Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

(Mark One)

o
oREGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 2018
OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
OR
oSHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the fiscal year ended December 31, 2015

OR

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________

OR

oSHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report

Commission file number: 001-36582

AURIS MEDICAL HOLDING AG

(Exact name of Registrant as specified in its charter)

Switzerland

(Jurisdiction of incorporation)

Bahnhofstrasse 21

6300 Zug

Switzerland

(Address of principal executive offices)

Thomas Meyer

Tel: +41 (0)41 729 71 94

Bahnhofstrasse 21

6300 Zug

Switzerland

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Copies to:

Sophia Hudson

Marcel Fausten
Davis Polk & Wardwell LLP

450 Lexington Avenue

New York, NY 10017

Phone: (212) 450 4000

Fax: (212) 701 5800

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class

Name of each exchange on which registered

Common Shares, nominal value CHF 0.400.02 per shareThe NASDAQNasdaq Stock Market LLC

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None
(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None
(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital stock or common stock as of the close of the period covered by the annual report.

Common shares: 34,303,891

37,495,859

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

o  Yes x  No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

o  Yes x  No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x  Yes o  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

o  Yes x  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  o
Accelerated filer  o
Non-accelerated filer  x
Emerging Growth Company  x

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. o
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

USU.S. GAAP  o
International Financial Reporting Standards as issued by the International Accounting Standards Board  x
Other  o

If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to follow.

o  Item 17 o  Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o  Yes x  No

 



Table of Contents



AURIS MEDICAL HOLDING AG

TABLE OF CONTENTS

___________________

Page

Page
FORWARD-LOOKING STATEMENTS
iv
PART I
1
ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
1
A.   
Directors and senior management
1
B.   Advisers
Advisers
1
C.   Auditors
Auditors
1
ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE
1
A.   
Offer statistics
1
B.   
Method and expected timetable
1
ITEM 3.  KEY INFORMATION
21
A.   
Selected Financial Data
21
B.   
Capitalization and indebtedness
3
C.   
Reasons for the offer and use of proceeds
3
D.   
Risk factors
3
ITEM 4.  INFORMATION ON THE COMPANY
3940
A.   
History and development of the Company
3940
B.   
Business overview
4046
C.   
Organizational structure
6970
D.   
Property, plants and equipment
70
ITEM 4A.  UNRESOLVED STAFF COMMENTS
70
ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS
70
A.   
Operating results
70
B.   
Liquidity and capital resources
7881
C.   
Research and development, patents and licenses, etc.
8387
D.   
Trend information
8387
E.   
Off-balance sheet arrangements
8388
F.   
Tabular disclosure of contractual obligations
8388
G.   
Safe harbor
8488
ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
8588
A.   
Directors and senior management
8588
B.   Compensation
Compensation90
86
C.   
Board practices
8893
D.   Employees
Employees94
89
E.   
Share ownership
8995
ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
9095
A.   
Major shareholders
9095
B.   
Related party transactions
9296
C.   
Interests of Expertsexperts and Counselcounsel
9397

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ITEM 8.  FINANCIAL INFORMATION
9397
A.   
Consolidated statements and other financial information
9397
B.   
Significant changes
9398
ITEM 9.  THE OFFER AND LISTING
9398
A.   
Offering and listing details
9398
B.   
Plan of distribution
9398
C.   Markets
Markets98
93
D.   
Selling shareholders
9498
E.   Dilution
Dilution98
94
F.   
Expenses of the issue
9498
ITEM 10.  ADDITIONAL INFORMATION
9498
A.   
Share capital
9498
B.   
Memorandum and articles of association
9498
C.   
Material contracts
94125
D.   
Exchange controls
94125
E.   Taxation
Taxation125
94
F.   
Dividends and paying agents
101133

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G.   
Statement by experts
101133
H.   
Documents on display
101133
I.   
Subsidiary information
102133
ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
102133
ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
102134
A.   
Debt securities
102134
B.   
Warrants and rights
102134
C.   
Other securities
102134
D.   
American Depositary Shares
103134
PART II
104135
ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
104135
A.   Defaults
Defaults135
104
B.   
Arrears and delinquencies
104135
ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OFPROCEEDS
104135
E.   Use of Proceeds
135
ITEM 15.  CONTROLS AND PROCEDURES
104135
A.   
Disclosure Controls and Procedures
104135
B.   
Management’s Annual Report on Internal Control over Financial Reporting
104135
C.   
Attestation Report of the Registered Public Accounting Firm
104135
D. 
�� Changes in Internal Control over Financial Reporting
104135
ITEM 16.  [RESERVED]
105136
ITEM 16A.  Audit committee financial expert
105136
ITEM 16B.  Code of ethics
105136
ITEM 16C.  Principal Accountant Fees and Services
105136
ITEM 16D.  Exemptions from the listing standards for audit committees
105136
ITEM 16E.  Purchases of equity securities by the issuer and affiliated purchasers
106136

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ITEM 16F.  Change in registrant’s certifying accountant
106136
ITEM 16G.  Corporate governance
106137
ITEM 16H.  Mine safety disclosure
107138
PART III
107139
ITEM 17.  Financial statements
107139
ITEM 18.  Financial statements
107139
ITEM 19.  Exhibits
107139

Unless otherwise indicated or the context otherwise requires, all references in this annual report on Form 20-F (the “Annual Report”) to “Auris Medical Holding AG” or “Auris,” the “Company,” “we,” “our,” “ours,” “us” or similar terms refer to Auris Medical Holding AG (formerly Auris Medical AG), together with its subsidiaries.subsidiaries, prior to our corporate reorganization by way of the merger of Auris Medical Holding AG into Auris Medical NewCo Holding AG (the “Merger”), a newly incorporated, wholly owned Swiss subsidiary on March 13, 2018 (i.e. to the transferring entity), and to Auris Medical Holding AG (formerly Auris Medical NewCo Holding AG), together with its subsidiaries after the Merger (i.e. to the surviving entity). The trademarks, trade names and service marks appearing in this Annual Report are property of their respective owners.

The term “Auris Medical (Bermuda)” refers to Auris Medical Holding Ltd., a Bermuda corporation whose shares our shareholders are expected to own after we change the corporate jurisdiction of the Company from Switzerland to Bermuda, by continuing the Company in Bermuda (the “Redomestication”) in accordance with Section 132C of the Companies Act 1981 of Bermuda (the “Companies Act”).
Unless indicated or the context otherwise requires, all references in this Annual Report to our common shares as of any date prior to March 13, 2018 refer to our common shares (having a nominal value of CHF 0.40 each) prior to the 10:1 “reverse stock split” effected through the Merger and all references to our common shares as of, and after, March 13, 2018 refer to our common shares (having a nominal value of CHF 0.02 each) after the 10:1 “reverse stock split” effected through the Merger.
The terms “dollar,” “USD” or “$” refer to U.S. dollars and the term “Swiss Franc” and “CHF” refer to the legal currency of Switzerland.


–––––––––––––


iii

 iii

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FORWARD-LOOKING STATEMENTS

This Annual Report contains statements that constitute forward-looking statements. Many of the forward-looking statements contained in this Annual Report can be identified by the use of forward-looking words such as “anticipate,” “believe,” “could,” “expect,” “should,” “plan,” “intend,” “will,” “estimate” and “potential,” among others, or the negatives thereof.

Forward-looking statements appear in a number of places in this Annual Report 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, those identified under the section “Item 3. Key Information—D.Information-D. Risk factors” in this Annual Report. These risks and uncertainties include factors relating 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;
the outcome of our review of strategic options and of any action that we may pursue as a result of such review;
·
•our operation as a development stage company with limited operating history and a history of operating losses;

·our need for substantial additional funding before we can expect to become profitable from sales of our products;

·
our dependence on the success of AM-101AM-125, AM-201, Keyzilen® (AM-101) and AM-111,Sonsuvi® (AM-111), which are still in clinical development, and 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;
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 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;

·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 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 AM-111,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;

·
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 failure to enter into new strategic relationships;

·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; and

·other risk factors discussed under “Item 3. Key Information—D. Risk factors”.

Although we believemay 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;


iv
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our ability to meet the continuing listing requirements of Nasdaq and remain listed on The Nasdaq Capital Market;
the chance that the expectations reflectedcertain intangible assets related to our product candidates will be impaired; and
other risk factors discussed under “Item 3. Key Information-D. Risk factors”.

Our actual results or performance could differ materially from those expressed in, suchor implied by, any forward-looking statements are reasonable, werelating to those matters. Accordingly, no assurances can give no assurancebe given that such expectations will prove to be correct. Forward-looking statements speak only asany of the dateevents 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 made,under no obligation, and we do not undertakeexpressly disclaim any obligation, to update, them in lightalter 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, or future developments or to release publicly any revisions to these statements in order to reflect later events or circumstances or to reflect the occurrence of unanticipated events.

 iv

otherwise.




v
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PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

A.Directors and senior management

Not applicable.

B.Advisers

Not applicable.

C.Auditors

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

A.Offer statistics

Not applicable.

B.Method and expected timetable

Not applicable.

Table of Contents

ITEM 3. KEY INFORMATION

A.Selected Financial Data

The following tables summarize our consolidated financial data as atof the dates and for the periods indicated. The consolidated financial statement data as of December 31, 20152018 and 20142017 and for each of the years in the three yearthree-year period ended December 31, 20152018 has been derived from our consolidated financial statements presented elsewhere in this Annual Report, which have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”). The consolidated financial data as at December 31, 2013 and December 31, 2012, and for the yearyears ended December 31, 20122015 and 2014 has been derived from our audited consolidated financial statements which have been prepared in accordance with IFRS and which have not been included herein.

This financial information should be read in conjunction with “Item 5—Operating5-Operating and Financial Review and Prospects” and our consolidated audited financial statements, including the notes thereto, included in this Annual Report.

  For the years ended December 31,
  2015 2014 2013 2012
  (in thousands of CHF except for share and per share data)
Profit or Loss and Other Comprehensive Loss:                
Research and development  (26,536)  (17,705)  (13,254)  (3,987)
General and administrative  (4,342)  (4,489)  (1,362)  (624)
Operating loss  (30,878)  (22,194)  (14,616)  (4,611)
Interest income  37   52   74   8
Interest expense  (8)  (56)  (53)  (2)
Foreign currency exchange gains/(losses), net  1,144   4,012   (104)  3 
Loss before tax  (29,705)  (18,186)  (14,699)  (4,602)
Income tax expense  —   —   (306)  — 
Net loss attributable to owners of the Company  (29,705)  (18,186)  (15,005)  (4,602)
Other comprehensive loss:                
Items that will never be reclassified to profit or loss:                
Remeasurements of defined benefits liability  (54)  (1,101)  (58)  (55)
Items that are or may be reclassified to profit or loss:                
Foreign currency translation differences  (13)  (105)  32   22 
Other comprehensive loss  (67)  (1,206)  (26)  (32)
Total comprehensive loss attributable to owners of the Company  (29,772)  (19,392)  (15,031)  (4,635)
Net loss per share(1)                
Net loss per share, basic and diluted(2)  (0.92)  (0.66)  (1.01)  (0.40)
Weighted-average number of shares used to compute net loss per common share, basic and diluted  32,299,166   27,692,494   14,917,064   11,581,450 
                 

1
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 For the years ended December 31,
 2018 2017 2016 2015 2014
 (in thousands of CHF except for share and per share data)
Profit or Loss and Other Comprehensive Loss:         
Research and development(6,690) (19,211) (24,777) (26,536) (17,705)
General and administrative(4,264) (5,150) (5,447) (4,342) (4,489)
Operating loss(10,954) (24,361) (30,224) (30,878) (22,194)
Interest income—
 54
 68
 37
 52
Interest expense(1,070) (1,640) (829) (8) (56)
Foreign currency exchange gain/(loss), net(140) (825) (100) 1,144
 4,012
Revaluation gain from derivative financial instruments1,350
 3,372
 291
 —
 —
Transaction costs(520) (1,027)      
Loss before tax(11,334) (24,427) (30,794) (29,705) (18,186)
Income tax gain(162) 18
 131
 —
 —
Income tax expense—
 —
 —
 —
 (306)
Net loss attributable to owners of the Company(11,496) (24,409) (30,663) (29,705) (18,492)
Other comprehensive loss:         
Items that will never be reclassified to profit or loss:         
Remeasurements of defined benefits liability1,277
 272
 (394) (54) (1,101)
Items that are or may be reclassified to profit or loss:         
Foreign currency translation differences(11) 50
 (20) (13) (105)
Other comprehensive income/(loss)1,266
 322
 (414) (67) (1,206)
Total comprehensive loss attributable to owners of the Company(10,230) (24,087) (31,077) (29,772) (19,698)
Net loss per share(1)         
Net loss per share, basic and diluted(2)(0.72) (5.58) (8.93) (9.20) (6.57)
Weighted-average number of shares used to compute net loss per common share, basic and diluted15,900,865
 4,374,187
 3,432,928
 3,229,917
 2,769,249
___________________
(1)For periods prior to the closing of our initial public offering, net loss per share includes preferred shares, which were converted on a one-for-one basis upon the closing of our initial public offering. See Note 12 to our audited financial statements included elsewhere in this Annual Report.

(2)Basic net loss per common share and diluted net loss per common share are the same because outstanding options and convertible loans (to the extent outstanding during the applicable time period) would be anti-dilutive due to our net loss in these periods.

  As of December 31,
  2015 2014 2013 2012
  (in thousands of CHF)
Statement of Financial Position Data:        
Cash and cash equivalents  50,237   56,934   23,866   64 
Total assets  52,812   59,493   26,252   866 
Total liabilities  8,070   6,210   17,219   1,110 
Share capital  13,722   11,604   6,487   4,633 
Total shareholders’ equity attributable to owners of the Company  44,741   53,283   9,034   (244)

2

(2)Basic net loss per common share and diluted net loss per common share are the same. See Note 21 to our audited consolidated financial statements included elsewhere in this Annual Report. The basic and diluted loss per share for the year ended December 31, 2017,the year ended December 31, 2016, the year ended December 31, 2015 and the year ended


2
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December 31,2014 is revised to reflect the reverse-split ratio of 10 to 1 following the Merger on March 13, 2018.
 As of December 31,
 2018 2017 2016 2015 2014
   (in thousands of CHF)
Statement of Financial Position Data:         
Cash and cash equivalents5,393
 14,973
 32,442
 50,237
 56,934
Total assets9,877
 17,826
 35,658
 52,812
 59,493
Total liabilities6,227
 19,888
 21,515
 8,070
 6,210
Share capital710
 19,350
 13,732
 13,722
 11,604
Total shareholders’ (deficit)/equity attributable to owners of the Company3,650
 (2,162) 14,143
 44,741
 53,283

Exchange Rate Information

The following table sets forth, for the periods indicated, the high, low, average and period-end exchange rates for the purchase of U.S. dollars expressed in CHF per U.S. Dollar. The annual rates were derived from the Company’s accounting records and the annual average rates were used in currency translations by the Company for reporting purposes. The monthly rates were derived from the U.S. Federal Reserve Bank’s reported exchange rates. On March 4, 2016,11, 2019, the exchange rate as reported by the U.S. Federal Reserve Bank was CHF 0.99260.9532 to $1.00.

  

Period-end

 

Average for
period

 

Low

 

High

  (CHF per U.S. dollar)
Year Ended December 31:        
2011  0.9351   0.9036   0.7883   0.9896 
2012  0.9154   0.9481   0.9154   0.9845 
2013  0.8894   0.9391   0.8894   0.9608 
2014  0.9895   0.9150   0.8687   0.9895 
2015  1.0014   0.9613   0.9243   1.0292 
                 
Month Ended:                
September 30, 2015  0.9773   0.9725   0.9614   0.9780 
October 31, 2015  0.9858   0.9687   0.9489   0.9915 
November 30, 2015  1.0282   1.0098   0.9853   1.0305 
December 31, 2015  1.0017   0.9951   0.9823   1.0296 
January 31, 2016  1.0226   1.0082   0.9972   1.0226 
February 28, 2016  0.9960   0.9920   0.9706   1.0202 
March, 2016 (through March 4, 2016)  0.9926   0.9955   0.9920   0.9994 

 Period-end 
Average for
period
 Low High
 (CHF per U.S. dollar)
Year Ended December 31:       
20140.9934 0.9147 0.8712 0.9934
20151.0017 0.9628 0.8488 1.0305
20161.0160 0.9848 0.9536 1.0334
20170.9738 0.9842 0.9456 1.0266
20180.9832 0.9784 0.9232 1.0083
Month Ended:       
September 30, 20180.9758 0.9683 0.9593 0.9776
October 31, 20181.0057 0.9940 0.9840 1.0057
November 30, 20180.9987 1.0011 0.9938 1.0083
December 31, 20180.9832 0.9919 0.9832 0.9975
January 31, 20190.9938 0.9897 0.9767 0.9988
February 28, 20190.9974 1.0014 0.9914 1.0073
March 11, 20191.0074 1.0041 0.9987 1.0106
B.Capitalization and indebtedness

Not applicable.

C.Reasons for the offer and use of proceeds

Not applicable.

D.Risk factors

You should carefully consider the risks and uncertainties described below and the other information in this Annual Report. Our business, financial condition or results of operations could be materially and adversely affected if any of these risks occurs, and as a result, the market price of our common shares could decline. This Annual Report also contains forward-looking statements that involve risks and uncertainties. See “Forward-Looking Statements.” Our actual results could differ materially and adversely from those anticipated in these forward-looking statements as a result of certain factors.


3
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Risks Related to Our Business and Industry

We are a development stagedevelopment-stage company and have a limited operating history and a history of operating losses. We anticipate that we will continue to incur losses for the foreseeable future.

We are a development-stage biopharmaceutical company with limited operating history. Since inception, we have incurred significant operating losses. We incurred net losses (defined as net loss attributable to owners of the Company) of CHF 29.711.5 million, CHF 18.224.4 million and CHF 15.030.7 million for the years ended December 31, 2015, 20142018, 2017 and 2013,2016, respectively. As of December 31, 2015,2018, we had an accumulated deficit of CHF 81.7146.3 million.

Our losses have resulted principally from expenses incurred in research and development of our product candidates, pre-clinical research and from general and administrative expenses that we have incurred while building our business infrastructure. We expect to continue to incur significant operating losses in the future as we continue our research and development efforts for our product candidates in clinical and pre-clinical development and seek to obtain regulatory approval and commercialization of our product candidates AM-101 and AM-111.development. In our financial year ended December 31, 2015,2018, we incurred CHF 26.66.7 million in research and development costs, and we expect that our total operating expense in 20162019 will be in the range of CHF 33.010.0 to CHF 38.0 million (excluding AM-111 clinical Phase 2 expenses to enroll patients in REACH (as defined below)).

13.0 million.

To date, we have financed our operations through the initial public offering and a follow-on offering of our common shares, private placements of equity securities and shortshort- and long-term loans. On July 19, 2016, we entered into a Loan and Security Agreement with Hercules Technology Growth Capital, Inc., or Hercules. The agreement provided us with a senior secured term loans. loan facility for up to $20 million. As of December 31, 2018, the amount outstanding under the Loan and Security Agreement was CHF 1.4 million. On January 31, 2019, we 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 have been lifted.
We have no products approved for commercialization and have never generated any revenues from product sales. Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. We are in the late stages of clinical development for our product candidates, but itIt may be several years, if ever, before we complete pivotal clinical trials and have a product candidate approved for commercialization and begin to generate revenues from product sales.

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We have never generated any revenue from product sales and may never be profitable.

We have no products approved for commercialization and have never generated any revenue. Our ability to generate revenue and achieve profitability depends on our ability to successfully complete the development of, and obtain the marketing approvals necessary to commercialize, one or more of our product candidates. We do not anticipate generating revenue from product sales unless and until we obtain regulatory approval for, and commercialize, AM-101Keyzilen®, Sonsuvi®, AM-125 or AM-111.AM-201. Our ability to generate future revenue from product sales depends heavily on our success in many areas, including but not limited to:

completing research and clinical development of our product candidates;
·
•completing research and clinical development of our product candidates, including successfully completing Phase 3 clinical trials of AM-101 or AM-111;

·
obtaining marketing approvals for our product candidates, including AM-101Keyzilen®, Sonsuvi®, AM-125 or AM-111,AM-201, for which we will have to complete clinical trials;

·developing a sustainable and scalable manufacturing process for any approved product candidates and maintaining supply and manufacturing relationships with third parties that can conduct the process and provide adequate (in amount and quality) products to support clinical development and the market demand for our product candidates, if approved;

·launching and commercializing product candidates for which we obtain marketing approval, either directly or with a collaborator or distributor;

·obtaining market acceptance of our product candidates as viable treatment options;

·addressing any competing technological and market developments;

·identifying, assessing, acquiring and/or developing new product candidates;

·negotiating favorable terms in any collaboration, licensing, or other arrangements into which we may enter;

·maintaining, protecting, and expanding our portfolio of intellectual property rights, including patents, trade secrets, and know-how; and

·attracting, hiring, and retaining qualified personnel.

developing a sustainable and scalable manufacturing process for any approved product candidates and maintaining supply and manufacturing relationships with third parties that can conduct the process and provide adequate (in amount and quality) products to support clinical development and the market demand for our product candidates, if approved;
launching and commercializing product candidates for which we obtain marketing approval, either directly or with a collaborator or distributor;
obtaining market acceptance of our product candidates as viable treatment options;
addressing any competing technological and market developments;
identifying, assessing, acquiring and/or developing new product candidates;
negotiating favorable terms in any collaboration, licensing, or other arrangements into which we may enter;
maintaining, protecting, and expanding our portfolio of intellectual property rights, including patents, trade secrets, and know-how; and
attracting, hiring, and retaining qualified personnel.
Even if one or more of the product candidates that we develop is approved for commercial sale, we anticipate incurring significant costs associated with commercializing any approved product candidate. Because of the numerous risks and uncertainties with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. Our expenses could increase beyond expectations if we are

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required by the U.S. Food and Drug Administration, or the FDA, the European Medicines Agency, or the EMA, or other regulatory agencies, domestic or foreign, to change our manufacturing processes, or to perform clinical, nonclinical, or other types of trials in addition to those that we currently anticipate. In cases where we are successful in obtaining regulatory approvals to market one or more of our product candidates, our revenue will be dependent, in part, upon the size of the markets in the territories for which we gain regulatory approval, the accepted price for the product, the ability to obtain coverage and reimbursement at any price, and whether we own the commercial rights for that territory. If the number of our addressable patients is not as significant as we estimate, the indication approved by regulatory authorities is narrower than we expect, or the treatment population is narrowed by competition, physician choice or treatment guidelines, we may not generate significant revenue from sales of such products, even if approved. Additionally, if we are not able to generate sufficient revenue from the sale of any approved products, we may never become profitable.

We may be unable to develop and commercialize AM-101, AM-111Keyzilen®, Sonsuvi®, AM-125 or AM-201 or any other product candidate and, even if we do, may never achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our companythe Company and could impair our ability to raise capital, expand our business or continue our operations.

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We expect that we will need substantial additional funding before we can expect to become profitable from sales of our products. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts.

We are currently advancing our product candidates AM-101 and AM-111 through clinical development.

We expect our research and development expenses to remain significant in connection with our ongoing clinical development activities, particularly as we continue our ongoinginitiate new trials with AM-125 and AM-201, may initiate new trials of AM-101Keyzilen® and AM-111Sonsuvi® and initiate pre-clinical and clinical development of other product candidates. We expect that our total operating expense in 20162019 will be in the range of CHF 33.010.0 to 38.0 million (excluding AM-111 clinical Phase 2 expenses to enroll patients in REACH (as defined below)).13.0 million. As of December 31, 2015,2018, our cash and cash equivalents were CHF 50.25.4 million. We believe that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements at least until the fallsecond quarter of 2017. We have based this estimate on2019. Our assumptions that may prove to be wrong, and we couldmay have to use our capital resources sooner than we currently expect. If we are unable to raise capital when needed, we could be forced to delay, suspend, reduce or terminate our product development programs or commercialization efforts. Also, should we fail to raise sufficient funds to cover our operating expenditures for at least a 12 month period, we may no longer be considered a “going concern.” The lack of a going concern assessment may negatively affect the valuation of the Company’s investments in its subsidiaries and result in a revaluation of these holdings. Under Swiss law, should the Company’s assets fall short of its liabilities as evidenced by the Company’s standalone Swiss GAAP accounts, the board of directors will have to immediately take steps to restructure the business or if it fails to do, file for bankruptcy. If the board of directors fails to take appropriate action, under Swiss law, in case of such over-indebtedness, the auditors may, according to Swiss law, file for bankruptcy on the Company’s behalf. Following the Redomestication, the board of directors will need to consider the interests of our creditors and take appropriate action to restructure the business if it appears that we are insolvent or likely to become insolvent, however under Bermuda law there is no corresponding ability for the auditors to file for bankruptcy on the Company’s behalf. 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.

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 completecontinue our late-stage AM-111ongoing clinical program,development activities and seek to obtain regulatory approval for, AM-111 and to commercialize, our product candidates AM-101 and AM-111.candidates. If we receive regulatory approval for AM-101 or AM-111,any of our product candidates, and if we choose to not 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. We also expect to continue to incur additional costs associated with operating as a public company. 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.


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Raising additional capital may cause dilution to our shareholders, restrict our operations or require us to relinquish rights to our intellectual property or future revenue streams.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings, grants, and license and development agreements in connection with any collaborations. We do not have any committed external source of funds. In the event we need to seek additional funds, we may raise additional capital through the sale of equity or convertible debt securities. In such an event, our shareholders’ ownership interests will be diluted, and the terms of these new securities may include liquidation or other preferences that adversely affect our shareholders’ rights as holders of our common shares. Debt financing, if available, may involve agreements, such as our term loan agreement with Hercules, that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our intellectual property or future revenue streams. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

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We do not have a limited operating history and no history of commercializing pharmaceutical products, which may make it difficult to evaluate the prospects for our future viability.

We began our current operations in 2003.

Our operations to date have been limited to financing and staffing our company,the Company, developing our technology and developing AM-101, AM-111 and our other product candidates. We have not yet demonstrated an ability to successfully complete large-scale, pivotal clinical trials, obtain marketing approvals, manufacture a commercial scale product or conduct sales and marketing activities necessary for successful product commercialization. Consequently, predictions about our future success or viability may not be as accurate as they could be if we had a history of successfully developing and commercializing pharmaceutical products.

We are in the process of evaluating potential next steps in the development of our lead product candidate, Keyzilen® following the failure of the Phase 3 trial. In addition, we have initiated a strategic partnering process for our second lead product candidate Sonsuvi®. We cannot give any assurance that these candidates will continue to be developed, receive regulatory approval or be successfully commercialized or partnered.
We do not have any products that have gained regulatory approval. We have two lead clinical-stage product candidates, (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. On March 13, 2018, we announced that preliminary top-line data from the TACTT3 Phase 3 clinical trial with Keyzilen® indicated that the study did not meet its primary efficacy endpoint of a statistically significant improvement in the Tinnitus Functional Index, or TFI, score from baseline to Day 84 in the active treated group compared to placebo either in the overall population or in the otitis media subpopulation. This followed our announcement in August 2016 that, TACTT2, the previously conducted Phase 3 sister trial with Keyzilen®, did not meet its two co-primary efficacy endpoints of statistically significant changes in tinnitus loudness and tinnitus burden compared to placebo. We are in the process of evaluating our options for the Keyzilen® development program, including whether we will continue to seek the development, regulatory approval and commercialization of either Keyzilen® in the future, or pursue an alternative course of action. If we continue development of Keyzilen®, we would need to conduct additional studies and trials in the future, in order to pursue regulatory approval and would need to raise additional capital to fund any such additional study, and we may be unable to secure such capital. If we are not able to raise additional capital, we may not be able to complete the development, testing and commercialization of Keyzilen®.
On November 28, 2017, we announced that the HEALOS Phase 3 clinical trial that investigated our other lead product candidate, Sonsuvi®, in the treatment of acute inner ear hearing loss did not meet the primary efficacy endpoint of a statistically significant improvement in hearing from baseline to Day 28 compared to placebo for either active treatment groups in the overall study population. However, in post-hoc analyses a clinically meaningful and nominally significant improvement in hearing was observed in the subpopulation of patients with acute profound hearing loss at baseline. Based on these results, 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 European Medicines Agency, or EMA, and subsequently also to the U.S. Food and Drug Administration, or 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. Following this feedback, we have mandated a transaction advisory firm to identify potential partners for the Sonsuvi® development program and provide support for partnering discussions and negotiations. If successful, this may result in one or several sale, out-licensing or co-development transaction(s) on a global or regional scale. However, there is no

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guarantee that we will be successful in any pursuit of such strategic options or if we do continue our efforts to develop and commercialize Sonsuvi® in the future, or that any alternative course of action will lead to the success of the program.
Risks Related to the Development and Clinical Testing of ourOur Product Candidates

We depend entirely on the success of AM-101Keyzilen®, Sonsuvi®, and AM-111,AM-125 and AM-201, which are still in clinical development. If our clinical trials are unsuccessful, we do not obtain regulatory approval or we are unable to commercialize AM-101Keyzilen®, Sonsuvi®, AM-125 and AM-111,AM-201, or we experience significant delays in doing so, our business, financial condition and results of operations will be materially adversely affected.

We currently have no products approved for sale and have invested a significant portion of our efforts and financial resources in the development of AM-101Keyzilen®, Sonsuvi®, AM-125 and AM-111,AM-201, which are still in clinical development. Our ability to generate product revenues, which we do not expect will occur for at least the next couplefew years, if ever, will depend heavily on successful clinical development, obtaining regulatory approval and eventual commercialization of these product candidates. We currently generate no revenues from sales of any drugs, and we may never be able to develop or commercialize a marketable drug. The success of AM-101Keyzilen®, Sonsuvi®, AM-125 and AM-111AM-201 and our other product candidates will depend on several factors, including the following:

·completing clinical trials that demonstrate the efficacy and safety of our product candidates;

·receiving marketing approvals from competent regulatory authorities;

·establishing commercial manufacturing capabilities;

·launching commercial sales, marketing and distribution operations;

·acceptance of our product candidates by patients, the medical community and third-party payors,

·a continued acceptable safety profile following approval;

·competing effectively with other therapies; and

·qualifying for, maintaining, enforcing and defending our intellectual property rights and claims.

completing clinical trials that demonstrate the efficacy and safety of our product candidates;
receiving marketing approvals from competent regulatory authorities;
establishing commercial manufacturing capabilities;
launching commercial sales, marketing and distribution operations;
acceptance of our product candidates by patients, the medical community and third-party payors;
a continued acceptable safety profile following approval;
competing effectively with other therapies; and
qualifying for, maintaining, enforcing and defending our intellectual property rights and claims.
If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize AM-101 or AM-111,Keyzilen®, Sonsuvi®, AM-125 and AM-201, which would materially adversely affect our business, financial condition and results of operations.

Clinical drug development involves a lengthy and expensive process with uncertain timelines and uncertain outcomes, and results of earlier studies and trials may not be predictive of future trial results. If clinical trials of our product candidates are prolonged or delayed, we may be unable to obtain required regulatory approvals, and therefore be unable to commercialize our product candidates on a timely basis or at all.

To obtain the requisite regulatory approvals to market and sell any of our product candidates, we must demonstrate through extensive pre-clinical studies and clinical trials that our products are safe and effective in humans. Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The results of pre-clinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials. For example, the positive results generated to date in clinical trials for our product candidates do not ensure that later clinical trials will demonstrate similar results. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through pre-clinical studies and initial clinical trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials. Our future clinical trial results may not be successful.

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Clinical trials must be conducted in accordance with FDA, EMA and comparable foreign regulatory authorities’ legal requirements, regulations or guidelines, and are subject to oversight by these governmental agencies and Institutional Review Boards, or IRBs, at the medical institutions where the clinical trials are conducted. In addition, clinical trials must be conducted with supplies of our product candidates produced under current good manufacturing practices, or cGMP, and other requirements. We depend on medical institutions and clinical research organizations, or CROs, to conduct our clinical trials in compliance with current good clinical practice, or cGCP, standards. To the extent the CROs fail to enroll participants for our clinical trials, fail to conduct the trialtrials to cGCP standards or are delayed for a significant time in the execution of trials, including achieving full enrollment, we may be affected by increased costs, program delays or both, which may harm our business.

To date, we have not completed all clinical trials required for the approval of any of our product candidates. AM-101Keyzilen® and AM-111Sonsuvi® are in Phase 3 clinical development. AM-101development and AM-125 is being developed for acute inner ear tinnitus under a special protocol assessment, or SPA, with the FDA. AM-111 is being developed for acute sensorineural hearing loss. A first Phase 3 clinical trial, entitled Efficacy and Safety of AM-111 in the Treatment of Acute Inner Ear Hearing Loss, or HEALOS, has commenced enrollment in Europe and Asia in fall 2015, and we intend to commence a second Phase 3 trial, entitled Efficacy and Safety of AM-111 as Acute Sudden Sensorineural Hearing Loss Treatment, or ASSENT, primarily in the U.S. in the second quarter of 2016. In addition, we are planning a Phase 2 trial, entitled Efficacy and SafetyAM-201 is in Phase 1 clinical development.

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Table of AM-111 in the Treatment of Surgery-Induced Hearing Loss, or REACH, in the U.S. Provided that we obtain grant or other funding, REACH could be initiated in the first half 2017 at the earliest. The development of our other product candidates is less advanced and trials have not yet started.

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The completion of clinical trials for our clinical product candidates may be delayed, suspended or terminated as a result of many factors, including but not limited to:

·the delay or refusal of regulators or IRBs to authorize us to commence a clinical trial at a prospective trial site and changes in regulatory requirements, policies and guidelines;

·delays or failure to reach agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

·delays in patient enrollment and variability in the number and types of patients available for clinical trials;

·the inability to enroll a sufficient number of patients in trials to ensure adequate statistical power to detect statistically significant treatment effects;

·negative or inconclusive results, which may require us to conduct additional pre-clinical or clinical trials or to abandon projects that we expect to be promising;

·safety or tolerability concerns could cause us to suspend or terminate a trial if we find that the participants are being exposed to unacceptable health risks;

·regulators or IRBs requiring that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or safety concerns, among others;

·lower than anticipated retention rates of patients and volunteers in clinical trials;

·our CROs or clinical trial sites failing to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all, deviating from the protocol or dropping out of a trial;

·delays relating to adding new clinical trial sites;

·difficulty in maintaining contact with patients after treatment, resulting in incomplete data;

·delays in establishing the appropriate dosage levels;

·the quality or stability of the product candidate falling below acceptable standards;

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regulators or IRBs to authorize us to commence a clinical trial at a prospective trial site and changes in regulatory requirements, policies and guidelines;
·the inability to produce or obtain sufficient quantities of the product candidate to complete clinical trials; and

·exceeding budgeted costs due to difficulty in accurately predicting costs associated with clinical trials.

delays or failure to reach agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;
delays in patient enrollment and variability in the number and types of patients available for clinical trials;
the inability to enroll a sufficient number of patients in trials to ensure adequate statistical power to detect statistically significant treatment effects;
negative or inconclusive results, which may require us to conduct additional pre-clinical or clinical trials or to abandon projects that we expect to be promising;
safety or tolerability concerns could cause us to suspend or terminate a trial if we find that the participants are being exposed to unacceptable health risks;
regulators or IRBs requiring that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or safety concerns, among others;
lower than anticipated retention rates of patients and volunteers in clinical trials;
our CROs or clinical trial sites failing to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all, deviating from the protocol or dropping out of a trial;
delays relating to adding new clinical trial sites;
difficulty in maintaining contact with patients after treatment, resulting in incomplete data;
errors in survey design, data collection and translation;
delays in establishing the appropriate dosage levels;
the quality or stability of the product candidate falling below acceptable standards;
the inability to produce or obtain sufficient quantities of the product candidate to complete clinical trials; and
exceeding budgeted costs due to difficulty in accurately predicting costs associated with clinical trials.
Any delays in completing our clinical trials will increase our costs, slow down our product candidate development and approval process and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may harm our business, financial condition and prospects significantly. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.

Positive or timely results from pre-clinical or early stageearly-stage trials do not ensure positive or timely results in late stagelate-stage clinical trials or product approval by the FDA, the EMA or comparable foreign regulatory authorities. ProductsProduct candidates that show positive pre-clinical or early clinical results may not show sufficient safety or efficacy in later stage clinical trials and therefore may fail to obtain regulatory approvals. For example, although AM-101 Keyzilen® achieved favorable results in our Phase 2 efficacy trial, in August 2016, we may nonetheless fail to achieve success inannounced that the Phase 3 TACTT2 clinical trialstrial of AM-101. In addition,Keyzilen® did not meet its two co-primary efficacy endpoints of statistically significant changes in tinnitus loudness and tinnitus burden compared to placebo. On March 13, 2018, we announced preliminary top-line data from the TACTT3 trial which indicated that the study had not met its primary efficacy endpoint of a statistically significant improvement in the Tinnitus Functional Score from baseline to Day 84 in the active treated group compared to placebo either in the overall population or in the otitis media subpopulation. On May 15, 2018, we announced that further investigation of the trial’s outcomes confirmed these preliminary results.
Also, pre-clinical and clinical data are often susceptible to varying interpretations and analyses. Many companies that believed their product candidates performed satisfactorily in pre-clinical studies and clinical trials have nonetheless failed to obtain marketing approval for the product candidates. The FDA, the EMA and comparable foreign regulatory authorities have substantial discretion in the approval process and in determining when or whether regulatory approval will be obtained for any of our product candidates. Even if we believe the data collected from clinical trials of our product candidates are promising, such data may not be sufficient to support approval by the FDA, the EMA or any other regulatory authority.

In some instances, there can be significant variability in safety and/or efficacy results between different trials of the same product candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, adherence to the dosing regimen and other trial protocols and the rate of dropout among clinical trial participants. In the case of our late stagelate-stage clinical product candidates, results may differ in general on the basis of the larger number of clinical trial sites and additional countries and languages involved in Phase 3 clinical trials.

In the case of AM-101Keyzilen®, our endpoints in Phase 3 clinical trials are based on patient reported outcomes, or PROs, some of which arewere captured daily from trial participants with electronic diaries. We have no assuranceBased on insights from our analysis of the TACTT2 and cannot rely on past experience thatTACTT3 trials, we believe the high frequency of questioning is nottinnitus loudness ratings over an extended period of time may have

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caused a number of patients to excessively focus on their tinnitus symptoms, thereby influencing the measured outcome. In addition, low compliance withthe daily reporting requirements may impacthave led to rating fatigue and a loss of accuracy and reliability of the trials’ validity or statistical power.data that were entered. In the previous clinical trials with Keyzilen® we had collected these PROs only during study visits, i.e. much less frequently. Under the SPASpecial Protocol Assessment (SPA) with the FDA we agreed to useincrease the Tinnitus Functional Index, or TFI, as a co-primary efficacy endpoint in the Efficacy and Safety of AM-101 in the Treatment of Acute Peripheral Tinnitus 2, or TACTT2, trial; we also use the questionnaire as a secondary efficacy endpoint in the Efficacy and Safety of AM-101 in the Treatment of Acute Peripheral Tinnitus 3, or TACTT3, trial. We used a different tinnitus questionnaire in the previous clinical trials with AM-101 (Tinnitus Handicap Inventory 12, THI-12, a 12-item short version of the 25-item Tinnitus Handicap Inventory, or THI). Unlike the THI-12, the TFI was developed and validated broadly in accordance with the FDA’s guidance for patient-reported outcome measures and with the explicit aim of measuring treatment-related changes in tinnitus. In addition, the TFI covers all important domains of negative tinnitus impact including sleep difficulties, whereas the THI-12 does not include any sleep-related item. However, in spite of the methodological superiority of the TFI and a 2011 study by Meikle et al. showing a high correlation between THI and TFI scores with higher responsiveness to change of the latter, there is no assurance that outcomes with the TFI will be qualitatively and quantitatively similar or the same as those that would result with the THI-12.

rating frequency.

In the case of AM-111Sonsuvi®, we are evaluating the safety and efficacy in an idiopathic condition which implies a considerable heterogeneity in the etiology and natural history of the condition. This may have an impact onIn addition, we are dealing with a limited availability of detailed and reliable data relating to the safetynatural history of acute hearing loss, which implies substantial uncertainty with regards to the design of clinical trials, e.g. for determining the number of patients required for statistical testing or the size of the expected treatment effect. For example, a Phase 2 clinical trial with Sonsuvi® showed a strong relationship between the level or severity of initial hearing loss and efficacy outcomesthe size of ourthe treatment effect for active-treated patients compared to placebo-treated patients. Whereas a high spontaneous recovery rate and no treatment effects were observed in patients with mild to moderate hearing loss at baseline, lower spontaneous recovery and meaningful treatment effects were observed in patients with severe to profound hearing loss. Accordingly, enrollment into the Phase 3 trials HEALOS and ASSENT was restricted to patients with severe-profound hearing loss at baseline. On November 28, 2017, we announced that the HEALOS Phase 3 clinical trials. In addition,trial that investigated Sonsuvi® in the treatment of acute inner ear hearing loss did not meet the primary efficacy endpoint of a statistically significant improvement in hearing from baseline to Day 28 compared to placebo for either active treatment groups in the overall study population. However, a post-hoc analysis of the subpopulation with profound acute hearing loss (PTA ≥ 90 dB at baseline in accordance with a commonly used classification of hearing loss severity) revealed a clinically meaningful and nominally significant improvement in the Sonsuvi® 0.4 mg/mL treatment group. Accordingly, in HEALOS we found confirmation about the relationship between severity of hearing loss and ASSENT, we extended the time window for enrollment intosize of therapeutic effects; however, such therapeutic effects were not observed in the study, from up to 48 hours to up to 72 hours, in response to results from the Phase 2 trial showing an increasing treatment effect the later the treatment was given. This was due to declining spontaneous recovery rates while the effectssubgroup of patients with active treatment held steady. Although spontaneous recovery is expected to decline further between 48 and 72 hours, we have no assurance that improvement achieved with the active treatment will remain stable. Based on discussions with the FDA and EMA, we moved the primary endpoint from Day 7severe initial hearing loss but rather, unlike in the Phase 2 trial, to later time pointsonly in the Phase 3 trials: to Day 28 in HEALOS and to Day 91 in ASSENT. Insubgroup with profound initial hearing loss. We understand from animal studies that the Phase 2 trial, a therapeutic effect of AM-111 was observed in a clinically meaningful and statistically significant way in the relevant patient population on Day 3, and the majority of the effect was achieved by Day 7; however, superior results were also observed at later time points.

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Therefore, we expect to be able to demonstrate a therapeutic effect at the later time points in the Phase 3 trials. However, this expectationpharmacological target for Sonsuvi® is based on the assumption that hearing recovery patterns will be similar as in the Phase 2 trial, and there is no assurance that this will be the case.

Whereas in our Phase 2 trial we had full placebo control for the primary endpoint at Day 7 and an oral corticosteroid could only be administered as a reserve therapyactivated in case of insufficientsevere acute cochlear injury; however, activation of this target cannot be determined in humans, and we have to rely on the measurement of hearing recoveryloss for assessing the severity of injury.

Based on the results from the HEALOS clinical 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 that point, suchthe EMA and subsequently also to the FDA for review. Through a Protocol Assistance procedure the EMA endorsed the proposed trial design, is not feasible in certain countries due tochoice of efficacy and safety endpoints, as well as the usestatistical methodology. In a Type C meeting with written responses, the proposed choice of oral corticosteroidsprimary and secondary efficacy endpoints, the safety endpoints, as standard of care. Hence, inwell as the planned ASSENT trial oral corticosteroids will be offered as background therapy to all study participants. Although there is no clear evidence for the efficacy of oral corticosteroids in the treatment of idiopathic sudden sensorineural hearing loss, or ISSNHL, we have assumed a small impact of background therapy on hearing recovery when calculating the number of patients that are required to demonstrate AM-111’s efficacy in a statistically significantsample size and clinically meaningful way. We cannot rule out the possibility that the background therapy will enhance hearing recovery more substantially, and that in consequence the trial may not demonstrate the therapeutic benefit of AM-111. We will conduct an interim analysis at the midpoint of enrollment, and the study protocol allows for adjusting the size of the trial if suggestedstatistical methodology were also endorsed by the interim analysis; however, the required adjustment may be too large to be considered feasible and we may have to change the trial design significantly or stop the trial altogether.

FDA. Orphan drug designation for AM-111 was granted by the FDA and EMA for the treatment of acute sensorineural hearing loss, or ASNHL, an umbrella term that comprises hearing loss from acute acoustic trauma, or AAT, surgery-induced trauma, or ISSNHL. We estimate ISSNHL to be the largest of the three subgroups. The broader, more general designation of ASNHL is based on the common pathophysiologic pathway shared by the three subgroups. Although we expect to obtain regulatory approval for the entire indication of ASNHL based on confirmatory efficacy and safety data that covers only one or two rather than all three of the three subgroups, there can be no assurance that regulatory agencies will concur with this assumption at the time of the marketing approval procedure. In that case, it may not be sufficient to conduct HEALOS and ASSENTtrials in the subgroup of ISSNHL, and REACH in the subgroup of surgery-related trauma, as is currently planned.

planned to gain the indication for ASNHL.

If we are required to change the trial design of, or conduct additional clinical trials or other testing of AM-101, AM-111Keyzilen®, Sonsuvi®, AM-125, AM-201 or any other product candidate that we develop beyond the trials and testing that we currently contemplate, if we are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are unfavorable or are only modestly favorable or if there are safety concerns associated with AM-101, AM-111Keyzilen®, Sonsuvi® or our other product candidates, we may:

·be delayed in obtaining marketing approval for our product candidates;

·not obtain marketing approval at all;

·obtain approval for indications or patient populations that are not as broad as intended or desired;

·obtain approval with labeling that includes significant use or distribution restrictions or significant safety warnings, including boxed warnings;

·be subject to additional post-marketing testing or other requirements; or

·remove the product from the market after obtaining marketing approval.

be delayed in obtaining marketing approval for our product candidates;
not obtain marketing approval at all;
obtain approval for indications or patient populations that are not as broad as intended or desired;
obtain approval with labeling that includes significant use or distribution restrictions or significant safety warnings, including boxed warnings;
be subject to additional post-marketing testing or other requirements; or
remove the product from the market after obtaining marketing approval.
Our product development costs will also increase if we experience delays in testing or marketing approvals or if we are required to conduct additional clinical trials or other testing of Keyzilen®, Sonsuvi®, AM-125 or AM-201 beyond the trials and testing that we currently contemplate and we may be required to obtain additional funds to complete such additional clinical trials. We cannot assure you that our clinical trials will begin as planned or be completed on schedule, if at all, or that we will not need to restructure our trials after they have begun. Significant clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to

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market before we do or shorten any periods during which we have the exclusive right to commercialize our product candidates, which may harm our business and results of operations. In addition, some of the factors that cause, or lead to, clinical trial delays may ultimately lead to the denial of regulatory approval of AM-101, AM-111Keyzilen®, Sonsuvi®, AM-125, AM-201 or any other product candidate.

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If serious adverse, undesirable or unacceptable side effects are identified during the development of our product candidates or following approval, if any, we may need to abandon our development of such product candidates, the commercial profile of any approved label may be limited, or we may be subject to other significant negative consequences following marketing approval, if any.

If our product candidates are associated with serious adverse, undesirable or unacceptable side effects, we may need to abandon their development or limit development to certain uses or sub-populations in which such side effects are less prevalent, less severe or more acceptable from a risk-benefit perspective. Many compounds that initially showed promise in pre-clinical or early stageearly-stage testing have later been found to cause side effects that restricted their use and prevented further development of the compound for larger indications.

In our clinical trials of AM-101Keyzilen® and AM-111Sonsuvi® to date, adverse events have included procedure-related transient changes in tinnitus loudness, muffled hearing, ear discomfort or pain, incision site complications and middle ear infections. A limited number of serious adverse events were observed (in 2.4%1.2 to 2.5% of patients enrolled in the AM-101 Phase 2 programKeyzilen® trials and in 2.7 to 4.5% of patients in the AM-111 Phase 2 study)Sonsuvi® trials); all (AM-101)(Keyzilen®) or most (AM-111)(Sonsuvi®) were considered unrelated or unlikely related to the treatment. In the two Phase 1 trials with intranasal betahistine, adverse events included transient and dose-dependent nasal congestion or discomfort. Occurrence of serious procedure-orprocedure- or treatment-related side effects could impede clinical trial enrollment and receipt of marketing approval from the FDA, the EMA and comparable foreign regulatory authorities. They could also adversely affect physician or patient acceptance of our product candidates.

Additionally, if one or more of our product candidates receives marketing approval, and we or others later identify undesirable side effects caused by such products, a number of potentially significant negative consequences could result, including:

·regulatory authorities may withdraw approvals of such product;

·regulatory authorities may require additional warnings on the label;

·we may be required to create a medication guide outlining the risks of such side effects for distribution to patients;

·we could be sued and held liable for harm caused to patients; and

·our reputation and physician or patient acceptance of our products may suffer.

regulatory authorities may withdraw approvals of such product;
regulatory authorities may require additional warnings on the label;
we may be required to create a medication guide outlining the risks of such side effects for distribution to patients;
we could be sued and held liable for harm caused to patients; and
our reputation and physician or patient acceptance of our products may suffer.
Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and could significantly harm our business, results of operations and prospects.

We depend on enrollment of patients in our clinical trials for our product candidates. If we are unable to enroll patients in our clinical trials, our research and development efforts could be materially adversely affected.

Successful and timely completion of clinical trials will require that we enroll a sufficient number of patient candidates. Trials may be subject to delays as a result of patient enrollment taking longer than anticipated or patient withdrawal. Patient enrollment depends on many factors, including the size and nature of the patient population, eligibility criteria for the trial, the proximity of patients to clinical sites, the design of the clinical protocol, the availability of competing clinical trials, the availability of new drugs approved for the indication the clinical trial is investigating, and clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to other available therapies. In our Phase 3 clinical trials of AM-101, we enroll patients with acute inner ear tinnitus, meaning patients with symptom duration of three months or less, due to traumatic injury to their cochlea or otitis media. Thus, we must identify, recruit, enroll and dose patients with tinnitus caused by a pre-determined universe of factors in a limited time frame. Our product candidate AM-111, which is intended for patients with acute inner ear hearing loss, which is also known as acute sensorineural hearing loss or ASNHL, has orphan drug designation for the treatment of ASNHL, which means that the potential patient population is more limited. In our late stage clinical program with AM-111 the enrollment window is 72 hours from onset, meaning that we must enroll patients in a short time frame. This short enrollment window may negatively impact our enrollment rate.

The specific target population of patients and therapeutic time windows may make it difficult for us to enroll enough patients to complete our clinical trials in a timely and cost-effective manner. Delays in the completion of any clinical trial of our product candidates will increase our costs, slow down our product candidate development and approval process and delay or potentially jeopardize our ability to commence product sales and generate revenue. In addition, many of the factors that cause, or lead to, a delay in the

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commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.

We may become exposed to costly and damaging liability claims, either when testing our product candidates in the clinic or at the commercial stage; and our product liability insurance may not cover all damages from such claims.

We are exposed to potential product liability and professional indemnity risks that are inherent in the research, development, manufacturing, marketing and use of pharmaceutical products. Currently, we have no products that have been approved for commercial sale; however, the current and future use of product candidates by us in clinical trials, and the sale of

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any approved products in the future, may expose us to liability claims. These claims might be made by patients that use the product, healthcare providers, pharmaceutical companies or others selling such products. Any claims against us, regardless of their merit, could be difficult and costly to defend and could materially adversely affect the market for our product candidates or any prospects for commercialization of our product candidates.

Although the clinical trial process is designed to identify and assess potential side effects, it is always possible that a drug, even after regulatory approval, may exhibit unforeseen side effects. If any of our product candidates were to cause adverse side effects during clinical trials or after approval of the product candidate, we may be exposed to substantial liabilities. Physicians and patients may not comply with any warnings that identify known potential adverse effects and patients who should not use our product candidates.

We purchase liability insurance in connection with each of our clinical trials. It is possible that our liabilities could exceed our insurance coverage. We intend to expand our insurance coverage to include the sale of commercial products if we obtain marketing approval for any of our product candidates. However, we may not be able to maintain insurance coverage at a reasonable cost or obtain insurance coverage that will be adequate to satisfy any liability that may arise. If a successful product liability claim or series of claims is brought against us for uninsured liabilities or in excess of insured liabilities, our assets may not be sufficient to cover such claims and our business operations could be impaired.

Should any of the events described above occur, this could have a material adverse effect on our business, financial condition and results of operations.

We have obtained orphan drug designation for AM-111Sonsuvi® for the treatment of ASNHL from the FDA and the EMA, and we may rely on obtaining and maintaining orphan drug exclusivity for AM-111,Sonsuvi®, if approved. Orphan drug designation may not ensure that we will enjoy market exclusivity in a particular market, and if we fail to obtain or maintain orphan drug exclusivity for AM-111,Sonsuvi®, we may be subject to earlier competition and our potential revenue will be reduced.

AM-111

Sonsuvi® has been granted orphan drug designation for the treatment of ASNHL by the FDA and EMA. Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is intended to treat a rare disease or condition, defined as a patient population of fewer than 200,000 in the United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States. In the European Union, the EMA’s Committee for Orphan Medicinal Products, or COMP, grants orphan drug designation to promote the development of products that are intended for the diagnosis, prevention, or treatment of a life-threatening or chronically debilitating condition affecting not more than five in 10,000 persons in the European Union. Additionally, designation is granted for products intended for the diagnosis, prevention, or treatment of a life-threatening, seriously debilitating or serious and chronic condition when, without incentives, it is unlikely that sales of the drug in the European Union would be sufficient to justify the necessary investment in developing the drug or biological product or where there is no satisfactory method of diagnosis, prevention, or treatment, or, if such a method exists, the medicine must be of significant benefit to those affected by the condition.

In the United States, orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers. In addition, if a product receives the first FDA approval for the indication for which it has orphan designation, the product is entitled to orphan drug exclusivity, which means the FDA may not approve any other application to market the same drug for the same indication for a period of seven years, except in limited circumstances, such as a showing of clinical superiority over the product with orphan exclusivity or where the manufacturer is unable to assure sufficient product quantity. In the European Union, orphan drug designation entitles a party to financial incentives such as reduction of fees or fee waivers and ten years of market exclusivity following drug or biological product approval. This period may be reduced to six years if the orphan drug designation criteria are

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no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity.

Even though we have obtained orphan drug designation for AM-111Sonsuvi® for the treatment of ASNHL in the United States and Europe, we may not be the first to obtain marketing approval for any particular orphan indication due to the uncertainties associated with developing pharmaceutical products. Further, even if we obtain orphan drug designation for a product, that exclusivity may not effectively protect the product from competition because different drugs with different active moieties can be approved for the same condition. Orphan drug designation neither shortens the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review or approval process.

The orphan drug designation for AM-111Sonsuvi® relates to ASNHL, an umbrella term comprising acute acoustic trauma,AAT, ISSNHL and surgery-induced trauma based on a common pathophysiologic pathway. Our Phase 3 late-stage program is only enrollingenrolled patients suffering from ISSNHL, which represent the largest of the three ASNHL subgroups. Based on its outcomes, we may obtain marketing authorization only for the ISSNHL subgroup, and additional studies may be required to obtain marketing authorization for the entire ASNHL indication.


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Due to our limited resources and access to capital, we must and have in the past decided to prioritize development of certain product candidates; these decisions may prove to have been wrong and may adversely affect our revenues.

Because we have limited resources and access to capital to fund our operations, we must decide which product candidates to pursue and the amount of resources to allocate to each. As such, we are currentlyhave been primarily focused on the development of AM-101Keyzilen®, Sonsuvi®, AM-125 and AM-111AM-201 for the treatment of acute inner ear tinnitus, and acute inner ear hearing loss, vertigo and antipsychotic-induced weight gain, respectively. Our decisions concerning the allocation of research, collaboration, management and financial resources toward particular compounds, product candidates or therapeutic areas may not lead to the development of viable commercial products and may divert resources away from better opportunities. Similarly, our potential decisions to delay, terminate or collaborate with third parties in respect of certain product development programs may also prove not to be optimal and could cause us to miss valuable opportunities. If we make incorrect determinations regarding the market potential of our product candidates or misread trends in the biopharmaceutical industry, in particular for inner ear disorders, our business, financial condition and results of operations could be materially adversely affected.

Our research and development activities could be affected or delayed as a result of possible restrictions on animal testing.

Certain laws and regulations require us to test our product candidates on animals before initiating clinical trials involving humans. Animal testing activities have been the subject of controversy and adverse publicity. Animal rights groups and other organizations and individuals have attempted to stop animal testing activities by pressing for legislation and regulation in these areas and by disrupting these activities through protests and other means. To the extent the activities of these groups are successful, our research and development activities may be interrupted, delayed or become more expensive.

Risks Related to Regulatory Approval of ourOur Product Candidates

We cannot give any assurance that any of our product candidates will receive regulatory approval, which is necessary before they can be commercialized.

Our future success is dependent on our ability to successfully develop, obtain regulatory approval for, and then successfully commercialize one or more product candidates. We currently have two lead clinical-stage product candidates, in late-stage clinical development. AM-101(i) Keyzilen® (AM-101), which is in Phase 3 clinical developmentbeing developed for the treatment of acute inner ear tinnitus under a SPA from the FDA and based on scientific advice from the EMA. AM-111 is in Phase 3 clinical development(ii) Sonsuvi® (AM-111), being developed for the treatment of acute sensorineuralinner ear hearing loss for whichloss. Additionally, we received feedback from the FDAhave one product candidate, AM-125, in Phase II clinical development, and EMA on multiple occasions.another, AM-201, in Phase I clinical development. We are not permitted to market or promote any of our product candidates before we receive regulatory approval from the FDA, EMA or comparable foreign regulatory authorities, and we may never receive such regulatory approval for any of our product candidates.

Although certain of our employees have prior experience with submitting marketing applications to the FDA, EMA or comparable foreign regulatory authorities, we as a company have not submitted such applications for our product candidates. We cannot be certain that any of our product candidates will be successful in clinical trials or receive regulatory approval. Applications for our product candidates could fail to receive regulatory approval for many reasons, including but not limited to the following:

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our clinical trials;
·the FDA, EMA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;

·the population studied in the clinical program may not be sufficiently broad or representative to assure safety in the full population for which we seek approval;

·the FDA, EMA or comparable foreign regulatory authorities may disagree with our interpretation of data from nonclinical trials or clinical trials;

·the data collected from clinical trials of our product candidates may not be sufficient to support the submission of a new drug application, or NDA, or other submission or to obtain regulatory approval in the United States or elsewhere;

·we may be unable to demonstrate to the FDA, EMA or comparable foreign regulatory authorities that a product candidate’s risk-benefit ratio for its proposed indication is acceptable;

·the FDA, EMA or other regulatory authorities may fail to approve the manufacturing processes, test procedures and specifications, or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and

·the approval policies or regulations of the FDA, EMA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval.

the population studied in the clinical program may not be sufficiently broad or representative to assure safety in the full population for which we seek approval;
the FDA, EMA or comparable foreign regulatory authorities may disagree with our interpretation of data from nonclinical trials or clinical trials;
the data collected from clinical trials of our product candidates may not be sufficient to support the submission of a new drug application, or NDA, or other submission or to obtain regulatory approval in the United States or elsewhere;
we may be unable to demonstrate to the FDA, EMA or comparable foreign regulatory authorities that a product candidate’s risk-benefit ratio for its proposed indication is acceptable;
the FDA, EMA or other regulatory authorities may fail to approve the manufacturing processes, test procedures and specifications, or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and
the approval policies or regulations of the FDA, EMA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval.
In addition, no product for the treatment of acute inner ear tinnitus, or acute inner ear hearing loss or antipsychotic-induced weight gain has been approved by the FDA or the EMA. Accordingly, our current product candidates or any of our other future product candidates could take a significantly longer time to gain regulatory approval than expected or may never gain

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regulatory approval. This could delay or eliminate any potential product revenue by delaying or terminating the potential commercialization of our product candidates.

We generally plan to seek regulatory approval to commercialize our product candidates in the United States, the European Union and in additional foreign countries where we have commercial rights. To obtain regulatory approval in other countries, we must comply with numerous and varying regulatory requirements of such other countries regarding safety, efficacy, chemistry, manufacturing and controls, clinical trials, commercial sales, pricing, and distribution of our product candidates. Even if we are successful in obtaining approval in one jurisdiction, we cannot ensure that we will obtain approval in any other jurisdictions. Failure to obtain marketing authorization for our product candidates will result in our being unable to market and sell such products, which would materially adversely affect our business, financial conditional and results of operations. If we fail to obtain approval in any jurisdiction, the geographic market for our product candidates could be limited. Similarly, regulatory agencies may not approve the labeling claims that are necessary or desirable for the successful commercialization of our product candidates.

Because we are developing therapies for which there is little clinical experience and, in some cases, using new endpoints, there is more risk that the outcome of our clinical trials will not be favorable. Even if the results of our trials are favorable, there is risk that they will not be acceptable to regulators or physicians.

There are currently no drugs with proven efficacy for acute inner ear tinnitus or acute inner ear hearing loss. In addition, there has been limited historical clinical trial experience generally for the development of drugs to treat these conditions. Regulatory authorities in the United States and European Union have not issued definitive guidance as to how to measure the efficacy of treatments for acute inner ear tinnitus or acute inner ear hearing loss, and regulators have not yet established what is required to be demonstrated in a clinical trial in order to signify a clinically meaningful result and/or obtain marketing approval. We have designed our Phase 3 trials for AM-101Keyzilen® and AM-111Sonsuvi® to include endpoints that we believe are clinically justified and meaningful. WithSpecifically, with regard to AM-101,Keyzilen®, the EMA indicated that a statistically significant improvement in tinnitus loudness that is supported by several secondary variables would demonstrate a clinically meaningful result. The FDA indicated that an improvement in tinnitus loudness supported by a co-primary efficacy point, such as the TFI questionnaire, would be clinically meaningful. However, no product has been approved for marketing based upon such guidance and we cannot be certain that AM-101 will be approved even if it were to demonstrate such results in its Phase 3 trial.
With regard to AM-111,Sonsuvi®, the FDA and EMA have indicated that a 10 dB improvement in hearing thresholds is clinically significant, in line with clinical practice. However, no product has been approved for marketing based upon such guidance and we cannot be certain that AM-111Sonsuvi® will be approved even if it were to demonstrate such resultsresult in itsfurther Phase 3 trial.

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trials.

Whereas various balance tests such as the tandem Romberg or standing on foam tests or other objective measures such as nystagmography or head impulse tests are widely used in the diagnosis and management of vertigo, there is no universally recognized definition of the clinical meaningfulness of outcomes, and regulatory authorities have not issued guidelines for demonstrating efficacy for drug-based treatments such as AM-125. Therefore we cannot be certain that AM-125 will be approved even if it were to show statistically significant improvements in these tests.

Some of our conclusions regarding the potential efficacy of Sonsuvi® in our completed HEALOS clinical trial for the treatment of ASNHL in the subgroup of patients with profound acute hearing loss is based on retrospective analyses of the results, which are generally considered less reliable indicators of efficacy than pre-specified analyses.
After determining that we did not achieve the primary efficacy endpoint in our completed HEALOS clinical trial of Sonsuvi® for the treatment of ASNHL, we performed retrospective analyses that we believe show treatment effects on the magnitude of hearing recovery in favor of Sonsuvi® in case of profound hearing loss at baseline. Although we believe that these additional analyses were warranted, a retrospective analysis performed after unblinding trial results can result in the introduction of bias if the analysis is inappropriately tailored or influenced by knowledge of the data and actual results. In particular, the analysis that resulted in a clinically meaningful effect being observed in active-treated patients who suffered from profound acute hearing loss poses greater risk of bias as such subgroup was not pre-specified in the trial design, notwithstanding that we applied a commonly used definition of profound hearing loss.
Because of these limitations, regulatory authorities typically give greatest weight to results from pre-specified analyses and less weight to results from post-hoc, retrospective analyses. According to discussions with the EMA and FDA, the therapeutic benefits that were observed in the HEALOS subgroup of profound acute hearing loss will need to be confirmed prospectively in one or more additional Phase 3 trials in order to gain regulatory market approval. However, there is no guarantee that we will ever receive such regulatory approval.

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Safety issues with isomers of our product candidates or with approved products of third parties that are similar to our product candidates, could delay or prevent the regulatory approval process or result in restrictions on labeling.

Discovery of previously unknown problems, or increased focus on a known problem, with an approved product may result in restrictions on its permissible uses, including withdrawal of the medicine from the market. Esketamine and betahistine, the active pharmaceutical ingredientingredients, or APIs, of AM-101, is an isomer of Ketamine,Keyzilen® and AM-125, may be affected by the safety of the drugs related to them. Although Ketamine hasboth APIs have been used successfully in patients for many years, newly observed toxicities or worsening of known toxicities, in pre-clinical studies of, or in patients receiving, Esketamine, the racemate Ketamine or betahistine, or reconsideration of known toxicities of Ketaminethese APIs in the setting of new indications, could result in increased regulatory scrutiny of AM-101.Keyzilen® or AM-125. For example, Ketamine is regulated by the Drug Enforcement Administration, or DEA, under the Controlled Substances Act, or CSA, as a Schedule III drug. DEA scheduling is a separate process that can delay when a drug may become available to patients beyond a New Drug Application, or NDA approval date, and the timing and outcome of such DEA process is uncertain. Although we have observed no abuse liability associated with AM-101Keyzilen® to date, if AM-101Keyzilen® were to be scheduled under the Controlled Substances Act,CSA, such scheduling could negatively impact the ability or willingness of physicians to prescribe AM-101Keyzilen® and our ability to commercialize it.

Our special protocol assessment agreement with the FDA for our Phase 3 study of AM-101 does not guarantee any particular outcome from regulatory review, including ultimate approval and

Substantial additional data may not lead to a faster development or regulatory review or approval process.

We have obtained agreement from the FDA on an SPA for the design of our U.S. Phase 3 trial of AM-101. We also designed our Phase 3 clinical trials for AM-101 based on scientific advice that we received from the EMA. The FDA’s SPA process is designed to facilitate the FDA’s review and approval of drugs by allowing the FDA to evaluate the proposed design and size of Phase 3 clinical trials that are intended to form the primary basis for determining a drug product’s efficacy. Upon specific request by a clinical trial sponsor, the FDA will evaluate the protocol and respond to a sponsor’s questions regarding, among other things, primary efficacy endpoints, trial conduct and data analysis, within 45 days of receipt of the request. The FDA ultimately assesses whether the protocol design and planned analysis of the trial are acceptable to support regulatory approval of the product candidate with respect to the effectiveness of the indication studied. All agreements and disagreements between the FDA and the sponsor regarding an SPA must be clearly documented in an SPA letter or the minutes of a meeting between the sponsor and the FDA. However, a SPA agreement does not guarantee approval of a product candidate, and even if the FDA agrees to the design, execution, and analysis proposed in protocols reviewed under the SPA process, the FDA may revoke or alter its agreement in certain circumstances. In particular, an SPA agreement is not binding on the FDA if public health concerns emerge that were unrecognized at the time of the SPA agreement, other new scientific concerns regarding product safety or efficacy arise, the sponsor company fails to comply with the agreed upon trial protocols, or the relevant data, assumptions or information provided by the sponsor in a request for the SPA change or are foundneed to be false or omit relevant facts. In addition, even after an SPA agreement is finalized, the SPA agreement may be modified, and such modification will be deemed binding on the FDA review division, except under the circumstances described above, if the FDA and the sponsor agreegenerated in writingorder to modify the protocol and such modification is intended to improve the study. The FDA retains significant latitude and discretion in interpreting the terms of the SPA agreement and the data and results from any study that is the subject of the SPA agreement.

We cannot assure you that our Phase 3 clinical trial of AM-101 will succeed, will be deemed binding by the FDA under our SPA, or will result in any FDAobtain marketing approval for AM-101. The TACTT2 Phase 3AM-125.

Oral betahistine has been in clinical trialuse for several decades and is being primarily conductedreported to be currently marketed in 115 countries world-wide. However, in the United States Canada, the Czech Republic, Israel, Turkey and South Korea andoral betahistine is expected to enroll a total of approximately 330 patients. We expect thatnot approved since the FDA will review our compliancerevoked the drug product’s marketing authorization in the early 1970s over issues with unsubstantiated information about some patients in the protocol under our SPA agreementefficacy studies upon which approval had been based. Given the absence of an approved betahistine drug product in the United States and to the extent that it will conduct inspections of some of the more than 60 sites where the trial is being conducted. We cannot assure you that each of the clinical trial sites will pass such FDA inspections, and negative inspection results could significantly delay or prevent any potential approval for AM-101. If the FDA revokes or alters its agreement under the SPA, or interprets theexisting data collected from the clinical trial differently than we do,may not be deemed sufficient, the FDA may require a full development package for AM-125.
Furthermore, additional data will be required for the specific formulation of AM-125 and the intranasal administration route. Since intranasal delivery of betahistine has the potential to result in substantially higher systemic exposures as measured by concentrations in blood plasma compared to oral delivery, existing safety assessments conducted with or for the approved drug product may not deembe sufficient. In addition, some of these assessments were performed a long time ago and may not be in line with current regulations and guidelines. Therefore the data sufficient to support an application for regulatory approval, which could materially adversely affect our business, financial condition and results of operations. A revocation or alteration in our existing SPA could significantly delay or prevent approvalscope of our application. Our SPA with the FDA and the scientific advice from the EMA doesdevelopment program for AM-125 may ultimately not ensure that AM-101 will receive marketing approval or that the approval process will be fastermuch smaller than conventional regulatory procedures.

Regardless of the SPAone for the TACTT2 trial, we expect the FDA to require positive results from our second pivotal clinical, TACTT3, before granting marketing authorization. TACTT3 is congruent with the design of TACTT2 regarding outcome measures and the patient population to be enrolled; it differs in that the

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improvement in the TFI score is not a co-primary efficacy endpoint, that it has a slightly smaller size (300 instead of 330 patients) and that it also includes a separate stratum of patients suffering from post-acute inner ear tinnitus. TACTT3 was not assessed by the FDA as part of the SPA process, and in spite of the congruence between the trials, we cannot exclude that differences in outcomes may arise between the two pivotal trials that may affect the FDA’s assessment (for example, from cultural differences in patient attitudes or perceptions as TACTT3 is being conducted outside North America).

We do not have control over the actual number of study participants that are willing and eligible for enrollment in the open label follow-on safety studies, AMPACT1 and AMPACT2. Hence, the number of patients with safety data may fail to reach the levels specified and requested by the FDA.

The FDA has requested safety data from chronic intermittent use of AM-101 by a minimum of 300 patients treated for six months and a minimum of 100 patients treated for one year, to support a new drug application filing for AM-101 in the treatment of acute peripheral tinnitus. We are seeking to address this request by offering all participants completing the TACTT2 and TACTT3 studies and continuing to meet certain criteria the option to roll over into an open label follow-on safety study (AMPACT1 and AMPACT2, respectively) and receive up to three treatment cycles with AM-101 over a period of up to nine months. Together with the three month TACTT study duration, this would cover up to 12 months of exposure. Since a higher than expected number of TACTT study participants has been willing and eligible for enrollment into the AMPACT studies so far, we reduced the number of available treatment cycles in AMPACT2 from three to one by way of a protocol amendment in the first quarter 2016 and are still confident of meeting the requested number of patients with chronic intermittent use data. However, we have no control over the actual number and over the number of treatment cycles that the AMPACT participants will choose. Hence the number of patients with safety data over six months and over 12 months may or may not reach the levels specified and requested by the FDA. In case of insufficient numbers, this will become a review issue at the time of the NDA submission. Although we plan to apply for an indication of acute inner ear tinnitus, rather than chronic inner ear tinnitus, we cannot ensure that the FDA will be satisfied with the data supporting our NDA if we are not able to enroll sufficient numbers of patients in AMPACT1 and AMPACT2.

Even if our product candidates obtain regulatory approval, we will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense. Additionally, our product candidates, if approved, could be subject to labeling and other restrictions and market withdrawal and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our products.

