AM-201 data expected in early May

Auris Medical Holding 21 April 2020 Update
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Auris Medical Holding

AM-201 data expected in early May

Development update

Pharma & biotech

21 April 2020

Price

US$0.81

Market cap

US$4m

US$1/CHF

Net cash ($m) at 31 December 2019

1.38

Shares in issue

4.4m

Free float

82.9%

Code

EARS

Primary exchange

Nasdaq

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(0.8)

(47.6)

(87.1)

Rel (local)

(19.0)

(38.2)

(86.7)

52-week high/low

US$6.40

US$0.70

Business description

Auris Medical is a Swiss biopharmaceutical company developing neurotology and central nervous system targeting therapeutics. It is developing intranasal betahistine in a Phase I trial for mental disorder supportive care and it is in Phase II for vertigo; both are designed to demonstrate proof-of-concept.

Next events

AM-201 Phase Ib final data

May 2020

Analysts

Maxim Jacobs

+1 646 653 7027

Wiktoria O’Hare

+1 646 653 7028

Auris Medical Holding is a research client of Edison Investment Research Limited

Auris has announced that final data from its 80-subject AM-201 Phase Ib trial for olanzapine-induced weight gain and somnolence should be available in early May. The key component of this release will be the data from the final dose level of 30mg in 30 healthy volunteers (we had previously only seen data in patients dosed up to 20mg). Due to the coronavirus, enrolment has been paused in the Phase II TRAVERS trial of 118 patients with surgically induced acute vertigo. Interim data from Part A of that trial now will likely not be available until Q320 at the earliest.

Year end

Revenue (CHFm)

PBT*
(CHFm)

EPS*
(CHF)

DPS
(CHF)

P/E
(x)

Yield
(%)

12/18

0.0

(12.0)

(15.33)

0.0

N/A

N/A

12/19

0.0

(7.3)

(2.43)

0.0

N/A

N/A

12/20e**

0.0

(10.9)

(2.47)

0.0

N/A

N/A

12/21e**

0.0

(17.7)

(3.88)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortization of acquired intangibles, exceptional items and share-based payments. **Note that the company capitalizes a portion of R&D whereas our forecasts do not capitalize such expenses, and hence reported R&D expenses will likely be lower than our forecasts.

Awaiting AM-201 data from high-dose cohort

Auris is developing AM-201, intranasal betahistine, for co-administration with olanzapine to counteract adverse effects such as weight gain and sleepiness. There were initial efficacy signals seen at the 20mg dose and the company continued the trial at 30mg in 30 patients to help confirm the finding.

TRAVERS trial data delay due to coronavirus

Auris is developing AM-125, also an intranasal formulation of betahistine, for the treatment of acute vertigo. The Phase II trial, TRAVERS, will include 118 patients with surgically induced acute vertigo. The trial started enrolling but that was paused in March due to coronavirus. As these are necessary procedures, the company believes they will be conducted once certain restrictions are lifted. Data from part A of the trial is now expected at Q3 at the earliest.

Tinnitus/hearing loss subsidiary formed

In order to facilitate potential partnering, the company formed a new subsidiary, Zilentin, in late 2019. Within Zilentin, Auris bundled its programs for the treatment of tinnitus and hearing loss. These include Keyzilen/AM-101, as well as early stage projects in tinnitus and Sonsuvi/AM-111 in hearing loss.

Valuation: $121.1m or $27.47 per basic share

We are lowering our valuation from $132.5m or $32.59 per basic share ($20.69 per diluted share) to $121.1m or $27.47 per basic share ($16.77 per diluted share). This was mainly due to pushing back our expected launch timing for AM-125 by a year in both the US and EU due to coronavirus related delays. This was mitigated in part by rolling forward our NPVs. As of the end of 2019, Auris had CHF1.4m in cash and equivalents. In our forecasts, we model a total of CHF65m in financing needs through 2024, which we record as illustrative debt.

