, (a) NewCo shall execute and deliver to
Hercules Capital, Inc., in its capacity as Lender (the “Warrantholder”), a Warrant Agreement (the “NewCo Warrant”) substantially the
form attached hereto as Exhibit B, in exchange for and replacement of that certain Warrant Agreement dated July 19, 2016, as
amended, between the Warrantholder and Borrower (the “Borrower Warrant”), which NewCo Warrant shall be exercisable for such
number of NewCo Common Shares as shall equal (i) US$617,500, divided by (ii) the Exercise Price (as defined in the NewCo
Warrant and which shall initially equal US$39.40) and (b) Borrower shall deliver to the Agent, (i) evidence of the consummation of
the Merger, (ii) such documents and instruments as the Agent deems necessary or advisable for NewCo to become a “Borrower”
under the Loan Agreement and to grant to the Agent, for the benefit of Lender, a continuing Lien, pledge and security interest in and
to the assets of NewCo, (iii) such other documents and instruments as the Agent deems necessary or advisable to grant to the Agent,
for the benefit of Lender, a perfected first priority Lien, pledge and security interest in the Collateral described in the Loan
Agreement (substantially as described in Section 3 of the Loan Agreement), (iv) any documents required by the Agent in order for
the Agent and Lender to be capable of exercising their rights as a secured lender in respect of the assets of NewCo, (v) evidence that
the assets of NewCo are insured in accordance with the requirements of the Loan Agreement, (vi) a secretary’s certificate of NewCo,
in a form reasonably satisfactory to the Agent, with appropriate insertions and attachments, and (vii) a legal opinion of Swiss counsel
to the Agent relating to the matters described above, which opinion shall be in form and substance reasonably satisfactory to the
Agent.
2.
Conditions to Effectiveness. Lender, the Agent and Borrower agree that this Consent shall become effective upon the
satisfaction of the following conditions precedent, each in form and substance satisfactory to Lender and the Agent:
(a)
(b)
The Agent shall have received a fully-executed counterpart of this Consent signed by Borrower;
The accuracy of Borrower’s representations and warranties set forth in Section 3 below; and
Lender and the Agent shall have received payment for all reasonable and documented out-of-pocket fees and expenses
incurred by Lender and the Agent in connection with this Consent, including, but not limited to, all legal fees and expenses, payable pursuant
to Section 11.11 of the Loan Agreement.
(c)
3.
(a)
Representations and Warranties. Borrower hereby represents and warrants to Lender and the Agent as follows:
Representations and Warranties in the Loan Agreement. The representations and warranties of Borrower set forth in Section
5 of the Loan Agreement are true and correct in all material respects on and as of the Effective Date with the same effect as though made on
and as of such date, except to the extent such representations and warranties expressly relate to an earlier date in which case they shall be
true and correct as of such earlier date; provided that for purposes of this Section 3(a), Schedule 5.9, Exhibit D and Exhibit E of the Loan
Agreement are revised as set forth in Exhibit C hereto.
(b)
Authority, Etc. The execution and delivery by Borrower of this Consent and the performance by Borrower of all of its
agreements and obligations hereunder are within the corporate authority of Borrower and have been duly authorized by all necessary
corporate action on the part of Borrower. With respect to Borrower, the execution and delivery by Borrower of this Consent does not and will
not require any registration with, consent or approval of, or notice to any Person (including any governmental authority).
(c)
Enforceability of Obligations. This Consent constitutes the legal, valid and binding obligation of Borrower enforceable
against Borrower in accordance with its terms, except as enforceability is limited by bankruptcy, insolvency, reorganization, moratorium,
general equitable principles or other laws relating to or affecting generally the enforcement of, creditors’ rights and except to the extent that
availability of the remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding
therefor may be brought.
(d)
No Default. Before and after giving effect to this Consent (i) no fact or condition exists that would (or would, with the passage of time,
the giving of notice, or both) constitute an Event of Default (other than any Event of Default waived herein), and (ii) no event that has had or could
reasonably be expected to have a Material Adverse Effect has occurred and is continuing.
(e)
Event of Default. By its signature below, Borrower hereby agrees that it shall constitute an Event of Default if any
representation or warranty made herein should be false or misleading in any material respect when made.
4.
