AM-201 proof of concept data is weeks away

Auris Medical Holding 20 August 2019 Update
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Auris Medical Holding

AM-201 proof of concept data is weeks away

Financial update

Pharma & biotech

20 August 2019

Price

US$2.70

Market cap

US$9m

US$1/CHF

Net cash ($m) at 30 June 2019

5.79

Shares in issue

3.3m

Free float

70.4%

Code

EARS

Primary exchange

Nasdaq

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

1.9

(13.5)

(44.8)

Rel (local)

3.7

(15.4)

(46.2)

52-week high/low

US$29.6

US$2.5

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 entering Phase II for vertigo; both are designed to demonstrate proof-of-concept.

Next events

AM-201 Phase Ib top-line readout

Q319

AM-125 Phase IIa interim readout

Q419/Q120

Analysts

Maxim Jacobs

+1 646 653 7027

Nathaniel Calloway

+1 646 653 7036

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

Auris Medical Holding announced in July that the 50-subject AM-201 Phase Ib trial for olanzapine-induced weight gain and somnolence completed enrolment, with top-line data in five dose levels expected in the coming weeks. Due to the positive safety profile seen in the trial so far (efficacy is unknown as the company is blinded), the company is seeking to extend the trial by adding two higher dose cohorts, with data from these expected around Q120. The company has also initiated the 138-patient AM-125 Phase II trial in acute vertigo, with data expected around Q419/Q120.

Year end

Revenue (CHFm)

PBT*
(CHFm)

EPS*
(CHF)

DPS
(CHF)

P/E
(x)

Yield
(%)

12/17

0.0

(25.9)

(10.72)

0.0

N/A

N/A

12/18

0.0

(12.0)

(15.33)

0.0

N/A

N/A

12/19e

0.0

(11.0)

(3.78)

0.0

N/A

N/A

12/20e

0.0

(18.8)

(4.26)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

AM-201 trial fully enrolled, data by the end of Q319

Auris is developing AM-201, an intranasal betahistine formulation, for co-administration with olanzapine to counteract adverse effects such as weight gain and sleepiness. In July, the company announced it completed enrollment of 50 healthy volunteers in its Phase Ib dose escalation trial, which is testing five different dose levels, with data expected in Q319. Due to the positive safety profile seen in the trial so far, the company is seeking to extend the trial and add two higher dose cohorts, with data from these additional dose levels expected around Q120.

TRAVERS trial interim data in Q419/Q120

Auris is developing AM-125, also an intranasal formulation of betahistine, for the treatment of acute vertigo. The Phase II trial, TRAVERS, will include 138 patients with surgically induced acute vertigo following vestibular schwannoma excision. The trial has started enrolling with interim data expected in Q419/Q120.

Tinnitus program to return?

The company announced it has completed the design of a new Phase II/III trial of Keyzilen/AM-101 for acute inner ear tinnitus. Auris is currently seeking feedback from both the FDA and EMA and is exploring non-dilutive funding options.

Valuation: $132.5m or $32.59 per basic share

We have adjusted our valuation to $132.5m or $32.59 per basic share ($20.69 per diluted share), from $131.0m or $32.23 per basic share ($29.49 per diluted share). The total and basic share valuation increased as we rolled forward our NPV and was mitigated in part by lower net cash. The diluted value per share decreased due to the warrants associated with the May 2019 financing. In our forecasts, we model a total of CHF65m (previously CHF57.4m) in financing needs through 2023, which we record as illustrative debt.

Key datapoints coming soon

In March, Auris initiated the AM-201 Phase Ib pharmacokinetics/pharmacodynamics (PK/PD) trial testing intranasal betahistine for the prevention of olanzapine-induced weight gain and somnolence. Fifty healthy volunteers have been enrolled at one site in Europe with data from these 50 subjects expected in the coming weeks. In the data release, we expect information on the primary and secondary endpoints of weight gain and daytime sleepiness, respectively, as well as safety.

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

In its H119 update, the company announced that due to the positive safety profile seen in the trial so far (efficacy is unknown as the company is blinded), the company is seeking to extend the trial by adding two higher dose cohorts (30mg and 40mg), with data from these (if the trial is extended) expected around Q120.