Development updates

Auris has announced that final data from its 80-subject AM-201 Phase Ib trial of intranasal betahistine for olanzapine-induced weight gain and somnolence should be available in early May. Last October, Auris announced interim data from the first 50 subjects. According to the company, AM-201 demonstrated safety and tolerability and also showed some initial signs of efficacy. In the female study subjects, who showed more pronounced changes than the male study subjects, AM-201 demonstrated a 1.1kg benefit versus placebo over four weeks at the highest dose tested at the time (20mg three times daily). Following this data, the study advanced to the next higher and final dose level of 30mg three times daily cohort, which enrolled 30 subjects.

Exhibit 1: AM-201 Phase I PK/PD trial design

Screening

Olanzapine titration

Maintenance

Male and female healthy volunteers

18–50 years of age

BMI 18–25kg/m2

Titrate up to 10mg (7.5mg) once daily within first week

Replace subjects who do not tolerate olanzapine or gain a clinically relevant amount of weight/high glucose level

Maintain olanzapine dose for three weeks

Source: Auris Medical

As a reminder, olanzapine is approved for the treatment of schizophrenia and bipolar disorder for adolescents and adults in the US and EU. Schizophrenia is a mental disorder characterized by a breakdown in the relation between thought, emotion, and behavior that leads to a false sense of perception, inappropriate actions and feelings, and withdrawal from reality into delusion. The efficacy of olanzapine, which is just one of nine second-generation antipsychotic drugs approved by the FDA for the first-line treatment of schizophrenia and bipolar disorders, is mediated via a combination of dopamine and serotonin type 2 (5HT2) antagonism. Interestingly, olanzapine (and other atypical antipsychotics) is also a histamine-H1 receptor antagonist, which regulates central functions including food intake, body temperature control and circadian rhythm,1 and consequently common side effects of the drug include significant weight gain (see Exhibit 2), drowsiness and somnolence. Because betahistine acts as a partial postsynaptic H1 receptor agonist, the co-administration of oral betahistine with olanzapine may offset some of the undesirable side effects.

  Barak, N., Beck, Y., & Albeck, J. H. (2016). Betahistine decreases olanzapine-induced weight gain and somnolence in humans. Journal of Psychopharmacology,30(3), 237-241.

Exhibit 2: Schizophrenic patients demonstrating more than 7% body weight gain on SGAs

Drug

Percent of patients experiencing weight gain at 12 weeks (%)

Percent of patients experiencing weight gain at 52 weeks (%)

Olanzapine

59.8

80.0

Risperidone

32.5

57.6

Quetiapine

29.2

50.0

Source: Adapted from Patel, J. K., et al. (2009)

AM-125 TRAVERS trial enrollment impacted by coronavirus

Auris also provided an update on its AM-125 clinical program for the treatment of acute vertigo. The trial started enrolling but was paused in March due to coronavirus. Candidates participating in the TRAVERS trial undergo certain types of neurosurgery, which are elective procedures, and elective procedures have generally been postponed due to the COVID-19 outbreak. The company believes the trial will resume and the necessary procedures will be conducted once certain COVID-19 restrictions are lifted.

The TRAVERS trial is a randomized, controlled, double-blind Phase II trial divided into two parts (Exhibit 3) and will include 118 patients in total with surgically induced acute vertigo. The vertigo will generally be caused by the removal of vestibular schwannoma (which is a noncancerous tumor on the main nerve leading from the inner ear to the brain, also known as acoustic neuroma) as this surgery leads to loss of peripheral vestibular input, which triggers acute vertigo. The inclusion criteria was recently expanded to also include patients who undergo a vestibular neurectomy (which severs the vestibular nerve) or a labyrinthectomy (which decreases the function of the labyrinth in the inner ear).

In Part A of the trial, a total of 30 patients will be administered AM-125 or placebo in three dose cohorts three times daily and 16 patients will receive 48mg oral betahistine three times daily (open-label, for reference purposes). Dosing begins roughly three to four days after surgery. The company plans to report interim data from part A (in Q320 at the earliest) and expects to determine a dose-response curve and select a low dose and a high dose of AM-125 for the second part of the trial, which will be measured against placebo. Then in Part B of the trial, the company plans to enroll 72 patients.

