Auris Medical Holding — AM-201 data expected in early May

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

healthcare@edisongroup.com

Edison profile page

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
Part A	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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