Reaffirmations. Borrower hereby confirms that all of the terms and conditions of the Loan Agreement and the other Loan
Documents not waived herein remain in full force and effect. Nothing contained in this Consent shall in any way prejudice, impair or effect
any rights or remedies of Lender or the Agent under the Loan Agreement and the other Loan Documents. Borrower hereby ratifies, confirms,
and reaffirms all covenants contained in the Loan Agreement and the other Loan Documents.
5.
Miscellaneous.
(a) This consent has been negotiated and delivered to the Agent and Lender in the State of California, and shall have been accepted
by the Agent and Lender in the State of California. This Consent shall be governed by, and construed and enforced in accordance with, the
laws of the State of California, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction.
(b) The captions in this Consent are for convenience of reference only and shall not define or limit the provisions hereof.
(c) This Consent expresses the entire understanding of the parties with respect to the transactions contemplated hereby. No prior
negotiations or discussions shall limit, modify, or otherwise affect the provisions hereof. This Consent is a Loan Document.
(d) Any determination that any provision of this Consent or any application hereof is invalid, illegal or unenforceable in any respect
and in any instance shall not effect the validity, legality, or enforceability of such provision in any other instance, or the validity, legality or
enforceability of any other provisions of this Consent.
(e) The parties hereto shall execute and deliver such additional documents to take such additional action as may be reasonably
necessary or desirable to effectuate the provisions and purposes of this Consent.
(f) This Consent shall be binding upon and insure to the benefit of the parties hereto and their respective legal representatives,
successors or assigns.
(g) The headings listed herein are for convenience only and do not constitute matters to be construed in interpreting this Consent.
(h) This Consent and any amendments, waivers, consents or supplements hereto may be executed in any number of counterparts,
and by different parties hereto in separate counterparts, each of which when so delivered shall be deemed an original, but all of which
counterparts shall constitute but one and the same instrument. The words “execution,” “signed,” “signature,” and words of like import this
Consent or in any amendment or other modification hereof (including waivers and consents) shall be
deemed to include electronic signatures or the keeping of records in electronic form (including PDF), each of which shall be of the same
legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be,
to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act or
any state laws based on the Uniform Electronic Transactions Act.
(i) No provisions of this Consent are intended, nor will be interpreted, to provide or create any third-party beneficiary rights or any
other rights of any kind in any Person other than the Agent, Lender and Borrower and all provisions of this Consent will be personal and
solely among the Agent, Lender and Borrower.
(j) The provisions of Section 11.10 of the Loan Agreement (Mutual Waiver of Jury Trial/Judicial Reference) are incorporated by
reference into this Consent mutatis mutandis.
[Remainder of this page left intentionally blank]
IN WITNESS WHEREOF, Borrower, the Agent and Lender have duly executed and delivered this Consent as of the day and year first above
written.
BORROWER:
AURIS MEDICAL HOLDING AG
By: ___/s/ Thomas Meyer___________
Name: ____Thomas Meyer_______
Its: Chairman & CEO________
(Signature Page to Consent)
Accepted in Palo Alto, California:
AGENT:
HERCULES CAPITAL, INC.
By: ____/s/ Jennifer Choe______________
Name: _____Jennifer Choe__________
Its: __Assistant General Counsel___
(Signature Page to Consent)
LENDER:
HERCULES CAPITAL, INC.
By: ____/s/ Jennifer Choe______________
Name: _____Jennifer Choe__________
Its: __Assistant General Counsel___
(Signature Page to Consent)
JOINDER AGREEMENT
This Joinder Agreement (this “Joinder”), dated as of March 13, 2018 (the “Effective Date”), is entered into by and among (a) AURIS
MEDICAL HOLDING AG, a company organized under the laws of Switzerland, as the surviving entity of the Merger defined below and the
subsequent name change described below (“Newco”), (b) the several banks and other financial institutions or entities party hereto as a lender
(collectively, referred to as “Lender”), and (c) HERCULES CAPITAL, INC., a Maryland corporation, in its capacity as administrative agent for
itself and Lender (in such capacity, the “Agent”). To the extent not otherwise defined herein, the capitalized terms used herein shall have the
meanings assigned to them in the Loan Agreement (as defined below).