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 characterised by a breakdown in the relation between thought, emotion, and behaviour 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 has begun

Auris also provided an update on its AM-125 clinical program for the treatment of acute vertigo. The TRAVERS trial is a randomized, controlled, double-blind Phase II trial divided into two parts (Exhibit 3) and will include 138 patients in total with surgically induced acute vertigo following 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). Vestibular schwannoma surgery leads to loss of peripheral vestibular input, which triggers acute vertigo.

In Part A of the trial, which has just been initiated, a total of 50 patients will be administered AM-125 or placebo in five dose cohorts three times daily and 16 patients will receive 48mg oral betahistine three times daily (open-label, for reference purposes). Dosing will begin roughly three to four days after surgery. The company plans to report interim data in Q419/Q120 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

50 (experimental)

Five 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

Resuscitating Keyzilen (AM-101)?

Auris also recently announced that it has completed the design of a new Phase II/III trial developing Keyzilen, an otic gel formulation of esketamine hydrochloride, for the treatment of acute inner ear tinnitus. Esketamine (an enantiomer of ketamine) is a small-molecule N-Methyl-D-aspartate (NMDA) receptor antagonist. Cochlear NMDA receptors are activated by the excessive release of neurotransmitters from inner hair cell post-synapses, which become excitotoxic to the primary auditory neuron.2 These excitotoxic events may emanate from acoustic trauma, salicylate toxicity (salicylate is the active component of NSAIDS such as aspirin) or other events associated with sudden deafness. They can also cause activity imbalance between NMDA and non-NMDA receptors, which can lead to hyperactivity of the auditory nerve and thus the initiation of tinnitus activity. Auris Medical has previously conducted two Phase II and two Phase III trials in both the US and Europe investigating the safety and efficacy of Keyzilen for acute inner ear tinnitus. Unfortunately, both Phase III trials missed their primary endpoints. The company believes that changes to the collection of patient reported outcomes, to certain elements of study conduct and the use of a novel method to measure and diagnose tinnitus may help demonstrate Keyzilen’s efficacy in another trial. It is currently seeking feedback from the FDA and EMA on the design of the trial. Also, the company is exploring non-dilutive funding options for the program including partnering, special purpose vehicle financing, grants or a combination of the three. Note that we currently include no value in our model for this potentially late-stage program, but that may change if a viable path forward is determined.

  Bing, D., et al (2015). Cochlear NMDA Receptors as a Therapeutic Target of Noise-Induced Tinnitus. Cellular Physiology and Biochemistry,35(5), 1905-1923.

Valuation

We have adjusted our valuation to $132.5m or $32.59 per basic share ($20.69 per diluted share), from $131.0m or $32.23 per basic share ($29.49 per diluted share). The total and basic share valuation increased as we rolled forward our NPV and was mitigated in part by lower net cash. The diluted value per share decreased due to the warrants associated with the May 2019 financing. As a reminder, in May the company raised approximately $7.6m in net proceeds through the issuance of 440,000 shares of common stock and 1,721,280 in pre-funded warrants. While not all the pre-funded warrants have been exercised, as they are pre-funded we count them as shares in our basic share calculation (the basic share count excluding the non-exercised warrants was 3.3m shares as of June 30). Additionally, there were 2,161,280 warrants associated with the offering, which we have now included in our diluted valuation.

Exhibit 6: Auris Medical 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%

2023

88.73

$25.2

AM-125

Europe

Acute vertigo

Phase I

45%

2022

113.12

$62.8

AM-201

US

Mental health supportive care

Phase I

20%

2024

128.72

$16.4

AM-201

Europe

Mental health supportive care

Phase I

20%

2025

143.85

$22.4

Total

126.73

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

5.79

Total firm value ($m)

132.52

Total basic shares (including pre-funded warrants, m)

4.1

Value per basic share ($)

32.59

Options and warrants (m)

2.3

Total diluted shares (m)

6.4

Value per diluted share ($)

20.69

Source: Auris Medical reports, Edison Investment Research

Financials

Auris recently reported its H119 results (it recently migrated from quarterly to semi-annual reporting). The company reported R&D spend of CHF1.3m for H119 compared to CHF5.0m for H118. CHF1.6m of this decrease reflects the capitalization of direct costs associated with the AM-125 program (R&D expenses would have been CHF2.9m without this capitalization), with the rest of the decrease due to the completion of the late-stage programs. G&A expenditure for the half-year was CHF2.8m, which is up from CHF2.5m in the same period one year ago. Adjusting for the capitalised portion of R&D, our estimates for R&D are roughly the same as they have been previously. Our G&A estimates have increased by CHF1.4m for both 2019 and 2020 due to a higher run rate. Note that the company has reiterated its prior guidance for operating expenditure in the range of CHF10m to CHF13m for FY19.