If marketing authorization is obtained for any of our product candidates, the product will remain subject to continual regulatory review and therefore authorization could be subsequently withdrawn or restricted. Any regulatory approvals that we receive for our product candidates may also be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials and surveillance to monitor the safety and efficacy of the product candidate. In addition, if the FDA or a comparable foreign regulatory authority approves any of our product candidates, we will be subject to ongoing regulatory obligations and oversight by regulatory authorities, including with respect to the manufacturing processes, labeling, packing, distribution, adverse event reporting, storage, advertising and marketing restrictions, and recordkeeping and, potentially, other post-marketing obligations, all of which may result in significant expense and limit our ability to commercialize such products. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with cGMPs, cGDPs and cGCPs for any clinical trials that we conduct post-approval. In the European Union, the marketing authorization holder has to operate a pharmacovigilance system which conforms with and is equivalent to the respective Member State’s pharmacovigilance system, requiring him to evaluate all information scientifically, to consider options for risk minimization and prevention and to take appropriate measures as necessary. As part of this system, we will have to, inter alia, have a qualified person responsible for pharmacovigilance, maintain a pharmacovigilance system master file, operate a risk management system for each medicinal product, monitor the outcome of risk minimization measures, and update continuously all pharmacovigilance data to update the risk assessment.
Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:

·restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product recalls;

·fines, warning letters or holds on clinical trials;

·refusal by the FDA to approve pending applications or supplements to approved applications filed by us, or suspension or revocation of product license approvals;

·product seizure or detention, or refusal to permit the import or export of products; and

·injunctions or the imposition of civil or criminal penalties.

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restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product recalls;


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fines, warning letters or holds on clinical trials;
refusal by the FDA to approve pending applications or supplements to approved applications filed by us, or suspension or revocation of product license approvals;
product seizure or detention, or refusal to permit the import or export of products; and
injunctions or the imposition of civil or criminal penalties.
If any of these events occurs, our ability to sell such product may be impaired, and we may incur substantial additional expense to comply with regulatory requirements, which could materially adversely affect our business, financial condition and results of operations. The FDA’s or any other regulatory authority’s policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained, which would adversely affect our business, prospects and ability to achieve or sustain profitability.

Enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and may affect the prices we may set.

In the United States and the European Union, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system. These changes could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any products for which we obtain marketing approval.

For example, in March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively, the Health Care Reform Law was enacted, a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for health care and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. The Health Care Reform Law, among other things, increased rebates a manufacturer must pay to the Medicaid program, addressed a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected, established a new Medicare Part D coverage gap discount program, in which manufacturers must provide 50% point-of-sale discounts on products covered under Part D and implemented payment system reforms including a national pilot program on payment bundling to encourage hospitals, physicians and other providers to improve the coordination, quality and efficiency of certain healthcare services through bundled payment models. Further, the new law imposed a significant annual fee on companies that manufacture or import branded prescription drug products, expanded eligibility criteria for Medicaid programs, and created a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research. Substantial new provisions affecting compliance were enacted, which may affect our business practices with health care practitioners. Although we will not know the full effects of the Health Care Reform Law until applicable federal and state agencies issue regulations or guidance under the law, the Health Care Reform Law appears likely to continue theContinued pressure on pharmaceutical pricing is expected and may also increase our regulatory burdens and operating costs. There have been judicial and Congressional challenges to certain aspects of the Health Care Reform Law, and we expect there will be additional challenges and amendments to the Health Care Reform Law in the future.

Moreover, other

Other legislative changes have also been proposed and adopted in the United States since the Health Care Reform Law was enacted. On August 2, 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions to Medicare payments to providers of 2% per fiscal year, which went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2025 unless additional Congressional action is taken. On January 2, 2013, President Obama signed into law theThe American Taxpayer Relief Act of 2012, or the ATRA, which, among other things, further reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These laws may result in additional reductions in Medicare and other health care funding, which could have a material adverse effect on our customers and accordingly, our financial operations. Additionally, there has been increasing legislative and enforcement interest in the United States with respect to specialty drug pricing practices. Specifically, there have been several recent U.S. Congressional inquiries and proposed bills designed to, among other things, bring more transparency to drug pricing by requiring drug companies to notify insurers and government regulators of price increases and provide an explanation of the reasons for the increase, reduce the out-of-pocket cost of prescription drug, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs.

Moreover, U.S. President Donald Trump has discussed the need for federal legislation, regulation or Executive Order to regulate the prices of medicines.

Because of the continued uncertainty about the implementation of the Health Care Reform Law, including the potential for further legal challenges or repeal of that legislation, we cannot quantify or predict with any certainty the likely impact of the

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Health Care Reform Law or its repeal on our business model, prospects, financial condition or results of operations, in particular on the pricing, coverage or reimbursement of any of our product candidates that may receive marketing approval. We also anticipate that Congress, state legislatures, and third-party payors may continue to review and assess alternative healthcare delivery and payment systems and may in the future propose and adopt legislation or policy changes or implementations effecting additional fundamental changes in the healthcare delivery system. We cannot assure you as to the ultimate content, timing, or effect of changes, nor is it possible at this time to estimate the impact of any such potential legislation.
In the European Union, proposeda new clinical trial regulations will centralizeregulation centralizes clinical trial approval, which eliminates redundancy, but in some cases this may extend timelines for clinical trial approvals due to potentially longer wait times. Proposals to requireThe regulation requires specific consents for use of data in research which, among other measures, may

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increase the costs and timelines for our product development efforts. The regulation also provides an obligation for clinical trial sponsors to make summaries of all trial results, accompanied by a summary understandable to laypersons, as well as the clinical trial report publicly available in a new database. Beyond this obligation, the EMA adopted a new “Agency policy on publication of clinical data” (in force since January 1, 2015) based on which the EMA makes available to the public all clinical trials submitted with the EMA as well as raw data results (“individual patient data”). These publication requirements can conflict with legitimate secrecy interests of the sponsors and may lead to valuable clinical trial data falling into the public domain.

On June 23, 2016, the UK public voted in a referendum to leave the European Union. The UK government subsequently announced its intention to serve notice of withdrawal from the European Union no later than March 2017. As a consequence of such withdrawal notice, European Union law will cease to apply to the UK from the date of entry into force of a withdrawal agreement, or two years after UK’s submission of the withdrawal notification. As a result, the UK is likely to remain within the European Union for at least the next two years, and, therefore there will likely be no major legal implications for the life sciences sector in the short term. In the long term, however, the effects may be more severe, in particular if the UK cannot agree the terms of a continued close association with the European Union and/or chooses not to incorporate existing European Union rules into national law and/or to no longer align themselves with European law. The administrative burden for pharmaceutical companies could increase significantly because regulatory requirements, for example clinical trial authorizations and marketing authorization applications, may need to be fulfilled under a new and different legal framework for the UK. Existing marketing authorizations granted in the European Union under the centralized procedure prior to the exit may potentially not be recognized anymore by the UK.
Austerity measures in certain European nations may also affect the prices we are able to seek if our products are approved, as discussed below.

Both in the United States and in the European Union, legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We do not know whether additional legislative changes will be enacted, or whether the regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be.

Our relationships with customers and payors may be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which, if violated, could expose us to criminal sanctions, civil penalties, exclusion from government healthcare programs, contractual damages, reputational harm and diminished profits and future earnings, among other penalties.

Healthcare providers, payors and others play a primary role in the recommendation and prescription of any products for which we obtain marketing approval. Our future arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations, primarily in the United States, that may constrain the business or financial arrangements and relationships through which we market, sell and distribute our products for which we obtain marketing approval. Restrictions under applicable U.S. healthcare laws and regulations, include the following:

·the U.S. healthcare anti-kickback statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under U.S. government healthcare programs such as Medicare and Medicaid;

·the U.S. False Claims Act imposes criminal and civil penalties, including civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the U.S. government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;

·the U.S. Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;

·HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;

·the transparency requirements under the Health Care Reform Law require manufacturers of drugs, devices, biologics and medical supplies to report to the U.S. Department of Health and Human Services information related to payments and other transfers of value made by such manufacturers to physicians and teaching hospitals, and ownership and investment interests held by physicians or their immediate family members; and

·analogous laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, and some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring manufacturers to report information related to payments to physicians and other health care providers or marketing expenditures.

the U.S. healthcare anti-kickback statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under U.S. government healthcare programs such as Medicare and Medicaid;
the U.S. False Claims Act imposes criminal and civil penalties, including civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the U.S. government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;
the U.S. Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;

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HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;
the transparency requirements under the Health Care Reform Law require manufacturers of drugs, devices, biologics and medical supplies to report to the U.S. Department of Health and Human Services information related to payments and other transfers of value made by such manufacturers to physicians and teaching hospitals, and ownership and investment interests held by physicians or their immediate family members; and
analogous laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, and some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring manufacturers to report information related to payments to physicians and other health care providers or marketing expenditures.
Similar laws exist in other jurisdictions.

In the European Union, there is currently no central European anti-bribery or similar legislation. However, more and more European Union member states as well as life sciences industry associations are enacting increasingly specific anti-bribery rules for the healthcare sector which are as severe and sometimes even more severe than in the United States. Germany, for example, has recently adopted new criminal provisions dealing with granting benefits to healthcare professionals. This new law has increased the legal restrictions as well as the legal scrutiny for the collaboration and contractual relationships between the pharmaceutical industry and its customers.
Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available under the U.S. federal Anti-Kickback Statute, it is possible that some of our future business activities could be subject to challenge under one or more of such laws. In addition, recent health care reform legislation has strengthened these laws. For example, the Health Care Reform Law, among other things, amends the intent requirement of the federal anti-kickback and criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. Moreover, the Health Care Reform

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Law provides that the government may assert that a claim including items or services resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the False Claims Act.

Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, exclusion from U.S. government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other providers or entities with whom we expect to do business with are found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.

Risks Related to Commercialization of Our Product Candidates

We operate in highly competitive and rapidly changing industries, which may result in others discovering, developing or commercializing competing products before or more successfully than we do.

The biopharmaceutical and pharmaceutical industries are highly competitive and subject to significant and rapid technological change. Our success is highly dependent on our ability to discover, develop and obtain marketing approval for new and innovative products on a cost-effective basis and to market them successfully. In doing so, we face and will continue to face intense competition from a variety of businesses, including large, fully integrated pharmaceutical companies, specialty pharmaceutical companies and biopharmaceutical companies, academic institutions, government agencies and other private and public research institutions in Europe, the United States and other jurisdictions. These organizations may have significantly greater resources than we do and conduct similar research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and marketing of products that compete with our product candidates.

We believe that our key competitors are Otonomy, Inc., or Otonomy, and Sound Pharmaceuticals, Inc., or Sound Pharma, both U.S. companies developing pharmaceutical treatments for ear disorders.and Sensorion SA, or Sensorion. In October 2013, Otonomy announced the launch of a development program for the treatment of tinnitus, OTO-311, which is based on the NMDA receptor antagonist gacyclidine and may directly compete with our AM-101Keyzilen® product candidate. For OTO-311 the Company acquired certain assets and rights to intellectual property related to the use of the N-methyl-D-aspartate, or NMDA receptor antagonist gacyclidine for the treatment of tinnitus from NeuroSystec Corporation. NeuroSystec was founded in 2004 and sought to develop a drug-device combination product that could provide sustained delivery of gacyclidine (NST-001) to the inner ear. A 2010 article inEuropean Archives of Otorhinolaryngology by Wenzel et al. described how in a compassionate use study in Europe four out of six tinnitus patients receiving a constant perfusion of gacyclidine onto their round window membrane for 40 to 63 hours reported temporary relief, and one among them lasting relief. NeuroSystec initiated a Phase 1b trial with NST-001 in January 2009, but never published outcomes thereof and ceased activities in 2013. In addition, Otonomy acquired rights of use to certain pre-clinical and clinical data obtained by Ipsen with gacyclidine for therapeutic indications other than tinnitus. According to a recent public filing, Otonomy intends to develop a sustained-exposurepolymer-based formulation of gacyclidine

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that will provide a full course of treatment from a single intratympanic injection. OTO-311 is currently being evaluatedFollowing a Phase 1 trial, Otonomy made adjustments to the formulation, resulting in product candidate OTO-313, which the company plans to evaluate in a Phase 1 trial; initiation of a Phase 1/2 trial is planned for the second half of 2016. OTO-311’sstarting in 2019. OTO-313’s competitive strength will ultimately depend on the demonstration of clinical efficacy and safety and its comparison with AM-101. Further,Keyzilen®. Otonomy is also developing OTO-104, which is a polymer-based formulation of dexamethasone for intratympanic treatment of vertigo in Ménière’s disease. In Phase 3 of clinical development, OTO-104 showed no treatment effects in a North American study, but showed treatment effects in a European study, which had been terminated early. In March 2018 the company announced its intention to conduct another Phase 3 study with OTO-104. If Otonomy’s drug product is approved prior to AM-125, we intendwill have to rely on our patent applications with broad disclosures to pursue claims relating tocompete against it in the usetreatment of polymers with NMDA antagonistsvertigo in controlled-release topical compositionsMénière’s disease. In addition, OTO-104 is being evaluated by Otonomy for the treatment of tinnitus.

certain types of hearing loss and may compete against Sonsuvi®.

In June 2006, Sound Pharma began clinical testing of an oral treatment for hearing loss (SPI-1005, ebselen). Its active substance mimics and prompts production of the glutathione peroxidase enzyme. In February 2014, Sound Pharma announced positive outcomes from a placebo-controlled Phase 2 clinical trial with SPI-1005 in the prevention and treatment of temporary inner ear hearing loss from listening to loud music with a mobile digital media player. Although AM-111Sonsuvi® targets permanent rather than transient hearing loss, SPI-1005 may become a competing productproducts if Sound Pharma seeks and manages to demonstrate clinical efficacy also in the prevention and treatment of permanent inner ear hearing loss.

Sensorion is developing SENS-401, a 5-HT3 antagonist with anti-inflammatory properties, for the oral treatment of sudden sensorineural hearing loss. The company is initiating a Phase 2 clinical trial with SENS-401 in the treatment of sudden sensorineural hearing loss. Sensorion is also developing SENS-111, a histamine H4 receptor antagonist, for the oral treatment of acute vertigo crises and in 2017 initiated a Phase 2 trial to enroll patients with acute unilateral vestibulopathy. According to Sensorion, this trial will conclude in the second half of 2019. If successful, SENS-401 may compete against Sonsuvi®, and SENS-111 may compete against AM-125.
There are several companies developing treatments for hearing loss. Strekin AG, a privately held Swiss company, announced in April 2016 that it plans to develop STR001, an agonist of the peroxisome proliferator, for surgery induced hearing loss and that it commenced a Phase 2 program in Germany and France. Nordmark, a German company, is developing Ancrod, the biologically active substance from the venom of the Malayan Pit Viper (Calloselasma rhodostoma), for the treatment of sudden sensorineural hearing loss and has initiated Phase 2 program. Both, STR001 and Ancrod have the potential to compete with Sonsuvi®.
There exist a variety of drug products that are licensed or used off-label for the treatment of vestibular disorders and Ménière’s disease, including steroids, diuretics, anti-emetics or anti-nausea medications. In many countries outside the United States, oral betahistine is the standard of care and licensed for the treatment of Ménière’s disease and vestibular vertigo. Although, we expect that AM-125 will offer benefits over oral betahistine due to the ability to bypass the strong first-pass metabolism associated with oral intake and provide for a higher bioavailability and avoid gastric side effects, it may take time to change prescribing and usage patterns in favor of the newer product.
The highly competitive nature of and rapid technological changes in the biotechnology and pharmaceutical industries could render our product candidates or our technology obsolete or non-competitive. Our competitors may, among other things:

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develop and commercialize products that are safer, more effective, less expensive, or more convenient or easier to administer;
·develop and commercialize products that are safer, more effective, less expensive, or more convenient or easier to administer;

·obtain quicker regulatory approval;

·establish superior proprietary positions;

·have access to more manufacturing capacity;

·implement more effective approaches to sales and marketing; or

·form more advantageous strategic alliances.

obtain quicker regulatory approval;
establish superior proprietary positions;
have access to more manufacturing capacity;
implement more effective approaches to sales and marketing; or
form more advantageous strategic alliances.
Should any of these occur, our business, financial condition and results of operations could be materially adversely affected.

The successful commercialization of our product candidates will depend in part on the extent to which governmental authorities and health insurers establish adequate coverage and reimbursement levels and pricing policies.

The successful commercialization of AM-101, AM-111Keyzilen®, Sonsuvi®, AM-125, AM-201 or our other product candidates will depend, in part, on the extent to which coverage and reimbursement for our products or procedures using our products will be available from government and health administration authorities, private health insurers and other third-party payors. To manage healthcare costs, many governments and third-party payors increasingly scrutinize the pricing of new technologies and require

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greater levels of evidence of favorable clinical outcomes and cost-effectiveness before extending coverage. In light of such challenges to prices and increasing levels of evidence of the benefits and clinical outcomes of new technologies, we cannot be sure that coverage will be available for AM-101, AM-111Keyzilen®, Sonsuvi®, AM-125 or any other product candidate that we commercialize and, if available, that the reimbursement rates will be adequate. If we are unable to obtain adequate levels of coverage and reimbursement for our product candidates, their marketability will be negatively and materially impacted.

Our customers, including hospitals, physicians and other healthcare providers that purchase certain injectable drugs administered during a procedure, such as our product candidates, generally rely on third-party payors to pay for all or part of the costs and fees associated with the drug and the procedures administering the drug. These third-party payors may pay separately for the drug or may bundle or otherwise include the costs of the drug in the payment for the procedure. We are unable to predict at this time whether our product candidates, if approved, will be eligible for such separate payments. Nor can we predict at this time the adequacy of payments, whether made separately for the drug and procedure or with a bundled or otherwise aggregate payment amount for the drug and procedure. In addition, obtaining and maintaining adequate coverage and reimbursement status is time-consuming and costly.

Third party

Third-party payors may deny coverage and reimbursement status altogether of a given drug product, or cover the product but may also establish prices at levels that are too low to enable us to realize an appropriate return on our investment in product development. Because the rules and regulations regarding coverage and reimbursement change frequently, in some cases at short notice, even when there is favorable coverage and reimbursement, future changes may occur that adversely impact the favorable status. Further, the net reimbursement for drug products may be subject to additional reductions if there are changes to laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States.

The unavailability or inadequacy of third-party coverage and reimbursement could have a material adverse effect on the market acceptance of our product candidates and the future revenues we may expect to receive from those products. In addition, we are unable to predict what additional legislation or regulation relating to the healthcare industry or third-party coverage and reimbursement may be enacted in the future, or what effect such legislation or regulation would have on our business.

Our products may not gain market acceptance, in which case we may not be able to generate product revenues, which will materially adversely affect our business, financial condition and results of operations.

Even if the FDA, the EMA or other regulatory authority approves the marketing of any product candidates that we develop, physicians, healthcare providers, patients or the medical community may not accept or use them. Efforts to educate the medical community and third-party payors on the benefits of our product candidates may require significant resources and may not be successful. If AM-101, AM-111Keyzilen®, Sonsuvi®, AM-125 or any other product

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candidate that we develop does not achieve an adequate level of acceptance, we may not generate significant product revenues or any profits from operations. The degree of market acceptance of AM-101, AM-111Keyzilen®, Sonsuvi®, AM-125 or any of our product candidates that is approved for commercial sale will depend on a variety of factors, including:

how clinicians and potential patients perceive our novel products;
the timing of market introduction;
the number and clinical profile of competing products;
our ability to provide acceptable evidence of safety and efficacy;
the prevalence and severity of any side effects;
·
•how clinicians and potential patients perceive our novel products;

·the timing of market introduction;

·the number and clinical profile of competing products;

·our ability to provide acceptable evidence of safety and efficacy;

·the prevalence and severity of any side effects;

·
relative convenience and ease of administration, particularly as AM-101Keyzilen® and AM-111 require multiple outpatient proceduresSonsuvi® have to administerbe administered by an ear, nose, throat physician, and in case of Keyzilen® the drug;procedure has to be repeated for a total of three times;

cost-effectiveness;
·
•cost-effectiveness;

·
patient diagnostics and screening infrastructure in each market, particularly as AM-101Keyzilen®, Sonsuvi® and AM-111AM-125, are being developed for the treatment of acute inner ear disorders and are thus dependent on a relatively rapid diagnosis and dosing process;

·marketing and distribution support;

·availability of coverage, reimbursement and adequate payment from health maintenance organizations and other third-party payors, both public and private; and

·other potential advantages over alternative treatment methods.

marketing and distribution support;
availability of coverage, reimbursement and adequate payment from health maintenance organizations and other third-party payors, both public and private; and
other potential advantages over alternative treatment methods.
If our product candidates fail to gain market acceptance, this will have a material adverse impact on our ability to generate revenues to provide a satisfactory, or any, return on our investments. Even if some products achieve market acceptance, the market may prove not to be large enough to allow us to generate significant revenues.

In addition, the potential market opportunity of AM-101Keyzilen®, Sonsuvi®, AM-125 and AM-111AM-201 are difficult to precisely estimate. Our estimates of the potential market opportunity are predicated on several key assumptions such as industry

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knowledge and publications, third-party research reports and other surveys. While we believe that our internal assumptions are reasonable, these assumptions involve the exercise of significant judgment on the part of our management, are inherently uncertain and the reasonableness of these assumptions could not have been assessed by an independent source in every detail. If any of the assumptions proves to be inaccurate, then the actual market for AM-101Keyzilen®, Sonsuvi®, AM-125 and AM-111AM-201 could be smaller than our estimates of the potential market opportunity. If the actual market for AM-101Keyzilen®, Sonsuvi®, AM-125 and AM-111AM-201 is smaller than we expect, or if the products fail to achieve an adequate level of acceptance by physicians, health care payors and patients, our product revenue may be limited and it may be more difficult for us to achieve or maintain profitability.

We have never commercialized a product candidate before and may lack the necessary expertise, personnel and resources to successfully commercialize our products on our own or together with suitable partners.

We have never commercialized a product candidate, and we currently have no sales force, marketing or distribution capabilities. To achieve commercial success for AM-101, AM-111Keyzilen®, Sonsuvi®, AM-125 and our other product candidates, we will have to develop our own sales, marketing and supply organization or outsource these activities to a third party.

Factors that may affect our ability to commercialize our product candidates on our own include recruiting and retaining adequate numbers of effective sales and marketing personnel, obtaining access to or persuading adequate numbers of physicians to prescribe our drug candidates and other unforeseen costs associated with creating an independent sales and marketing organization. Developing a sales and marketing organization requires significant investment, is time-consuming and could delay the launch of our product candidates. We may not be able to build an effective sales and marketing organization. If we are unable to build our own distribution and marketing capabilities or to find suitable partners for the commercialization of our product candidates, we may not generate revenues from them or be able to reach or sustain profitability.

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Risks Related to Our Reliance on Third Parties

We have several areas of disagreement with Xigen, and consequently our relationship with Xigen may be adversely affected, we could potentially lose our right to commercialize AM-111Sonsuvi® and our business, commercialization prospects and financial condition may be adversely affected.

We have several areas of disagreement with Xigen S.A., or Xigen, with whom we have an agreement pursuant to which Xigen granted us an exclusive worldwide license to use specified compounds to develop, manufacture and commercialize “pharmaceutical products as well as drug delivery devices and formulations for local administration of therapeutic substances to the inner ear for the treatment of ear disorders” (the Area). We differ from Xigen in our interpretation of the definition of the Area. We interpret “Area,” as it pertains to pharmaceutical products, as not limited to local administration to the inner ear, but inclusive of the use of pharmaceutical products generally for the treatment of ear disorders (and that the limitation of “local administration to the inner ear” applies only to “drug delivery devices and formulations”). Xigen has adopted the interpretation that the license is limited to local administration for both pharmaceutical products and drug delivery and formulations. This difference in interpretation has no impact on our current or planned use of AM-111Sonsuvi® delivered locally via intratympanic treatment.

In addition, in October 2013, Xigen assigned certain of the patents relevant to the agreement to Xigen Inflammation Ltd., an unaffiliated entity organized in Cyprus. We consider this transfer to be in breach of the agreement since our prior written approval was not sought, although Xigen Inflammation Ltd. has confirmed to us that the assignment of patents is without prejudice to our license for local administration. In the past, Xigen has also requested from us quantities of AM-111Sonsuvi® for certain analyses, although we believe the quantities requested exceed what laboratories would generally require for such tests.

The agreement contains a confidentiality provision restricting the disclosure of the terms of the agreement. We believe that Xigen may have waived the confidentiality provision of the agreement by disclosing the terms of the agreement to Xigen Inflammation Ltd., although Xigen has denied that any disclosure of the agreement has been made to the assignee despite the assignee’s assurance that the assignment was without prejudice to our license for local administration. Despite this, in connection with our initial public offering, we sought Xigen’s consent to disclose certain provisions of the agreement and file a redacted version of the agreement with the SEC. Xigen, however, was only willing to provide its consent if we agreed to limit the scope of the definition of “Area,” desist from claims that the transfer of patents to Xigen Inflammation Ltd. was in breach of the agreement and provide Xigen with certain quantities of the active substance of AM-111Sonsuvi® for analysis.

We believe Xigen’s demands were unreasonable and unwarranted, and therefore we were not able to come to an agreement with Xigen prior to disclosing certain provisions of the agreement in the prospectus relating to our initial public offering and filing a redacted version of the agreement. Xigen may consider such disclosure to be a breach of the confidentiality provision of the agreement. The agreement is governed by Swiss law, and the venue is Solothurn, Switzerland. In the opinion of our Swiss

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counsel, while there can be no assurances, this disclosure by us does not rise to the level of material breach that would allow Xigen to repudiate the agreement.

We cannot predict the result of these disagreements with Xigen and any litigation that may result. While Xigen has taken no action as of the date of this Annual Report, Xigen may attempt to repudiate the contract and initiate a claim for damages against us. According to our Swiss counsel, Xigen would have to show that it had suffered a loss due to the disclosure of the redacted agreement and certain provisions of the agreement in the prospectus associated with our initial public offering, and the damages could be equal to the amount of the effective direct damage that Xigen proves it has suffered.

These disagreements, and in particular any resulting litigation, could result in substantial legal expenses, distraction to our management and employees and potentially the loss of our right to commercialize AM-111.Sonsuvi®. No assurance can be given that these disagreements and any resulting litigation will not have a material adverse effect on our business, commercialization prospects for AM-111Sonsuvi® and our other product candidates and our financial condition. For a description of our agreement with Xigen, please see “Item 4. Information on the Company—B. Business overview—Collaboration and License Agreements—Xigen.”

If we fail to maintain our current strategic relationships with INSERM and Xigen, our business, commercialization prospects and financial condition may be materially adversely affected.

We have a co-ownership/exploitation agreement with the Institut National de la Santé et de la Recherche Médicale, or INSERM, governing the exploitation of any products derived from patents that resulted from our joint research program with INSERM that was conducted in 2003 to 2005. Under this agreement with INSERM, we are given the exclusive right to exploit the patents issuing from the filed patent applications for all claimed

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applications, including the treatment of tinnitus, in order to develop, promote, manufacture, cause to be manufactured, use, sell and distribute any products, processes or services deriving from such patents, including AM-101,Keyzilen®, in any country in which these patent applications have been filed during the term of the agreement. We alone are entitled to grant manufacturing or sales licenses for any patents to our subsidiaries and/or third parties. INSERM is entitled to use the inventions covered by the patents and applications for its own research purposes, free of charge, but may not generate any direct or indirect profits from such use. We have agreed to finance any additional research and development work necessary to obtain marketing authorizations for inventions covered by these patents and applications. If we fail to use reasonable efforts in carrying out this additional research, then INSERM may revoke the exclusivity of exploitation granted to us under this agreement. Additionally, we have an exclusive worldwide license from Xigen for the application of Xigen’s novel intracellular peptide therapeutics in the area of ear disorders. These intellectual property rights have been the basis of our research and development of AM-101 Keyzilen® and AM-111.

Sonsuvi®.

Good relationships with INSERM and Xigen are important for our business prospects. If our relationships with INSERM or Xigen were to deteriorate substantially or INSERM or Xigen were to challenge our use of their intellectual property or our calculations of the payments we owe under our agreements, our business, financial condition, commercialization prospects and results of operations could be materially adversely affected.

We may seek to form additional strategic alliances in the future with respect to our product candidates, and if we do not realize the benefits of such alliance, our business, financial condition, commercialization prospects and results of operations may be materially adversely affected.

Our product development programs and the potential commercialization of our product candidates will require substantial additional cash to fund expenses and may require expertise, such as sales and marketing expertise, which we do not currently possess. Therefore, in addition to our relationships with INSERM and Xigen, for our AM-101 Keyzilen® and AM-111Sonsuvi® product candidates respectively, for one or more of our product candidates, we may decide to enter into strategic alliances, or create joint ventures or collaborations with pharmaceutical or biopharmaceutical companies for the further development and potential commercialization of those product candidates.

We face significant competition in seeking appropriate collaborators. Collaborations are complex and time-consuming to negotiate and document. Any delays in entering into new strategic partnership agreements related to our product candidates could delay the development and commercialization of our product candidates and reduce their competitiveness even if they reach the market. We may also be restricted under existing and future collaboration agreements from entering into strategic partnerships or collaboration agreements on certain terms with other potential collaborators. We may not be able to negotiate collaborations on acceptable terms, or at all, for any of our existing or future product candidates and programs because the potential partner may consider that our research and development pipeline is insufficiently developed to justify a collaborative effort, or that our product candidates and programs do not have the requisite potential to demonstrate safety and efficacy in the target population. If we are unsuccessful in establishing and maintaining a collaboration with respect to a particular product candidate, we may have to curtail the development of that product candidate, reduce the scope of or delay its development

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program or one or more of our other development programs, delay its potential commercialization or reduce the scope of our sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense for which we have not budgeted. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we will not be able to bring our product candidates to market and generate product revenue. Even if we are successful in establishing a new strategic partnership or entering into a collaboration agreement, we cannot be certain that, following such a strategic transaction or license, we will be able to progress the development and commercialization of the applicable product candidates as envisaged, or that we will achieve the revenues that would justify such transaction, and we could be subject to the following risks, each of which may materially harm our business, commercialization prospects and financial condition:

·we may not be able to control the amount and timing of resources that the collaboration partner devotes to the product development program;

·the collaboration partner may experience financial difficulties;

·we may be required to relinquish important rights such as marketing, distribution and intellectual property rights;

·a collaboration partner could move forward with a competing product developed either independently or in collaboration with third parties, including our competitors; or

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resources that the collaboration partner devotes to the product development program;
·business combinations or significant changes in a collaboration partner’s business strategy may adversely affect our willingness to complete our obligations under any arrangement.

the collaboration partner may experience financial difficulties;
we may be required to relinquish important rights such as marketing, distribution and intellectual property rights;
a collaboration partner could move forward with a competing product developed either independently or in collaboration with third parties, including our competitors; or
business combinations or significant changes in a collaboration partner’s business strategy may adversely affect our willingness to complete our obligations under any arrangement.
We rely on third parties to conduct our nonclinical and clinical trials and perform other tasks for us. If these third parties do not successfully carry out their contractual duties, meet expected deadlines, or comply with regulatory requirements, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed.

We have relied upon and plan to continue to rely upon third-party CROs to monitor and manage data for our ongoing nonclinical and clinical programs, including the clinical trials of AM-101Keyzilen®, Sonsuvi®, AM-125 and AM-111.AM-201. We rely on these parties for execution of our nonclinical and clinical studies and control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our trials is conducted in accordance with the applicable protocol, legal, regulatory, and scientific standards and our reliance on the CROs does not relieve us of our regulatory responsibilities. We and our CROs and other vendors are required to comply with cGMP, cGCP, and Good Laboratory Practice, or GLP, which are regulations and guidelines enforced by the FDA, the Competent Authorities of the Member States of the European Union and comparable foreign regulatory authorities for all of our product candidates in nonclinical and clinical development. Regulatory authorities enforce these regulations through periodic inspections of study sponsors, principal investigators, trial sites and other contractors. If we or any of our CROs or vendors fail to comply with applicable regulations, the data generated in our nonclinical and clinical trials may be deemed unreliable and the EMA, FDA, other regulatory authorities may require us to perform additional nonclinical and clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that all of our clinical trials comply with cGCP regulations. In addition, our clinical trials must be conducted with product produced under cGMP regulations. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process.

If any of our relationships with these third-party CROs terminates, we may not be able to enter into arrangements with alternative CROs or do so on commercially reasonable terms. In addition, our CROs are not our employees, and except for remedies available to us under our agreements with such CROs, we cannot control whether or not they devote sufficient time and resources to our on-going nonclinical and clinical programs. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our protocols, regulatory requirements, or for other reasons, our clinical trials may be extended, delayed, or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. CROs may also generate higher costs than anticipated. As a result, our results of operations and the commercial prospects for our product candidates would be harmed, our costs could increase, and our ability to generate revenue could be delayed.

Switching or adding additional CROs involves additional cost and requires management time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays occur, which can materially impact our ability to meet our desired clinical development timelines. Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter similar challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition, and prospects.


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We currently rely on third-party suppliers and other third parties for production of our product candidates and our dependence on these third parties may impair the advancement of our research and development programs and the development of our product candidates.

We currently rely on and expect to continue to rely on third parties, for the manufacturing and supply of chemical compounds for the clinical trials of our product candidates, including AM-101Keyzilen®, Sonsuvi®, AM-125 and AM-111,AM-201, and others for the manufacturing and supply of pre-filled syringes.syringes and spray pumps. For the foreseeable future, we expect to continue to rely on such third parties for the manufacture of any of our product candidates on a clinical or commercial scale, if any of our product candidates receives regulatory approval. Reliance on third-party providers may expose us to different risks than if we were to manufacture product candidates ourselves. The facilities used by our contract manufacturers to manufacture our product candidates must be approved by the FDA or other regulatory authorities pursuant to inspections that will be conducted after we submit our NDA or comparable marketing application to the FDA or other regulatory authority. Although we have auditing rights with all our manufacturing counterparties, we do not have control over a supplier’s or manufacturer’s compliance with these laws, regulations and applicable cGMP standards and other laws and regulations, such as those related to environmental health and safety matters. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or others, they will not be

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able to secure and/or maintain regulatory approval for their manufacturing facilities. In addition, we have no control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of our product candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved. Any failure to achieve and maintain compliance with these laws, regulations and standards could subject us to the risk that we may have to suspend the manufacturing of our product candidates or that obtained approvals could be revoked, which would adversely affect our business and reputation. Furthermore, third-party providers may breach agreements they have with us because of factors beyond our control. They may also terminate or refuse to renew their agreements because of their own financial difficulties or business priorities, potentially at a time that is costly or otherwise inconvenient for us. If we were unable to find adequate replacement or another acceptable solution in time, our clinical trials could be delayed or our commercial activities could be harmed.

In addition, the fact that we are dependent on our suppliers and other third parties for the manufacture, storage and distribution of our product candidates means that we are subject to the risk that our product candidates and, if approved, commercial products may have manufacturing defects that we have limited ability to prevent or control. The sale of products containing such defects could result in recalls or regulatory enforcement action that could adversely affect our business, financial condition and results of operations.

Growth in the costs and expenses of components or raw materials may also adversely influence our business, financial condition and results of operations. Supply sources could be interrupted from time to time and, if interrupted, that supplies could be resumed (whether in part or in whole) within a reasonable timeframetime frame and at an acceptable cost or at all.

Our current and anticipated future dependence upon others for the manufacturing of AM-101, AM-111Keyzilen®, Sonsuvi®, AM-125 and any other product candidate that we develop may adversely affect our future profit margins and our ability to commercialize any products that receive marketing approval on a timely and competitive basis.

The drug substance and drug product for our product candidates are currently acquired from single-source suppliers. The loss of these suppliers, or their failure to supply us with the drug substance or drug product, could materially and adversely affect our business.

We do not currently, and do not expect to in the future, independently conduct manufacturing activities for our product candidates, including AM-101Keyzilen®, Sonsuvi®, AM-125 and AM-111.AM-201. We currently have a relationship with one supplier each, for the supply of the active pharmaceutical ingredientsAPI of Keyzilen®, Sonsuvi®, AM-125 and the hyaluronic acid component of AM-101 and AM-111.AM-201. We are reliant upon single source third partythird-party contract manufacturing organizations to manufacture and supply the drug substance and drug product and components thereof for each of AM-101Keyzilen®, Sonsuvi®, AM-125 and AM-111.AM-201. We do not currently have any other suppliers for the drug substance or drug product of our product candidates and, although we believe that there are alternate sources of supply that could satisfy our clinical and commercial requirements, and we have performed some preliminary investigations to assess this availability, we cannot assure you that identifying alternate sources and establishing relationships with such sources would not result in significant delay in the development of our product candidates. Additionally, we may not be able to enter into supply arrangements with alternative suppliers on commercially reasonable terms, or at all. A delay in the development of our product candidates or having to enter into a new agreement with a different third party on less favorable terms than we have with our current suppliers could have a material adverse impact upon on our business.


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Risks Related to Intellectual Property

If we or our licensors are unable to obtain and maintain effective patent rights for our technologies, product candidates or any future product candidates, or if the scope of the patent rights obtained is not sufficiently broad, we may not be able to compete effectively in our markets.

We rely upon a combination of patents, trade secret protection, and confidentiality agreements to protect the intellectual property related to our technologies and product candidates. Our success depends in large part on our and our licensors’ ability to obtain and maintain patent and other intellectual property protection in the United States and in other countries with respect to our proprietary technology and products.

We have sought to protect our proprietary position by filing patent applications in the United States and abroad related to our novel technologies and products that are important to our business. This process is expensive and time consuming,time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost, in a timely manner or in all jurisdictions. It is also possible that we will fail to

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identify patentable aspects of our research and development output before it is too late to obtain patent protection. Moreover, in some circumstances, we do not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering technology that we license from third parties. Therefore, these patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business.

The patent position of biotechnology and pharmaceutical companies generally is highly uncertain and involves complex legal and factual questions for which legal principles remain unsolved. The patent applications that we own or in-license may fail to result in issued patents with claims that cover our product candidates in the United States or in other foreign countries. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions remain confidential for a period of time after filing, and some remain so until issued, weissued. We cannot be certain that we were the first to file any patent application related to our product candidates, or whether we were the first to make the inventions claimed in our owned patents or pending patent applications, nor can we know whether those from whom we license patents were the first to make the inventions claimed or were the first to file. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. There is no assurance that all potentially relevant prior art relating to our patents and patent applications has been found, which can invalidate a patent or prevent a patent from issuing from a pending patent application. Even if patents do successfully issue, and even if such patents cover our product candidates, third parties may challenge their validity, enforceability, or scope, which may result in such patents being narrowed, found unenforceable or invalidated, which could allow third parties to commercialize our technology or products and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third party patent rights. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property, provide exclusivity for our product candidates, prevent others from designing around our claims or provide us with a competitive advantage. Any of these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our business.

We, independently or together with our licensors, have filed several patent applications covering various aspects of our product candidates. We cannot offer any assurances about which, if any, patents will issue, the breadth of any such patent or whether any issued patents will be found invalid and unenforceable or will be challenged by third parties. Any successful opposition to these patents or any other patents owned by or licensed to us after patent issuance could deprive us of rights necessary for the successful commercialization of any product candidates that we may develop. Further, if we encounter delays in regulatory approvals, the period of time during which we could market a product candidate under patent protection could be reduced.

We may not have sufficient patent terms to effectively protect our products and business.

Patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after it is filed. Although various extensions may be available, the life of a patent, and the protection it affords, is limited. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours or otherwise provide us with a competitive advantage. Even if patents covering our product candidates are obtained, once the patent life has expired for a product, we may be open to competition from generic medications.

While patent term extensions under the Hatch-Waxman Act in the United States and under supplementary protection certificates in Europe may be available to extend the patent exclusivity term for AM-101Keyzilen®, Sonsuvi®, AM-125 and AM-111,AM-201, we cannot provide any assurances that any such patent term extension will be obtained and, if so, for how long. Specifically, Xigen is concurrently developing another indication for XG-102, the active substanceIn addition,

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upon issuance in the United States any patent term can be adjusted based on certain delays caused by the applicant(s) or the U.S. Patent and Trademark Office, or USPTO. For example, a patent term can be reduced based on certain delays caused by the patent applicant during patent prosecution.

While in both the United States and Europe there is a possibility to obtainof obtaining market protection independent from any patent protection for up to 53 and 105 years from approval, respectively,and in the European Union one may obtain data exclusivity of eight years from approval with an additional two years of market exclusivity (which can potentially be extended by one year), there is no assurance that we can obtain such data exclusivity and market protection with respect to AM-101, AM-111,Keyzilen®, Sonsuvi®, AM-125, or any of our other product candidates. Our issued patents and pending patent applications are expected to expire for AM-101 Keyzilen® between 20242025 and 2028, and

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for AM-111Sonsuvi® between 2020 and 2027, and for AM-125 and AM-201 between 2025 and 2037, prior to any patent term extensions to which we may be entitled under applicable laws.

Janssen, a subsidiary of Johnson & Johnson, has been testing Esketamine in a spray formulation for intranasal treatment of treatment-resistant depression in several clinical trials to date, with a Phase 3 program starting in 2015. In November 2014, the FDA designated Esketamine a ‘breakthrough therapy’ for this indication. In the event that Janssen’s confirmatory trials are successful and the company receives marketing authorization prior to us receiving marketing authorization for AM-101, we would lose the potential benefit of a five year market exclusivity period that we would otherwise expect to obtain.

Patent policy and rule changes could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.

Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection. The laws of foreign countries may not protect our rights to the same extent as the laws of the United States. Assuming the other requirements for patentability are met, in the United States prior to March 15, 2013, the first to make the claimed invention is entitled to the patent, while outside the United States, the first to file a patent application is entitled to the patent. After March 15, 2013, under the Leahy-Smith America Invents Act, or the Leahy-Smith Act, enacted on September 16, 2011, the United States has moved to a first to file system. The Leahy-Smith Act also includes a number of significant changes that affect the way patent applications will be prosecuted and may also affect patent litigation. The effects of these changes are currently unclear as the USPTO must still implement various regulations, the courts have yet to address any of these provisions and the applicability of the act and new regulations on specific patents discussed herein have not been determined and would need to be reviewed. In general, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial condition. In addition, recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on future actions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.

If we are unable to maintain effective proprietary rights for our technologies, product candidates or any future product candidates, we may not be able to compete effectively in our markets.

In addition to the protection afforded by patents, we rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable or that we elect not to patent, processes for which patents are difficult to enforce and any other elements of our product candidate discovery and development processes that involve proprietary know-how, information or technology that is not covered by patents. However, trade secrets can be difficult to protect. We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements with our employees, consultants, scientific advisors, and contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems. While we have confidence in these individuals, organizations and systems, agreements or security measures may be breached, and we may not have adequate remedies for any breach. Moreover, if any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent such competitor from using that technology or information to compete with us, which could harm our competitive position.

Although we expect all of our employees and consultants to assign their inventions to us, and all of our employees, consultants, advisors, and any third parties who have access to our proprietary know-how, information or technology to enter into confidentiality agreements, we cannot provide any assurances that all such agreements have been duly executed or that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Misappropriation or unauthorized disclosure of our trade secrets could impair our competitive position and may have a material adverse effect on our business. Additionally, if the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating such trade secrets. In addition, others may independently discover our trade secrets and proprietary information. For example, the FDA, as part of its Transparency Initiative, is currently considering whether to make additional information publicly available on a routine basis,

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including information that we may consider to be


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trade secrets or other proprietary information, and it is not clear at the present time how the FDA’s disclosure policies may change in the future, if at all.

Further, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the U.S. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the U.S. and abroad. If we are unable to prevent material disclosure of the intellectual property related to our technologies to third parties, we will not be able to establish or maintain a competitive advantage in our market, which could materially adversely affect our business, financial condition and results of operations.

Third-party claims of intellectual property infringement may expose us to substantial liability or prevent or delay our development and commercialization efforts.

Our commercial success depends in part on our ability to develop, manufacture, market and sell our product candidates and use our proprietary technology without alleged or actual infringement, misappropriation, or other violation of the patents and proprietary rights of third parties. There have been many lawsuits and other proceedings involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, oppositions, and reexamination proceedings before the USPTO and corresponding foreign patent offices. Numerous U.S.U.S.- and foreign issuedforeign-issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are developing product candidates. Some claimants may have substantially greater resources than we do and may be able to sustain the costs of complex intellectual property litigation to a greater degree and for longer periods of time than we could. In addition, patent holding companies that focus solely on extracting royalties and settlements by enforcing patent rights may target us. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our product candidates may be subject to claims of infringement of the patent rights of third parties.

Third parties may assert that we are employing their proprietary technology without authorization. There may be third-party patents or patent applications with claims to materials, formulations, methods of manufacture, or methods of treatment related to the use or manufacture of our product candidates. Although we generally conduct certain freedom to operate search and review with respect to our product candidates, we cannot guarantee that any of our search and review is complete and thorough, nor can we be sure that we have identified each and every patent and pending application in the United States and abroad that is relevant or necessary to the commercialization of our product candidates. Because patent applications can take many years to issue, there may be currently pending patent applications that may later result in issued patents that our product candidates may infringe. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents. If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of any of our product candidates, any molecules formed during the manufacturing process or any final product itself, the holders of any such patents may be able to block our ability to commercialize such product candidate unless we obtained a license under the applicable patents, or until such patents expire or are finally determined to be invalid or unenforceable. Similarly, if any third-party patents were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture, or methods of use, the holders of any such patents may be able to block our ability to develop and commercialize the applicable product candidate unless we obtained a license or until such patent expires or is finally determined to be invalid or unenforceable. In either case, such a license may not be available on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us.

Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize one or more of our product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, pay royalties, redesign our infringing products or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure.

Additional competitors could enter the market with generic versions of our products, which may result in a material decline in sales of affected products.

Under the Hatch-Waxman Act, a pharmaceutical manufacturer may file an abbreviated new drug application, or Abbreviated New Drug Application, or ANDA, seeking approval of a generic copy of an approved innovator product. Under the Hatch-Waxman Act, a manufacturer may also submit an NDA under section 505(b)(2) that references the FDA’s prior approval of the innovator product. A 505(b)(2) NDA product

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may be for a new or improved version of the original innovator product. Hatch-Waxman also provides for certain periods of regulatory exclusivity, which preclude FDA approval (or in some circumstances, FDA filing and reviewing) of an ANDA, or 505(b)(2) NDA. These include, subject to certain exceptions, the period during which an FDA-approved drug is subject to orphan drug exclusivity. In addition to the benefits of regulatory exclusivity, an innovator NDA holder may have


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patents claiming the active ingredient, product formulation or an approved use of the drug, which would be listed with the product in the FDA publication, “Approved Drug Products with Therapeutic Equivalence Evaluations,” known as the “Orange Book.” If there are patents listed in the Orange Book, a generic or 505(b)(2) applicant that seeks to market its product before expiration of the patents must include in the ANDA what is known as a “Paragraph IV certification,” challenging the validity or enforceability of, or claiming non-infringement of, the listed patent or patents. Notice of the certification must be given to the innovator, too, and if within 45 days of receiving notice the innovator sues to protect its patents, approval of the ANDA is stayed for 30 months, or as lengthened or shortened by the court.

Accordingly, if AM-101Keyzilen®, Sonsuvi®, AM-125 and AM-111AM-201 are approved, competitors could file ANDAs for generic versions of AM-101Keyzilen®, Sonsuvi®, AM-125 and AM-111,AM-201, or 505(b)(2) NDAs that reference AM-101Keyzilen®, AM-111, AM-125 and AM-111,AM-201, respectively. If there are patents listed for AM-101Keyzilen®, Sonsuvi®, AM-125 and AM-111AM-201 in the Orange Book, those ANDAs and 505(b)(2) NDAs would be required to include a certification as to each listed patent indicating whether the ANDA applicant does or does not intend to challenge the patent. We cannot predict whether any patents issuing from our pending patent applications will be eligible for listing in the Orange Book, how any generic competitor would address such patents, whether we would sue on any such patents, or the outcome of any such suit.

We may not be successful in securing or maintaining proprietary patent protection for products and technologies we develop or license. Moreover, if any patents that are granted and listed in the Orange Book are successfully challenged by way of a Paragraph IV certification and subsequent litigation, the affected product could immediately face generic competition and its sales would likely decline rapidly and materially. Should sales decline, we may have to write off a portion or all of the intangible assets associated with the affected product and our results of operations and cash flows could be materially and adversely affected.

Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

Periodic maintenance fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. In such an event, our competitors might be able to enter the market, which would have a material adverse effect on our business.

The patent protection and patent prosecution for some of our product candidates is dependent on third parties.

While we normally seek to obtain the right to control prosecution, maintenance and enforcement of the patents relating to our product candidates, there may be times when the filing and prosecution activities for patents relating to our product candidates are controlled by our licensors. This is the case under our agreement with Xigen, where Xigen is entirely responsible for the prosecution and maintenance of the licensed patents and patent applications directed to AM-111.Sonsuvi®. Xigen has no obligation to provide us any information with respect to such prosecution and we will not have access to any patent prosecution or maintenance information that is not publicly available. Although we monitor Xigen’s ongoing prosecution and maintenance of the licensed patents, if Xigen or any of our future licensing partners fail to prosecute, maintain and enforce such patents and patent applications in a manner consistent with the best interests of our business, including by payment of all applicable fees for patents covering AM-111Sonsuvi® or any of our product candidates, we could lose our rights to the intellectual property or our exclusivity with respect to those rights, our ability to develop and commercialize those product candidates may be adversely affected and we may not be able to prevent competitors from making, using, and selling competing products. Specifically, Xigen is concurrently developing another indication for XG-102,brimapitide (XG-102), the active substance of AM-111.Sonsuvi®. This may cause a conflict of interest and adversely affect Xigen’s ability to prosecute the patent portfolio licensed to us in the best interest of our business. In addition, even where we have the right to control patent prosecution of patents and patent applications we have licensed from third parties including with respect to the patents and applications licensed to us under our co-ownership and

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exploitation agreement with INSERM for AM-101,Keyzilen®, we may still be adversely affected or prejudiced by actions or inactions of our licensors and their counsel that took place prior to the date upon which we assumed control over patent prosecution. We are required to consult and cooperate with INSERM regarding the prosecution, maintenance, and enforcement of, and in certain instances INSERM has the right to independently enforce, the relevant patents, which may place those patients at risk or hinder our ability to develop and commercialize those product candidates or protect our patent rights.


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If we fail to comply with the obligations in our intellectual property agreements, including those under which we license intellectual property and other rights from third parties, or otherwise experience disruptions to our business relationships with our licensors and partners, we could lose intellectual property rights that are important to our business.

We are a party to a number of intellectual property license and co-ownership agreements that are important to our business and expect to enter into additional such agreements in the future. Our existing agreements impose, and we expect that future agreements will impose, various diligence, commercialization, milestone payment, royalty, and other obligations on us. If we fail to comply with our obligations under these agreements, or we are subject to a bankruptcy, we may be required to make certain payments to the licensor, we may lose the exclusivity of our license, or the licensor may have the right to terminate the license, in which event we would not be able to develop or market products covered by the license. Moreover, if we fail to comply with our obligations under our co-ownership and exploitation agreement with INSERM for AM-101,Keyzilen®, including certain commercialization requirements, or we are subject to a bankruptcy, INSERM may terminate the agreement and we may lose our rights to exclusively exploit and commercialize the applicable patents. In such event we would not be able to prevent INSERM from exploiting or licensing to the third parties the rights to exploit the applicable patents, which would have a material adverse effect on our ability to successfully commercialize the affected product candidates. Under our co-ownership agreement with INSERM we may be required to assign our rights in the relevant patents to INSERM if we choose not to or fail to continue to prosecute maintain or patents or patent applications in a given country or countries, in which event we would not be able to develop or market products covered by the applicable patents.

Licensing of intellectual property is of critical importance to our business and involves complex legal, business, and scientific issues. Disputes may arise regarding intellectual property subject to a licensing or co-ownership agreement, including:

·the scope of rights granted under the agreement and other interpretation-related issues;

·the extent to which our technology and processes infringe on intellectual property of the licensor or partner that is not subject to the agreement;

·the sublicensing of patent and other rights;

·our diligence and commercialization obligations under the agreement and what activities satisfy those obligations;

·the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors or partners and us and our collaborators; and

·the priority of invention of patented technology.

the scope of rights granted under the agreement and other interpretation-related issues;
the extent to which our technology and processes infringe on intellectual property of the licensor or partner that is not subject to the agreement;
the sublicensing of patent and other rights;
our diligence and commercialization obligations under the agreement and what activities satisfy those obligations;
the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors or partners and us and our collaborators; and
the priority of invention of patented technology.
If disputes over intellectual property and other rights that we have licensed or co-own prevent or impair our ability to maintain our current licensing or exclusivity arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates.

We may not be successful in obtaining or maintaining necessary rights to our product candidates through acquisitions and in-licenses.

We currently have rights to the intellectual property, through licenses from third parties and under patents that we own, to develop our product candidates. Because our programs may require the use of proprietary rights held by third parties, the growth of our business will likely depend in part on our ability to acquire, in-license, maintain or use these proprietary rights. In addition, our product candidates may require specific formulations to work effectively and efficiently and the rights to these formulations may be held by others. We may be unable to acquire or in-license any compositions, methods of use, processes, or other third-party intellectual property rights from third parties that we identify as necessary for our product candidates. The licensing and acquisition

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of third-party intellectual property rights is a competitive area, and a number of more established companies are also pursuing strategies to license or acquire third-party intellectual property rights that we may consider attractive. These established companies may have a competitive advantage over us due to their size, cash resources, and greater clinical development and commercialization capabilities.

For example, we sometimes collaborate with U.S. and foreign academic institutions to accelerate our pre-clinical research or development under written agreements with these institutions. Typically, these institutions provide us with an option to negotiate a license to any of the institution’s rights in technology resulting from the collaboration. Regardless of such option, we may be unable to negotiate a license within the specified timeframe or under terms that are acceptable to us. If we are unable to do so, the institution may offer the intellectual property rights to other parties, potentially blocking our ability to pursue our applicable product candidate or program.

In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third-party intellectual property rights on terms that would allow us to make an appropriate return on our investment. If we are unable to successfully obtain a license to third-party intellectual property rights necessary

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for the development of a product candidate or program, we may have to abandon development of that product candidate or program and our business and financial condition could suffer.

We may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time consuming,time-consuming, and unsuccessful.

Competitors may infringe our patents or the patents of our licensors. To counter such infringement, we may be required to file claims against those competitors, which can be expensive and time-consuming. If we or one of our licensing partners were to initiate legal proceedings against a third party to enforce a patent covering one of our product candidates, the defendant could counterclaim that the patent covering our product candidate is invalid, overbroad and/or unenforceable, or that we infringe the defendant’s patents. In patent litigation in the United States, defendant counterclaims alleging invalidity, overbreadth and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. The outcome following legal assertions of invalidity and unenforceability is unpredictable. A court may decide that a patent of ours is invalid or unenforceable, in whole or in part, construe the patent’s claims narrowly or refuse to stop a third party from using the technology in question on the grounds that our patents do not cover that technology. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated or interpreted narrowly, which could adversely affect us.

Interference proceedings provoked by third parties or brought by us or declared by the USPTO may be necessary to determine the priority of inventions with respect to our patents or patent applications or those of our licensors. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms or at all. Our defense of litigation or interference proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees. In addition, the uncertainties associated with litigation could have a material adverse effect on our ability to raise the funds necessary to continue our clinical trials, continue our research programs, license necessary technology from third parties, or enter into development partnerships that would help us bring our product candidates to market. We may not be able to prevent, alone or with our licensors, misappropriation of our intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the United States.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions, or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our common shares.

On July 20, 2015, the USPTO Office declared Patent Interference No. 106,030 involving our issued U.S. patent No. 9,066,865 (the “865“‘865 Patent”) and Otonomy’s U.S. patent application No. 13/848,636.848,636 (the “‘636 Application”). The patent interference identifies ouridentified claims No. 1-9 in USthe ‘865 Patent No. 9,066,865 as interfering with Otonomy’s claims No. 38, 43 and 46-50. Our 86546-50 of the ‘636 Application. The ‘865 Patent relates todiscloses methods of treating inner or middle ear diseases with intratympanic injections of poloxamer-based compositions. The claims of the ‘865 Patent are directed to the use of fluoroquinolone antibiotics in

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poloxamer 407 compositions under certain specifications. While we cannot assure youOn January 26, 2017, the USPTO issued a decision on the interference granting Auris benefit of priority. As a result of the outcomedecision, judgment was entered against Otonomy and all claims in the ‘636 Application were refused. In addition, claims 1-8 of these proceedings, we do not expect the proceedings‘865 Patent were cancelled as the result of the USPTO’s determination that the written description of the specification lacked full scope support for treating middle or inner ear disease with fluoroquinolone. However, claim 9, which is directed to impacta method of treating viral and bacterial infections with intratympanic injection of a fluoroquinolone antibiotic in a poloxamer 407 composition under certain specifications, was affirmed. On March 27, 2017, Otonomy submitted a notice of appeal to the United States Court of Appeals for the Federal Circuit.  To preserve its rights, Auris filed a notice of cross-appeal on April 5, 2017.  Otonomy subsequently filed its opening brief on July 20, 2017, and Auris filed its principal and response brief on October 27, 2017.  On January 5, 2018, Otonomy filed its opposition and reply brief.  Auris filed its reply brief on February 2, 2018. On August 1, 2018, the United States Court of Appeals for the Federal Circuit reversed the USPTO Patent Trial and Appeal Board’s determination of priority in our intellectual property portfoliofavor relating to AM-101the July 2015 USPTO declaration of patent interference (No. 106,030) involving our issued ‘865 Patent and AM-111.

Otonomy’s ‘636 Application. We believe that this ruling will not materially impact any of our development programs.


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We may be subject to claims that our employees, consultants, or independent contractors have wrongfully used or disclosed confidential information of third parties or that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.

We employ and utilize the services of individuals who were previously employed or provided services to universities or other biotechnology or pharmaceutical companies. Although we try to ensure that our employees, consultants, and independent contractors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees, consultants, or independent contractors have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of any of our employee’s, consultant’s or independent contractor’s former employer or other third parties. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel, which could adversely impact our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

Our reliance on our advisors, employees and third parties requires us to share our intellectual property and trade secrets, which increases the possibility that a competitor will discover them or that our intellectual property will be misappropriated or disclosed.

Because we rely on our advisors, employees and third-party contractors and consultants to research and develop and to manufacture our product candidates, we must, at times, share our intellectual property with them. We seek to protect our intellectual property and other proprietary technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements, consulting agreements or other similar agreements with our advisors, employees, third-party contractors and consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of these advisors, employees and third parties to use or disclose our confidential information, including our intellectual property and trade secrets. Despite the contractual provisions employed when working with these advisors, employees and third parties, the need to share intellectual property and other confidential information increases the risk that such confidential information becomes known by our competitors, are inadvertently incorporated into the product development of others or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how, intellectual property and trade secrets, a competitor’s discovery of our intellectual property or trade secrets or other unauthorized use or disclosure would impair our competitive position and may have a material adverse effect on our business.

In addition, these agreements typically restrict the ability of our advisors, employees, third-party contractors and consultants to publish data potentially relating to our intellectual property, although our agreements may contain certain limited publication rights. For example, any academic institution that we may collaborate with in the future may expect to be granted rights to publish data arising out of such collaboration, provided that we are notified in advance and given the opportunity to delay publication for a limited time period in order for us to secure patent protection of intellectual property rights arising from the collaboration, in addition to the opportunity to remove confidential or trade secret information from any such publication. In the future, we may also conduct joint research and development programs that may require us to share intellectual property under the terms of our research and development or similar agreements. Despite our efforts to protect our intellectual property, our competitors may discover our trade secrets or know how, either through breach of our agreements with third parties, independent development or publication of information by any of our third-party collaborators. A competitor’s discovery of our intellectual property would impair our competitive position and have an adverse impact on our business.

We may be subject to claims challenging the inventorship of our patents and other intellectual property.

We may be subject to claims that former employees, collaborators or other third parties have an interest in our patents or other intellectual property as an inventor or co-inventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship or our ownership of our patents or other intellectual property. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

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We may not be able to protect our intellectual property rights throughout the world.

Filing, prosecuting, and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from

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practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. As part of ordinary course prosecution and maintenance activities, we determine whether to seek patent protection outside the U.S. and in which countries. This also applies to patents we have acquired or in-licensed from third parties. In some cases this means that we, or our predecessors in interest or licensors of patents within our portfolio, have sought patent protection in a limited number of countries for patents covering our product candidates. Competitors may use our technologies in jurisdictions where we have not obtained or are unable to adequately enforce patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets, and other intellectual property protection, particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents, the reproduction of our manufacturing or other know-how or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

Risks Related to Employee Matters and Managing Growth

Our future growth and ability to compete depends on retaining our key personnel and recruiting additional qualified personnel.

Our success depends upon the continued contributions of our key management, scientific and technical personnel, many of whom have substantial experience with or been instrumental for us and our projects. Key management includes our executive officers Thomas Meyer, our founder, Chairman and Chief Executive Officer Sven Zimmermann, ourand Hernan Levett, Chief Financial Officer, Bettina Stubinski, our Chief Medical Officer and Anne Sabine Zoller, our General Counsel.

Officer.

The loss of key managers and senior scientists could delay our research and development activities. Laws and regulations on executive compensation, including legislation in our home country, Switzerland, may restrict our ability to attract, motivate and retain the required level of qualified personnel. In Switzerland, new legislation affecting public companies has been passed that, among other things, (a) imposes an annual binding shareholders’ “say on pay” vote with respect to the compensation of executive management, including executive officers and the board of directors, (b) prohibits severance, advances, transaction premiums and similar payments to executive officers and directors and (c) requires companies to specify various compensation-related matters in their articles of association, thus requiring them to be approved by a shareholders’ vote. In addition, the competition for qualified personnel in the biopharmaceutical and pharmaceutical field is intense, and our future success depends upon our ability to attract, retain and motivate highly-skilled scientific, technical and managerial employees. We face competition for personnel from other companies, universities, public and private research institutions and other organizations. If our recruitment and retention efforts are unsuccessful in the future, it may be difficult for us to implement business strategy, which could have a material adverse effect on our business.

We expect to expand our sales and marketing, development, and regulatory capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.

We expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of sales and marketing, and to a lesser extent, drug development and regulatory affairs.

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To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The expansion of our operations may lead to significant costs and may divert our management and business development resources. Any inability to manage growth could delay the execution of our business plans or disrupt our operations.

Risks Related to ourOur Common Shares

The price of our common shares may be volatile and may fluctuate due to factors beyond our control.

The share price of publicly traded emerging biopharmaceutical and drug discovery and development companies has been highly volatile and is likely to remain highly volatile in the future. The market price of our common shares may fluctuate significantly due to a variety of factors, including:

·positive or negative results of testing and clinical trials by us, strategic partners, or competitors;

·delays in entering into strategic relationships with respect to development and/or commercialization of our product candidates or entry into strategic relationships on terms that are not deemed to be favorable to us;

·technological innovations or commercial product introductions by us or competitors;

·changes in government regulations;

·developments concerning proprietary rights, including patents and litigation matters;

·public concern relating to the commercial value or safety of any of our product candidates;

·financing or other corporate transactions;

·publication of research reports or comments by securities or industry analysts;

·general market conditions in the pharmaceutical industry or in the economy as a whole; or

·other events and factors beyond our control.

positive or negative results of testing and clinical trials by us, strategic partners, or competitors;

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delays in entering into strategic relationships with respect to development and/or commercialization of our product candidates or entry into strategic relationships on terms that are not deemed to be favorable to us;
technological innovations or commercial product introductions by us or competitors;
changes in government regulations;
developments concerning proprietary rights, including patents and litigation matters;
public concern relating to the commercial value or safety of any of our product candidates;
financing or other corporate transactions;
publication of research reports or comments by securities or industry analysts;
general market conditions in the pharmaceutical industry or in the economy as a whole;
our ability to maintain the listing of our common shares on Nasdaq; or
other events and factors beyond our control.

Additionally, these factors may affect the liquidity of our common shares, which may hurt your ability to sell our common shares in the future. In addition, the stock market in general has recently experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of individual companies. Broad market and industry factors may materially affect the market price of companies’ stock, including ours, regardless of actual operating performance.

Our common shares may be involuntarily delisted from trading on The Nasdaq Capital Market if we fail to comply with the continued listing requirements. A delisting of our common shares is likely to reduce the liquidity of our common shares and may inhibit or preclude our ability to raise additional financing.
We are required to comply with certain Nasdaq continued listing requirements, including a series of financial tests relating to shareholder equity, market value of listed securities and number of market makers and shareholders. If we fail to maintain compliance with any of those requirements, our common shares could be delisted from The Nasdaq Capital Market.
We are currently not in compliance with the quantitative listing standards of the Nasdaq Capital Market, which require, among other things, that listed companies maintain a minimum closing bid price of $1.00 per share. We failed to satisfy this threshold for 30 consecutive trading days and on July 30, 2018, we received a letter from Nasdaq indicating that we had been provided a period of 180 calendar days, or until January 28, 2019, to regain compliance. We did not regain compliance within the 180 days.
On February 6, 2019, we received a letter from Nasdaq stating that due to our continued non-compliance with the minimum $1.00 bid price requirement, our common shares were subject to delisting unless we timely requested a hearing before the Nasdaq Hearings Panel. We timely requested such a hearing on February 8, 2019, which request has stayed any delisting or suspension action by Nasdaq pending the hearing and the expiration of any additional extension period granted following the hearing.
At the hearing, we intend to present our plan to regain compliance with the minimum $1.00 bid price requirement; however, there can be no assurance that the Nasdaq Hearings Panel will grant our request for continued listing or that we will be able to evidence compliance with the applicable listing criteria prior to the expiration of any additional extension period that may be granted to us.
At the hearing, we will commit that in the event that the Nasdaq Hearings Panel grants us an additional compliance period and the bid price of our common shares fails to increase above the $1.00 minimum during such additional compliance period, we will pursue a reverse share split by consolidating our common shares (together with a corresponding increase in the par value thereof) in a ratio determined by the board of directors in order to regain compliance with the $1.00 bid price requirement. At our extraordinary meeting of shareholders held on March 8, 2019, our shareholders approved the Redomestication and approved a memorandum of continuance (the “Memorandum of Continuance”) and new bye-laws (the “Bye-laws”), each of which will become effective upon the Redomestication. Pursuant to the Bye-laws, Auris Medical (Bermuda)’s board of directors will have the ability, after the Redomestication, to effect a reverse share split without further shareholder approval, by consolidating our common shares (together with a corresponding increase in the par value thereof) in a ratio determined by the board of directors. The board of directors may decide to effect a reverse share split at any time after the Redomestication, including prior to the hearing before the Nasdaq Hearings Panel. However, there can be no assurance that we will be able to successfully resolve such noncompliance.
In 2017, we also failed to maintain compliance with the minimum bid price requirement. To address that non-compliance, on March 13, 2018, we effected the Merger, pursuant to which we effected a “reverse share split” at a ratio of 10-for-1.

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Additionally, on January 11, 2018, we received a letter from Nasdaq indicating that we were not in compliance with Nasdaq’s market value of listed securities requirement. As a result of the July 2018 Registered Offering, we resolved the non-compliance with the market value of listed securities requirement by complying with Nasdaq’s minimum equity standard. However, there can be no assurance that we will be able to successfully maintain compliance with the several Nasdaq continued listing requirements.
If, for any reason, Nasdaq should delist our common shares from trading on its exchange and we are unable to obtain listing on another national securities exchange or take action to restore our compliance with the Nasdaq continued listing requirements, a reduction in some or all of the following may occur, each of which could have a material adverse effect on our shareholders:
the liquidity of our common shares;
the market price of our common shares;
our ability to obtain financing for the continuation of our operations;
the number of institutional and general investors that will consider investing in our common shares;
the number of investors in general that will consider investing in our common shares;
the number of market makers in our common shares;
the availability of information concerning the trading prices and volume of our common shares; and
the number of broker-dealers willing to execute trades in shares of our common shares.
Moreover, delisting may make unavailable a tax election that could affect the U.S. federal income tax treatment of holding, and disposing of, our common shares. See “Taxation—Material U.S. Federal Income Tax Considerations for U.S. Holders” below.
In the event that our common shares are delisted from Nasdaq, U.S. broker-dealers may be discouraged from effecting transactions in shares of our common shares because they may be considered penny stocks and thus be subject to the penny stock rules.
On February 6, 2019, we received a letter from Nasdaq stating that due to our continued non-compliance with the minimum $1.00 bid price requirement, our common shares were subject to delisting unless we timely requested a hearing before the Nasdaq Hearings Panel. We timely requested such a hearing on February 8, 2019, which request has stayed any delisting or suspension action by Nasdaq pending the hearing and the expiration of any additional extension period granted following the hearing. If the Nasdaq Hearings Panel does not grant our request for continued listing and our common shares are delisted from trading on Nasdaq, our common shares may be considered to be “penny stock.”
The SEC has adopted a number of rules to regulate “penny stock” that restrict transactions involving stock which is deemed to be penny stock. Such rules include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities Exchange Act of 1934 (the "Exchange Act"). These rules may have the effect of reducing the liquidity of penny stocks. “Penny stocks” generally are equity securities with a price of less than $5.00 per share (other than securities registered on certain national securities exchanges or quoted on the Nasdaq Stock Market if current price and volume information with respect to transactions in such securities is provided by the exchange or system). Our common shares have in the past constituted, and may again in the future constitute, “penny stock” within the meaning of the rules. The additional sales practice and disclosure requirements imposed upon U.S. broker-dealers may discourage such broker-dealers from effecting transactions in our common shares, which could severely limit the market liquidity of such common shares and impede their sale in the secondary market.
 A U.S. broker-dealer selling penny stock to anyone other than an established customer or “accredited investor” (generally, an individual with net worth in excess of  $1,000,000 or an annual income exceeding $200,000, or $300,000 together with his or her spouse) must make a special suitability determination for the purchaser and must receive the purchaser’s written consent to the transaction prior to sale, unless the broker-dealer or the transaction is otherwise exempt. In addition, the “penny stock” regulations require the U.S. broker-dealer to deliver, prior to any transaction involving a “penny stock”, a disclosure schedule prepared in accordance with SEC standards relating to the “penny stock” market, unless the broker-dealer or the transaction is otherwise exempt. A U.S. broker-dealer is also required to disclose commissions payable to the U.S. broker-dealer and the registered representative and current quotations for the securities. Finally, a U.S. broker-dealer is required to submit monthly statements disclosing recent price information with respect to the “penny stock” held in a customer’s account and information with respect to the limited market in “penny stocks.”
Shareholders should be aware that, according to the SEC, the market for “penny stocks” has suffered in recent years from patterns of fraud and abuse. Such patterns include (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (ii) manipulation of prices through prearranged matching of purchases and sales and

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false and misleading press releases; (iii) “boiler room” practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (iv) excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and (v) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, resulting in investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities.
Certain principal shareholders and members of our executive team and board of directors own a majority of our common shares and as a result will be able to exercise significant control over us, and your interests may conflict with the interests of such shareholders.

Certain principal shareholders and their affiliated entities as well as members of our executive team and board of directors own approximately 73.5%17% of our common shares. Depending on the level of attendance at our general meetings of shareholders, these shareholders may be in a position to determine the outcome of decisions taken at any such general meeting. Any shareholder or group of shareholders controlling more than 50% of the shares represented at our general meetings of shareholders may control any shareholder resolution requiring an absolute majority of the shares represented, including the election of members to the board of directors of our company,the Company, certain decisions relating to our capital structure, the approval of certain significant corporate transactions and certain amendments to our articles of association. To the extent that the interests of these shareholders may differ from the interests of the Company’s other shareholders, the latter may be disadvantaged by any action that these shareholders may seek to pursue. Among other consequences, this concentration of ownership may have the effect of delaying or preventing a change in control and might therefore negatively affect the market price of our common shares.

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Future sales, or the possibility of future sales, of a substantial number of our common shares could adversely affect the price of our common shares.

Future sales of a substantial number of our common shares, or the perception that such sales will occur, could cause a decline in the market price of our common shares. Approximately 53.0%17% of our common shares outstanding are held by affiliates. If these shareholders sell substantial amounts of common shares in the public market, or the market perceives that such sales may occur, the market price of our common shares and our ability to raise capital through an issue of equity securities could be adversely affected. Additionally, as of the date of this Annual Report we have warrants outstanding, which are exercisable for an aggregate of 6,544,791 common shares at a weighted average exercise price of $2.33 per share, an equity commitment to sell up to $9.0 million of additional common shares to Lincoln Park Capital Fund, LLC (“LPC”) pursuant to the commitment purchase agreement we entered into on May 2, 2018 with LPC (the “LPC Purchase Agreement”) and an at-the-market offering program pursuant to the sales agreement we entered into with A.G.P./Alliance Global Partners (“A.G.P.”) on November 30, 2018 (the “A.G.P. Sales Agreement”) for sales of up to $25.0 million of additional common shares. In connection with the Redomestication, we will be unable to raise capital through the A.G.P. Sales Agreement unless we successfully renegotiate such agreement with A.G.P. We cannot be certain that we will be able to negotiate the A.G.P. Sales Agreement with the same terms and conditions, or at all. We have also entered into a registration rights agreement pursuant to which we have agreed under certain circumstances to file a registration statement to register the resale of common shares held by certain of our shareholders, as well as to cooperate in certain public offerings of such common shares. We have also filed registration statements to register allthe resale of the common shares underlying the warrants that we have offered and sold in unregistered transactions, the common shares that are sold to LPC and the common shares and other equity securities that we have issued under our prior equity incentive plans or may issue under our new omnibus equity compensation plan. These common shares may be freely sold in the public market upon issuance, subject to certain limitations applicable to affiliates. In addition, we have filed a registration statement covering the issuance and sale by us of up to $100 million of common shares, debt securities, warrants, purchase contracts, units and common shares. We may issue such securities, including our common shares and warrants to purchase common shares, at any time and from time to time subject to the limitations set forth in General Instruction I.B.5 of Form F-3. If a large number of our common shares and/or warrants to purchase common shares are sold in the public market, the sales could reduce the trading price of our common shares and impede our ability to raise future capital.

