Auris Medical Holding AG (NASDAQ:EARS) Q4 2018 Earnings Conference Call March 14, 2019 8:00 AM ET
Thomas Meyer - CEO
Hernan Levett - CFO
Conference Call Participants
Jim Molloy - AGP
Briana Warschun - Edison Group
Good morning, and welcome to Auris Medical's Conference Call. On today's call, Thomas Meyer, Auris Medical's Chairman and Chief Executive Officer and Hernan Levett, Auris Medical's Chief Financial Officer will present the company's financial results for the Fourth Quarter and Full Year of 2018 and provide a business update. The accompanying slides can be found on our website in the Investors section.
Earlier today, Auris Medical issued a news release with the fourth quarter and full year 2018 results as well as a business update. The release is available on the company's website aurismedical.com and filed with the SEC.
During today’s call, we will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include statements that address future operating, financial, or business performance, or our strategies or expectations. Forward-looking statements are based on management’s current expectations and beliefs, and involve significant risks and uncertainties that could cause actual results, developments, and business decisions to differ materially from those contemplated by those statements.
Those risks and uncertainties include, but are not limited to, the timing and conduct of our clinical trials, the clinical utility of our product candidates, the timing or likelihood of regulatory filing and approvals, our intellectual property position, and our financial position, as well as those described in the risk factors section in our annual report on the Form 20-F, and future filings with the Securities and Exchange Commission.
In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. While we may elect to update those forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our views change.
With that, I'll hand the call over to Thomas Meyer.
Thank you, operator. Good morning to our listeners in the US and good afternoon to our listeners in Europe. Welcome to Auris Medicals fourth quarter and full year 2018 earnings and business update call. I would like to start the call today with a brief overview of the recent key developments at Auris Medical. Then I will go into more detail on the following slides.
The highlight of the fourth quarter 2018 was certainly the readout from the phase 1 trial for our Intranasal Betahistine program, which showed and confirmed superior bioavailability compared to all Betahistine as well as good safety and tolerability of repeated dosing of Intranasal Betahistine. Since then, we have been busy preparing two proof-of-concept studies with Intranasal Betahistine, one for AM-125 in acute vertigo and the other for AM-201 in antipsychotic induced weight gain.
Both studies will initiate soon and we expect final results for the AM-201 study and interim results for the AM-125 study in the second half of 2019. For AM-111 program in acute hearing loss, we launched the formal partnering process in Q4. Earlier this week, we were also pleased to announce the publication of detailed results from the HEALOS phase 3 trial. In the AM-101 program in acute inner ear tinnitus, we defined the development path forward.
In addition to the progress with our development programs, we have also made important strides operationally and financially. We reduced operating and financial expenses, and improved our corporate flexibility, particularly with the benefit of the recent repayment of the Hercules loan facility and the planned redomiciliation on the Bermuda law, we are in a better position now to grow the business and focus on creating shareholder value.
Moving to slide 3 and 4, I will start the program update with AM-125 Intranasal Betahistine for treatment of acute vertigo. As a reminder, oral Betahistine is the standard of care treatment for vertigo in many countries around the world. But its therapeutic potential is limited due to its low bioavailability. With AM-125, the preparations for our TRAVERS phase 2 trial are in full swing. The trial will enroll 138 patients suffering from acute vertigo following surgical removal of a vestibular schwannoma.
This is a slow growing tumor behind the inner ear. You can see one example in the MRI scan on the slide. With certain types of this tumor, the surgery will result in immediate and complete loss of vestibular function on the operated side as the vestibular nerve gets cut. As a result, patients are unable to walk or stand, and they have symptoms of acute vertigo, postural instability, nausea, or vomiting.
In the weeks and months thereafter, they usually recover at least part of their vestibular function through central vestibular compensation. This is a very good model to assess a treatment for vertigo, such as AM-125, because the trigger for the vertigo is well known and proper baseline measures can be established. In addition, these are scheduled patients, which facilitates planning and trial conduct.
The primary objective with the treatment is to improve and accelerate vestibular recovery, so that patients are back in control of their balance sooner and to improve patient’s quality of life. For this, we will be using a battery of objective measures. You can see two of the balanced tests on the slide.
