Exhibit 99.2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This management’s discussion and analysis is designed to provide you with a narrative explanation of our financial condition and results of operations. We recommend that you read this in conjunction with our unaudited condensed consolidated interim financial statements as of and for the six months ended June 30, 2020 and 2019 included as Exhibit 99.1 to this Report on Form 6-K, which have been prepared in accordance with International Accounting Standard (“IAS”) 34, Interim Financial Reporting. We also recommend that you read our management’s discussion and analysis and our audited consolidated financial statements and the notes thereto, which appear in our Annual Report on Form 20-F for the year ended December 31, 2019 (the “Annual Report”) filed with the U.S. Securities and Exchange Commission (the “SEC”) pursuant to the U.S. Securities and Exchange Act of 1934, as amended.
Unless otherwise indicated or the context otherwise requires, all references in this report to “Auris Medical Holding Ltd.” or “Auris,” the “Company,” “we,” “our,” “ours,” “us” or similar terms refer to (i) Auris Medical Holding AG (formerly Auris Medical AG), or Auris Medical (Switzerland), together with its subsidiaries, prior to our corporate reorganization by way of the Merger (as defined below) on March 13, 2018 (i.e. to the transferring entity), (ii) to Auris Medical Holding AG (formerly Auris Medical NewCo Holding AG), together with its subsidiaries after the Merger (i.e. to the surviving entity) and prior to the Redomestication (as defined below) and (iii) to Auris Medical Holding Ltd., a Bermuda company, or Auris Medical (Bermuda), the successor issuer to Auris Medical (Switzerland) under Rule 12g-3(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), after the effective time of the Redomestication, which occurred on March 18, 2019. The trademarks, trade names and service marks appearing in this report are property of their respective owners.
Auris Medical Holding Ltd. is an exempted company incorporated under the laws of Bermuda. We began our operations as a corporation organized in accordance with Swiss law and domiciled in Switzerland under the name Auris Medical Holding AG (“Auris Medical (Switzerland)”). Following shareholder approval at an extraordinary general meeting of shareholders held on March 8, 2019 and upon the issuance of a certificate of continuance by the Registrar of Companies in Bermuda on March 18, 2019, we discontinued as a Swiss company and, pursuant to Article 163 of the Swiss Federal Act on Private International Law and pursuant to Section 132C of the Companies Act 1981 of Bermuda (the “Companies Act”), continued existence under the Companies Act as a Bermuda company with the name “Auris Medical Holding Ltd.” (the “Redomestication”). On March 18, 2019, the common shares of Auris Medical Holding Ltd. began trading on the Nasdaq Capital Market under the trading symbol “EARS”. Our registered office is located at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda. On May 1, 2019, we effected a one-for-twenty reverse share split (the “2019 Reverse Share Split”) of our issued and outstanding common shares. All per share amounts and numbers of common shares in this report reflect the 2019 Reverse Share Split.
Unless indicated or the context otherwise requires, (i) all references in this report to our common shares as of any date prior to March 13, 2018 refer to the common shares of Auris Medical (Switzerland) (having a nominal value of CHF 0.40 per share (pre-2019 Reverse Share Split)) prior to the 10:1 “reverse share split” effected through the Merger, (ii) all references to the our common shares as of, and after, March 13, 2018 and prior to the Redomestication refer to the common shares of Auris Medical (Switzerland) (having a nominal value of CHF 0.02 per share (pre-2019 Reverse Share Split)) after the 10:1 “reverse share split” effected through the Merger (iii) all references to our common shares as of, and after, the Redomestication on March 18, 2019 refer to the common shares of Auris Medical (Bermuda) (having a par value of CHF 0.40 per share) and (iv) the Company’s common shares after May 1, 2019 the date of the Reverse share split have a nominal value of CHF 0.40 each. As of June 30, 2020, we reduced the nominal value of our shares to CHF 0.01 each.
We prepare and report our consolidated financial statements and financial information in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (the “IASB”). None of our financial statements were prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). We maintain our books and records in Swiss Francs. We have made rounding adjustments to some of the figures included in this management’s discussion and analysis. Accordingly, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that precede them. Unless otherwise indicated, all references to currency amounts in this discussion and analysis are in Swiss Francs.
This discussion and analysis is dated as of September 11, 2020.
Overview
We are a clinical-stage biopharmaceutical company focused on the development of novel products that address important unmet medical needs in neurotology and central nervous system disorders. We are focusing on the development of intranasal betahistine for the treatment of vertigo (AM-125) and for the prevention of antipsychotic-induced weight gain and somnolence (AM-201). AM-125 is currently being tested in a Phase 2 clinical trial, and AM-201 was evaluated in a Phase 1b trial with data read-out in May 2020. With AM-301, the Company is developing a nasal spray for protection against airborne pathogens and allergens. In addition, we have two Phase 3 programs under development: (i) Keyzilen® (AM-101), which is being developed for the treatment of acute inner ear tinnitus and (ii) Sonsuvi® (AM-111), which is being developed for the treatment of acute inner ear hearing loss. Sonsuvi® has been granted orphan drug status by the FDA and the EMA and has been granted fast track designation by the FDA.
Recent Developments
Reduction of the nominal value
On June 30, 2020, we reduced the nominal value of our shares from CHF 0.40 to CHF 0.01. The reduction of CHF 0.39 per share was credited to the share premium account.