We have broad discretion in Following the useRedomestication, we intend to update all of our cash and cash equivalents and may not use them effectively.

Our management has broad discretion inexisting registration statements to the use of our cash and cash equivalents and could spend them in ways that do not improve our results of operations or enhance the value of our common shares. The failure by our managementextent necessary to apply these funds effectively could result in financial losses that could have a material adverse effect on our business, cause the price of our common shares to decline and delay the development of our product candidates. Pendingallow for their use, we may invest our cash and cash equivalents in a manner that does not produce income or that loses value.

continued use.

We do not expect to pay dividends in the foreseeable future.

We have not paid any dividends since our incorporation. Even if future operations lead to significant levels of distributable profits, we currently intend that any earnings will be reinvested in our business and that dividends will not be paid until we have an established revenue stream to support continuing dividends. TheFollowing the Redomestication, the proposal to pay future dividends to shareholders will in addition effectively be at the discretion of our board of directors and shareholders after taking into account

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various factors including our business prospects, cash requirements, financial performance and new product development. In addition, payment of future dividends is subject to certain limitationlimitations pursuant to Swiss law or by our articles of association. Once the Redomestication is effected, we will be subject to Bermuda law restrictions on the payment of dividends including that no dividends may be declared by our board of directors or paid by the Company if there are reasonable grounds for believing that: (i) we are, or would after the payment be, unable to pay our liabilities as they become due; or (ii) that the realizable value of our assets would thereby be less than our liabilities. Accordingly, investors cannot rely on dividend income from our common shares and any returns on an investment in our common shares will likely depend entirely upon any future appreciation in the price of our common shares.

Additionally, in connection with the Merger, the Swiss Federal Tax Administration took the position (on the basis of a tax ruling) that, as a result of the Merger, the existing Capital Contribution Reserves will be offset against the retained losses. This leads to a reduced amount of Capital Contribution Reserves. We do not intend to make distributions in the foreseeable future, but if the position of the tax authorities were to prevail, it is likely that any distributions exceeding the reduced amount of Capital Contributions Reserves would be treated as taxable dividends for Swiss tax purposes. If we ever decide to declare dividends, we expect to challenge the view under the tax ruling, but there can be no assurance that any such challenge would be successful.
We are a holding company with no material direct operations

operations.

We are a holding company with no material direct operations. As a result, we would be dependent on dividends, other payments or loans from our subsidiaries in order to pay a dividend. Our subsidiaries are subject to legal requirements of their respective jurisdictions of organization that may restrict their paying dividends or other payments, or making loans, to us.

We are a Swiss corporation. The rights of our shareholders may be different from the rights of shareholders in companies governed by the laws of U.S. jurisdictions.

We are a Swiss corporation. Our corporate affairs are governed by our articles of association and by the laws governing companies incorporated in Switzerland. The rights of our shareholders and the responsibilities of members of our board of directors may be different from the rights and obligations of shareholders and directors of companies governed by the laws of U.S. jurisdictions. In the performance of its duties, our board of directors is required by Swiss law to consider the interests of our company, our shareholders, our employees and other stakeholders, in all cases with due observation of the principles of reasonableness and fairness. It is possible that some of these parties will have interests that are different from, or in addition to, your interests as a shareholder. Swiss corporate law limits the ability of our shareholders to challenge resolutions made or other actions taken by our board of directors in court. Our shareholders generally are not permitted to file a suit to reverse a decision or an action taken by our board of directors but are instead only permitted to seek damages for breaches of fiduciary duty. As a matter of Swiss law, shareholder claims against a member of our board of directors for breach of fiduciary duty would have to be brought in Zug, Switzerland, or where the relevant member of our board of directors is domiciled. In addition, under Swiss law, any claims by our shareholders against us must be brought exclusively in Zug, Switzerland.

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Our common shares are issued under the laws of Switzerland, which may not protect investors in a similar fashion afforded by incorporation in a U.S. state.

We are organized under the laws of Switzerland. There can be no assurance that Swiss law will not change in the future or that it will serve to protect investors in a similar fashion afforded under corporate law principles in the U.S., which could adversely affect the rights of investors.

U.S. shareholders may not be able to obtain judgments or enforce civil liabilities against us or our executive officers or members of our board of directors.

We are organized under the laws of Switzerland and our jurisdiction of incorporation is Zug, Switzerland. Moreover, a number of our directors and executive officers and a number of directors of each of our subsidiaries are not residents of the United States, and all or a substantial portion of the assets of such persons are located outside the United States. As a result, it may not be possible for investors to effect service of process within the United States upon us or upon such persons or to enforce against them judgments obtained in U.S. courts, including judgments in actions predicated upon the civil liability provisions of the federal securities laws of the United States. We have been advised by our Swiss counsel that there is doubt as to the enforceability in Switzerland of original actions, or in actions for enforcement of judgments of U.S. courts, of civil liabilities to the extent predicated upon the federal and state securities laws of the United States. Original actions against persons in Switzerland based solely upon the U.S. federal or state securities laws are governed, among other things, by the principles set forth in the Swiss Federal Act on International Private Law. This statute provides that the application of provisions of non-Swiss law by the courts in Switzerland shall be precluded if the result is incompatible with Swiss public policy. Also, mandatory provisions of Swiss law may be applicable regardless of any other law that would otherwise apply.

Switzerland and the United States do not have a treaty providing for reciprocal recognition and enforcement of judgments in civil and commercial matters. The recognition and enforcement of a judgment of the courts of the United States in Switzerland is governed by the principles set forth in the Swiss Federal Act on Private International Law. This statute provides in principle that a judgment rendered by a non-Swiss court may be enforced in Switzerland only if:

·the non-Swiss court had jurisdiction pursuant to the Swiss Federal Act on Private International Law;

·the judgment of such non-Swiss court has become final and non-appealable;

·the judgment does not contravene Swiss public policy;

·the court procedures and the service of documents leading to the judgment were in accordance with the due process of law; and

·no proceeding involving the same position and the same subject matter was first brought in Switzerland, or adjudicated in Switzerland, or was earlier adjudicated in a third state and this decision is recognizable in Switzerland.

Our status as a Swiss corporation means that our shareholders enjoy certain rights that may limit our flexibility to raise capital, issue dividends and otherwise manage ongoing capital needs.

Swiss law reserves for approval by shareholders certain corporate actions over which a board of directors would have authority in some other jurisdictions. For example, the payment of dividends and cancellation of treasury shares must be approved by shareholders. Swiss law also requires that our shareholders themselves resolve to, or authorize our board of directors to, increase our share capital. While our shareholders may authorize share capital that can be issued by our board of directors without additional shareholder approval, Swiss law limits this authorization to 50% of the issued share capital at the time of the authorization. The authorization, furthermore, has a limited duration of up to two years and must be renewed by the shareholders from time to time thereafter in order to be available for raising capital. Additionally, subject to specified exceptions, including exceptions explicitly described in our articles of association, Swiss law grants pre-emptive rights to existing shareholders to subscribe for new issuances of shares. Swiss law also does not provide as much flexibility in the various rights and regulations that can attach to different categories of shares as do the laws of some other jurisdictions. These Swiss law requirements relating to our capital management may limit our flexibility, and situations may arise where greater flexibility would have provided benefits to our shareholders.

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We are a foreign private issuer and, as a result, we are not subject to U.S. proxy rules and are subject to Exchange Act reporting obligations that, to some extent, are more lenient and less frequent than those of a U.S. domestic public company.

We report under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as a non-U.S. company with foreign private issuer status. Because we qualify as a foreign private issuer under the Exchange Act and although we are subject to Swiss laws and regulations with regard to such matters and intend to furnish quarterly financial information to the SEC, we are exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including (i) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; (ii) the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and (iii) the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K, upon the occurrence of specified significant events. In addition, foreign private issuers are not required to file their annual report on Form 20-F until four months after the end of each financial year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days after the end of each fiscal year. Foreign private issuers are also exempt from the Regulation Fair Disclosure, aimed at preventing issuers from making selective disclosures of material information. As a result of the above, you may not have the same protections afforded to shareholders of companies that are not foreign private issuers.

As a foreign private issuer and as permitted by the listing requirements of Nasdaq, we follow certain home country governance practices rather than the corporate governance requirements of Nasdaq.

We are a foreign private issuer. As a result, in accordance with Nasdaq Listing Rule 5615(a)(3), we comply with home country governance requirements and certain exemptions thereunder rather than complying with certain of the corporate governance requirements of Nasdaq.

Neither Swiss law does not requirenor Bermuda law requires that a majority of our board of directors consists of independent directors. Our board of directors therefore may include fewer independent directors than would be required if we were subject to Nasdaq Listing Rule 5605(b)(1). In addition, we are not subject to Nasdaq Listing Rule 5605(b)(2), which requires that independent directors regularly have scheduled meetings at which only independent directors are present.

Although Swiss law also requires that we adopt a compensation committee, we follow home country requirements with respect to such committee. As a result, our practice varies from the requirements of Nasdaq Listing Rule 5605(d), which sets forth certain requirements as to the responsibilities, composition and independence of compensation committees. We follow Swiss law requirements with respect to disclosure of compensation for our directors and executive officers. Neither Swiss law nor Bermuda law requires that we disclose information regarding third-party compensation of our directors or director nominee. As a result, our practice varies from the third-party compensation disclosure requirements of Nasdaq Listing Rule

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5250(b)(3). After the Redomestication, we intend to follow the requirements of Bermuda law with respect to our compensation committee, disclosure of compensation of our directors and executive officers and information regarding third-party compensation of our directors or director nominee, each of which differ from the requirements of the Nasdaq Listing Rules.
In addition, in accordanceas permitted by with Swiss law and Bermuda law, we have opted not to implement a standalone nominating committee. To this extent, our practice varies from the independent director oversight of director nominations requirements of Nasdaq Listing Rule 5605(e).

Furthermore, in accordance with Swiss law and generally accepted business practices, our articles of associationconstitutive documents do not provide quorum requirements generally applicable to general meetings of shareholders. After the Redomestication, the quorum for a general meeting of shareholders will be as set out in the Bye-laws, which will provide for a quorum of two or more persons present at the start of the meeting and representing in person or by proxy issued and outstanding voting shares in the company. Our practice thus varies from the requirement of Nasdaq Listing Rule 5620(c), which requires an issuer to provide in its bylaws for a generally applicable quorum, and that such quorum may not be less than one-third of the outstanding voting stock. Our articles of associationconstitutive documents provide for an independent proxy holder elected by our shareholders, who may represent our shareholders at a general meeting of shareholders, and we must provide shareholders with an agenda and other relevant documents for the general meeting of shareholders. However, neither Swiss law does not havenor Bermuda law has a regulatory regime for the solicitation of proxies, and company solicitation of proxies is prohibited for public companies in Switzerland, thus our practice varies from the requirement of Nasdaq Listing Rule 5620(b), which sets forth certain requirements regarding the solicitation of proxies. In addition, we have opted out of shareholder approval requirements for the issuance of securities in connection with certain events such as the acquisition of stock or assets of another company, the establishment of or amendments to equity-based compensation plans for employees, a change of control of us and certain private placements. To this extent, our practice varies from the requirements of Nasdaq Listing Rule 5635, which generally requires an issuer to obtain shareholder approval for the issuance of securities in connection with such events.

As a result of the above, you may not have the same protections afforded to shareholders of companies that are not foreign private issuers.

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We may lose our foreign private issuer status, which would then require us to comply with the Exchange Act’s domestic reporting regime and cause us to incur significant legal, accounting and other expenses.

We are a foreign private issuer and therefore we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act applicable to U.S. domestic issuers. In order to maintain our current status as a foreign private issuer, either (a) a majority of our common shares must be either directly or indirectly owned of record by non-residents of the United States or (b)(i) a majority of our executive officers or directors may not be United States citizens or residents, (ii) more than 50 percent of our assets cannot be located in the United States and (iii) our business must be administered principally outside the United States. These criteria are tested on the last business day of our second fiscal quarter, each year. If we lost this status, we would be required to comply with the Exchange Act reporting and other requirements applicable to U.S. domestic issuers, which are more detailed and extensive than the requirements for foreign private issuers. We may also be required to make changes in our corporate governance practices in accordance with various SEC and stock exchange rules. The regulatory and compliance costs to us under U.S. securities laws if we are required to comply with the reporting requirements applicable to a U.S. domestic issuer may be significantly higher than the cost we would incur as a foreign private issuer. As a result, we expect that a loss of foreign private issuer status would increase our legal and financial compliance costs and would make some activities highly time consumingtime-consuming and costly. We also expect that if we were required to comply with the rules and regulations applicable to U.S. domestic issuers, it would make it more difficult and expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified members of our board of directors.

We are an “emerging growth company,” and we cannot be certain if the reduced reporting requirements applicable to “emerging growth companies” will make our common shares less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act. For as long as we continue to be an “emerging growth company,” we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We could be an “emerging growth company” until 2019, although circumstances could cause us to lose that status earlier, including if the market value of our common shares held by non-affiliates exceeds $700 million as of any June 30 (the end of our second fiscal quarter) before that time, in which case we would no longer be an “emerging growth company” as of the following December 31 (our fiscal year end). We cannot predict if investors will find our common shares less attractive because

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we may rely on these exemptions. If some investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and the price of our common shares may be more volatile.

We believe that we were a “passive foreign investment company,” or PFIC, for U.S. federal income tax purposes for our 2018 taxable year, and we expect to be a PFIC for our current year and for the foreseeable future.
We believe that we were a “passive foreign investment company,” or PFIC, for U.S. federal income tax purposes for our 2018 taxable year, and we expect to be a PFIC for our current year and for the foreseeable future. In addition, we may, directly or indirectly, hold equity interests in other PFICs. Under the Internal Revenue Code of 1986, as amended, we will be a PFIC for any taxable year in which (i) 75% or more of our gross income consists of passive income or (ii) 50% or more of the average quarterly value of our assets consists of assets that produce, or are held for the production of, passive income. For purposes of the above calculations, a non-U.S. corporation that directly or indirectly owns at least 25% by value of the shares of another corporation is treated as if it held its proportionate share of the assets of the other corporation and received directly its proportionate share of the income of the other corporation. Passive income generally includes dividends, interest, rents, royalties and capital gains.
If we are a PFIC for any taxable year during which a U.S. investor holds our shares, the U.S. investor may be subject to adverse tax consequences, including (i) the treatment of all or a portion of any gain on disposition as ordinary income, (ii) the application of a deferred interest charge on such gain and the receipt of certain dividends and (iii) compliance with certain reporting requirements.
For further discussion of the adverse U.S. federal income tax consequences of our classification as a PFIC, see “Material U.S. Federal Income Tax Considerations for U.S. Holders.”
If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, shareholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common shares.

Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection with Section 404 of the Sarbanes-Oxley Act of 2002, or any subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement. Inferior internal controls could also subject us to regulatory scrutiny and sanctions, impair our ability to raise revenue and cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common shares.

We will be required to disclose changes made in our internal controls and procedures and our management will be required to assess the effectiveness of these controls annually. However, for as long as we are an “emerging growth company” under the JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal controls over financial reporting pursuant to Section 404. We could be an “emerging growth company” until August 2019. An independent assessment of the effectiveness of our internal controls could detect problems that our management’s assessment might not. Undetected material

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weaknesses in our internal controls could lead to financial statement restatements and require us to incur the expense of remediation.

If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, the price of our common shares and our trading volume could decline.

The trading market for our common shares depends in part on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. We cannot assure you that analysts will cover us or provide favorable coverage. If one or more of the analysts who cover us downgrade our common shares or publish inaccurate or unfavorable research about our business, the price of our common shares would likely decline. If one or more of these analysts cease coverage of our companythe Company or fail to publish reports on us regularly, demand for our common shares could decrease, which might cause the price of our common shares and trading volume to decline.

We believe that we were


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Risks Related to the Change in Our Jurisdiction of Incorporation
Currently, your rights as a “passive foreign investment company,” or PFIC, for U.S. federal income tax purposes forshareholder of Auris Medical Holding AG arise under Swiss law as well as our 2014existing Swiss articles of association. Upon Redomestication, your rights as a shareholder of Auris Medical (Bermuda) will arise under Bermuda law, the Memorandum of Continuance and 2015 taxable years, and we expectthe Bye-laws to be a PFIC foradopted in accordance with Bermuda law.
The Memorandum of Continuance and the Bye-laws of Auris Medical (Bermuda) will be the constitutive documents of Auris Medical (Bermuda) upon Redomestication. These new constitutive documents and Bermuda law contain provisions that differ from those in our current constitutive documents and Swiss law and, therefore, your rights as a shareholder of Auris Medical (Bermuda) could differ materially from the rights you currently possess as a shareholder of Auris Medical Holding AG. For instance, upon effectiveness of the Redomestication, the Swiss OaEC (VegüV) will no longer apply to the Company. The OaEC contains numerous provisions that serve to increase the transparency and provide shareholders with a right to voice their opinions on compensation matters. Pursuant to the OaEC, Swiss companies are, among others, obliged to have a framework in place according to which (i) the shareholders each year elect the members of the board of directors separately, (ii) the shareholders each year elect the chairman of the board of directors, (iii) the shareholders each year elect the members of the compensation committee and the independent proxy and (iv) the shareholders each year separately approve the compensation of the members of the board of directors, the management and the advisory board. The OaEC further contains provisions according to which the board of directors for the foreseeable future.

We believe that we wereeach year has to prepare a “passive foreign investment company,” or PFIC, for U.S. federal income tax purposes for our 2014 and 2015 taxable years, and we expectwritten compensation report which has to be approved by the shareholders, detailing the compensations paid to each member of the board of directors, the management and the advisory board. In addition, companies that are subject to the OaEC are generally not allowed to make severance payments, advance compensations and to pay commissions for restructuring within the group. Under Bermuda law, directors are subject to election each year at the annual general meeting of the company, but there is no requirement that the chairman of the board of directors be elected by the shareholders. There is also no requirement under Bermuda law for shareholders to elect members of a PFICcompany’s compensation committee, or for shareholders to approve the compensation of the members of the board of directors or the company’s management; the foregoing matters are typically determined by the company’s board of directors. In addition, under Bermuda law there is no requirement to submit a written compensation report for approval to shareholders, and there are no general restrictions on severance payments, advance compensation or the payment of commissions for restructuring within the group. See “Your rights as a shareholder of the Company will change as a result of the Redomestication. The Bye-laws grant certain powers to the board of directors that differs from our current yeararticles of association. Such changes may adversely affect your rights as a shareholder of the Company.” and for“Item 10. Additional Information—B. Memorandum and articles of association—Comparison of Corporate Law,” where we describe material differences between the foreseeable future. In addition, we may, directly or indirectly, hold equity interests in other PFICs, or Lower-tier PFICs. Undercorporate law of Delaware, Switzerland and Bermuda relating to your rights as a shareholder. The form of Memorandum of Continuance and Bye-laws of Auris Medical (Bermuda) are filed as exhibits to this Annual Report.

Upon effectiveness of the Internal Revenue Code of 1986, as amended, or the Code,Redomestication, we will be a PFICBermuda company and it may be difficult for any taxable yearyou to enforce judgments against us or our directors and executive officers.
Upon our continuance in which (i) 75% or moreBermuda, we will be a Bermuda exempted company. As a result, the rights of holders of our gross income consistscommon shares will be governed by Bermuda law and our Memorandum of passive income or (ii) 50% or moreContinuance and Bye-laws. The rights of shareholders under Bermuda law may differ from the rights of shareholders of companies incorporated in other jurisdictions. Many of our directors and the named experts referred to in this Annual Report are not residents of the average quarterly valueUnited States, and a substantial portion of our assets consistsare located outside the United States. As a result, it may be difficult for investors to effect service of process on those persons in the United States or to enforce in the United States judgments obtained in U.S. courts against us or those persons based on the civil liability provisions of the U.S. securities laws. It is doubtful whether courts in Bermuda will enforce judgments obtained in other jurisdictions, including the United States, against us or our directors or officers under the securities laws of those jurisdictions or entertain actions in Bermuda against us or our directors or officers under the securities laws of other jurisdictions.
Your rights as a shareholder of the Company will change as a result of the Redomestication. The Bye-laws grants certain powers to the board of directors that differs from our current articles of association. Such changes may adversely affect your rights as a shareholder of the Company.
Because of the differences between Swiss law and Bermuda law, your rights as a shareholder will change once the Redomestication is completed. The Bye-laws grant certain powers to the board of directors that differ from our current articles of association. Generally, under Swiss law, shareholders are allowed to vote in matters related to an issuance of preferred shares or to alter the company’s share capital by dividing, consolidating or sub-dividing the company’s shares (including a reverse share split effected by consolidating our common shares (together with a corresponding increase in the par value thereof) in a ratio determined by the board of directors, while under Bermuda law, the board of directors have the power and authority to perform such acts without the shareholders’ approval. Also, the presence and voting quorum requirements for certain shareholder resolutions under Swiss and Bermuda law differ in some instances. For example, the Bye-laws provide that, where

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certain business combination restrictions do not apply and the merger or amalgamation is approved by the board of directors, a merger or an amalgamation generally requires the approval of a majority of the votes cast at a general meeting at which the presence quorum is two or more persons present in person and representing in person or by proxy issued and outstanding voting shares. Whereas, under Swiss law, with certain exceptions, the approval of two thirds of the shares represented at the respective general meeting is required for a merger or an amalgamation. Additionally, under both Bermuda and Swiss law, shareholders may put proposals to the general meeting, but the exact framework and required shareholder and quorum requirements vary. Another matter that Bermuda and Swiss law differs is related to dividend payments. Under Swiss law, dividend payments are subject to the approval of the general meeting of shareholders. The board of directors may propose to shareholders that a dividend shall be paid but cannot itself authorize the distribution. Whereas, under Bermuda law, the board of directors may declare a dividend without shareholder approval, but a company may not declare or pay dividends if there are reasonable grounds for believing that: (i) the company is, or would after the payment be, unable to pay its liabilities as they become due; or (ii) that the realizable value of its assets would thereby be less than its liabilities. Also, the Bye-laws include anti-takeover provisions that produce, or are heldour current articles of association do not contemplate. Such provisions give power and authority for the productionboard of passive income. For purposesdirectors to require an increased majority for shareholder approval on a change of control. See “We have anti-takeover provisions in our proposed Bye-laws that may discourage a change of control.” Such changes may adversely affect your rights as a shareholder of the above calculations,Company. For a non-U.S. corporationdetailed discussion of these differences, see “Item 10. Additional Information—B. Memorandum and articles of association—Comparison of Corporate Law.”
Bermuda law differs from the laws in effect in the United States and may afford less protection to holders of our common shares.
Upon our continuance in Bermuda, we will be subject to the laws of Bermuda. As a result, our corporate affairs will be governed by the Companies Act, which differs in some material respects from laws typically applicable to U.S. corporations and shareholders, including the provisions relating to interested directors, amalgamations, mergers and acquisitions, takeovers, shareholder lawsuits and indemnification of directors. Generally, the duties of directors and officers of a Bermuda company are owed to the company only. Shareholders of Bermuda companies typically do not have rights to take action against directors or officers of the company and may only do so in limited circumstances. Class actions are not available under Bermuda law. The circumstances in which derivative actions may be available under Bermuda law are substantially more proscribed and less clear than they would be to shareholders of U.S. corporations. The Bermuda courts, however, would ordinarily be expected to permit a shareholder to commence an action in the name of a company to remedy a wrong to the company where the act complained of is alleged to be beyond the corporate power of the company or illegal, or would result in the violation of the company’s memorandum of association or bye-laws. Furthermore, consideration would be given by a Bermuda court to acts that directlyare alleged to constitute a fraud against the minority shareholders or, indirectly owns at least 25% by valuefor instance, where an act requires the approval of a greater percentage of the company’s shareholders than that which actually approved it.
When the affairs of a company are being conducted in a manner that is oppressive or prejudicial to the interests of some shareholders, one or more shareholders may apply to the Supreme Court of Bermuda, which may make such order as it sees fit, including an order regulating the conduct of the company’s affairs in the future or ordering the purchase of the shares of anotherany shareholders by other shareholders or by the company. Additionally, under the Bye-laws and as permitted by Bermuda law, each shareholder has waived any claim or right of action against our directors or officers for any action taken by directors or officers in the performance of their duties, except for actions involving fraud or dishonesty. In addition, the rights of holders of our common shares and the fiduciary responsibilities of our directors under Bermuda law are not as clearly established as under statutes or judicial precedent in existence in jurisdictions in the United States, particularly the State of Delaware. Therefore, holders of our common shares may have more difficulty protecting their interests than would shareholders of a corporation is treated as if it held its proportionate shareincorporated in a jurisdiction within the United States.
Our Bye-laws restrict shareholders from bringing legal action against our officers and directors.
Our Bye-laws contain a broad waiver by our shareholders of any claim or right of action, both individually and on our behalf, against any of our officers or directors. The waiver applies to any action taken by an officer or director, or the failure of an officer or director to take any action, in the performance of his or her duties, except with respect to any matter involving any fraud or dishonesty on the part of the assetsofficer or director. This waiver limits the right of shareholders to assert claims against our officers and directors unless the other corporation and received directly its proportionate shareact or failure to act involves fraud or dishonesty.
We have anti-takeover provisions in our Bye-laws that may discourage a change of control.
Our Bye-laws contain provisions that could make it more difficult for a third party to acquire us without the incomeconsent of the other corporation. Passive income generally includes dividends, interest, rents, royalties and capital gains.

If we are a PFICour board of directors. These provisions provide for:

directors only to be removed for any taxable year during which a U.S. investor holds our shares, the U.S. investor may be subject to adverse tax consequences, including (i) the treatment of all or a portion of any gain on disposition as ordinary income, (ii) the application of a deferred interest charge on such gain and the receipt of certain dividends and (iii) compliance with certain reporting requirements. For additional information, see “Item 10. Material U.S. Federal Income Tax Consideration for U.S. Holders.”

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cause;


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restrictions on the time period in which directors may be nominated;
our board of directors to determine the powers, preferences and rights of our preference shares and to issue the preference shares without shareholder approval; and
an affirmative vote of 66 2/3% of our voting shares for certain “business combination” transactions which have not been approved by our board of directors.
These provisions could make it more difficult for a third party to acquire us, even if the third party’s offer may be considered beneficial by many shareholders. As a result, shareholders may be limited in their ability to obtain a premium for their shares.
Once the Redomestication is effected, legislation enacted in Bermuda in response to the European Union’s review of harmful tax competition could adversely affect our operations.
During 2017, the European Union Economic and Financial Affairs Council (“ECOFIN”) released a list of non-cooperative jurisdictions for tax purposes. The stated aim of this list, and accompanying report, was to promote good governance worldwide in order to maximize efforts to prevent tax fraud and tax evasion. Bermuda was not on the list of non-cooperative jurisdictions, but did feature in the report (along with approximately 40 other jurisdictions) as having committed to address concerns relating to economic substance by December 31, 2018. In accordance with that commitment, Bermuda has enacted legislation that requires certain entities in Bermuda engaged in “relevant activities” to maintain a substantial economic presence in Bermuda and to satisfy economic substance requirements. The list of “relevant activities” includes carrying on as a business any one or more of: banking, insurance, fund management, financing, leasing, headquarters, shipping, distribution and service center, intellectual property and holding entities. At present, it is unclear what (if anything) Auris Medical (Bermuda) would be required to do in order to satisfy economic substance requirements in Bermuda, but to the extent we are required to increase our substance in Bermuda to satisfy such requirements, it could result in additional costs that could adversely affect our financial condition or results of operations. If we were required to satisfy economic substance requirements in Bermuda but failed to do so, we could face automatic disclosure to competent authorities in the European Union of the information filed by the entity with the Bermuda Registrar of Companies in connection with the economic substance requirements and may also face financial penalties, restriction or regulation of its business activities and/or may be struck off as a registered entity in Bermuda.
Despite enacting legislation designed to satisfy the commitment made by Bermuda to address ECOFIN’s concerns relating to economic substance, on March 12, 2019, Bermuda was placed on the EU’s list of non-cooperative tax jurisdictions. The effect of this listing is not yet clear, but Member States of the European Union may choose to apply a range of countermeasures to Bermuda and entities registered in Bermuda, including increased monitoring and audits, withholding taxes, special documentation requirements and anti-abuse provisions. In addition, new provisions in EU legislation prohibit EU funds from being channeled or transited through entities in countries on the list of non-cooperative tax jurisdictions. The Bermuda Government has stated that it believes the relevant Bermuda legislation complies with EU requirements and is committed to reversing Bermuda’s inclusion on the list of non-cooperative tax jurisdictions at the earliest opportunity, but there can be no assurance that the Bermuda Government will be successful in these efforts.

ITEM 4. INFORMATION ON THE COMPANY

A.History and development of the Company

Overview
We are a clinical-stage biopharmaceutical company focused on the development of novel products that address important unmet medical needs in neurotology and mental health supportive care. We are focusing on the development of intranasal betahistine for the treatment of inner ear disorders. Our most advanced product candidate, AM-101, isvertigo (AM-125) and for the prevention of antipsychotic-induced weight gain and somnolence (AM-201). These programs have gone through two Phase 1 trials and will move into proof-of-concept studies in 2019. In addition, we have two Phase 3 clinical developmentprograms under development: (i) Keyzilen® (AM-101), which is being developed for the treatment of acute inner ear tinnitus under a special protocol assessment, or SPA, fromand (ii) Sonsuvi® (AM-111), which is being developed for the FDA. In two Phase 2 clinical trials, AM-101 demonstrated a favorable safety profile and statistically significant improvement in tinnitus loudness and other patient reported outcomes. We expect to have top-line results from the first Phase 3 trial for AM-101 in the third quartertreatment of 2016. Enrollment of patients in TACTT2 is expected to be completed in the first quarter of 2016 and in TACTT3 a few months later. We are also developing AM-111 for acute inner ear hearing loss. We intend to conduct two pivotal Phase 3 trials in the treatment of idiopathic sudden sensorineural hearing loss, titled HEALOS and ASSENT. HEALOS,Sonsuvi® has commenced enrollment in Europe and Asia and we intend to start enrollment in the U.S. in ASSENT in the second quarter of 2016. In addition, we are planning a Phase 2 trial in the treatment of surgery-induced hearing loss (REACH) in the U.S. Provided that we obtain grant or other funding, REACH could be initiated in the first half 2017 at the earliest. Both acute inner ear tinnitus and hearing loss are conditions for which there is high unmet medical need, and we believe that we have the potential to be the first to market in these indications.

We believe we are currently the clinically most advanced company working on inner ear therapeutics. We believe that AM-101 and AM-111 are the only drug candidates that have demonstrated positive efficacy in randomized placebo-controlled clinical trials in acute inner ear tinnitus and acute inner ear hearing loss. Our products are protected through intellectual property rights and, in addition,been granted orphan drug status by the FDA and the EMA and has been granted to AM-111.

fast track designation by the FDA.

Our product candidates Keyzilen® and Sonsuvi® are injected under local anesthesia into the middle ear by a technique called intratympanic injection. Once injected into the middle ear, the active substance, which is formulated in a biocompatible gel, diffuses into the inner ear. The procedure is short, safe, has a long history of use and allows for highly targeted drug delivery with minimal systemic exposure. It is performed by an ear, nose and throat, or ENT, specialist on an outpatient basis over one or more visits.


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Our lead product candidate, AM-101,candidates AM-125 and AM-201 are administered with a metered spray into the nose. Intranasal application allows for the active substance to reach the blood stream rapidly while avoiding the substantial “first-pass” metabolism associated with the current standard oral intake of betahistine.
Keyzilen®
Our clinical program with Keyzilen®, Esketamine gel for injection, is targetingin Phase 3 clinical trials in acute inner ear tinnitus. Tinnitus, frequently perceivedEsketamine is a potent, small molecule non-competitive NMDA receptor antagonist. Keyzilen® is formulated in a biocompatible gel and delivered via intratympanic injection. It has demonstrated a favorable safety profile and positive effect on PROs associated with tinnitus in two Phase 2 clinical trials. The Phase 3 clinical development program comprised two pivotal clinical trials with highly similar design, one in North America (TACTT2) and one in Europe, which we refer to as a ringing in the ears, is the perception of sound when no external sound is present. Similar to pain, it is an unwanted, unpleasant and thus distressing sensation. Tinnitus may result in further symptoms such as inability to concentrate, irritability, anxiety, insomnia, and clinical depression. In many cases, tinnitus significantly impairs quality of life and affects normal day-to-day activities.

TACTT3.

Tinnitus is categorized as acute during the three months after onset and chronic when it persists for more than three months. Approximately 25% of American adults (50 million people) have experienced tinnitus with nearly 8% of American adults (16 million people) having frequent occurrences. Epidemiological studies reveal comparable prevalence rates for Europe. Among the tinnitus patients seen by general practitioners and ENT specialists in the United States and the top five European markets who reported seeing at least one tinnitus patient in the previous three months, approximately 36% of patients sought medical treatment during the first three months following tinnitus onset.

Possible causes of acute inner ear tinnitus include traumatic insult such as exposure to excessive noise, or middle ear infection (otitis media, or OM). We have conducted Phase 2 trials in this specific tinnitus population with AM-101,Keyzilen®, which demonstrated a favorable safety profile. Furthermore, in our Phase 2 clinical trials, AM-101Keyzilen® showed a dose dependent, persistent and clinically relevant improvement, as compared to the placebo, in subjective tinnitus loudness as well as other patient reported outcomes, such as tinnitus annoyance, tinnitus severity, sleep difficulties and general tinnitus impact. OurIn August 2016, we announced that the trial Efficacy and Safety of Keyzilen® (AM-101) in the Treatment of Acute Peripheral Tinnitus 2, or TACTT2, the first of two pivotal Phase 3 clinical program, which is similartrials with Keyzilen®, did not meet the two co-primary endpoints of statistically significant changes in designtinnitus loudness and tinnitus burden as measured by the TFI compared to ourplacebo. However, the TACTT2 trial data showed treatment effects on TFI in favor of Keyzilen® for certain subgroups and supported the positive safety profile established in the Phase 2 trial design, is beingtrials.
In the second quarter of 2017 we announced results from AMPACT1 and AMPACT2 (AM-101 in the Post-Acute Treatment of Peripheral Tinnitus 1 and 2), two open-label extension studies of the Phase 3 TACTT2 and TACTT3 clinical trials, respectively. The AMPACT studies were conducted under an SPAat the request of the US Food and Drug Administration (FDA) to generate safety data from chronic intermittent use of Keyzilen® for up to 12 months. Both AMPACT1 and AMPACT2 confirmed the good safety profile of Keyzilen®.
Based on the outcomes from the FDATACTT2 trial, we amended our protocol for the TACTT3 Phase 3 clinical trial of Keyzilen® in two steps. Under the final, amended trial protocol, the change in TFI score was elevated from a key secondary endpoint to a primary efficacy endpoint, the trial size was increased to enhance statistical sensitivity to the effects of treatment, and also incorporates guidancethe subgroup of patients with otitis media-related tinnitus was included in confirmatory statistical testing along with the overall study population. The change in tinnitus loudness was downgraded from a primary to a secondary efficacy endpoint. As in TACTT2, tinnitus loudness was initially rated on a daily basis; however, the rating frequency was subsequently reduced in between study visits in order to lighten the burden of patients and reduce the potential impact of the frequent measures. Enrollment into the TACTT3 trial was resumed in early 2017 and completed in September 2017.
On March 13, 2018, we announced that preliminary top-line data from the EMA.TACTT3 trial indicated that the study did not meet its primary efficacy endpoint of a statistically significant improvement in the Tinnitus Functional Score from baseline to Day 84 in the active treated group compared to placebo either in the overall population or in the otitis media subpopulation. This outcome was confirmed by further analyses. We expectconsider that additional studies with Keyzilen® will be necessary to have top-line results frommove the firstprogram forward, and that the way how outcomes are measured Keyzilen® will need to be improved in order to provide more robust efficacy data. We intend to fund further development of Keyzilen® either through partnerships or research grants. See “Item 4. Information on the Company—B. Business overview—Keyzilen® Phase 3 trialClinical Program.”
Sonsuvi®
We are also developing Sonsuvi® for AM-101 in the third quarter of 2016, with results for the second trial following a few months later. We believe that AM-101 has the potential to become the first product approved for the treatment of acute inner ear tinnitus.

Our second product candidate, AM-111, is being developed for the treatment of ASNHL. In sensorineural hearing loss, which is also referred to as inner ear hearing loss, there is damage to the sensory cells of the inner ear or the auditory nerve. Hearing loss is a heterogeneous disorder of many forms with a variety of causes. ASNHL may be triggered by a variety of insults, such as exposure to excessively loud sound, infection, inflammation or certain ototoxic drugs. These insults may also result in tinnitus. In the United States, more than 66,000 patients covered by health insurance are treated for sudden deafness annually. There are no currently approved pharmaceutical treatments for this patient population in the United States.

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Table of Contents

loss. In our Phase 2 clinical trial, AM-111 showed a favorable safety profile. Furthermore, in patients with severe to profound ASNHL, we observed a clinically relevant improvement in hearing threshold, speech discrimination and a higher rate of complete tinnitus remission compared with placebo. We intend to conduct two pivotalOn November 28, 2017,


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we announced that the HEALOS Phase 3 trialsclinical trial that investigated Sonsuvi® in the treatment of ISSNHL, titledacute inner ear hearing loss did not meet the primary efficacy endpoint of a statistically significant improvement in hearing from baseline to Day 28 compared to placebo for either active treatment groups in the overall study population. However, a post-hoc analysis of the subpopulation with profound acute hearing loss (PTA ≥ 90 dB at baseline in accordance with a commonly used classification of hearing loss severity) revealed a clinically meaningful and nominally significant improvement in the Sonsuvi® 0.4 mg/mL treatment group. Further, patients treated with Sonsuvi® 0.4 mg/mL showed a nominally significantly lower incidence of no hearing improvement compared to placebo by Day 91 as well as a superior improvement in word recognition score. Outcomes with Sonsuvi® 0.8 mg/mL tended to be somewhat less pronounced than those observed for Sonsuvi® 0.4 mg/mL. Sonsuvi® was well tolerated and the primary safety endpoint was met.
Together with the outcomes of the HEALOS trial, we announced that ASSENT, the second Phase 3 clinical trial investigating Sonsuvi®, was terminated early in order to avoid the need for substantial protocol changes and interruptions of enrollment pending feedback from health authorities on the regulatory pathway. ASSENT was planned to enroll a total of 300 patients in the US, Canada and South Korea. In contrast to HEALOS and ASSENT.the Phase 2 trial, where patients with insufficient hearing recovery had the option of receiving a course of oral corticosteroids as reserve therapy, all patients in ASSENT would receive oral corticosteroids as a background therapy. At the time of early termination, the ASSENT trial had recruited 56 patients.
Based on the HEALOS has commenced enrollmentresults, we submitted the design of a new pivotal trial with AM-111 0.4 mg/mL in Europepatients suffering from acute profound hearing loss to the EMA and Asiasubsequently 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. Following this feedback, we have mandated a transaction advisory firm to identify potential partners for the Sonsuvi® development program and provide support for partnering discussions and negotiations.
AM-125
We are also developing AM-125 for the intranasal treatment of vertigo. On February 2, 2017, we entered into an asset purchase agreement with Otifex, pursuant to which we have purchased various assets related to betahistine dihydrochloride in a spray formulation, which we intend to start enrollmentdevelop for intranasal treatment of vertigo under the name AM-125. The assets include data from a randomized placebo controlled dose escalating Phase 1 clinical trial in 40 healthy volunteers. The trial demonstrated good tolerability of intranasal betahistine and significantly higher betahistine concentrations in blood plasma than reported for oral betahistine administration. Comparing the betahistine concentrations in plasma with those from an independent Phase 1 clinical trial with oral betahistine showed a relative bioavailability (dose adjusted) for intranasal administration that was 20-40 times higher than with oral administration. In 2018, we conducted a second Phase 1 clinical trial with AM-125 in healthy volunteers. The study results demonstrated superior bioavailability over a range of four intranasal betahistine doses compared to oral betahistine, with plasma exposure being 6 to 29 times higher (unadjusted for dose; p-value between 0.056 and p < 0.0001). Further, it confirmed the favorable safety profile of intranasal betahistine and showed that the treatment was well tolerated when administered three times daily for three days. The randomized double blind placebo controlled Phase 1 trial with dose escalation enrolled a total of 72 healthy volunteers. One group of study participants received a single dose of intranasal betahistine or placebo and, following a wash-out period, three doses daily for three days. Single doses were escalated up to 60 mg, and repeated doses up to 40 mg. For the latter, the maximum tolerated dose based on local tolerability was determined at 40 mg. The other group of study participants received oral betahistine or placebo for reference. Pharmacokinetic parameters in blood plasma were determined for betahistine and its metabolites, and relative bioavailability for intranasal betahistine was calculated compared to oral betahistine 48 mg, which is the maximum approved daily dose as marketed worldwide (ex U.S.).
We have discussed the regulatory requirements for AM-125 during a pre-Investigational New Drug (“IND”) meeting with the FDA and in the U.S. in ASSENT incontext of scientific advice meetings with the second quarter of 2016. In addition, we planEMA and two European national health authorities to conduct a Phase 2 trial infurther define the treatment of surgery-induced hearing loss (REACH) in the U.S. Provided that we obtain grant or other funding, REACH could be initiated in the first half of 2017 at the earliest.development program. We believe that, if approved, AM-111AM-125 could become the first approved pharmaceutical treatment for ASNHL. AM-111 received orphan drug designationbetahistine product for the treatment of ASNHLvertigo in the United States.
In 2019, we plan to initiate a randomized placebo-controlled Phase 2 clinical study with AM-125 in the first quarter. The “TRAVERS” Phase 2 trial will enroll 138 patients suffering from bothacute vertigo following surgical removal of a vestibular schwannoma, a tumor growing behind the inner ear. It will be conducted in several European countries and potentially, Canada. The TRAVERS trial will have two parts: In Part A, five ascending 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 48 mg will be tested in 16 patients under open-label conditions for reference. Based on an interim analysis, two doses will be selected and tested against placebo in an estimated 72 patients in Part B.

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AM-201
On May 15, 2018, we also announced the expansion of our intranasal betahistine development program beyond the treatment of vertigo (AM-125) into mental health supportive care indications. Under project code AM-201, we intend to develop intranasal betahistine for the prevention of weight gain and drowsiness (somnolence), which are major side effects of many antipsychotic drugs. On November 20, 2018, we announced the results of our IND meeting on AM-201 with the FDA. In its written response, the FDA supported the planned conduct of a multiple dose Phase 1b proof-of-concept trial with AM-201 administered to healthy subjects in combination with olanzapine to evaluate the pharmacokinetics, pharmacodynamics and safety, and to establish proof-of-concept. Further, the FDA endorsed weight gain normalized to baseline body weight versus placebo as reasonable primary efficacy endpoint for a subsequent Phase 2 trial. We expect to initiate the Phase 1b proof-of-concept trial in the first quarter of 2019. The trial will be conducted in Europe and will enroll 50 healthy volunteers who will receive either AM-201 or placebo concomitantly with olanzapine over four weeks.
Reverse merger
On March 13, 2018, we merged into Auris NewCo, a newly incorporated, wholly-owned Swiss subsidiary following shareholder approval at an extraordinary general meeting of shareholders held on March 12, 2018. Following the Merger, Auris NewCo changed its name to “Auris Medical Holding AG” as part of the consummation of the Merger, effective March 13, 2018. On March 14, 2018 the common shares of Auris NewCo began trading on the Nasdaq Capital Market under the trading symbol “EARS.”
Hercules Loan and Security Agreement
On July 19, 2016, we entered into a Loan and Security Agreement (the “Loan and Security Agreement”) with Hercules for a secured term loan facility of up to $20.0 million. An initial tranche of $12.5 million was drawn on July 19, 2016, concurrently with the execution of the loan agreement. On April 5, 2018, we entered into an agreement with Hercules Capital, Inc. (“Hercules”) whereby the terms of the Loan and Security Agreement were amended to eliminate the $5 million liquidity covenant in exchange for a repayment of $5 million principal amount outstanding under the Loan and Security Agreement. On January 31, 2019, we 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 have been lifted. In addition, Hercules agreed to return the warrant held by Hercules exercisable for 15,673 common shares at an exercise price of $39.40 per common share for no consideration to us in exchange for our payment to Hercules.
February 2017 Registered Offering
On February 21, 2017, we completed a public offering of 10,000,000 common shares and 11,350,000 warrants, which included 1,350,000 warrants issued pursuant to an over-allotment option granted to the underwriter. Each warrant entitles its holder to purchase 0.70 of a common share. The net proceeds to the Company from the Offering were approximately $9.1 million, after deducting underwriting discounts and other estimated offering expenses payable by us. As of March 13, 2018, following the consummation of the Merger, the outstanding warrants issued in connection with the February 2017 offering were exercisable for an aggregate of 794,500 common shares at an exercise price of $12.00 per common share.
2017 LPC Purchase Agreement
On October 10, 2017, we entered into a purchase agreement (the “Commitment Purchase Agreement”) with LPC. Pursuant to the Commitment Purchase Agreement, LPC agreed to subscribe for up to $13,500,000 of our common shares over the 30-month term of the Commitment Purchase Agreement. Pursuant to the Registration Rights Agreement, we agreed to file registration statements with the SEC to register the resale of the common shares purchased by LPC. As of March 12, 2018, we had issued an aggregate of 2,600,000 common shares to LPC pursuant to the Commitment Purchase Agreement. The Commitment Purchase Agreement terminated upon consummation of the Merger on March 13, 2018. Additionally, on October 16, 2017, we issued 1,744,186 of our common shares to LPC for an aggregate price of $1,500,000.
January 2018 Offerings
On January 30, 2018, we completed a public offering of 12,499,999 common shares (the “January 2018 Registered Offering”) and a concurrent offering of 7,499,999 warrants, each warrant entitling its holder to purchase one common share. The net proceeds to the Company from the January 2018 Registered Offering were approximately $4.9 million, after deducting placement agent

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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 offering were exercisable for up to 750,002 common shares (assuming we decide to round up fractional common shares to the next whole common share) at an exercise price of $5.00 per common share.
2018 LPC Agreement
On May 2, 2018, we entered into the LPC Purchase Agreement with LPC. Pursuant to the LPC Purchase Agreement, LPC has agreed to subscribe for up to $10,000,000 of our common shares over the 30-month term of the LPC Purchase Agreement.
Pursuant to the LPC Purchase Agreement, so long as a registration statement covering the resale by LPC of the common shares that we issue to LPC pursuant to the LPC Purchase Agreement is available for use, we have the right, from time to time at our sole discretion over the 30-month period from and after June 15, 2018, the date of the satisfaction of the conditions in the LPC Purchase Agreement, to require LPC to subscribe for up to 250,000 of our common shares, subject to adjustments as set forth below (such maximum number of shares, as may be adjusted from time to time, the “Regular Purchase Share Limit”; each such purchase, a “Regular Purchase”); provided, however, that (i) the Regular Purchase Share Limit shall be increased to 300,000 of our common shares if the total number of outstanding common shares on the purchase date exceeds 10,000,000, (ii) the Regular Purchase Share Limit shall be increased to 350,000 of our common shares if the closing sale price of our common shares is not below $1.00 on the purchase date and the EMA.

total number of outstanding common shares on the purchase date exceeds 12,500,000 and (iii) the Regular Purchase Share Limit shall be increased to 400,000 of our common shares if the closing sale price of our common shares is not below $1.00 on the purchase date and the total number of outstanding common shares on the purchase date exceeds 15,000,000. The Regular Purchase Share Limit is subject to proportionate adjustment in the event of a reorganization, recapitalization, non-cash dividend, stock split or other similar transaction; provided, that if after giving effect to such full proportionate adjustment, the adjusted Regular Purchase Share Limit would preclude us from requiring LPC to subscribe for common shares at an aggregate purchase price equal to or greater than $100,000 in any single Regular Purchase, then the Regular Purchase Share Limit for such Regular Purchase will not be fully adjusted, but rather the Regular Purchase Share Limit for such Regular Purchase shall be adjusted as specified in the LPC Purchase Agreement, such that, after giving effect to such adjustment, the Regular Purchase Share Limit will be equal to (or as close as can be derived from such adjustment without exceeding) $100,000. We may not require LPC to purchase in any single Regular Purchase common shares having an aggregate purchase price greater than $1,000,000. We may not issue any of our common shares as a Regular Purchase on a date in which the closing sale price of our common shares is below $0.25 (subject to adjustment for any reorganization, recapitalization, non-cash dividend, stock split or other similar transaction). The purchase price for Regular Purchases shall be equal to the lesser of  (i) the lowest sale price of our common shares on the applicable purchase date and (ii) the average of the three lowest closing sale prices of our common shares during the 10 business days immediately prior to the applicable purchase date, as reported on The Nasdaq Capital Market.

We also have the right, at our sole discretion, to require LPC to make tranche purchases of up to $2,000,000 in separate tranches of not less than $100,000 and up to $500,000 for each purchase, at a purchase price equal to the lesser of   (i) $5.00 per common share or (ii) 96% of the purchase price, provided that (a) the closing price of the common shares is not below $1.00 and (b) the total number of outstanding common shares exceeds 12,500,000. We can deliver notice for a tranche purchase at any time, so long as at least 15 business days have passed since a tranche purchase was completed.
In all instances, we may not issue common shares to LPC under the LPC Purchase Agreement if it would result in LPC beneficially owning more than 4.99% of our outstanding common shares.
The LPC Purchase Agreement contains customary representations, warranties and agreements of the parties, certain limitations and conditions to completing future sale transactions, indemnification rights of LPC and other obligations of the parties. LPC has covenanted not to cause or engage in any manner whatsoever, any direct or indirect short selling or hedging of our common shares. We issued to LPC a cash commitment fee of $250,000 for entering into this commitment.
The net proceeds under the LPC Purchase Agreement will depend on the frequency and prices at which we issue our common shares to LPC. We expect that any proceeds received by us from such issuances to LPC will be used for working capital and general corporate purposes. We have the right to terminate the LPC Purchase Agreement at any time for any reason upon one business day’s written notice to LPC.
As of the date of this Annual Report, we have sold 1,750,000 of our common shares for an aggregate offering price of  $1.0 million pursuant to the LPC Purchase Agreement.
July 2018 Registered Offering

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On July 17, 2018, we completed a public offering of 17,948,717 common shares, 6,282,050 Series A warrants entitling its holders to purchase a common share and 4,487,179 Series B warrants entitling its holder to purchase a common share (the “July 2018 Registered Offering”). The net proceeds to us from the July 2018 Registered Offering were approximately $6.2 million, after deducting underwriting discounts and other offering expenses payable by us. The outstanding Series A warrants issued in the July 2018 Registered Offering are exercisable for up to 6,282,050 common shares at an exercise price of CHF 0.39 per common share and the outstanding Series B warrants issued in the July 2018 Registered Offering are exercisable for up to 4,487,178 common shares at an exercise price of CHF 0.39 per common share. Since the July 2018 Registered Offering, certain Series A warrant holders exercised their warrant shares to purchase 2,904,518 common shares of the Company and certain Series B warrant holders exercised warrant shares to purchase 2,864,422 common shares.
Otonomy Ruling
On August 1, 2018, the United States Court of Appeals for the Federal Circuit reversed the USPTO Patent Trial and Appeal Board’s determination of priority in our favor relating to the July 2015 USPTO declaration of patent interference (No. 106,030) involving our issued U.S. patent No. 9,066,865 and Otonomy’s U.S. patent application No. 13/848,636. We believe that this ruling will not materially impact any of our development programs.
FiveT Capital AG Purchase Agreements
On November 27, 2018 and December 11, 2018, we entered into purchase agreements with FiveT Capital AG, providing for the issuance and sale by us of an aggregate of 3,315,000 of our common shares for an aggregate purchase price of $1.6 million in two separate registered direct offerings.
“At-the-Market” Offering Program
On November 30, 2018, we entered into the A.G.P. Sales Agreement with A.G.P.. Pursuant to the terms of the A.G.P. Sales Agreement, we may offer and sell our 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, we may sell common shares up to a maximum aggregate offering price of $25.0 million. Once the Redomestication is effected, we will need to amend the A.G.P. Sales Agreement before we can sell additional common shares to A.G.P. We cannot be certain that we will be able to negotiate an amendment with the same terms and conditions, or at all. As of the date of this Annual Report, we have sold 2,130,670 of our common shares for an aggregate offering price of  $ 1.1 million pursuant to the A.G.P. Sales Agreement.
Intranasal Betahistine Development Program Update
On December 6, 2018, we announced a strategic expansion for our intranasal betahistine development program. In two related transactions, we acquired an Orphan Drug Designation for betahistine in the treatment of obesity associated with Prader-Willi syndrome (PWS) and signed a binding letter of intent to in-license exclusive rights to two U.S. patents relating to the use of betahistine for the treatment of depression and attention-deficit / hyperactivity disorder (ADHD), respectively. On January 15, 2019, we announced the closing of the acquisition of the Orphan Drug Designation and that the transfer of the designation to Auris Medical had been recorded by the FDA.
Nasdaq Listing Requirements
We are currently not in compliance with the quantitative listing standards of the Nasdaq Capital Market, which require, among other things, that listed companies maintain a minimum closing bid price of $1.00 per share. We failed to satisfy this threshold for 30 consecutive trading days and on July 30, 2018, we received a letter from Nasdaq indicating that we had been provided a period of 180 calendar days, or until January 28, 2019, to regain compliance. We did not regain compliance within the 180 days.
On February 6, 2019, we received a letter from Nasdaq stating that due to our continued non-compliance with the minimum $1.00 bid price requirement, our common shares were subject to delisting unless we timely requested a hearing before the Nasdaq Hearings Panel. We timely requested such a hearing on February 8, 2019, which request has stayed any delisting or suspension action by Nasdaq pending the hearing and the expiration of any additional extension period granted following the hearing.
At the hearing, we intend to present our plan to regain compliance with the minimum $1.00 bid price requirement; however, there can be no assurance that the Nasdaq Hearings Panel will grant our request for continued listing or that we will be able to

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evidence compliance with the applicable listing criteria prior to the expiration of any additional extension period that may be granted to us.
At the hearing, we intend to commit that in the event that the Nasdaq Hearings Panel grants us an additional compliance period and the bid price of our common shares fails to increase above the $1.00 minimum during such additional compliance period, we will pursue a reverse share split by consolidating our common shares (together with a corresponding increase in the par value thereof) in a ratio determined by the board of directors in order to regain compliance with the $1.00 bid price requirement. At our extraordinary meeting of shareholders held on March 8, 2019, our shareholders approved the Redomestication and approved the Memorandum of Continuance and the Bye-laws, each of which will become effective upon the Redomestication. Pursuant to the Bye-laws, Auris Medical (Bermuda)’s board of directors would have the ability, after the Redomestication, to effect a reverse share split without further shareholder approval, by consolidating our common shares (together with a corresponding increase in the par value thereof) in a ratio determined by the board of directors. The board of directors may decide to effect a reverse share split at any time after the Redomestication, including prior to the hearing before the Nasdaq Hearings Panel.
In addition to the minimum closing bid price requirement, we are required to comply with certain other Nasdaq continued listing requirements, including a series of financial tests relating to shareholder equity, market value of listed securities and number of market makers and shareholders. If we fail to maintain compliance with any of those requirements, our common shares could be delisted from Nasdaq’s Capital Market. A delisting of our common shares is likely to reduce the liquidity of our common shares and may inhibit or preclude our ability to raise additional financing. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Common Shares—Our common shares may be involuntarily delisted from trading on The Nasdaq Capital Market if we fail to comply with the continued listing requirements. A delisting of our common shares is likely to reduce the liquidity of our common shares and may inhibit or preclude our ability to raise additional financing.”
Corporate Information
We are a stock corporation organized under the laws of Switzerland. We began our current operations in 2003. On April 22, 2014, we changed our name from Auris Medical AG to Auris Medical Holding AG and transferred our operational business to our newly incorporated subsidiary Auris Medical AG, which is now our main operating subsidiary. On March 13, 2018, we effected a corporate reorganization through the Merger into a newly formed holding company for the purpose of effecting the equivalent of a 10-1 “reverse share split.” Our principal office is located at Bahnhofstrasse 21, 6300 Zug, Switzerland, telephone number +41 41 729 71 94. We maintain a website at www.aurismedical.com where general information about us is available. Investors can obtain copies of our filings with the SEC from this site free of charge, as well as from the SEC website at www.sec.gov. We are not incorporating the contents of our website into this Annual Report.
On August 11, 2014, we completedJanuary 24, 2019, our initial public offeringboard of common shares, selling an aggregatedirectors determined that it would be in our best interest to change our legal seat and jurisdiction of 10,113,235 common shares, which included 713,235 common shares sold on August 19, 2014incorporation, respectively, from Switzerland to Bermuda pursuant to the Redomestication. Our shareholders approved the Redomestication and adopted the Memorandum of Continuance and the Bye-laws at an over-allotment option grantedextraordinary general meeting of shareholders held on March 8, 2019. We expect to effect the Redomestication prior to the underwriters. Allend of these common shares were sold at a price to the public of $6.00 per share, yielding gross proceeds of $60.7 million. On May 18, 2015, we completed an underwritten offering of 5,275,000 shares at an offering price of $4.75 per share, yielding gross proceeds of $25.1 million.

March 2019.
B.Business overview

Strengths

We believe we are a leader in the development of novel therapeutic products for inner ear disorders due to several factors.

·First mover advantage. With two product candidates in late stage clinical development, we believe we are currently the clinically most advanced company working on inner ear therapeutics. We believe that AM-101 and AM-111 are the only drug candidates that have demonstrated positive efficacy in randomized placebo-controlled clinical trials in acute inner ear tinnitus and acute inner ear hearing loss. As a result, we believe we will be the first to market with FDA or EMA-approved products for these indications.

·Barriers to entry. Our products are protected not only through intellectual property rights but also potentially by the orphan drug status granted to AM-111 as well as by the know-how across several disciplines that is required to formulate and reliably deliver drugs to the inner ear. Our proprietary gel formulation, its manufacturing and its application are part of our intellectual property, know-how and competitive advantage. In addition, we believe that our intellectual property broadly directed to polymer-based formulations for the treatment of middle or inner ear disorders will serve as barriers to entry beyond our current products.

·Efficient commercialization. Given that the market for our therapeutic product candidates can be efficiently accessed through a limited number of specialist ENT physicians and specialist neurotologists, we intend to build our own sales force in order to commercialize these products in the United States and key European markets.

·Experienced management. Having been focused on developing therapeutic products for inner ear indications for over a decade, we believe that our senior management provides us with significant capabilities. Our Chief Executive Officer and founder, Thomas Meyer, has played several pivotal roles in our development and evolution. Prior to Auris Medical, he was the CEO of Disetronic, a fast growing Swiss diabetes care company sold to Roche in 2003. Other key members of our management team bring significant experience in clinical, product and business development in biopharmaceutical companies.

Strategy

Our goal is to become the leading biopharmaceutical company focused on developing and commercializing novel therapeutics to treat inner earneurotology and CNS disorders. The key elements of our strategy to achieve this goal are:

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Target disorders that have a defined pathophysiology and that are amenable to treatment. We are focusing on disorders for which the pathophysiology is defined, can be effectively targeted and where affected patients seek medical attention proactively.
Use drug delivery techniques and proprietary drug formulations for effective, safe and rapid targeted administration. We are developing treatments for neurotology disorders based on targeted drug delivery. Where the target is inside the inner ear, such as in case of acute inner ear hearing loss or tinnitus, we employ intratympanic injections into the middle ear. This short outpatient procedure allows us to deliver therapeutic concentrations of drug in a highly targeted fashion with only minimal systemic exposure. We are using proprietary, fully biocompatible and biodegradable gel formulations for optimum middle ear tolerance and effective diffusion of active substances into the inner ear. Where the target is localized not only in the inner ear, but also in the brain, as in the case of vertigo, we are using a spray formulation for intranasal drug delivery to reach it more effectively than with oral administration.

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·Target inner ear disorders that have a defined pathophysiology and that are amenable to treatment. We are focusing on inner ear disorders for which the pathophysiology is well characterized, can be effectively targeted and where affected patients seek medical attention proactively.

·Use drug delivery techniques and proprietary drug formulations for effective, safe and rapid local administration to the inner ear. We are developing treatments for inner ear disorders based on intratympanic injections into the middle ear. This short outpatient procedure allows us to deliver therapeutic concentrations of drug in a highly targeted fashion with only minimal systemic exposure. We are using proprietary, fully biocompatible and biodegradable gel formulations for optimum middle ear tolerance and effective diffusion of active substances into the inner ear.

·Bring AM-101 and AM-111 to market. We plan to focus most of our resources on the development and commercialization of our two lead product candidates. AM-101 is in two Phase 3 clinical trials, based on an SPA with the FDA and guidance from the EMA. We expect to have top-line results from the first Phase 3 trial for AM-101 in the third quarter of 2016, with results for the second trial following in a few months later. We intend to conduct two pivotal Phase 3 trials with AM-101 in the treatment of ISSNHL, titled HEALOS and ASSENT. HEALOS, has commenced enrollment in Europe and Asia and we intend to start enrollment in the U.S. in ASSENT in the second quarter of 2016. In addition, we are planning a Phase 2 trial titled REACH in order to test AM-111 in the treatment of surgery-induced hearing loss. Provided we obtain grant or other funding for REACH, REACH could be initiated in the first half 2017.

·Build an efficient commercial infrastructure to maximize the value of our product candidates. We intend to build commercial operations in the North American market and in select European markets. In those markets, we expect our commercial operations to include specialty sales forces targeting ENTs and specialists in neurotology both in hospitals and in private practice. In other markets, we expect to seek partnerships that would maximize our products’ commercial potential.

·Expand our pipeline through internal development, academic collaborations, in-licensing and acquisitions.Through our work with academic research partners on the pathophysiology of tinnitus and hearing loss and clinical development we have gained novel insights that will help us both to create new pipeline products that act by way of novel mechanisms as well as to expand the therapeutic focus for our existing product candidates beyond their current indications. We plan to further maximize our commercial potential through product life cycle management, and with licensing or acquisition of compounds that could augment our product offering in ENT disorders.



Leverage products into additional therapeutic indications. We consider our intranasal betahistine program as a platform on which various indications can be developed. The program started with project AM-125 for the treatment of acute vertigo and has been expanded with project AM-201 to address also the prevention of antipsychotic-induced weight gain. We see additional opportunities in other indications and seek to explore those for further indication expansions.
Build an efficient commercial infrastructure to maximize the value of our product candidates. We intend to build commercial operations in select markets. In those markets, we expect our commercial operations to include specialty sales forces targeting ENTs and specialists in neurotology both in hospitals and in private practice. In other markets, we expect to seek partnerships that would maximize our products’ commercial potential.
The Inner Ear

We have focused our drug discovery and development efforts on targeting the inner ear, which is comprised of the cochlea, which together withthe organ of hearing, and the vestibular system, constitutes the inner ear.organ of balance. The snail-shaped cochlea is the sensory organ at the periphery of the auditory system, which transmits sound along the auditory pathway up to the brain for hearing. Acute insults to the cochlea from a variety of sources – sources—for example, loud noise, infection or insufficient blood supply – supply—may lead to excessive levels of glutamate, the principal neurotransmitter in the cochlea as well as other pathological processes. This in turn may damage cochlear hair cells, which tune and amplify sound inside the cochlea or convert mechanical movement into neural signals, as well as cochlear neurons. Such damage may result in the symptoms of inner ear hearing loss and/or inner ear tinnitus that can be transitory as natural repair mechanisms set in or that become permanent when hair cells or neurons die or are permanently injured.

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The human ear and its key elements (left). The external ear captures sound waves, amplifies and directs them through the ear canal to the ear drum, also known as the tympanic membrane, which transfers them further via the three small bones of the ossicular chain to the oval window of the inner ear. Here, the sound waves enter the fluid filled cochlea, travel up the turns and down again and are dissipated by the round window membrane. On their way through the cochlea, the sound waves are transduced by inner hair cells into neural activity by excitation of the cochlear nerve.

Principle of intratympanic injection (right). For the administration, the patient is positioned with the ear pointing up to ensure that the round window membrane is at the bottom of the middle ear. Following local anesthesia of the ear drum the drug is injected by the ENT into the middle ear, where it collects in the bottom part, allowing for the active substance to cross the round window membrane.

Because the cochlea is located deep inside the head and because it is separated from the middle ear by a combination of bone and membranes, the interior of the cochlea is a challenging location for drug delivery. We have chosen to deliver certain of our products via intratympanic injection across the ear drum (also known as the tympanic membrane) into the middle ear cavity. By formulating our products with biocompatible gels, we facilitate the diffusion of active substances across the round window membrane into the cochlea at clinically meaningful concentrations.

The vestibular system communicates with the cochlea and consists of three semi-circular canals and the vestibule. It is responsible for the sensations of balance and motion. The vestibular system uses the same kinds of fluids and detection cells (hair cells) as the cochlea and sends information to the brain regarding the altitude, rotation, and linear motion of the head. The vestibular system works with the visual system to keep objects in view when the head is moved. Joint and muscle receptors are also important in maintaining balance. The brain receives, interprets, and processes the information from all these systems to create the sensation of balance.
When vestibular input from each ear is equal, the system is in balance, and there is no sense of movement. When inputs are unequal, the brain interprets this as movement. As a result, compensatory eye movements and postural adjustments occur to maintain balance. However, when some pathology (e.g., inflammation or trauma) disrupts signaling unilaterally, the result is an imbalance in vestibular input that can lead to vertigo.
Market

Inner ear disorders, including hearing loss, tinnitus, Meniere’s Disease and balance disorders, are common and often inter-related conditions. Chronic inner ear disorders such as tinnitus and hearing loss are highly prevalent. According to a 2012 publication by Langguth and Elgoyhen in the journalExpert Opinion in Pharmacotherapy,approximately 25% of American adults (50 million people) have experienced tinnitus with nearly 8% of American adults (16 million people) having frequent occurrences. According to the National Institute on Deafness and Other Communication Disorders, (NIDCD), 36or NIDCD, approximately 10% of the U.S. adult population, or about 25 million Americans, have experienced tinnitus lasting at least five minutes in the past year. Additionally, according to a 2016 publication by Bhatt et al. in the journal JAMA Otolaryngology—Head and Neck Surgery, 21.4 million (9.6%) U.S. adults experienced tinnitus in the past 12 months.
The NIDCD also reports that 37.5 million Americans, or 17%15% of the adult U.S. population, have a hearing loss.report having some trouble hearing. Epidemiological studies reveal comparable prevalence rates for Europe.

Additionally, according to a 2016 publication by Hoffman et al. in the journal JAMA Otolaryngology—Head and Neck Surgery, the annual prevalence of speech-frequency hearing loss among adults aged 20 to 69 years was 14.1% (27.7 million) in the 2011-2012 period. Furthermore, according to the NIDCD, more than four out of 10 Americans, at some point in their lives, experience an episode of dizziness significant enough to see a doctor. Approximately 615,000 individuals in the United States are currently diagnosed with Meniere’s disease and 45,500 cases are newly diagnosed each year.


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According to a 2011 publication by Hall et al. in the journal BMC Health Services Research, among the tinnitus patients seen by physicians who reported seeing at least one tinnitus patient in the previous three months, approximately 36% of patients sought medical treatment during the first three months following the onset of the disorder. According to an article by Alexander and Harris published in Otology & Neurotology in 2013, in the United States, more than 66,000 patients covered by health insurance are treated for sudden deafness annually.

The market for ear disorders is underserved despite the fact that according to a 2007 report by the consulting firm NeuroInsights, hearing loss ranks among the top ten neurologic disorders by worldwide prevalence, ranking above attention deficit disorders, Alzheimer’s disease and multiple sclerosis. There are three main reasons for this:

Inner ear physiology. It has been extremely challenging for pharmaceutical companies to deliver drugs at effective concentrations to the inner ear. Like the eye, the inner ear is a protected space. Systemically administered drugs such as intravenous or oral formulations in doses high enough to reach effective inner-ear concentrations often bring unacceptable systemic toxicity.

Heterogeneity of inner ear disorders. Hearing loss, tinnitus and tinnitusvertigo are symptoms of many different underlying etiologies, and they manifest themselves in many different ways. For example, tinnitus may be provoked by

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such different proximal causes as whiplash injury, excessive noise exposure, the flu or even certain dental problems. In some cases, the tinnitus originates inside the cochlea, but then becomes “centralized,” that is, the phantom sound persists even long after the initial source of the sensation has been removed. In case of vertigo, possible triggers include infection, inflammation, surgical trauma, disturbances of inner ear fluid balance or debris inside the inner ear. There has been a dearth of knowledge about the pathophysiology of tinnitus, and hearing loss and vertigo, which has hindered the pharmaceutical industry in pursuing therapeutics in this area.

Lack of clinical trial paradigms. Historically, there have been challenges regarding the clinical endpoints used in measuring changes in tinnitus. Since tinnitus usually is perceived only by the patient affected by it, there is no direct way of measuring it. Like pain, tinnitus assessments have to rely on subjective endpoints. Tinnitus assessments consist either of psychoacoustic measures, performed by audiologists and other hearing specialists and sometimes considered as “semi-objective,” or they are based on patient reported outcomes, or PROs. Unlike in pain, there has been a lack of guidelines and validation work on these PROs, and the relevance and reliability of psychoacoustic measures as efficacy outcome variables have been questioned.

Challenges with bioavailability. Betahistine, the active substance of AM-125 and also AM-201, has been used for decades for the treatment of vertigo. However, when administered orally, only small quantities of the drug actually reach the blood stream and can be distributed to the inner ear and the brain due to rapid and pronounced first pass metabolism. As a consequence of the low bioavailability, there has been significant variability in therapeutic outcomes.
For these reasons, the industry’s discovery and development of novel therapies for inner ear disorders has lagged far behind efforts in other therapeutic areas.

We are addressing each of these issues with our approach to developing therapeutics targeting the inner ear. Using intratympanic injection to deliver our product candidatestargeted drug delivery to the inner ear reduces systemic exposure.exposure to our product candidates. We target specific types of tinnitus, and hearing loss and vertigo that are addressable with drug-based therapies. We have worked with regulatory agencies to develop anand validate acceptable clinical trial paradigm assessing subjective endpoints culminating, for example, in our SPA for AM-101.

paradigms.

Our Localized Delivery Solution for the Treatment of Inner Ear

Tinnitus and Hearing Loss

The inner ear is a protected part of the body, analogous to the eye. It is hidden in the temporal bone, behind the middle ear and the ear drum. In addition, it is very tiny: the cochlea measures about the size of the fingernail on the little finger. Therefore, therapeutically targeting the inner ear is not easy. There is currently no FDA or EMA approved drug therapy for the treatment of tinnitus or hearing loss on the market.

The blood labyrinth barrier is a major physiological divider separating the inner ear from systemic circulation, critically preserving the inner ear’s microenvironment. Systemic drug dose levels capable of having a therapeutic effect on the inner ear are often high enough to cause adverse side effects.

An alternative approach is to administer drugs locally by intratympanic injection to maximize efficacy and minimize systemic side effects. With intratympanic administration, the drug is injected via a needle through the anesthetized ear drum into the middle ear cavity. The drug then diffuses across the semi-permeable round window membrane (RWM) into the inner ear. Our lead product candidates are administered by intratympanic injection. We chose this approach after thorough evaluation of all available alternatives because it offers the optimal combination of access, convenience, physician familiarity and safety. We formulated our product candidates specifically with intratympanic delivery in mind.


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One of the key shortcomings of current intratympanic approaches is the use of injectable solutions that may easily drain off via the Eustachian tube, thus preventing or reducing effective diffusion into the cochlea. With our proprietary gel formulations for intratympanic injections we overcome this “draining off,” facilitate contact with the RWM and achieve effective diffusion into the cochlea.