WITNESSETH:
WHEREAS, AURIS MEDICAL HOLDING AG, a company organized under the laws of Switzerland, (“Original Borrower”), Lender and
the Agent executed and delivered a Loan and Security Agreement dated as of July 19, 2016 (the “Loan Agreement”), which Loan Agreement
remains in full force and effect;
WHEREAS, Newco has notified Lender and the Agent that (i) Original Borrower was a party to a merger transaction whereby Original
Borrower merged with and into AURIS MEDICAL NEWCO HOLDING AG, a company organized under the laws of Switzerland (“MergerCo”),
with MergerCo surviving the merger (the “Merger”), (ii) pursuant to the terms of the Merger, MergerCo assumed as a matter of law all of the assets
and liabilities of Original Borrower, including all of Original Borrower’s obligations under the Loan Agreement and the other Loan Documents, and
(iii) upon the consummation of the Merger, MergerCo changed its name to “AURIS MEDICAL HOLDING AG”. As a result of the foregoing
Newco is the successor to all of the assets of Original Borrower and the obligor of all of the liabilities of Original Borrower, including all of Original
Borrower’s obligations under the Loan Agreement and the other Loan Documents.
NOW THEREFORE, parties hereto agree as follows:
1. The recitals set forth above are incorporated into and made part of this Joinder Agreement.
AGREEMENT
2. By signing this Joinder Agreement, Newco hereby (i) acknowledges and agrees that it is a party to the Loan Agreement and the other Loan
Documents as “Borrower” thereunder with the same force and effect as if originally named therein as “Borrower” and, without limiting the
generality of the foregoing, hereby expressly assumes all obligations and liabilities of “Borrower” under the Loan Agreement and the other Loan
Documents, (ii) acknowledges and agrees that Newco is bound by the terms, conditions and covenants applicable to “Borrower” under the Loan
Agreement and the other Loan Documents, (iii) acknowledges and agrees that the Loan Agreement and each of the other Loan Documents remain in
full force and effect in accordance with their respective terms and ratifies and reaffirms each and every term, condition and covenant set forth in the
Loan Agreement and the other Loan Documents, (iv) ratifies and reaffirms the security interests granted by Original Borrower to Agent pursuant to
the Loan Agreement and the other Loan Documents and acknowledges and agrees that the assets of Newco remain subject to such security interests
as security for the prompt and complete payment when due (whether on the
payment dates or otherwise) of all the Secured Obligations, and (v) without limiting the security interests described in the foregoing clause (iv),
grants to the Agent, as security for the prompt and complete payment when due (whether on the payment dates or otherwise) of all the Secured
Obligations, a security interest in all of Newco’s Swiss Collateral, in each case whether now owned or hereafter acquired or in which the Newco
now has or hereafter acquires an interest and wherever the same may be located.
3. Newco acknowledges that it benefits, both directly and indirectly, from the Loan Agreement and the other Loan Documents, and hereby waives,
for itself and on behalf on any and all successors in interest (including without limitation any assignee for the benefit of creditors, receiver,
bankruptcy trustee or itself as debtor-in-possession under any bankruptcy proceeding) to the fullest extent provided by law, any and all claims, rights
or defenses to the enforcement of this Joinder Agreement on the basis that (a) it failed to receive adequate consideration for the execution and
delivery of this Joinder Agreement or (b) its obligations under this Joinder Agreement are avoidable as a fraudulent conveyance.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, Newco, the Agent and Lender have duly executed and delivered this Joinder Agreement as of the day and year first
above written.
NEWCO:
AURIS MEDICAL HOLDING AG
Meyer___________
Meyer_______
By: ___/s/ Thomas
Name: ____Thomas
Its: Chairman & CEO________
Accepted in Palo Alto, California:
AGENT:
HERCULES CAPITAL, INC.
Choe______________
Name: _____Jennifer Choe__________
Its: __Assistant General Counsel___
By: ____/s/ Jennifer
LENDER:
HERCULES CAPITAL, INC.
Choe_______________
Name: ____Jennifer Choe__________
Its: ___Assistant General Counsel___
By: ___/s/ Jennifer
Share Transfer Agreement
dated as of 9 February 2018
by and between
Thomas Meyer (TM)
Birkenweg 6, 4528 Zuchwil, Switzerland
and
Auris Medical Holding AG (the Company)
Bahnhofstrasse 21, 6300 Zug, Switzerland
regarding
Merger Share Allocation
#90487194v3
EXECUTION VERSION
(TM and the Company each a Party, and together the Parties)
1
Share Transfer Agreement
Preamble
A.