AM-125 Phase 2 trial in acute vertigo (“TRAVERS”)
The TRAVERS clinical trial was initiated in July 2019 and is expected to enroll 118 patients that suffer from acute vertigo following certain neurosurgical interventions (vestibular schwannoma resection, vestibular neurectomy or labyrinthectomy).
On September 3, 2020 the Company announced top-line data from Part A of the trial, which enrolled 33 patients suffering from vertigo following neurosurgery who were treated with AM-125 1, 10 or 20 mg or placebo (3 x daily) for four weeks. It demonstrated a dose-dependent improvement in balance as well as good safety and tolerability of ascending doses of AM-125. At the highest dose of 20 mg (3 x daily), AM-125-treated patients improved their performance of the “Tandem Romberg” and the “Standing on Foam” balance tests from baseline to 14 days post-surgery (primary endpoint) on average 1.9 to 2.4 times more than placebo-treated patients (6.0 vs. 3.1 and 10.5 vs. 4.3 seconds, respectively). In contrast to placebo, the improvement from baseline was statistically significant for AM-125 20 mg and for all active dose groups, respectively (p<0.02 and p<0.01 to p<0.05, respectively). These positive results were supported by similar improvements in additional efficacy measures, including additional objective as well as clinician- and patient-reported outcomes.
Based on the results from the interim analysis, the two highest doses, 10 and 20 mg, were selected by the Company to be tested against placebo in 72 patients in Part B of the trial. The improvement in the “Standing on Foam” test will become the sole primary efficacy endpoint, whereas the improvement in the “Tandem Romberg” test will become the key secondary efficacy endpoint. Prior to starting Part B of the trial, open label testing of oral betahistine for reference purposes will be completed (n=16).
AM-201 Phase 1b trial in antipsychotic-induced weight gain
The Phase 1b clinical trial with AM-201, our investigational drug for the prevention of antipsychotic-induced weight gain and somnolence, was initiated in March 2019 at a single study site in Europe. The trial enrolled healthy volunteers who received either AM-201 or placebo three times daily concomitantly with the antipsychotic drug olanzapine over four weeks.
On October 11, 2019 we announced based on an interim analysis of Part 1 of the trial comprising the first 50 subjects that the safety and tolerability of 5 ascending doses of AM-201 up to 20 mg were favorable and reported first efficacy signals. The trial then proceeded to the next higher and final dose level of 30 mg, which was tested on 30 healthy volunteers. On May 26, 2020 we announced top-line data for the entire trial, which showed good safety and tolerability of AM-201 up to 30 mg as well as a dose-dependent reduction in weight gain. At the highest AM-201 dose, the mean weight gain from baseline to the end of the treatment period was 2.8 kg compared against 3.7 kg in control subjects. The primary efficacy endpoint of mean reduction in weight gain was 0.9 kg and statistically significant (p<0.02; n=81 with pre-specified Bayesian augmented controls). In a next step, following additional pre-clinical testing, the Company intends to file for an IND in 2021.
COVID-19 Pandemic
In December 2019, a novel strain of coronavirus COVID-19 was reported to have surfaced in Wuhan, China. The extent to which COVID-19 may impact our preclinical and clinical trial operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration and geographic reach of the outbreak, the severity of COVID-19, and the effectiveness of actions to contain and treat COVID-19. For example, the COVID-19 outbreak delayed enrollment of patients into our “TRAVERS” phase 2 trial with AM-125. Candidates for participation in this trial undergo certain types of neurosurgery, which are classified as elective procedures. Due to the COVID-19 outbreak, many sites participating in the “TRAVERS” trial postponed elective procedures and temporarily reduced or suspended clinical research activities. As a result, enrollment came to a halt towards the end of March 2020. Following an interruption of a few weeks, a growing number of trial sites have resumed recruitment in European countries; however, there remain several sites that could either not start enrollment or had to suspend enrollment due to COVID-19 related restrictions.
The continued spread of COVID-19 globally could otherwise adversely impact our clinical trial operations, including our ability to recruit and retain patients and principal investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19 if an outbreak occurs in their geography. Disruptions or restrictions on our ability to travel to monitor data from our clinical trials, or to conduct clinical trials, or the ability of patients enrolled in our studies to travel, or the ability of staff at study sites to travel, as well as temporary closures of our facilities or the facilities of our clinical trials partners and their contract manufacturers, would negatively impact our clinical trial activities. In addition, we rely on independent clinical investigators, contract research organizations and other third-party service providers to assist us in managing, monitoring and otherwise carrying out our preclinical studies and clinical trials, including the collection of data from our clinical trials, and the outbreak may affect their ability to devote sufficient time and resources to our programs or to travel to sites to perform work for us. Similarly, our preclinical trials could be delayed and/or disrupted by the outbreak. As a result, the expected timeline for data readouts of our preclinical studies and clinical trials and certain regulatory filings may be negatively impacted, which would adversely affect our ability to obtain regulatory approval for and to commercialize our product candidates, increase our operating expenses and have a material adverse effect on our financial results. Finally, the COVID-19 outbreak and its impact on the global financial markets may limit our ability to raise additional funds to continuously fund our operations and complete the research and development of all of our product candidates.