Both AM-101Keyzilen® and AM-111Sonsuvi® are formulated in a viscous gel of sodium hyaluronate that is biocompatible, biodegradable, and isotonic (that is, having the same salt concentration and therefore not causing any pressure build up on either side of the RWM). The gel has a neutralphysiologic or near-physiologic pH which helps minimize potential irritation to the ear. We selected its viscosity in a way that the free movement of the ossicular chain, which transfers the vibrations of the eardrum to the inner ear, is not impacted. The presence of highly viscous gels in the middle ear may cause transient conductive hearing loss.

In addition, in the case of AM-111,Sonsuvi®, we are employing D-TAT, a peptidic active transporter technology that allows the transport of a large molecule to the inner ear that would normally be blocked by the RWM. This novel use of D-TAT brings peptides not only behind the RWM but inside cells in the inner ear. To our knowledge, we are the first company to be delivering intracellular peptides to the inner ear using an active transporter such as D-TAT.

The intratympanic injection procedure by which our therapeutics are delivered to the RWM is a minimally invasive procedure that is relatively simple to perform by an experienced ENT specialist. Most ENT physicians and neurotologists have a high degree of comfort with intratympanic injection and it is well-accepted by patients.

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A billable procedure, intratympanic injection is routinely reimbursed under a broader reimbursement code. For the injection, patients lie on a stretcher or on a reclined exam chair, treated ear up; the injection is performed under local anesthesia of the eardrum by an ENT specialist using a microscope. Following the procedure, patients rest for 20 to 30 minutes to ensure maximum physical contact of the drug with the RWM. The tympanic membrane heals rapidly, usually within a few days, and the procedure may be performed several times. Often performed in children suffering from ear infections, the reversible opening of the eardrum is one of the most frequent ENT procedures.

Our Targeted Delivery Solution for the Treatment of Vestibular Disorders
In vestibular disorders, the target for pharmacologic intervention may not only be in the inner ear, but also in central parts of the vestibular system, i.e., the brain. In such case, a treatment may be best delivered systemically, provided that the active substance can reach these targets. Intranasal administration is a non-invasive route for drug delivery, which allows for drugs to be absorbed into the systemic circulation through the nasal mucosa. This route may be used in a range of acute or chronic conditions requiring considerable systemic exposure. It offers advantages such as ease of administration, rapid onset of action, and avoidance of first-pass metabolism.

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Our Product Candidates

The following table summarizes our product development pipeline:

pipeline(1):
aurismedicalpipeline3.jpg
__________________

(1)Dates of key milestones are indicative and subject to change.

AM-101

Keyzilen® in Tinnitus

Our most advanced clinical program is AM-101,with Keyzilen®, Esketamine gel for injection, which is in Phase 3 clinical trialsdevelopment in acute inner ear tinnitus in both the United States under an SPA agreement with the FDA and in Europe.tinnitus. Esketamine is a potent, small molecule non-competitive NMDA receptor antagonist. AM-101Keyzilen® is formulated in a biocompatible gel and delivered via intratympanic injection. It has demonstrated a favorable safety profile and positive effect on patient reported outcomesPROs associated with tinnitus in two Phase 2 clinical trials. Based on our SPA agreement with the FDA and scientific advice from the EMA, we have initiatedThe Phase 3 clinical development program comprised two pivotal clinical trials with highly similar design, one in North America (TACTT2) and one in Europe, which we refer to as TACTT3. AM-101 has the potential to be the first drug to gain approval for treating acute inner ear tinnitus.

Tinnitus

Tinnitus, frequently perceived as a ringing in the ears, is the perception of sound when no external sound is present. Similar to pain, it is an unwanted, unpleasant and thus distressing sensation. Tinnitus may result in further symptoms such as inability to concentrate, irritability, anxiety, insomnia, and clinical depression. In many cases, tinnitus significantly impairs quality of life and affects normal day-to-day activities. According to the American Tinnitus Association, approximately 16 million patientspersons in the United States have tinnitus symptoms severe enough to seek medical attention and about two million patientspersons cannot function on a normal day-to-day basis. In addition, tinnitus is now the number one service-connected disability for all veterans, before hearing loss, and annual service-connected disability payments for tinnitus to veterans from all periods of service arewere expected to exceed $2.75 billion by the end of 2016.

Tinnitus is categorized as acute during the first three months and chronic when it persists for more than three months. The distinction between acute and chronic is based on the clinical observation that spontaneous recovery or complete remission of tinnitus is much more likely to occur in the first days, weeks and months following its onset. The chances of spontaneous recovery decline exponentially as the acute phase progresses. In

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the chronic stage, improvement is much more unlikely, and the therapeutic focus shifts from curing to managing the disorder. In some cases, tinnitus originates inside the cochlea, or the periphery of the auditory system, but then becomes “centralized,” that is, the phantom sound persists even long after the initial source of the sensation has been removed.

Tinnitus is a symptom that can be triggered by a variety of diseases or incidents such as noise trauma, infection, inflammation, vascular problems, temporomandibular joint dysfunction, head trauma or whiplash injury. In the majority of cases the tinnitus originates in the cochlea, but the precise mechanisms of tinnitus generation are still the subject of considerable debate and remain to be fully elucidated. In our development we are focusing on one particular, well-defined type of tinnitus generation based on glutamate excitotoxicity.


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Acoustic trauma and other insults to the inner ear may trigger increased levels of extra-cellular glutamate, which in turn cause excessive activation of cochlear NMDA receptors. This process results in damage or killing of sensory cells and is thought to be responsible for abnormal spontaneous “firing” of auditory nerve fibers, which may be perceived as tinnitus. Under normal circumstances, the NMDA receptors are thought to play no role in the auditory nerve’s transmission of nerve pulses that carry sound information. In case of a trauma such as excessive sound exposure these receptors may become pathologically active, and thus tinnitus is triggered.

Current Therapies and Unmet Need

Tinnitus treatments may be categorized according to whether they treat the underlying cause or provide symptomatic relief. It is rarely possible to treat the underlying cause. When it is possible, treatment often involves a surgical procedure to resect tumors or vascular abnormalities. In contrast, treatments to provide symptomatic relief are highly diverse, reflecting the general lack of understanding of the underlying pathophysiology.

Currently, the most widely employed treatment options include counseling, cognitive behavioral therapy, various forms of sound therapies, tinnitus retraining therapy, or TRT, herbal and vitamin supplements, ginkgo biloba, vasodilators, steroids, benzodiazepines and tricyclic antidepressants.

Sound-based therapies and TRT are some of the most commonly employed treatments for tinnitus. TRT is a non-pharmacological intervention that employs low-level sound emitted by a so-called “masking device” worn behind or in the ear. TRT also incorporates patient counseling to help habituate patients to their tinnitus. In those cases in which it is effective, TRT takes one to two years before patients “learn” to ignore tinnitus without the aid of a masking device. TRT can cost $2,500 to $3,000, including the masking devices. After an initial period of enthusiasm in the 1980s, masking devices declined in popularity among clinicians because it became clear that many patients who agreed to try them were nonusers six months later. While classic sound based therapies are based on broadband sound, newer therapies use sound individually tailored to the hearing loss and tinnitus characteristics.

Although there are no approved drugs in the United States for the treatment of tinnitus, there is widespread off-label use of drugs approved for other indications. The U.K. Royal National Institute for the DeafCharity Action on Hearing Loss reports that more than three million prescriptions are written each year in the United States and Europe for drugs that purport to offer tinnitus relief, drugs for which there is no proven efficacy.

The local anesthetic and antiarrhythmic drug lidocaine is the only substance to date that is known to attenuate tinnitus, albeit only temporarily. This illustrates that tinnitus can be addressed using pharmacological intervention. However, lidocaine causes severe vertigo and other side effects, preventing its widespread clinical use.

Our Solution – AM-101

—Keyzilen® (AM-101)

Therapeutic rationale for AM-101Keyzilen® in tinnitus

The active pharmaceutical ingredientAPI of AM-101Keyzilen® is Esketamine hydrochloride, a well-known small molecule non-competitive NMDA receptor antagonist. As described above, acoustic trauma and other insults to the inner ear have been shown in animal studies to activate cochlear NMDA receptors. The antagonist effect of Esketamine towards the NMDA receptor aims to suppress the aberrant activity of the auditory nerve and thus diminish tinnitus.

The NMDA receptor was first validated as a target for the treatment of tinnitus using an animal behavioral model of tinnitus triggered by salicylate, the active substance of aspirin. Salicylate is known to trigger temporary tinnitus when administered in high doses. The animal model demonstrated that local administration

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of different NMDA antagonists to the inner ear allowed for suppression of salicylate induced tinnitus. Together with INSERM, we developed a much more clinically relevant model of tinnitus induced by acute acoustic trauma, or AAT. Unlike salicylate-induced tinnitus, AAT triggers glutamate excitotoxicity and may lead to irreversible damage to sensory cells. It does not result in tinnitus in all cases, but where it sets in, it may be permanent. In our pre-clinical trials, we demonstrated that AM-101 Keyzilen®was able to suppress this type of tinnitus. Further pre-clinical work demonstrated that tinnitus could be suppressed even when drug was administered after the onset of tinnitus.

Toxicology and tolerability studies confirmed that AM-101Keyzilen® had no impact on hearing, even at much higher doses than those needed for suppressing tinnitus. Animal biodistribution studies showed rapid diffusion of the active substance into the cochlea. Concentrations decreased over several days due to clearance.

Ketamine has been used clinically for decades as an anesthetic and analgesic. Esketamine is the S-enantiomer of Ketamine and was introduced in a small number of markets outside the United States as a more potent NMDA receptor antagonist with more favorable side effects than racemic Ketamine. The development of AM-101Keyzilen® has benefitted from the long-standing

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clinical use of Ketamine and Esketamine as well as the wealth of published pharmacology, pharmacokinetic and safety data. We are using Esketamine in doses that result in systemic exposure several orders of magnitude lower than those seen when Esketamine is used as an anesthetic at clinically safe doses.

Tinnitus endpoints

Given the lack of existing tinnitus treatments, there have been no fully validated or universally accepted outcome measures for clinical trials. There are two fundamental types of efficacy outcome variables. Patient reported outcomes, or PROs such as the visual or numerical rating of tinnitus loudness or tinnitus questionnaires provide direct subjective measures of tinnitus and its impact on sleep, relaxation, communication, emotions, social interactions and other factors. For example, patients are asked a single question to rate the loudness of their tinnitus “right now” on a scale from 0 (“no tinnitus heard”) to 10010 (“tinnitus extremely loud”). Among several tinnitus questionnaires, the 25 item TFI is one of the most recent. It was developed and validated broadly in line with the PRO guidelines of the FDA and was introduced in 2011 by Meikle et al. following extensive validation work, as described in the journal Ear & Hearing. Alternatively, measures commonly referred to as psychoacoustic may be performed by an audiologist, which is why they are considered “semi-objective.” They seek to determine how loud a masking sound has to be to cover the tinnitus (minimum masking level, or MML) or how loud the tinnitus is compared to reference sound (equal loudness match).

In our Phase 2 clinical trials, PROs showed good responsiveness and consistent results, whereas psychoacoustic measures proved highly variable and unreliable. Therefore, following discussions with the FDA and EMA, it was agreed that our Phase 3 clinical program for AM-101Keyzilen® would be based on PROs with the improvement of subjective tinnitus loudness being defined as the primary efficacy endpoint. As part of the SPA with the FDA, it was agreed that improvement as measured by the TFI questionnaire willwould serve as a co-primary efficacy endpoint in our TACTT2 trial.

AM-101 trial in order to confirm the clinical meaningfulness of a reduction in tinnitus loudness.

Keyzilen®Clinical Development

Phase 1/2

We conducted the first clinical evaluation of AM-101Keyzilen® in a Phase 1/2 double blind, randomized, placebo-controlled trial that included dose escalation from 0.03 to 0.81 mg/mL. The trial enrolled 24 patients suffering for up to three months from severe or disabling permanent inner ear tinnitus caused by AAT or sudden deafness (also called idiopathic sudden sensorineural hearing loss, or ISSNHL) and after unsuccessful steroid treatment. The primary objective of the trial was to evaluate the safety of intratympanically delivered AM-101.Keyzilen®. This first clinical trial showed that single doses of intratympanically administered AM-101Keyzilen® were well tolerated up to the highest tested dose of 0.81 mg/mL. Only small traces of Esketamine and its primary metabolite were detected in blood samples within the first hours following treatment administration.

Phase 2

Following successful completion of our Phase 1/2 trial, we conducted two multi-center Phase 2 trials, one in Europe (Treatment of Acute Inner Ear Tinnitus 0 or TACTT0) and the other in Europe and the United States (which we refer to as TACTT1).

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TACTT0

TACTT0

TACTT0 was conducted at 28 European sites between March 2009 and May 2011. This trial was a double-blind, randomized, placebo controlled, multiple dose, parallel group, Phase 2 clinical trial. It enrolled patients with persistent inner ear tinnitus as a result of AAT, OM, or idiopathic inner ear hearing loss,otitis media (OM), or ISSNHL, occurring not more than three months prior, and with a MML of at least 5 dB. Trial participants received three intratympanic administrations of AM-101Keyzilen® at dose levels of either 0.27 mg/mL or 0.81 mg/mL or placebo over three consecutive days. A total of 248 patients were randomized (approximately eighty per treatment group). The improvement in the MML was the primary efficacy endpoint. The improvement in subjective tinnitus loudness and in tinnitus annoyance were co-primary efficacy endpoints.

Trial outcomes are described by van de Heyning and colleagues in a 2014 article in Otology & Neurotology.

In this trial, AM-101 further demonstrated a favorable safety profile. AM-101Keyzilen® was well tolerated and had no negative impact on hearing. Adverse events were mostly local and related primarily to anticipated temporary changes in tinnitus loudness and muffled hearing following the intratympanic injection procedure. These effects usually resolved with closure of the ear drum. In 93% of cases, the ear drum was fully closed five days after the last injection. Seven patients experienced a total of nine nonfatal serious adverse events, of which four occurred in the placebo group. All serious adverse events were considered either not related or unlikely related to treatment. In the placebo group, one patient died because of cardiomyopathy, which was considered unrelated.

Efficacy analysis revealed a differentiated picture.

Overall, the trial failed to demonstrate a treatment benefit based on the change in the MML as there was no difference in outcomes between treatment groups. However, further analysis of certain pre-specified outcome variables and subgroups revealed consistent differences between changespost-hoc efficacy analysis. based on PROs in the MML and changes in PROs and substantial variability in MML measures. Unlike the MML, the PROs, including tinnitus loudness and tinnitus annoyance, indicated different outcomes in treatment groups. In addition, outcomes differed consistently between patients with tinnitus triggered by AAT or OM, and those with tinnitus caused by ISSNHL. In case of the latter, no treatment effects were evident. Lastly, outcomes in unilateral tinnitus patients (one ear affected) were superior to those in bilateral tinnitus patients.

The further efficacy analysis focused on the subgroup of patients with tinnitus caused by AAT or OM (n=118), that is, patients with well-established cochlear origin of tinnitus. It also focused primarily on unilateral tinnitus, patients (n=84) since they alloweddemonstrated superiority of the high dose of Keyzilen® with respect to placebo for a direct measurethe change in the co-primary efficacy endpoint tinnitus


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loudness, and tinnitus annoyance as well as in tinnitus-related sleep difficulties (e.g., falling asleep), and overall tinnitus impact compared with placebo. The improvement was dose dependent and statistically significant across all PROs in the analysis of covariance, or ANCOVA, statistical test. The ANCOVA model is commonly used in statistics for testing for differences between multiple treatment groups, and takes into accountTHI-12 questionnaire from baseline to Day 90. When restricting the baseline valueOM + AAT population to unilateral cases (71% of the respective test variable (covariate). Similar, but lesssubgroup), the treatment effects became more pronounced outcomes were observed when also bilateral tinnitus cases were included;in these measures; in addition, the improvement in tinnitus loudness, sleep difficulties and overall tinnitus impact in the enlarged subgroup was still statisticallyannoyance also became nominally significant.

Improvement in tinnitus PROs

    AM-101
  Placebo Low Dose High Dose
Point improvement in tinnitus loudness (0-100 point scale)      
LS means (n)  1.4 (23)   16.0 (25)   24.1 (29) 
LS mean difference (95% confidence interval)      14.6 (1.4, 27.7)   22.7 (10.3, 35.1) 
P-value      0.0308*  0.0005***
Point improvement in tinnitus annoyance (0-100 point scale)            
LS means (n)  10.8 (23)   21.7 (25)   27.8 (29) 
LS mean difference (95% confidence interval)      10.9 (1.4, 23.2)   17.0 (5.4, 28.6) 
P-value      0.0805   0.0047**
Point improvement in difficulties falling asleep (0-100 point scale)            
LS means (n)  11.8 (21)   29.8 (15)   38.7 (22) 
LS mean difference (95% confidence interval)      18.1 (2.5, 33.6)   26.9 (13.0, 40.9) 
P-value      0.0234*  0.0003***
Point improvement in tinnitus impact (0-24 point scale)            
LS means (n)  2.5 (22)   5.5 (25)   5.9 (27) 
LS mean difference (95% confidence interval)      3.0 (0.1, 5.8)   3.4 (0.8, 6.0) 
P-value      0.0400*  0.0124*

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ANCOVA results for changes in PROs from baseline to Day 90 in patients with unilateral tinnitus following AAT or OM. Shown are least square (LS) means for treatment groups, differences for the active groups compared with placebo including 95% confidence interval and the p-value: * significant at 0.05 level; ** significant at 0.01 level; *** significant at 0.001 level. P-value is a conventional statistical method for measuring the statistical significance of clinical results. In clinical trials, the “p-value” is the probability that the result was obtained by chance. By convention, a “p-value” that is less than 0.05 is considered statistically significant. Tinnitus loudness, annoyance and difficulties falling asleep were rated by patients on a scale from 0 to 100 and tinnitus impact by the THI-12 questionnaire (maximum score 24 points).

The improvement in PROs was gradual over the 90 day observation period. At Day 90 the mean improvement in tinnitus loudness was 48% in the AM-101Keyzilen® 0.81 mg/mL group compared to 9% in the placebo group.

Improvement in tinnitus loudness over time

Mean improvement of tinnitus loudness from baseline in patients with unilateral tinnitus following AAT or OM (n=84). Shown are changes from baseline D0 (before first injection) to D1 (before second injection), D2 (before third injection) and the follow-up visits at D7, D30 and D90. Whiskers: standard error mean.

64% of patients in the high dose group rated their tinnitus severity at Day 90 compared to baseline as “much improved” or “very much improved”, compared with 34% of patients in the placebo group. The majority of placebo treated patients reported only “somewhat improved” tinnitus severity.

Global patient impression The improvements were dose dependent as the low-dose of change inKeyzilen® overall showed improvement between the high-dose and the placebo groups.

In case of ISSNHL related tinnitus, severity

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Percentage of patients with unilateral tinnitus following AAT or OM (n=76) reporting at Day 90 “much improved” or “very much improved” tinnitus severity compared with baseline.

Further analysis of efficacy results in the ISSNHL subgroup showedno treatment effects were evident as an unexpectedly high rate of spontaneous remission and substantial heterogeneity in outcomes. When patients with certain pre-specified tinnitus characteristicsoutcomes were excluded, a treatment effect was even observed with a majority of ISSNHL-tinnitus patients.observed. Given the high variability and the uncertainty over the precise trigger of the tinnitus in ISSNHL, we decided to continue clinical development exclusively in tinnitus with established cochlear origin (such as AAT and OM).

TACTT1

TACTT1, our second double-blind, randomized, placebo-controlled Phase 2 clinical trial, was conducted between 2011 and 2013 in the United States, Belgium, Germany and Poland to complement the TACTT0 trial. The trial, was not powered to demonstrate statistical significance betweennotably by evaluating efficacy trends with different treatment groups, but rather designed to evaluate whether repeated doses were better than a single doseschemes and by obtaining additional data on concentrations of Esketamine and its primary metabolite in attenuating tinnitus. Therefore no statistical hypotheses were defined, but the trial was expected to indicate relevant efficacy trends.

bloodstream.

Enrollment consisted of 85 patients suffering from acute inner ear tinnitus following AAT or OM. Tinnitus after barotrauma and middle ear surgery were added as traumatic cases in addition to AAT.

Patients received single (Cohort 1) or multiple (Cohort 2: three injections over two weeks) doses of AM-101Keyzilen® at a dose level of 0.81 mg/mL or placebo. Each cohort had its own placebo group, and the placebo groups were pooled for certain statistical analyses describes below. Unlike TACTT0, this trial allowed bilateral treatment where tinnitus was present in both ears. The outcome measures in TACTT1 reflected insights gained from TACTT0. Specifically, subjectiveSubjective tinnitus loudness was selected as the primary efficacy measure, while the highly variable MML was monitored as a secondary read out.

As described by Staecker and colleagues in an article in Audiology & Neurotology in 2015, TACTT1 demonstratedfurther confirmed the safety and tolerability outcomes observed in the preceding trials. Again, there were no systemic side effects. One non-fatal serious adverse event was observed in the active treatment group; it was considered unrelated to the treatment. It further demonstrated the gradual improvement in PROs in AM-101Keyzilen® treated groups that had already been observed in TACTT0. The ANCOVA model in the primary efficacy analysis showed no statistically significant trend for improvement in subjective tinnitus loudness related to the number of injections (single dose AM-101, triple dose AM-101 and placebo pooled; p=0.084).

injections.

When comparing the improvement in tinnitus loudness in patients with unilateral tinnitus following traumatic injury to the cochlea or OM, treatment effects in TACTT1 were smaller than in TACTT0. The effect size was 0.83 where AM-101 had been administered three times over three consecutive days in TACTT0, 0.47 for three injections in weekly intervals (TACTT1) and 0.39 with single dose administration (TACTT1). The effect size is a commonly used standardized measure of the magnitude of observed effect to compare outcomes across different trials. Effect sizes between 0.5 and 0.8 are considered moderate, and above 0.8 as large. The observed differences in effect sizes suggest that repeated and concentrated application of AM-101Keyzilen® and hence concentrated inhibition of cochlear NMDA receptors provides superior treatment benefits. Over the two Phase 2 clinical trials, AM-101Keyzilen® 0.81 mg/mL showed a statistically significant improvement in the AAT and OM group of patients when compared against placebo (p=0.002).

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Effect size of tinnitus loudness improvement in TACTT0 and TACTT1

Effect size of tinnitus loudness improvement from baseline to 90 days after last treatment administration for three different dose regimens – three doses over three consecutive days, three doses over two weeks, single dose – and pooled together in patients with unilateral tinnitus following AAT or OM (n=118) in the TACTT0 and TACTT1 trials. Effect size is calculated as mean difference in tinnitus loudness improvement between patients treated with AM-101 0.81 mg/mL and patients treated with placebo, standardized by the standard deviation. Whiskers: 95% confidence interval.

As in the TACTT0 trial, psychoacoustic measures such as MML were marked by high variability, confirming their limited suitability and reliability as efficacy outcome measure.

AM-101

Keyzilen®Phase 3 Clinical Program

With a clear regulatory plan in place based on our SPA with the FDA and scientific advice from the EMA, we

We have initiatedconducted two pivotal trials with AM-101Keyzilen® with highly similar designs, one in North America (TACTT2) and one in Europe (TACTT3). TACTT2 will enroll 330enrolled 343 patients, while TACTT3 Stratum A (Europe) will enroll 300randomized 372 patients, both during the acute stage. Both trials were designed as a randomized, double-blind, placebo-controlled trial in acute inner ear tinnitus following traumatic cochlear injury or otitis media. Trial participants will receivereceived three injections of AM-101Keyzilen® 0.87 mg/mL or placebo in a 3:2 ratio over three to five days and will bewere followed for 84 days. Enrollment of patientsThe TACTT2 trial was conducted primarily in North America, the acute stage of TACTT2 is expected to be completedTACTT3 trial was conducted exclusively in in the first quarter of 2016 and in case of TACTT3 a few months later.

Europe.

In addition, TACTT3 Stratum B is exploringexplored the potential efficacy of AM-101Keyzilen® during the post-acute stage (tinnitus onset between three and 12 months) since data from our Phase 2 clinical program suggested that AM-101Keyzilen® might be effective beyond the three month acute stage. An Independent Data Review Committee conducted an interim analysis after enrollment of 150 patients. The interim analysis showed positive efficacy signals, with higher activity levels observed in the early post-acute stage (three to six months) compared to the late post-acute stage (six to 12 months). Based on recommendations from the Independent Data Review Committee, TACTT3 Stratum B continued solely with enrollment of patients with tinnitus onset three to six months prior. In total, approximately 330369 patients will be enrolledwere randomized in TACTT3 Stratum B pre- and post-interim analysis.

The same, well-defined patient population we used in Phase 2 (acute inner ear tinnitus following traumatic injury to the cochlea or OM) is selected in our Phase 3 clinical trials. Furthermore, based on the data we have gathered on the various subjective clinical read outs, we believe we have identified the most reliable and relevant measures for efficacy. Efficacy endpoints include PRO measures of loudness and annoyance, the TFI as well as global patient scores of tinnitus status and change. Based on our discussions with the FDA and EMA, we agreed that psychoacoustic measures were not relevant or reliable enough for the purpose of measuring clinical efficacy of AM-101.

Based on our estimates regarding patient enrollment, we expect to have top-line results from the first Phase 3 trial (TACTT2) for AM-101 in the third quarter of 2016, with results for the second trial (TACTT3) following a few months later.

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Two further trials, AMPACT1 and AMPACT2 (AM-101(Keyzilen® in the Post-Acute Treatment of Peripheral Tinnitus) arewere nine-month open label extension trials conducted at the same sites as for TACTT2 and TACTT3. These extension trials will bewere open to participants who completecompleted the TACTT2 or the TACTT3 trial (the latter until summer 2016) and will evaluateevaluated the safety and local tolerance of up to three treatment cycles, each with three repeated doses of AM-101Keyzilen® 0.87 mg/mL.

The extension trials were designed in response to the FDA’s request for safety data from chronic intermittent use by tinnitus patients in support of a new drug application, or NDA filing. Although we do not have any plans to seek a label for such use, the FDA considered such unintended use likely to occur. Therefore,
On August 18, 2016, we announced outcomes from the Phase 3 TACTT2 clinical trial. Keyzilen® was well tolerated with no drug-related serious adverse events. The trial’s primary safety endpoint, incidence of clinically meaningful hearing deterioration, was met. However, the trial did not meet the two co-primary efficacy endpoints of statistically significant changes in tinnitus loudness and the TFI questionnaire compared to placebo.
We believe we have designed these trialsidentified two principal sources for the outcome: (i) the high frequency of tinnitus loudness ratings over an extended period of time and (ii) an unexpectedly high level of variability in outcomes among study sites. We believe the daily capture of tinnitus loudness and annoyance may have caused a number of patients to excessively focus on their tinnitus symptoms. With respect to variability, our analysis subsequent to the unblinding of the trial data has shown positive outcomes at numerous sites, including many of the high enrolling study centers, but inconclusive or contradictory outcomes at other sites.
Based on the outcomes from the TACTT2 trial, we amended our protocol for the TACTT3 Phase 3 clinical trial of Keyzilen® in two steps. Under the final, amended trial protocol, the change in TFI score was elevated from a key secondary endpoint to a primary efficacy endpoint, the trial size was increased to enhance statistical sensitivity to the effects of treatment, and the subgroup of patients with otitis media-related tinnitus was included in confirmatory statistical testing along with the overall study population. The change in tinnitus loudness was downgraded from a primary to a secondary efficacy endpoint. As in TACTT2, tinnitus loudness was initially rated on a daily basis; however, the rating frequency was subsequently reduced in between study visits in order to lighten the burden of patients and reduce the potential impact of the frequent measures. Enrollment into the TACTT3 trial was resumed in early 2017 and completed in September 2017.
On March 13, 2018, we announced that preliminary top-line data from the TACTT3 trial indicated that the study did not meet its primary efficacy endpoint of a statistically significant improvement in the Tinnitus Functional Score from baseline to Day 84 in the active treated group compared to placebo either in the overall population or in the otitis media subpopulation. This outcome was confirmed by further analyses. We consider that additional studies with Keyzilen® will be necessary to move the program forward, and that the way how outcomes are measured Keyzilen® will need to be improved in order to provide more robust efficacy data. We intend to fund further evidencedevelopment of safety over a longer duration and also to study the effect of repeated administration over up to four treatment cycles in total.

AM-111Keyzilen® either through partnerships or research grants.

Sonsuvi® (AM-111) in Hearing Loss

AM-111

Sonsuvi® is being developed for the treatment of ASNHL. In sensorineural hearing loss, there is damage to the sensory cells of the inner ear or the auditory nerve. Sensorineural hearing loss is also called “inner ear hearing loss”. Hearing loss is a heterogeneous disorder of many forms with a variety of causes. ASNHL may be triggered by a variety of insults, such as exposure to excessively loud sound, infection, inflammation or certain ototoxic drugs. These insults may also result in tinnitus. According to an article by Alexander and Harris published in Otology & Neurotology in 2013, the average annual incidence of sudden deafness is 66,954 new cases among the U.S. insured population. There are no currently approved treatments for this patient population.

AM-111

Sonsuvi® contains a synthetic D-form peptide (D-JNKI-1)(Brimapitide or D-JNKI-1) that protects sensorineural structures in the inner ear from stress-induced damage. AM-111Sonsuvi® has been granted orphan drug status by both EMA and FDA and has been granted fast track designation by the FDA for the treatment of ASNHL.

sudden sensorineural hearing loss.

Hearing Loss

Hearing loss, like tinnitus, is a heterogeneous disorder of many forms with diverse etiology. There are two general categories: conductive hearing loss in which sound waves are not conducted efficiently to the inner ear due to build-up of earwax, fluid, or a punctured eardrum; and sensorineural hearing loss, in which there is damage to the inner ear or the auditory nerve. Acute hearing loss can occur in either category. Hearing loss is amenable to pharmaceutical intervention (and thus relevant to our drug development) only when it is sensorineural in origin. ASNHL is often accompanied by tinnitus.


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There are two main types of acute hearing loss: hearing loss induced by trauma, such as from a loud rock concert or an explosion; and hearing loss that arises from unknown origins, that is, idiopathically, based on causes suspected to include changes in blood flow to the inner ear, bacterial and viral infections, autoimmune disease and others. The former is known as AAT for acute acoustic trauma.AAT. The latter is known as ISSNHL for idiopathic sudden sensorineural hearing loss.ISSNHL. Together they can be defined as acute sensorineural hearing loss or ASNHL. In both cases, the onset is sudden. And in both cases, part of the initial hearing loss tends to recover naturally in the days and weeks following the loss; however, some of the loss may remain and, over time, become chronic in nature and less amenable to therapeutic intervention.

ASNHL differs from age-related hearing loss or hearing loss driven by chronic exposure to noise. Those types of hearing loss arise more slowly or on the basis of repeated insults, in slow motion. By contrast, in the case of ASNHL, the effects are felt immediately. This difference in the speed of progression is significant since sudden hearing losses are noticed much more readily.

ASNHL involves a variety of pathologic processes such as massive release of free reactive oxygen species, excessive and pathological stimulation of receptors on neurons by neurotransmitters like glutamate, and inflammation. These reactions, in turn, can damage sensorineural structures of the inner ear such as the sensitive inner and outer hair cells and nerve cells that line the interior of the cochlea. If the stress incident is severe enough, it may lead to permanent cochlear injury with irreversible loss of hair cells and nerve cells. Cell death occurs primarily through so-called programmed cell death, which is driven by damaged cells (apoptosis), and to a lesser extent also through necrosis, which is a passive consequence of gross injury to the cell.

JNK is a signal transmitting enzyme that is stress-activated and regulates a number of important cellular activities. Stresses to the cochlea such as those described above, if severe enough, can activate the JNK signal transduction pathway, leading to the activation of transcription factors such as c-jun and c-fos that are found in the cell nucleus. This activation, in turn, activates genes encoding inflammatory molecules or promoting cell death.

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Current Therapies and Unmet Need

Sensorineural hearing loss may have a serious impact on people’s personal and professional lives. Severe to profound hearing loss can result in high societal costs, mostly due to reduced work productivity, as reported in 2000 in the International Journal of Technology Assessment in Healthcare. Yet no treatment currently exists that has unequivocal evidence of efficacy for AAT or ISSNHL. There is no FDA- or EMA-approved drug on the market for sensorineural hearing loss. The only remaining therapeutic option is a hearing aid or, in cases of deafness or near-deafness, a cochlear implant.

A patient with the acute form of hearing loss may recover on his or her own, especially if the loss is of low or moderate intensity and severity. This is due to intrinsic repair mechanisms inside the cochlea. However, in other cases the patient may recover only partially or not at all. In those cases, in the absence of effective treatment, acute hearing loss will become chronic and irreversible. There is currently no possibility to regrow or replace sensory structures inside the inner ear that are not recovered in the weeks immediately following the loss.

For ASNHL, non-specific treatments are frequently prescribed, mostly on an off-label empirical basis. These may include glucocorticoids and steroids such as prednisolone or dexamethasone; vasodilators such as pentoxyfilline; rheologics; ionotropics and local anesthetics; antioxidants and thrombolytics.

In the United States, most frequently oral prednisolone is administered for the treatment of ASNHL. Corticosteroids are intended to reduce inflammation and swelling in the ear that may be related to hearing loss. The U.S. treatment guideline issued in 2012 by the American Academy of Otolaryngology/Head & Neck Surgery for ISSNHL lists oral steroids and hyperbaric oxygen as treatment options, but refrains from recommending them in light of the low evidence level for their efficacy. Indeed, Nosrati-Zarenoe and colleaguesHultcrantz presented in 2012 in the journal Otology and Neurotology the results of a Swedish placebo controlled trial with oral prednisolone in the treatment of ISSNHL that showed no therapeutic effect on hearing loss from active treatment.

Our Solution – AM-111

—Sonsuvi® (AM-111)

We are developing AM-111Sonsuvi® as a treatment for acute inner ear hearing loss. AM-111Sonsuvi® contains a synthetic D-form peptide (D-JNKI-1) that acts as a c-Jun N-terminal Kinase (JNK) ligand, thereby protecting sensorineural structures in the inner ear from stress-induced damage. We are developing D-JNKI-1 under a worldwide exclusive license for the treatment of ear disorders from Xigen S.A. (Switzerland). Like AM-101, AM-111Keyzilen®, Sonsuvi® is delivered in a biocompatible gel formulation via intratympanic injection. We have established the safety and preliminary efficacy of AM-111Sonsuvi® in a Phase 2 and in a Phase 3 clinical trial. We are preparing for the late stage clinical development of AM-111 in acute inner ear hearing loss. The acute stage of hearing loss represents a window in time in which the inner ear can be protected from

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permanent hearing loss. AM-111Sonsuvi® received orphan drug designation by both EMA and FDA in 2005 and 2006, respectively.

respectively, and was granted fast track designation by the FDA in 2017.

Therapeutic rationale for AM-111Sonsuvi® in hearing loss

The proprietary active pharmaceutical ingredientAPI of AM-111Sonsuvi® is D-JNKI-1,brimapitide (D-JNKI-1), a 31 amino acid synthetic D-form peptide that binds to JNK and inhibits activation of transcription factors such as c-jun and c-fos, thereby protecting sensorineural structures from stress-induced inflammation and apoptosis. D-JNKI-1Brimapitide comprises an active transporter sequence, or D-TAT, that enables AM-111Sonsuvi® to cross the round window membrane quickly, diffuse widely throughout the cochlea, transfect sensorineural cells effectively and reach its target inside the cell nucleus. The D-form of the peptide provides for protease resistance and hence enhanced stability. AM-111Sonsuvi® was shown to remain pharmacologically active for several days inside the cochlea. The D-form is necessary for AM-111Sonsuvi® to cross the RWM.

By attenuating inflammation and protecting cells from apoptosis, we believe that AM-111Sonsuvi® reinforces natural recovery processes and helps to prevent or minimize permanent damage respectively chronic hearing loss. AM-111’sSonsuvi®’s otoprotective effect has been demonstrated in various animal models of cochlear stress, including AAT, acute labyrinthitis (inflammation), drug ototoxicity (aminoglycosides), bacterial infection, cochlear ischemia and cochlear implantation trauma.

We conducted our pre-clinical development program for AM-111Sonsuvi® in close collaboration with academic partners and various contract research organizations, or CROs. D-JNKI-1Brimapitide was invented by Xigen S.A. in Lausanne, Switzerland. In 2003, we signed a Collaboration and License Agreement with Xigen, under which we in-licensed worldwide exclusive rights for use of D-JNKI-1 in the treatment of ear disorders. Under the agreement with Xigen, we have exchanged various pre-clinical and clinical data.

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Hearing loss endpoints

Unlike tinnitus, where measures of therapeutic outcomes have to rely on PROs, the evaluation of hearing is based on psychoacoustic measures performed by audiologists. Audiometric procedures and equipment are highly standardized around the world; hearing thresholds are typically determined by presenting pure tones in the 250 Hz to 8 kHz range through headphones or ear inserts (air conduction) or through a vibrator placed behind the ear or on the forehead (bone conduction). An increase in volume of 10 dB is perceived as twice as loud. In other words, a person whose hearing thresholds improved by 10 dB can hear sounds at half the intensity level that was necessary before. A change of this magnitude is generally considered to be clinically relevant. In addition to pure tone audiometry usually speech audiometry is conducted, in which the audiologist measures a patient’s ability to hear and correctly understand a series of monosyllabic words.

The primary efficacy endpoint in our Phase 2 clinical trial was hearing loss recovery from baseline to Day 7 at the three worst affected frequencies. The percentage improvement of the patient’s hearing across an average of three frequencies was measured relative to baseline hearing loss. This percentage improvement and the percentage of patients with complete remission (hearing recovery to within 10 dB of the pre-ASNHL level) at Day 7 were co-primary endpoints. We also monitored change in the speech discrimination score, or SDS, which measures the correct understanding of 20 monosyllabic words presented to patients, as well as subjective tinnitus loudness as secondary outcome variables.

AM-111

Sonsuvi® Clinical Development

We have successfully completed twothree clinical trials of AM-111Sonsuvi® that demonstrated its favorable safety profile and efficacy in treating more severe types of ASNHL. We have benefited several times from engaging in a protocol assistance procedure with the EMA most recently forand exchanges with the design of the Phase 3 clinical development. We intend to conduct two pivotal Phase 3 trials in the treatment of idiopathic sudden sensorineural hearing loss, titled HEALOS and ASSENT. HEALOS, has commenced enrollment in Europe and Asia and we intend to commence ASSENT in the U.S. in the second quarter of 2016. In addition, we plan to conduct a Phase 2 trial in the treatment of surgery-induced hearing loss (REACH) in the U.S. Provided that we obtain funding, REACH could be initiated in the first half of 2017 at the earliest.

FDA. The design of our pivotal Phase 3 clinical trials iswas based on the outcomes from our Phase 2 clinical trial and our discussions with the EMA and FDA. We have decided to make some adjustments to the definition of the target patient population to ensure that the trial enrolls only those subjects who have a clear medical need and in whom a clinically meaningful therapeutic benefit can be shown.

Phase 1/2 Clinical Trial

A Phase 1/2 clinical trial was conducted at two centers in Germany in January 2006, with 11 patients suffering from AAT due to New Year’s firecracker accidents. Patients had at least 30 dB hearing loss by pure tone audiometry (average of 4 and 6 kHz) and were treated within 24 hours of onset.

Trial participants received a single dose of AM-111Sonsuvi® at either 0.4 mg/mL or 2 mg/mL in a biocompatible gel formulation by intratympanic injection into the most affected ear. The primary endpoint of the trial was the recovery of hearing thresholds from baseline to Day 30. AM-111Sonsuvi® was well tolerated by all trial participants, regardless of the dose. Adverse events occurred in only small numbers and were either unrelated or considered unlikely to be related to the treatment. The Phase 1/2 trial provided the first indications of therapeutic benefit of AM-111Sonsuvi® in humans.

Phase 2 Clinical Trial

To further evaluate the efficacy and safety of AM-111Sonsuvi® we conducted a Phase 2b clinical trial between March 2009 and 2012. Since pre-clinical tests had demonstrated AM-111’sSonsuvi®’s otoprotective effects in many different types of cochlear stress, the patient population was expanded from AAT cases to also include patients affected by ISSNHL. In addition, based on observations from our Phase 1 clinical trial, we expanded the allowed time window from 24 to 48 hours from onset. The design for this Phase 2b trial was discussed with the EMA under a protocol assistance procedure.

The


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As described by Suckfuell and colleagues in an article in Otology & Neurotology in 2014, the trial enrolled 210 participants who suffered from ASNHL (unilateral ISSNHL, uni-or bilateral AAT) with hearing loss of at least 30 dB at the average of the three worst affected frequencies (pure tone average; PTA) and onset not more than 48 hours previously. AM-111Sonsuvi® was dosed at 0 mg/mL (placebo), 0.4 mg/mL (Low Dose) and 2.0 mg/mL (High Dose). All patients without a clinically relevant hearing recovery on Day 7 were given the option to take a course of oral prednisolone as a reserve therapy.

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The trial consisted of a baseline assessment and four follow-up visits on Days 3, 7, 30, and 90. The primary efficacy endpoint was hearing loss recovery from baseline to Day 7 at the three worst affected frequencies. The percentage improvementtrial consisted of PTA relative toa baseline hearing lossassessment and the percentage of patients with complete remission (PTA recovering to within 10 dB of the pre-ASNHL level) at Dayfour follow-up visits on Days 3, 7, were co-primary endpoints. We also monitored change in the speech discrimination score, or SDS, measuring the correct understanding of 20 monosyllabic words presented to patients,30, and subjective tinnitus loudness as secondary outcome variables.

AM-11190.

Sonsuvi® demonstrated a favorable safety profile in this trial. There were no statistically significant differences in the occurrence of clinically relevant hearing deterioration in the treated ear. Also, there were no apparent differences in the frequency of adverse events between placebo and AM-111Sonsuvi® treated patients at any time points, no systemic side effects and no negative impact on balance or tinnitus. There were transient procedure related effects such as ear discomfort or pain, incision site complications or middle ear infection in less than 5% of cases. For nine
Overall, the trial did not meet its primary efficacy endpoint. Analysis of PTA improvement by hearing loss severity in accordance with a commonly used hearing loss classification revealed unexpectedly strong spontaneous recovery for lesser severities: by Day 7, placebo-treated patients non-fatal serious adverse events were recorded (two, four and three patients in the placebo, AM-111 Low Dose and AM-111 High Dose, respectively). All serious adverse events were considered unlikely related or not related to the treatmentenrolling with the exception of two (“deafness neurosensory”, one in the placebo and one in the AM-111 High Dose group). All serious adverse events except two (diagnosis of internal auditory canal tumor, respectively neurofibromatosis type II, not related)mild-to-moderate hearing loss (PTA <60 dB) had recovered or were recovering. The most common serious adverse event was “deafness neurosensory,” as some severe or profound hearingmore than three quarters of their initial loss, patients with insufficient recovery, acute relapse or ongoing deterioration were hospitalized in Polandwhereas for infusion therapy in line with customary medical practice.

The trial demonstrated a statistically significant and clinically relevant improvement for the primary as well as the co-primary endpoints in patients with severe to profound ASNHL (those patients with hearing loss of at least 60 dB) treated with AM-111 0.4 mg/mL compared with placebo.

Improvement in hearing and speech discrimination

    AM-111
  Placebo Low Dose High Dose
Absolute hearing improvement, dB 17.9 (30) 29.9 (29) 22.7 (33)
LS means (n)            
LS mean difference (95% confidence interval)      12.1 (2.2, 22.0)   4.9 (-4.8, 14.6) 
P-value      0.017*  0.319 
Relative hearing improvement, %            
LS means (n)  30.9 (30)   50.4 (29)   37.6 (33) 
LS mean difference (95% confidence interval)      19.5 (3.0, 35.9)   6.6 (-9.6, 22.8) 
P-value      0.021*  0.419 
Frequency complete hearing recovery, %            
Mean (n)  13.3 (30)   31.0 (29)   24.2 (33) 
Odds ratio (95% confidence interval)      5.5 (1.1, 29.0)   1.6 (0.4, 6.7) 
P-value      0.044*  0.530 
Speech discrimination score improvement, % points            
LS means (n)  9.1 (29)   27.4 (29)   23.2 (33) 
LS mean difference (95% confidence interval)      18.3 (3.1, 33.4)   14.1 (0.7, 28.9) 
P-value      0.019*  0.061*

ANCOVA results for changes in hearing (absolute and relative to initial hearing loss) and speech discrimination score from baseline to Day 7 as well as frequency of complete hearing recovery in patients with severe to profound hearing loss. Shown are mean values for treatment groups (least square (LS) means for ANCOVA), differences for the active groups compared with placebo (odds ratio from logistic regression for frequency of complete hearing recovery) including 95% confidence interval and the p-value: * significant at 0.05 level.

A clinically relevant and statistically significant therapeutic effect of AM-111 Low Dose was apparent at Day 3; it continued to Day 30 and leveled off somewhat by Day 90, but still remained clinically relevant.

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Improvement in hearing over time

Treatment effect of AM-111 as difference in hearing recovery over placebo from baseline to follow-up visits in patients with severe to profound hearing loss (n=92). A difference of 10 dB is considered clinically relevant. Whiskers: 95% confidence interval. * Significant at 5% level when compared to placebo.

At Day 90, 42% of patients had achieved complete recovery as compared to 26%(PTA ≥60 dB), it was only about one quarter. Post-hoc analyses in the severe-to-profound hearing loss subgroup demonstrated superiority of Sonsuvi® 0.4 mg/mL over placebo group. for the primary endpoint, improvement in absolute PTA, as well as for co-primary efficacy endpoints, hearing improvement relative to the initial hearing loss and frequency of complete hearing recovery. Further, the improvement in word recognition scores was nominally significant as well as the frequency of complete tinnitus remission.

The High DoseSonsuvi® 2.0 mg/mL group overall showed improvement between the Low DoseSonsuvi® 0.4 mg/mL and the placebo groups, without reaching statistical significance. Sensitivity analysis showed thatHowever, differences between the therapeutic effect didtwo active treatment groups were nominally not depend on early treatment: in patients who were treated more than 24 hours after ASNHL onset the treatment effect actually was larger as the rate of spontaneous recovery decreased.

Improvement in hearing over time – ASNHL onset 24 to 48 hours before

Treatment effect of AM-111 as difference in hearing recovery over placebo from baseline to follow-up visits in patients with severe to profound hearing loss treated 24 to 48 hours post ASNHL onset (n=66). A difference of 10 dB is considered clinically relevant. Whiskers: 95% confidence interval. * Significant at 5% level when compared to placebo.

The superior hearing recovery in the AM-111 0.4 mg/mL group vs. placebo was supported by more frequent complete tinnitus remission. This finding, which was not yet apparent in the previous smaller significant.

Phase 1/2 clinical trial, suggests that preservation of sensory cochlear cells may help to prevent permanent tinnitus and hearing loss at the same time.

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Complete tinnitus remission

Percentage of severe to profound hearing loss patients and tinnitus at baseline whose tinnitus was completely resolved by Day 90 (n=77).

In contrast to the patients with severe to profound hearing loss at baseline, there was no therapeutic benefit observed in patients with mild to moderate hearing loss (i.e. less than 60 dB) due to unexpectedly strong spontaneous recovery. Patients with mild hearing loss recovered essentially all of their initial hearing loss naturally, and those with moderate levels recovered most of it. In hindsight, the inclusion criteria for hearing loss severity had been set too low. Although there is consensus that spontaneous recovery can be substantial in ISSNHL, no reliable data had been available prior to our Phase 2b clinical trial, partly due to the dearth of placebo-controlled trials.

In the present trial, patients in the Low Dose group initially appeared to show greater improvement than those in the High Dose group. The difference, however, was not statistically significant for absolute PTA improvement and was much smaller or absent for the other efficacy outcomes.

Planned Late Stage3 Clinical Program

Based on Phase 2 clinical trial outcomes, and after obtaining guidance from the EMA and FDA, we prepared and initiated a late stagePhase 3 clinical program. We will conductprogram including confirmatory testing of AM-111Sonsuvi® 0.4 mg/mL as well as exploreexploring potential incremental therapeutic benefits from a higher concentration (0.8 mg/mL) in ISSNHL patients. Since a “bell shaped” dose response curve was observed in animal studies, testing a concentration between 0.4 and 2.0 mg/mL may be even more effective thanwas expected to shed further light on the low dose.dose effect relationship in humans. In addition, we are planningview of the high spontaneous recovery in the mild to test AM-111 in a separate trial for protection against surgery-inducedmoderate hearing loss subgroup observed in cochlear implant surgery.

We have commenced enrollmentPhase 2, recruitment was limited to patients experiencing severe or profound ISSNHL, i.e. patients with more pronounced medical need. Further, the time window for inclusion was extended from up to 48 hours to up to 72 hours from ISSNHL onset as the magnitude of the therapeutic effect in a pivotalPhase 2 did not appear to decrease the later treatment was started. This enlargement also aligned the duration of the time window with the period over which ISSNHL can develop, which is defined, e.g. by the U.S. practice guideline for sudden sensorineural hearing loss, as 72 hours.

The first Phase 3 trial, called HEALOS, (Efficacy and Safetystarted enrollment in November 2015. The trial enrolled a total of AM-111256 patients in the treatment of Acute Inner Ear Hearing Loss) inseveral European and Asian countriescountries. On November 28, 2017, we announced that the HEALOS Phase 3 clinical trial did not meet the primary efficacy endpoint of a statistically significant improvement in hearing from baseline to Day 28 compared to placebo for either active treatment groups in the overall study population. However, a post-hoc analysis of the subpopulation with approximately 255 patients. A single doseprofound acute hearing loss (PTA ≥ 90 dB at baseline in accordance with a commonly used classification of eitherhearing loss severity) revealed a clinically meaningful and nominally significant improvement in the Sonsuvi® 0.4 mg/mL ortreatment group. Further, patients treated with Sonsuvi® 0.4 mg/mL showed a nominally significantly lower incidence of no hearing improvement compared to placebo by Day 91 as well as a superior improvement in word recognition score. Outcomes with Sonsuvi® 0.8 mg/mL tended to be somewhat less pronounced than those observed for Sonsuvi® 0.4 mg/mL. Sonsuvi® was well tolerated and the primary safety endpoint was met.
Together with the outcomes of AM-111 will be compared to placebo in patients suffering from acute severe to profound hearing loss with ISSNHL as the onset factor and an enrollment time windowHEALOS trial, we announced that has been extended from 48 to 72 hours. The FDA held a pre-IND meeting with us in September 2014 and provided formal feedback and guidance on our pre-clinical and CMC development and specifically on HEALOS.

In parallel, we are preparing aASSENT, the second pivotal Phase 3 clinical trial calledinvestigating Sonsuvi®, was terminated early in order to avoid the need for substantial protocol changes and interruptions of enrollment pending feedback from health authorities on the regulatory pathway. ASSENT (Efficacy and Safetywas planned to enroll a total of AM-111 as Acute Sudden Sensorineural Hearing Loss Treatment)300 patients in the US, Canada and South Korea with approximately 300 patients. A single dose of either 0.4 mg/mL or 0.8 mg/mL of AM-111 will be compared to placebo in patients suffering from acute severe to profound hearing loss with ISSNHL as the onset factor and an enrollment time window of 72 hours.Korea. In contrast to HEALOS and the Phase 2 trial, where patients with insufficient hearing recovery havehad the option of receiving a course of oral corticosteroids as reserve therapy, all patients in ASSENT willwould receive oral corticosteroids as a background therapy. An interim analysisAt the time of early termination, the ASSENT trial had recruited 56 patients.


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Based on the HEALOS results, 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. Following this feedback, we have mandated a transaction advisory firm to identify potential partners for the Sonsuvi® development program and provide support for partnering discussions and negotiations. If successful, this may result in one or several sale, out-licensing or co-development transaction(s) on a global or regional scale.
AM-125 in Vestibular Disorders
Vestibular Disorders
Balance disorders are medical conditions that evoke the sensation of unsteadiness, dizziness or vertigo. Patients suffering from balance disorders are often profoundly impacted in their daily activities. According to the NIDCD, more than four out of 10 Americans, at some point in their lives, experience an episode of dizziness significant enough to see a doctor. According to research by Saber Tehrani and colleagues published in the journal Academic Emergency Medicine in 2013 there are almost 4 million emergency room visits per year in the U.S. for problems of dizziness or vertigo. Balance problems can be caused by many different health conditions, medications or anything that affects certain areas of the brain or the inner ear labyrinth. Balance disorders originating from the inner ear labyrinth include benign paroxysmal positional vertigo, or positional vertigo, labyrinthitis, vestibular neuronitis and Meniere’s disease, a chronic condition characterized by severe episodic vertigo, tinnitus, and fluctuating hearing loss.
In case of vertigo, patients experience a false sensation of movement of oneself or the environment. This can be a spinning or wheeling sensation, or they simply feel pulled to one side. This may lead to imbalance, nausea or vomiting. The cause of vertigo can be an imbalance between the left and right vestibular systems in signaling position and acceleration to the brain. The symptom of vertigo may partially or fully resolve thanks to spontaneous recovery of the peripheral vestibular function and / or through compensation of the imbalance at the brain level, which is known as vestibular compensation.
The imbalance between the left and right vestibular systems and thus the sensation of vertigo may be reduced by dampening the vestibular function in the unaffected, opposite inner ear through pharmacotherapy. This minimizes the extent of the imbalance falsely interpreted as movement. Most existing therapies rely on this strategy to minimize vertigo symptoms, but also have unintended sedative effects. Examples include meclizine, benzodiazepines, dimenhydrinate or amitriptyline.
Betahistine is widely used around the world for the treatment of vestibular disorders, notably Meniere’s disease and vertigo. Its development goes back to the use of intravenous histamine, which provided symptomatic relief for these disorders. Betahistine is a structural analog of histamine. It acts as a partial histamine H1-receptor agonist and, more powerfully, as a histamine H3-receptor antagonist. Betahistine has been shown to increase cochlear, vestibular and cerebral blood flow, facilitate vestibular compensation and inhibit neuronal firing in the vestibular nuclei. Unlike other drugs, it has no sedating effect. Betahistine is typically taken orally with a recommended daily dose of 24 to 48 mg, divided in 2 or 3 single doses.
Betahistine is generally recognized as a safe drug and there exists a large body of data on the pharmacology, pharmacokinetics and toxicology of the compound. It is approved in about 115 countries world-wide for the treatment of Meniere’s disease and vestibular vertigo, but not in the United States. In 1970, the Commissioner of FDA withdrew approval of the NDA after the discovery that the submission contained unsubstantiated information about some patients in the efficacy studies upon which approval was based. Today, betahistine is available in the United States only from compounding pharmacies or through importation. Despite limited availability, a survey by Clyde and colleagues published in Otology & Neurotology in 2017 revealed that 56% of U.S. neurotologists and 16% of generalists use betahistine and 20-30% of neurotologists use it often or always when treating patients with Meniere’s disease.
Various studies and meta-analyses have demonstrated therapeutic benefits of betahistine in both the treatment of vertigo as well as in supporting vestibular rehabilitation. However, the evidence for therapeutic benefits is variable, and it has been suggested that efficacy could be increased with higher doses and / or longer treatment periods. It is well known that orally administered betahistine is rapidly and almost completely metabolized into 2-pyridylacetic acid, also known as 2-PAA, which lacks pharmacological activity. As a consequence the bioavailability of oral betahistine is estimated to be very low.

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Our Solution—AM-125
On February 2, 2017, we entered into an asset purchase agreement with Otifex, pursuant to which we have purchased various assets related to betahistine dihydrochloride in a spray formulation, which we intend to develop for intranasal treatment of vertigo under the name AM-125.
The assets include data from a randomized placebo controlled dose escalating Phase 1 clinical trial in 40 healthy volunteers. The trial demonstrated good tolerability of intranasal betahistine and significantly higher betahistine concentrations in blood plasma than reported for oral betahistine administration. Comparing the betahistine concentrations in plasma with those from an independent Phase 1 clinical trial with oral betahistine showed a relative bioavailability (dose adjusted) for intranasal administration that was 20-40 times higher than with oral administration. In 2018, we conducted a second Phase 1 clinical trial with AM-125 in healthy volunteers. The trial showed superior bioavailability (unadjusted) over a range of four intranasal betahistine doses compared to oral betahistine observed, with plasma exposure being 6 to 29 times higher (p-value between 0.056 and p<0.0001). Further, it confirmed the good safety profile of intranasal betahistine and showed that the treatment was well tolerated when administered three times daily for three days.
We have discussed the regulatory requirements for AM-125 during a Pre-IND meeting with the FDA and in the context of scientific advice meetings with the EMA and two European national health authorities to further define the development program. We believe that, if approved, AM-125 could become the first betahistine product for the treatment of vertigo in the United States.
In 2019, we plan to initiate a randomized placebo-controlled Phase 2 clinical study with AM-125 in the first quarter. The “TRAVERS” Phase 2 trial will enroll 138 patients suffering from acute vertigo following surgical removal of a vestibular schwannoma, a tumor growing behind the inner ear. It will be conducted after 150in several European countries and potentially, Canada. The TRAVERS trial will have two parts: In Part A, five ascending 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 48 mg will be tested in 16 patients under open-label conditions for reference. Based on an interim analysis, two doses will be selected and tested in an estimated 72 patients in Part B.
AM-201 in Antipsychotic-Induced Weight Gain
Antipsychotic-induced weight gain
The use of second generation antipsychotic drugs such as olanzapine or clozapine can be associated with severe side effects such as weight gain, metabolic dysregulation and somnolence. These side effects not only have completeda negative effect on patients' compliance with medication, but expose them to additional hazards: weight gain is strongly correlated with metabolic dysregulation leading to diabetes and cardiovascular disease; and somnolence may severely impact quality of life, affecting learning, social interactions or tasks such as driving or operating machinery. These adverse events are mainly attributed to the histamine H1 receptor antagonistic properties of these agents. Treatment with these antipsychotic drugs reduces the activity of the H1 receptor, which in turn causes increased eating and weight gain.
According to the U.S. prescription information for olanzapine, accumulated evidence shows that patients gain on average 2.6 kg over a treatment duration of 6 weeks. During long-term treatment (≥ 48 weeks) patients gain on average 5.6 kg as shown in a review published by Citrome and colleagues published in the journal Clinical Drug Investigations in 2011. Over that time period, 64%, 32%, and 12% of patients treated with olanzapine gain at least 7%, 15%, or 25% of their baseline body weight, respectively.
The concerns about antipsychotic-induced weight gain and consequent metabolic changes have led the FDA to highlight these risks as warnings in the prescribing information of certain antipsychotics and call for regular monitoring of glycemic control, lipid profile and weight. These concerns are also reflected in treatment guidelines, which do not recommend olanzapine or clozapine as first-line treatments, despite the fact that meta-analyses such as one by Leucht and colleagues published in 2013 in the journal Lancet show that they are among the most effective treatments for schizophrenia.
Our Solution—AM-201
On May 15, 2018, we announced the expansion of our intranasal betahistine development program beyond the treatment of vertigo into mental health supportive care indications. Under project code AM-201 we intend to develop intranasal betahistine for the prevention of antipsychotic-induced weight gain. Betahistine is thought to counteract the effects of antipsychotics such as olanzapine and to relieve the inhibitory effect on the H1 receptor by binding to and activating the H1 receptor to normalize/reduce the food take and consequently lead to reduced weight gain. We believe the weight-attenuating effect is intensified by

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betahistine’s property as antagonist at the H3 receptor. We have discussed our development plan for AM-201 with the FDA during a Pre-IND meeting. In its written response, the FDA supported the planned conduct of a multiple dose Phase 1 trial with AM-201 administered to healthy subjects in combination with olanzapine to evaluate the pharmacokinetics, pharmacodynamics, and safety, and to establish proof-of-concept. Further, the FDA endorsed weight gain normalized to baseline body weight versus placebo as reasonable primary efficacy endpoint for a subsequent Phase 2 trial.
We expect to initiate ASSENT in the second quarter of 2016.

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In addition, we plan to conduct a Phase 21b proof-of-concept trial in the treatment of surgery-induced hearing loss (REACH) in the U.S., comparing a single 0.4 mg/mL dose of AM-111 to a placebo. Provided that we obtain funding, REACH could be initiatedwith AM-201 in the first halfquarter of 2017 at2019. The randomized double blind placebo controlled trial will be conducted in a European country and enroll 50 healthy volunteers who will receive either AM-201 or placebo concomitantly with olanzapine over four weeks. Doses will be escalated in five steps. We expect to conclude the earliest.

Competition

We believe that we are the clinically most advanced company in the emerging field of inner ear therapeuticsstudy and that our innovative technology, knowledge, experience and scientific resources provide us with competitive advantages. However, weobtain results during 2019.

Competition
We may face competition from different sources with respect to our product candidates AM-101Keyzilen® (AM-101), Sonsuvi® (AM-111), AM-125 and AM-111AM-201 and our other pipeline products or any product candidates that we may seek to develop or commercialize in the future. Because there are a variety of means to block the activity of NMDA, histamine receptors or the JNK pathway, our patents and other proprietary protections for AM-101Keyzilen®, Sonsuvi®, AM-125 and AM-111AM-201 may not prevent development or commercialization of all viable product candidates that are different from our lead product candidates.

Any product candidates that we successfully develop and commercialize will compete with existing therapies, even if they are not licensed specifically for use in our target therapeutic indications or if they lack clear proof of efficacy.
There exist no FDA or EMA approved products for the treatment of acute inner ear tinnitus or acute inner ear hearing loss; however, some drug products such as pentoxifylline, gingko biloba, corticosteroids, betahistine, trimetazidine or piracetam are frequently prescribed off-label. Some of them are even licensed as tinnitus or hearing loss treatments in certain countries of the European Union. We therefore may have to expend particular efforts in order to overcome established prescribing behavior.

A variety of drug products that are licensed or used off-label for the treatment of vestibular disorders and Meniere’s disease exist, including steroids, diuretics, anti-emetics or anti-nausea medications. In many countries outside the United States, oral betahistine is the standard of care and licensed for the treatment of Meniere’s disease and vestibular vertigo.

Possible competitors may be biotechnology and pharmaceutical companies as well as academic institutions, government agencies and private and public research institutions, which may in the future develop products to treat acute inner ear tinnitus or acute inner ear hearing loss.loss or vertigo. Any product candidates that we successfully develop and commercialize will compete with new therapies that may become available in the future. We believe that the key competitive factors affecting the success of our product candidates, if approved, are likely to be efficacy, safety, convenience, price, tolerability and the availability of reimbursement from government and other third-party payors.

Acute inner ear tinnitus

There are a number of products in pre-clinical research and clinical development by third parties to treat tinnitus in the broader sense. Most of them are aiming to provide symptomatic relief (without treating the underlying cause) and targeting chronic rather than acute tinnitus. Examples include Tinnitus Retraining Therapy (TRT)TRT or tinnitus maskers as well as more recent approaches like transcranial magnetic stimulation, vagus nerve stimulation, or customized sound therapy. Based on publicly available information, we have further identified among others, the following drug product candidates that are currently in clinical development:

Autifony Therapeutics Ltd. has a Kv3 potassium channel agonist product candidate (AUT00063) that is designed for oral administration. In 2014 Autifony initiated a Phase 2 study with AUT00063 in patients with post-acute tinnitus. Following an interim analysis, Autifony announced in October 2015 that it would halt enrollment in its Phase 2 trial due to a lack of efficacy.
·
•Merz Pharmaceuticals GmbH has a product candidate that is a low affinity NMDA receptor antagonist and nicotinic acetylcholine receptor antagonist (neramexane) designed for oral treatment of tinnitus. In November 2011 Merz Pharma announced the suspension of its tinnitus development program with neramexane due to lack of efficacy in Phase 3 clinical trials in post-acute tinnitus; the product candidate is currently still being evaluated in a Phase 2 clinical trial by Merz’s Japanese collaboration partner Kyorin Pharmaceutical Co., Ltd.

·Autifony Therapeutics Ltd. has a Kv3 potassium channel agonist product candidate (AUT00063) that is designed for oral administration. In 2014 Autifony initiated a Phase 2 study with AUT00063 in patients with post-acute tinnitus. Following an interim analysis, Autifony announced in October 2015 that it would halt enrollment in its Phase 2 trial due to a lack of efficacy.

·
Otonomy Inc. acquired an early stage NMDA receptor antagonist product candidate (NST-001, gacyclidine) from Neurosystec Inc. in October 2013 and, according to public information, is planning to develop it as OTO-311 for intratympanic injection.2013. According to public information, Otonomy intends to develop a sustained-exposurepolymer-based formulation of gacyclidine for the treatment of tinnitus that will provide a full course of treatment from a single intratympanic injection. OTO-311 is currently beinghas been evaluated in a Phase 1 trial; initiation oftrial. Following a change in formulation, Otonomy is planning to initiate a Phase 1/2 trial is planned forwith the modified drug product OTO-313 in 2019.Based on publicly available information, OTO-313 will target a similar group of tinnitus patients. Its competitive strength will ultimately depend on the second halfdemonstration of 2016.clinical efficacy and safety and its comparison with Keyzilen®.

Based on publicly available information, OTO-311 will target a similar group of tinnitus patients. Its competitive strength will ultimately depend on the demonstration of clinical efficacy and safety and its comparison with AM-101. Further, we intend to rely on our patent applications with broad disclosures to pursue claims relating to the use of polymers with NMDA antagonists in controlled-release topical compositions for the

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treatment of tinnitus. Further progressProgress in the development of AM-101Keyzilen® and in particular market approval may attract increased interest in developing treatments for acute inner ear tinnitus and may lead to the arrival of new competitors.


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Acute inner ear hearing loss

There are a number of product candidates in pre-clinical research and clinical development by third parties that aim to prevent or treat acute inner ear hearing loss. Based on publicly available information, we have identified among others, the following drug product candidates:

·AudioCure Pharma GmbH has a ß-carboline product candidate (AC-002) and other chemical entities derived from it in pre-clinical development that is designed for intratympanic treatment of noise induced hearing loss in a gel-based formulation.

·Autifony Therapeutics Ltd. has a Kv3 potassium channel agonist product candidate (AUT00063) that is designed for oral administration. Autifony is expected to initiate a Phase 2 trial with AUT00063 in the treatment of speech-in-noise deficits in elderly patients.

·Sound Pharmaceuticals, Inc. has a product candidate (SPI-1005, ebselen), that mimics and prompts production of the enzyme glutathione peroxidase and is designed for oral administration, and that has been tested for the prevention and treatment of temporary inner ear hearing loss in a Phase 2 clinical trial.

·Otologic Pharmaceutics, Inc. has a product candidate (HPN-07) designed for treatment of acute hearing loss by way of oral administration. A Phase 1 trial was to be initiated in 2014, but no further information is publicly available on its status.

·Southern Illinois University has an antioxidant product candidate (D-methionine) that is designed for oral administration in the prevention and treatment of noise induced hearing loss and currently being tested in a late stage study with the Department of Defense.

candidates that are currently in clinical development:

Autifony Therapeutics Ltd. has a Kv3 potassium channel agonist product candidate (AUT00063) that is designed for oral administration. Autifony conducted a Phase 2 trial with AUT00063 in the treatment of speech-in-noise deficits in elderly patients. Autifony announced in August 2016 that the study showed no treatment benefit for AUT00063. In July 2016, the company announced a pilot trial with AUT00063 in adult cochlear implant users in the United Kingdom.
GenVec, Inc. is developing CGF166, E1-, E3-, E4-deleted human adenovector serotype 5 (Ad5) backbone in collaboration with Novartis and has initiated a Phase 1/2 study for the treatment of hearing loss and vestibular dysfunction. The first patient was treated in October 2014.
Nordmark, a German company, is developing Ancrod, the biologically active substance from the venom of the Malayan Pit Viper (Calloselasma rhodostoma), for the treatment of sudden sensorineural hearing loss and has initiated a Phase 2 program.
Sound Pharma has a product candidate (SPI-1005, ebselen), that mimics and prompts production of the enzyme glutathione peroxidase and is designed for oral administration. In a Phase 2 clinical trial SP-1005 was tested for the prevention of noise-induced hearing loss in young adults. The study showed a reduction in the temporary hearing threshold that in one dose was better by 2.75 dB than in the placebo group.
Otologic Pharmaceutics, Inc. has a product candidate (HPN-07) designed for treatment of acute hearing loss by way of oral administration. A Phase 1 trial was completed in December 2015. A Phase 2 clinical trial is under preparation.
Sensorion, a French company, is developing SENS-401 (R-azasetron besylate) for the treatment of sudden sensorineural hearing loss by way of oral administration. The company plans to initiate a Phase 2 trial in 2019. Sensorion has received orphan drug designation by the EMA for sudden sensorineural hearing loss.
Southern Illinois University has an antioxidant product candidate (D-methionine) that is designed for oral administration in the prevention and treatment of noise induced hearing loss and currently being tested in a late stage study with the Department of Defense.
Strekin AG, a privately held Swiss company, has an agonist of the peroxisome proliferator (STR001) that it plans to develop for surgery induced haring loss. A Phase 2 trial was initiated in 2016. Strekin has received orphan drug designation by the EMA for sudden sensorineural hearing loss.
We believe that AM-111Sonsuvi® is the only product candidate administered after an incidence of acute hearing loss that so far has demonstrated in a randomized, placebo controlled clinical trial a clinically relevant and statistically significant improvement in patients with severe to profound ASNHL and to have a therapeutic effect on tinnitus as well.hearing. To our knowledge, we are also the only company to have obtained orphan drug designation for a product candidate in the treatment of ASNHL in both the United States and the European Union.States. To the extent that other drug developers demonstrate clinical efficacy for their product candidates in the prevention and treatment of permanent hearing loss from ASNHL, our competitive position may be weakened, and the market exclusivity under the orphan drug designation may be circumvented.

Vestibular Disorders
There are a number of product candidates in clinical development by third parties that aim to prevent or treat vertigo. Based on publicly available information, we have identified the following drug product candidates that are currently in clinical development:
Otonomy is developing a polymer-based formulation for the steroid dexamethasone (Otividex; OTO-104) for patients with Meniere’s disease. In August 2017 Otonomy announced that a Phase 3 clinical trial conducted in the United States had failed to show a treatment effect of OTO-104 against placebo and that a European Phase 3 clinical trial was terminated early. In November 2017 the company announced that the European study showed a statistically significant reduction in the count of definitive vertigo days.
Sensorion is developing SENS-111, a histamine H4 receptor antagonist, for the oral treatment of acute vertigo crises. A Phase 2 trial started enrolling patients with acute unilateral vestibulopathy in 2017. Results are expected in the second half of 2019.
Sound Pharma has a product candidate (SPI-1005, ebselen), that mimics and prompts production of the enzyme glutathione peroxidase and is designed for oral administration. In October 2017 Sound Pharmaceuticals announced a Phase 2 clinical trial with SP-1005 to treat patients with Meniere’s disease.
The aforementioned developments have the potential to compete with AM-125. Likewise, AM-125, if approved, will compete with products that are licensed or used off-label for the treatment of vestibular disorders and Meniere’s disease,

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including steroids, diuretics, anti-emetics or anti-nausea medications as well as oral betahistine, the standard of care for treatment of Meniere’s disease and vestibular vertigo in many countries outside the United States. Although we expect that AM-125 will offer benefits over oral betahistine due to the ability to bypass the strong first-pass metabolism associated with oral intake and provide for a higher bioavailability and avoid gastric side effects, it may take time to change prescribing and usage patterns in favor of the newer product.
Antipsychotic-induced weight gain
There are a number of product candidates in clinical development by third parties that aim to prevent or treat antipsychotic-induced weight gain. Based on publicly available information, we have identified the following drug product candidates that are currently in clinical development:
ALKS-3831 is a fixed-dose combination of olanzapine and samidorphan, a novel opioid system modulator, which is being developed by Alkermes Inc. with the specific aim of providing the therapeutic benefits of olanzapine with less weight gain than olanzapine monotherapy. On November 29, 2018 Alkermes announced that the ENLIGHTEN-2 phase 3 trial with ALKS-3831 had met its coprimary endpoints of mean % body weight change from baseline and % of patients with ≥10% weight gain. The reported reduction in weight gain over 6 months was 37% versus olanzapine monotherapy. Alkermes expects to file for an NDA in mid-2019.
If approved, ALKS-3831 will reach the market well before AM-201. We believe that our product may provide various benefits over ALKS-3831, notably that it does not come in a fixed dose combination, allowing for dosing flexibility, and that it may be used with other antipsychotic drugs than olanzapine.
As weight gain is associated with immediate metabolic side effects it is advisable to prevent antipsychotic-induced weight gain rather than seek to treat the overweight once it has developed. Weight monitoring, dietary and lifestyle changes as well as behavioral and cognitive counseling present the most effective non-pharmacologic ways to prevent and also treat antipsychotic weight gain. Pharmacologic approaches include the switch to an alternative antipsychotic treatment strategy, which however can be associated with a loss of efficacy or the appearance of other side effects. Limited evidence for efficacy with metformin as an exploratory adjuvant to prevent antipsychotic-induced weight gain has been demonstrated.
Intellectual Property

Patents

We seek regulatory approval for our products in disease areas with high unmet medical need, great market potential and where we have a proprietary position through patents covering various aspects of our products, e.g., composition, dosage, formulation, and use, etc. Our success depends on an intellectual property portfolio that supports our future revenue streams as well as erects barriers to our competitors. For example, we have broad disclosures in our patent applications and can pursue patent claims directed to our own leading product candidates as well as claims directed to certain potentially competing products. In addition, our earlier filed patent applications are prior art to others including certain of our competitors who filed their patent applications later than ours. We are maintaining and building our patent portfolio through: filing new patent applications; prosecuting existing applications and licensing and acquiring new patents and patent applications.