Exhibit 3: TRAVERS Phase II trial outline

No. of patients

Dose (three times daily)

Timeframe

Primary endpoints

Secondary endpoints

Part A

30 (experimental)

Three doses up to 20mg with AM-125

Four weeks

Standing on foam, tandem Romberg test

Tandem gait, subjective visual deviation and subjective questionnaires

16 (placebo)

48mg oral betahistine

Part B

72

High dose and low dose (determined by interim analysis) vs placebo

Four weeks

Standing on foam, tandem Romberg test

Tandem gait, subjective visual deviation and subjective questionnaires

Source: Auris Medical

Auris previously demonstrated the superior bioavailability of AM-125, intranasal betahistine, compared to oral betahistine (48mg) in both single and multiple doses (Exhibits 4 and 5) in its Phase I trial. Adverse events (AEs) were mild to moderate, described as transient and included sneezing and nasal congestion, which corresponded to dose. One patient withdrew from the trial due to an AE, but no serious AEs were reported. According to Auris, the maximum tolerated repeated dose based on local tolerability in the nose was identified and set at 40mg; the maximum tolerated single dose was not reached at 60mg.

Exhibit 4: Single-dose AM-125 bioavailability vs oral betahistine

Exhibit 5: Multi-dose AM-125 bioavailability vs oral betahistine

Source: Auris Medical

Source: Auris Medical

Exhibit 4: Single-dose AM-125 bioavailability vs oral betahistine

Source: Auris Medical

Exhibit 5: Multi-dose AM-125 bioavailability vs oral betahistine

Source: Auris Medical

Valuation

We are lowering our valuation from $132.5m or $32.59 per basic share ($20.69 per diluted share) to $121.1m or $27.47 per basic share ($16.77 per diluted share). This was mainly due to pushing back our expected launch timing for AM-125 by a year in both the US and EU due to coronavirus related delays. A lower level of net cash also added to the reduction in value. This was mitigated in part by rolling forward our NPVs.

Exhibit 6: Auris valuation table

Program

Market

Indication

Clinical stage

Probability of success

Launch year

Peak sales ($m)

rNPV ($m)

AM-125

US

Acute vertigo

Phase I

30%

2024

88.73

$21.8

AM-125

Europe

Acute vertigo

Phase I

45%

2023

113.12

$56.8

AM-201

US

Mental health supportive care

Phase I

20%

2024

128.72

$17.4

AM-201

Europe

Mental health supportive care

Phase I

20%

2025

143.85

$23.8

Total

119.74

Net cash and equivalents (As of 30 December 2019) ($m)

1.38

Total firm value ($m)

121.13

Total basic shares (m)

4.4

Value per basic share ($)

27.47

Options and warrants (m)

2.8

Total diluted shares (m)

7.2

Value per diluted share ($)

16.77

Source: Edison Investment Research

Financials

Auris recently reported its 2019 results. The company reported R&D expenses of CHF3.3m for the year (an additional CHF3.2m in R&D spend was capitalized) compared to CHF6.7m in 2018. G&A expenditure for 2019 was CHF3.9m, down from CHF4.3m the year before. We’ve lowered our 2020 R&D estimate from CHF12.0m to CHF7.2m due to the delays in the TRAVERS clinical trial program. We have also lowered our G&A estimates for 2020 from CHF5.8m to CHF3.0m as spending in this category has been lower than we had expected (only CHF1.1m in H219). Note that the company has taken advantage of a short-term work scheme sponsored by the Swiss government that is meant to mitigate the effects of coronavirus, which will help control spending. Some workers are working 50% of the time with the government funding 80% of the remaining 50% of their salaries. The company has guided towards cash needs in 2020 of CHF7.5–10m. We have introduced 2021 estimates, which include R&D expenses of CHF13.2m with relatively stable G&A expenses of just over CHF3.0m. Note that the company capitalizes R&D expenses but our forecasts use uncapitalized R&D expenses so we expect reported R&D will likely be lower (overall cash flow would be unchanged however, as that is not affected by capitalization of R&D expenses).

As of 31 December 2019, Auris had CHF1.4m in cash and equivalents. The company currently has an $8.2m equity purchase agreement with Lincoln Park Capital and an at-the-market (ATM) offering agreement with Alliance Global Partners (AGP), which allows it to sell up to $25m worth of shares. Additionally, there is the possibility of non-dilutive capital inflow coming from a Zilentin-related partnership.