Initiating development program for protection against airborne pathogens and allergens
On September 8, 2020, the Company announced the launch of the development of AM-301, a drug-free nasal spray for protection against airborne pathogens and allergens, based on positive data obtained in a SARS-CoV-2 assay. The experiment showed that contact of AM-301’s key component at different concentrations with a virus suspension allowed to reduce the viral infectious load by up to 99%. The Company believes that AM-301 will be regulated and marketed as an “over-the-counter” medical device and intends to market it in collaboration with partners. Following the conduct of further studies in safety and efficacy, the Company is targeting submission of regulatory applications to the U.S. Food and Drug Administration (“FDA”) and regulatory authorities in other jurisdictions in 2021. The Company plans to initiate discussions with regulatory authorities regarding the regulatory pathway for AM-301 shortly. For project AM-301, Auris Medical set up a new subsidiary, Altamira Medica Ltd. (“Altamira”), based in Zug, Switzerland, and obtained funding through a CHF 1.5 m convertible loan agreement with FiveT Capital Holding AG (“FiveT”). The loan may be converted by FiveT into common shares of either Altamira or Auris Medical Holding Ltd., subject to additional provisions and certain restrictions.
Redomestication
On March 18, 2019, we changed our jurisdiction of incorporation from Switzerland to Bermuda. We discontinued as a Swiss company and, pursuant to Article 163 of the Swiss Federal Act on Private International Law and pursuant to Section 132C of the Companies Act, continued our existence under the Companies Act as an exempted company incorporated in Bermuda. We changed our name from “Auris Medical Holding AG” to “Auris Medical Holding Ltd.” in connection with the Redomestication. Our common shares continued to trade on the Nasdaq Capital Market after the Redomestication under the symbol “EARS.”
2019 Reverse Share Split
On April 30, 2019, we announced a reverse share split (the “2019 Reverse Share Split”) of our common shares at a ratio of one-for-twenty. The 2019 Reverse Share Split took effect at 12:01 a.m. (Eastern Time) on May 1, 2019, and our common shares began to trade on a post-split basis at the market open on May 1, 2019. When the reverse share split became effective, every 20 of our pre-split issued and outstanding common shares, par value 0.02 per share, were combined into one common share, par value CHF 0.40 per share. Effecting the 2019 Reverse Share Split reduced the number of our issued and outstanding common shares from 38,095,859 common shares to 1,904,789 common shares. It also simultaneously adjusted outstanding options issued under our equity incentive plan and outstanding warrants to purchase common shares. All per share amounts and numbers of common shares in this management’s discussion and analysis reflect the 2019 Reverse Share Split.
Defining Development Plan and Regulatory Pathway for AM-101
On April 25, 2019, we announced that we had completed the design of a pivotal Phase 2/3 trial for our late-stage Keyzilen® (AM-101) program. The trial shall, in two stages, reaffirm the compound’s efficacy in the treatment of acute tinnitus following traumatic cochlear injury and provide confirmatory efficacy data to support a filing for marketing authorization. It will incorporate learnings from the four late-stage trials, TACTT2, TACTT3, AMPACT1 and AMPACT2, notably with regard to the collection of patient reported outcomes and certain elements of study conduct. In addition, it will explore the use of a novel method for objective tinnitus diagnosis and measurement. We have solicited advice on the development plan and regulatory pathway from the U.S. Food and Drug Administration (“FDA”) in the context of a Type C meeting and from the European Medicines Agency (“EMA”) in the context of a Scientific Advice procedure. We aim to implement the further development of Keyzilen® as well as our early-stage tinnitus programs with non-dilutive funding.
Funding options which are under consideration include: strategic partnering, special purpose vehicle financing, grant funding or a combination thereof.
Nasdaq Listing Requirements
On April 21, 2020, we received a letter from the Listings Qualifications Department of The Nasdaq Capital Market (“Nasdaq”) notifying us that our minimum bid price per share of our common shares was below USD 1.00 for a period of 30 consecutive business days as required by Nasdaq’s continued listing requirements. Given extraordinary market conditions, Nasdaq determined to toll the compliance periods for the bid price and market value of publicly held shares through June 30, 2020. In addition, the Company has a compliance period of 180 calendar days (the “Compliance Period”), commencing on July 1, 2020 and ending on December 28, 2020, to regain compliance with Nasdaq’s minimum bid price requirement. On August 20, 2020, we announced that we had regained compliance with the Nasdaq minimum USD 1.00 bid price requirement.
Previously, on February 6, 2019, we had received a letter from Nasdaq stating that due to our continued non-compliance with the minimum USD 1.00 bid price requirement, our common shares were subject to delisting unless we timely requested a hearing before the Nasdaq Hearings Panel (the “Panel”). On April 15, 2019, we announced that the Panel granted the Company’s request for the continued listing of the Company’s securities on Nasdaq and that the Company’s continued listing on Nasdaq was subject to the Company evidencing compliance with the minimum USD 1.00 bid price requirement on or before August 5, 2019. On May 23, 2019, we announced that we had regained compliance with the Nasdaq minimum USD 1.00 bid price requirement following the 2019 Reverse Share Split. Nasdaq has closed the matter.