Despite these measures, any of our intellectual property and proprietary rights could be challenged, invalidated, circumvented, infringed or misappropriated, or such intellectual property and proprietary rights may not be sufficient to permit us to take advantage of current market trends or otherwise to provide competitive advantages. For more information, please see “Item 3. Key Information—D. Risk factors—Risks Related to Intellectual Property.”

As of December 31, 2015,2018, we own four (4)five issued U.S. patents and nine (9)five pending U.S. patent applications along with foreign counterparts of suchparticular patents and applications in various jurisdictions. We co-own threefour of our issued U.S. patents, and one of our pending patent applications with INSERM, along with their

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foreign counterparts, pursuant to the terms of our co-ownership and exploitation agreement. In addition, we co-own twoone of our pending applications with Xigen pursuant to the terms of our collaboration and license agreement.

In addition, as of December 31, 2015,2018, we have exclusively licensed from Xigen eleven (11) issued U.S. patents and two (2) pending U.S. patent applications, along with their foreign counterparts in various jurisdictions that cover the composition of matter or method of use of JNK ligand peptides in a limited field including the intratympanic treatment of acute sensorineural hearing loss.

ASNHL.

With respect to our issued patents in the United States, and Europe, we may also be entitled to obtain a patent term extension to extend the patent expiration date. For example, in the United States, we can apply for a patent term extension of up to 5 years for one of the patents covering a product once the product is approved by the FDA. The exact duration of the extension depends on the time we spend in clinical trials as well as getting a new drug application approval from the FDA.

The patent portfolios for our two (2) leading product candidates as well as other related filings as


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Keyzilen®
We are the owner or co-owner of patents and patent applications relating to Ketamine or its use in inner ear tinnitus. In particular, we have an agreement entitled “Co-Ownership/Exploitation Agreement” with INSERM with respect to its Ketamine patent portfolio. We have rights to two (2)four issued U.S. patents and three (3)one pending U.S. applicationsapplication and corresponding patents and applications in other jurisdictions including Europe, Eurasia, Australia, Canada, Japan, Brazil, China, South Korea, Israel, India, Mexico, Philippines, Russia, South Africa and New Zealand, covering formulation and use of Ketamine. Our issued patents and pending patent applications relating to AM-101Keyzilen® are expected to expire between 2024 and 2028, prior to any patent term extensions to which we may be entitled under applicable laws.

AM-111

Sonsuvi®
We are the exclusive licensee under our agreement with Xigen of a portfolio of patents and patent applications that relate, among other things, to JNK ligand peptides or their use in hearing loss. This portfolio includes eleven (11)twelve issued U.S. patents and two (2)three pending U.S. applications along with their foreign counterparts in various jurisdictions including, Europe, Australia, Brazil, Canada, Eurasia, South Korea, Israel, India, Mexico, Ukraine and Japan, that cover the composition of matter or method of use of the JNK ligand peptides. These licensed patents and patent applications relating to AM-111Sonsuvi® are expected to expire between 2020 and 2027, prior to any patent term extensions to which we may be entitled under applicable laws. In addition, we co-own two patent families with Xigen related to use of JNK ligand peptides for the treatment of Meniere’s disease or tinnitus.

We have several areas of disagreement with Xigen, including (i) our interpretation of the scope of the exclusive worldwide license granted to us by Xigen, (ii) the assignment by Xigen of certain of the patents covered by the license and (iii) Xigen’s refusal to grant its consent for the disclosure of certain provisions of our agreement in the prospectus associated with our initial public offering and the filing of a redacted version of the agreement with the SEC. Although the difference in interpretation over the scope of the license has no impact on our current or planned use of AM-111Sonsuvi® and we have been assured by Xigen and its assignee that the assignment of patents is without prejudice to our license, these areas of disagreement could adversely affect our relationship with Xigen and our business, commercialization prospects and financial conditions. Although Xigen has not taken any action as of the date of this Annual Report,December 31, 2018, any resulting litigation could result in substantial legal expenses and potentially the loss of our right to commercialize AM-111. For a discussion of these issues, please refer to “Item 3. Key Information—D. Risk factors —Risks Related to our Reliance on Third Parties—Sonsuvi®.
Intranasal Betahistine
We have several areasacquired one patent from Otifex directed to intranasal application of disagreement with Xigen, and consequently our relationship with Xigen may be adversely affected, we could potentially lose our right to commercialize AM-111 and our business, commercialization prospects and financial condition may be adversely affected.”

Additional Patents and Applications

betahistine for Eustachian tube dysfunction that is issued in the United States. In addition, to the AM-101 and AM-111 patent portfolios, we own four (4) U.S. patent applications directed to poloxamer-based compositions with actives including fluoroquinolone antibiotics, steroids, or gacyclidine. Although these applications are not directed to our AM-101 or AM-111 products, they can providepurchased from Otifex a competitive advantage in the relevant market. One of these applications was issued as U.S. Patent No.

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9,066,865 (the “865 Patent”) on June 30, 2015.

On July 20, 2015, the United States Patent and Trademark Office declared Patent Interference No. 106,030 involving our ‘865 Patent and Otonomy’s U.S. patent application No. 13/848,636.  The patent interference identifies claims 1-9on the composition and use of intranasal betahistine. Further, we acquired in our ‘865 Patent as interfering with Otonomy’s patent application claims 38, 43, and 46-50.  Our 865 Patent relates to methods of treating inner or middle ear diseases with intratympanic injections of poloxamer-based compositions. The claims are directed2018 two U.S. patents relating to the use of fluoroquinolone antibiotics in poloxamer 407 compositions under certain specifications. We do not expectbetahistine for the interferenceprevention and treatment of olanzapine induced weight gain, and we entered into a binding letter of intent to impact our intellectual property portfolioacquire the right to in-license two U.S. patents relating to AM-101the use of betahistine for the treatment of attention deficit/hyperactivity disorder and AM-111.  See “Item 3. Key Information—D. Risk factors—Risks Related to Intellectual Property.

atypical depression.

Proprietary Rights

In addition to patent protection, we intend to use other means to protect our proprietary rights. We may pursue marketing exclusivity periods that are available under regulatory provisions in certain countries, including the US, Europe and Japan. For example, if we are the first to obtain market approval of a small molecule product in the United States, we would expect to receive at least 5 years of market exclusivity in the U.S.

Janssen, a subsidiary of Johnson & Johnson, has been testing Esketamine in a spray formulation for intranasal treatment of treatment-resistant depression in several clinical trials to date, withand completed a Phase 3 program starting in 2015.program. In November 2014, the FDA designated Esketamine a ‘breakthrough therapy’ for this indication. In the event that Janssen’s confirmatory trials are successful and the companyJanssen receives marketing authorization prior to us receiving marketing authorization for AM-101,Keyzilen®, we would lose the potential benefit of a five year market exclusivity period that we would otherwise expect to obtain.

Furthermore, orphan drug exclusivity has been or may be sought where available. Such exclusivity has a term of 7 years in the United States and 10 years in Europe. We have obtained orphan drug designation for AM-111Sonsuvi® for the treatment of ASNHL in the United States and Europe. Orphan drug protection has been or may be sought where available if such protection also grants 7 years of market exclusivity.

In addition, we have acquired a U.S. orphan drug designation for betahistine for the treatment of obesity associated with Prader-Willi syndrome.

We have obtained U.S. trademark registrations for Auris, Auris Medical, Auris Medical Cochlear Therapies (and Design), Keyzilen® and Sonsuvi®.

Further, we have obtained several U.S. trademark registrations for betahistine.


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In addition, we rely upon unpatented trade secrets, know-how, and continuing technological innovation to develop and maintain our competitive position. We seek to protect our ownership of know-how and trade secrets through an active program of legal mechanism including assignments, confidentiality agreements, material transfer agreements, research collaborations and licenses.

Collaboration and License Agreements

INSERM

In 2006, we entered into a co-ownership/exploitation agreement with the Institut National de la Santé et de la Recherche Médicale, or INSERM, a publicly funded government science and technology agency in France. Pursuant to the terms of the agreement, we were granted the exclusive right to exploit any products derived from patents that resulted from our joint research program with INSERM that was conducted in 2003 to 2005 and led to the development of AM-101.Keyzilen®. Pursuant to the terms of the co-ownership/exploitation agreement, we are given the exclusive right to exploit the patents issuing from the filed patent applications for all claimed applications, including the treatment of tinnitus, in order to develop, promote, manufacture, cause to be manufactured, use, sell and distribute any products, processes or services deriving from such patents, including AM-101,Keyzilen®, in any country in which these patent applications have been filed during the term of the agreement. We alone are entitled to grant manufacturing or sales licenses for any patents to our subsidiaries and/or third parties. INSERM is entitled to use the inventions covered by the patents and applications for its own research purposes, free of charge, but may not generate any direct or indirect profits from such use. Pursuant to the terms of our agreement with INSERM, we are required to finance research and development work towards achieving certain specified marketing authorizations, and to use best efforts in so far as commercially and financially feasible to develop, market, and obtain regulatory authorization for products covered by such patents.

As consideration for the exclusive rights granted to us under the agreement, we have agreed to pay INSERM a two tiered low single digit royalty (where the higher rate is due on any net sales above a certain threshold) on the net sales of any product covered by the patents (including the use of AM-101Keyzilen® in the treatment of tinnitus triggered by cochlear glutamate excitotoxicity) earned in each country in which these patent

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applications have been filed during the term of the agreement. We have also agreed to pay INSERM a low double digit fee on any sums of any nature (except royalties and certain costs) collected by us in respect of the granting of licenses to third parties.

See “Item 4. Information on the Company—B. Business Overview—Collaboration and License Agreements—INSERM.”

The agreement will remain in force until the last of the patents covered by the agreement expires or becomes invalid. The patent covered by the agreement with the latest expiration date expires in 2028. The agreement will be terminated if we cease operations or are liquidated, may be terminated by either party in case of non-performance by the other party and may be terminated by INSERM in the absence of sales of a product deriving from the patents for a period from when it first marketed and if such a product is not marketed for a period from the date when marketing authorization is obtained.

Xigen

In October 2003, we entered into a collaboration and license agreement with Xigen S.A., or Xigen, pursuant to which Xigen granted us an exclusive worldwide license to use specified compounds to develop, manufacture and commercialize “pharmaceutical products as well as drug delivery devices and formulations for local administration of therapeutic substances to the inner ear for the treatment of ear disorders” (the Area). We also have a right of first refusal to license certain additional compounds developed by Xigen which may be used for the Area, specifically any cell permeable inhibitors to effectively block certain signal pathways in apoptotic processes.

Under this agreement, we made an upfront payment to Xigen of CHF 200,000 and we are obligated to make development milestone payments on an indication-by-indication basis of up to CHF 1.5 million 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. To date, we have paid CHF 1.325 million to Xigen under the agreement. We will be required to pay Xigen a mid-single digit percentage royalty on net sales of each licensed product that uses a compound licensed under the agreement, which royalty for a given indication shall be partially offset by milestone payments we have paid for such indication, until the later of 10 years after the first commercial sale of any licensed product using such licensed compound in any country, and the first expiration of a patent owned by or exclusively licensed to Xigen that covers the use of such licensed compound in any country, subject to our obligation to enter into good faith negotiations with Xigen, upon expiration of the relevant patent on a licensed compound, about the conditions of our further use of such licensed compound.

Under this agreement we and Xigen grant each other access to non-clinical or clinical data relating to the compounds licensed under the agreement free of charge for use in the other party’s proprietary development programs. We have also agreed, upon Xigen’s request, to offer third parties access to our non-clinical and clinical data relating to compounds licensed

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under the agreement for use outside the field of our license, provided that with respect to third party access, we are compensated for a portion of our costs in obtaining such data. Further, pursuant to our agreement, we and Xigen agreed to enter into a supply agreement within a specified period after the date of the agreement, which period has since passed, pursuant to which Xigen would supply us with licensed compounds. We did not enter into such a supply agreement with Xigen. Xigen supplied us with the active pharmaceutical ingredientAPI for AM-111Sonsuvi® for a period of time, but we presently are receiving our supply from an alternative supplier.

Xigen is responsible for maintaining the patents licensed to us under our agreement. New patents filed by us for specific inner ear indications or formulations of compounds licensed under our agreement are jointly owned by us and Xigen, and exclusively licensed to us in our field. We retain all know-how and other results from our development of compounds licensed under the agreement.

Our agreement with Xigen remains in effect until terminated. Either we or Xigen may terminate the agreement for the other party’s material breach or bankruptcy, in the event of force majeure, or after a specified period following the date of the agreement, if we are not progressing any activities with respect to the licensed compound. This period has passed for AM-111.Sonsuvi®. In October 2013, Xigen assigned certain of the patents relevant to the agreement to Xigen Inflammation Ltd, Cyprus, an unaffiliated party.

There have been several areas of disagreement with Xigen, primarily related to interpreting the definition of the Area, the transfer of patents to Xigen Inflammation Ltd. and to the disclosure of certain provisions of the agreement in the context of our initial public offering. For a discussion of these issues, please refer toSee “Item 3.—Key Information—D. Risk factors —Risksfactors—Risks Related to our Reliance on Third Parties—We have several areas of disagreement with Xigen, and consequently our relationship with Xigen may be adversely affected, we could potentially lose our right to commercialize AM-111Sonsuvi® (AM-111) and our business, commercialization prospects, and financial condition may be adversely affected.”

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Manufacturing

Manufacturing

We currently rely on and expect to continue to rely on third parties for the supply of raw materials and to manufacture drug supplies for clinical trials of our product candidates, including AM-101Keyzilen®, Sonsuvi®, AM-125 and AM-111.AM-201. For the foreseeable future, we expect to continue to rely on such third parties for the manufacture of any of our product candidates on a clinical or commercial scale, if any of our product candidates receives regulatory approval. Reliance on third-party providers may expose us to more risk than if we were to manufacture product candidates ourselves. The facilities used by our contract manufacturers to manufacture our product candidates must be approved by the FDA or other regulatory authorities pursuant to inspections that will be conducted after we submit our NDA or comparable marketing application to the FDA or other regulatory authority. We do not have control over a supplier’s or manufacturer’s compliance with these laws, regulations and applicable cGMP standards and other laws and regulations, such as those related to environmental health and safety matters. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or others, they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities. In addition, we have no control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of our product candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved. Any failure to achieve and maintain compliance with these laws, regulations and standards could subject us to the risk that we may have to suspend the manufacturing of our product candidates or that obtained approvals could be revoked, which would adversely affect our business and reputation. Furthermore, third-party providers may breach agreements they have with us because of factors beyond our control. They may also terminate or refuse to renew their agreements because of their own financial difficulties or business priorities, potentially at a time that is costly or otherwise inconvenient for us. If we were unable to find adequate replacement or another acceptable solution in time, our clinical trials could be delayed or our commercial activities could be harmed.

In addition, the fact that we are dependent on our suppliers and other third parties for the manufacture, storage and distribution of our product candidates means that we are subject to the risk that the products may have manufacturing defects that we have limited ability to prevent or control. The sale of products containing such defects could result in recalls or regulatory enforcement action that could adversely affect our business, financial condition and results of operations.

Growth in the costs and expenses of components or raw materials may also adversely influence our business, financial condition and results of operations. Supply sources could be interrupted from time to time and, if interrupted, it is not assured that supplies could be resumed (whether in part or in whole) within a reasonable timeframe and at an acceptable cost or at all.


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Commercialization Strategy

Given our current stage of product development, we currently do not have a commercialization infrastructure. If any of our product candidates is granted marketing approval, we intend to focus our initial commercial efforts in the United States and select European markets, which we believe represent the largest market opportunities for us. In those markets, we expect our commercial operations to include our own specialty sales force that we will specifically develop to target ENTs and specialists in neurotology and neurology, both in hospitals and in private practice. In other markets, we expect to seek partnerships that would maximize our products’ commercial potential.

Government Regulation

Product Approval Process

The clinical testing, manufacturing, labeling, storage, distribution, record keeping, advertising, promotion, import, export and marketing, among other things, of our product candidates are subject to extensive regulation by governmental authorities in the United States and other countries. The U.S. Food and Drug Administration, or FDA, under the Federal Food, Drug, and Cosmetic Act, or FDCA, regulates pharmaceutical products in the United States. The steps required before a drug may be approved for marketing in the United States generally include:

·the completion of pre-clinical laboratory tests and animal tests conducted under GLP regulations;

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pre-clinical laboratory tests and animal tests conducted under GLP regulations;
·the submission to the FDA of an Investigational New Drug, or IND, application for human clinical testing, which must become effective before human clinical trials commence;

·the performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the product candidate for each proposed indication and conducted in accordance with cGCP;

·the submission to the FDA of a New Drug Application, or NDA;

·the FDA’s acceptance of the NDA;

·satisfactory completion of an FDA inspection of the manufacturing facilities at which the product is made to assess compliance with cGMPs; and

·the FDA’s review and approval of an NDA prior to any commercial marketing or sale of the drug in the United States.

the submission to the FDA of an IND application for human clinical testing, which must become effective before human clinical trials commence;
the performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the product candidate for each proposed indication and conducted in accordance with cGCP;
the submission to the FDA of a NDA;
the FDA’s acceptance of the NDA;
satisfactory completion of an FDA inspection of the manufacturing facilities at which the product is made to assess compliance with cGMPs; and
the FDA’s review and approval of an NDA prior to any commercial marketing or sale of the drug in the United States.

The testing and approval process requires substantial time, effort and financial resources, and the receipt and timing of any approval is uncertain.

Pre-clinical studies include laboratory evaluations of the product candidate, as well as animal studies to assess the potential safety and efficacy of the product candidate. The results of the pre-clinical studies, together with manufacturing information and analytical data, are submitted to the FDA as part of the IND, which must become effective before clinical trials may be commenced. The IND will become effective automatically 30 days after receipt by the FDA, unless the FDA raises concerns or questions about the conduct of the trials as outlined in the IND prior to that time. In this case, the IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can proceed.

Clinical trials involve the administration of the product candidates to healthy volunteers or patients with the disease to be treated under the supervision of a qualified principal investigator. Clinical trials are conducted under protocols detailing, among other things, the objectives of the study, the parameters to be used in monitoring safety, and the efficacy criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. Further, each clinical trial must be reviewed and approved by an independent institutional review board, or IRB, either centrally or individually at each institution at which the clinical trial will be conducted. The IRB will consider, among other things, ethical factors, the safety of human subjects and the possible liability of the institution. There are also requirements governing the reporting of ongoing clinical trials and clinical trial results to public registries. The FDA, the IRB or the clinical trial sponsor may suspend or terminate clinical trials at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk. Additionally, some clinical trials are overseen by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board or committee. This group provides authorization for whether or not a trial may move forward at designated check points based on access to certain data from the study. We may also suspend or terminate a clinical trial based on evolving business objectives and/or competitive climate.

Clinical trials typically are typically conducted in three sequential phases prior to approval, but the phases may overlap. These phases generally include the following:

Phase 1.Phase 1 clinical trials represent the initial introduction of a product candidate into human subjects, frequently healthy volunteers. In Phase 1, the product candidate is usually tested for safety, including adverse effects, dosage tolerance, absorption, distribution, metabolism, excretion and pharmacodynamics.
Phase 2.Phase 2 clinical trials usually involve studies in a limited patient population to (1) evaluate the efficacy of the product candidate for specific indications, (2) determine dosage tolerance and optimal dosage and (3) identify possible adverse effects and safety risks.
Phase 3.If a product candidate is found to be potentially effective and to have an acceptable safety profile in Phase 2 studies, the clinical trial program will be expanded to Phase 3 clinical trials to further demonstrate clinical efficacy, optimal dosage and safety within an expanded patient population at geographically dispersed clinical study sites.


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Phase 1. Phase 1 clinical trials represent the initial introduction of a product candidate into human subjects, frequently healthy volunteers. In Phase 1, the product candidate is usually tested for safety, including adverse effects, dosage tolerance, absorption, distribution, metabolism, excretion and pharmacodynamics.
Phase 2. Phase 2 clinical trials usually involve studies in a limited patient population to (1) evaluate the efficacy of the product candidate for specific indications, (2) determine dosage tolerance and optimal dosage and (3) identify possible adverse effects and safety risks.
Phase 3. If a product candidate is found to be potentially effective and to have an acceptable safety profile in Phase 2 studies, the clinical trial program will be expanded to Phase 3 clinical trials to further demonstrate clinical efficacy, optimal dosage and safety within an expanded patient population at geographically dispersed clinical study sites.

Phase 4 clinical trials are conducted after approval to gain additional experience from the treatment of patients in the intended therapeutic indication and to document a clinical benefit in the case of drugs approved under accelerated approval regulations, or when otherwise requested by the FDA in the form of post-market

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requirements or commitments. Failure to promptly conduct any required Phase 4 clinical trials could result in withdrawal of approval.

The results of pre-clinical studies and clinical trials, including negative or ambiguous results as well as positive findings, together with detailed information on the manufacture, composition and quality of the product, are submitted to the FDA in the form of an NDA requesting approval to market the product. The NDA must be accompanied by a significant user fee payment. The FDA has substantial discretion in the approval process and may refuse to accept any application or decide that the data is insufficient for approval and require additional pre-clinical, clinical or other studies.

In addition, under the Pediatric Research Equity Act, or PREA, an NDA or supplement to an NDA must contain data to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may grant deferrals for submission of data or full or partial waivers. Unless otherwise required by regulation, PREA does not apply to any drug for an indication for which orphan designation has been granted. However, if only one indication for a product has orphan designation, a pediatric assessment may still be required for any applications to market that same product for the non-orphan indication(s).

Once the NDA submission has been submitted, the FDA has 60 days after submission of the NDA to conduct an initial review to determine whether it is sufficient to accept for filing. Under the Prescription Drug User Fee Act, or PDUFA, the FDA sets a goal date by which it plans to complete its review. This is typically 12 months from the date of submission of the NDA application. The review process is often extended by FDA requests for additional information or clarification. Before approving an NDA, the FDA will inspect the facilities at which the product is manufactured and will not approve the product unless the manufacturing facility complies with cGMPs and may also inspect clinical trial sites for integrity of data supporting safety and efficacy. The FDA may also convene an advisory committee of external experts to provide input on certain review issues relating to risk, benefit and interpretation of clinical trial data. The FDA is not bound by the recommendations of an advisory committee, but generally follows such recommendations in making its decisions. The FDA may delay approval of an NDA if applicable regulatory criteria are not satisfied and/or the FDA requires additional testing or information. The FDA may require post-marketing testing and surveillance to monitor safety or efficacy of a product.

After the FDA evaluates the NDA and conducts inspections of manufacturing facilities where the drug product and/or its Active Pharmaceutical Ingredient, or API will be produced, it may issue an approval letter or a Complete Response Letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. A Complete Response Letter indicates that the review cycle of the application is complete and the application is not ready for approval. A Complete Response Letter may require additional clinical data and/or an additional pivotal Phase 3 clinical trial(s), and/or other significant, expensive and time-consuming requirements related to clinical trials, pre-clinical studies or manufacturing. Even if such additional information is submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. The FDA could also approve the NDA with a Risk Evaluation and Mitigation Strategy, or REMS, plan to mitigate risks, which could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. The FDA also may condition approval on, among other things, changes to proposed labeling, development of adequate controls and specifications, or a commitment to conduct one or more post-market studies or clinical trials. Such post-market testing may include Phase 4 clinical trials and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization.

Special Protocol Assessment

The FDA and an IND sponsor may agree in writing on the design and size of clinical studies intended to form the primary basis of a claim of effectiveness in an NDA. This process is known as a special protocol assessment, or SPA. Upon a specific request for an SPA by an IND sponsor, the FDA will evaluate the protocol. If an SPA agreement is reached, however, it is not a guarantee of product approval by the FDA or approval of any permissible claims about the product. The FDA retains significant latitude and discretion in interpreting the terms of the SPA agreement and the data and results from any study that is the subject of the SPA agreement. In particular, the SPA agreement is not binding on the FDA if previously unrecognized public health concerns later come to light, other new scientific concerns regarding product safety or efficacy arise, the IND sponsor fails to comply with the protocol agreed upon, or the relevant data, assumptions, or information provided by the IND sponsor when requesting an SPA agreement change, are found to be false statements or misstatements, or are found to omit relevant facts. An SPA agreement may not be changed by the sponsor or the FDA after the trial begins except with the written agreement of the sponsor and the FDA, or if the FDA determines that a

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substantial scientific issue essential to determining the safety or effectiveness of the drug was identified after the testing began.

Orphan Drug Designation

Under the Orphan Drug Act, the FDA may grant orphan drug designation to a drug or biological product intended to treat a rare disease or condition, which is a disease or condition that affects fewer than 200,000 individuals in the US,United States, or if it affects more

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than 200,000, individuals in the US there is no reasonable expectation that sales of the costdrug in the United States will be sufficient to offset the costs of developing and making athe drug product available in the US for this type of disease or condition will be recovered from sales of the product.United States. Orphan productdrug designation must be requested before submitting an NDA. After the FDA grants orphan product designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan productdrug designation does not convey any advantage in or shorten the duration of the regulatory review and approval process.

If the FDA approves a product that hassponsor’s marketing application for a designated orphan designation subsequently receivesdrug for use in the first FDA approval for therare disease or condition for which it has such designation,was designated, the productsponsor is entitled to orphan producteligible for a seven-year period of marketing exclusivity, during which means that the FDA may not approve any other applications to marketanother sponsor’s marketing application for a drug with the same drug or biological productactive moiety and intended for the same use or indication for seven years,as the approved orphan drug, except in limited circumstances, such as if a showing of clinical superiority to thesubsequent sponsor demonstrates its product withis clinically superior. During a sponsor’s orphan exclusivity. The designation of such drug also entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers. Competitors,exclusivity period, competitors, however, may receive approval offor drugs with different products for the indication for which the orphan product has exclusivity or obtain approvalactive moieties for the same productindication as the approved orphan drug, or for drugs with the same active moiety as the approved orphan drug, but for a different indication for which the orphan product has exclusivity.indications. Orphan productdrug exclusivity also could block the approval of one of our products for seven years if a competitor obtains approval offor a drug with the same drug or biological product as defined by the FDA or if our drug candidate is determined to be contained within the competitor’s productactive moiety intended for the same indication or disease. Ifbefore we do, unless we are able to demonstrate that grounds for withdrawal of the orphan drug exclusivity exist, such as that our product is clinically superior. Further, if a drug product designated as an orphan productdrug receives marketing approval for an indication broader than what is designated,the rare disease or condition for which it received orphan drug designation, it may not be entitled to orphan product exclusivity. Orphan drug status in
Special FDA Expedited Review and Approval Programs
The FDA has various programs, including rare pediatric disease and breakthrough therapy designations, which are intended to expedite or simplify the European Union has similar but not identical benefits in that jurisdiction.

DEA Regulation

The Drug Enforcement Administration, or DEA, regulatesprocess for the development and FDA review of drugs that are controlled substances. Controlled substances are those drugs that appear on oneintended for the treatment of the five schedules promulgatedserious or life threatening diseases or conditions and administered by the DEA under the Controlled Substances Act, or CSA, such as Ketamine, which is a Schedule III controlled substance. The CSA governs, among other things, the inventory, distribution, recordkeeping, handling, security and disposal of controlled substances. Any drug that acts on the central nervous system hasdemonstrate the potential to become a controlled substance, and scheduling by the DEAaddress unmet medical needs. The purpose of these programs is a separate process that may delay the commercial launch of a drug even afterto provide important new drugs to patients earlier than under standard FDA approval of the NDA. Companies with a scheduled drug are subject to periodic and ongoing inspections by the DEA and similar state drug enforcement authorities to assess ongoing compliance with the DEA’s regulations. Any failure to comply with these regulations could lead to a variety of sanctions, including the revocationreview procedures.

Rare pediatric disease, or a denial of renewal of any DEA registration, injunctions, or civil or criminal penalties.

Post-Approval Requirements

Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulationRPD, designation by the FDA including, among other things, requirements relatingenables priority review voucher, or PRV, eligibility upon U.S. market approval of a designated drug for rare pediatric diseases. The RPD-PRV program is intended to recordkeeping, periodic reporting, product distribution, advertisingencourage development of therapies to prevent and promotion and reporting of adverse experiences with the product. Aftertreat rare pediatric diseases. The voucher, which is awarded upon NDA or Biologics License Application, or BLA, approval most changes to the approved product,sponsor of a designated RPD can be sold or transferred to another entity and used by the holder to receive priority review for a future NDA or BLA submission, which reduces the FDA review time of such future submission from ten to six months.

Breakthrough therapy designation is for a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as adding new indicationssubstantial treatment effects observed early in clinical development. The FDA must take certain actions, such as holding timely meetings and providing advice, intended to expedite the development and review of an application for approval of a breakthrough therapy.
Even if a product qualifies for one or other labeling claims are subject to prior FDA review and approval. There also are continuing, annual user fee requirements for any marketed products and the establishments at which such products are manufactured, as well as new application fees for supplemental applications with clinical data.

In addition, drug manufacturers and other entities involved in the manufacture and distributionmore of approved drugs are required to register their establishments with the FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance.

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Once an approval is granted,programs, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur afterlater decide that the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, among other things:

·restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls;

·fines, warning letters or holds on post-approval clinical trials;

·refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation of product license approvals;

·product seizure or detention, or refusal to permit the import or export of products; or

·injunctions or the imposition of civil or criminal penalties.

The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability.

Foreign Regulation

In order to market any product outside of the United States, we would need to comply with numerous and varying regulatory requirements of other countries and jurisdictions regarding quality, safety and efficacy and governing, among other things, clinical trials, marketing authorization, commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we would need to obtain the necessary approvals by the comparable foreign regulatory authorities before we can commence clinical trials or marketing of the product in foreign countries and jurisdictions. Although many of the issues discussed above with respect to the United States apply similarly in the context of the European Union, the approval process varies between countries and jurisdictions and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries and jurisdictions might differ from and be longer than that required to obtain FDA approval. Regulatory approval in one country or jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country or jurisdiction may negatively impact the regulatory process in others.

Other Healthcare Laws

In addition to FDA restrictions on marketing of pharmaceutical products, federal and state healthcare laws govern certain business practices in the biopharmaceutical industry. These laws include, but are not limited to, anti-kickback, false claims, data privacy and security, and transparency statutes and regulations.

The federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration, directly or indirectly, to induce, or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any good, facility, item or service reimbursable under Medicare, Medicaid or other federal healthcare programs. The term “remuneration” has been broadly interpreted to include anything of value, including for example, gifts, discounts, the furnishing of supplies or equipment, credit arrangements, payments of cash, waivers of payment, ownership interests and providing anything at less than its fair market value. The Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers and formulary managers on the other. Although there are a number of statutory exceptions and regulatory safe harbors protecting certain common activities from prosecution, the exceptions and safe harbors are drawn narrowly, and our practices may not in all cases meet all of the criteria for a statutory exception or safe harbor protection. Practices that involve remuneration that may be alleged to be intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exception or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all of its facts and circumstances. Several courts have interpreted the

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statute’s intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federal healthcare covered business, the statute has been violated. The Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act, or collectively, the Health Care Reform Law, amended the intent requirement under the Anti-Kickback Statute and criminal healthcare fraud statutes (discussed below) such that a person or entity no longer needs to have actual knowledge ofmeets the statuteconditions for qualification or the specific intent to violate it in order to have committed a violation. In addition, the Health Care Reform Law providesdecide that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claimtime period for purposes of the civil False Claims Act (discussed below). Further, the civil monetary penalties statute imposes penalties against any person or entity who, among other things, is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent.

The federal false claims laws, including the civil False Claims Act, prohibit, among other things, any person or entity from knowingly presenting, or causing to be presented, a false or fraudulent claim for paymentFDA review or approval to the federal government or knowingly making, using or causing towill not be made or used a false record or statement material to a false or fraudulent claim to the federal government. As a result of a modification made by the Fraud Enforcement and Recovery Act of 2009, a claim includes “any request or demand” for money or property presented to the U.S. government. Recently, several pharmaceutical and other healthcare companies have been prosecuted under these laws for, among other things, allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. Other companies have been prosecuted for causing false claims to be submitted because of the companies’ marketing of the product for unapproved, and thus non-covered, uses. The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, created new federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of, or payment for, healthcare benefits, items or services.

In addition, we may be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and their implementing regulations, imposes certain requirements on certain types of individuals and entities relating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA’s security standards directly applicable to business associates — independent contractors or agents of covered entities that receive or obtain protected health information in connection with providing a service on behalf of a covered entity. HITECH also created four new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing federal civil actions. In addition, certain state laws govern the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.

Additionally, the Health Care Reform Law also included the federal Physician Payments Sunshine Act, which requires that certain manufacturers of drugs, devices, biologicals and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report information related to certain payments or other transfers of value made or distributed to physicians and teaching hospitals, or to entities or individuals at the request of, or designated on behalf of, the physicians and teaching hospitals and to report annually certain ownership and investment interests held by physicians and their immediate family members.

Also, many states have similar healthcare statutes or regulations that apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. Certain states require the posting of information relating to clinical studies, pharmaceutical companies to implement a comprehensive compliance program that includes a limit on expenditures for, or payments to, individual medical or health professionals and track and report gifts and other payments made to physicians and other healthcare providers. If our operations are found to be in violation of any of the health regulatory laws described above or any other laws that apply to us, we may be subject to penalties, including potentially significant criminal, civil and/or administrative penalties, damages, fines, disgorgement, individual imprisonment, exclusion of products from reimbursement under government programs, contractual damages, reputational harm, administrative burdens, diminished profits and future earnings and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

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To the extent that any of our products will be sold in a foreign country, we may be subject to similar foreign laws and regulations, which may include, for instance, applicable post-marketing requirements, including safety surveillance, anti-fraud and abuse laws and implementation of corporate compliance programs and reporting of payments or transfers of value to healthcare professionals.

Pharmaceutical Coverage, Pricing and Reimbursement

In both domestic and foreign markets, our sales of any approved products will depend in part on the availability of coverage and adequate reimbursement from third-party payors. Third-party payors include government authorities, managed care providers, private health insurers and other organizations. Patients who are prescribed treatments for their conditions and providers performing the prescribed services generally rely on third-party payors to reimburse all or part of the associated healthcare costs. Patients are unlikely to use our products, if approved, unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our products. Sales of our products will therefore depend substantially, both domestically and abroad, on the extent to which the costs of our products will be paid by third-party payors. These third-party payors are increasingly focused on containing healthcare costs by challenging the price and examining the cost-effectiveness of medical products and services.

In addition, significant uncertainty exists as to the coverage and reimbursement status of newly approved healthcare product candidates. The market for our product candidates for which we may receive regulatory approval will depend significantly on access to third-party payors’ drug formularies, or lists of medications for which third-party payors provide coverage and reimbursement. The industry competition to be included in such formularies often leads to downward pricing pressures on pharmaceutical companies. Also, third-party payors may refuse to include a particular branded drug in their formularies or otherwise restrict patient access to a branded drug when a less costly generic equivalent or other alternative is available. Furthermore, third-party payor reimbursement to providers for our product candidates may be subject to a bundled

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payment that also includes the procedure administering our products. To the extent there is no separate payment for our product candidates, there may be further uncertainty as to the adequacy of reimbursement amounts.

Because each third-party payor individually approves coverage and reimbursement levels, obtaining coverage and adequate reimbursement is a time-consuming, costly and sometimes unpredictable process. We may be required to provide scientific and clinical support for the use of any product to each third-party payor separately with no assurance that approval would be obtained, and we may need to conduct expensive pharmacoeconomic studies in order to demonstrate the cost-effectiveness of our products. This process could delay the market acceptance of any product and could have a negative effect on our future revenues and operating results. We cannot be certain that our product candidates will be considered cost-effective. Because coverage and reimbursement determinations are made on a payor-by-payor basis, obtaining acceptable coverage and reimbursement from one payor does not guarantee the Company will obtain similar acceptable coverage or reimbursement from another payor. If we are unable to obtain coverage of, and adequate reimbursement and payment levels for, our product candidates from third-party payors, physicians may limit how much or under what circumstances they will prescribe or administer them and patients may decline to purchase them. This in turn could affect our ability to successfully commercialize our products and impact our profitability, results of operations, financial condition and future success.

Furthermore, in many foreign countries, particularly the countries of the European Union, the pricing of prescription drugs is subject to government control. In some non-U.S. jurisdictions, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country. For example, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the Company placing the medicinal product on the market. We may face competition for our product candidates from lower-priced products in foreign countries that have placed price controls on pharmaceutical products. In addition, there may be importation of foreign products that compete with our own products, which could negatively impact our profitability.

Healthcare Reform

In the United States and foreign jurisdictions, there have been, and we expect there will continue to be, a number of legislative and regulatory changes to the healthcare system that could affect our future results of operations as we begin to directly commercialize our products.

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In particular, there have been and continue to be a number of initiatives at the U.S. federal and state level that seek to reduce healthcare costs. Initiatives to reduce the federal deficit and to reform healthcare delivery are increasing cost-containment efforts. We anticipate that Congress, state legislatures and the private sector will continue to review and assess alternative benefits, controls on healthcare spending through limitations on the growth of private health insurance premiums and Medicare and Medicaid spending, the creation of large insurance purchasing groups, price controls on pharmaceuticals and other fundamental changes to the healthcare delivery system. Any proposed or actual changes could limit or eliminate our spending on development projects and affect our ultimate profitability.

In March 2010, the Health Care Reform Law was signed into law. The Health Care Reform Law has the potential to substantially change the way healthcare is financed by both governmental and private insurers. The Health Care Reform Law, among other things, established an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents; revised the methodology by which rebates owed by manufacturers for covered outpatient drugs under the Medicaid Drug Rebate Program are calculated; increased the minimum Medicaid rebates owed by most manufacturers under the Medicaid Drug Rebate Program; extended the Medicaid Drug Rebate program to utilization of certain injectable outpatient drugs, as well as prescriptions of individuals enrolled in Medicaid managed care organizations; required manufacturers to offer 50% point-of-sale discounts on negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D; and implemented payment system reforms including a national pilot program on payment bundling to encourage hospitals, physicians and other providers to improve the coordination, quality and efficiency of certain healthcare services through bundled payment models; expanded eligibility criteria for Medicaid programs; and established a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research. There have been judicial and Congressional challenges to certain aspects of the Health Care Reform Law, and we expect there will be additional challenges and amendments to the Health Care Reform Law in the future.

In addition, other legislative changes have been proposed and adopted since the Health Care Reform Law was enacted. These changes included aggregate reductions to Medicare payments to providers of up to 2% per fiscal year effective April 1, 2013 and, due to subsequent legislative amendments to the statute, will stay in effect through 2025 unless additional Congressional action is taken. In January 2013, President Obama also signed into law the American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to several providers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

In the future, there may continue to be additional proposals relating to the reform of the United States healthcare system, some of which could further limit the prices we are able to charge for our products candidates, or the amounts of reimbursement available for our product candidates. If future legislation were to impose direct governmental price controls and access restrictions, it could have a significant adverse impact on our business. Managed care organizations, as well as Medicaid and other government agencies, continue to seek price discounts. Some states have implemented, and other states are considering, price controls or patient access constraints under the Medicaid program, and some states are considering price-control regimes that would apply to broader segments of their populations that are not Medicaid-eligible. Due to the volatility in the current economic and market dynamics, we are unable to predict the impact of any unforeseen or unknown legislative, regulatory, payor or policy actions, which may include cost containment and healthcare reform measures. Such policy actions could have a material adverse impact on our profitability.

Moreover, the recently enacted

The federal Drug Supply Chain Security Act imposes new obligations on manufacturers of pharmaceutical products, among others, related to product tracking and tracing. Among the requirements of this new federal legislation, manufacturersManufacturers will be required to provide certain information regarding the drug product to individuals and entities to which product ownership is transferred, label drug product with a product identifier, and keep certain records regarding the drug product. Further, under this new legislation, manufacturers will have drug product investigation, quarantine, disposition, and notification responsibilities related to counterfeit, diverted, stolen, and intentionally adulterated products, as well as products that are the subject of fraudulent transactions or which are otherwise unfit for distribution such that they would be reasonably likely to result in serious health consequences or death.


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C.Organizational structure

The registrant corporation, Auris Medical Holding AG, has four wholly ownedwholly-owned subsidiaries which are each listed in Exhibit 8.1 filed hereto. We primarily operate our business out of our operating subsidiary Auris Medical AG.

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D.Property, plants and equipment

Our headquarters are in Zug, Switzerland. We also lease approximately 3,250500 square feet of office space in Basel, Switzerland. This property serves as the corporate headquarters of our principal operating subsidiary. We intend to increase our office space in 2016 in order to accommodate further growth and believe that suitable alternative or additional spaces will be available on commercially reasonable terms.

ITEM 4A. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

You should read the following discussion and analysis of our financial condition and results of operations together with the information under “Item 3. Key Information—A. Selected Financial Data” and our audited consolidated audited financial statements, including the notes thereto, included in this Annual Report. The following discussion is based on our financial information prepared in accordance with IFRS as issued by the IASB, which might differ in material respects from generally accepted accounting principles in other jurisdictions. The following discussion includes forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those described under “Item 3. Key Information—D. Risk factors” and elsewhere in this Annual Report.


A.Operating results

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 inner ear disorders. Our most advanced product candidate, AM-101, isvertigo (AM-125) and for the prevention of antipsychotic-induced weight gain and somnolence (AM-201). These programs have gone through two Phase 1 trials and will move into proof-of-concept studies in 2019. In addition, we have two Phase 3 clinical developmentprograms under development: (i) Keyzilen® (AM-101), which is being developed for the treatment of acute inner ear tinnitus under a special protocol assessment, or SPA, from the FDA. In two Phase 2 clinical trials, AM-101 demonstrated a favorable safety profile and statistically significant improvement in tinnitus loudness and other patient reported outcomes. We expect to have top-line results from the first Phase 3 trial for AM-101 in the third quarter of 2016, with results(ii) Sonsuvi® (AM-111), which is being developed for the second trial following a few months later. We are also developing AM-111 fortreatment 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.
We intendconducted a Phase 3 clinical development program with Keyzilen® comprising two Phase 3 trials and two open label follow-on trials. We completed enrollment of the last of these trials (TACTT3) in September 2017. On March 13, 2018, we announced preliminary top-line data from the TACTT3 trial which indicated that the study had not met its primary efficacy endpoint of a statistically significant improvement in the Tinnitus Functional Score from baseline to conductDay 84 in the active treated group compared to placebo either in the overall population or in the otitis media subpopulation. On May 15, 2018, we announced that further investigation of the trial’s outcomes confirmed these preliminary results and that we believe that the lack of separation between the active- and placebo-treated groups may be due to certain elements of the study design and conduct. We anticipate that one or more additional clinical trials will be necessary to move the Keyzilen® program forward, which we will seek to fund through partnering or research grants. Pending such funding, we expect our research and development expenses in connection with the Keyzilen® program to remain minimal.

 We conducted a Phase 3 clinical development program with Sonsuvi® comprising two pivotal Phase 3 trials in the treatment of idiopathic sudden sensorineural hearing loss,ISSNHL, titled HEALOS and ASSENT. On November 28, 2017, we announced that the HEALOS has commenced enrollmenttrial did not meet the primary efficacy endpoint of a statistically significant improvement in Europe and Asia and we intendhearing from baseline to start enrollmentDay 28 compared to placebo for either active treatment groups in the U.S. in ASSENToverall study population. However, a post-hoc analysis of the subpopulation with profound acute hearing loss revealed a clinically meaningful and nominally significant improvement in the second quarterSonsuvi® 0.4 mg/mL treatment group. We terminated the ASSENT trial as it was very similar in design to the HEALOS trial and, based on the new findings, was no longer adequate for testing Sonsuvi®. Based on the HEALOS results, we submitted the design of 2016. In addition, we plan to conduct a Phase 2new pivotal trial with AM-111 0.4 mg/mL in the treatment of surgery-inducedpatients suffering from acute profound hearing loss (REACH)to the EMA and subsequently also to the

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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. Following this feedback, we have mandated a transaction advisory firm to identify potential partners for the SONSUVI® development program and provide support for partnering discussions and negotiations. If successful, this may result in one or several sale, outlicensing or co-development transaction(s) on a global or regional scale. For 2019, we expect our research and development expenses in connection with the U.S. Provided that we obtain funding, REACH couldSonsuvi® program to be initiated atlower than in 2019, reflecting the earliest incompletion of the Phase 3 trials.

In the first half of 2017.

2018, we initiated a second randomized placebo-controlled Phase 1 trial in 72 healthy volunteers to further test the safety and tolerability and the pharmacokinetics of AM-125. On October 17, 2018 we announced positive results from the trial as superior bioavailability over a range of four intranasal betahistine doses compared to oral betahistine was observed, with plasma exposure being 6 to 29 times higher (p-value between 0.056 and p<0.0001). Further, it confirmed the good safety profile of intranasal betahistine and showed that the treatment was well tolerated when administered three times daily for three days. In 2019 we plan to initiate a Phase 2 clinical study with AM-125 in the first quarter, which will result in higher research and development expense for the AM-125 program than in 2018. The “TRAVERS” Phase 2 trial will enroll 138 patients suffering from acute vertigo following surgical removal of a vestibular schwannoma, a tumor growing behind the inner ear. It will be conducted in several European countries and potentially, Canada.


On May 15, 2018, we announced the expansion of our intranasal betahistine development program beyond the treatment of vertigo into mental health supportive care indications. Under project code AM-201 we intend to develop intranasal betahistine for the prevention of antipsychotic-induced weight gain. We plan to initiate a randomized placebo-controlled Phase 1b proof-of-concept trial with AM-201 in healthy volunteers in the first quarter of 2019. The trial will be conducted in Europe and will enroll 50 healthy volunteers who will receive either AM-201 or placebo concomitantly with olanzapine over four weeks.

To date, we have financed our operations through public offerings of our common shares, private placements of equity securities, and short termshort- and long-term loans. We have no products approved for commercialization and have never generated any revenues from royalties or product sales. As of December 31, 2015,2018, we had cash and cash equivalents of CHF 50.25.4 million. Based on our current plans, we do not expect to generate royalty or product revenues unless and until we obtain marketing approval for, and commercialize, AM-101, AM-111Keyzilen®, Sonsuvi®, AM-125, AM-201 or any of our other product candidates.

As of December 31, 2015,2018, we had an accumulated deficit of CHF 81.7143.7 million. We expect to continue incurring losses as we continue our clinical and pre-clinical development programs, apply for marketing approval for our product candidates and, subject to obtaining regulatory approval of our product candidates, build a sales and marketing force in preparation for the potential commercialization of our product candidates.

Collaboration and License Agreements

INSERM

In 2006, we entered into a co-ownership/exploitation agreement with the Institut National de la Santé et de la Recherche Médicale, or INSERM, a publicly funded government science and technology agency in France. Pursuant to the terms of the agreement, we were granted the exclusive right to exploit any products derived from patents that resulted from our joint research program with INSERM that was conducted in 2003 to 2005 and led to the development of AM-101.Keyzilen®. Pursuant to the terms of the co-ownership/exploitation agreement, we were given the exclusive right to exploit the patents issuing from the filed patent applications for all claimed applications, including the treatment of tinnitus, in order to develop, promote, manufacture, cause to be

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manufactured, use, sell and distribute any products, processes or services deriving from such patents, including AM-101,Keyzilen®, in any country in which these patent applications have been filed during the term of the agreement.

As consideration for the exclusive rights granted to us under the agreement, we agreed to pay INSERM a two tiered low single digit percentage royalty (where the higher rate is due on any net sales above a certain threshold) on the net sales of any product covered by the patents (including the use of AM-101Keyzilen® in the treatment of tinnitus triggered by cochlear glutamate excitotoxicity) earned in each country in which these patent applications have been filed during the term of the agreement. We have also agreed to pay INSERM a low double digit fee on any sums of any nature (except royalties and certain costs) collected by us in respect of the granting of licenses to third parties.



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Xigen

In October 2003, we entered into a collaboration and license agreement with Xigen S.A., or Xigen, pursuant to which Xigen granted us an exclusive worldwide license to use specified compounds to develop, manufacture and commercialize “pharmaceutical products as well as drug delivery devices and formulations for local administration of therapeutic substances to the inner ear for the treatment of ear disorders” (the Area). We also have a right of first refusal to license certain additional compounds developed by Xigen which may be used for the Area, specifically any cell permeable inhibitors to effectively block certain signal pathways in apoptotic processes.

Under this agreement, we made an upfront payment to Xigen of CHF 200,000 and we are obligated to make development milestone payments on an indication-by-indication basis of up to CHF 1.5 million 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. To date, we have paid CHF 1.325 million to Xigen under the agreement. We will be required to pay Xigen a mid-single digit percentage royalty on net sales of each licensed product that uses a compound licensed under the agreement, which royalty for a given indication shall be partially offset by milestone payments we have paid for such indication, until the later of 10 years after the first commercial sale of any licensed product using such licensed compound in any country, and the first expiration of a patent owned by or exclusively licensed to Xigen that covers the use of such licensed compound in any country, subject to our obligation to enter into good faith negotiations with Xigen, upon expiration of the relevant patent on a licensed compound, about the conditions of our further use of such licensed compound.

See “Item 4. Information on the Company—B. Business Overview—Collaboration and License Agreements—Xigen.”

Otifex
On February 2, 2017, we entered into an asset purchase agreement with Otifex Therapeutics Pty Ltd (“Otifex”), pursuant to which we agreed to purchase and Otifex has agreed to sell us certain pre-clinical and clinical assets related to a formulation for the intranasal application of betahistine, which we refer to as AM-125, as well as associated intellectual property rights. We plan to develop the formulation for the treatment of vertigo. The Otifex transaction closed in July 2017.
Financial Operations Overview

Research and development expense

Research and development expense consists principally of:

·salaries for research and development staff and related expenses, including employee benefits;

·costs for production of pre-clinical compounds and drug substances by contract manufacturers;

·fees and other costs paid to contract research organizations in connection with additional pre-clinical testing and the performance of clinical trials;

·costs of related facilities, materials and equipment;

·costs associated with obtaining and maintaining patents;

·costs related to the preparation of regulatory filings and fees; and

·depreciation and amortization of tangible and intangible fixed assets used to develop our product candidates.

salaries for research and development staff and related expenses, including employee benefits;
costs for production of pre-clinical compounds and drug substances by contract manufacturers;
fees and other costs paid to contract research organizations in connection with additional pre-clinical testing and the performance of clinical trials;
costs of related facilities, materials and equipment;
costs associated with obtaining and maintaining patents;
costs related to the preparation of regulatory filings and fees; and
depreciation and amortization of tangible and intangible fixed assets used to develop our product candidates.
We expect that our operating expenses in 20162019 will be in the range of CHF 33.010.0 to 38.013.0 million, the majority of which we expect to be research and development expense. Our research and development expense mainly relates to the following key programs:

·AM-101. We are conducting a Phase 3 clinical development program with AM-101 comprising two Phase 3 studies and two open label follow-on studies. We expect top-line results of the TACTT2 trial in the third quarter 2016 and the top-line results of TACTT3 a few months later. We anticipate that

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AM-125 for Vertigo. The “TRAVERS”Phase 2 trial will enroll 138 patients suffering from acute vertigo following surgical removal of a vestibular schwannoma, a tumor growing behind the inner ear. It will be conducted in several European countries and potentially, Canada. The TRAVERS trial is expected to start recruitment during the first quarter of 2019 and will have two parts.In Part A, five ascending 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 48 mg will


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our research and development expenses



be tested in connection with these clinical trials16 patients under open-label conditions for reference.Based on an interim analysis, two doses will be lowerselected and tested in 2016 thanan estimated 72patients in Part B.
AM-201 for Antipsychotic-Induced Weight Gain. We are preparing a pharmacokinetic/pharmacodynamic trial with AM-201 in antipsychotic-induced weight gain. The trial will be conducted in a European country and enroll 50 healthy volunteers who will receive either AM-201 or placebo concomitantly with olanzapine over four weeks. Doses will be escalated in five steps, as in the preceding year, but remain at a substantial level.

TRAVERS trial. The trial is expected to start recruitment during the first quarter of 2019.
·
•
Sonsuvi® (AM-111) for Acute Inner Ear Hearing Loss. Following the HEALOS results, we submitted the design of a new pivotal trial with AM-111. We intend 0.4 mg/mL in patients suffering from acute profound hearing loss to conduct two pivotal Phase 3 trials in the treatmentEMA and subsequently also to the FDA for review. Through a Protocol Assistance procedure the EMA endorsed the proposed trial design, choice of ISSNHL, titled HEALOSefficacy and ASSENT. HEALOS, has commenced enrollment in Europesafety endpoints, as well as the statistical methodology. In a Type C meeting with written responses, the proposed choice of primary and Asiasecondary efficacy endpoints, the safety endpoints, as well as the planned sample size and statistical methodology were also endorsed by the FDA. Following this feedback, we intendhave mandated a transaction advisory firm to start enrollment inidentify potential partners for the U.S. in ASSENT in the second quarter of 2016. We anticipate thatSONSUVI® development program and provide support for partnering discussions and negotiations. For 2019, we expect our research and development expenses in connection with the Sonsuvi® program to be lower than in 2019, reflecting the completion of the Phase 3 trials.
•
Keyzilen® (AM-101). We conducted a Phase 3 clinical development program with Keyzilen® comprising two AM-111Phase 3 trials and two open label follow-on trials. We completed enrollment of the last of these trials (TACTT3) in September 2017. On March 13, 2018, we announced that preliminary top-line data from the TACTT3 trial indicated that the study did not meet its primary efficacy endpoint of a statistically significant improvement in the Tinnitus Functional Score from baseline to Day 84 in the active treated group compared to placebo either in the overall population or in the otitis media subpopulation. We anticipate that one or more additional clinical trials will substantially increasebe necessary to move the Keyzilen® program forward, which we will seek to fund through partnering or research grants. Pending such funding, we expect our research and development expenses in 2016 comparedconnection with the Keyzilen® program to the previous year.remain minimal.

Other research and development expenses mainly relate to our pre-clinical studies of AM-102 and AM-123.(second generation tinnitus treatment). The expenses mainly consist of costs for production of the pre-clinical compounds and costs paid to academic and other research institutions in conjunction with pre-clinical testing.


For the years ended December 31, 2015, 20142018, 2017 and 2013,2016, we spent CHF 19.71.7 million, CHF 12.56.5 million and CHF 10.615.3 million, respectively, on research and development expenses related to AM-101.Keyzilen®. For the same time periods, we spent CHF 6.41.5 million, CHF 4.811.4 million and CHF 1.09.4 million, respectively, on research and development expenses related to AM-111.Sonsuvi®. For the year ended December 31, 2018 we also spent CHF 3.5 million, on research and development expenses related to our intranasal betahistine program. In addition, we incurred research and development expenses related to our earlier stage projects. These expenses exclude the milestone payment to Xigen for AM-111 as it was capitalized. Researchproducts. Following a marked reduction in research and development expenses arerelated to the conclusion of the Phase 3 trials with Keyzilen® and Sonsuvi®, their level is expected to increasestart increasing again from 2020 onward as we advance the clinical development of AM-101with AM-125 and AM-111 and to further advance the research and development of our pre-clinical product candidates. The successful development of our product candidates is highly uncertain.AM-201. At this time, we cannot reasonably estimate the nature, timing and estimated costs of the efforts that will be necessary to complete the development of, or the period, if any, in which material net cash inflows may commence from, any of our product candidates. This is due to numerous risks and uncertainties associated with developing drugs, including the uncertainty of:

·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 and payer discussions;

·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.

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 and payer discussions;
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.

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A change in the outcome of any of these variables with respect to the development of AM-101, AM-111Keyzilen®, Sonsuvi®, AM-125 and AM-201 or any other product candidate that we may develop could mean a significant change in the costs and timing associated with the development of such product candidate. For example, if the FDA or other regulatory authority were to require us to conduct preclinicalpre-clinical and clinical studies beyond those which we currently anticipate will be required for the completion of clinical development or if we experience significant delays in enrollment in any clinical trials, we could be required to expend significant additional financial resources and time on the completion of the clinical development.

General and administrative expense

Our general and administrative expense consists principally of:

·
salaries for general and administrative staff and related expenses, including employee benefits;

·business development expenses, including travel expenses;

·administration costs including professional fees for auditors and other consulting expenses not related to research and development activities, professional fees for lawyers not related to the protection and maintenance of our intellectual property and IT expenses;

·cost of facilities, communication and office expenses; and

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·depreciation and amortization of tangible and intangible fixed assets not related to research and development activities.

We expect that our general and administrative expense will increase in the future as our staff and related expenses, including employee benefits;

business expandsdevelopment expenses, including travel expenses;
administration expenses including professional fees for auditors and we incur additional costs associated with operating as a public company. These public company-related increases will likely include costs of additional personnel, additional legal fees, accounting and audit fees, managing directors’ and supervisory directors’ liability insurance premiums and costsother consulting expenses not related to investor relations.

research and development activities, professional fees for lawyers not related to the protection and maintenance of our intellectual property and IT expenses;

cost of facilities, communication and office expenses; and
depreciation and amortization of tangible and intangible fixed assets not related to research and development activities.
Interest income

Our policy is to invest funds in low risk investments including interest bearing deposits. Saving and deposit accounts generate a small amount of interest income. We expect to continue this investment philosophy.

Interest expense

Our interest expense consists principally of bankingbank charges and interest expenses due to the Loan and Security Agreement with Hercules. On January 31, 2019, we made the final payment to Hercules under the facility, comprising the last amortization payment as well as an end of term charge and interest expenses will be significantly lower in 2014,2019.
Revaluation gain from derivative financial instruments
In connection with the Hercules Loan and Security Agreement, the Company issued Hercules a warrant to purchase up to 241,117 of its common shares at an interest expenseexercise price of $3.94 per share. Revaluation gain/(loss) show the changes in relationfair value of the warrant issued to convertible loans.

Hercules. As of March 13, 2018, following the consummation of the Merger, the Hercules warrant was exercisable for up to 15,673 common shares at an exercise price of $39.40 per common share. As of December 31, 2018 the fair value of the warrant amounted to CHF 3,804. The revaluation gain of the derivative for the year ended December, 2018 amounted to CHF 19,546, which is a decrease of CHF 74,236 when comparing to the same period in 2017. Since its initial recognition on July 19, 2016, the fair value decreased by CHF 404,376 resulting in a revaluation gain in the corresponding amount (fair value as of July 19, 2016: CHF 408,180).

On January 31, 2019, in connection with our final payment to Hercules under the facility, comprising the last amortization payment as well as an end of term charge, Hercules agreed to return the warrant held by Hercules exercisable for 15,673 common shares at an exercise price of  $39.40 per common share for no consideration to us in exchange for our payment to Hercules. We canceled the warrant upon receipt.
On February 21, 2017, we issued 10,000,000 warrants, each warrant entitling its holder to purchase 0.70 of a common share at an exercise price of $1.20. Additionally, the underwriter was granted a 30-day option to purchase up to 1,500,000 additional common shares and/or 1,500,000 additional warrants. On February 15, 2017, the underwriter partially exercised its option for 1,350,000 warrants. Revaluation gain/(loss) show the changes in fair value of the warrant issued in connection with this offering. As of March 13, 2018, following the consummation of the Merger, the outstanding warrants issued in the February 2017 offering were exercisable for up to 794,500 common shares at an exercise price of $12.00 per common share. As of December 31, 2018, the fair value of the warrants amounted to CHF 166,301. The revaluation gain of the derivative for the twelve months ended December 31, 2018 amounted to CHF 1,647,112, which is a decrease of CHF 1,631,292 when comparing to the same period in

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2017. Since its initial recognition on February 21, 2017, the fair value decreased by CHF 4,924,162, resulting in a gain in the corresponding amount (fair value as of February 21, 2017: CHF 5,090,463).

On January 30, 2018 we issued 7,499,999 warrants in connection with a direct offering of 12,499,999 common shares, each warrant entitling its holder to purchase one common share at an exercise price of $0.50 per common share. As of March 13, 2018, following the consummation of the Merger, the warrants became exercisable for an aggregate of 750,002 of our common shares (assuming we decide to round up fractional common shares to the next whole common share), at an exercise price of $5.00 per common share. Revaluation gain/(loss) show the changes in fair value of the warrant issued in connection with this offering. As of December 31, 2018 the fair value of the warrants amounted CHF 289,651. Since its initial recognition on January 30, 2018, the fair value of the warrants has decreased by CHF 2,194,096, resulting in a gain in the corresponding amount (fair value as of January 30, 2018: CHF 2,483,747).

On July 17, 2018 we issued 6,282,050 Series A warrants and 4,487,179 Series B warrants in connection with the July 2018 Registered Offering of 17,948,717 common shares, each warrant entitling its holder to purchase one common share at an exercise price of CHF 0.39 per common share. Revaluation gain/(loss) show the changes in fair value of the outstanding Series B warrants issued in connection with this offering. As of December 31, 2018 the number of Series B warrants outstanding subject to revaluation were 690,702 and the fair value of the warrants amounted to CHF 215,572. Since its initial recognition on July 17, 2018 the fair value of the warrants has increased by CHF 77,585, resulting in a loss in the corresponding amount (fair value as of July 17, 2018: CHF 137,987).
Foreign currency exchange gains/losses,gain/(loss), net

Our Foreignforeign currency exchange gains/losses,gain/(loss), net, consists primarily of unrealized gains or losses on our USD and EUR denominated cash and cash equivalents.

Transaction costs
Transaction costs decreased by CHF 0.5 million in the year ended December 31, 2018 compared to the previous year, due to lower fees and transaction costs related to the equity offering in the first quarter of 2018 and the July 2018 Registered Offering compared to the equity offerings in the first quarter of 2017.
Other comprehensive loss

Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognized in other comprehensive loss.

We determine the net interest expense or income on the net defined benefit liability or asset for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability or asset, taking into account any changes in the net defined benefit liability or asset during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to defined benefit plans are recognized in profit or loss.

Assets and liabilities of our subsidiaries with functional currency other than CHF are included in our consolidated financial statements by translating the assets and liabilities into CHF at the exchange rates applicable at the end of the reporting period. Income and expenses for each consolidated statement of profit or loss and other comprehensive income are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transaction).

Foreign currency differences arising from translating the financial statements of our subsidiaries from currencies other than CHF are recognized in other comprehensive income and presented in the foreign currency translation reserve under equity in the statement of financial position. When a foreign operation is disposed of such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal.

Results of Operations

The numbers below have been derived from our consolidated financial statements included elsewhere herein. The discussion below should be read along with these consolidated financial statements and it is qualified in its entirety by reference to them.

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Comparison of the years ended December 31, 20152018 and 2014

  Year Ended December 31,
  2015 2014 Change
  (in thousands of CHF) %
Research and development  (26,536)  (17,705)  50%
General and administrative  (4,342)  (4,489)  (3%)
Operating loss  (30,878)  (22,194)  39%
Interest income  37   52   (30%)
Interest expense  (8)  (56)  (86%)
Foreign currency exchange gains/(losses), net  1,144   4,012   (71%)
Loss before tax  (29,705)  (18,185)  (63%)
Income tax expense  —   —   — 
Net loss attributable to owners of the Company  (29,705)  (18,185)  63%
Other comprehensive loss:            
Items that will never be reclassified to profit or loss            
Remeasurements of defined benefits liability, net of taxes of CHF 0  (54)  (1,102)  (95%)
Items that are or may be reclassified to profit or loss            
Foreign currency translation differences, net of taxes of CHF 0  (13)  (105)  (88%)
Other comprehensive loss  (67)  (1,207)  (94%)
Total comprehensive loss attributable to owners of the Company  (29,772)  (19,392)  54%

2017

 Year Ended December 31,
 2018 2017 Change
 (in thousands of CHF) %
Research and development(6,690) (19,211) (65)%
General and administrative(4,264) (5,150) (17)%
Operating loss(10,954) (24,361) (55)%
Interest income—
 54
 (100)%
Interest expense(1,070) (1,640) (35)%
Foreign currency exchange gain/(loss), net(140) (825) (83)%
Revaluation gain from derivative financial instruments1,350
 3,372
 (60)%
Transaction Costs(520) (1,027) (49)%
Loss before tax(11,334) (24,427) (54)%
Income tax expense(162) 18
 (1,000)%
Net loss attributable to owners of the Company(11,496) (24,409) (53)%
Other comprehensive loss:    

Items that will never be reclassified to profit or loss    

Remeasurements of defined benefits liability, net of taxes of CHF 01,277
 272
 369 %
Items that are or may be reclassified to profit or loss    

Foreign currency translation differences, net of taxes of CHF 0(11) 50
 (122)%
Other comprehensive loss1,266
 322
 293 %
Total comprehensive loss attributable to owners of the Company(10,230) (24,087) (58)%
Research and development expense

  Year Ended December 31,
  2015 2014 Change
  (in thousands of CHF) %
Research and development expense      
Clinical projects  (20,808)  (12,142)  71%
Preclinical projects  (468)  (1,160)  (60%)
Drug manufacture and substance  (1,866)  (1,384)  35%
Employee benefits  (2,140)  (1,718)  25%
Other research and development expenses  (1,253)  (1,301)  (4%)
Total  (29,705)  (17,705)  50%

 Year Ended December 31,
 2018 2017 Change
 (in thousands of CHF) %
Research and development expense     
Clinical projects(846) (12,366) (93)%
Pre-clinical projects(873) (643) 36 %
Drug manufacture and substance(2,185) (2,027) 8 %
Employee benefits(1,653) (2,774) (40)%
Other research and development expenses(1,132) (1,402) (19)%
Total(6,689) (19,211) (65)%
Research and development expense increased 50%decreased by 65% from CHF 17.719.2 million in 20142017 to CHF 26.56.7 million in 2015.2018. Our research and development expense is dependent on the development phases of our research projects and may therefore fluctuatesfluctuate significantly from year to year. The variances in expense between 20142017 and 20152018 are mainly due to the following factors:

Capitalization of internal costs for AM-125. In the year ended December 31, 2018, we capitalized direct costs related to our AM-125 program for a total amount of CHF 1.9 million.
·
•
Clinical projects. In 2015,the year ended December 31, 2018, we incurred significantly higher clinical expenses than in 2014, primarily due to higherlower service and milestone costs charged by contracted service providers in connection withfor our Keyzilen® and Sonsuvi® studies, mainly reflecting the late stage AM-101completion of our late-stage clinical trials, reflecting higher patient enrollment rates when compared with the previous reporting period and trial progress. For AM-111, we also incurred higher expenses related to the start of patient recruitment in the Phase 3 HEALOS trial.trials.

Pre-clinical projects. In the year ended December 31, 2018, pre-clinical expenses increased by 36% due to an increase in activities in our intranasal betahistine program.
·
•Preclinical projects. In 2015, we incurred significantly lower costs as several toxicology studies were completed in 2014.

·
Drug manufacture and substance. In 2015, we incurred higherthe year ended December 31, 2018, costs primarily related to the production of validation batches for AM-101, which were partly offset by lower costs for AM-111 due to fluctuations in the timing of raw material purchases and the manufacture of clinical trial supplies.expenses increased by 8% mainly due to higher costs for process validation related to Sonsuvi®.

·Employee benefits. Headcount continued to increase in 2015 to support expanded project management activities.

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Employee benefits. Employee benefit costs decreased in 2018 due to lower headcount and lower recruiting fees.
Other research and development expenses. Other research and development expenses decreased by CHF 0.3 million in the year ended December 31, 2018 compared to the year ended December 31, 2017 primarily due to a reduction in regulatory related activities.
General and administrative expense

  Year Ended December 31,
  2015 2014 Change
  (in thousands of CHF) %
General and administrative expense      
Employee benefits  (1,503)  (1,137)  32%
Administration costs  (2,387)  (2,014)  18%
Initial public offering costs, expensed  —   (822)  (100%)
Other  (452)  (516)  (12%)
Total  (4,342)  (4,489)  (3%)

 Year Ended December 31,
 2018 2017 Change
 (in thousands of CHF) %
General and administrative expense     
Employee benefits(1,084) (2,098) (48)%
Business development(44) (162) (73)%
Travel expenses(71) (199) (64)%
Administration expenses(2,798) (2,522) 11 %
Lease expenses(52) (81) (36)%
Depreciation tangible assets(187) (69) 171 %
Capital tax (expenses)/income(29) (18) 61 %
Total(4,265) (5,150) (17)%
General and administrative expenses decreased by 3%17% from CHF 4.55.2 million in 20142017 to CHF 4.3 million in 2015.

·Employeethe year ended December 31, 2018. The decrease is related to lower employee benefits. Headcount continued to increase in 2015 in line with the expansion of administrative staff established after becoming a publicly listed company. Employee benefits also reflect an increase in share based payments and pension charges.

·Administration costs. The increase reflects higher consulting and auditing expenses associated with operating as a public company.

·Initial public offering costs, expensed. These initial public offering costs were expensed in the three months ended March, 31, 2014, as management determined that successful completion was not deemed more likely than not. No such costs were incurred in 2015.

·Other. In 2015, these costs were on aggregate broadly in line with 2014 and comprise facility, business development and travel costs.

We expect that general and administrative expense will increase in the future as our business expands and we continue to increase headcount as well as incur additional costs associated with operating as a public company.

Interest income

Interest income decreased from CHF 0.05 million in 2014 to CHF 0.04 million in 2015 due to the lower interest rates on short-term deposits.

Interest expense

Interest expense decreased substantially in 2015, as convertible loans had been converted in 2014. In 2014 we recognized interest expenses in the amount of CHF 0.05 million on the convertible loans.

Foreign currency exchange gains/(losses), net

Foreign currency exchange gains/(losses), net decreased in 2015 due to lower foreign exchange gains on the Company’s U.S. dollar denominated cashheadcount and cash equivalents.

Remeasurements of defined benefits liability

Remeasurements of the net defined benefits liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), decreased 95% from 2014 to 2015. The decline was due to higher return on plan assetsemployee benefit-related expenses, partly offset by lower actuarial losses on changes in experience adjustments and actuarial gains from changes in economic assumptions.

Foreign currency translation differences

Foreign currency translation differences decreased by 88% from 2014 to 2015. The decrease was primarily related to changes in the opening and closing balance of the group’s currency translation differences.

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Comparison of the years ended December 31, 2014 and 2013

  Year Ended December 31,
  2014 2013 Change
  (in thousands of CHF) %
Research and development  (17,705)  (13,254)  34%
General and administrative  (4,489)  (1,362)  230%
Operating loss  (22,194)  (14,616)  52%
Interest income  52   74   (30%)
Interest expense  (56)  (53)  6%
Foreign currency exchange gains/(losses), net  4,012   (104)  (3,985%)
Loss before tax  (18,185)  (14,699)  24%
Income tax expense  —   (306)  (100)%
Net loss attributable to owners of the Company  (18,185)  (15,005)  21%
Other comprehensive loss:            
Items that will never be reclassified to profit or loss            
Remeasurements of defined benefits liability, net of taxes of CHF 0  (1,102)  (58)  1,800%
Items that are or may be reclassified to profit or loss            
Foreign currency translation differences, net of taxes of CHF 0  (105)  32   (431)%
Other comprehensive loss  (1,207)  (26)  4,541%
Total comprehensive loss attributable to owners of the Company  (19,392)  (15,031)  29%

  

Year Ended December 31,

  

2014

 

2013

 

Change

  (in thousands of CHF) %
Research and development expense            
Clinical projects  (12,142)  (8,753)  39%
Preclinical projects  (1,160)  (2,078)  (44)%
Drug manufacture and substance  (1,384)  (1,036)  34%
Employee benefits  (1,718)  (1,074)  60%
Other research and development expenses  (1,301)  (313)  316%
Total  (17,705)  (13,254)  34%

Research and development expense increased 34% from CHF 13.3 million in 2013 to CHF 17.7 million in 2014. The variances in expense between 2013 and 2014 were mainly due to the following factors:

·Clinical projects. Beginning in February and March 2014 we enrolled patients in two AM-101 Phase 3 trials, namely TACTT2 and TACTT3. In addition, roll-over of study participants into the open-label follow-on studies AMPACT1 and AMPACT2 started in May/June 2014. This resulted in the incurrence of substantial service and pass throughhigher administration costs from our CROs and other service providers. In 2013, AM-101 clinical costs were lower as Phase 2 completed in February and we mainly incurred costs related to the preparation for the Phase 3 trials (notably for feasibility assessments, investigator and site selections, investigator meetings, validation and translation work on questionnaires and other study documents, procurement of electronic patient diaries, set-up of electronic data capture systems, databases and procedures as well as submissions to regulatory agencies and institutional review boards) . For AM-111, in 2014, we incurred significantly higher clinical costs for the preparation of the Phase 3 program, most notably, feasibility assessments, as well as investigator and site selections. In contrast, in 2013 expense levels related to the AM-111 project were lower because a Phase 2 clinical trial had been completed.