B.
TM is the founder, CEO and Chairman of the board of directors (the Board) of the Company.
The Company is a stock corporation under Swiss law in accordance with article 620 et seq. of the Swiss Code of Obligations (CO), with
registered seat in Zug (identification no. CHE-108.297.413). The share capital of the Company amounts to CHF 24,469,555.60, divided
into 61,173,889 fully paid-in registered shares with a nominal value of CHF 0.40 each (each an Auris Share and together the Auris
Shares).
C.
The Board plans to call a shareholders’ meeting of the Company in which the shareholders are requested to approve a merger of the
Company into Auris Medical NewCo Holding AG (NewCo), a stock corporation under Swiss law in accordance with article 620 et seq.
CO, with registered seat in Zug (identification no. CHE-474.294.374), as set forth in a certain merger agreement between the Company
and NewCo dated [9 February] 2018 (the Merger Agreement). The share capital of the NewCo amounts to CHF 122,347.76, divided into
6,117,388 fully paid-in registered shares with a nominal value of CHF 0.02 each (each a New Auris Share and together the New Auris
Shares).
D.
The Auris Shares are listed on the Nasdaq Capital Market (Nasdaq) under the ticker symbol “EARS”. Immediately following
consummation of the Merger Agreement, the New Auris Shares will be listed and traded on Nasdaq in accordance with the listing
application and the applicable Nasdaq listing rules.
E.
Under the Merger Agreement, each shareholder of the Company shall receive 1 New Auris Share with a nominal value of CHF 0.02 for 10
Auris Shares with a nominal value of CHF 0.40 each, corresponding to an exchange ratio of 10:1 (the Share Consideration). The Share
Consideration shall not include any fractions of New Auris Shares. If, based on the exchange ratio, shareholders of the Company would
be entitled to a fraction of a New Auris Share, they shall receive 1 New Auris Share for such fraction (the Compensation for Fractions).
#90487194v3
2
F.
For purposes of the Compensation for Fractions, TM considers providing the number of shares required in connection with the exchange
to enable the allocation of a full number of New Auris Shares (such shares, the Rounding Shares), and to avoid allocation of fractions, as
further set forth in this share transfer agreement (the Agreement).
Share Transfer Agreement
Now, therefore, the Parties agree as follows:
1.
Offering and Transfer of Rounding Shares
(a)
TM hereby commits towards the Company (and, as a consequence of the Merger, towards NewCo) to transfer, at no consideration,
Rounding Shares to any person entitled to a fraction as part of the Merger. TM hereby understands and agrees that such eligibility is not
limited to registered shareholders in the Company but also extends to beneficial owners who hold shares in the Company via a broker or
other nominee.
(b)
The record date to establish the relevant number of Rounding Shares shall be March 9 2018, 6pm ET.
(c)
The exact number of Rounding Shares shall be confirmed by the Company and its agents, respectively, and communicated to TM
immediately thereafter.
(d)
The transfer of Rounding Shares shall be effected no later than the effective date of the Merger, i.e. on or around 12 March 2018.
(e)
In view of such transfer of Rounding Shares, TM shall take any necessary actions and execute any documents necessary or advisable to
effect such transfers and, for such purposes, hereby authorizes and empowers the Company to arrange for such transfers.
(f)
TM acknowledges that that current figures/numbers relating to the share capital, the number of shares issued and the nominal value of the
shares in NewCo remain subject to changes/adjustments to reflect possible increases in the Company’s share capital as a result of any
exercised options/warrants issued by the Company.
#90487194v3
3
2.
Representation by TM
TM represents that he has valid legal title to the Rounding Shares, free from any third party rights. Except as expressly set forth herein,
TM does not represent or warrant in any way as to the value of, or any other matter concerning the Rounding Shares transferred
Share Transfer Agreement
hereunder.
3.
Condition
The transfer of any Rounding Shares shall be subject to the effectiveness of the Merger. Accordingly, no Rounding Shares shall be
transferred to any party without the registration of the Merger in the commercial register, as evidenced in the excerpt of the day register
(Tagebuchauszug) which shall be issued by the commercial register on or around 12 March 2018.
4.