Amendment of Hercules Loan and Security Agreement
On January 31, 2019, we made the final payment to Hercules Capital, Inc. (“Hercules”) under our Loan and Security Agreement with Hercules, dated July 19, 2016 (the “Loan and Security Agreement”), comprising the last amortization payment as well as an end of term charge. With the final payment, all covenants and collaterals in favor of Hercules were lifted. In addition, Hercules agreed to return the warrant held by Hercules exercisable for 783 common shares at an exercise price of USD 788.00 per common share for no consideration to us in exchange for our payment to Hercules.
Capital Increase
In the first half 2020, we issued 450,000 of our common shares under the 2020 Commitment Purchase Agreement to LPC for an aggregate amount of USD 430,035 and 73,015 common shares under the A.G.P. Sales Agreement for an aggregate amount of USD 110,488. Between July 1, 2020 and September 11, 2020 the Company issued 750,000 common shares to LPC for aggregate proceeds of USD 678,120 and 1,229,012 common shares under the A.G.P. Sales Agreement for gross proceeds of USD 1,414,381. Pursuant to the A.G.P. Sales Agreement, we may sell common shares up to a maximum aggregate offering price of USD 25.0 million. As of September 11, 2020, we have sold 1,431,818 of our common shares for an aggregate offering price of USD 2,856,719. Under the 2020 Commitment Purchase Agreement we may sell common shares to LPC up to a maximum offering price of USD 10.0 million. As of September 11, 2020 we have sold 1,200,000 of our common shares for an aggregate offering price of USD 1,108,155.
On May 15, 2019, we closed our registered offering of 440,000 common shares, pre-funded warrants to purchase 1,721,280 common shares and warrants to purchase 2,161,280 common shares. We refer to such offering of common shares as the “May 2019 Registered Offering.”
As of September 11, 2020, our outstanding and issued fully paid-in share capital consisted of CHF 70,895.12, divided into 7,089,512 common shares with a par value of CHF 0.01 each and no preferred shares.
Asset Purchase
On May 14, 2019, one of our subsidiaries entered into an agreement to purchase patents related to the use of betahistine for the treatment of depression and attention-deficit / hyperactivity disorder (ADHD).
Collaboration and License Agreements
There have been no material changes to our collaboration and license agreements from those reported in “Item 5—Operating and Financial Review and Prospects–Operating results—Collaboration and License Agreements” in the Annual Report.
Research and Development Expense
Our research and development expense is highly dependent on the development phases of our research projects and therefore may fluctuate substantially from period to period. Our research and development expense mainly relates to the following key programs:
| | ● | AM-125 for Vertigo. We are evaluating intranasal betahistine for the treatment of acute vertigo in the Phase 2 TRAVERS clinical trial. On September 3, 2020 the Company announced top-line data from Part A of the trial, which enrolled 33 patients suffering from vertigo following neurosurgery who were treated with AM-125 1, 10 or 20 mg or placebo (3 x daily) for four weeks. It demonstrated a dose-dependent improvement in balance as well as good safety and tolerability of ascending doses of AM-125. At the highest dose of 20 mg (3 x daily), AM-125-treated patients improved their performance of the “Tandem Romberg” and the “Standing on Foam” balance tests from baseline to 14 days post-surgery (primary endpoint) on average 1.9 to 2.4 times more than placebo-treated patients (6.0 vs. 3.1 and 10.5 vs. 4.3 seconds, respectively). In contrast to placebo, the improvement from baseline was statistically significant for AM-125 20 mg and for all active dose groups, respectively (p<0.02 and p<0.01 to p<0.05, respectively). These positive results were supported by similar improvements in additional efficacy measures, including additional objective as well as clinician- and patient-reported outcomes. Based on the results from the interim analysis, the two highest doses, 10 and 20 mg, were selected by the Company to be tested against placebo in 72 patients in Part B of the trial. The improvement in the “Standing on Foam” test will become the sole primary efficacy endpoint, whereas the improvement in the “Tandem Romberg” test will become the key secondary efficacy endpoint. Prior to starting Part B of the trial, open label testing of oral betahistine for reference purposes will be completed (n=16). |
| ● | AM-201 for Antipsychotic-Induced Weight Gain. We evaluated intranasal betahistine in a Phase 1b clinical in the prevention of antipsychotic-induced weight gain and somnolence. The study was initiated in March 2019 at a single site in Europe. The trial enrolled 80 healthy volunteers who received either AM-201 or placebo three times daily concomitantly with the antipsychotic drug olanzapine over four weeks. Following an interim analysis in October 2019 we continued dose escalation and reported top line data for the whole trial in May 2020. The study showed good safety and tolerability of AM-201 up to 30 mg as well as a dose-dependent reduction in weight gain. At AM-201 30 mg, the mean weight gain from baseline to the end of the treatment period was 2.8 kg compared against 3.7 kg in control subjects. The primary efficacy endpoint of mean reduction in weight gain was 0.9 kg and statistically significant (p<0.02; n=81 with pre-specified Bayesian augmented controls). In a next step, following additional pre-clinical testing, the Company intends to file for an IND in 2021. |