·Pre-clinical projects. In 2014 we finished toxicology studies with repeated AM-101 dosing and therefore incurred lower expenses as compared to 2013. In contrast, in 2014 we incurred higher expenses for AM-111 as we started a repeated dose toxicology study and finalized the analytical assay development. Costs incurred in 2013 related to project AM-102, including screening of compounds for a new pharmacological target in tinnitus. In addition, we initiated additional toxicology studies with repeated AM-101 dosing in rodents, and conducted reproduction toxicology studies with AM-111.

·Drug manufacture and substance. In 2014 we incurred substantial costs related to the manufacture of clinical supplies for AM-111 in preparation for the Phase 3 trial program as well as for analytical development and validation. In contrast, in 2013 we mainly incurred costs related to the manufacture, labelling and packaging of supplies for the AM-101 Phase 3 trials.

·Employee benefits. Headcount continued to increase in 2014 in line with the expansion of our research and development activities.

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General and administrative expense

  Year Ended December 31,
  2014 2013 Change
  (in thousands of CHF) %
General and administrative expense            
Employee benefits  (1,137)  (196)  481%
Administration costs  (2,014)  (556)  262%
Initial public offering costs, expensed  (822)  —   100%
Other  (516)  (610)  (15)%
Total  (4,489)  (1,362)  230%

General and administrative expense increased 230% from CHF 1.4 million in 2013 to CHF 4.5 million in 2014.

·Employee benefits. Headcount continued to increase in 2014 in line with the expansion of our administrative staff after becoming a publicly listed company.

·Administration costs. The increase reflects higher legal and auditing expenses in connection with the preparation for our initial public offering and expenses associated with operating as a public company after August 2014.

·Initial public offering costs, expensed. These initial public offering costs expensed in the three months ended March, 31, 2014, as management determined that successful completion was not deemed more likely than not. No such costs were incurred in 2013.

·Other. These costs were on aggregate broadly in line with 2013 and comprised facility, business development and travel costs.

Interest income

Interest income decreased from CHF 0.07 million in 2013 to CHF 0.05 million in 2014. Interest income in both periods consisted primarily of interest income recognized on short-term deposits.

Interest expense

Interest expense increased from CHF 0.05 in 2013 to CHF 0.06 million in 2014. Higher interest expenses were mainly due to higher legal fees related to the Merger.

Interest income
Interest income decreased in the year ended December 31, 2018 compared to year the ended December 31, 2017 due to no interests earned in the year ended December 31, 2018 on short-term deposits.
Interest expense
Interest expense are related to the Hercules Loan and Security Agreement and decreased substantially in the year ended December 31, 2018 to CHF 1.1 million compared to CHF 1.6 million in the year ended December 31, 2017, mainly driven by the $5.0 million early repayment in April of 2018 and the full year impact of monthly amortizations of the principal. On June 19, 2016, we drew $12.5 million under the facility. The loan was initially recognized at transaction value less the fair value of the warrant as of the transaction date and less directly attributable transactions costs. Following the initial recognition, the loan was measured at amortized cost using the effective interest method. Changes in amortized cost as well as interest paid to Hercules were recognized as interest expense. In addition, we recognized bank charges whereasas interest expenses on the outstanding convertible loan were comparable.

expense.

Foreign currency exchange gains/(losses)gain/(loss), net

Net foreign

Foreign currency exchange gains increased substantiallyloss decreased in 2014 primarily because of unrealized exchange gains2018 mainly due to the appreciation of the U.S. dollar (in which most of our cash was denominated after the initial public offering) against the CHF (our functional currency) as well asSwiss Franc which triggered a result of an increase in averagenet foreign unrealized currency gain on U.S. dollar denominated cash and cash equivalents
Revaluation gain/(loss) from derivative financial instruments
In connection with the Hercules Loan and Security Agreement, the Company issued Hercules a warrant to purchase up to 241,117 of its common shares at an exercise price of $3.94 per share. Revaluation gain/(loss) show the changes in fair value of the warrant issued to Hercules. As of March 13, 2018, following the consummation of the Merger, the Hercules warrant was exercisable for up to 15,673 common shares at an exercise price of $39.40 per common share. As of December 31, 2018 the fair value of the warrant amounted to CHF 3,804. The revaluation gain of the derivative for the twelve months ended December, 2018 amounted to CHF 19,546, which is a decrease of CHF 74,236 when comparing to the same period in 2017. Since its initial recognition as of July 19, 2016, the fair value decreased by CHF 404,376 resulting in a revaluation gain in the corresponding

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amount (fair value as of July 19, 2016: CHF 408,180). In connection with our final payment to Hercules under the Hercules Loan and Security Agreement, Hercules agreed to return the warrant to us for no consideration. We canceled the warrant upon receipt.
On February 21, 2017, we issued 10,000,000 warrants, each warrant entitling its holder to purchase 0.70 of a common share at an exercise price of $1.20. Additionally, the underwriter was granted a 30-day option to purchase up to 1,500,000 additional common shares and/or 1,500,000 additional warrants. On February 15, 2017, the underwriter partially exercised its option for 1,350,000 warrants. Revaluation gain/(loss) show the changes in fair value of the warrant issued in connection with this offering. As of March 13, 2018, following the consummation of the Merger, the outstanding warrants issued in the February 2017 offering were exercisable for up to 794,500 common shares at an exercise price of $12.00 per common share. As of December 31, 2018, the fair value of the warrants amounted to CHF 166,301. The revaluation gain of the derivative for the twelve months ended December 31, 2018 amounted to CHF 1,647,112, which is a decrease of CHF 1,631,292 when comparing to the same period in 2017. Since its initial publicrecognition as of February 21, 2017, the fair value decreased by CHF 4,925,164, resulting in a gain in the corresponding amount (fair value as of February 21, 2017: CHF 5,091,817).

On January 30, 2018 we issued 7,499,999 warrants in connection with a direct offering of 12,499,999 common shares.

shares, each warrant entitling its holder to purchase one common share at an exercise price of $0.50 per common share. As of March 13, 2018, following the consummation of the Merger, the warrants became exercisable for an aggregate of 750,002 of our common shares (assuming we decide to round up fractional common shares to the next whole common share), at an exercise price of $5.00 per common share. Revaluation gain/(loss) show the changes in fair value of the warrant issued in connection with this offering. As of December 31, 2018 the fair value of the warrants amounted CHF 289,651. Since its initial recognition on January 30, 2018, the fair value of the warrants has decreased by CHF 2,194,096, resulting in a gain in the corresponding amount (fair value as of January 30, 2018: CHF 2,483,747).


On July 17, 2018 we issued 6,282,051 Series A warrants and 4,487,178 Series B warrants in connection with the July 2018 Registered Offering of 17,948,717 common shares, each warrant entitling its holder to purchase one common share at an exercise price of CHF 0.39 per common share. Revaluation gain/(loss) show the changes in fair value of the outstanding Series B warrants issued in connection with this offering. As of December 31, 2018 the number of Series B warrants outstanding subject to revaluation were 690,702 and the fair value of the warrants amounted to CHF 215,572. Since its initial recognition on July 17, 2018, the fair value of the warrants has increased by CHF 77,585, resulting in a loss in the corresponding amount (fair value as of July 17, 2018: CHF 137,987).
Income tax expense

As we have never generated revenue or other taxable income, there have been no income taxes paid so far. In 2014, we recorded a

Income tax expense reflects the assessment of deferred income tax loss of CHF 32,761, which was offset with deferred income tax gain of CHF 32,761.

assets and liabilities.

Remeasurements of defined benefits liability

Remeasurements of the net defined benefits liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), increased 1,800%369% from 20132017 to 2014.2018. The increasegain was primarily relateddue to a higher actuarial loss arising from changesreduction in financial assumptions and experience adjustments, partially offset by a higher return on plan assets.

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headcount.

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Foreign currency translation differences

Foreign currency translation differences decreased by 431%122% from 20132017 to 2014.2018. The decrease was primarily related to changes in the opening and closing balance of the group’s currency translation adjustments.

differences.
Comparison of the years ended December 31, 2017 and 2016

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 Year Ended December 31,
 2017 2016 Change
 (in thousands of CHF) %
Research and development(19,211) (24,777) (22)%
General and administrative(5,150) (5,447) (5)%
Operating loss(24,361) (30,224) (19)%
Interest income54
 68
 (21)%
Interest expense(1,640) (829) 98 %
Foreign currency exchange gain/(loss), net(825) (100) 725 %
Revaluation gain/(loss) from derivative financial instruments3,372
 291
 1,059 %
Transaction Costs(1,027) —
 — %
Loss before tax(24,427) (30,794) (21)%
Income tax gain18
 131
 (86)%
Net loss attributable to owners of the Company(24,409) (30,662) (20)%
Other comprehensive loss:    

Items that will never be reclassified to profit or loss    

Remeasurements of defined benefits liability272
 (394) (169)%
Items that are or may be reclassified to profit or loss    

Foreign currency translation differences50
 (20) (350)%
Other comprehensive income/(loss)322
 (414) (178)%
Total comprehensive loss attributable to owners of the Company(24,087) (31,076) (22)%
Research and development expense
 Year Ended December 31,
 2017 2016 Change
 (in thousands of CHF) %
Research and development expense     
Clinical projects(12,366) (16,639) (26)%
Pre-clinical projects(643) (546) 18 %
Drug manufacture and substance(2,027) (2,609) (22)%
Employee benefits(2,774) (2,855) (3)%
Other research and development expenses(1,402) (2,128) (34)%
Total(19,211) (24,777) (22)%

Research and development expense decreased by 22% from CHF 24.8 million in 2016 to CHF 19.2 million in 2017. Our research and development expense is dependent on the development phases of our research projects and may therefore fluctuate significantly from year to year. The variances in expense between 2016 and 2017 are mainly due to the following factors:
•
Clinical projects. In 2017, we incurred lower service and milestone costs for our Keyzilen ® studies, mainly reflecting the completion of TACTT2, AMPACT1 and AMPACT2 and progression towards completion of TACTT3, which was partly offset by higher AM-111 related expenses due to progression of our HEALOS and ASSENT trials.
Pre-clinical projects. In 2017 pre-clinical expenses increased by 18% due to an increase in activities in our early stage program AM-102.
•
Drug manufacture and substance. In 2017 costs related to raw material purchases and expenses decreased by 22% mainly due to lower costs for process validation related to Keyzilen ®, which were partly offset by increases related to AM-111.
Employee benefits. Employee benefit costs decreased in 2017 due to lower headcount and lower recruiting fees.

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General and administrative expense
 Year Ended December 31,
 2017 2016 Change
 (in thousands of CHF) %
General and administrative expense     
Employee benefits(2,098) (2,175) (4)%
Business development(162) (46) 255 %
Travel expenses(199) (159) 26 %
Administration expenses(2,522) (2,970) (15)%
Lease expenses(81) (64) 28 %
Depreciation tangible assets(69) (39) 75 %
Capital tax (expenses)/income(18) 5
 (440)%
Total(5,150) (5,447) (5)%
General and administrative expenses decreased by 5% from CHF 5.4 million in 2016 to CHF 5.2 million in 2017.
Employee benefits. In 2017, headcount was similar to 2016 and in line with the planned organization of administrative staff and the management team. Employee benefits expenses decreased as a result of lower personnel cost due to certain positions temporarily being unfilled and lower recruiting fees.
Business development. Business development expenses increased from CHF 0.05 million to CHF 0.2 million as a result of higher consulting fees.
Administration expenses. The decrease of 15% from CHF 3.0 million in 2016 to CHF 2.5 million in 2017 was primarily due to lower consultancy fees.
Interest income
Interest income decreased in 2017 compared to 2016 due to lower amounts earned on short-term deposits.
Interest expense

Interest expense increased substantially in 2017 to CHF 1.6 million compared to CHF 0.8 million in 2016, as a result of the Hercules Loan and Security Agreement. On June 19, 2016, we drew $12.5 million under the facility. The loan was initially recognized at transaction value less the fair value of the warrant as of the transaction date and less directly attributable transactions costs. Following the initial recognition, the loan is measured at amortized cost using the effective interest method. Changes in amortized cost as well as interest paid to Hercules are recognized as interest expense. In addition, we recognized bank charges as interest expense.
Foreign currency exchange gain/(loss), net

Foreign currency exchange gains/(loss), net increased in 2017 mainly due to the depreciation of the U.S. dollar against the Swiss Franc which triggered a net foreign unrealized currency loss on U.S. dollar denominated cash and cash equivalents.
Revaluation gain/(loss) from derivative financial instruments

In connection with the Hercules Loan and Security Agreement, the Company issued Hercules a warrant to purchase up to 241,117 of its common shares at an exercise price of $3.94 per share. As of March 13, 2018, following the consummation of the Merger, the warrant was exercisable for 15,673 common shares at an exercise price of $39.40 per common share. The fair value of the warrant on December 31, 2017 amounted to CHF 23,350. The revaluation gain of the derivative for 2017 amounted to CHF 93,782 (2016: revaluation gain of CHF 291,048).

On February 21, 2017, we issued 10,000,000 warrants, each warrant entitling its holder to purchase 0.70 of a common share at an exercise price of $1.20. Additionally, the underwriter was granted a 30-day option to purchase up to 1,500,000 additional common shares and/or 1,500,000 additional warrants. On February 15, 2017, the underwriter partially exercised its

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option for 1,350,000 warrants. As of December 31, 2017, the fair value of the warrants amounted CHF 1,813,412. Since its initial recognition, the fair value of the warrants have decreased by CHF 3,278,404, resulting in a gain in the corresponding amount (fair value as of February 21, 2017: CHF 5,090,463). As of March 13, 2018, following the consummation of the Merger, the outstanding warrants issued in the February 2017 offering were exercisable for 794,500 common shares at an exercise price of $12.00 per common share.
Transaction costs
Transaction costs increased by CHF 1.0 million in 2017 compared to 2016. The increase relates to the fees and transaction costs related to the warrants issued as part of the public offering completed on February 21, 2017 and for obtaining the Commitment Purchase Agreement entered in October 10, 2017 representing LPC’s commitment to purchase shares at the option of the Company, subject to certain restrictions.
Income tax gain
Income tax gain reflects the reassessment of deferred tax assets and liabilities booked in the 2014 and 2015 fiscal years.
Remeasurements of defined benefits liability
Remeasurements of the net defined benefits liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), increased by 169% from 2016 to 2017. The increase was due a change in the discount rate and a change in demographic assumptions.
Foreign currency translation differences
Foreign currency translation differences decreased by 350% from 2016 to 2017. The decrease was primarily related to changes in the opening and closing balance of the group’s currency translation differences.
B.Liquidity and capital resources

Since inception, we have incurred significant operating losses. To date, we have not generated any revenue. We have financed our operations through the public offerings of our common shares, private placements of equity securities and short termshort-term loans.

Cash flow

Comparison of the years ended December 31, 20152018 and 2014

2017

The table below summarizes our consolidated statement of cash flows for the years ended December 31, 20152018 and 2014:

  Year Ended December 31,
  2015 2014
  (in thousands of CHF)
Cash used in operating activities  (28,727)  (19,316)
Net cash used in investing activities  (43)  (1,186)
Net cash from financing activities  20,919   49,609 
Net effect of currency translation on cash  1,155   3,962 
Cash and cash equivalents at the beginning of the period  56,934   23,866 
Cash and cash equivalents at the end of the period  50,237   56,934 

2017:

 Year Ended December 31,
 2018 2017
 (in thousands of CHF)
Net cash used in operating activities(13,232) (24,276)
Net cash from / (used) in investing activities(1,823) (99)
Net cash from financing activities5,733
 8,221
Net effect of currency translation on cash(258) (1,315)
Cash and cash equivalents at the beginning of the period14,973
 32,442
Cash and cash equivalents at the end of the period5,393
 14,973
The increasedecrease in cash used in operating activities from CHF 19.324.3 million in 20142017 to CHF 28.813.2 million in 2015 was mainly due to an increase in2018 reflects the impact of lower operating expenses primarily driven by lower research and development expenses as well as general and administrative expenses other than share based payments (non-cash item).

related expenses.

Cash used in investing activities reflects,increased from CHF 99 thousand in both 2015 and 2014, cash used2017 to CHF 1.8 million in the purchase2018. The increase is primarily due to higher investments in intangible assets in 2018.

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Cash from financing activities in 2015 reflects2018 decreased as the net proceeds (CHF 21.1 million) from our public offering of 5,275,000 common shares at athe January 2018 Registered Offering of $ 4.9 million, the July 2018 Registered Offering of $6.2 million, the November 27, 2018 and December 11, 2018 registered direct offerings with FiveT Capital AG for an aggregate purchase price of US$ 4.75 per share. The proceeds$1.6 million, the issuance of shares under the Commitment Purchase Agreement with LPC of $1.0 million and the issuance of shares under the ATM program with AGP for $0.4 million, were partially offset by issuance costs associated withpartly used for the offering. In 2014, net cash from financing activities was CHF 49.6$ 5.0 million reflectingrepayment and the net effect of proceeds from our initial public offering in August 2014.

regular monthly amortizations and interest payments totaling $ 5.1 million on the Hercules loan.

Comparison of the years ended December 31, 20142017 and 2013

2016

The table below summarizes our consolidated statement of cash flows for the years ended December 31, 20142017 and 2013:

  Year Ended December 31,
  2014 2013
  (in thousands of CHF)
Cash used in operating activities  (19,316)  (14,044)
Net cash used in investing activities  (1,186)  (35)
Net cash from financing activities  49,609   37,881 
Net effect of currency translation on cash  3,961   0 
Cash and cash equivalents at the beginning of the period  23,866   64 
Cash and cash equivalents at the end of the period  56,934   23,866 

2016:

 Year Ended December 31,
 2017 2016
 (in thousands of CHF)
Cash used in operating activities(24,276) (29,454)
Net cash used in investing activities(99) (177)
Net cash from financing activities8,221
 11,439
Net effect of currency translation on cash(1,315) 397
Cash and cash equivalents at the beginning of the period32,442
 50,237
Cash and cash equivalents at the end of the period14,973
 32,442
The increasedecrease in cash used in operating activities by 38% from CHF 14.029.5 million in 20132016 to CHF 19.324.3 million in 2014 was mainly due to an increase in2017 reflects the impact of lower operating expenses primarily driven by lower research and development expenses as well as general and administrative spending.

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related expenses.

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Cash used in investing activities reflects, in both 20142017 and 2013,2016, cash used in the purchase of property, plant and equipment (manufacturing equipment, leasehold improvements and office furniture) offset by interest received. In 2014, it

Cash from financing activities in 2017 includes the net proceeds of the February 2017 public offering of common shares and warrants to purchase common shares. The net proceeds to us from the offering were approximately CHF 9.1 million, after deducting underwriting discounts and other offering expenses payable by us. Cash from financing activities in 2017, also includes a CHF 1.125 million cash milestone paymentthe principal amortization and interest payments due to Xigen.

Cash from financial activities, in 2014, was primarily driven by a net inflow of CHF 49.6 million from our initial public offering in August 2014.the financing parties under the Hercules Loan and Security Agreement. In 2013 netaddition, cash from financing activities reflects proceeds fromin 2017 includes the private placementissuance of our Series C preferred shares to new investors providing totalunder the Commitment Purchase Agreement and a Registration Rights Agreement with LPC which resulted in net proceeds of CHF 24.1 million in April 2013 as well as a convertible loan from Series C shareholders providing CHF 13.8 million in December 2013.

2.3 million.

Cash and funding sources

The table below summarizes our sources of financing for the years ended December 31, 2015, 20142018, 2017 and 2013.

  Equity Capital and Preferred Shares Loans Total
  (in thousands of CHF)
2015  21,071   —   21,071 
2014  50,038   —   50,038 
2013  24,111   13,770   37,881 
Total  95,220   13,770   108,990 

2016.

 Equity Capital and Preferred Shares Loans Total
 (in thousands of CHF)
201815,441
 —
 15,441
201711,491
 —
 11,491
2016—
 11,987
 11,987
Total26,932
 11,987
 38,919

On May 20, 2015November 30, 2018, we entered into the A.G.P. Sales Agreement with A.G.P. Pursuant to the terms of the A.G.P. Sales Agreement, we may offer and sell our 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, we may sell common shares up to a maximum aggregate offering price of $25.0 million. Once the Redomestication is effected, we will need to amend the A.G.P. Sales Agreement before we can sell additional common shares to A.G.P. We cannot be certain that we will be able to negotiate an amendment with the same terms and conditions, or at all. As of the date of this Annual Report, we have sold 2,595,814 of our common shares for an aggregate offering price of  $1.3 million pursuant to the A.G.P. Sales Agreement.

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On November 27, 2018 and December 11, 2018, we entered into purchase agreements with FiveT Capital AG, providing for the issuance and sale by us of an aggregate of 3,315,000 of our common shares for an aggregate purchase price of $1.6 million in two separate registered direct offerings.
On July 17, 2018, we completed a public offering of 5,275,00017,948,717 common shares atwith a pricenominal value of CHF 0.02 each, 6,282,050 Series A warrants entitling its holder to the public of US$4.75 perpurchase a common share and 4,487,179 Series B warrants entitling its holder to purchase a common share. The net proceeds to us from the July 2018 Registered Offering were approximately $6.2 million, after deducting underwriting discounts and other offering expenses payable by us. The outstanding Series A warrants issued in the July 2018 Registered Offering are exercisable for up to 6,282,050 common shares at an exercise price of CHF 0.39 per common share and the outstanding Series B warrants issued in the July 2018 Registered Offering are exercisable for up to 4,487,178 common shares at an exercise price of CHF 0.39 per common share. Since the July 2018 Registered Offering, certain Series A warrant holders exercised their warrant shares to purchase 2,904,518 common shares of the public offering were CHF 21.1 million.

Our sources of financing in 2014 includedCompany and certain Series B warrant holders exercised warrant shares to purchase 2,864,422 common shares.

On May 2, 2018, we entered into the initial public offering of 10,113,235 common shares providing net proceeds (after underwriting fees, initial public offeringLPC Purchase Agreement and share issuance costs) of CHF 49.60 million.

Our sources of financing in 2013 included the private placement of our Series C preferred shares providing total net proceeds of CHF 24.1 million as well as a convertible loan from Series C shareholders providing CHF 13.8 million. Prior to the closing of the Series C financing round in April 2013, a bridge loan was provided by Altamira Pharma GmbH, a company wholly owned by our CEO; a portion of the net proceeds from our Series C financing were used to repay that loan.

Under the terms of the Series C investmentregistration rights agreement we agreed that up to two additional closings resulting in further capital increase and issuance of new Series C preferred shares may be completedwith LPC (the “Second Closing” and/or, the “Third Closing”, respectively)“Registration Rights Agreement”). Pursuant to the termsPurchase Agreement, LPC agreed to purchase common shares for up to $10,000,000 over the 30-month term of the convertiblePurchase Agreement. As of the date of this Annual Report, we have issued an aggregate of 1,750,000 common shares for aggregate proceeds of $1.0 million to LPC under the LPC Purchase Agreement. The Purchase Agreement replaced the Purchase Agreement that we entered into with LPC on October 10, 2017 (the “2017 Commitment Purchase Agreement"), which was terminated as a result of the Merger. Under the 2017 Commitment Purchase Agreement, LPC agreed to subscribe for up to $13,500,000 of our common shares and prior to its termination, we had issued an aggregate of 2,600,000 common shares for aggregate proceeds of $1.8 million to LPC under the 2017 Commitment Purchase Agreement.

On January 30, 2018, we completed a public offering of 12,499,999 common shares with a nominal value of CHF 0.40 each and a concurrent offering of 7,499,999 warrants, each warrant entitling its holder to purchase one common share. The net proceeds to the Company from the January 2018 Registered Offering were approximately $4.9 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 offering were exercisable for up to 750,002 common shares (assuming we decide to round up fractional common shares to the next whole common share) at an exercise price of $5.00 per common share.
On October 16, 2017, we issued 1,744,186 common shares to LPC for an aggregate proceeds of $1,500,000.
On February 21, 2017, we completed a public offering of 10,000,000 common shares with a nominal value of CHF 0.40 each and 10,000,000 warrants, each warrant entitling its holder to purchase 0.70 of a common share. The net proceeds to us from the offering were approximately CHF 9.1 million, after deducting underwriting discounts and other estimated offering expenses payable by us. The underwriter was granted a 30-day option to purchase up to 1,500,000 additional common shares and/or 1,500,000 additional warrants. On February 15, 2017, the underwriter partially exercised its option in the amount of 1,350,000 warrants. As of March 13, 2018, following the consummation of the Merger, the outstanding warrants issued in the February 2017 offering were exercisable for up to 794,500 common shares at an exercise price of $12.00 per common share.
On July 19, 2016, the Company entered into a Loan and Security Agreement for a secured term loan agreement,facility of up to $20.0 million with Hercules as administrative agent and the lenders exercised their right to convertparty thereto. An initial tranche of $12.5 million was drawn on July 19, 2016, concurrently with the full amountexecution of the loan into Series C preferred sharesagreement. The loan matures on January 13, 2014. The conversion replaced2, 2020 and bears interest at a minimum rate of 9.55% per annum, and is subject to the Second Closingvariability of the Series C financing.prime interest rate. The obligation to effectloan is secured by a pledge of the Third Closing was waivedshares of Auris Medical AG owned by the Company, all intercompany receivables owed to the Company by its Swiss subsidiaries and a security assignment of the Series C investors.

Company’s bank accounts. In connection with the loan facility, we issued Hercules a warrant to purchase up to 241,117 of our common shares at an exercise price of $3.94 per share. As of March 13, 2018, following consummation of the Merger, the warrant was exercisable for 15,673 common shares at an exercise price of $3.94 per common share.

On June 1, 2016, we entered into a Controlled Equity Offering Sales Agreement with Cantor, pursuant to which we may offer and sell, from time to time common shares, with a nominal value of CHF 0.40 per share, having an aggregate offering price of up to $35 million through Cantor. In the year ended December 31, 20152017, we had no long-term debt.

did not offer or sell any common shares under the Controlled Equity Offering Sales Agreement. The Controlled Equity Offering program terminated upon consummation of the Merger on March 13, 2018.

In addition, subsequent to December 31, 2017, we completed a public offering of 12,499,999 common shares with a nominal value of CHF 0.40 each and concurrent offering of 7,499,999 warrants, each warrant entitling its holder to purchase one common share. The net proceeds to the Company from the January 2018 were approximately $4.9 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

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Merger, the outstanding warrants issued in the January 2018 offering were exercisable for up to 749,999.9 common shares at an exercise price of $5.00 per common share.
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 believeexpect that our operating expenses for 2019 will be in the range of CHF 10.0 to 13.0 million and that the existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements into the second quarter of 2019. Additionally, as of the date of this Annual Report we have warrants outstanding, which are exercisable for an aggregate of 6,544,791 common shares at least untila weighted average exercise price of $2.33 per share, an equity commitment to sell up to $9.0 million of additional common shares to LPC pursuant to the fallLPC Purchase Agreement and an at-the-market offering program pursuant to the A.G.P. Sales Agreement for sales of 2017.up to $25.0 million of additional common shares. Following the Redomestication, we will be unable to raise capital through the A.G.P. Sales Agreement unless we successfully renegotiate such agreements with A.G.P. We cannot be certain that we will be able to renegotiate the A.G.P. Sales Agreement with the same terms and conditions or at all.
We anticipate that the issuance of our common shares under the LPC Purchase 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;

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Tablethe scope, rate of Contents

progress, results and cost of our clinical trials, nonclinical testing, and other related activities;
·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.

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 complete our late-stage AM-111 clinical program,development programs with Keyzilen®, Sonsuvi®, AM-125 and AM-201, obtain regulatory approval for AM-101 and AM-111them and to commercialize our product candidates AM-101 and AM-111.Keyzilen ® , Sonsuvi®, AM-125, AM-201 or any other product candidate. If we receive regulatory approval for AM-101Keyzilen ®, Sonsuvi®, AM-125 or AM-111,AM-201, 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.

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—D. Risk factors.”

Significant accounting policies and use of estimates and judgment

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with IFRS. The preparation of these financial statements requires us to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.


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While our significant accounting policies are more fully described in the notes to our audited consolidated financial statements appearing elsewhere in this Annual Report, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our financial condition and results of operations.

Intangible assets

Research and development

Expenditures on

The project stage forms the research programs ofbasis for the Companydecision as to whether costs incurred for the Company’s development projects can be capitalized. For Keyzilen®, Sonsuvi® and AM-201 clinical development expenditures are not capitalized they are expensed when incurred.

Expenditures onuntil the Company’s development programs are generally not capitalized except if development costsCompany obtains regulatory approval (i.e. approval to commercially use the product), as this is considered to be essentially the first point in time where it becomes probable that future revenues can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Company intends to and has sufficient resources to complete development and to use or sell the asset.generated. For the development projects of the Company, these criteria are generally only met when regulatory approval for commercialization is obtained. GivenAM-125 program, however, given the current stage of the development projects, noproject, the nature of the development approach and the fact that there is an existing market, direct development expenditures have yet been capitalized. In addition, the Company has capitalized certain milestone payments with regard to license payments.

Intellectual property-related costs for patents are part of the expenditure for the research and development projects. Therefore, registration costs for patents are expensed when incurred as long as the research and development project concerned does not meet the criteria for capitalization.

Licenses,

Intellectual Property and Data rights

Intellectual property rights that are acquired by the Company are capitalized as intangible assets if they are controlled by the Company, are separately identifiable and are expected to generate future economic benefits, even if uncertainty exists as to whether the research and development will ultimately result in a marketable product. Consequently, upfront and milestone payments to third parties for the exclusive use of pharmaceutical compounds in specified areas of treatment are recognized as intangible assets.

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Measurement

Measurement

Intangible assets acquired that have finite useful lives are measured at cost less accumulated amortization and any accumulated impairment losses.

Subsequent expenditure

Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognized in profit or loss as incurred.

Amortization

All licenses of the Company have finite lives. Amortization will start once the Company’s intangible assets are available for use. Amortization of licenses is calculated on a straight line basis over the period of the expected benefit or until the license expires. The estimated useful life of the Company’s licenses is 10 years from the date first available for use or the remaining term of patent protection. The Company assesses at each balance sheet date whether intangible assets which are not yet ready for use are impaired.

Income tax

Income tax expense comprises current and deferred tax. It is recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income/loss, or OCI.

Current tax

Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to tax payable or receivable in respect of previous years. It is measured using tax rates enacted or substantively enacted at the reporting date.

Taxable profit differs from “loss before tax” as reported in the consolidated statement of profit or loss and other comprehensive loss because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible.

Deferred tax


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Deferred income tax is recognized, using the balance sheet liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred tax is not recognized for:

·temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;

·temporary differences related to investments in subsidiaries to the extent that the Company is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future; and

·taxable temporary differences arising on the initial recognition of goodwill.

temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;
temporary differences related to investments in subsidiaries to the extent that the Company is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future; and
taxable temporary differences arising on the initial recognition of goodwill.
Deferred income tax is determined using tax rates and laws that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.

Deferred income tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off tax assets against tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its tax assets and liabilities on a net basis.

Employee benefits

The Company maintains a pension plan for all employees employed in Switzerland through payments to an independent collective foundation. Under IFRS, the pension plan qualifies as a defined benefit plan. There are no pension plans for the subsidiaries in Ireland and the United States.

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The Company’s net obligation in respect of defined benefit plans is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods, discounting that amount and deducting the fair value of any plan assets.

The recognized asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. In order to calculate the present value of economic benefits, consideration is given to any minimum funding requirements.

Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognized immediately in OCI. The Company determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability (asset), taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to defined benefit plans are recognized in profit or loss.

Share-based compensation

Share Options

The Company maintains various share-based payment plans in the form of stock option plans for its employees, members of the Board of Directors as well as key service providers. Stock options are granted at the Board’s discretion without any contractual or recurring obligations.

The share-based compensation plans qualify as equity settled plans. The grant-date fair value of share-based payment awards granted to employees is recognized as an expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The vesting of share options is conditional on the employee completing a period of service of three and four years respectively, from the grant date, in accordance with Plans A and C. Under the Company’s EquityCompany's equity incentive plan (the "Equity Incentive Plan (“Plan" or "EIP") adopted in August 2014 and amended in April 2017 and assumed by Auris NewCo following the 2014 Plan”),Merger, 50% of granted share options granted to employees vest after a period of service of two years from

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the grant date and the remaining 50% vest after a period of service of three years from the grant date. Share options granted to members of the Board of Directors in 2015, 2016, 2017 and 2018 vest after a period of one year after the grant date. Plan B was created to provide shares for share based compensation plans; it was used in the years 2008, 2009 and 2014 and was abolished in 2015.

The amount recognized as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that meet the related service and non-market performance conditions at the vesting date. Share-based payments that are not subject to any further conditions are expensed immediately at grant date. In the year the options are exercised the proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium.

Valuation of share options

The fair value of our sharesshare options is determined by our Management and our Board of Directors, and takes into account numerous factors to determine a best estimate of the fair value of our common sharesshare options as of each grant date.

In our historical financing rounds, we have mainly relied on the prior sale of stock method where the Company and new investors negotiate the Company’s valuation at arm’s length. Typical considerations in this method may include the type and amount of equity sold, the estimated volatility, the estimated time to liquidity, the relationship of the parties involved, the timing compared to the common shares valuation date and the financial condition and structure of the Company at the time of the sale.

Following the completion of our initial public offering, option pricing and values are determined based on quoted market pricesthe Black Scholes option pricing model, and assumptions are made for inputs such as volatility of our common shares atstock and the grant date.

risk free rate.

Recent accounting pronouncements

See Note 4 to our audited financial statements included elsewhere in this Annual Report 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.

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JOBS Act exemptions

On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for an “emerging growth company.” As an emerging growth company, we are electing to take advantage of the following exemptions:

·not providing an auditor attestation report on our system of internal controls over financial reporting;

·not providing all of the compensation disclosure that may be required of non-emerging growth public companies under the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act;

·not disclosing certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation; and

·not complying with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis).

not providing an auditor attestation report on our system of internal controls over financial reporting;
not providing all of the compensation disclosure that may be required of non-emerging growth public companies under the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act;
not disclosing certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation; and
not complying with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis).
These exemptions will apply until August 2019 or until we no longer meet the requirements of being an “emerging growth company,” whichever is earlier. We would cease to be an emerging growth company if we have more than $1.0$1.07 billion in annual revenue, have more than $700 million in market value of our common shares held by non-affiliates or issue more than $1.0 billion of non-convertible debt over a three-year period.

C.Research and development, patents and licenses, etc.

See “Item 4. Information on the Company—A. History and Development of the Company,” “Item 4. Information on the Company—B. Business Overview” and Item 5. Operating and Financial Review and Prospects—A. Operating Results—ResultsResults-Results of Operations.”

D.Trend information


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See “Item 5. Operating and Financial Review and Prospects.”

E.Off-balance sheet arrangements

As of the date of this Annual Report, 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 below.

F.Tabular disclosure of contractual obligations

The following table presents information relating to our contractual obligations as of December 31, 2015:

  Payments Due by Period
  Less Than
1 Year		 Between 1 and 5 Years Total
  (in thousands of CHF)
Operating lease obligations (1)  101   114   215 
Total  101   114   215 
2018:
 Payments Due by Period
 
Less Than
1 Year
 1-3 Years 3-5 Years 
More than
5 Years
 Total
 (in thousands of CHF)
Operating lease obligations (1)24
     —
 24
Loan and Borrowings (2)1,435
   —
 —
 1,435
Derivative Financial Instruments (3)  215
 460
 —
 675
Total1,459
 215
 460
 —
 2,134

(1)Operating lease obligations consist of payments pursuant to non-cancellablean operating lease agreements relating to our lease of office space and are not accounted for on the balance sheet. The lease term is 5 yearsof our lease in Basel, Switzerland, was entered into for an indefinite duration with a six-month cancellation period.
(2)Loan obligations consist of amortization payments and expires on March 31, 2018,the end of term fee due under the Hercules Loan and Security Agreement converted to CHF at an exchange rate of CHF 0.9827 to US$1.00. The secured term loan under the Hercules Loan and Security Agreement has a maturity date of January 2, 2020, with an optioninterest-only period through July 1, 2017, and amortized payments of principal and interest thereafter in equal monthly instalments until the maturity date. The loan bears interest at a minimum rate of 9.55% per annum, and is subject to extend for another five years.the variability of the prime interest rate. Interest payments are not included in the table presented above.

(3)Derivative Financial instruments relate to the warrants issued in connection with the Hercules Loan and Security Agreement and the warrants issued in the public offering in February 2017, direct placement in January 2018 and the July 2018 Registered Offering.

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.

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TableUnder the terms of Contentsthe asset purchase agreement with Otifex Therapeutics Pty Ltd, we are obliged to make a development milestone payment of $200,000 if use of the purchased formulation is supported by the results from toxicology studies over three to six months.

G.Safe harbor

See “Forward-Looking Statements.”

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ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.Directors and senior management

Our executive officers and board of directors (including the membership of the committees of our board of directors) will remain the same upon effectiveness of the Redomestication. Our directors have been elected for a one year term and,

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accordingly, the term will expire at the time of our 2019 annual general meeting. All directors have indicated that they will stand for re-election.
The following table presents information about our executive officers and directors. The term of each of our directors is one year and, accordingly, will expire at the time of our 2016 annual shareholder meeting.

Name

Position

Age

Initial Year of Appointment

Executive Officers   
Thomas MeyerChairman and Chief Executive Officer482003
Bettina StubinskiChief Medical Officer (1)492013
Sven ZimmermannChief Financial Officer452014
Anne Sabine ZollerGeneral Counsel362015
Non-Executive Directors   
Wolfgang ArnoldDirector742007
James I. HealyVice-Chairman and Director512013
Oliver KubliDirector432010
Berndt A.E. ModigDirector572015
Antoine PapiernikDirector492013
Calvin W. RobertsDirector632015

Name Position Age Initial Year of Appointment
Executive Officers(1)
      
Thomas Meyer Chairman, Director and Chief Executive Officer 51 2003
Hernan Levett Chief Financial Officer 43 2017
       
Non-Executive Directors      
Armando Anido Director 61 2016
Mats Blom Director 53 2017
Alain Munoz Director 68 2018
Calvin W. Roberts Director 66 2015
(1)We have entered into an agreement with Ms. Stubinski pursuant to whichEffective September 30, 2018, Andrea Braun-Scherhag resigned from her responsibilities with the Company will be gradually reduced after publication of top line results for TACTT2position as Head Regulatory and will end on December 31, 2016.Quality Affairs.

Unless otherwise indicated, the current business addresses for our executive officers and directors is Auris Medical Holding AG, Bahnhofstrasse 21, 6300 Zug, Switzerland.

Executive Officers

Thomas Meyer, Founder, Chairman of the Board of Directors and Chief Executive Officer: Mr. Meyer founded Auris Medical in April 2003. Prior to founding us, he was the Chief Executive Officer of Disetronic Group, a leading Swiss supplier of precision infusion and injection systems. He worked for Disetronic in various functions starting in 1988, becoming member of the boardBoard of directorsDirectors in 1996, Deputy Chief Executive Officer in 1999 and Chief Executive Officer in early 2000. Prior to joining Disetronic, he advised several Swiss companies in strategy, marketing and corporate finance. He holds a Ph.D. (Dr.rer.pol.) in business administration from the University of Fribourg, Switzerland.

Bettina Mirella Stubinski, Chief Medical Officer: Dr. Stubinski has served as our Chief Medical Officer since September 2013. She previously spent nine years with Merck Serono, Geneva (Switzerland), her last position there being Head of Global Clinical Development Multiple Sclerosis. Prior to Serono she was employed with Novartis Consumer Health, and previous to that led the Clinical Research department of Berlin Chemie, a division of the Menarini Group, which she joined in 1996. Dr. Stubinski holds an M.D. with specialization in Clinical Neurophysiology from the Medical Faculty of the University of Genova, Italy, and started her career as a practicing Neurologist. In 2014 Dr. Stubinski obtained an M.B.A. at MIT’s Sloan School of Management.

Sven Zimmermann,

Hernan Levett, Chief Financial Officer: Mr. Zimmermann has served as our Chief Financial Officer since January 2014. He has over 10 years of experience in finance and equity capital markets. Before joining Auris Medical, Mr. Zimmermann was Chief Financial Officer of PregLem SA from June 2008 to March 2014 where he contributed to its acquisition by Gedeon Richter Plc in October 2010. Prior to PregLem SA, he worked as a Sell and Buy Side analyst for UBS in London and Zurich from March 2001 to June 2008. He has a degree in Biochemistry from the University of Fribourg, Switzerland and a Ph.D. in Molecular Biology from the University of Zurich, Switzerland.

Anne Sabine Zoller, General Counsel:Ms. ZollerLevett joined the Company on January 1, 2017 as Senior Legal Counsel in April 2015 and was appointed General Counsel in August 2015.Chief Financial Officer. Prior to joining Auris Medical, Ms Zoller wasMr. Levett served as Head of Group Controlling at Acino Pharma AG. Prior to Acino, he served as Vice President of Finance and Administration Europe at InterMune International AG and spent 10 years at Novartis, most recently as Chief Financial Officer of Novartis Chile SA. Mr. Levett is a Corporate/M&A Counsel with Straumann Group, a dental implant company headquartered in Basel,certified public accountant and holds an attorney in the Corporate/M&A team of Homburger AG, a Zurich based law firm. She obtained a Ph.D. in lawaccounting degree from the University of Zurich and holds an M.B.A. degree.

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Buenos Aires, Argentina.

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Non-Executive Directors

Wolfgang Arnold, Director: Dr. Arnold

Armando Anido, Director, Chairman of the Compensation Committee: Mr. Anido has been a member of our board of directors since 2007. He is a professor emeritus in otolaryngology and head and neck surgery, and an internationally renowned expert in the field of inner ear disorders. Dr. Arnold has authored or co-authored more than 365 peer-reviewed scientific and medical articles and more than 10 textbooks. From 1981 to 1992 he served as Head of the Department of Otorhinolaryngology, Head & Neck Surgery, Cantonal Hospital of Lucerne (Switzerland) and from 1992 to 2007 he served as Director of the Department of Otolaryngology, Head and Neck Surgery of the Technical University of Munich, Germany. He is still practicing today. Dr. Arnold holds an M.D. from the University of Munich.

James I. Healy, Vice-Chairman: Dr. Healy has been a member of our board of directors since April 2013. Dr. Healy has been a General Partner of Sofinnova Ventures, a venture capital firm, since June 2000. Prior to June 2000, Dr. Healy held various positions at Sanderling Ventures, Bayer Healthcare Pharmaceuticals (as successor to Miles Laboratories) and ISTA Pharmaceuticals, Inc. Dr. Healy is currently on the board of directors of Amarin Corporation, plc., Ascendis Pharma A/S, Coherus Bioscience, Inc., Edge Therapeutics, Inc. and several private companies. Previously, he served as a board member of Hyperion Therapeutics, Inc, CoTherix, Inc., Durata Therapeutics, Inc., InterMune, Inc. Movetis NV and several private companies. Dr. Healy was nominated to our board of directors by Sofinnova Ventures. Dr. Healy holds an M.D. and a Ph.D. in Immunology from the Stanford School of Medicine and holds a B.A. in molecular biology and a B.A. in Scandinavian Studies from the University of California at Berkeley.

Oliver Kubli, Director: Mr. Kubli has been a member of our board of directors since June 2010. He is a Managing Director and Head Portfolio Management Healthcare Funds & Mandates at Bellevue Asset Management AG. Mr. Kubli is the Senior Portfolio Manager for several public health care funds. Prior to joining Bellevue Asset Management, Mr Kubli was Head Portfolio Management Healthcare Funds & Mandates of Adamant Biomedical Investments AG. Before joining Adamant in 2008, he held various management positions at ZKB and was responsible for the global health care sector within the bank’s Asset Management Division. Mr. Kubli started his career as a financial analyst and portfolio manager with UBS and Swiss Re. He is a chartered financial analyst (CFA) and holds a B.A. in Business Administration from the University of Applied Sciences, Zürich/Winterthur, Switzerland.

Berndt A.E. Modig, Director, Chairman of the Audit Committee:Mr. Modig was elected to our board of directors in 2015. Mr. Modig is the Managing Director of Schoodic Management BV and Pharvaris BV. He was the Chief Financial Officer of Prosensa Holding N.V., a company dedicated to the development of treatments of neuromuscular and neurodegenerative disorders such as Duchenne Muscular Dystrophy, from 2010 up to its sale to Biomarin. Prior to that, he was the Chief Financial Officer of Jerini AG, another publicly listed biotechnology company, and held various management positions in industry, finance and private equity groups. He started his professional career in the auditing practice of Price Waterhouse. Berndt Modig is a member of the Board of Directors since April 2016. Mr. Anido has more than 30 years of executive, operational and commercial leadership experience in the Audit Committeebiopharmaceutical industry. He has served as Chairman and Chief Executive Officer of Affimed N.V.Zynerba Pharmaceuticals, Inc., a membersince October 2014. Prior to Zynerba, Mr. Anido served as Chief Executive Officer of the Board of Directors and chairman of the Audit Committee of Axovant Sciences, Ltd.NuPathe, Inc., and Auxilium Pharmaceuticals, Inc. Prior to Auxilium, Mr. Anido held commercial leadership roles at MedImmune, Glaxo Wellcome and Lederle Labs. He is currently a member of the Board of Directors of Onco BioTek. Mr. Modig isSCYNEXIS, Inc. (SCYX), and he was a Certified Public Accountant and has an M.B.A. from INSEAD.

Antoine Papiernik, Director, Chairmanmember of the Compensation Committee:Board of Directors of Aviragen Therapeutics, Inc. until it merged with Vaxart Inc. (VXRT) and Adolor Corporation until it was sold to Cubist Pharmaceuticals. Mr. PapiernikAnido earned a BS in Pharmacy and an MBA from West Virginia University.

Mats Blom, Director: Mats Blom has been a member of our boardBoard of directorsDirectors since April 2013.2017. Mr. Blom is Executive Vice President and Chief Financial Officer (CFO) of Zealand Pharma A/S. Prior to joining Zealand, he served as CFO of Swedish Orphan International, an orphan drug company acquired by BioVitrum in 2009. In addition, Mr. Blom has extensive managerial experience and has held CFO positions at Active Biotech AB and Anoto Group AB. Previously, he served as a management consultant at Gemini Consulting and Ernst & Young. Mats Blom holds a BA in Business Administration and Economics from the University of Lund and an MBA from IESE University of Navarra, Barcelona.

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Alain Munoz, Director: Mr. Munoz, MD, has been a member of our Board of Directors since March 2018 and previously served on our Board of Directors between 2007 and 2015. Mr. Munoz is an entrepreneur and independent management consultant in the pharmaceutical and biotechnology industry. From 1990 to 2000, Dr. Munoz worked with the Fournier Group, as Research and Development Director and then Senior Vice President of the Pharmaceutical Division. He joined Fournier from Sanofi Research, where he started as Director in the cardiovascular and anti-thrombotic products department and then as Vice President international development. Dr. Munoz is qualified in cardiology and anesthesiology from the University Hospital of Montpellier, France where he was head of the clinical cardiology department. He has been a member of the Scientific Committee of the French drug agency. He is a Managing Partner at Sofinnova Partners, a French venture capital firm, which he joined in 1997. Headvisor to Kurma partners and serves on the boardsBoard of directors of Reflexion Medical Inc.Valneva SA (VLA.PA), MD Start, Shockwave Medical, Inc., Pixium Vision, ReCord Medical, ProQR Therapeutics BVHybrigenics S.A. (ALHYG.PA) and Mainstay Medical Ltd. Mr. Papiernik was nominated to our board of directors by Sofinnova Partners. He has an M.B.A. from the Wharton School of Business.

Zealand Pharma A/S. (ZEAL.CO).

Calvin W. Roberts, Director: Dr. Mr. Roberts, was elected toMD, has been a member of our boardBoard of directors inDirectors since April 2015. Mr. Roberts M.D., is Chief Medical Officer at Bausch + Lomb and Senior Vice President and Chief Medical Officer, Eye Care of Valeant Pharmaceuticals.at Bausch Health Companies Inc. (NYSE: BHC). He joined Bausch + Lomb in 2011. Dr. Roberts is a specialist in cataract and refractive surgery and has been a pioneer in the use of ophthalmic non-steroidals. Since 1982 he has been a Clinical Professor of Ophthalmology at Weill Medical College of Cornell University; inUniversity. In addition, he had a private ophthalmology practice in New York City between 1998 and 2008. He2008 and is the author of over 50 peer-reviewed articles. Dr. Roberts has been a member of the Board of Directors and the Audit Committee of Alimera Sciences, Inc., (NASDAQ: ALIM) since it was founded in 2003.

2003, and of Ophthotech Corporation (NASDAQ: OPHT) since 2019.
B.Compensation

For the year ended December 31, 2015,2018, the aggregate compensation accrued or paid to the members of our board of directors and our executive officers for services in all capacities was CHF 2,071,071.

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1,690,635 (2017: CHF 2,310,786).

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TheFor the year ended December 31, 2018, the amount set aside or accrued by us to provide pension, retirement or similar benefits to members of our board of directors or executive officers amounted to a total of CHF 78,72155,278 (2017: CHF 94,839).

Compensation awarded to the Board of Directors in 2018
The total compensation of the year ended December 31, 2015.

We incorporate by reference into this Annual Reportmembers of the informationboard of directors in “Item 1.C—2015 Board Compensation” and “Item 2.C—2015 Executive Compensation” of Exhibit 99.42018 is outlined below:

In CHF Cash Compensation Social Contributions Stock Options(4) Total
Thomas Meyer, PhD, Chairman(1) —
 —
 —
 —
Armando Anido, MBA 46,358
 2,886
 21,741
 70,985
Mats Blom, MBA 46,358
 —
 21,741
 68,099
Oliver Kubli, CFA(2) 8,480
 528
 —
 9,008
Berndt A.E. Modig, MBA(2) 9,799
 —
 —
 9,799
Alain Munoz, MD(3) 35,957
 —
 21,741
 57,698
Calvin W. Roberts, MD 49,383
 671
 21,741
 71,795
Total 196,335
 4,085
 86,964
 287,384
(1)Disclosed under “Compensation Awarded to Our Executive Officers” below. The Chief Executive Officer does not receive any additional compensation for the exercise of the office of the Chairman.
(2)Mr. Kubli and Mr. Modig did not stand for re-election at the 2018 extraordinary shareholders’ meeting and their terms therefore ended on March 12, 2018.
(3)Elected on March 12, 2018.
(4)In 2018, 37,130 options were granted to each eligible member of the Board of Directors. The fair value calculation of the options was based on the Black-Scholes option pricing model. Assumptions were made regarding inputs such as volatility and the risk-free rate in order to determine the fair value of the options.
Compensation Awarded to our report on Form 6-K filed withExecutive Officers in 2018

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The total compensation and the SEC on March 14, 2016.

highest individual compensation to our executive officers in 2018 are outlined below:

in CHF Fixed Cash Compensation Variable Compensation(1) Social contributions and fringe benefits 
Stock 
Options(2) 
 Total
Thomas Meyer, PhD
Chief Executive Officer(3)
 363,600
 0
 60,490
 201,411
 625,501
Executive Officers Total(4) 821,885
 87,482
 148,648
 345,265
 1,403,280
(1)The variable compensation is paid in cash. Dr. Meyer waived his short-term incentive for 2018.
(2)2018 option grants. The fair value calculation of the options was based on the Black-Scholes option pricing model. Assumptions were made regarding inputs such as volatility and the risk-free rate in order to determine the fair value of the options.
(3)Highest paid executive.
(4)On December 31, 2018, we had two executive officers. Dr. Braun-Scherhag retired from her function as executive officer effective as of September 30, 2018. The compensation to the retired executive officer for her services in 2018 is included in the executive officer total compensation.
Employment Agreements

We have entered into employment agreements with our executive officers Thomas Meyer Bettina Stubinski, Sven Zimmermann and Anne Sabine Zoller.Hernan Levett. The employment agreements provide for the compensation that our executive officers are entitled to receive, including certain equity grants, and contain termination notice periods of four weeksseven days for the first three months and then afterwards six-months’ notice. The Company will have title to the intellectual property rights developed in connection with the executive officer’s employment, if any. There is an 18 month non-compete period following the end of employment in our agreement with Mr. Meyer. We have entered into anMeyer and a 12 month non-compete period following the end of employment in our agreement with Ms. Stubinski pursuant to which her responsibilities with the Company will be gradually reduced after publication of top line results for TACTT2 and end by December 31, 2016. Ms. Stubinski’s compensation will be reduced in an amount commensurate with her workload during this time.  Provided Ms. Stubinski remains with the Company until December 31, 2016 (or such earlier date as agreed), 25,000 share options that have been granted to her will vest and become immediately exercisable.

Mr. Levett.

None of our directors has entered into service agreements with the Company. However, we may in the future enter into employment or services agreements with such individuals, the terms of which may provide for, among other things, cash or equity-based compensation and benefits.

Equity Incentive Plans

Following our initial public offering, we ceased issuing any new grants under Stock Option Plan C and adopted a new omnibus equity incentive plan under which we have the discretion to grant a broad range of equity-based awards to eligible participants.

Equity Incentive Plan

In August 2014, as amended in April 2017, we established the 2014 PlanEIP with the purpose of motivating and rewarding those employees and other individuals who are expected to contribute significantly to our success, and advancing the interests of our shareholders by enhancing our ability to attract, retain and motivate individuals. As at December 31, 2015,of March 5, 2019, the maximum number of shares available for issuance under the 2014 PlanEIP was 796,6091,630,613 common shares. The option exercise price for options under the 2014 PlanEIP is determined by the compensation committee at the time of grant, but shall not be less than the nominal value of a share of common stock on the grant date.

The EIP was assumed by Auris NewCo following the Merger.

Plan administration. The 2014 PlanEIP is administered by our compensation committee. Approval of the committee is required for all grants of awards under the 2014 Plan.EIP. The committee may delegate to one or more officers the authority to grant opinionsoptions and stock appreciation rights, and the committee may delegate to another committee (which may consist of solely one director) the authority to grant all types of awards.

Eligibility.Any director, employee, consultant or any other individual who provides services to us or any of our affiliates is eligible to be selected to receive an award under the 2014 Plan.EIP.

Awards. Awards include options, stock appreciation rights, restricted stock, restricted stock units, performance awards and other stock-based awards.


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Vesting period. The committee determines the time or times at which an option becomes vested and exercisable,provided that the minimum vesting period is 12 months. The committee mayspecify in an award agreement that an “in-the-money” option be automatically exercised on its expiration date. For restricted stock and restricted stock units, the award agreement will specify the vesting schedule and, with respect to restricted stock units, the delivery schedule.

Accelerated vesting. Subject to any additional vesting conditions that may be specified in an individual award agreement, the 2014 PlanEIP provides that upon a change of control of the Company (as defined in the 2014 Plan)EIP) the committee may cause options and stock appreciation rights to be cancelled in consideration of full acceleration of the award or a substitute award with equal intrinsic value (as defined in the 2014 Plan)EIP). It also provides that the committee may decide, or include in any award agreement,the circumstances in which, and the extent to which, an award may be exercised, settled, vested, paid or forfeited in the event of a participant’s termination of service prior to exercise or settlement of an award.

Amendment. Our board of directors has the authority to amend the 2014 PlanEIP subject, in certain circumstances, to required shareholder approval or the consent of an affected participant.

Prior Plans

In 2013 we established Stock Option Plan C, or Plan C, and in 2008 we established Stock Option Plan A, or Plan A and Stock Option Plan B, or Plan B. We refer to Plan A, Plan B and Plan C together as the Prior Plans.

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Each of the Prior Plans permits the grant of options, or Options, which are subject to transfer restrictions. As of December 31, 2015,2018, there were 121,25050,000 common shares underlying outstanding Options granted pursuant to Plan A and 173,750121,250 common shares underlying outstanding Options granted pursuant to Plan C. There are no outstanding Options under Plan B, which was abolished in 2015.

Following our initial public offering, we ceased issuing any new grants under Stock Option Plan C and adopted a new omnibus equity incentive plan under which we have the discretion to grant a broad range of equity-based awards to eligible participants. Plan A and Plan C were assumed by Auris NewCo following the Merger.

Plan Administration. Under each of the Prior Plans, an Option, which can only be granted with the approval of our board of directors, is evidenced by an option agreement signed by the participant to indicate his or her acceptance of the Option subject to the terms and conditions of the applicable Prior Plan.

Eligibility. Under Plan A and Plan C, Options may be granted to directors, employees, advisors and agents of the Company.

Option Exercise Price. The exercise price of each Option is set forth in the applicable option agreement. TheAs of March 5, 2019, following the consummation of the Merger, the exercise prices for currently granted and unexercised Options range from CHF 3.20USD 0.66 to CHF 6.01.

USD 59.80.

Vesting Period. Under Plan A and Plan C, the option period commences on the date of grant and lasts for five years and six years, respectively. Under Plan A and Plan C, Options vest after three years and four years, respectively. Options granted under Plan B are exercisable at any time during their term. Options granted under Plan A vested and became immediately exercisable upon the closing of our initial public offering.

Under Plan C, Options vest four years after grant.

Amendment. Our board of directors has the authority to amend each of the Prior Plans.

Indemnification

Subject to Swiss law, Article 17 of our articles of association provides for indemnification of the existing and former members of our board of directors, executive management, and their heirs, executors and administrators, against liabilities arising in connection with the performance of their duties in such capacity, and permits us to advance the expenses of defending any act, suit or proceeding to members of our board of directors and executive management. The Bye-laws provide that we shall indemnify our officers and directors in respect of their actions and omissions, except in respect of their fraud or dishonesty. Section 98A of the Companies Act permits us to purchase and maintain insurance for the benefit of any officer or director in respect of any loss or liability attaching to him in respect of any negligence, default, breach of duty or breach of trust, whether or not we may otherwise indemnify such officer or director. We also have entered into indemnification agreements with each of the members of our board of directors and executive officers in the form filed as Exhibit 4.94.3 to this Annual Report.

Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to directors, officers and controlling persons of the Company, the Company has been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is, therefore, unenforceable.


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C.Board practices

Board Composition and Election of Directors

Our board of directors is currently composed of sevenfive members, see “Item 6. Directors, Senior Management and Employees—A. Directors and senior management.” Each director is elected for a one year term.
Our articles of association require our directors to retire once they have reached 75 years of age, subject to a special exception being granted by the general meeting of shareholders for up to two additional terms of office. The current members of our board of directors were appointed at a shareholders’shareholders meeting held on April 22, 2015March 12, 2018 for a one-year term ending at the next general meeting of shareholders. The election of directors at the extraordinary meeting of shareholders prior to the Merger was implemented by the surviving company on March 13, 2018, following the consummation of the Merger.
Neither the Bye-laws nor Bermuda law require directors to retire after they have reached 75 years of age. The Bye-laws provide that directors may be elected at either the annual general meeting or a special general meeting. Unless shareholders meeting.

determine otherwise, under the Bye-laws directors hold office until the next annual general meeting or until their successors are elected or appointed or their office is otherwise vacated.

We are a foreign private issuer. As a result, in accordance with the Nasdaq stock exchange listing requirements, we will rely on homecomply with country governance requirements and certain exemptions thereunder rather than relying on the Nasdaq stock exchange corporate governance requirements. For an overview of our corporate governance principles, see “Item 16G. Corporate governance.”

Committees of the Board of Directors

Audit Committee

The audit committee, which consists of Berndt A.E. Modig, Oliver KubliMats Blom, Alain Munoz and Calvin W. Roberts, assists our board of directors in overseeing our accounting and financial reporting processes and the audits of our financial statements. In addition, the audit committee is directly responsible for the appointment, compensation, retention and oversight of the work of our independent registered public accounting firm. Mr. ModigBlom serves as chairman of the committee. The audit committee consists exclusively of members of our board of directors who are financially literate, and Mr. Modig and Mr. Kubli areBlom is considered an “audit committee financial experts”expert” as defined by the SEC. Our board of directors has determined that Mr. Modig,Blom, Mr. KubliMunoz and Mr. Roberts satisfy the “independence” requirements set forth in Rule 10A-3 under the Exchange Act.

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The audit committee is governed by a charter that complies with Nasdaq rules. The audit committee is responsible for, among other things:

·the appointment, compensation, retention and oversight of any auditor or accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services;

·pre-approving the audit services and non-audit services to be provided by our independent auditor before the auditor is engaged to render such services;

·reviewing and discussing with the independent auditor its responsibilities under generally accepted auditing standards, the planned scope and timing of the independent auditor’s annual audit plan(s) and significant findings from the audit;

·obtaining and reviewing a report from the independent auditor describing all relationships between the independent auditor and the Company consistent with the applicable PCAOB requirements regarding the independent auditor’s communications with the audit committee concerning independence;

·confirming and evaluating the rotation of the audit partners on the audit engagement team as required by law;

·reviewing with management and the independent auditor, in separate meetings whenever the Audit Committee deems appropriate, any analyses or other written communications prepared by the Management and/or the independent auditor setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including analyses of the effects of alternative IFRS methods on the financial statements; and other critical accounting policies and practices of the Company;

·reviewing, in conjunction with the Chief Executive Officer and Chief Financial Officer of the Company, the Company’s disclosure controls and procedures and internal control over financial reporting;

·establishing procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters;

·approving or ratifying any related person transaction (as defined in our related person transaction policy) in accordance with our related person transaction policy.

the appointment, compensation, retention and oversight of any auditor or accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services;
pre-approving the audit services and non-audit services to be provided by our independent auditor before the auditor is engaged to render such services;
reviewing and discussing with the independent auditor its responsibilities under generally accepted auditing standards, the planned scope and timing of the independent auditor’s annual audit plan(s) and significant findings from the audit;
obtaining and reviewing a report from the independent auditor describing all relationships between the independent auditor and the Company consistent with the applicable PCAOB requirements regarding the independent auditor’s communications with the audit committee concerning independence;
confirming and evaluating the rotation of the audit partners on the audit engagement team as required by law;
reviewing with management and the independent auditor, in separate meetings whenever the Audit Committee deems appropriate, any analyses or other written communications prepared by the Management and/or the independent auditor setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including analyses of the effects of alternative IFRS methods on the financial statements; and other critical accounting policies and practices of the Company;

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reviewing, in conjunction with the Chief Executive Officer and Chief Financial Officer of the Company, the Company’s disclosure controls and procedures and internal control over financial reporting;
establishing procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters;
approving or ratifying any related person transaction (as defined in our related person transaction policy) in accordance with our related person transaction policy.
The audit committee meets at least four times per year.

Compensation Committee

The compensation committee, which consists of Antoine Papiernik, Jim HealyArmando Anido and Wolfgang Arnold,Alain Munoz, assists our board of directors in overseeing our cash compensation and equity award recommendations for our executive officers along with the rationale for such recommendations, as well as summary information regarding the aggregate compensation provided to our directors and executive officers. Swiss law requires that we adopt a compensation committee, so in accordance with Nasdaq Listing Rule 5615(a)(3), we follow home country requirements with respect to the compensation committee. While Bermuda law does not require that we adopt a compensation committee, we will maintain our compensation committee, following the same practices as permitted by Bermuda law, after the Redomestication. As a result, our practice varies from the requirements of Nasdaq Listing Rule 5605(d), which sets forth certain requirements as to the responsibilities, composition and independence of compensation committees.

D.Employees

As of December 31, 2015,2018, we had 2211 employees (18.3(9.6 full time equivalents), 13 of whom hold M.D. or Ph.D. degrees.. None of our employees is subject to a collective bargaining agreement or represented by a trade or labor union. We consider our relations with our employees to be good.


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E.Share ownership

See “Item 7. Major Shareholders and Related Party Transactions—A. Major shareholders.”

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ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.Major shareholders

The following table presents information relating to the beneficial ownership of our common shares as of March 10, 2016,5, 2019, following the consummation of the Merger, by:

·each person, or group of affiliated persons, known by us to own beneficially 5% or more of our outstanding common shares;

·each of our executive officers and directors; and

·all executive officers and directors as a group.

each person, or group of affiliated persons, known by us to own beneficially 5% or more of our outstanding common shares;
each of our executive officers and directors; and
all executive officers and directors as a group.
The number of common shares beneficially owned by each entity, person, executive officer or director is determined in accordance with the rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any common shares over which the individual has sole or shared voting power or investment power as well as any common shares that the individual has the right to acquire within 60 days of March 14, 20165, 2019 through the exercise of any option, warrant or other right. Except as otherwise indicated, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all common shares held by that person.

Common shares that a person has the right to acquire within 60 days of March 14, 20165, 2019 are deemed outstanding for purposes of computing the percentage ownership of the person holding such rights, but are not deemed outstanding for purposes of computing the percentage ownership of any other person, except with respect to the percentage ownership of all executive officers and directors as a group. As of March 10, 2016, 22,196,4855, 2019, 31,284,920 common shares, or approximately 64.7%83.4%, are held by two holders in the United States. Unless otherwise indicated below, the address for each beneficial owner is Auris Medical Holding AG, Bahnhofstrasse 21, 6300 Zug, Switzerland.

The percentage of common shares beneficially owned is based on 34,329,70437,495,859 common shares issued and outstanding as of March 10, 2016.5, 2019. Each common share confers the right on the holder to cast one vote at a general meeting of shareholders and no shareholder has different voting rights.

 

Shares Beneficially Owned

Shareholder

Number

Percent

5% Shareholders  
Sofinnova Venture
Partners VIII, L.P. (1)		5,818,17516.95%
Sofinnova Capital VII FCPR (2)5,384,45015.68%
Wasatch Advisors, Inc. (3)2,790,5148.13%
Entities affiliated with Swisscanto Fondsleitung AG (4)2,169,6256.32%
Entities affiliated with Idinvest Partners (5)2,065,2336.02%
Executive Officers and Directors  
Thomas Meyer, Ph.D. (10)6,792,50019.79%
Wolfgang Arnold, M.D. (10)38,750*
James I. Healy, M.D., Ph.D. (6)5,818,17516.95%
Oliver Kubli, C.F.A.(7)(10)2,194,6256.39%
Antoine Papiernik, M.B.A.(8)5,384,45015.68%
Berndt A.E. Modig, M.B.A.——
Calvin W. Roberts, M.D.(9)55,242*
Bettina Stubinski, M.D.39,942*
Sven Zimmermann, Ph.D.40,752*
Anne Sabine Zoller, Dr.iur.——
  Shares Beneficially Owned
Shareholder Number Percent
5% Shareholders    
— —
 —
Executive Officers and Directors    
Thomas Meyer, Ph.D. (1) 8,998,479
 24.00%
Armando Anido, M.B.A (2) 18,484
 *
Mats Blom, M.B.A. (3) 17,734
 *
Alain Munoz (4) 15,077
 *
Calvin W. Roberts, M.D.(5) 25,009
 *
Hernan Levett, CPA (6) 6,406
 *
___________________
*Indicates beneficial ownership of less than 1% of the total outstanding common shares.

(1)James I. HealyConsists of 6,205,438 common shares, warrants to purchase 2,763,574 common shares, options to purchase 6,000 common shares under the Company’s Plan C, and options to purchase 23,467 common shares under the other managing members of Sofinnova Management VIII, L.L.C., which is the general partner of Sofinnova Venture Partners VIII, L.P., share the power to vote or dispose of these shares and therefore may be deemed to have voting and investment power with respect to such shares. Each of theEIP.

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managing members disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein, if any. The address for Sofinnova Venture Partners VIII, L.P. and Sofinnova Management VIII, L.L.C. is 2800 Sand Hill Road, Suite 150, Menlo Park, California 94025, USA.



(2)Consists of 5,384,450options to purchase common shares heldunder the Company’s EIP.
(3)Consists of options to purchase common shares under the Company’s EIP.
(4)Consists of 1,250 common shares owned by Sofinnova Capital VII FCPR. Sofinnova Partners SAS, a French corporationAlain Munoz and options to purchase common shares under the Company's EIP and the management company of Sofinnova Capital VII FCPR, may be deemed to have sole voting and investment power, and Denis Lucquin, Antoine Papiernik, Rafaele Tordjman and Monique Saulnier, the managing partners of Sofinnova Partners SAS, may be deemed to have shared voting and investment power with respect to such shares. All of the managing partners of Sofinnova Partners SAS disclaim beneficial ownership of such shares except to the extent of their pecuniary interest therein. The address for Sofinnova Capital VII FCPR is 16-18 Rue du Quatre Septembre, 75002 Paris, France.Company’s Plan C.

(3)Based on a Schedule 13G filed with the SEC on February 16, 2016 by Wasatch Advisors, Inc. The address of Wasatch Advisors, Inc. is 505 Wakara Way, Salt Lake City, UT 84108.

(4)Based on a Schedule 13G/A filed with the SEC on February 12, 2016 by Swisscanto Fondsleitung AG, Swisscanto Holding AG and Zurcher Kantonalbank. Consists of 418,750 common shares held by BB Adamant Global Biotech, 575,000 common shares held BB Adamant Global Generika, 238,375 common shares held by BB Adamant Global Medtech und Services and 937,500 common shares held by Swisscanto (CH) Equity Fund Global Health Care (collectively, the “ZKB Funds”). Swisscanto Fondsleitung AG, Swisscanto Holding AG and Zurcher Kantonalbank sponsor the ZKB Funds. Investment power over the common shares is exercised by Bellevue Asset Management AG, an independent manager. The address of Swisscanto Fondsleitung AG is Europaallee 39, 8004 Zurich, Switzerland and the address of Swisscanto Holding AG and Zurcher Kantonalbank is Bahnhofstrasse 9, 8001 Zurich, Switzerland.

(5)Consists of 805,4811,525 common shares held by Allianz Innovation 8 FCPI; 578,257 common shares held by Idinvest Croissance 2005 FCPI; 454,360 shares held by Allianz Innovation 7 FCPI and 227,135 shares held by La Banque Postale Innovation 3 FCPI. These entities are collectively referred to as the “Idinvest Funds.” Idinvest Partners is the investment management company to the Idinvest Funds. Christophe Baviere and Benoist Grossmann are respectively CEO and Managing Partner of Idinvest Partners and as such represent the interests of the Idinvest Funds over the common shares held by them. Each of Christophe Baviere and Benoist Grossmann disclaim beneficial ownership of all applicable shares except to the extent of any pecuniary interest therein. The address for each of the Idinvest Funds is c/o Idinvest Partners, 117, avenue des Champs Elysées, 75008 Paris, France.

(6)Consists of 5,818,175 common shares held by Sofinnova Venture Partners VIII, L.P. Dr. Healy is a managing member of Sofinnova Management VIII, L.L.C., the general partner of Sofinnova Venture Partners VIII, L.P., and may be considered to have beneficial ownership of Sofinnova Venture Partners VIII, L.P.’s interest in us. Dr. Healy disclaims beneficial ownership of all shares held by Sofinnova Venture Partners VIII, L.P., except to the extent of his pecuniary interest therein.

(7)Consists of 2,169,625 common shares held by the ZKB Funds. Mr. Kubli is a Senior Portfolio manager for the ZKB Funds. He disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein. Also consists of 18,750 common shares acquired by Mr. Kubli pursuant to the exercise of Plan A options.

(8)Consists of 5,384,450 common shares held by Sofinnova Capital VII FCPR. Mr. Papiernik disclaims any beneficial ownership of the shares held by Sofinnova Capital VII FCPR except to the extent of his pecuniary interest therein.

(9)Consists of 15,242 shares jointly owned by Calvin W. Roberts and Andrea Colvin Roberts. Also, consists of 20,0002,000 common shares held by Calvin W. Roberts, MD PC Pension Plan, 10,0001,000 common shares held by The David Roberts Trust and 10,0001,000 common shares held by The Joanna Roberts Trust. Calvin Roberts is a trustee for each of Calvin W. Roberts, MD PC Pension Plan, The David Roberts Trust and The Joanna Roberts Trust. Also consists of options to purchase common shares under the Company’s EIP.