In the fourth quarter, the European Medicines Agency endorsed in the context of a scientific advice procedure, the use of the vestibular schwannoma resection model for demonstrating proof of concept with Intranasal Betahistine in the treatment of acute vertigo. The TRAVERS trial will be conducted in several European countries and Canada, involving 15 to 18 sites. The site selection process is essentially completed now and we already received the green light from the relevant regulatory agency in one of the study countries.
We expect to receive feedback from the ethics committee shortly, which will allow us to initiate the trial at the first study site. The study will ramp up during the second quarter, and we expect the readout from the planned interim analysis during this fall.
On to slide 5, the TRAVERS trial will be conducted in two parts, Part A and B. In Part A, five for sending doses of AM-125 or placebo administered three times daily over a total of four weeks will be tested in a total of 50 patients. In addition, oral Betahistine for 8 milligram will be tested in 16 patients under open label conditions for reference. The primary efficacy endpoints will be the time standing on foam and the tandem Romberg test, which were pictured on the previous slide. Based on an interim analysis, two doses will be selected and tested against placebo in an estimated 72 patients in Part B.
Now, I will move on to an update on the AM-201 program on slide 6. With AM-201, we’re seeking to prevent major side effects of second generation antipsychotics such as olanzapine, in particular weight gain and somnolence and drowsiness. These side effects arise from the antagonistic effect of the antipsychotic drugs at histamine 1 receptors in the brain. It is well known that histamine plays a key role in the brain's regulation of food intake and wakefulness. We have been preparing for the phase 1b proof of concept trial with AM-201 in 50 healthy volunteers, who will be treated with the antipsychotic drug, olanzapine.
The trial will be conducted at a single trial site in Europe. And I'm very pleased to say that we have obtained the green light from both the regulatory agency and the local ethics committee without any requests for changes. We’re thus on track to initiate the trial in the first quarter. We expect if all goes well to obtain top line data from the trial during the summer already. The primary efficacy outcome will be the reduction in weight gain. The secondary outcome will be the reduction in somnolence.
On to slide 7. The phase 1b trial will enroll normal weight, healthy male and female volunteers. Olanzapine doses will be titrated up during the first week and then maintained over the following three weeks. Concomitant with olanzapine started participants will receive either Intranasal Betahistine or placebo. As in the TRAVERS trial, Betahistine doses will be escalated in five steps, subjects who do not tolerate olanzapine or who experience a clinically relevant increase in weight gain or hypoglycemia will be discontinued. During the first week, they will be replaced by new participants.
With this, I have concluded the update on AM-201 and I will move to slide 8 to review other developments related to Betahistine. While Betahistine has been used for several decades to treat vertigo, there are other potential therapeutic uses. Histamine is known to play a key role in the regulation of a wide range of behavioral and physiological functions, including appetite, drinking, sleep, wakefulness, learning, attention and memory. With AM-201, we're already addressing antipsychotic induced weight gain besides vertigo.
Prader-Willi Syndrome is a rare genetic disorder, characterized by progressive obesity, behavioral issues, delayed cognition and sleep disturbances that represents another potential indication for Betahistine. In the fourth quarter, we acquired a US orphan drug designation for Betahistine in the treatment of obesity associated with Prader-Willi Syndrome. Emerging research suggests positive effects of histamine 3 receptor inhibition on cognitive disability and excessive daytime sleepiness.
Betahistine acts as an histamine 3 receptor antagonist and uniquely also as an agonist at the histamine 1 histamine receptor, which plays a crucial role in the regulation of food intake. In addition to Prader-Willi Syndrome, we also see potential Betahistine in treatment of atypical depression and attention deficit hyperactivity disorder, short ADHD. For these indications, we entered into a binding letter of intent with two inventors to obtain the rights to issue the US patents. We expect to close the transaction in the second quarter of 2019.
A few weeks ago, a peer-reviewed article published in Biological Psychiatry, one of the most highly cited journals in the field of psychiatric neuroscience, presented evidence that Betahistine promotes the retrieval of forgotten memories in mice and human beings. Multiply, it was shown in the study with 38 healthy adult volunteers that high dose treatment Betahistine overall improved the percentage of correct memories, enhanced the retrieval of more difficult items and benefited participants with poor performance on a placebo treatment.