| ● | Sonsuvi® (AM-111) for Acute Inner Ear Hearing Loss. Following the results from the HEALOS Phase 3 trial, we submitted the design of a new pivotal trial with AM-111 0.4 mg/mL in patients suffering from acute profound hearing loss to the EMA and subsequently also to the FDA for review. Through a Protocol Assistance procedure the EMA endorsed the proposed trial design, choice of efficacy and safety endpoints, as well as the statistical methodology. In a Type C meeting with written responses, the proposed choice of primary and secondary efficacy endpoints, the safety endpoints, as well as the planned sample size and statistical methodology were also endorsed by the FDA. We aim to implement the further development of Sonsuvi® with non-dilutive funding. Funding options which are under consideration include: strategic partnering, special purpose vehicle financing, grant funding or a combination thereof. Pending such funding, we expect our research and development expenses in connection with the Sonsuvi® program to remain minimal. |
| ● | Keyzilen® (AM-101). Following the results from the TACTT3 Phase 3 trial, we have completed the design of a pivotal Phase 2/3 trial for our late-stage Keyzilen® program. The trial shall, in two stages, reaffirm the compound’s efficacy in the treatment of acute tinnitus following traumatic cochlear injury and provide confirmatory efficacy data to support a filing for marketing authorization. It will incorporate learnings from the four late-stage trials, TACTT2, TACTT3, AMPACT1 and AMPACT2, notably with regard to the collection of patient reported outcomes and certain elements of study conduct. In addition, it will explore the use of a novel method for objective tinnitus diagnosis and measurement. We have obtained advice on the development plan and regulatory pathway from the U.S. Food and Drug Administration (“FDA”) in the context of a Type C meeting and from the European Medicines Agency (“EMA”) in the context of a Scientific Advice procedure. We aim to implement the further development of Keyzilen® as well as its early-stage tinnitus programs with non-dilutive funding. Funding options which are under consideration include: strategic partnering, special purpose vehicle financing, grant funding or a combination thereof. Pending such funding, we expect our research and development expenses in connection with the Keyzilen® program to remain minimal. |
Other research and development expenses mainly relate to our pre-clinical studies of AM-102 (second generation tinnitus treatment). The expenses mainly consist of costs for synthesis of the pre-clinical compounds and costs paid to academic and other research institutions in conjunction with pre-clinical testing.
For a discussion of our other key financial statement line items, please see “Item 5—Operating and Financial Review and Prospects–Operating results— Financial Operations Overview” in the Annual Report.
Results of Operations
The numbers below have been derived from our unaudited condensed consolidated interim financial statements as of and for the six months ended June 30, 2020 and 2019. The discussion below should be read along with this financial information, and it is qualified in its entirety by reference to them.
Comparison of the six months ended June 30, 2020 and 2019:
| | | Six months ended
June 30 | | | | |
| | | 2020 | | | 2019 | | | Change | |
| | | (in thousands of CHF) | | | % | |
| Research and development | | | (885 | ) | | | (1,304 | ) | | | (32 | )% |
| General and administrative | | | (1,536 | ) | | | (2,803 | ) | | | (45 | )% |
| Operating loss | | | (2,421 | ) | | | (4,107 | ) | | | (41 | )% |
| Interest expense | | | (3 | ) | | | (25 | ) | | | (87 | )% |
| Foreign currency exchange loss, net | | | (30 | ) | | | (264 | ) | | | (89 | )% |
| Revaluation (loss)/gain from derivative financial instruments | | | 4 | | | | 531 | | | | (99 | )% |
| Transaction costs | | | (220 | ) | | | 0 | | | | 100 | % |
| Loss before tax | | | (2,669 | ) | | | (3,865 | ) | | | (31 | )% |
| Income tax gain | | | 11 | | | | 261 | | | | (96 | )% |
| Net loss attributable to owners of the Company | | | (2,659 | ) | | | (3,604 | ) | | | (26 | )% |
| Other comprehensive income: | | | | | | | | | | | | |
| Items that will never be reclassified to profit or loss | | | | | | | | | | | | |
| Remeasurements of defined benefit liability | | | (78 | ) | | | (116 | ) | | | (33 | )% |
| Items that are or may be reclassified to profit and loss | | | | | | | | | | | | |
| Foreign currency translation differences | | | 16 | | | | 7 | | | | 134 | % |
| Other comprehensive loss | | | (62 | ) | | | (109 | ) | | | 43 | % |
| Total comprehensive loss attributable to owners of the company | | | (2,720 | ) | | | (3,713 | ) | | | (27 | )% |
| | | | | | | | | | | | | |
| Research and development expense | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | Six months ended
June 30 | | | | |
| | | 2020 | | | 2019 | | | Change | |
| | | (in thousands of CHF) | | | % | |
| Clinical projects | | | (251 | ) | | | (303 | ) | | | (17 | )% |
| Pre-clinical projects | | | (133 | ) | | | (137 | ) | | | (3 | )% |
| Drug manufacturing and substance | | | (12 | ) | | | (38 | ) | | | (68 | )% |
| Employee benefits | | | (450 | ) | | | (671 | ) | | | (33 | )% |
| Other research and development expenses | | | (39 | ) | | | (155 | ) | | | (75 | )% |
| Total | | | (885 | ) | | | (1,304 | ) | | | (32 | )% |
Research and development expenses amounted to CHF 0.9 million in the six months ended June 30, 2020. This represents a decrease of about CHF 0.4 million from research and development expenses of CHF 1.3 million for the six months ended June 30, 2019. Research and development expenses reflected the following:
| ● | Capitalization of internal costs for AM-125. In the six months ended June 30, 2020, we capitalized direct costs related to our AM-125 program for a total amount of CHF 0.7 million compared to CHF 1.6 Mio for the six months ended June 30, 2019. |