(10)
(6)UponConsists of options to purchase common shares under the closing of our initial public offering, all 181,000 options outstanding under our Stock Option Plan A vested and became immediately exercisable. Mr. Meyer, Dr. Arnold and Mr. Kubli own 50,000, 12,500 and 6,250 Stock Option Plan A options, respectively.Company’s EIP.

Holders

As of March 10, 2016,5, 2019, we had 16six shareholders of record of our common stock.


Significant Changes in Ownership by Major Shareholders

We have experienced significant changes in the percentage ownership held by major shareholders as a result of our public offerings. Prior to our initial public offering in August 2014, our principal shareholders were Thomas Meyer (34.9%), Sofinnova Venture Partners VIII, L.P. (19.3%), Sofinnova Capital VII FCPR (18.6%),

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the ZKB Funds (11.4%) and entities affiliated with Idinvest Partners (9.1%).

In August 2014, we completed our initial public offering and listed our common shares on the Nasdaq Global Market. In the initial public offering, we issued and sold 10,113,325 common shares, including 713,235 common shares sold to the underwriters pursuant to the underwriters’ over-allotment option. In May 2015, we completed a public offering of 5,275,000 common shares. In February 2017, we completed a public offering of 10,000,000 common shares and warrants to purchase 7,000,000 common shares. In January 2018, we completed a public offering of 12,499,999 common shares and a concurrent offering of warrants to purchase 7,499,000 common shares. In July 2018, we completed a public offering of 17,948,717 common shares and a concurrent offering of Series A warrants to purchase 6,282,050 common shares and Series B warrants to purchase 4,487,179 common shares. While none of our existing shareholders sold common shares in the public offerings, certain shareholders purchased common shares in certain of the public offerings. The percentage ownership held by certain shareholders decreased as a result of the issuance of the common shares sold by us in the public offerings.

Additionally, in February/March 2018 (prior to the Merger), Sofinnova Capital VII FCPR sold 2,000,000 of our common shares and in April/May 2018 Sofinnova Venture Partners VIII, L.P. sold all of our common shares beneficially held by it.
B.Related party transactions

The following is

Related Person Transaction Policy
Prior to our initial public offering, we entered into a descriptionnew related person transaction policy under which any such transaction must be approved or ratified by the audit committee or the board of related party transactions wedirectors.
Indemnification Agreements
We have entered into since January 1, 2015indemnification agreements with anyour directors and executive officers. The indemnification agreements and our articles of association require us to indemnify our directors and executive officers to the fullest extent permitted by law.
Employment Agreements
Our executive officers have entered into employment agreements with the Company, certain of which provide for notice of termination periods and include restrictive covenants. None of our membersdirectors have entered into service agreements with the Company. See “Item 6. Directors, Senior Management and Employees—B. Compensation—Employment Agreements.”

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Registration Rights Agreement

We have entered into a registration rights agreement with certain of our existing shareholders pursuant to which granted them customary registration rights for the resale of the common shares held by certain of our existing shareholders.

Demand registration rights. Certain of our shareholders that are party to the Registration Rights Agreement (the “RRA Shareholders”) are entitled to request that we effect up to an aggregate of two demand registrations under the Registration Rights Agreement, covering the RRA Shareholders’ ordinary shares that are subject to transfer restrictions under Rule 144 (“registrable securities”). The demand registration rights are subject to certain customary conditions and limitations, including customary underwriter cutback rights and deferral rights. No demand registration rights exist while a shelf registration is in effect.

Piggyback registration rights.If we propose to register any ordinary shares (other than in a shelf registration or on a registration statement on Form F-4, S-4 or S-8), the RRA Shareholders are entitled to notice of such registration and to include their registrable securities in that registration. The registration of RRA Shareholders’ registrable securities pursuant to a piggyback registration does not relieve us of the obligation to effect a demand registration. The managing underwriter has the right to limit the number of registrable securities included in a piggyback registration if the managing underwriter believes it would interfere with the successful marketing of the ordinary shares.

Form F-3 registration rights.When we are eligible to use Form F-3, one One or more RRA Shareholders have the right to request that we file a registration statement on Form F-3. RRA Shareholders will have the right to cause us to undertake underwritten offerings from the shelf registration, but no more than one underwritten offering in a six-month period. Each underwritten takedown constitutes a demand registration for purposes of the maximum number of demand registrations we are obligated to effectuate.

Subject to limited exceptions, the Registration Rights Agreement provides that we must pay all registration expenses in connection with a demand, piggyback or shelf registration. The Registration Rights Agreement contains customary indemnification and contribution provisions.

Related Person Transaction Policy

Prior to

Merger
Thomas Meyer, our initial public offering, weChief Executive Officer, entered into a new related person transaction policy under which any such transaction must be approved or ratified by the audit committee.

Indemnification Agreements

We have entered into indemnification agreements with our directors and executive officers. The indemnification agreements and our articles of association require us to indemnify our directors and executive officers to the fullest extent permitted by law.

Employment Agreements

Certain of our executive officers have entered into employment agreementsshares transfer agreement with the Company certainto facilitate the rounding up of which providefractional shares resulting from the exchange ratio used in the Merger. Pursuant to the terms of the share transfer agreement, Mr. Meyer has committed to transfer, at no consideration, a common share to any shareholder entitled to a fraction of a common share as part of the Merger. Pursuant to the share transfer agreement, the Company nor Mr. Meyer did receive any compensation for notice of termination periods and include restrictive covenants. None of our directors have entered into service agreementsthis arrangement. Any expenses incurred by Mr. Meyer in connection with the transfers under such agreement were borne by the Company. See “Item 6. Directors, Senior Management and Employees—B. Compensation—Employment Agreements.”

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C.Interests of Expertsexperts and Counselcounsel

Not applicable.

ITEM 8. FINANCIAL INFORMATION

A.Consolidated statements and other financial information

Financial statements

Statements

See “Item 18. Financial Statements,” which contains our financial statements prepared in accordance with IFRS.

Legal Proceedings

From time to time we may become involved in legal proceedings that arise in the ordinary course of business. During the period covered by the financial statements contained herein, we have not been a party to or paid any damages in connection with litigation that has had a material adverse effect on our financial position.

On July, 20, 2015, the USPTO Office declared Patent Interference No. 106,030 involving our issued patent No. 9,066,865 (the “865 Patent”) and Otonomy’s patent application No. 13/848,636. The patent interference identifies our claims No. 1-9 in US Patent No. 9,066,865 as interfering with Otonomy’s claims No. 38, 43, and 46-50. Our 865 Patent relates to methods of treating inner or middle ear diseases with intratympanic injections of poloxamer-based compositions. The claims are directed to the use of fluoroquinolone antibiotics in poloxamer 407 compositions under certain specifications. While we cannot assure you of the outcome of these proceedings, we do not expect the proceedings to impact our intellectual property portfolio relating to AM-101 and AM-111.

No assurance can be given that future litigation will not have a material adverse effect on our financial position. See “Item 3. Key Information—D. Risk factors.”



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Dividends and Dividend Policy

We have never paid or declared any cash dividends on our shares, and we do not anticipate paying any cash dividends on our common shares in the foreseeable future. Any future determination related to our dividend policy will be made at the discretion of our board of directors.

directors and any payment of dividends will, amongst other requirements, require the approval of the annual general meeting of shareholders.
B.Significant changes

A discussion of the significant changes in our business can be found under “Item 4. Information on the Company—A. History and development of the Company” and “Item 4. Information on the Company—B. Business Overview.”

ITEM 9. THE OFFER AND LISTING

A.Offering and listing details

Not applicable.

A discussion of the offering and listing details can be found under “Markets” below.
B.Plan of distribution

Not applicable.

C.Markets

Our common shares began trading on the Nasdaq Global Market on August 11, 2014 under the symbol “EARS”. On September 28, 2017, we transferred our common shares from the Nasdaq Global Market to the Nasdaq Capital Market under the same symbol ("EARS"). On March 14, 2018, our post-Merger common shares began trading on the Nasdaq Capital Market.
There can be no assurance that our common shares will remain listed on the Nasdaq Capital Market. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Common Shares—Our common shares may be involuntarily delisted from trading on The following table sets forthNasdaq Capital Market if we fail to comply with the highcontinued listing requirements. A delisting of our common shares is likely to reduce the liquidity of our common shares and low sales prices as reported in USD by NASDAQ for the periods presented:

  High Low
Year Ended December 31, 2015:        
First Quarter  6.38   3.51 
Second Quarter  6.05   4.33 
Third Quarter  5.56   3.50 
Fourth Quarter  5.00   3.02 
Month Ended:        
September 30, 2015  4.73   3.50
October 31, 2015  3.94   3.33 
November 30, 2015  3.88   3.02 
December 31, 2015  5.00   3.09 
January 31, 2016  7.79   4.13 
February 29, 2016  4.75   3.91 
March, 2016 (through March 11, 2016)4.70   4.40 

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may inhibit or preclude our ability to raise additional financing.”
D.Selling shareholders

Not applicable.

E.Dilution

Not applicable.

F.Expenses of the issue

Not applicable.

ITEM 10. ADDITIONAL INFORMATION

A.Share capital

Not applicable.

B.Memorandum and articles of association

We are currently a stock corporation organized under the laws of Switzerland. On May 18, 2015, weJanuary 24, 2019, our board of directors determined that it would be in our best interest to change our legal seat and jurisdiction of incorporation, respectively, from Switzerland to Bermuda pursuant to the Redomestication. Our shareholders approved the Redomestication and adopted the ArticlesMemorandum of Association filedContinuance and the Bye-laws at an extraordinary meeting of shareholders held on March 8, 2019. We expect to effect the Redomestication prior to the end of March 2019.

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Following the Redomestication, the Memorandum of Continuance and the Bye-laws will replace our current articles of incorporation as Exhibit 1.1 hereto.

We incorporateour constitutive document. The new constitutive documents under Bermuda law will comprise similar rights for Auris Medical (Bermuda) shareholders and creditors to those they currently have under Swiss law and our current constitutive documents. However, there will be differences between Auris Medical (Bermuda)’s new constitutive documents and Bermuda law, on one hand, and our current constitutive documents and Swiss law, on the other hand, that may affect the rights of shareholders.

Set forth below is a description of Auris Medical (Bermuda)’s share capital, Memorandum of Continuance and Bye-laws following the Redomestication as well as our current share capital and Swiss articles of association. Additionally, set forth below is a comparison of select provisions of the corporate laws of Delaware, Switzerland and Bermuda showing the default positions in each jurisdiction that govern shareholder rights.
Bermuda Description of Share Capital
The following description of Auris Medical (Bermuda)’s share capital summarizes certain provisions of our Memorandum of Continuance (which is equivalent for these purposes to a memorandum ofassociation under Bermuda law) and our Bye-laws that, subject to the continuance of the Company in Bermuda, will become effective as of the time of effectiveness of the Redomestication (the “Effective Time”). Such summaries do not purport to be complete and are subject to, and are qualified in their entirety by reference into this annual report on Form 20-Fto, all of the descriptionprovisions of our ArticlesMemorandum of Association containedContinuance and Bye-laws in effect from the continuance of the Company. We urge you to read the forms of the Memorandum of Continuance and theBye-laws of Auris Medical (Bermuda), included as exhibits to this Annual Report.
General
As of the Effective Time, Auris Medical (Bermuda) will be an exempted company incorporated under the laws of Bermuda. We began our current operations in 2003 under the name Auris Medical AG, and our name was changed to Auris Medical Holding AG on April 22, 2014. Following the Merger on March 13,2018, the surviving entity was named Auris Medical Holding AG. Upon the issuance of a certificate of continuance by the Registrar of Companies in Bermuda, the Redomestication will be effected and we will have continued in Bermuda pursuant to Section 132C of the Companies Act as a Bermuda company, subject to the Companies Act and other laws of Bermuda, with a new name “Auris Medical Holding Ltd.” Following the Redomestication, our registered office will be located at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda.
The Memorandum of Continuance provides that the objects of our business are unrestricted, and the Company will have the capacity, rights, powers and privileges of a natural person.
The Bye-laws will become effective at the Effective Time. The following description assumes that the adoption of new Bye-laws has become effective, and the Company has continued to Bermuda as an exempted company limited by shares incorporated in Bermuda.
There have been no material changes to our share capital, mergers, amalgamations or consolidations of us or any of our subsidiaries, no material changes in the mode of conducting our business, no material changes in the types of products produced or services rendered and no name changes. There have been no bankruptcy, receivership or similar proceedings with respect to us or our subsidiaries.
There have been no public takeover offers by third parties for our shares nor any public takeover offers by us for the shares of another company which have occurred during the last or current financial years.
Share Capital
Immediately following the Effective Time, our authorized share capital will consist of 200,000,000 common shares, par value CHF 0.02 per share, and 20,000,000 preference shares, par value CHF 0.02 per share, and there will be 37,495,859 common shares issued and outstanding, excluding 978,954 common shares issuable upon exercise of options granted as of the Effective Time and 6,650,464 common shares issuable upon exercise of warrants granted as of the Effective Time, and no preference shares issued and outstanding. All of the Company’s issued and outstanding shares are, and upon the Redomestication, Auris Medical (Bermuda)’s then issued and outstanding common shares will be, fully paid.

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Pursuant to the Bye-laws, subject to any resolution of the shareholders to the contrary, Auris Medical (Bermuda)’s board of directors is authorized to issue any of our authorized but unissued shares. There are no limitations on the right of non-Bermudians or non-residents of Bermuda to hold or vote Auris Medical (Bermuda) shares.
Common Shares
Holders of common shares have no pre-emptive, redemption, conversion or sinking fund rights. Holders of common shares are entitled to one vote per share on all matters submitted to a vote of holders of common shares. Unless a different majority is required by law or by the Bye-laws, resolutions to be approved by holders of common shares require approval by the affirmative vote of a majority of votes cast at a general meeting at which a quorum is present.
In the event of Auris Medical (Bermuda)’s liquidation, dissolution or winding up, the holders of common shares are entitled to share equally and ratably in our Registration Statementassets, if any, remaining after the payment of all of our debts and liabilities, subject to any liquidation preference on Form F-3 (File No. 333-206710) filedany issued and outstanding preference shares.
Preferred Shares
Pursuant to Bermuda law and our Bye-laws, Auris Medical (Bermuda)’s board of directors by resolution may establish one or more series of preference shares having such number of shares, designations, dividend rates, relative voting rights, conversion or exchange rights, redemption rights, liquidation rights and other relative participation, optional or other special rights, qualifications, limitations or restrictions as may be fixed by the board without any further shareholder approval. Such rights, preferences, powers and limitations as may be established could have the effect of discouraging an attempt to obtain control of the Auris Medical (Bermuda).
Dividend Rights
Under Bermuda law, the board of directors may declare a dividend without shareholder approval, but a company may not declare or pay dividends if there are reasonable grounds for believing that: (i) the company is, or would after the payment be, unable to pay its liabilities as they become due; or (ii) that the realizable value of its assets would thereby be less than its liabilities. Under the Bye-laws, each common share is entitled to dividends if, as and when dividends are declared by Auris Medical (Bermuda)’s board of directors, subject to any preferred dividend right of the holders of any preference shares.
Variation of Rights
If at any time Auris Medical (Bermuda) have more than one class of shares, the rights attaching to any class, unless otherwise provided for by the terms of issue of the relevant class, may be varied either: (i) with the SECconsent in writing of the holders of 75% of the issued shares of that class; or (ii) with the sanction of a resolution passed by a majority of the votes cast at a general meeting of the relevant class of shareholders at which a quorum consisting of at least two or more persons holding or representing issued and outstanding shares of the relevant class is present. The Bye-laws specify that the creation or issue of shares ranking equally with existing shares will not, unless expressly provided by the terms of issue of existing shares, vary the rights attached to existing shares. In addition, the creation or issue of preference shares ranking prior to common shares will not be deemed to vary the rights attached to common shares or, subject to the terms of any other series of preference shares, to vary the rights attached to any other series of preference shares.
Transfer of Shares
Auris Medical (Bermuda)’s board of directors may in its absolute discretion and without assigning any reason refuse to register the transfer of a share that it is not fully paid. Auris Medical (Bermuda)’s board of directors may also refuse to recognize an instrument of transfer of a share unless it is accompanied by the relevant share certificate and such other evidence of the transferor’s right to make the transfer as Auris Medical (Bermuda)’s board of directors shall reasonably require. Subject to these restrictions, a holder of common shares may transfer the title to all or any of his common shares by completing a form of transfer in the form set out in the Bye-laws (or as near thereto as circumstances admit) or in such other common form as the board may accept. The instrument of transfer must be signed by the transferor and transferee, although in the case of a fully paid share Auris Medical (Bermuda)’s board of directors may accept the instrument signed only by the transferor.


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Share Split and Reverse Share Split effected by consolidating our common shares
Auris Medical (Bermuda)’s board of directors may in its absolute discretion and without further approval of shareholders divide, consolidate or sub-divide the share capital of Auris Medical (Bermuda) in any manner permitted by the Companies Act, including approving a reverse share split by consolidating our common shares (together with a corresponding increase in the par value thereof) in a ratio determined by the board of directors. The Bye-laws also provide that upon an alteration or reduction of share capital where fractions of shares or some other difficult would arise, Auris Medical (Bermuda)’s board of directors may deal with or resolve the same in any manner as it thinks fit.
Meeting of Shareholders
Under Bermuda law, a company is required to convene at least one general meeting of shareholders each calendar year (the “annual general meeting”). However, the members may by resolution waive this requirement, either for a specific year or period of time, or indefinitely. When the requirement has been so waived, any member may, on September 1, 2015. Such description sets forthnotice to the company, terminate the waiver, in which case an annual general meeting must be called.
Bermuda law provides that a summaryspecial general meeting of shareholders may be called by the board of directors of a company and must be called upon the request of shareholders holding not less than 10% of the paid-up capital of the company carrying the right to vote at general meetings. Bermuda law also requires that shareholders be given at least five days’ advance notice of a general meeting, but the accidental omission to give notice to any person does not invalidate the proceedings at a meeting. The Bye-laws provide that the board of directors may convene an annual general meeting or a special general meeting. Under the Bye-laws, at least 14 days’ notice of an annual general meeting or a special general meeting must be given to each shareholder entitled to vote at such meeting. This notice requirement is subject to the ability to hold such meetings on shorter notice if such notice is agreed: (i) in the case of an annual general meeting by all of the shareholders entitled to attend and vote at such meeting; or (ii) in the case of a special general meeting by a majority in number of the shareholders entitled to attend and vote at the meeting holding not less than 95% in nominal value of the shares entitled to vote at such meeting. The quorum required for a general meeting of shareholders is two or more persons present in person at the start of the meeting and representing in person or by proxy issued and outstanding common shares.
Access to Books and Records and Dissemination of Information
Members of the general public have a right to inspect the public documents of a company available at the office of the Registrar of Companies in Bermuda. These documents include the company’s memorandum of association (or memorandum of continuance), including its objects and powers, and certain alterations to the memorandum of association (or memorandum of continuance). The shareholders have the additional right to inspect the bye-laws of the company, minutes of general meetings and the company’s audited financial statements, which must be presented to the annual general meeting. The register of members of a company is also open to inspection by shareholders and by members of the general public without charge. The register of members is required to be open for inspection for not less than two hours in any business day (subject to the ability of a company to close the register of members for not more than thirty days in a year). A company is required to maintain its share register in Bermuda but may, subject to the provisions of the Companies Act, establish a branch register outside of Bermuda. A company is required to keep at its registered office a register of directors andofficers that is open for inspection for not less than two hours in any business day by members of the public without charge. A company is also required to file with the Registrar of Companies in Bermuda a list of its directors to be maintained on a register, which register will be available for public inspection subject to such conditions as the Registrar may impose and on payment of such fee as may be prescribed. Bermuda law does not, however, provide a general right for shareholders to inspect or obtain copies of any other corporate records.
Election and Removal of Directors
The Bye-laws provide that Auris Medical (Bermuda)’s board shall consist of three directors or such greater number as the board may determine. Auris Medical (Bermuda)’s board of directors will initially consist of five directors. Each director shall hold office for such term as the shareholders may determine or, in their absence of such determination, until the next annual general meeting or until their successors are elected or appointed or their office is otherwise vacated.
Any shareholder or shareholders holding or representing not less than 5% of the total voting rights wishing to propose for election as a director someone who is not an existing director or is not proposed by our board must give notice of the intention to propose the person for election. Where a director is to be elected at an annual general meeting, that notice must be given not less than 90 days nor more than 120 days before the anniversary of the last annual general meeting prior to the giving of the notice or, in the event the annual general meeting is called for a date that is not 30 days before or after such

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anniversary the notice must be given not later than 10 days following the earlier of the date on which notice of the annual general meeting was posted to members or the date on which public disclosure of the date of the annual general meeting was made. Where a director is to be elected at a special general meeting, that notice must be given not later than 10 days following the earlier of the date on which notice of the special general meeting was posted to members or the date on which public disclosure of the date of the special general meeting was made.
A director may be removed, with cause, by the shareholders, provided notice of the shareholders meeting convened to remove the director is given to the director. The notice must contain a statement of the intention to remove the director and must be served on the director not less than fourteen days before the meeting. The director is entitled to attend the meeting and be heard on the motion for his removal.
Proceedings of Board of Directors
The Bye-laws provide that our business is to be managed and conducted by Auris Medical (Bermuda)’s board of directors. Bermuda law permits individual and corporate directors and there is no requirement in the Bye-laws or Bermuda law that directors hold any of our shares. There is also no requirement in theBye-laws or Bermuda law that our directors must retire at a certain age.
The remuneration of Auris Medical (Bermuda)’s directors is determined by Auris Medical (Bermuda)’s board of directors, and there is no requirement that a specified number or percentage of “independent” directors must approve any such determination. Auris Medical (Bermuda)’s directors may also be paid all travel, hotel and other expenses properly incurred by them in connection with our business or their duties as directors.
Provided a director discloses a direct or indirect interest in any contract or arrangement with Auris Medical (Bermuda) as required by Bermuda law, such director is entitled to vote in respect of any such contract or arrangement in which he or she is interested unless he or she is disqualified from voting by the chairman of the relevant board meeting.
Indemnification of Directors and Officers
Section 98 of the Companies Act provides generally that a Bermuda company may indemnify its directors, officers and auditors against any liability which by virtue of any rule of law would otherwise be imposed on them in respect of any negligence, default, breach of duty or breach of trust, except in cases where such liability arises from fraud or dishonesty of which such director, officer or auditor may be guilty in relation to the company. Section 98 further provides that a Bermuda company may indemnify its directors, officers and auditors against any liability incurred by them in defending any proceedings, whether civil or criminal, in which judgment is awarded in their favor or in which they are acquitted or granted relief by the Supreme Court of Bermuda pursuant to section 281 of the Companies Act.
The Bye-laws that provide that Auris Medical (Bermuda) shall indemnify Auris Medical (Bermuda)’s officers and directors in respect of their actions and omissions, except in respect of their fraud or dishonesty. The Bye-laws provide that the shareholders waive all claims or rights of action that they might have, individually or in right of the company, against any of the company’s directors or officers for any act or failure to act in the performance of such director’s or officer’s duties, except in respect of any fraud ordishonesty of such director or officer. Section 98A of the Companies Act permits Auris Medical (Bermuda) to purchase and maintain insurance for the benefit of any officer or director in respect of any loss or liability attaching to him in respect of any negligence, default, breach of duty or breach of trust, whether or not we may otherwise indemnify such officer or director. We have purchased and maintain a directors’ and officers’ liability policy for such a purpose. See “Comparison of Corporate Law—Indemnification of directors and executive management and limitation of liability.”
Amendment of Memorandum of Continuance and Bye-laws
Bermuda law provides that the memorandum of association (or memorandum of continuance) of a company may be amended by a resolution passed at a general meeting of shareholders. The Bye-laws provide that no bye-law shall be rescinded, altered or amended, and no new bye-law shall be made, unless it shall have been approved by a resolution of Auris Medical (Bermuda)’s board of directors and by a resolution of our shareholders. In the case of certain bye-laws, such as the Bye-laws relating to election and removal of directors, approval of business combinations and amendment of bye-law provisions, the required resolutions must include the affirmative vote of at least 662∕3% of Auris Medical (Bermuda)’s directors then in office and of at least 662∕3% percent of the votes attaching to all shares in issue.

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Under Bermuda law, the holders of an aggregate of not less than 20% in par value of a company’s issued share capital or any class thereof have the right to apply to the Supreme Court of Bermuda for an annulment of any amendment of the memorandum of association (or memorandum of continuance) adopted by shareholders at any general meeting, other than an amendment which alters or reduces a company’s share capital as provided in the Companies Act. Where such an application is made, the amendment becomes effective only to the extent that it is confirmed by the Bermuda court. An application for an annulment of an amendment of the memorandum of association (or memorandum of continuance) must be made within twenty-one days after the date on which the resolution altering the company’s memorandum of association (or memorandum of continuance) is passed and may be made on behalf of persons entitled to make the application by one or more of their number as they may appoint in writing for the purpose. No application may be made by shareholders voting in favor of the amendment.
Amalgamations, Mergers and Business Combinations
The amalgamation or merger of a Bermuda company with another company or corporation (other than certain affiliated companies) requires an amalgamation or merger agreement that is approved by the company’s board of directors and by its shareholders. Unless the company’s bye-laws provide otherwise, the approval of 75% of the shareholders voting at such meeting is required to approve the amalgamation or merger agreement, and the quorum for such meeting must be two persons holding or representing more than one-third of the issued shares of the company. The Bye-laws provide that an amalgamation or a merger (other than with a wholly owned subsidiary or as described below) that has been approved by the board must only be approved by a majority of the votes cast at a general meeting of the shareholders at which the quorum shall be two or more persons present in person and representing in person or by proxy issued and outstanding common voting shares. Any amalgamation or merger or other business combination (as defined in the Bye-laws) not approved by Auris Medical (Bermuda)’s board of directors must be approved by the holders of not less than 662∕3% of all votes attaching to all shares then in issue entitling the holder to attend and vote on the resolution.
Under Bermuda law, in the event of an amalgamation or merger of a Bermuda company with another company or corporation, a shareholder of the Bermuda company who did not vote in favor of the amalgamation or merger and who is not satisfied that fair value has been offered for such shareholder’s shares may, within one month of notice of the shareholders meeting, apply to the Supreme Court of Bermuda to appraise the fair value of those shares.
The Bye-laws contain provisions regarding “business combinations” with “interested shareholders”. Pursuant to the Bye-laws, in addition to any other approval that may be required by applicable law, any business combination with an interested shareholder within a period of three years after the date of the transaction in which the person became an interested shareholder must be approved by Auris Medical (Bermuda)’s board and authorized at an annual or special general meeting by the affirmative vote of at least 662∕3% of our issued and outstanding voting shares that are not owned by the interested shareholder, unless: (i) prior to the time that the shareholder becoming an interested shareholder, Auris Medical (Bermuda)’s board of directors approved either the business combination or the transaction that resulted in the shareholder becoming an interested shareholder; or (ii) upon consummation of the transaction that resulted in the shareholder becoming an interested shareholder, the interested shareholder owned at least 85% of Auris Medical (Bermuda)’s issued and outstanding voting shares at the time the transaction commenced. For purposes of these provisions, “business combinations” include mergers, amalgamations, consolidations and certain sales, leases, exchanges, mortgages, pledges, transfers and other dispositions of assets, issuances and transfers of shares and other transactions resulting in a financial benefit to an interested shareholder. An “interested shareholder” is a person that beneficially owns 15% or more of our issued and outstanding voting shares and any person affiliated or associated with us that owned 15% or more of our issued and outstanding voting shares at any time three years prior to the relevant time.
Compulsory Acquisition of Shares Held by Minority Holders
An acquiring party is generally able to acquire compulsorily the common shares of minority holders in the following ways:
(1) By a procedure under the Companies Act known as a “scheme of arrangement.” A scheme of arrangement could be effected by obtaining the agreement of the company and of holders of its shares (or any class of shares), representing in the aggregate a majority in number and at least 75% in value of the shares or class of shares present and voting at a court ordered meeting held to consider the scheme or arrangement. The scheme of arrangement must then be sanctioned by the Bermuda Supreme Court. If a scheme of arrangement receives all necessary agreements and sanctions, upon the filing of the court order with the Registrar of Companies in Bermuda, all holders of common shares could be compelled to sell their shares under the terms of the scheme or arrangement.

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(2) If the acquiring party is a company it may compulsorily acquire all the shares of the target company, by acquiring pursuant to a tender offer 90% of the shares or class of shares not already owned by, or by a nominee for, the acquiring party (the offeror), or any of its subsidiaries. If an offeror has, within four months after the making of an offer for all the shares or class of shares not owned by, or by a nominee for, the offeror, or any of its subsidiaries, obtained the approval of the holders of 90% or more of all the shares to which the offer relates, the offeror may, at any time within two months beginning with the date on which the approval was obtained, require by notice any nontendering shareholder to transfer its shares on the same terms as the original offer. In those circumstances, nontendering shareholders will be compelled to sell their shares unless the Supreme Court of Bermuda (on application made within a one-month period from the date of the offeror’s notice of its intentionto acquire such shares) orders otherwise.
(3) Where one or more parties holds not less than 95% of the shares or a class of shares of a company, such holder(s) may, pursuant to a notice given to the remaining shareholders or class of shareholders, acquire the shares of such remaining shareholders or class of shareholders. When this notice is given, the acquiring party is entitled and bound to acquire the shares of the remaining shareholders on the terms set out in the notice, unless a remaining shareholder, within one month of receiving such notice, applies to the Supreme Court of Bermuda for an appraisal of the value of its shares. This provision only applies where the acquiring party offers the same terms to all holders of shares whose shares are being acquired.
Anti-Takeover Provisions
Two-thirds supermajority shareholder voting requirement: The Bye-laws provide that, except to the extent that a proposal has received the prior approval of the board, the approval of an amalgamation, merger or consolidation with or into any other person shall require the affirmative vote of not lessthan 662∕3% of all votes attaching to all shares then in issue entitling the holder to attend and vote on the resolution.
Amendments to the Bye-laws: The Bye-laws provide that no bye-law may be rescinded, altered or amended and no new bye-law may be made until the same has been approved by a resolution of the board and by a resolution of the shareholders. In the case of certain bye-laws, such as the Bye-laws relating to election and removal of directors, approval of business combinations and amendment of bye-law provisions, the required resolutions must include the affirmative vote of at least 662∕3% of Auris Medical (Bermuda)’s directors then in office and of at least 662∕3% percent of the votes attaching to all shares in issue.
Limitations on the election of directors: The Bye-laws provide that a person may be proposed for election or appointment as a director at a general meeting either by the board or by one or more shareholders holding shares of Auris Medical (Bermuda) which in the aggregate carry not less than 5% of the voting rights in respect of the election of directors. In addition, unless a person is proposed for election or appointment as a director by the Board, when a person proposed for appointment or election as a director written notice of the proposal must be given to Auris Medical (Bermuda) as follows. Where a director is to be appointed or elected: (1) at an annual general meeting, such notice must be given not less than 90 days nor more than 120 days before the anniversary of the last annual general meeting prior to the giving of the notice or, in the event the annual general meeting is called for a date that is not 30 days before or after such anniversary the notice must be given not later than 10 days following the earlier of the date on which notice of the annual general meeting was posted to shareholders or the date on which public disclosure of the date of the annual general meeting was made; and (2) at a special general meeting, such notice must be given not later than 10 days following the earlier of the date on which notice of the special general meeting was posted to shareholders or the date on which public disclosure of the date of the special general meeting was made.
Shareholder Suits
Class actions and derivative actions are generally not available to shareholders under Bermuda law. The Bermuda courts, however, would ordinarily be expected to permit a shareholder to commence an action in the name of a company to remedy a wrong to the company where the act complained of is alleged to be beyond the corporate power of the company or illegal, or would result in the violation of the company’s memorandum of association (or memorandum of continuance) or bye-laws. Furthermore, consideration would be given by a Bermuda court to acts that are alleged to constitute a fraud against the minority shareholders or, for instance, where an act requires the approval of a greater percentage of the company’s shareholders than that which actually approved it.
When the affairs of a company are being conducted in a manner which is oppressive or prejudicial to the interests of some part of the shareholders, one or more shareholders may apply to the Supreme Court of Bermuda, which may make

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such order as it sees fit, including an order regulating the conduct of the company’s affairs in the future or ordering the purchase of the shares of any shareholders by other shareholders or by the company.
The Bye-laws contain a provision by virtue of which Auris Medical (Bermuda)’s shareholders waive any claim or right of action that they have, both individually and on our behalf, against any director or officer in relation to any action or failure to take action by such director or officer, except in respect of any fraud or dishonesty of such director or officer. The SEC has advised that the operation of this provision as a waiver of the right to sue for violations of federal securities laws would likely be unenforceable inU.S. courts.
Capitalization of Prof its and Reserves
Pursuant to the Bye-laws, Auris Medical (Bermuda)’s board of directors may (i) capitalize any part of the amount of Auris Medical (Bermuda)’s share premium or other reserve accounts or any amount credited to our profit and loss account or otherwise available for distribution by applying such sum in paying up unissued shares to be allotted as fully paid bonus shares pro-rata (except in connection with the conversion of shares) to the shareholders; or (ii) capitalize any sum standing to the credit of a reserve account or sums otherwise available for dividend or distribution by paying up in full, partly paid or nil paid shares of those shareholders who would have been entitled to such sums if they were distributed by way of dividend or distribution.
Exchange controls
We intend to apply for and expect to receive consent under the Exchange Control Act 1972 from theBermuda Monetary Authority for the issue and transfer of the common shares to and between non-residents of Bermuda for exchange control purposes provided our shares remain listed on an appointed stock exchange, which includes the Nasdaq Capital Market. In granting such consent the Bermuda Monetary Authority accepts no responsibility for our financial soundness or the correctness of any of the statements made or opinions expressed in this Annual Report.
Registrar or Transfer Agent
A register of holders of the common shares will be maintained by Conyers Corporate Services (Bermuda) Limited in Bermuda, and a branch register will be maintained in the United States by American Stock Transfer & Trust Company, LLC, who will serve as branch registrar and transfer agent.
Untraced Shareholders
The Bye-laws provide that Auris Medical (Bermuda)’s board of directors may forfeit any dividend or other monies payable in respect of any shares which remain unclaimed for six years from the date when such monies became due for payment. In addition, Auris Medical (Bermuda) is entitled to cease sending dividend warrants and checks by post or otherwise to a shareholder if such instruments have been returned undelivered to, or left uncashed by, such shareholder on at least two consecutive occasions or, following one such occasion, reasonable enquires have failed to establish the shareholder’s new address. This entitlement ceases if the shareholder claims a dividend or cashes a dividend check or a warrant.
Swiss Description of Share Capital
When we refer to our articles of association in this Annual Report, we refer to our articles of association dated as of March 8, 2019.
We are registered with the commercial register of the canton of Zug, Switzerland, under the company number CHE-474.294.374. Our purpose as stated in article 2 of our articles of association is to hold investments of all kinds in Switzerland and abroad, particularly in relation to pharmaceutical products and services. Moreover, our corporation may transact any business conducive to developing the corporation or furthering the corporation’s purpose. We may also arrange financing for our own or third-party account, in particular we may grant loans to Group companies, as currentlywell as provide guarantees or surety bonds of any sort of such financing.



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Ordinary Capital Increase, Authorized and Conditional Share Capital
Under Swiss law, we may increase our share capital (Aktienkapital) with a resolution of the general meeting of shareholders (ordinary capital increase) that must be carried out by the board of directors within three months in effect.

order to become effective. In the case of subscription and increase against payment of contributions in cash, a resolution passed by an absolute majority of the shares represented at the general meeting of shareholders is required. In the case of subscription and increase against contributions in kind or to fund acquisitions in kind, when shareholders’ statutory pre-emptive rights are withdrawn or where transformation of reserves into share capital is involved, a resolution passed by two-thirds of the shares represented at a general meeting of shareholders and the absolute majority of the nominal amount of the shares represented is required.
Our shareholders, by a resolution passed by two-thirds of the shares represented at a general meeting of shareholders and the absolute majority of the nominal amount of the shares represented, may empower our board of directors to issue shares of a specific aggregate nominal amount up to a maximum of 50% of the share capital in the form of:
conditional capital (bedingtes Kapital) for the purpose of issuing shares in connection with, among other things, (i) option and conversion rights granted in connection with loans, warrants, convertible bonds or other financial market instruments issued by the Company or one of our subsidiaries or (ii) grants of rights to employees, members of our board of directors or consultants of the Group to subscribe for new shares (conversion or option rights); and/or
authorized capital (genehmigtes Kapital) to be utilized by the board of directors within a period determined by the shareholders but not exceeding two years from the date of the shareholder approval.
Pre-emptive Rights
Pursuant to the Swiss Code of Obligations, or CO, shareholders have pre-emptive rights (Bezugsrechte) to subscribe for new issuances of shares. With respect to conditional capital in connection with the issuance of conversion rights, convertible bonds or similar debt instruments, shareholders have advance subscription rights (Vorwegzeichnungsrechte) for the subscription of conversion rights, convertible bonds or similar debt instruments.
A resolution passed at a general meeting of shareholders by two-thirds of the shares represented and the absolute majority of the nominal value of the shares represented may authorize our board of directors to withdraw or limit pre-emptive rights and/or advance subscription rights in certain circumstances.
If pre-emptive rights are granted, but not exercised, the board of directors may allocate the pre-emptive rights as it elects.
With respect to our authorized share capital, the board of directors is authorized by our articles of association to withdraw or to limit the pre-emptive rights of shareholders, and to allocate them to third parties or to the Company, in the event that the newly issued shares are used for a purpose set forth in our articles of association.
Our Authorized Share Capital
The provision adopted on March 8, 2019, (article 3a of the articles of association) reads as follows (translation of the binding original German version):
“The Board of Directors is authorized at any time until 16 January 2021 to increase the share capital by a maximum aggregate amount of CHF 286,541.18 through the issuance of not more than 14,327,059 registered shares, which will have to be fully paid-in, with a nominal value of CHF 0.02 each.
Increases in partial amounts are permitted. The Board of Directors may issue new shares also by means of underwriting or in any other manner by one or more banks and subsequent offer to shareholders or third parties. The Board of Directors determines the type of contributions, the issue price, the time of the issue, the conditions for the exercise of the pre-emptive rights, the allocation of pre-emptive rights which have not been exercised, and the date on which the dividend entitlement starts. The Board of Directors is authorized to permit, to restrict or to deny the trade with pre-emptive rights.
If pre-emptive rights are granted, but not exercised, the Board of Directors may use the respective shares in the interest of the Corporation.

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The Board of Directors is authorized to restrict or to exclude the pre-emptive rights of the shareholders, and to allocate them to third parties or to the Corporation, in the event of use of the shares for the purpose of: a) expanding the shareholder base in certain capital markets or in the context of the listing, admission to official trading or registration of the shares at domestic or international stock exchanges; b) granting an over-allotment option (“greenshoe“) to one or several underwriters in connection with a placement of shares; c) share placements, provided the issue price is determined by reference to the market price; d) the participation of employees, Members of the Board of Directors or consultants of the Corporation or of one of its Group companies according to one or several equity incentive plans issued by the Board of Directors; e) the acquisition of companies, company assets, participations, the acquisition of products, intellectual property rights, licenses or new investment projects or for public or private share placements for the financing and/or refinancing of such transactions; f) for raising equity capital in a fast and flexible manner as such transaction would be difficult to carry out, or could be carried out only at less favorable terms, without the exclusion of the pre-emptive rights of the existing shareholders; or g) the acquisition of a participation in the Corporation by a strategic partner (including in the case of a public takeover offer)."
Within the limits of Swiss law, the general meeting of shareholders may increase or alter the authorization granted to the board of directors. See “Ordinary Capital Increase, Authorized and Conditional Share Capital.”
Our Conditional Share Capital
Conditional Share Capital for Warrants and Convertible Bonds
The provision adopted on March 8, 2019 (article 3b of the articles of association) reads as follows (translation of the binding original German version):
"The Corporation’s share capital shall be increased by a maximum aggregate amount of CHF 235,420.45 through the issuance of not more than 11,771,002 registered shares, which will have to be fully paid-in, with a nominal value of CHF 0.02 each, by the exercise of option and conversion rights which are granted in connection with bonds, similar obligations, loans or other financial market instruments or contractual obligations of the Corporation or one of its Group companies, and/or by the exercise of option rights issued by the Corporation or one of its Group companies (“Financial Instruments”). The pre-emptive rights of shareholders are excluded. The holders of Financial Instruments are entitled to the new shares. The conditions of the Financial Instruments shall be determined by the Board of Directors.
When issuing Financial Instruments the Board of Directors is authorized to limit or exclude the advance subscription rights of shareholders:
a.a) for the purpose of financing or refinancing the acquisition of enterprises, divisions thereof, or of participations, products, intellectual property rights, licenses, cooperations or of newly planned investments of the Corporation;
b.b) if the issue occurs on domestic or international capital markets including private placements; or
c.c) for purposes of an underwriting of the Financial Instruments by a banking institution or a consortium of banks with subsequent offering to the public.
To the extent that the advance subscription rights are excluded, i) the Financial Instruments are to be placed at market conditions; ii) the exercise period, the conversion period or the exchange period of the Financial Instruments may not exceed 10 years as of the date of the issue; and iii) the conversion price, the exchange price or other exercise price of the Financial Instruments must be determined by reference to the market price."
Conditional Share Capital for Equity Incentive Plans
The provision adopted on March 8, 2019 (last paragraph of article 3b of the articles of association) reads as follows (translation of the binding original German version):
“The Corporation’s share capital shall, to the exclusion of the pre-emptive rights and advance subscription rights of shareholders, be increased by a maximum aggregate amount of CHF 32,612.26 through the issuance of not more than 1,630,613 registered shares, which shall be fully paid-in, with a nominal value of CHF 0.02 each, by issuance of shares upon the exercise of options or pre-emptive rights thereof, which have been issued or granted to employees, Members of the Board of Directors or consultants of the Corporation or of one of its Group companies according to one or several equity incentive plans or regulations issued by the Board of Directors. The details shall be determined by the Board of Directors.”

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Uncertificated Securities
Our shares are uncertificated securities (Wertrechte, within the meaning of art. 973c of the CO) and, when administered by a financial intermediary (Verwahrungsstelle, within the meaning of the Federal Act on Intermediated Securities, “FISA”), qualify as intermediated securities (Bucheffekten, within the meaning of the FISA). In accordance with art. 973c of the CO, we maintain a non-public register of uncertificated securities (Wertrechtebuch). We may at any time convert uncertificated securities into share certificates (including global certificates), one kind of certificate into another, or share certificates (including global certificates) into uncertificated securities. If registered in our share register, a shareholder may at any time request from us a written confirmation in respect of the shares. Shareholders are not entitled, however, to request the printing and delivery of certificates.
Participation certificates and profit sharing certificates
The Company has not issued any non-voting equity securities, such as participation certificates (Partizipationsscheine) or profit sharing certificates (Genussscheine), nor has it issued any preference shares (Vorzugsaktien).
No Additional Capital Contributions
Under Swiss law, shareholders are not obliged to make any capital contribution in excess of the subscription amount.
General Meeting of Shareholders
Ordinary/extraordinary meetings and powers
The general meeting of shareholders is our supreme corporate body. Under Swiss law, ordinary and extraordinary general meetings of shareholders may be held. Under Swiss law, an ordinary general meeting of shareholders must be held annually within six months after the end of a corporation’s financial year. In our case, this means on or before June 30.
The following powers are vested exclusively in the general meeting of shareholders:
adopting and amending our articles of association;
electing the members of the board of directors, the chairman of the board of directors, the members of the compensation committee, the auditors and the independent proxy;
approving the annual report, the annual statutory financial statements and the consolidated financial statements, and deciding on the allocation of profits as shown on the balance sheet, in particular with regard to dividends and bonus payments to members of the board of directors;
approving the compensation of members of the board of directors and executive management, which under Swiss law is not necessarily limited to the executive officers;
discharging the members of the board of directors and executive management from liability with respect to their tenure in the previous financial year;
dissolving the Company with or without liquidation;
deciding matters reserved to the general meeting of shareholders by law or our articles of association or that are presented to it by the board of directors.
An extraordinary general meeting of shareholders may be called by a resolution of the board of directors or, under certain circumstances, by the Company’s auditor, liquidator or the representatives of convertible bond holders, if any. In addition, the board of directors is required to convene an extraordinary general meeting of shareholders if shareholders representing at least ten percent of the share capital request such general meeting of shareholders in writing. Such request must set forth the items to be discussed and the proposals to be acted upon. The board of directors must convene an extraordinary general meeting of shareholders and propose financial restructuring measures if, based on the Company’s stand-alone annual statutory balance sheet, half of our share capital and reserves are not covered by our assets.


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Voting and Quorum Requirements
Shareholder resolutions and elections (including elections of members of the board of directors) require the affirmative vote of the absolute majority of shares represented at the general meeting of shareholders, unless otherwise stipulated by law.
A resolution of the general meeting of the shareholders passed by two-thirds of the shares represented at the meeting, and the absolute majority of the nominal value of the shares represented is required for:
amending the Company’s corporate purpose;
creating or cancelling shares with preference rights or amending rights attached to such shares;
cancelling or amending the transfer restrictions of registered shares;
creating authorized or conditional share capital;
increasing the share capital out of equity, against contributions in kind or for the purpose of acquiring specific assets and granting specific benefits;
limiting or suppressing shareholder’s pre-emptive rights;
changing our domicile;
dissolving or liquidating the Company.
The same voting requirements apply to resolutions regarding transactions among corporations based on Switzerland’s Federal Act on Mergers, Demergers, Transformations and the Transfer of Assets, or the Merger Act (including a merger, demerger or conversion of a corporation) see “Compulsory Acquisitions; Appraisal Rights.”
In accordance with Swiss law and generally accepted business practices, our articles of association do not provide quorum requirements generally applicable to general meetings of shareholders. To this extent, our practice varies from the requirement of Nasdaq Listing Rule 5620(c), which requires an issuer to provide in its bylaws for a generally applicable quorum, and that such quorum may not be less than one-third of the outstanding voting stock.
Notice
General meetings of shareholders must be convened by the board of directors at least twenty days before the date of the meeting. The general meeting of shareholders is convened by way of a notice appearing in our official publication medium, currently the Swiss Official Gazette of Commerce. Registered shareholders may also be informed by ordinary mail. The notice of a general meeting of shareholders must state the items on the agenda, the proposals to be acted upon and, in case of elections, the names of the nominated candidates. Except in the limited circumstances listed below, a resolution may not be passed at a general meeting without proper notice. This limitation does not apply to proposals to convene an extraordinary general meeting of shareholders or to initiate a special investigation. No previous notification is required for proposals concerning items included in the agenda or for debates that do not result in a vote. The notice period for a general meeting of shareholders may be waived if all shareholders are present or represented at such meeting.Agenda Requests.
Pursuant to Swiss law, one or more shareholders whose combined shareholdings represent the lower of (i) one tenth of the share capital or (ii) an aggregate nominal value of at least CHF 1,000,000, may request that an item be included in the agenda for an ordinary general meeting of shareholders. To be timely, the shareholder’s request must be received by us at least 45 calendar days in advance of the meeting. The request must be made in writing and contain, for each of the agenda items, the following information:
a brief description of the business desired to be brought before the ordinary general meeting of shareholders and the reasons for conducting such business at the ordinary general meeting of shareholders;
the name and address, as they appear in the share register, of the shareholder proposing such business; and
all other information required under the applicable laws and stock exchange rules.

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Our business report, the compensation report and the auditor’s report must be made available for inspection by the shareholders at our registered office no later than 20 days prior to the general meeting of shareholders. Shareholders of record are notified of this in writing.
Voting Rights
Each of our shares entitles a holder to one vote, regardless of its nominal value. The shares are not divisible. The right to vote and the other rights of share ownership may only be exercised by shareholders (including any nominees) or usufructuaries who are entered in our share register at cut-off date determined by the board of directors. Those entitled to vote in the general meeting of shareholders may be represented by the independent proxy holder (annually elected by the general meeting of shareholders), another registered shareholder or third person with written authorization to act as proxy or the shareholder’s legal representative. The chairman has the power to decide whether to recognize a power of attorney. The Board of Directors issues the regulations on the determination of shareholder status, on proxies and voting instructions, and on the issue of voting cards.
Dividends and Other Distributions
Our board of directors may propose to shareholders that a dividend or other distribution be paid but cannot itself authorize the distribution. Dividend payments require a resolution passed by an absolute majority of the shares represented at a general meeting of shareholders. In addition, our auditors must confirm that the dividend proposal of our board of directors conforms to Swiss statutory law and our articles of association.
Under Swiss law, we may pay dividends only if we have sufficient distributable profits brought forward from the previous business years (Gewinnvortrag), or if we have distributable reserves (frei verfügbare Reserven), each as evidenced by our audited stand-alone statutory balance sheet prepared pursuant to Swiss law, and after allocations to reserves required by Swiss law and the articles of association have been deducted. We are not permitted to pay interim dividends out of profit of the current business year.
Distributable reserves are generally booked either as “free reserves” (freie Reserven) or as “reserve from capital contributions” (Reserven aus Kapitaleinlagen). Under the CO, if our general reserves (allgemeine Reserve) amount to less than 20% of our share capital recorded in the commercial register (i.e., 20% of the aggregate nominal value of our issued capital), then at least 5% of our annual profit must be retained as general reserves. The CO permits us to accrue additional general reserves. Further, a purchase of our own shares (whether by us or a subsidiary) reduces the distributable reserves in an amount corresponding to the purchase price of such own shares. Finally, the CO under certain circumstances requires the creation of revaluation reserves which are not distributable.
Distributions out of issued share capital (i.e., the aggregate nominal value of our issued shares) are not allowed and may be made only by way of a share capital reduction. Such a capital reduction requires a resolution passed by an absolute majority of the shares represented at a general meeting of shareholders. The resolution of the shareholders must be recorded in a public deed and a special audit report must confirm that claims of our creditors remain fully covered despite the reduction in the share capital recorded in the commercial register. The share capital may be reduced below CHF 100,000 only if and to the extent that at the same time the statutory minimum share capital of CHF 100,000 is reestablished by sufficient new fully paid-up capital. Upon approval by the general meeting of shareholders of the capital reduction, the board of directors must give public notice of the capital reduction resolution in the Swiss Official Gazette of Commerce three times and notify creditors that they may request, within two months of the third publication, satisfaction of or security for their claims. The reduction of the share capital may be implemented only after expiration of this time limit.
Our board of directors determines the date on which the dividend entitlement starts. Dividends are usually due and payable shortly after the shareholders have passed the resolution approving the payment, but shareholders may also resolve at the ordinary general meeting of shareholders to pay dividends in quarterly or other installments.
Transfer of Shares
Shares in uncertificated form (Wertrechte) may only be transferred by way of assignment. Shares that constitute intermediated securities (Bucheffekten) may only be transferred when a credit of the relevant intermediated securities to the acquirer’s securities account is made in accordance with the relevant provisions of the FISA. Article 4 of our articles of association provides that in the case of securities held with an intermediary such as a registrar, transfer agent, trust corporation, bank or similar entity, any transfer, grant of a security interest or usufructuary right in such intermediated securities and the

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appurtenant rights associated therewith requires the cooperation of the intermediary in order for such transfer, grant of a security interest or usufructuary right to be valid against us.
Voting rights may be exercised only after a shareholder has been entered in our share register (Aktienbuch) with his or her name and address (in the case of legal entities, the registered office) as a shareholder with voting rights. Any acquirer of our shares who is not registered in our share register as a shareholder with voting rights will still be entitled to dividends and other rights with financial value with respect to such shares.
Inspection of Books and Records
Under the CO, a shareholder has a right to inspect our share register with respect to his own shares and otherwise to the extent necessary to exercise his shareholder rights. No other person has a right to inspect our share register. Our books and correspondence may be inspected with the express authorization of the general meeting of shareholders or by resolution of the board of directors and subject to the safeguarding of our business secrets.
Special Investigation
If the shareholders’ inspection rights as outlined above prove to be insufficient in the judgment of the shareholder, any shareholder may propose to the general meeting of shareholders that specific facts be examined by a special commissioner in a special investigation. If the general meeting of shareholders approves the proposal, we or any shareholder may, within 30 calendar days after the general meeting of shareholders, request a court in Zug, Switzerland, our registered office, to appoint a special commissioner. If the general meeting of shareholders rejects the request, one or more shareholders representing at least 10 percent of the share capital or holders of shares in an aggregate nominal value of at least CHF 2,000,000 may request that the court appoint a special commissioner. The court will issue such an order if the petitioners can demonstrate that the board of directors, any member of the board of directors or our executive management infringed the law or our articles of association and thereby caused damages to the Company or the shareholders. The costs of the investigation would generally be allocated to us and only in exceptional cases to the petitioners.
Compulsory Acquisitions; Appraisal Rights
Business combinations and other transactions that are governed by the Swiss Merger Act (i.e., mergers, demergers, transformations and certain asset transfers) are binding on all shareholders. A statutory merger or demerger requires approval of two-thirds of the shares represented at a general meeting of shareholders and the absolute majority of the nominal value of the shares represented.
Swiss corporations may be acquired by an acquirer through the direct acquisition of the share capital of the Swiss corporation. The Swiss Merger Act provides for the possibility of a so-called “cash-out” or “squeeze-out” merger if the acquirer controls 90% of the outstanding shares. In these limited circumstances, minority shareholders of the corporation being acquired may be compensated in a form other than through shares of the acquiring corporation (for instance, through cash or securities of a parent corporation of the acquiring corporation or of another corporation). Following a statutory merger or demerger, pursuant to the Merger Act, shareholders can file an appraisal action against the surviving company. If the consideration is deemed inadequate, the court will determine an adequate compensation payment.
In addition, under Swiss law, the sale of “all or substantially all of our assets” by us may require the approval of two-thirds of the number of shares represented at a general meeting shareholders and the absolute majority of the nominal value of the shares represented. Whether a shareholder resolution is required depends on the particular transaction, including whether the following test is satisfied:
a core part of the Company’s business is sold without which it is economically impracticable or unreasonable to continue to operate the remaining business;
the Company’s assets, after the divestment, are not invested in accordance with the Company’s statutory business purpose; and
the proceeds of the divestment are not earmarked for reinvestment in accordance with the Company’s business purpose but, instead, are intended for distribution to the Company’s shareholders or for financial investments unrelated to the Company’s business.


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Board of Directors
Our articles of association provide that the board of directors shall consist of at least three and not more than nine members.
The members of the board of directors and the chairman are elected annually by the general meeting of shareholders for a period until the completion of the subsequent ordinary general meeting of shareholders and are eligible for re-election. Each member of the board of directors must be elected individually. Unless an exception is granted by the general meeting of shareholders, only persons who have not completed their seventy-fifth year of age on the election date are eligible for election. Under Swiss law, a member of the Board of Directors is not required to be a shareholder.
Powers
The board of directors has the following non-delegable and inalienable powers and duties:
the ultimate direction of the business of the Company and issuing of the relevant directives;
laying down the organization of the Company;
formulating accounting procedures, financial controls and financial planning, to the extent required for the governance of the Company;
nominating and removing persons entrusted with the management and representation of the Company and regulating the power to sign for the Company;
the ultimate supervision of those persons entrusted with management of the Company, with particular regard to adherence to law, our articles of association, and regulations
and directives of the Company;
issuing the annual report and the compensation report, and preparing for the general meeting of shareholders and carrying out its resolutions; and
informing the court in case of over-indebtedness.
The board of directors may, while retaining such non-delegable and inalienable powers and duties, delegate some of its powers, in particular direct management, to a single or to several of its members, managing directors, committees or to third parties who need be neither members of the board of directors nor shareholders. Pursuant to Swiss law and Article 13 of our articles of association, details of the delegation and other procedural rules such as quorum requirements must be set in the organizational rules issued by the board of directors.
Indemnification of Executive Management and Directors
Subject to Swiss law, Article 17 of our articles of association provides for indemnification of the existing and former members of the board of directors, executive management and their heirs, executors and administrators, against liabilities arising in connection with the performance of their duties in such capacity, and permits us to advance the expenses of defending any act, suit or proceeding to our directors and executive management.
In addition, under general principles of Swiss employment law, an employer may be required to indemnify an employee against losses and expenses incurred by such employee in the proper execution of their duties under the employment agreement with the employer.
We have entered into indemnification agreements with each of the members of our board of directors and executive management. The indemnification agreements and our articles of association require us to indemnify our directors and executive officers to the fullest extent permitted by law.



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Conflict of Interest, Management Transactions
Swiss law does not provide for a general provision regarding conflicts of interest. However, the CO contains a provision that requires our directors and executive management to safeguard the Company’s interests and imposes a duty of loyalty and duty of care on our directors and executive management. This rule is generally understood to disqualify directors and executive management from participation in decisions that directly affect them. Our directors and executive officers are personally liable to us for breach of these provisions. In addition, Swiss law contains provisions under which directors and all persons engaged in the Company’s management are liable to the Company, each shareholder and the Company’s creditors for damages caused by an intentional or negligent violation of their duties. Furthermore, Swiss law contains a provision under which payments made to any of the Company’s shareholders or directors or any person associated with any such shareholder or director, other than payments made at arm’s length, must be repaid to the Company if such shareholder or director acted in bad faith.
Our board of directors has adopted a Code of Business Conduct and Ethics that covers a broad range of matters, including the handling of conflicts of interest.
Principles of the Compensation of the Board of Directors and the Executive Management
Pursuant to Swiss law, our shareholders must annually resolve on the approval of the compensation of the board of directors and the persons whom the board of directors has, fully or partially, entrusted with the management of the Company. The board of directors must issue, on an annual basis, a written compensation report that must be reviewed together with a report on our business by our auditor. The compensation report must disclose all compensation, loans and other forms of indebtedness granted by the Company, directly or indirectly, to current or former members of the board of directors and executive management to the extent related to their former role within the Company or not on customary market terms.
The disclosure concerning compensation, loans and other forms of indebtedness must include the aggregate amount for the board of directors and the executive management as well as the particular amount for each member of the board of directors and executive officer, specifying the name and function of each respective person.
Certain forms of compensation are prohibited for members of our board of directors and executive management, such as: 
severance payments provided for either contractually or in the articles of association (compensation due until the termination of a contractual relationship does not qualify as severance payment);
advance compensation;
incentive fees for the acquisition or transfer of corporations or parts thereof by the Company or by companies being, directly or indirectly, controlled by us;
loans, other forms of indebtedness, pension benefits not based on occupational pension schemes and performance-based compensation not provided for in the articles of association; and
equity securities and conversion and option rights awards not provided for in the articles of association.
Compensation to members of the board of directors and executive management for activities in entities that are, directly or indirectly, controlled by the Company is prohibited if the compensation (i) would have been prohibited if it was paid directly by the Company, (ii) is not provided for in the articles of association or (iii) has not been approved by the general meeting of shareholders.
The general meeting of shareholders annually votes on the proposals of the board of directors with respect to:
the maximum aggregate amount of compensation of the board of directors for the subsequent term of office; and
the maximum aggregate amount of compensation of the executive management for the subsequent financial year.
The board of directors may submit for approval at the general meeting of shareholders deviating or additional proposals relating to the same or different periods.
In the event that at the general meeting of shareholders the shareholders do not approve a proposal of the board of directors, the board of directors must form a new proposal for the maximum aggregate compensation and the particular

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compensation for each individual, taking into account all relevant factors, and submit the new proposal for approval by the same general meeting of shareholders, at a subsequent extraordinary general meeting or the next ordinary general meeting of shareholders.
In addition to fixed compensation, members of the board of directors and executive management may be paid variable compensation, depending on the achievement of certain performance criteria. The performance criteria may include individual targets, targets of the Company or parts thereof and targets in relation to the market, other companies or comparable benchmarks, taking into account the position and level of responsibility of the recipient of the variable compensation. The board of directors or, where delegated to it, the compensation committee shall determine the relative weight of the performance criteria and the respective target values.
Compensation may be paid or granted in the form of cash, shares, financial instruments, in kind, or in the form of other types of benefits. The board of directors or, where delegated to it, the compensation committee shall determine grant, vesting, exercise and forfeiture conditions.
Borrowing Powers
Neither Swiss law nor our articles of association restrict in any way our power to borrow and raise funds. The decision to borrow funds is made by or under the direction of our board of directors, and no approval by the shareholders is required in relation to any such borrowing.
Repurchases of Shares and Purchases of Own Shares and Other Limitations on the Rights to Own Securities
The CO limits our right to purchase and hold our own shares. We and our subsidiaries may purchase shares only if and to the extent that (i) we have freely distributable reserves in the amount of the purchase price; and (ii) the aggregate nominal value of all shares held by us does not exceed 10 percent of our share capital. Pursuant to Swiss law, where shares are acquired in connection with a transfer restriction set out in the articles of association, the foregoing upper limit is 20 percent. We currently do not have any transfer restriction in our articles of association. If we own shares that exceed the threshold of 10 percent of our share capital, the excess must be sold or cancelled by means of a capital reduction within two years.
Shares held by us or our subsidiaries are not entitled to vote at the general meeting of shareholders but are entitled to the economic benefits applicable to the shares generally, including dividends and pre-emptive rights in the case of share capital increases.
Swiss law and/or our articles of association do not impose any restrictions on the exercise of voting or any other shareholder right by shareholders resident outside Switzerland.
Notification and Disclosure of Substantial Share Interests
The disclosure obligations generally applicable to shareholders of Swiss corporations under the Swiss Financial Market Infrastructure Act do not apply to us since our shares are not listed on a Swiss exchange.
Pursuant to art. 663c of the CO, Swiss corporations whose shares are listed on a stock exchange must disclose their significant shareholders and their shareholdings in the notes to their balance sheet, where this information is known or ought to be known. Significant shareholders are defined as shareholders and groups of shareholders linked through voting rights who hold more than five percent of all voting rights.

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Comparison of Corporate Law
Set forth below is a comparison of select provisions of the corporate laws of Delaware, Switzerland and Bermuda showing the default positions in each jurisdiction that govern shareholder rights.
DELAWARE CORPORATE LAWSWISS CORPORATE LAWBERMUDA CORPORATE LAW
Mergers and similar arrangements
Under the Delaware General Corporation Law, with certain exceptions, a merger, consolidation, sale, lease or transfer of all or substantially all of the assets of a corporation must be approved by the board of directors and a majority of the outstanding shares entitled to vote thereon. A shareholder of a Delaware corporation participating in certain major corporate transactions may, under certain circumstances, be entitled to appraisal rights pursuant to which such shareholder may receive cash in the amount of the fair value of the shares held by such shareholder (as determined by a court) in lieu of the consideration such shareholder would otherwise receive in the transaction. The Delaware General Corporation Law also provides that a parent corporation, by resolution of its board of directors, may merge with any subsidiary, of which it owns at least 90.0% of each class of capital stock without a vote by the shareholders of such subsidiary. Upon any such merger, dissenting shareholders of the subsidiary would have appraisal rights.Under Swiss law, with certain exceptions, a merger or a division of the corporation or a sale of all or substantially all of the assets of a corporation must be approved by two-thirds of the shares represented at the respective general meeting of shareholders as well as the absolute majority of the share capital represented at such shareholders’ meeting. The articles of association may increase the voting threshold. A shareholder of a Swiss corporation participating in a statutory merger or demerger pursuant to the Swiss Merger Act can file an appraisal right lawsuit against the surviving company. As a result, if the consideration is deemed “inadequate,” such shareholder may, in addition to the consideration (be it in shares or in cash) receive an additional amount to ensure that such shareholder receives the fair value of the shares held by such shareholder. Swiss law also provides that a parent corporation, by resolution of its board of directors, may merge with any subsidiary, of which it owns at least 90.0% of the shares without a vote by shareholders of such subsidiary, if the shareholders of the subsidiary are offered the payment of the fair value in cash as an alternative to shares.The amalgamation or merger of a Bermuda company with another company or corporation (other than certain affiliated companies) requires the amalgamation or merger agreement to be approved by the company's board of directors and by its shareholders. Unless the company's bye-laws provide otherwise, the approval of 75% of the shareholders voting at a general meeting is required to approve the amalgamation or merger agreement, and the quorum for such meeting must be two persons holding or representing more than one-third of the issued shares of the company. The Bye-laws provide that a merger or an amalgamation (other than with a wholly owned subsidiary or as described below) that has been approved by the board must only be approved by a majority of the votes cast at a general meeting of the shareholders at which the quorum shall be two or more persons present in person and representing in person or by proxy issued and outstanding voting shares.

The Bye-laws contain provisions regarding “business combinations” with “interested shareholders”. Pursuant to our Bye-laws, in addition to any other approval that may be required by applicable law, any business combination with an interested shareholder within a period of three years after the date of the transaction in which the person became an interested shareholder must be approved by Auris Medical (Bermuda)’s board and authorized at an annual or special general meeting by the affirmative vote of at least 66 and 2/3rds% of Auris Medical (Bermuda)’s issued and outstanding voting shares that are not owned by the interested shareholder, unless: (i) prior to the time that the shareholder becoming an interested shareholder, our board of directors approved either the business combination or the transaction that resulted in the shareholder becoming an interested shareholder; or

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(ii) upon consummation of the transaction that resulted in the shareholder becoming an interested shareholder, the interested shareholder owned at least 85% of our issued and outstanding voting shares at the time the transaction commenced. For purposes of these provisions, “business combinations” include mergers, amalgamations, consolidations and certain sales, leases, exchanges, mortgages, pledges, transfers and other dispositions of assets, issuances and transfers of shares and other transactions resulting in a financial benefit to an interested shareholder.

An “interested shareholder” is a person that beneficially owns 15% or more of our issued and outstanding voting shares and any person affiliated or associated with us that owned 15% or more of our issued and outstanding voting shares at any time three years prior to the relevant time.

Under Bermuda law, in the event of an amalgamation or merger of a Bermuda company with another company or corporation, a shareholder of the Bermuda company who did not vote in favor of the amalgamation or merger and who is not satisfied that fair value has been offered for such shareholder’s shares may, within one month of notice of the shareholders meeting, apply to the Supreme Court of Bermuda to appraise the fair value of those shares. Note that each share of an amalgamating or merging companies carries the right to vote in respect of an amalgamation or merger whether or not is otherwise carries the right to vote.

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Shareholders’ suits
Class actions and derivative actions generally are available to shareholders of a Delaware corporation for, among other things, breach of fiduciary duty, corporate waste and actions not taken in accordance with applicable law. In such actions, the court has discretion to permit the winning party to recover attorneys’ fees incurred in connection with such action.Class actions and derivative actions as such are not available under Swiss law. Nevertheless, certain actions may have a similar effect. A shareholder is entitled to bring suit against directors for breach of, among other things, their fiduciary duties and claim the payment of the company’s damages to the corporation. Likewise, an appraisal lawsuit won by a shareholder will indirectly compensate all shareholders. Under Swiss law, the winning party is generally entitled to recover attorneys’ fees incurred in connection with such action, provided, however, that the court has discretion to permit the shareholder whose claim has been dismissed to recover attorneys’ fees incurred to the extent he acted in good faith.Class actions and derivative actions are generally not available to shareholders under Bermuda law. The Bermuda courts, however, would ordinarily be expected to permit a shareholder to commence an action in the name of a company to remedy a wrong to the company where the act complained of is alleged to be beyond the corporate power of the company or illegal, or would result in the violation of the company’s memorandum of association or bye-laws. Furthermore, consideration would be given by a Bermuda court to acts that are alleged to constitute a fraud against the minority shareholders or, for instance, where an act requires the approval of a greater percentage of the company’s shareholders than that which actually approved it.

When the affairs of a company are being conducted in a manner which is oppressive or prejudicial to the interests of some part of the shareholders, one or more shareholders may apply to the Supreme Court of Bermuda, which may make such order as it sees fit, including an order regulating the conduct of the company's affairs in the future or ordering the purchase of the shares of any shareholders by other shareholders or by the company.

The Bye-laws contain a provision by virtue of which Auris Medical (Bermuda)’s shareholders waive any claim or right of action that they have, both individually and on Auris Medical (Bermuda)’s behalf, against any director or officer in relation to any action or failure to take action by such director or officer, except in respect of any fraud or dishonesty of such director or officer.
Shareholder vote on board and management compensation
Under the Delaware General Corporation Law, the board of directors has the authority to fix the compensation of directors, unless otherwise restricted by the certificate of incorporation or bylaws.Pursuant to the Swiss Ordinance against excessive compensation in listed stock corporations, the general meeting of shareholders has the non-transferable right, amongst others, to vote on the compensation of the board of directors, executive management and advisory boards.The Bye-laws contains a provision that the board of directors has the power to determine the remuneration, if any, of the directors.
Annual vote on board renewal
Unless directors are elected by written consent in lieu of an annual meeting, directors are elected in an annual meeting of stockholders on a date and at a time designated by or in the manner provided in the bylaws. Re-election is possible.The general meeting of shareholders elects annually (i.e. until the following general meeting of shareholders) the members of the board of directors (including the chairman) and the members of the compensation committee individually for a term of office of one year. Re-election is possible.The Bye-laws provide that the directors shall hold office for such term as the shareholders may determine or, in their absence of such determination, until the next annual general meeting, or until their successors are elected or appointed or their office is otherwise vacated. Re-election is possible.

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Classified boards are permitted.Provision for staggered boards of directors may be included in a company’s bye-laws.
Indemnification of directors and executive management and limitation of liability
The Delaware General Corporation Law provides that a certificate of incorporation may contain a provision eliminating or limiting the personal liability of directors (but not other controlling persons) of the corporation for monetary damages for breach of a fiduciary duty as a director, except no provision in the certificate of incorporation may eliminate or limit the liability of a director for:
any breach of a director’s duty of loyalty to the corporation or its shareholders;
acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
statutory liability for unlawful payment of dividends or unlawful stock purchase or redemption; or
any transaction from which the director derived an improper personal benefit.
Under Swiss corporate law, an indemnification of a director or member of the executive management in relation to potential personal liability is not effective to the extent the director or member of the executive management intentionally or negligently violated his or her corporate duties towards the corporation (certain views advocate that at least a grossly negligent violation is required to exclude the indemnification). Most violations of corporate law are regarded as violations of duties towards the corporation rather than towards the shareholders. In addition, indemnification of other controlling persons is not permitted under Swiss corporate law, including shareholders of the corporation.
Nevertheless, a corporation may enter into and pay for directors’ and officers’ liability insurance which typically covers negligent acts as well.
Section 98 of the Companies Act provides generally that a Bermuda company may indemnify its directors, officers and auditors against any liability which by virtue of any rule of law would otherwise be imposed on them in respect of any negligence, default, breach of duty or breach of trust, except in cases where such liability arises from fraud or dishonesty of which such director, officer or auditor may be guilty in relation to the company. Section 98 further provides that a Bermuda company may indemnify its directors, officers and auditors against any liability incurred by them in defending any proceedings, whether civil or criminal, in which judgment is awarded in their favor or in which they are acquitted or granted relief by the Supreme Court of Bermuda pursuant to section 281 of the Companies Act.
A Delaware corporation may indemnify any person who was or is a party or is threatened to be made a party to any proceeding, other than an action by or on behalf of the corporation, because the person is or was a director or officer, against liability incurred in connection with the proceeding if the director or officer acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of the corporation; and the director or officer, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.The Bye-laws contain provisions that provide that Auris Medical (Bermuda)’s shall indemnify its officers and directors in respect of their actions and omissions, except in respect of their fraud or dishonesty. Our bye-laws provide that the shareholders waive all claims or rights of action that they might have, individually or in right of the company, against any of the company’s directors or officers for any act or failure to act in the performance of such director’s or officer’s duties, except in respect of any fraud or dishonesty of such director or officer. Section 98A of the Companies Act permits Auris Medical (Bermuda) to purchase and maintain insurance for the benefit of any officer or director in respect of any loss or liability attaching to him in respect of any negligence, default, breach of duty or breach of trust, whether or not we may otherwise indemnify such officer or director. We have purchased and maintain a directors’ and officers’ liability policy for such a purpose.