Earlier studies with Betahistine already show positive effects on learning and cognitive function. We are very excited about the many potential therapeutic uses for Intranasal Betahistine. As we progress with our proof of concept trials, we will map our strategy for maximizing the therapeutic and commercial utility of our Intranasal Betahistine platform.
With this, I will now turn to our other development programs. I will begin with AM-111 on slide 9. Earlier this week, we announced that detailed results from the HEALOS phase 3 trial with AM-111 in acute inner ear hearing loss were published in a peer reviewed article in Otology & Neurotology, one of the leading journals in the field of scientific and clinical inner ear research. As a reminder, the HEALOS trial was conducted as a randomized, double-blind, placebo controlled study, evaluating the efficacy, safety and tolerability of AM-111 in 256 patients suffering from severe to profound sudden deafness.
Notably, the study showed in a post hoc analysis a clinically meaningful and statistically significant hearing improvement with AM-111 from baseline to day 28 in a subpopulation of patients with profound hearing loss. This is the patient group most at risk for lifelong hearing impairment. The article will soon become accessible on our website. As previously announced, we have initiated a partnering process for AM-111. This is in line with the company's decision to refocus its development activities on Intranasal Betahistine. The process is being supported by an international transaction advisory forum. We have already engaged in discussions with a number of interested parties and look forward to making further progress in the coming months.
I will conclude my program update with AM-101, moving on to slide 10. We have continued to work on our late stage program with Keyzilen/AM-101 in acute inner ear tinnitus. The TACTT2 and TACTT2 studies as well as the related open label studies AMPACT1 and AMPACT2 provided a wealth of data. Based on in depth analysis, we believe to have a good understanding of the issues arising from elements in the design and conduct of the two TACTT studies. Given the strong unmet medical need among tinnitus suffers as well as the positive data obtained with Keyzilen from non-clinical studies, two phase 2 trials and the two open label AMPACT trials, we have defined a development path to take the program forward. For this, we are currently exploring options for implementing it through partnering and/or non dilutive funding.
This brings me to the end of the program update. And I'll hand over the call now to Hernan Levett for the financial update, moving to slide 11.
Thank you, Thomas. Before reviewing our financial results for the fourth quarter and full year of 2018, I would like to note that financial statements are presented in Swiss francs. To help you with interpreting the financials, please note that US dollars and Swiss francs are trading essentially at a rate of 1 to 1.
With this, let's move to slide 12. The company's net loss decreased from CHF4.6 million or CHF1.05 per share in the fourth quarter of 2017 to CHF3.7 million or CHF0.12 per share in the fourth quarter of 2018. Our research and development expenses decreased from CHF4.3 million in the fourth quarter of 2017 to 35,000 in the fourth quarter of 2018. Part of this decrease was due to the capitalization of CHF1.9 million in expenses related to AM-125 in accordance with international accounting standards.
General and administrative expenses decreased from CHF1.2 million in the fourth quarter of 2017 to CHF600,000 in the fourth quarter of 2018. For the full year 2018, the company's net loss amounted to CHF11.5 million or CHF0.72 per share, which compares to a loss of CHF24.4 million or CHF5.58 cents per share in 2017. Over the past few quarters, we have managed to reduce the level of operating expenses significantly and aligned our resources with our strategy of focusing on our Intranasal Betahistine projects.
Research and development expenses decreased from CHF19.2 million in 2017 to CHF6.7 million in 2018. The reduction was mainly driven by the completion of the late stage trials withAM-101 and AM-111. Lower employee related expenses and lower expenses related to drug manufacturing and regulatory affair activities. General and administrative expenses decreased from CHF5.2 million in 2017 to CHF4.3 million in 2018, primarily due to lower headcount and employee benefit related expenses.
Net interest expense also declined from CHF1.6 million in 2017 to CHF1.1 million in 2018, due to lower -- the lower outstanding debt under the Hercules loan facility. We also expect that our operating expenses for 2019 will be in the range of CHF10 million to CHF13 million.