As of 30 June 2019, Auris had CHF5.8m in cash and equivalents and no debt following the repayment of its CHF1.4m in debt. In our forecasts, we model a total of CHF65m (previously CHF57.4m) in financing needs through 2023, which we record as illustrative debt, to bring the two intranasal betahistine programs to commercialization. This includes an estimate for CHF5m in additional financing this year.

Exhibit 7: Financial summary

CHF000s

2017

2018

2019e

2020e

Year end 31 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

(19,211)

(6,690)

(5,204)

(12,000)

Selling, general & administrative

(5,150)

(4,265)

(5,719)

(5,833)

EBITDA

 

 

 

(24,484)

(11,027)

(10,951)

(17,889)

Operating Profit (before amort. and except.)

 

 

 

(24,361)

(10,954)

(10,923)

(17,861)

Intangible Amortisation

0

0

0

0

Exceptionals/Other

0

0

0

0

Operating Profit

(24,361)

(10,954)

(10,923)

(17,861)

Net Interest

(1,586)

(1,070)

(51)

(900)

Other (change in fair value of warrants)

1,520

690

267

0

Profit Before Tax (norm)

 

 

 

(25,947)

(12,024)

(10,973)

(18,761)

Profit Before Tax (IFRS)

 

 

 

(24,427)

(11,334)

(10,706)

(18,761)

Tax

18

(162)

261

0

Deferred tax

322

1,266

261

0

Profit After Tax (norm)

(25,929)

(12,186)

(10,712)

(18,761)

Profit After Tax (IFRS)

(24,087)

(10,230)

(10,184)

(18,761)

Average Number of Shares Outstanding (m)

2.4

0.8

2.8

4.4

EPS - normalised (CHF)

 

 

 

(10.72)

(15.33)

(3.78)

(4.26)

EPS - IFRS (CHF)

 

 

 

(9.96)

(12.87)

(3.59)

(4.26)

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

 

 

 

1,959

3,812

5,416

5,388

Intangible Assets

1,629

3,535

5,158

5,130

Tangible Assets

253

34

20

20

Other

77

243

238

238

Current Assets

 

 

 

15,868

6,065

4,491

5,352

Stocks

0

0

0

0

Debtors

241

320

301

301

Cash

14,973

5,393

3,965

4,826

Other

653

351

224

224

Current Liabilities

 

 

 

(10,426)

(4,563)

(1,783)

(3,877)

Creditors

(5,884)

(3,127)

(1,783)

(3,877)

Short term borrowings

(4,542)

(1,435)

0

0

Long Term Liabilities

 

 

 

(9,563)

(1,665)

(5,999)

(23,499)

Long term borrowings

(5,584)

0

(5,000)

(22,500)

Other long term liabilities

(3,979)

(1,665)

(999)

(999)

Net Assets

 

 

 

(2,162)

3,649

2,125

(16,636)

CASH FLOW

Operating Cash Flow

 

 

 

(25,827)

(14,447)

(12,100)

(16,639)

Net Interest

1,569

1,053

19

0

Tax

(18)

162

0

0

Capex

(153)

(1,891)

(1,620)

0

Acquisitions/disposals

0

68

0

0

Financing

10,308

15,005

8,701

0

Dividends

0

0

0

0

Other

(2,034)

0

0

0

Net Cash Flow

(16,154)

(50)

(5,000)

(16,639)

Opening net debt/(cash)

 

 

 

(20,078)

(4,847)

(3,958)

1,079

HP finance leases initiated

0

0

0

0

Exchange rate movements

1,316

258

(36)

0

Other

(393)

(1,097)

0

0

Closing net debt/(cash)

 

 

 

(4,847)

(3,958)

1,079

17,717

Source: Auris Medical reports, Edison Investment Research


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.

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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.

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New Zealand

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United Kingdom

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United States

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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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