In our forecasts, we model a total of CHF65m in financing needs through 2024, which we record as illustrative debt, to bring the two intranasal betahistine programs to commercialization.

Exhibit 7: Financial summary

CHF'000s

2018

2019

2020e

2021e

Year end 30 December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

0

0

0

0

Cost of Sales

0

0

0

0

Gross Profit

0

0

0

0

Research and development

(6,690)

(3,325)

(7,200)

(13,200)

Selling, general & administrative

(4,265)

(3,934)

(2,950)

(3,009)

EBITDA

 

 

(11,027)

(7,290)

(10,212)

(16,271)

Operating Profit (before amort. and except.)

 

 

(10,954)

(7,259)

(10,181)

(16,240)

Intangible Amortisation

0

0

0

0

Exceptionals/Other

0

0

0

0

Operating Profit

(10,954)

(7,259)

(10,181)

(16,240)

Net Interest

(1,070)

(11)

(700)

(1,500)

Other (change in fair value of warrants)

690

444

0

0

Profit Before Tax (norm)

 

 

(12,024)

(7,270)

(10,881)

(17,740)

Profit Before Tax (IFRS)

 

 

(11,334)

(6,826)

(10,881)

(17,740)

Tax

(162)

194

0

0

Deferred tax

0

0

0

0

Profit After Tax (norm)

(12,186)

(7,076)

(10,881)

(17,740)

Profit After Tax (IFRS)

(11,496)

(6,632

(10,881)

(17,740)

Average Number of Shares Outstanding (m)

0.8

2.9

4.4

4.6

EPS - normalised (CHF)

 

 

(15.33)

(2.43)

(2.47)

(3.88)

EPS - IFRS (CHF)

 

 

(14.46)

(2.28)

(2.47)

(3.88)

Dividend per share (CHF)

0.0

0.0

0.0

0.0

Gross Margin (%)

N/A

N/A

N/A

N/A

EBITDA Margin (%)

N/A

N/A

N/A

N/A

Operating Margin (before GW and except.) (%)

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

3,812

6,852

6,821

6,791

Intangible Assets

3,535

6,766

6,735

6,704

Tangible Assets

34

67

67

67

Other

243

20

20

20

Current Assets

 

 

6,065

2,374

9,684

12,893

Stocks

0

0

0

0

Debtors

320

335

335

335

Cash

5,393

1,385

8,695

11,904

Other

351

654

654

654

Current Liabilities

 

 

(4,563)

(2,278)

(3,008)

(4,004)

Creditors

(3,127)

(2,278)

(3,008)

(4,004)

Short term borrowings

(1,435)

0

0

0

Long Term Liabilities

 

 

(1,665)

(912)

(18,412)

(38,412)

Long term borrowings

0

0

(17,500)

(37,500)

Other long term liabilities

(1,665)

(912)

(912)

(912)

Net Assets

 

 

3,649

6,036

(4,915)

(22,732)

CASH FLOW

Operating Cash Flow

 

 

(14,447)

(8,201)

(10,120)

(16,713)

Net Interest

1,053

1

0

0

Tax

162

(194)

0

0

Capex

(1,891)

(3,019)

(70)

(77)

Acquisitions/disposals

68

0

0

0

Financing

15,005

8,841

0

0

Dividends

0

0

0

0

Other

0

18

0

0

Net Cash Flow

(50)

(2,553)

(10,190)

(16,790)

Opening net debt/(cash)

 

 

(4,847)

(3,958)

(1,385)

8,805

HP finance leases initiated

0

0

0

0

Exchange rate movements

258

(8)

0

0

Other

(1,097)

(12)

0

0

Closing net debt/(cash)

 

 

(3,958)

(1,385)

8,805

25,595

Source: Auris Medical reports, Edison Investment Research


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This report has been commissioned by Auris Medical Holding and prepared and issued by Edison, in consideration of a fee payable by Auris Medical Holding. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

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New Zealand

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United Kingdom

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Germany

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General disclaimer and copyright

This report has been commissioned by Auris Medical Holding and prepared and issued by Edison, in consideration of a fee payable by Auris Medical Holding. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

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Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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