| ● | Clinical projects. In the six months ended June 30, 2020 clinical expenses were lower than in the six months ended June 30, 2019 by CHF 0.1 million due to lower spending on start-up activities. |
| ● | Pre-clinical projects. In the six months ended June 30, 2020, pre-clinical expenses were at the same level as the year before and related mostly to the AM-125 program. |
| ● | Drug manufacture and substance. In the six months ended June 30, 2020, drug manufacture and substance related costs were minimal due to the capitalization of direct costs in our AM-125 program. |
| ● | Employee benefits. Employee expenses decreased by CHF 0.2 million in the six months ended June 30, 2020 compared to the same period in 2019 due to a lower headcount as well as reimbursements under the Swiss short-time work scheme. |
| ● | Other research and development expenses. Other research and development expenses decreased by CHF 0.1 million in the six months ended June 30, 2020 compared to the same period in 2019 primarily due to a decrease in intellectual property related activities. |
General and administrative expense
| | | Six months ended
June 30 | | | | |
| | | 2020 | | | 2019 | | | Change | |
| | | (in thousands of CHF) | | | % | |
| Employee benefits | | | (522 | ) | | | (780 | ) | | | (33 | )% |
| Lease expenses | | | (11 | ) | | | (13 | ) | | | (12 | )% |
| Business development | | | (1 | ) | | | (97 | ) | | | (99 | )% |
| Travel and representation | | | (18 | ) | | | (103 | ) | | | (83 | )% |
| Administration costs | | | (969 | ) | | | (1,796 | ) | | | (46 | )% |
| Depreciation tangible assets | | | (3 | ) | | | (6 | ) | | | (56 | )% |
| Capital tax expenses | | | (13 | ) | | | (8 | ) | | | 61 | % |
| Total | | | (1,536 | ) | | | (2,803 | ) | | | (45 | )% |
General and administrative expense amounted to CHF 1.5 million in the six months ended June 30, 2020 compared to CHF 2.8 million in the same period in the previous year. Administration costs decreased mainly due to lower consultancy costs (Redomestication in the previous period) and lower headcount.
Interest expense
Interest expense decreased in the six months ended June 30, 2020 essentially to zero as the loan under the Loan and Security Agreement of Hercules was repaid on January 31, 2019.
Foreign currency exchange gain / (loss), net
For the six months ended June 30, 2020, fluctuations in foreign currency exchange rates resulted in a loss of CHF 0.03 million, compared to a loss of CHF 0.3 million during the same period in the previous year, due to the impact of the appreciation of the USD currency.
Revaluation gain / (loss) from derivative financial instruments
In connection with the Hercules Loan and Security Agreement, we issued Hercules a warrant to purchase up to 1,205 of the Company’s common shares at an exercise price of USUSD 788.00 per share. As of March 13, 2018 following the consummation of the Merger, the warrant was exercisable for 783 common shares at an exercise price of USD 788.00 per common share. On January 31, 2019, the Company made the final payment to Hercules under the facility, comprising the last amortization payment as well as an end of term charge. With the final payment, all covenants and collaterals in favor of Hercules were lifted. In addition, Hercules agreed to return the warrant held by Hercules exercisable for 783 common shares at an exercise price of USD 788.00 per common share for no consideration to the Company in exchange for the Company’s payment to Hercules. This resulted in a gain of CHF 3,804 recorded under Revaluation gain from derivative financial instruments.
On February 21, 2017 we issued 50,000 warrants in connection with the January 2018 Registered Offering, each warrant entitling its holder to purchase 0.70 of a common share at an exercise price of USD 240.00 per common share. Additionally, the underwriter was granted a 30-day option to purchase up to 7,500 additional common shares and/or 7,500 additional warrants, of which the underwriter partially exercised its option for 6,750 warrants. As of March 13, 2018, following the consummation of the Merger, the warrants became exercisable for an aggregate of 39,725 of our common shares, at an exercise price of USD 240.00 per common share. As of June 30, 2020 the fair value of the warrants amounted to CHF 0. The revaluation gain of the derivative for the six months ended June 30, 2020 amounted to CHF 4,353, which is a decrease of CHF 140,225 when comparing to the same period in 2019.
On January 30, 2018 we issued 37,499 warrants in connection with a direct offering of 62,499 common shares, each warrant entitling its holder to purchase one common share at an exercise price of USD 100.00 per common share. As of March 13, 2018, following the consummation of the Merger, the warrants became exercisable for an aggregate of 37,499 of our common shares (assuming we decide to round up fractional common shares to the next whole common share), at an exercise price of USD 100.00 per common share. As of June 30, 2020 the fair value of the warrants amounted CHF 0. The revaluation gain of the derivative for the six months ended June 30, 2020 amounted to CHF 4,353, which is a decrease of CHF 212,060 when comparing to the same period in 2019.
On July 17, 2018 we issued 314,103 Series A warrants and 224,359 Series B warrants in connection with the July 2018 Registered Offering of 897,436 common shares, each warrant entitling its holder to purchase one common share at an exercise price of CHF 7.80 per common share. In accordance with the terms of certain Series B warrants, the exercise price for certain Series B warrants was reduced in two steps to ultimately CHF 1.47. As of June 30, 2019, the number of Series B warrants outstanding subject to revaluation were 34,535 and the fair value of the warrants amounted CHF 0. The Series B warrants expired on June 18, 2020.