On to slide 13, our cash and cash equivalents at the end of December 2018 amounted to a total of CHF5.4 million. During the fourth quarter of 2018, we raised a total of CHF5.2 million through the exercise of warrants from the July 2018 offering, the sale of shares under the equity line with Lincoln Park Capital, our at the market program as well as two register direct offerings. Shareholders’ equity was 3.6 million at the end of 2018.
Now on slide 14, on January 31, 2019, the company made the final payment under the Hercules loan facility, comprising of the last amortization payment, as well as the end of term charge. All of this, 12 months ahead of the original schedule. With the final payment or covenant collateral in favor of Hercules has been lifted, the repayment will result in significant reduction in the company's interest expense, improves our balance sheet and enhances the company's financial flexibility.
On to slide 15, as previously announced, our board of directors proposed the transfer of the company's headquarters from Zug, Switzerland to Hamilton, Bermuda. This proposal together with a related Memorandum of Continuance and new bylaws under Bermuda Law was filed with the SEC under Form F-4 and approved with an overwhelming majority by an extraordinary general meeting of shareholders held last week. The re-domiciliation is expected to become effective before the end of March of 2019, upon registration of the company with a Registrar of Companies in Bermuda.
While the move may look a little bit unusual, the principal rationale for the re-domiciling is that Bermuda corporate law is much closer to US corporate law than Swiss corporate law. This is particularly impactful when it comes to corporate finance transactions and can result in missed opportunities and unnecessary cost to the company and its shareholders. With the move, we expect to gain more corporate flexibility, achieve cost savings and operate under a jurisdiction that is more familiar to US investors.
That said, Switzerland is a great place to do business, which also is why Auris Medical will remain thoroughly implanted in Switzerland with its operations regardless of the move of the holding company. In connection with the re-domiciliation to Bermuda, we will need to file several updates to existing registration statements, notably related to the equity line or an outstanding from previous equity offerings, our at-the-market program, the shell registration and the employee benefits plan. Let me point out that none of these filings will represent any new equity offering or share issuance plan.
Moving on to slide 16. I will conclude my part with a brief summary of the status of compliance with Nasdaq listing requirements. As previously announced, Nasdaq notified us in early February that due to our non-compliance with a minimum $1 bid price requirement, our common shares were subject to de-listing unless we timely requested the hearing before the Nasdaq Hearings Panel. We have timely requested and have been granted such a hearing. And therefore we intend to present our plan to regain compliance with a minimum $1 bid price requirement in the near term. The hearing will take place in the coming weeks and we will communicate the outcomes of the hearing as soon as they become available.
With that, I would like now to turn the call back to Thomas to conclude our presentation and open the line for questions.
Thank you, Hernan. Now on slide 18, we’ve built momentum throughout 2018 and are starting this year well positioned to execute on our corporate strategy. In 2019, we look forward to several important milestones ahead of us. As mentioned before, we are close to starting enrollment of the first participants into the phase 1b study with AM-201 and to initiating the TRAVERS phase 2 trial with AM-125. If all goes well, the phase 1b study will complete enrollment towards the end of the second quarter and we will see proof of concept data in the summer. Meanwhile, the TRAVERS trial will ramp up and we expect to obtain interim results from the study this fall.
This means that before the end of the year, we'll have proof of concept data from the Intranasal Betahistine program in two indications. Since all Betahistine is currently widely used for the treatment of vertigo and has been tested also in antipsychotic induced weight gain, we are confident that we will obtain interesting results based on the superior bioavailability afforded by Intranasal delivery. In the fourth quarter, we expect to file the IND for AM-201 based on a phase 1b outcomes as well as additional preclinical data. We expect to have additional updates in 2019 from our programs with some Sonsuvi and Keyzilen in acute inner ear hearing loss and acute inner ear tinnitus respectively and look forward to sharing the information when we do.
In conclusion, we feel that we made great progress in 2018 with our Intranasal Betahistine program and repositioning the company around it. 2019 is expected to provide additional validating data and allow us to further map out our strategy for this exciting product. Importantly, we have also managed to significantly reduce expenditure levels, pay off our financial debt and lay the groundwork for improving our corporate finance flexibility.
With that, I would now like to turn the call back to the operator who will open the line for questions.
[Operator Instructions] And your first question is from the line of Jim Molloy.