Consideration
TM shall receive no consideration or compensation for any Rounding Shares or any services by TM relating to the offering and transfer of
such Rounding Shares.
5.
Further Provisions
5.1.
No Assignment
Neither Party shall assign or transfer this Agreement or any of its rights or obligations hereunder, in whole or in part, to any third party
without the prior written consent of the other Party. Any (attempted) assignment or transfer in violation of this Section 5.1 shall be void.
5.2.
Amendments and Waiver
This Agreement may only be modified or amended by a document signed by all Parties. Any waiver by a Party of any provision or of any
rights under this
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4
Agreement shall not be valid unless given in a document signed by such Party. Any changes to the provisions of this Section 5.2 shall also
not be valid unless documented in writing.
Share Transfer Agreement
5.3.
Costs
The Company shall bear the costs in connection with the drafting, negotiation and the execution of this Agreement and the completion of
the transactions contemplated in this Agreement. The Company shall indemnify TM from and against, and shall reimburse TM with
respect to any taxes levied from TM, and any losses (other than those explicitly provided for in this Agreement), damages, or other
liabilities of any kind incurred by TM, in connection with this Agreement or the transactions contemplated hereunder.
5.4.
Severability
If any provision of this Agreement shall be held to be invalid, illegal or unenforceable for any reason, such invalidity, illegality or
unenforceability shall not affect any of the other provisions of this Agreement. In such a case, the Parties shall negotiate and agree on a
substitute provision that best reflects the intentions of the Parties with respect to the invalid, illegal or unenforceable provision, without
being invalid, illegal or unenforceable.
5.5.
Termination
This Agreement shall be automatically terminated if the Merger has not been effected by 31 March 2018.
5.6.
Applicable Law and Jurisdiction
This Agreement shall be governed by and construed in accordance with the substantive laws of Switzerland (to the exclusion of the
Vienna Convention on the International Sale of Goods dated 11 April 1980). Any dispute arising out or in
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connection with this Merger Agreement shall be exclusively referred to the courts competent for the City of Zug, Switzerland.
[SIGNATURES ON NEXT PAGE]
Share Transfer Agreement
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Signatures
Auris Medical Holding AG
Zug, 9 February 2018
Ort, Datum /s/Thomas Meyer
Place, Date Chairman & Chief Executive Officer
Zug, 9 February 2018
Ort, Datum /s/Hernan Levett
Place, Date Chief Financial Officer
TM
Zug, 9 February 2018
Place, Date /s/Thomas Meyer
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Share Transfer Agreement
7
CERTIFICATION
Exhibit 12.1
I, Thomas Meyer, certify that:
1.
I have reviewed this annual report on Form 20-F of Auris Medical Holding AG;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results
of operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-
15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this
report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual report that has materially
affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and
5. The company's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company's auditors and
the audit committee of the company's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the
company's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting.
Date:
March 22, 2018
/s/ Thomas Meyer
Thomas Meyer
Chief Executive Officer
Exhibit 12.2
I, Hernan Levett, certify that:
1.
I have reviewed this annual report on Form 20-F of Auris Medical Holding AG;
CERTIFICATION
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has
materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors
and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the company’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial
reporting.
Date:
March 22, 2018
/s/ Hernan Levett
Hernan Levett
Chief Financial Officer
Exhibit 13.1
CERTIFICATION
The certification set forth below is being submitted in connection with Auris Medical Holding AG’s annual report on Form 20-F for the year ended December 31, 2017
(the “Report”) for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63
of Title 18 of the United States Code.
Thomas Meyer, the Chief Executive Officer of Auris Medical Holding AG, certifies that, to the best of his knowledge:
1.
2.
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Auris Medical Holding AG.
Date: March 22, 2018
/s/ Thomas Meyer
Name: Thomas Meyer
Chief Executive Officer
CERTIFICATION
Exhibit 13.2
The certification set forth below is being submitted in connection with Auris Medical Holding AG’s annual report on Form 20-F for the year ended December 31, 2017
(the “Report”) for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63
of Title 18 of the United States Code.
Hernan Levett, the Chief Financial Officer of Auris Medical Holding AG, certifies that, to the best of his knowledge:
1.
2.
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Auris Medical Holding AG.
Date: March 22, 2018
/s/ Hernan Levett
Name: Hernan Levett
Chief Financial Officer