On May 15, 2019, we issued 1,721,280 pre-funded warrants and 2,161,280 warrants in connection with the May 2019 Registered Offering of 440,000 common shares, with each pre-funded warrant entitling its holder to purchase one common share at an exercise price of CHF 0.01 and each warrant entitling its holder to purchase one common share at an exercise price of CHF 4.34.
Cash flows
Comparison of the six months ended June 30, 2020 and 2019
The table below summarizes our cash flows for the six months ended June 30, 2020 and 2019:
| | | Six months ended
June 30 | |
| | | 2020 | | | 2019 | |
| | | (in thousands of CHF) | |
| Cash used in operating activities | | | (1,630 | ) | | | (5,255 | ) |
| Net cash used in investing activities | | | (761 | ) | | | (1,620 | ) |
| Net cash from financing activities | | | 1,045 | | | | 7,238 | |
| Net effect of currency translation on cash | | | 1 | | | | 36 | |
| Cash and cash equivalents at beginning of the period | | | 1,385 | | | | 5,393 | |
| Cash and cash equivalents at end of the period | | | 40 | | | | 5,792 | |
Cash and funding sources
On May 15, 2019, the Company completed a public offering of (i) 440,000 common shares with a par value of CHF 0.40 each, together with warrants to purchase 440,000 common shares, and (ii) 1,721,280 pre-funded warrants, with each pre-funded warrant exercisable for one common share, together with warrants to purchase 1,721,280 common shares, including 110,000 common shares and warrants to purchase 110,000 common shares sold pursuant to a partial exercise by the underwriters of the underwriters’ over-allotment option (the “May 2019 Registered Offering”). The exercise price for the pre-funded warrants is CHF 0.01 per common share and for the warrants is CHF 4.34. The net proceeds to us from the May 2019 Registered Offering were approximately USD 7.6 million, after deducting underwriting discounts and other offering expenses payable by us.
On November 30, 2018, the Company entered into a sales agreement, as amended (the “A.G.P. Sales Agreement”) with A.G.P./Alliance Global Partners (“A.G.P.”). Pursuant to the terms of the A.G.P. Sales Agreement, the Company may offer and sell its common shares, from time to time through A.G.P. by any method deemed to be an “at-the-market” offering as defined in Rule 415(a)(4) promulgated under the Securities Act. Pursuant to the A.G.P. Sales Agreement, the Company may sell common shares up to a maximum aggregate offering price of USD 25.0 million. As of September 11, 2020, the Company has sold 1,431,818 of its common shares for an aggregate offering price of USD 2.9 million pursuant to the A.G.P. Sales Agreement.
On July 17, 2018 the Company completed a public offering of 897,435 common shares with a nominal value of CHF 0.40 each, Series A warrants each entitling its holder to purchase 0.35 of a common share for an aggregate of 314,102 common shares, and Series B warrants entitling its holder to purchase 0.25 of a common share for an aggregate of 224,358 common shares (the “July 2018 Registered Offering”). The exercise price for both series Warrants at the time of the July 2018 Registered Offering was CHF 7.80 per common share. In accordance with the terms of certain Series B warrants, the exercise price for certain Series B warrants was reduced in two steps to ultimately CHF 1.47. The net proceeds to us from the July 2018 Registered Offering were approximately CHF 6.2 million, after deducting underwriting discounts and other offering expenses payable by us.
On April 23, 2020, the Company entered into a purchase agreement and a Registration Rights Agreement with Lincoln Park Capital Fund, LLC (the “2020 Commitment Purchase Agreement”). Pursuant to the purchase agreement, LPC agreed to subscribe for up to USD 10,000,000 of our common shares over the 30-month term of the purchase agreement. Until September 11, 2020, the Company issued 1,200,000 of our common shares to LPC for an aggregate amount of USD 1.1 million. The 2020 Commitment Purchase Agreement replaced the 2018 Commitment Purchase Agreement.
On May 2, 2018 the Company entered into the 2018 Commitment Purchase Agreement and a registration rights agreement (the “2018 Registration Rights Agreement”) with Lincoln Park Capital Fund, LLC (“LPC”). Pursuant to the 2018 Commitment Purchase Agreement, LPC agreed to purchase common shares for up to USD 10,000,000 over the 30-month term of the 2018 Commitment Purchase Agreement. As of April 7, 2020, the Company has issued an aggregate of 2,820,000 common shares for aggregate proceeds of USD 1.8 million to LPC under the 2018 Commitment Purchase Agreement.
On January 30, 2018, the Company completed a public offering of 62,499 common shares with a nominal value of CHF 0.40 each and concurrent offering of 37,499 warrants, each warrant entitling its holder to purchase one common share (the “January 2018 Registered Offering”). The net proceeds to the Company from the January 2018 Registered Offering were approximately CHF 4.5 million, after deducting placement agent fees and other estimated offering expenses payable by the Company. As of March 13, 2018, following the consummation of the Merger, the outstanding warrants issued in the January 2018 Registered Offering were exercisable for up to 37,499 common shares (assuming the Company rounds up fractional common shares to the next whole common share) at an exercise price of USD 100.00 per common share.