Hey, guys. Thanks for taking my question. My question is on some of the partnership you mentioned, AM-111 and 101, potential partners, is there a way to characterize where you stand in the partnership discussions? And would there -- is there a chance that there might be any additional spend on those, should you think you need to get some additional data to sort of sign the right partner on the right deal?
Hi, Jim, thank you for the question. So the process was kicked off in the fourth quarter. And while we have been working here with JSB Partners, they support us, they reached out here to a large number of prospective parties. And while we have started, we have engaged in a number of discussions, dialogs here with potentially interested parties. Now this is with regards to different scope here of potential partnering.
So in terms of geography, for example, now, these discussions that are underway in, well, at this point, we prefer not to provide any further color on this. I mean these processes here, they usually take some time. It's also something that is, let's say, a new field, a new therapeutic indication and this also requires some medication for some of the parties. However, while we are confident or optimistic here that we will have some interesting partnering down the road, but I just ask you for some patients here.
Yes, of course. Thank you. And then on the spend, the guidance for 2019, how would you characterize that spend? Is that sort of pretty evenly across the year, back end loaded and that sort of thing?
Hernan, may I ask you to take this question?
Sure, Thomas. Hi, Jim. Good morning to you. The phasing is quite even, like Thomas mentioned during his update. Our focus is going to be on Intranasal Betahistine. The two programs are running parallel tracks, AM-125 and AM-201. And they do coincide that they are starting since Q1. We will start the recruitment and because of that, you can expect a very even phasing in terms of spending in cash burn.
Great, thank you. My final question, looking at slide -- the last slide, the upcoming milestones, the AM-125 interim analysis in the fourth quarter ’19, why don’t you anticipate sort of final top line data?
So, this will be an interim analysis on 50 patients, five doses and we will analyze these data. We will then take two of these doses and test them in the second part against placebo. Now, you can consider the first phase Part A as a kind of phase 2a and the second part as a kind of phase 2b study. So we are planning to make an announcement and share some of the information from that first part as these data will become available.
Okay, my apologies. So I guess that is the – so for Part A, that is the final data, which is the interim of the overall part A, part 2, part A, part B trial.
Yeah, I mean the interim analysis. Yes, I mean, this will be of course, focus primarily on key efficacy outcomes. We will have safety data as well. I mean, the full data obviously will become available only after we will have concluded Part B. But in terms of efficacy and first safety data, we will already have key data at that time.
[Operator Instructions] And we also have a question from the line of Briana Warschun.
Hi, thank you so much for taking my question. So my first question is, will the speed of the TRAVERS trial be dependent on any future financing?
Hi, Briana. No. I mean, the speed of the enrollment, this will be primarily driven by the speed of the ramp up. We have submitted the request here in most of the countries that will participate. Now, some will be quicker than others. So during Q2, we will have most of the ramp-up being completed. That's the expectation and of course then once we have reached, so if you like, a cruising altitude will be at that level. So, we are expecting to have 15 to 18 sites.
Now the good thing about this trial is that these patients, they are actually scheduled patients. So some of them, they’re scheduled months in advance for the surgery, so that allows actually for some visibility and for planning safety. And obviously then Part B will start immediately at cruising altitude too. So I mean Part B will take not as much time as a part A. And while we will do the interim analysis on Part A, we will do the oral patients. So all Betahistine, so we are not losing any time over this, and then we can start right away with Part B.
Okay, great. That was very helpful. And then out of curiosity, is there any wait time between the actual surgery and then dosing the patient?
Yes. Well, after the surgery, as I mentioned, patients are unable to walk or stand and they, very often, they also have quite significant other problems, so there may be a nausea, they may have to vomit. And so they are usually taken to the intensive care unit for the first 24 to 48 hours. And then they're moved to the general ward. And we have, according to the protocol, the start of the dosing after three to four days. So that is at the time when they will have stabilized and they are no longer on antibiotics or other drugs that could potentially interfere. We can do baseline testing. So this is -- there was a gap of about three to four days between the surgery and the start of dosing.
There are no further questions at this time. Please continue.
Okay. Thank you very much, operator and thanks to everyone for joining us for the call today. And as always, take care of your ears and have a great day. Thank you. Bye-bye.
That concludes the presentation today. Thank you for participating. You may disconnect.