Due to the COVID pandemic, Swiss banks granted special COVID-19 loans under certain conditions with a guarantee by the Swiss Government. Our Company was eligible for a loan of CHF 50,000, which was granted on March 26th, 2020. The loan is interest-free and may be repaid at any time with a maximum term of five years.
We have no other ongoing material financial commitments, such as lines of credit or guarantees that are expected to affect our liquidity over the next five years, other than leases.
Funding requirements
We expect our total cash need in 2020 to be in the range of CHF 7.0 to 8.5 million to cover our expected total operating expenses in the range of CHF 4.5 to 5.5 million and our expected capitalized research and development costs of CHF 2.5 to 3.0 million. The existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements until the year end 2020. In addition, we anticipate that the issuance of our common shares under the 2020 Commitment Purchase Agreement and the A.G.P. Sales Agreement will enable the Company to further fund its operations and capital requirements. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. Our future funding requirements will depend on many factors, including but not limited to:
| ● | the scope, rate of progress, results and cost of our clinical trials, nonclinical testing, and other related activities; |
| ● | the cost of manufacturing clinical supplies, and establishing commercial supplies, of our product candidates and any products that we may develop; |
| ● | the number and characteristics of product candidates that we pursue; |
| ● | the cost, timing, and outcomes of regulatory approvals; |
| ● | the cost and timing of establishing sales, marketing, and distribution capabilities; and |
| ● | the terms and timing of any collaborative, licensing, and other arrangements that we may establish, including any required milestone and royalty payments thereunder. |
We expect that we will require additional funding to continue our ongoing clinical development activities and seek to obtain regulatory approval for, and commercialize, our product candidates. If we receive regulatory approval for any of our product candidates, and if we choose not to grant any licenses to partners, we expect to incur significant commercialization expenses related to product manufacturing, sales, marketing and distribution, depending on where we choose to commercialize. Additional funds may not be available on a timely basis, on favorable terms, or at all, and such funds, if raised, may not be sufficient to enable us to continue to implement our long-term business strategy. If we are not able to raise capital when needed, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts.
The Company’s Board has started a process to explore, review and evaluate a broad range of potential strategic alternatives. These alternatives include but are not limited to the partnering of its various clinical and pre-clinical programs, or a sale or merger of the Company, in an effort to unlock the potential of those assets and maximize shareholder value. There can be no assurance the Company’s strategic review will result in the completion of any particular course of action. There is no defined timeline for completion of the review process and the Company does not intend to comment further unless a specific initiative is approved by the Board of Directors, the review process is concluded, or it is otherwise determined that other disclosure is appropriate.
We may raise additional capital through the sale of equity or convertible debt securities. In such an event, your ownership interest will be diluted, and the terms of these new securities may include liquidation or other preferences that adversely affect your rights as a holder of our common shares. We may also seek to refinance out outstanding indebtedness.
For more information as to the risks associated with our future funding needs, see “Item 3—Key Information—Risk factors” in the Annual Report.
Contractual Obligations and Commitments
The following table presents information relating to our contractual obligations as of June 30, 2020:
| | | Payments Due by Period | |
| | | Less Than 1 | | | Between 1 | | | Between 3 | | | | |
| | | Year | | | and 3 Years | | | and 5 | | | Years Total | |
| | | | | | (in thousands of CHF) | | | | |
| Lease obligations (1) | | | 20 | | | | — | | | | — | | | | 20 | |
| Loan (2) | | | — | | | | — | | | | 50 | | | | 50 | |
| Total | | | 20 | | | | — | | | | 50 | | | | 70 | |
| (1) | Lease obligations consist of payments pursuant to operating lease agreements relating to leases of our office space and are not accounted for on the balance sheet. The lease term is indefinite and can be terminated with a six month notice period. |
| (2) | In March 2020 the Company obtained an interest-free “COVID-19” loan from UBS Switzerland, guaranteed by the Swiss government. The loan may be repaid at any time with a maximum term of 5 years. |
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 USD 200,000 subject to reaching certain development outcomes.
Off-Balance Sheet Arrangements
As of the date of this discussion and analysis, we do not have any, and during the periods presented we did not have any, off-balance sheet arrangements except for the Operating Lease mentioned in “Item 5—Operating and Financial Review and Prospects—Tabular disclosure of contractual obligations” in the Annual Report.
Significant Accounting Policies and Use of Estimates and Judgment
There have been no material changes to the significant accounting policies and estimates described in “Item 5—Operating and Financial Review and Prospects–Operating results—Significant accounting policies and use of estimates and judgment” in the Annual Report.
Recent Accounting Pronouncements
See Note 4 to our audited financial statements 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.
Cautionary Statement Regarding Forward Looking Statements
Forward-looking statements appear in a number of places in this discussion and analysis 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:
| ● | 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 and the possibility that we may be unable to raise additional capital when needed, particularly in light of the global outbreak of the novel coronavirus, which continues to evolve; |
| ● | 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 AM-125, AM-201, Keyzilen® (AM-101) and Sonsuvi® (AM-111), which are still in clinical development, may eventually prove to be unsuccessful; |
| ● | 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, particularly in light of the global outbreak of the novel coronavirus, which continues to evolve; |
| ● | 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 product candidates 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 Sonsuvi®, 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; |
| ● | 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 set forth in our most recent Annual Report on Form 20-F. |
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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