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Unless ordered by a court, any foregoing indemnification is subject to a determination that the director or officer has met the applicable standard of conduct:
by a majority vote of the directors who are not parties to the proceeding, even though less than a quorum;
by a committee of directors designated by a majority vote of the eligible directors, even though less than a quorum;
by independent legal counsel in a written opinion if there are no eligible directors, or if the eligible directors so direct; or
by the shareholders.
Moreover, a Delaware corporation may not indemnify a director or officer in connection with any proceeding in which the director or officer has been adjudged to be liable to the corporation unless and only to the extent that the court determines that, despite the adjudication of liability but in view of all the circumstances of the case, the director or officer is fairly and reasonably entitled to indemnity for those expenses which the court deems proper.
Directors’ fiduciary duties
A director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders. This duty has two components:
the duty of care; and
the duty of loyalty.
A director of a Swiss corporation has a fiduciary duty to the corporation only. This duty has two components:
the duty of care; and
the duty of loyalty.
At common law, members of a board of directors owe a fiduciary duty to the company to act in good faith in their dealings with or on behalf of the company and exercise their powers and fulfill the duties of their office honestly. This duty includes the following elements: (i) a duty to act in good faith in the best interests of the company; (ii) a duty not to make a personal profit from opportunities that arise from the office of director; (iii) a duty to avoid conflicts of interest; and (iv) a duty to exercise powers for the purpose for which such powers were intended.

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The duty of care requires that a director act in good faith, with the care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himself of, and disclose to shareholders, all material information reasonably available regarding a significant transaction. The duty of loyalty requires that a director act in a manner he reasonably believes to be in the best interests of the corporation. He must not use his corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. In general, actions of a director are presumed to have been made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation. However, this presumption may be rebutted by evidence a breach of one of the fiduciary duties.
The duty of care requires that a director act in good faith, with the care that an ordinarily prudent director would exercise under similar circumstances. Under this duty, a director must inform himself of, and disclose, all material information reasonably available regarding a significant transaction.
The duty of loyalty requires that a director act in a manner he reasonably believes to be in the best interest of the corporation. He must not use his corporate position for personal gain or advantage. This duty prohibits in principle self-dealing by a director and mandates that the best interest of the corporation take precedence over any interest possessed by a director or officer.
The burden of proof for a violation of these duties is with the corporation or with the shareholder bringing a suit against the director.
Directors also have an obligation to treat shareholders equally proportionate to their share ownership.
The Companies Act also imposes a duty on directors and officers of a Bermuda company to: (i) act honestly and in good faith with a view to the best interests of the company; and (ii) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

In addition, the Companies Act imposes various duties on directors and officers of a company with respect to certain matters of management and administration of the company.
Should such evidence be presented concerning a transaction by a director, a director must prove the procedural fairness of the transaction, and that the transaction was of fair value to the corporation.
Shareholder action by written consent
A Delaware corporation may, in its certificate of incorporation, eliminate the right of shareholders to act by written consent.Shareholders of a Swiss corporation may only exercise their voting rights in a general meeting of shareholders (directly or through a proxy) and may not act by written consent.The Companies Act provides that shareholders may take action by written consent, expect in respect of the removal of an auditor from office before the expiry of his term or in respect of a resolution passed for the purpose of removing a director before the expiration of his term of office. A resolution in writing is passed when it is signed by the members of the company who at the date of the notice of the resolution represent such majority of votes as would be required if the resolution had been voted on at a meeting or when it is signed by all the members of the company or such other majority of members as may be provided by the bye-laws of the company.

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Shareholder proposals
A shareholder of a Delaware corporation has the right to put any proposal before the annual meeting of shareholders, provided it complies with the notice provisions in the governing documents. A special meeting may be called by the board of directors or any other person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings.
At any general meeting of shareholders any shareholder may put proposals to the meeting if the proposal is part of an agenda item. Unless the articles of association provide for a lower threshold or for additional shareholders’ rights:
one or several shareholders representing 10.0% of the share capital may ask that a general meeting of shareholders be called for specific agenda items and specific proposals; and
one or several shareholders representing 10.0% of the share capital or CHF 1.0 million of nominal share capital may ask that an agenda item including a specific proposal be put on the agenda for a regularly scheduled general meeting of shareholders, provided such request is made with appropriate notice.
Shareholder(s) may, as set forth below and at their own expense (unless the company otherwise resolves), require the company to: (i) give notice to all shareholders entitled to receive notice of the annual general meeting of any resolution that the shareholder(s) may properly move at the next annual general meeting; and/or (ii) circulate to all shareholders entitled to receive notice of any general meeting a statement in respect of any matter referred to in the proposed resolution or any business to be conducted at such general meeting. The number of shareholders necessary for such a requisition is either: (i) any number of shareholders representing not less than 5% of the total voting rights of all shareholders entitled to vote at the meeting to which the requisition relates; or (ii) not less than 100 shareholders.
Any shareholder can propose candidates for election as directors without prior written notice.Pursuant to the Bye-laws, any shareholder or shareholders holding or representing not less than 5% of the total voting rights wishing to propose for election as a director someone who is not an existing director or is not proposed by Auris Medical (Bermuda)’s board must give notice of the intention to propose the person for election in accordance with the Bye-laws.
In addition, any shareholder is entitled, at a general meeting of shareholders and without advance notice, to (i) request information from the Board on the affairs of the company (note, however, that the right to obtain such information is limited), (ii) request information from the auditors on the methods and results of their audit, and (iii) request, under certain circumstances and subject to certain conditions, a special audit.
Cumulative voting
Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the corporation’s certificate of incorporation provides for it.Cumulative voting is not permitted under Swiss corporate law. Pursuant to Swiss law, shareholders can vote for each proposed candidate, but they are not allowed to cumulate their votes for single candidates. An annual individual election of all members of the board of directors (including the chairman) for a term of office of one year (i.e. until the following annual general meeting) is mandatory for listed Swiss corporations.Under Bermuda law, the voting rights of shareholders are regulated by the company’s bye-laws and, in certain circumstances, by the Companies Act. The Bye-laws provide for a plurality of voting for elections of directors, and cumulative voting for elections of directors is not permitted.

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Removal of directors
A Delaware corporation with a classified board may be removed only for cause with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise.A Swiss corporation may remove, with or without cause, any director at any time with a resolution passed by an absolute majority of the shares represented at a general meeting of shareholders. The articles of association may provide for a qualified majority for the removal of a director.Under the Bye-laws, a director may be removed, with cause, by the shareholders, provided notice of the shareholders meeting convened to remove the director is given to the director. The notice must contain a statement of the intention to remove the director and must be served on the director not less than fourteen days before the meeting. The director is entitled to attend the meeting and be heard on the motion for his removal.
Transactions with interested shareholders
The Delaware General Corporation Law generally prohibits a Delaware corporation from engaging in certain business combinations with an “interested shareholder” for three years following the date that such person becomes an interested shareholder. An interested shareholder generally is a person or group who or which owns or owned 15.0% or more of the corporation’s outstanding voting stock within the past three years.No such rule applies to a Swiss corporation.
There is no similar law in Bermuda.

The Bye-laws contain provisions regarding “business combinations” with “interested shareholders” which are described above under “mergers and similar arrangements.”
Dissolution; Winding up
Unless the board of directors of a Delaware corporation approves the proposal to dissolve, dissolution must be approved by shareholders holding 100.0% of the total voting power of the corporation. Only if the dissolution is initiated by the board of directors may it be approved by a simple majority of the corporation’s outstanding shares. Delaware law allows a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by the board.A dissolution and winding up of a Swiss corporation requires the approval by two-thirds of the shares represented as well as the absolute majority of the nominal value of the share capital represented at a general meeting of shareholders passing a resolution on such dissolution and winding up. The articles of association may increase the voting thresholds required for such a resolution (but only by way of a resolution with the majority stipulated by law).A Bermuda company may be wound up by the Bermuda court on application presented by the company itself, its creditors (including contingent or prospective creditors) or its contributories. The Bermuda court has authority to order winding up in a number of specified circumstances including where it is, in the opinion of the Bermuda court, just and equitable to do so.

A Bermuda company limited by shares may be wound up voluntarily when the shareholders so resolve in general meeting. In the case of a voluntary winding up, the company shall, from the commencement of the winding up, cease to carry on its business, except so far as may be required for the beneficial winding up thereof.

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Variation of rights of shares
A Delaware corporation may vary the rights of a class of shares with the approval of a majority of the outstanding shares of such class, unless the certificate of incorporation provides otherwise.A Swiss corporation may modify the rights of a category of shares with (i) a resolution passed by an absolute majority of the shares represented at the general meeting of shareholders and (ii) a resolution passed by an absolute majority of the shares represented at the special meeting of the affected preferred shareholders. Shares that are granted more voting power are not regarded a special class for these purposes.Under the Bye-laws, if at any time we have more than one class of shares, the rights attaching to any class, unless otherwise provided for by the terms of issue of the relevant class, may be varied either: (i) with the consent in writing of the holders of 75% of the issued shares of that class; or (ii) with the sanction of a resolution passed by a majority of the votes cast at a general meeting of the relevant class of shareholders at which a quorum consisting of at least two persons holding or representing issued shares of the relevant class is present. The Bye-laws specify that the creation or issue of shares ranking equally with existing shares will not, unless expressly provided by the terms of issue of existing shares, vary the rights attached to existing shares. In addition, the creation or issue of preference shares ranking prior to common shares will not be deemed to vary the rights attached to common shares or, subject to the terms of any other series of preference shares, to vary the rights attached to any other series of preference shares.
Amendment of governing documents
A Delaware corporation’s governing documents may be amended with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise.By way of a public deed, the articles of association of a Swiss corporation may be amended with a resolution passed by an absolute majority of the shares represented at such meeting, unless otherwise provided in the articles of association. There are a number of resolutions, such as an amendment of the stated purpose of the corporation and the introduction of authorized and conditional capital, that require the approval by two-thirds of the votes and an absolute majority of the nominal value of the shares represented at a shareholders’ meeting. The articles of association may increase the voting thresholds.A Bermuda company’s memorandum of association and bye-laws may be amended by resolutions of the board of directors and the shareholders, subject to the company’s bye-laws.

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Inspection of Books and Records
Shareholders of a Delaware corporation, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose, and to obtain copies of list(s) of shareholders and other books and records of the corporation and its subsidiaries, if any, to the extent the books and records of such subsidiaries are available to the corporation.Shareholders of a Swiss corporation may only inspect books and records if the general meeting of shareholders or the board of directors approved such inspection. The inspection right is limited in scope and only extends to information required for the exercise of shareholder rights and does not extend to confidential information. The right to inspect the share register is limited to the right to inspect that shareholder’s own entry in the share register.Members of the general public have a right to inspect the public documents of a company available at the office of the Registrar of Companies in Bermuda. These documents include the company’s memorandum of association/continuance, including its objects and powers, and certain alterations to the memorandum of association/continuance. The shareholders have the additional right to inspect the bye-laws of the company, minutes of general meetings and the company’s audited financial statements, which must be presented to the annual general meeting. The register of members of a company is also open to inspection by shareholders without charge, and by members of the general public on payment of a fee. The register of members is required to be open for inspection for not less than two hours in any business day (subject to the ability of a company to close the register of members for not more than thirty days in a year). A company is required to maintain its share register in Bermuda but may, subject to the provisions of the Companies Act, establish a branch register outside of Bermuda. A company is required to keep at its registered office a register of directors and officers that is open for inspection for not less than two hours in any business day by members of the public without charge. Bermuda law does not, however, provide a general right for shareholders to inspect or obtain copies of any other corporate records.

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Payment of dividends
The board of directors may approve a dividend without shareholder approval. Subject to any restrictions contained in its certificate of incorporation, the board may declare and pay dividends upon the shares of its capital stock either:
out of its surplus, or
in case there is no such surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year.
Stockholder approval is required to authorize capital stock in excess of that provided in the charter. Directors may issue authorized shares without stockholder approval.
Dividend payments are subject to the approval of the general meeting of shareholders. The board of directors may propose to shareholders that a dividend shall be paid but cannot itself authorize the distribution.
Payments out of the Company’s share capital (in other words, the aggregate nominal value of the Company’s registered share capital) in the form of dividends are not allowed and may be made by way of a capital reduction only. Dividends may be paid only from the profits brought forward from the previous business years or if the Company has distributable reserves, each as will be presented on the Company’s audited annual stand-alone balance sheet. The dividend may be determined only after the allocations to reserves required by the law and the articles of association have been deducted.
Under Bermuda law, the board of directors may declare a dividend without shareholder approval, but a company may not declare or pay dividends if there are reasonable grounds for believing that: (i) the company is, or would after the payment be, unable to pay its liabilities as they become due; or (ii) that the realizable value of its assets would thereby be less than its liabilities. Under the Bye-laws, each common share is entitled to dividends if, as and when dividends are declared by our board of directors, subject to any preferred dividend right of the holders of any preference shares.
Creation and issuance of new shares
All creation of shares require the board of directors to adopt a resolution or resolutions, pursuant to authority expressly vested in the board of directors by the provisions of the company’s certificate of incorporation.All creation of shares requires a shareholders’ resolution documented by way of a public deed. Authorized shares can be, once created by shareholders’ resolution, issued by the board of directors (subject to fulfillment of the authorization). Conditional shares are created and issued through the exercise of options and conversion rights related to debt instruments issued by the board of directors or such rights issued to employees.The authorized share capital of a Bermuda company is determined by the company’s shareholders.

C.Material contracts

Except as otherwise disclosed in this annual report on Form 20-FAnnual Report (including the Exhibits), we are not currently, and have not been in the last two years, party to any material contract, other than contracts entered into in the ordinary course of business.

D.Exchange controls

There are no Swiss governmental laws, decrees or regulations that restrict, in a manner material to us, the export or import of capital, including any foreign exchange controls, or that generally affect the remittance of dividends or other payments to non-residents or non-citizens of Switzerland who hold our common shares.

E.Taxation

The following summary contains a description of the material Bermuda, Swiss and U.S. federal income tax consequences of the acquisition, ownership and disposition of common shares, but it does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to purchase common shares. The summary is based upon the tax laws of Bermuda and regulations thereunder, of Switzerland and regulations thereunder and on the tax laws of the United States and regulations thereunder as of the date hereof, which are subject to change.

Bermuda Tax Considerations
At the present time, there is no Bermuda income or profits tax, withholding tax, capital gains tax, capital transfer tax, estate duty or inheritance tax payable by us or by our shareholders in respect of our shares. We intend to apply for an assurance from

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the Minister of Finance of Bermuda under the Exempted Undertakings Tax Protection Act 1966 that, in the event that any legislation is enacted in Bermuda imposing any tax computed on profits or income, or computed on any capital asset, gain or appreciation or any tax in the nature of estate duty or inheritance tax, such tax shall not, until March 31, 2035, be applicable to us or to any of our operations or to our shares, debentures or other obligations except insofar as such tax applies to persons ordinarily resident in Bermuda or is payable by us in respect of real property owned or leased by us in Bermuda.
Swiss Tax Considerations

This summary of material Swiss tax consequences is based on Swiss law and regulations and the practice of the Swiss tax administration as in effect on the date hereof, all of which are subject to change (or subject to changes in interpretation), possibly with retroactive effect. The summary does not purport to take into account the specific circumstances of any particular shareholder or potential investor and does not relate to persons in

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the business of buying and selling common shares or other securities. The summary is not intended to be, and should not be interpreted as, legal or tax advice to any particular potential shareholder/s, and no representation with respect to the tax consequences to any particular shareholder/s is made.

On September 28, 2018, the Swiss parliament approved the final draft of the Federal Act on Tax Reform and AHV Financing (“TRAF”). A public vote on the TRAF is planned to be held on May 19, 2019. The first measures could take place in 2020. Key measures of the reform are, inter alia, the abolition of the special tax treatment for cantonal status companies, which are no longer accepted internationally. Additionally, an increase of the partial taxation (Teilbesteuerung) for individual shareholders holding at least 10% shares in a company from 60% to 70% will likely be introduced on federal, cantonal and communal levels. Furthermore, TRAF provides for a repayment rule in the capital contribution principle according to which repayments of capital contribution reserves are only exempt from withholding and income tax if the company distributes taxable reserves to the same extent. However, the rule only applies to companies listed on a Swiss stock exchange. The rule also includes a partial liquidation rule in the event of the repurchase of our own shares. According to this rule, at least half of the corresponding liquidation surplus must be charged to the capital contribution reserves. If this rule is not respected, the amount of the capital contribution reserves is adjusted accordingly and the taxable portion of the liquidation surplus is reduced.
Current and prospective shareholders are advised to consult their own tax advisers in light of their particular circumstances as to the Swiss tax laws, regulations and regulatory practices that could be relevant for them in connection with the acquiring, owning and selling or otherwise disposing of common shares and receiving dividends and similar cash or in-kind distributions on common shares (including dividends on liquidation proceeds and stock dividends) or distributions on common shares based upon a capital reduction (Nennwertrückzahlungen) or reserves paid out of capital contributions (Reserven aus Kapitaleinlagen) and the consequences thereof under the tax laws, regulations and regulatory practices of Switzerland.

Taxation of Auris Medical Holding AG

Auris Medical Holding AG is a Swiss based company, taxed as a holding company in the Canton of Zug. The companyCompany is taxed at a current effective income tax rate of 7.83% (including direct federal as well as cantonal/communal taxes), whereby a participation relief applies to dividend income from qualifying subsidiaries, and a current annual capital tax rate of 0.003% which is levied on the net equity of the company.

Switzerland is currently in the process of reforming certain elements of its corporate tax law (Swiss Corporate Tax Reform III, “CTR III”). The current dispatch of CTR III includes proposed changes which may impact the taxation ofCompany. Assuming TRAF will be implemented as planned, Auris Medical Holding AG (including the abolitionwill lose its holding privilege at cantonal/communal level as of the holding taxation at cantonal level). If passed, the new rules are anticipated to enter into force around 2018 / 2019, likely with a 2 year transition period for the cantons to adopt these new rules.

January 1, 2020.

Taxation of common shares:Common Shares: Swiss Federal Withholding Tax on Dividends and Distributions

Dividend payments and similar cash or in-kind distributions on the common shares (including dividends on liquidation proceeds and stock dividends) that the Company makes to shareholders are subject to Swiss federal withholding tax (Verrechnungssteuer) at a rate of 35% on the gross amount of the dividend. The Company is required to withhold the Swiss federal withholding tax from the dividend and remit it to the Swiss Federal Tax Administration. Distributions based upon a capital reduction (Nennwertrückzahlungen) and reserves paid out of capital contributions (Reserven aus Kapitaleinlagen) are not subject to Swiss federal withholding tax.

The Swiss federal withholding tax may also apply to gains realized upon a repurchase of shares by the Company, on the difference between the repurchase price and the nominal value of the shares (Nennwertprinzip); a different basis of taxation may apply under the capital contribution principle (Kapitaleinlageprinzip).

The Swiss federal withholding tax is refundable or creditable in full to a Swiss tax resident corporate and individual shareholder as well as to a non-Swiss tax resident corporate or individual shareholder who holds the common shares as part of a trade or business carried on in Switzerland through a permanent establishment or fixed place of business situated for tax purposes in Switzerland, if such person is the beneficial owner of the distribution and, in the case of a Swiss tax resident

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individual who holds the common shares as part of his private assets, duly reports the gross distribution received in his individual income tax return or, in the case of a person who holds the common shares as part of a trade or business carried on in Switzerland through a permanent establishment or fixed place of business situated for tax purposes in Switzerland, recognizes the gross dividend distribution for tax purposes as earnings in the income statements and reports the annual profit in the Swiss income tax return.

If a shareholder who is not a Swiss resident for tax purposes and does not hold the common shares in connection with the conduct of a trade or business in Switzerland through a permanent establishment or fixed place of business situated, for tax purposes in Switzerland, receives a distribution from the Company, the shareholder may be entitled to a full or partial refund or credit of Swiss federal withholding tax incurred on a taxable distribution if the country in which such shareholder is resident for tax purposes has entered into a treaty for the avoidance of double taxation with Switzerland and the further prerequisites of the treaty for a refund have been met. Shareholders not resident in Switzerland should be aware that the procedures for claiming treaty benefits (and the time required for obtaining a refund or credit) may differ from country to country.

Besides the bilateral tax treaties, Switzerland has entered into an agreement with the European Community providing for measures equivalent to those laid down in Council Directive 2003/48/EC on taxation of savings income in the form of interest payments and the Council Directive 90/435/EWGUnion on the taxationautomatic exchange of parent companiesinformation in tax matters (the “AEOI Agreement”) which provides for, inter alia, full withholding tax exemption of cross-border dividends, interest and subsidiaries of different Member States. This agreement contains in its Article 15 provisions on

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taxation of dividends which apply with respect toroyalties between related entities from EU member states to Switzerland and provides for an exemption of Withholding Tax for companies under certain circumstances.

On January 1, 2013, treaties on final withholding taxes entered into by Switzerland with the European Community and the individual European states came into force (each a “Contracting State”). The treaties require a Swiss paying agent, as defined in the treaties, to levy a flat-rate final withholding tax at rates specified in the treaties on certain capital gains and income items (including dividends), all as defined in the treaties, deriving from assets, including the common shares held in account or deposits with a Swiss paying agent by (i) an individual resident in a Contracting State, or (ii) if certain requirements are met, by a domiciliary company (Sitzgesellschaft), an insurance company in connection with a so-called insurance wrapper (Lebensversicherungsmantel) or other individualsvice versa if the beneficial owner is an individual resident in a Contracting State. Each contracting state has different tax rates on dividends and capital gains for individuals resident and domiciled in onerespective requirements of the European states. The flat-rate tax withheld substitutes the ordinary capital gains tax and income tax on the relevant capital gains and income items in the Contracting State where the individualsArticle 9 AEOI Agreement are tax resident, unless the individuals elect for the flat-rate tax withheld to be treated as if it were a credit allowable against the income tax or, as the case may be, capital gains tax, due for the relevant tax year in the relevant Contracting State. Alternatively, instead of paying the flat-rate tax, such individuals may opt for a disclosure or the relevant capital gains and income items to the tax authorities of the Contracting State where they are tax residents. If Swiss federal withholding tax of 35% has been withheld on dividends, the Swiss paying agent will – to the extent provided in the applicable bilateral treaty for the avoidance of double taxation between Switzerland and the Contracting State – in its own name and on behalf of the relevant shareholder file with the Swiss tax authorities a request for the partial refund of the Swiss federal withholding tax. The Swiss federal withholding tax which is not refundable according to the bilateral tax treaty (residual tax) is credited against the flat-rate final withholding tax.

met.

Individual and Corporate Income Tax on Dividends

Swiss resident individuals holding the common shares as part of their private assets who receive dividends and similar distributions (including stock dividends and liquidation proceeds), which are not repayments of the nominal value (Nennwertrückzahlungen) of the common shares or reserves paid out of capital contributions (Reserven aus Kapitaleinlagen) are required to report such payments in their individual income tax returns and are liable to Swiss federal, cantonal and communal income taxes on any net taxable income for the relevant tax period. Furthermore, for the purpose of the Direct Federal Tax, dividends, shares in profits, liquidation proceeds and pecuniary benefits from shares (including bonus shares) are included in the tax base for only 60% of their value (Teilbesteuerung), if the investment amounts to at least 10% of nominal capital of the Company. Most Swiss cantons have introduced similar partial taxation measures at cantonal and communal levels.

Swiss resident individuals as well as non-Swiss resident individual taxpayers holding the common shares in connection with the conduct of a trade or business in Switzerland through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland, are required to recognize dividends, distributions based upon a capital reduction (Nennwertrückzahlungen) and reserves paid out of capital contributions (Reserven aus Kapitaleinlagen) in their income statements for the relevant tax period and are liable to Swiss federal, cantonal and communal individual or corporate income taxes, as the case may be, on any net taxable earnings accumulated (including the payment of dividends) for such period. Furthermore, for the purpose of the Direct Federal Tax, dividends, shares in profits, liquidation proceeds and pecuniary benefits from shares (including bonus shares) are included in the tax base for only 50% (Teilbesteuerung), if the investment is held in connection with the conduct of a trade or business or qualifies as an opted business asset (gewillkürtes Geschäftsvermögen) according to Swiss tax law and amounts to at least 10% of nominal capital of the Company. All cantons have introduced similar partial taxation measures at cantonal and communal levels.

Swiss resident corporate taxpayers as well as non-Swiss resident corporate taxpayers holding the common shares in connection with the conduct of a trade or business through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland, are required to recognize dividends, distributions based upon a capital reduction (Nennwertrückzahlungen) and reserves paid out of capital contributions (Reserven aus Kapitaleinlagen) in their income statements for the relevant tax period and are liable to Swiss federal, cantonal and communal corporate income taxes on any net taxable earnings accumulated for such period. Swiss resident corporate taxpayers as well as non-Swiss resident corporate taxpayers holding the common shares in connection with the conduct of a trade or business through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland may be eligible for participation relief (Beteiligungsabzug) in respect of dividends and distributions based upon a capital reduction (Nennwertrückzahlungen) and reserves paid out of capital contributions (Reserven aus Kapitaleinlagen) if the common shares held by them as part of a Swiss

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business have an aggregate market value of at least CHF 1 million or represent at least 10% of the share capital of the Company or give entitlement to at least 10% of the profits and reserves of the Company, respectively.

Recipients of dividends and similar distributions on the common shares (including stock dividends and liquidation proceeds) who neither are residents of Switzerland nor during the current taxation year have engaged in a trade or business in Switzerland and who are not subject to taxation in Switzerland for any other reason are not subject to Swiss federal, cantonal or

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communal individual or corporate income taxes in respect of dividend payments and similar distributions because of the mere holding of the common shares.

Wealth and Annual Capital Tax on Holding of Common Shares

Swiss resident individuals and non-Swiss resident individuals holding the common shares in connection with the conduct of a trade or business in Switzerland through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland,as private assets are required to report their common shares as part of their wealth and will be subject to cantonal and communal wealth tax to the extent the aggregate taxable net wealth is allocable to Switzerland.

Swiss resident corporate taxpayers

Individuals and non-Swiss resident corporate taxpayers holding the common shares in connection with the conduct of a trade or business in Switzerland through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland, will be subject to cantonal and communal annual capital tax on the taxable capital to the extent the aggregate taxable capital is allocable to Switzerland.

Individuals and corporate taxpayers not resident in Switzerland for tax purposes and not holding the common shares in connection with the conduct of a trade or business in Switzerland through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland, are not subject to wealth or annual capital tax in Switzerland because of the mere holding of the common shares.

Capital Gains on Disposal of Common Shares

Swiss resident individuals who sell or otherwise dispose of the common shares realize a tax-free capital gain, or a non-deductible capital loss, as the case may be, provided that they hold the common shares as part of their private assets.

Under certain circumstances, the sales proceeds may be recharacterised into taxable investment income (e.g., professional securities dealer, etc.).

Capital gains realized on the sale of the common shares held by Swiss resident individuals who do not hold the common
shares as part of their private assets and Swiss resident corporate taxpayers, as well as non-Swiss resident individuals and corporate taxpayers holding the common shares in connection with the conduct of a trade or business in Switzerland through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland, will be subject to Swiss federal, cantonal and communal individual or corporate income tax, as the case may be. This also applies to Swiss resident individuals who, for individual income tax purposes, are deemed to be professional securities dealers for reasons of, inter alia, frequent dealing and debt-financed purchases. Capital gains realized by resident individuals who hold the common shares as business assets might be entitled to reductions or partial taxations similar to those mentioned above for dividends (Teilbesteuerung) if certain conditions are met (e.g., holding period of at least one year and participation of at least 10% of nominal capital)capital of the Company).

Swiss resident corporate taxpayers as well as non-Swiss resident corporate taxpayers holding the common shares in connection with the conduct of a trade or business, through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland, are required to recognize such capital gain in their income statements for the relevant tax period. Corporate taxpayers may qualify for participation relief on capital gains (Beteiligungsabzug), if the common shares sold during the tax period represent at least 10% of the Company’s share capital or if the common shares sold give entitlement to at least 10% of the Company’s profit and reserve and were held for at least one year. The tax relief applies to the difference between the sale proceeds of common shares by the Company and the initial costs of the participation (Gestehungskosten).

Individuals and corporations not resident in Switzerland for tax purposes and not holding the common shares in connection with the conduct of a trade or business in Switzerland through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland, are not subject to Swiss federal, cantonal and communal individual income or corporate income tax, as the case may be, on capital gains realized on the sale of the common shares.

Gift and Inheritance Tax

Transfers of common shares may be subject to cantonal and/or communal inheritance or gift taxes if the deceased or the donor or the recipient were resident in a Canton levying such taxes and, in international

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circumstances where residency requirements are satisfied, if the applicable tax treaty were to allocate the right to tax to Switzerland.


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Swiss Issuance Stamp Duty

The Company is subject to paying to the Swiss Federal Tax Administration a 1% Swiss federal issuance stamp tax (Emissionsabgabe) on any increase of the nominal capital of the Company (with or without issuance of shares) or any other equity contributions received by the Company (regardless of whether or not any compensation is paid to the shareholder in connection with the contribution). Certain costs incurred in connection with the issuance of shares (if any) may be deductible. There are several exemptions from issuance stamp tax that may apply under certain circumstances (e.g., certain intercompany reorganizations).

Swiss Securities Transfer Tax

The purchase or sale (or other financial transfer) of the common shares, whether by Swiss residents or non-Swiss residents, may be subject to Swiss securities transfer tax of up to 0.15%, calculated on the purchase price or the proceeds if the purchase or sale occurs through or with a Swiss bank or other Swiss securities dealer as defined in the Swiss Federal Stamp Duty Act as an intermediary or party to the transaction unless an exemption applies.

Material U.S. Federal Income Tax Considerations for U.S. Holders

The following is a description of the material U.S. federal income tax consequences to the U.S. Holders described below of owning and disposing of common shares, but it does not purport to be a comprehensive description of all tax considerations that may be relevant to a particular person’s decision to hold the common shares. This discussion applies only to a U.S. Holder that holds common shares as capital assets for U.S. federal income tax purposes. In addition, it does not describe all of the tax consequences that may be relevant in light of the U.S. Holder’s particular circumstances, including alternative minimum tax consequences, the potential application of the provisions of the Internal Revenue Code of 1986, as amended, or the Code, known as the Medicare contribution tax and tax consequences applicable to U.S. Holders subject to special rules, such as:

·certain financial institutions;

·dealers or traders in securities who use a mark-to-market method of tax accounting;

·persons holding common shares as part of a hedging transaction, straddle, wash sale, conversion transaction or integrated transaction or persons entering into a constructive sale with respect to the common shares;

·persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar;

·entities classified as partnerships for U.S. federal income tax purposes;

·tax-exempt entities, including an “individual retirement account” or “Roth IRA”;

·persons that own or are deemed to own ten percent or more of our voting stock;

·persons who acquired our common shares pursuant to the exercise of an employee stock option or otherwise as compensation; or

·persons holding shares in connection with a trade or business conducted outside of the United States.

certain financial institutions;
dealers or traders in securities who use a mark-to-market method of tax accounting;
persons holding common shares as part of a straddle, wash sale, conversion transaction or persons entering into a constructive sale with respect to the common shares;
persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar;
entities classified as partnerships for U.S. federal income tax purposes;
tax-exempt entities, including an “individual retirement account” or “Roth IRA”;
persons that own or are deemed to own ten percent or more of our stock by vote or value;
persons who acquired our common shares pursuant to the exercise of an employee stock option or otherwise as compensation; or
persons holding shares in connection with a trade or business conducted outside of the United States.
If an entity that is classified as a partnership for U.S. federal income tax purposes holds common shares, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. Partnerships holding common shares and partners in such partnerships should consult their tax advisers as to their particular U.S. federal income tax consequences of holding and disposing of the common shares.

This discussion is based on the Code, administrative pronouncements, judicial decisions, final, temporary and proposed Treasury regulations, and the income tax treaty between Switzerland and the United States, or the Treaty, all as of the date hereof, any of which is subject to change, possibly with retroactive effect.

A “U.S. Holder” is a holder who, for U.S. federal income tax purposes, is a beneficial owner of common shares and is:
an individual who is a citizen or resident of the United States;

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a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state therein or the District of Columbia; or
an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.
Discussions below related to the Treaty are only applicable to U.S. Holders who, prior to the Redomestication, are eligible for the benefits of the Treaty and is:

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·an individual who is a citizen or resident of the United States;

·a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state therein or the District of Columbia; or

·an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.

Treaty. U.S. Holders should consult their tax advisers concerning the U.S. federal, state, local and non-U.S. tax consequences of owning and disposing of common shares in their particular circumstances.

Passive Foreign Investment Company Rules

We believe that we were a “passive foreign investment company,” or PFIC for U.S. federal income tax purposes for our 2014 and 20152018 taxable years,year, and we expect to be a PFIC for our current taxable year and for the foreseeable future. In addition, we may, directly or indirectly, hold equity interests in other PFICs, or Lower-tier PFICs. In general, a non-U.S. corporation will be considered a PFIC for any taxable year in which (i) 75% or more of its gross income consists of passive income or (ii) 50% or more of the average quarterly value of its assets consists of assets that produce, or are held for the production of, passive income. For purposes of the above calculations, a non-U.S. corporation that directly or indirectly owns at least 25% by value of the shares of another corporation is treated as if it held its proportionate share of the assets of the other corporation and received directly its proportionate share of the income of the other corporation. Passive income generally includes dividends, interest, rents, royalties and capital gains.

Under attribution rules, ifassuming we are a PFIC, U.S. Holders will be deemed to own their proportionate shares of Lower-tier PFICs and will be subject to U.S. federal income tax according to the rules described in the following paragraphs on (i) certain distributions by a Lower-tier PFIC and (ii) a disposition of shares of a Lower-tier PFIC, in each case as if the U.S. Holder held such shares directly, even though holders haveif the U.S. Holder has not received the proceeds of those distributions or dispositions directly.

dispositions.

If we are a PFIC for any taxable year during which a U.S. Holder holds our shares, the U.S. Holder may be subject to certain adverse tax consequences. Unless a holderU.S. Holder makes a timely “mark to market” election or “qualified electing fund” election, each as discussed below, gain recognized on a disposition (including, under certain circumstances, a pledge) of common shares by the U.S. Holder, or on an indirect disposition of shares of a Lower-tier PFIC, will be allocated ratably over the U.S. Holder’s holding period for the shares. The amounts allocated to the taxable year of disposition and to years before we became a PFIC, if any, will be taxed as ordinary income. The amounts allocated to each other taxable year will be subject to tax at the highest rate in effect for that taxable year for individuals or corporations, as appropriate, and an interest charge will be imposed on the tax attributable to the allocated amounts. Further, to the extent that any distribution received by a U.S. Holder on our common shares (or a distribution by a Lower-tier PFIC to its shareholder that is deemed to be received by a U.S. Holder) exceeds 125% of the average of the annual distributions on the shares received during the preceding three years or the U.S. Holder’s holding period, whichever is shorter, the distribution will be subject to taxation in the same manner as gain, described immediately above.

If we are a PFIC for any year during which a U.S. Holder holds common shares, we generally will continue to be treated as a PFIC with respect to the holderU.S. Holder for all succeeding years during which the U.S. Holder holds common shares, even if we cease to meet the threshold requirements for PFIC status. U.S. Holders should consult their tax advisers regarding the potential availability of a “deemed sale” election that would allow them to eliminate this continuing PFIC status under certain circumstances.

If theour common shares are “regularly traded” on a “qualified exchange,” a U.S. Holder may make a mark-to-market election that would result in tax treatment different from the general tax treatment for PFICs described above. TheOur common shares will be treated as “regularly traded” in any calendar year in which more than ade minimis quantity of the common shares is traded on a qualified exchange on at least 15 days during each calendar quarter. Nasdaq, on which the common shares are currently listed, is a qualified exchange for this purpose. U.S. Holders should consult their tax advisers regarding the availability and advisability of making a mark-to-market election in their particular circumstances.circumstances and the consequences to them if the common shares are delisted from Nasdaq (see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—Our common shares may be involuntarily delisted from trading on The Nasdaq Capital Market if we fail to comply with the continued listing requirements. A delisting of our common shares is likely to reduce the liquidity of our common shares and may inhibit or preclude our ability to raise additional financing” above). In particular, U.S. Holders should consider carefully the impact of a mark-to-market election with respect to their common shares given that we may have Lower-tier PFICs for which a mark-to-market election may not be available.

If a U.S. Holder makes the mark-to-market election, the holderU.S. Holder generally will recognize as ordinary income any excess of the fair market value of the common shares at the end of each taxable year over their adjusted tax basis, and will

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recognize an ordinary loss in respect of any excess of the adjusted tax basis of the common shares over their fair market value at the end of the taxable year (but only to the extent of the net amount of

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income previously included as a result of the mark-to-market election). If a U.S. Holder makes the election, the holder’sU.S. Holder’s tax basis in the common shares will be adjusted to reflect the income or loss amounts recognized. Any gain recognized on thea sale or other disposition of common shares in a year whenin which we are a PFIC will be treated as ordinary income and any loss will be treated as an ordinary loss (but only to the extent of the net amount of income previously included as a result of the mark to-market election). Distributions paid on common shares will be treated as discussed below under “Taxation of Distributions.”

Alternatively, a U.S. Holder can make an election, if we provide the necessary information, to treat us and each Lower-tier PFIC as a qualified electing fund (a “QEF Election”) in the first taxable year that we are treated as a PFIC with respect to the holder.U.S. Holder. A U.S. Holder must make the QEF Election for each PFIC by attaching a separate properly completed IRS Form 8621 for each PFIC to the holder’sits timely filed U.S. federal income tax return. Upon request of a U.S. Holder, we will provide the information necessary for a U.S. Holder to make a QEF Election with respect to us and will use commercially reasonable efforts to cause each Lower-tier PFIC which we control to provide such information with respect to such Lower-tier PFIC. However, no assurance can be given that such QEF Election information will be available for any Lower-tier PFIC.

If a U.S. Holder makes a QEF Election with respect to a PFIC, the holderU.S. Holder will be currently taxable on itspro rata share of the PFIC’s ordinary earnings and net capital gain (at ordinary income and capital gain rates, respectively) for each taxable year that the entity is classified as a PFIC. If a U.S. Holder makes a QEF Election with respect to us, any distributions paid by us out of our earnings and profits that were previously included in the holder’sU.S. Holder’s income under the QEF Election wouldwill not be taxable to the holder.U.S. Holder. A U.S. Holder will increase its tax basis in its common shares by an amount equal to any income included under the QEF Election and will decrease its tax basis by any amount distributed on the common shares that is not included in the holder’sits income. In addition, a U.S. Holder will recognize capital gain or loss on the disposition of common shares in an amount equal to the difference between the amount realized and the holder’sits adjusted tax basis in the common shares. U.S. Holders should note that if they make QEF Elections with respect to us and Lower-tier PFICs, they may be required to pay U.S. federal income tax with respect to their common shares for any taxable year significantly in excess of any cash distributions received on the shares for such taxable year. U.S. Holders should consult their tax advisers regarding making QEF Elections in their particular circumstances.

Furthermore, if we were a PFIC or, with respect to a particular U.S. Holder, were treated as a PFIC for the taxable year in which we paid a dividend or the prior taxable year, the preferential dividend rate with respect to dividends paid to certain non-corporate U.S. Holders wouldwill not apply.

If we were a PFIC for any taxable year during which a U.S. Holder held common shares, such U.S. Holder would be required to file an annual information report with such U.S. Holder’s U.S. Federal income tax return on IRS Form 8621.

U.S. Holders should consult their tax advisers concerning our PFIC status and the tax considerations relevant to an investment in a PFIC.

Taxation of Distributions

As discussed above under “Item 8. Financial Information—Dividends and Dividend Policy,” we do not currently expect to make distributions on our common shares. In the event that we do make distributions of cash or other property, subject to the passive foreign investment companyPFIC rules described above, distributions paid on common shares, other than certainpro rata distributions of common shares, will be treated as dividends to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). The U.S. dollar amount of a dividend will include any amounts withheld by us in respect of Swiss taxes. The amount of the dividend will be treated as foreign-source dividend income to U.S. Holders and will not be eligible for the dividends-received deduction generally available to U.S. corporations under the Code. Dividends will be included in a U.S. Holder’s income on the date of the U.S. Holder’s receipt of the dividend.
In the event that any dividends are paid prior to the Redomestication, the amount of a dividend will include any amounts
withheld by us in respect of Swiss taxes. The amount of any dividend income paid in Swiss Francs will be the U.S. dollar amount calculated by reference to the exchange rate in effect on the date of receipt, regardless of whether the payment is in fact converted into U.S. dollars. If the dividend is converted into U.S. dollars on the date of receipt, a U.S. Holder should not be required to recognize foreign currency gain or loss in respect of the dividend income. A U.S. Holder may have foreign currency gain or loss if the dividend is converted into U.S. dollars after the date of receipt.

Subject to applicable limitations, some of which vary depending upon the U.S. Holder’s circumstances, Swiss income taxes withheld from dividends on common shares at a rate not exceeding the rate provided by the Treaty may be creditable against the U.S. Holder’s U.S. federal income tax liability. Swiss taxes withheld in excess of the rate applicable under the

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Treaty will not be eligible for credit against a U.S. Holder’s federal income tax liability. The rules governing foreign tax credits are complex, and U.S. Holders should consult their

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tax advisers regarding the creditability of foreign taxes in their particular circumstances. In lieu of claiming a foreign tax credit, U.S. Holders may, at their election, deduct foreign taxes, including the Swiss withholding tax, in computing their taxable income, subject to generally applicable limitations under U.S. law. An election to deduct foreign taxes instead of claiming foreign tax credits applies to all foreign taxes paid or accrued in the taxable year.

Sale or Other Disposition of Common Shares

Subject to the passive foreign investment companyPFIC rules described above, for U.S. federal income tax purposes, gain or loss realized on the sale or other disposition of common shares will be capital gain or loss, and will be long-term capital gain or loss if the U.S. Holder held the common shares for more than one year. The amount of the gain or loss will equal the difference between the U.S. Holder’s tax basis in the common shares disposed of and the amount realized on the disposition, in each case as determined in U.S. dollars. This gain or loss will generally be U.S.-source gain or loss for foreign tax credit purposes.

Treatment of the Redomestication
The Redomestication should qualify as a tax-free “reorganization” within the meaning of Section 368(a) of the Code. Accordingly, the Company should not be subject to U.S. federal income tax as a result of the Redomestication. However, because we believe we were a PFIC for U.S. federal income tax purposes for our 2018 taxable year, and we expect to be a PFIC for our current year, the U.S. federal income tax consequences of the Redomestication for U.S. Holders will turn on the application of certain of the PFIC rules. Section 1291(f) of the Code requires that, to the extent provided in regulations, a U.S. person that disposes of stock of a PFIC recognize gain notwithstanding any other provision of the Code. No final Treasury Regulations have been promulgated under Section 1291(f). Proposed Treasury Regulations were promulgated in 1992 with a retroactive effective date. If finalized in their current form, these regulations would generally require gain (but not loss) to be recognized by U.S. persons exchanging shares in a corporation that is a PFIC at any time during such U.S. person’s holding period of such shares (the “Gain Recognition Rule”). There is an exception to this rule for transactions that qualify as a certain type of reorganization under Section 368(a) of the Code. We believe that the Redomestication should qualify as this type of reorganization. Accordingly, U.S. Holders should not recognize gain for U.S. federal income tax purposes solely as a result of the Redomestication either because Section 1291(f) is determined not to be effective in the absence of final implementing regulations or because any such final regulations are consistent with the proposed regulations. However, because we believe that we are a PFIC, the proposed Treasury Regulations would require a U.S. Holder to file Form 8621 along with its U.S. federal income tax return for the year in which the Redomestication occurs. The proposed regulations would also require a U.S. Holder to attach to this Form 8621 (1) a complete description of the transfer, (2) certain identifying information regarding Auris Medical Holding AG and Auris Medical Holding Ltd. and (3) a statement citing the applicable exception to the Gain Recognition Rule. A U.S. Holder should consult its tax advisor regarding these requirements and the application of Section 1291(f), the Gain Recognition Rule and the exception thereto described above.
We do not intend to request a ruling from the U.S. Internal Revenue Service, or the IRS, as to the U.S. federal income tax consequences of the Redomestication, and consequently there can be no assurance that the IRS or a court of law will treat the Redomestication in the manner described above. If the IRS successfully challenges the treatment of the Redomestication, adverse U.S. federal income tax consequences may result. U.S. Holders should consult their own tax advisors regarding the potential U.S. federal, state and local and non-U.S. and other tax consequences of the Redomestication.
Information Reporting and Backup Withholding

Payments of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries generally are subject to information reporting, and may be subject to backup withholding, unless (i) the U.S. Holder is a corporation or other exempt recipient or (ii) in the case of backup withholding, the U.S. Holder provides a correct taxpayer identification number and certifies that it is not subject to backup withholding.

The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the holder’s U.S. federal income tax liability and may entitle it to a refund, provided that the required information is timely furnished to the IRS.

Information Reporting With Respect to Foreign Financial Assets

Certain U.S. Holders who are individuals and certain entities may be required to report information relating to an interest in our common shares, subject to certain exceptions (including an exception for common shares held in accounts maintained by

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certain U.S. financial institutions). U.S. Holders should consult their tax advisers regarding the effect, if any, of this legislation onwhether or not they are obligated to report information relating to their ownership and disposition of the common shares.

F.Dividends and paying agents

Not applicable.

G.Statement by experts

Not applicable.

H.Documents on display

We are subject to the informational requirements of the Exchange Act. Accordingly, we are required to file reports and other information with the SEC, including annual reports on Form 20-F and reports on Form 6-K. You may inspect and copy reports and other information filed with the SEC at the Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. In addition, theThe SEC maintains an Internet website that contains reports and other information about issuers, like us, that file electronically with the SEC. The address of that website is www.sec.gov.

Additionally, pursuant to Swiss law, any shareholder of record has the right to receive a free copy of this Annual Report and to inspect this Annual Report at any time at our registered offices in Zug.

Under Bermuda law shareholders have the right to inspect the bye-laws of the company, minutes of general meetings and the company’s audited financial statements, which must be presented to the annual general meeting. The register of members of a company is also open to inspection by shareholders and by members of the general public without charge. The register of members is required to be open for inspection for not less than two hours in any business day (subject to the ability of a company to close the register of members for not more than thirty days in a year).
As a foreign private issuer, we are exempt under the Exchange Act from, among other things, the rules prescribing the furnishing and content of proxy statements, and our executive officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we will not be required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act.

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I.Subsidiary information

Not applicable.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Credit Risk

We manage credit risk on a group basis. Credit risk arises from cash and cash equivalents and deposits with banks, as well as from other receivables. Our policy is to invest funds in low risk investments including interest bearing deposits. ForOnly independent banks and financial institutions only independently rated partiesare used and banks with which we currently hold term deposits have a minimum S&P rating of “A” are accepted.. Receivables are not past due and not impaired and include only well-known counterparties.

We hold cash and cash equivalents in our principal operating currencies (CHF, USD and EUR).

Market Risk

In the ordinary course of our business activities, we are exposed to various market risks that are beyond our control, including fluctuations in foreign exchange rates, and which may have an adverse effect on the value of our financial assets and liabilities, future cash flows and profit. As a result of these market risks, we could suffer a loss due to adverse changes in foreign exchange rates. Our policy with respect to these market risks is to assess the potential of experiencing losses and the consolidated impact thereof, and to mitigate these market risks.




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Interest rate risk

We

Interest expense pursuant to borrowings under the loan and security agreement with Hercules is subject to the variability of the prime rate as reported by the Wall Street Journal. An increase or decrease of the prime rate reported effective December 31, 2018 by 50 basis points, with all other factors held constant, would have resulted in a CHF 3,721 increase or decrease of the net annual result (2017: CHF 62,500).
Other than the interest rate risk related to the loan and security agreement, we are not currently exposed to significant interest rate risk because we have no borrowings at variable interest rates, no fixed rate financial liabilities at fair value through profit or loss and no derivatives. Our only variable interest-bearing financial asset is cash at banks. The effect of an increase or decrease in interest rates would only have an immaterial effect in profit or loss.

Currency Risk

We operate internationally and are exposed to foreign exchange risk arising from various exposures, primarily with respect to the US Dollar and Euro. Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities and net investments in foreign operations. To manage foreign exchange risk we maintain foreign currency cash balances to cover anticipated future purchases of materials and services in foreign currencies.

We do not hedge our foreign exchange risk.

As atof December 31, 2015,2018, a 5% increase or decrease in the USD/CHF exchange rate with all other variables held constant would have resulted in a CHF 2,135,522 (2014:9,361 (2017: CHF 2,212,604)832,032) increase or decrease in the net result. Also, a 5% increase or decrease in the EUR/CHF exchange rate with all other variables held constant would have resulted in a CHF 127,692 (2014:19,655 (2017: CHF 24,086)89,403) increase or decrease in the net annual result.

We have subsidiaries in the United States and Ireland, whose net assets are exposed to foreign currency translation risk. Due to the small size of these subsidiaries the translation risk is not significant. In the future we intend to maintain foreign exchange balances matched to the currencies required to fund our primary costs, that is the conduct of our clinical trials.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

A.Debt securities

Not applicable.

B.Warrants and rights

Not applicable.

C.Other securities

Not applicable.

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D.American Depositary Shares

Not applicable.

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PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

A.Defaults

No matters to report.

B.Arrears and delinquencies

No matters to report.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

E.Use of Proceeds

On August 11, 2014, we completed our initial public offering of common shares pursuant to a Registration Statement on Form F-1, as amended (Registration No. 333-197105) that was declared effective on August 5, 2014. Under the registration statement, we sold an aggregate of 10,113,235 common shares, which included 713,235 common shares sold on August 19, 2014 pursuant to an over-allotment option granted to the underwriters.  All of these common shares were sold at a price to the public of US$6.00 per share, yielding gross proceeds of $60.7 million or net proceeds of $56.4 million (CHF 51.3 million) after underwriting discounts and commissions. Jefferies LLC and Leerink Partners LLC were joint book-running managers for the initial public offering. We paid the offering expenses in connection with the initial public offering, which were approximately CHF 2.1 million ($2.3 million), and which included SEC registration fees, FINRA filing fees, NASDAQ listing fees and expenses, legal fees and expenses, printing expenses, transfer agent fees and expenses, accounting fees and expenses as well as other miscellaneous fees and expenses, but excluded the underwriting discounts and commissions.  

Between the effective date of the Registration Statement and December 31, 2015, we used approximately CHF 30.0 million of the net proceeds to fund research and development expenses for AM-101 and AM-111 and general administrative expenses. None of the net proceeds were used to make payments (other than compensation paid to our executive officers, directors and an affiliate of one of our directors, each as described in this Annual Report), directly or indirectly, to (i) any of our directors, officers or their associates, (ii) any persons owning 10% or more of our common shares or (iii) any of our affiliates. The intended use of the remaining net proceeds has not changed from the information mentioned in the prospectus relating to the Registration Statement. 

Not applicable.

ITEM 15. CONTROLS AND PROCEDURES

A.Disclosure Controls and Procedures

As of the end of the period covered by this Annual Report, an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, our principal executive officer and principal financial officer, respectively. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

Based on the evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective, as of the end of the period covered by this Annual Report, in providing a reasonable level of assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods in SEC rules and forms, including providing a reasonable level of assurance that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

B.Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based upon criteria established inInternal Control – Integrated Framework (2013) by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our internal control over financial reporting was effective as of December 31, 2015.2018.

C.Attestation Report of the Registered Public Accounting Firm

This Annual Report does not include an attestation report of our registered public accounting firm due to an exemption provided to emerging growth companies under the JOBS Act.

D.Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the period covered by this Annual Report that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.

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135

ITEM 16. [RESERVED]

ITEM 16A. Audit committee financial expert

Our board of directors has determined that Berndt A.E. Modig and Oliver Kubli areMats Blom is the audit committee financial experts,expert, as that term is defined by the SEC, and areis independent for the purposes of SEC and Nasdaq rules.

ITEM 16B. Code of ethics

Code of Business Conduct and Ethics

We have adopted a Code of Business Conduct and Ethics which covers a broad range of matters including the handling of conflicts of interest, compliance issues and other corporate policies such as insider trading and equal opportunity and non-discrimination standards. Our Code of Business Conduct applies to all of our directors, executive officers and employees. We have published our Code of Business Conduct and Ethics on our website,www.aurismedical.com. The information contained on our website is not a part of this Annual Report.

ITEM 16C. Principal Accountant Fees and Services

  2015 2014
Audit Fees  743   870 
Total fees  743   870 

For the year ended December 31, 2013, KPMG AG was the Company’s auditor for the IFRS and statutory accounts.

 2018 2017
Audit fees228 191
Audit-related fees147 153
Total fees375 344
At the ordinary annual general meeting on April 22, 2014, the shareholders appointed Deloitte AG as the Company’s auditor for the year ended December 31, 2014. Deloitte AG’s was reelected at the ordinary annual general meeting on April 22, 2015.

2015, April 8, 2016, April 13, 2017 and the extraordinary meeting of shareholders on March 12, 2018. On March 13, 2018 following the consummation of the Merger, the successor company implemented the election of Deloitte AG.


In 2014,2018, we were billed CHF 748,219227,985 by KPMGDeloitte AG for audit fees including audit fees in connection with the Company’s initial public offeringaudit services for our annual filing as well as interim reviews, group audit, and statutory audits plus CHF 147,495 in August 2014. We were billed CHF 121,500 by Deloitte AGconnection with audit-related services for audit feeswork in 2014.connection with our equity offerings and registration statements. In 2015,2017, we were billed CHF 582,000190,550, by Deloitte AG in connection with our annual filing as well as interim reviews, group audit, and statutory audits offerings on Form F-1 and the shelf registration on Form F-3 andplus CHF 161,000 by KPMG AG153,446 in connection with our annual filing, as well as offerings on Form F-1audit related services in the context of registration statement fillings and the shelf registration on Form F-3.

issuance of shares and other statutory required audit reports.

Pre-Approval Policies and Procedures

To ensure the independence and objectivity of the Company’s external auditors, the provision of all non-audit services by the external auditors are pre- approvedpre-approved by the Audit Committee.

Pre-Approval Policies and Procedures
To ensure the independence and objectivity of the Company’s external auditors, the provision of all non-audit services by the external auditors are pre-approved by the Audit Committee.
ITEM 16D. Exemptions from the listing standards for audit committees

We rely on an exemption in connection with our initial public offering pursuant to Rule 10A-3(b)(1)(iv)(A) of the Securities Exchange Act in connection with James I. Healy’s membership on the audit committee.

The NASDAQ listing rules mandated by Rule 10A-3(b) of the Exchange Act require, among other things, that each member of the audit committee be independent. A company listing in connection with its initial public offering may phase in its compliance with the independent committee requirement pursuant to Rule 10A-3(b)(1)(iv)(A) of the Exchange Act. Accordingly, a company listing in connection with its initial public offering is permitted to phase in its compliance with the independent committee requirements as follows: (1) one independent member at the time of listing; (2) a majority of independent members within 90 days of listing; and (3) all independent members within one year of listing.

Immediately after our initial public offering, our audit committee consisted of Oliver Kubli, Alain Munoz and James I. Healy. Mr. Kubli and Mr. Munoz meet the independence standards of NASDAQ Listing Rule 5605(a)(2) and satisfied the criteria for independence set forth in Section 10A(m)(3) of the Exchange Act.

Since April 22, 2015 our audit committee consists of Mr. Modig, Mr. Kubli and Mr. Roberts. Messrs. Modig, Kubli and Roberts meet the independence standards of NASDAQ Listing Rule 5605(a)(2) and satisfied the criteria for independence set forth in Section 10A(m)(3) of the Exchange Act. Messrs. Modig and Kubli qualify as audit committee financial experts according to Regulation S-K Item 407(d)(5).

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Not applicable.

ITEM 16E. Purchases of equity securities by the issuer and affiliated purchasers

In 2015,2018, no purchases of our equity securities were made by or on behalf of Auris Medical Holding AG or any affiliated purchaser.



136

ITEM 16F. Change in registrant’s certifying accountant

Not applicable.

ITEM 16G. Corporate governance

Summary of Significant Corporate Governance Differences From Nasdaq Listing Standards

Our common shares are listed on the Nasdaq GlobalCapital Market, or Nasdaq. We are therefore required to comply with certain of the Nasdaq’s corporate governance listing standards, or the Nasdaq Standards. As a foreign private issuer, we may follow our home country’s corporate governance practices in lieu of certain of the Nasdaq Standards. Our corporate governance practices differ in certain respects from those that U.S. companies must adopt in order to maintain a Nasdaq listing. A brief, general summary of those differences is provided as follows.

Independent Directors

Neither Swiss nor Bermuda law does not requirerequires that a majority of our board of directors consist of independent directors. Our board of directors therefore may include fewer independent directors than would be required if we were subject to Nasdaq Listing Rule 5605(b)(1). In addition, we will not be subject to Nasdaq Listing Rule 5605(b)(2), which requires that independent directors must regularly have scheduled meetings at which only independent directors are present.

Audit Committee

We relied on the phase-in rules of the SEC and Nasdaq with respect to the independence of our audit committee. These rules require all members of our audit committee must meet the independence standard for audit committee members within one year of our initial public offering. All current members of our audit committee meet the independence requirements.

Compensation Committee

Although Swiss law also requires that we have a compensation committee, we will follow home country requirements with respect to such committee. While Bermuda law does not require that we have a compensation committee, we have decided to maintain our compensation committee following the same practice, as permitted by Bermuda law following the Redomestication.
As a result, our practice will vary from the requirements of Nasdaq Listing Rule 5605(d), which sets forth certain requirements as to the responsibilities, composition and independence of compensation committees.

Nominating and Corporate Governance Committee

As permitted by the listing requirements of Nasdaq, we have also opted out of the requirements of Nasdaq Listing Rule 5605(e), which requires an issuer to have independent director oversight of director nominations.

Quorum requirements

In accordance with Swiss law and generally accepted business practices, our articles of association do not provide quorum requirements generally applicable to general meetings of shareholders.
Under Bermuda law we are required to specify a quorum in our bye-laws. The Bye-laws provide for a quorum of
two or more persons present at the start of the meeting and representing in person or by proxy issued and outstanding voting
shares in the company. Our practice thus varies from the requirement of Nasdaq Listing Rule 5620(c), which requires an issuer to provide in its bylaws for a generally applicable quorum, and that such quorum may not be less than one-third of the outstanding voting stock.

Solicitation of proxies

Our articles of association provide for an independent proxy holder elected by our shareholders, who may represent our shareholders at a general meeting of shareholders, and we must provide shareholders with an agenda and other relevant documents for the general meeting of shareholders. However, neither Swiss nor Bermuda law does not havehas a regulatory regime for the solicitation of proxies and company solicitation of proxies is prohibited for public companies in Switzerland, thus our practice

137

will vary from the requirement of Nasdaq Listing Rule 5620(b), which sets forth certain requirements regarding the solicitation of proxies.

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Shareholder approval

We have opted out of shareholder approval requirements for the issuance of securities in connection with certain events such as the acquisition of stock or assets of another company, the establishment of or amendments to equity-based compensation plans for employees, a change of control of us and certain private placements. To this extent, our practice varies from the requirements of Nasdaq Listing Rule 5635, which generally requires an issuer to obtain shareholder approval for the issuance of securities in connection with such events.

Third Party Compensation
Neither Swiss nor Bermuda law requires that we disclose information regarding third party compensation of our directors or director nominees.  As a result, our practice varies from the third-party compensation disclosure requirements of Nasdaq Listing Rule 5250(b)(3).
ITEM 16H. Mine safety disclosure

Not applicable.


138

PART III

ITEM 17. Financial statements

We have responded to Item 18 in lieu of this item.

ITEM 18. Financial statements

Financial Statements are filed as part of this Annual Report, see page F-1.

ITEM 19. Exhibits

(a)The following documents are filed as part of this registration statement:

1.1*
1.1
Amended and Restated Articles of Association of the Company (incorporated by reference to exhibit 99.1 of the Auris Medical Holding AG report on Form 6-K filed with the Commission on March 14, 2019)

1.2*
Form of Memorandum of Continuance
1.3*
Form of Bye-laws of the Auris Medical (Bermuda)
2.1
Form of Registration Rights Agreement between Auris Medical Holding AG and the shareholders listed therein (incorporated by reference to exhibit 4.1 of the Auris Medical Holding AG registration statement on Form F-1 (Registration no. 333-197105) filed with the Commission on July 21, 2014)

2.2
Warrant Agreement, dated as of March 13, 2018, between Auris Medical Holding AG and Hercules Capital, Inc. (incorporated by reference to exhibit 2.2 of the Auris Medical Holding AG Annual Report on Form 20-F filed with the Commission on March 22, 2018)
2.3
Registration Rights Agreement, dated as of October 10, 2017 between Auris Medical Holding AG and Lincoln Park
Capital Fund, LLC (incorporated by reference to exhibit 10.3 of the Auris Medical Holding AG report on Form 6-K
filed with the Commission on October 11, 2017)
2.4
Purchase Agreement, dated as of May 2, 2018 between Auris Medical Holding AG and Lincoln Park Capital Fund, LLC (incorporated by reference to exhibit 10.1 of the Auris Medical Holding AG report on Form 6-K filed with the Commission on May 2, 2018)
2.5
Registration Rights Agreement, dated as of May 2, 2018 between Auris Medical Holding AG and Lincoln Park Capital Fund, LLC (incorporated by reference to exhibit 10.2 of the Auris Medical Holding AG report on Form 6-K filed with the Commission on May 2, 2018)
2.6
Form of Pre-Funded Warrant (incorporated by reference to exhibit 4.6 of the Auris Medical Holding AG registration statement on Form F-1 (Registration no. 333-225676) filed with the Commission on July 12, 2018)
2.7
Form of Series A Warrant (incorporated by reference to exhibit 4.7 of the Auris Medical Holding AG registration statement on Form F-1 (Registration no. 333-225676) filed with the Commission on July 12, 2018)
2.8
Form of Series B Warrant (incorporated by reference to exhibit 4.8 of the Auris Medical Holding AG registration statement on Form F-1 (Registration no. 333-225676) filed with the Commission on July 12, 2018)
4.1†
Collaboration and License Agreement, dated October 21, 2003, between Auris Medical AG and Xigen SA (incorporated by reference to exhibit 10.1 of the Auris Medical Holding AG registration statement on Form F-1 (Registration no. 333-197105) filed with the Commission on June 27, 2014)

4.2†
Co-Ownership and Exploitation Agreement, dated September 29, 2003, between Auris Medical AG and INSERM (incorporated by reference to exhibit 10.2 of the Auris Medical Holding AG registration statement on Form F-1 (Registration no. 333-197105) filed with the Commission on June 27, 2014)

4.3
Series C Investment Agreement, dated April 5, 2013 (incorporated by reference to exhibit 10.3 of the Auris Medical Holding AG registration statement on Form F-1 (Registration no. 333-197105) filed with the Commission on June 27, 2014)

4.4Series C Shareholders’ Agreement, dated April 5, 2013 (incorporated by reference to exhibit 10.4 of the Auris Medical Holding AG registration statement on Form F-1 (Registration no. 333-197105) filed with the Commission on June 27, 2014)

4.5Convertible Loan Agreement, dated December 2013, between Auris Medical AG and Sofinnova Venture Partners VIII, L.P. and Sofinnova Capital VII FCPR (incorporated by reference to exhibit 10.5 of the Auris Medical Holding AG registration statement on Form F-1 (Registration no. 333-197105) filed with the Commission on June 27, 2014)

4.6Service Agreement, dated January 2011 between Auris Medical AG and Altamira Pharma GmbH (incorporated by reference to exhibit 10.6 of the Auris Medical Holding AG registration statement on Form F-1 (Registration no. 333-197105) filed with the Commission on June 27, 2014)

4.7Termination of Service Agreement, dated February 2014 between Auris Medical AG and Altamira Pharma GmbH (incorporated by reference to exhibit 10.7 of the Auris Medical Holding AG registration statement on Form F-1 (Registration no. 333-197105) filed with the Commission on June 27, 2014)

4.8Loan Agreement, dated January 2013 between Auris Medical AG and Altamira Pharma GmbH (incorporated by reference to exhibit 10.8 of the Auris Medical Holding AG registration statement on Form F-1 (Registration no. 333-197105) filed with the Commission on June 27, 2014)

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4.9Form of Indemnification Agreement (incorporated by reference to exhibit 10.999.4 of the Auris Medical Holding AG registration statementreport on Form F-1 (Registration no. 333-197105)6-K filed with the Commission on July 21, 2014)May 11, 2016)

4.10English language translation of Lease Agreement between Auris Medical AG and Privera AG (incorporated by reference to exhibit 10.10 of the Auris Medical Holding AG registration statement on Form F-1 (Registration no. 333-197105) filed with the Commission on June 27, 2014)

4.11
4.4
Stock Option Plan A (incorporated by reference to exhibit 10.11 of the Auris Medical Holding AG registration statement on Form F-1 (Registration no. 333-197105) filed with the Commission on June 27, 2014)

4.12
4.5
Stock Option Plan C (incorporated by reference to exhibit 10.12 of the Auris Medical Holding AG registration statement on Form F-1 (Registration no. 333-197105) filed with the Commission on June 27, 2014)
4.6
Equity Incentive Plan, as amended (incorporated by reference to exhibit 99.1 to the Auris Medical Holding AG registration statement on Form S-8 (Registration no. 333-217306) filed with the Commission on April 14, 2017)
4.7
English language translation of Lease Agreement between Auris Medical AG and PSP Management AG (incorporated by reference to exhibit 4.8 of the Auris Medical Holding AG Annual Report on Form 20-F filed with the Commission on March 14, 2017)


139

4.8
Controlled Equity OfferingSM Sales Agreement, dated as of June 1, 2016, between Auris Medical Holding AG and Cantor Fitzgerald & Co. (incorporated by reference to exhibit 1.1 of the Auris Medical Holding AG report on Form 6-K filed with the Commission on June 1, 2016)
4.9
Share Lending Agreement, dated as of June 1, 2016, between Thomas Meyer and Cantor Fitzgerald & Co. (incorporated by reference to exhibit 10.1 of the Auris Medical Holding AG report on Form 6-K filed with the Commission on June 1, 2016)
4.10
Loan and Security Agreement, dated as of July 19, 2016, between Auris Medical Holding AG, the several banks and other financial institutions or entities from time to time parties to the agreement and Hercules Capital, Inc. (incorporated by reference to exhibit 10.1 of the Auris Medical Holding AG report on Form 6-K filed with the Commission on July 19, 2016)
4.11
Consent and Waiver, dated as of March 8, 2018, between Auris Medical Holding AG, the several banks and other financial institutions or entities from time to time parties to the agreement and Hercules Capital, Inc. (incorporated by reference to exhibit 4.12 of the Auris Medical Holding AG Annual Report on Form 20-F filed with the Commission on March 22, 2018)
4.12
Joinder Agreement dated as of March 13, 2018 to the Loan and Security Agreement, dated as of July 19, 2016, between Auris Medical Holding AG, the several banks and other financial institutions or entities from time to time parties to the agreement and Hercules Capital, Inc. (incorporated by reference to exhibit 4.12 of the Auris Medical Holding AG Annual Report on Form 20-F filed with the Commission on March 22, 2018)
4.13
Share Pledge Agreement, dated July 19, 2016, between Auris Medical Holding AG and Hercules Capital, Inc. (incorporated by reference to exhibit 10.3 of the Auris Medical Holding AG report on Form 6-K filed with the Commission on July 19, 2016)
4.14
Claims Security Assignment Agreement, dated July 19, 2016, between Auris Medical Holding AG and Hercules Capital, Inc. (incorporated by reference to exhibit 10.4 of the Auris Medical Holding AG report on Form 6-K filed with the Commission on July 19, 2016)
4.15
Bank Account Claims Security Assignment Agreement, dated July 19, 2016, between Auris Medical Holding AG and Hercules Capital, Inc. (incorporated by reference to exhibit 10.5 of the Auris Medical Holding AG report on Form 6-K filed with the Commission on July 19, 2016)
4.16
Purchase Agreement, dated as of October 10, 2017 between Auris Medical Holding AG and Lincoln Park Capital Fund, LLC (incorporated by reference to exhibit 10.1 of the Auris Medical Holding AG report on Form 6-K filed with the Commission on October 11, 2017)
4.17
Purchase Agreement, dated as of October 10, 2017 between Auris Medical Holding AG and Lincoln Park Capital Fund, LLC (incorporated by reference to exhibit 10.2 of the Auris Medical Holding AG report on Form 6-K filed with the Commission on October 11, 2017)
4.18
Placement Agency Agreement, dated as of January 28, 2018, between Auris Medical Holding AG and Ladenburg Thalmann & Co. Inc. (incorporated by reference to exhibit 1.1 of the Auris Medical Holding AG report on Form 6-K filed with the Commission on January 30, 2018)
4.19
Securities Purchase Agreement, dated as of January 26, 2018 by and among Auris Medical Holding AG and the investors named therein (incorporated by reference to exhibit 10.1 of the Auris Medical Holding AG report on Form 6-K filed with the Commission on January 30, 2018)
4.20
Agreement and Plan of Merger, dated as of February 9, 2018 by and among Auris Medical Holding AG and Auris Medical NewCo Holding AG (incorporated by reference to exhibit 99.3 of the Auris Medical Holding AG report on Form 6-K filed with the Commission on February 9, 2018)
4.21
Share Transfer Agreement, dated as of February 9, 2018 by and between Thomas Meyer and Auris Medical Holding AG (incorporated by reference to exhibit 4.22 of the Auris Medical Holding AG Annual Report on Form 20-F filed with the Commission on March 22, 2018)
4.22
Sales Agreement, dated as of November 30, 2018, between Auris Medical Holding AG and A.G.P./Alliance Global Partners (incorporated by reference to exhibit 1.1 of the Auris Medical Holding AG report on Form 6-K filed with the Commission on November 30, 2018)
8.1
List of subsidiaries (incorporated by reference to exhibit 21.1 of the Auris Medical Holding AG registration statement on Form F-1 (Registration no. 333-197105) filed with the Commission on June 27, 2014)

12.1*
Certification of Thomas Meyer pursuant to 17 CFR 240.13a-14(a)

12.2*
Certification of Sven ZimmermannHernan Levett pursuant to 17 CFR 240.13a-14(a).

13.1*
Certification of Thomas Meyer pursuant to 17 CFR 240.13a-14(b) and 18 U.S.C.1350

13.2*
Certification of Sven ZimmermannHernan Levett pursuant to 17 CFR 240.13a-14(b) and 18 U.S.C.1350U.S.C. 1350

15.1*
Consent of Deloitte AG
101.INS*XBRL Instance Document


140

101.SCH*XBRL Taxonomy Extension Schema Document
101.CAL*XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*XBRL Taxonomy Extension Label Linkbase Document
101.PRE*XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF*XBRL Taxonomy Extension Definition Linkbase Document
___________________
15.2*Consent of KPMG AG

15.3“Item 1.C—2015 Board Compensation” and “Item 2.C—2015 Executive Compensation” of Exhibit 99.4 to our report on Form 6-K filed with the SEC on March 14, 2016

*Filed herewith

†Confidential treatment requested as to portions of the exhibit. Confidential materials omitted and filed separately with the Securities and Exchange Commission.

(b)Financial Statement Schedules

None.

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141

Signatures

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.

 AURIS MEDICAL HOLDING AG
 
   
 By:/s/ Thomas Meyer 
  Name:Thomas Meyer 
  Title:Chief Executive Officer 

Date: March 14, 2016

11, 2019


142


Index to Consolidated Financial Statements

Audited Consolidated Financial Statements—Statements — Auris Medical Holding AG (formerly Auris Medical AG)

As atof December 31, 20152018 and 20142017 and for the years ended December 31, 2015, 2014,2018, 2017, and 2013

2016
Reports
Report of Independent Registered Public Accounting FirmsFirm
F-2
Consolidated Statement of Profit or Loss and Other Comprehensive LossIncome / (Loss)
F-4F-3
Consolidated Statement of Financial Position
F-5F-4
Consolidated Statement of Changes in Equity
F-6F-5
Consolidated Statement of Cash Flows
F-7F-6
Notes to the consolidated financial statements
F-8F-7

F-1


F-1

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors and Shareholders of Auris Medical Holding AG


Opinion on the Financial Statements
We have audited the accompanying consolidated statementstatements of financial position of Auris Medical Holding AG and its subsidiaries (the “Company”) as of December 31, 20152018 and 2014,2017, and the related consolidated statements of profit or loss and other comprehensive loss,income / (loss), changes in equity, and cash flows for each of the twothree years in the period ended December 31, 2015. 2018, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of Auris Medical Holding AG and its subsidiaries as of December 31, 2018 and 2017, and the results of their operations, and their cash flows for each of the three years in the period ended December 31, 2018, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Retrospective adjustment of loss per share information
As discussed in Note 21 to the financial statements, the basic and diluted loss per share in the accompanying 2017 and 2016 financial statements have been retrospectively adjusted to reflect the common share reverse-split ratio of 10 to 1.
Basis for Opinion
These financial statements are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. OurAs part of our audits, included considerationwe are required to obtain an understanding of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Auris Medical Holding AG and its subsidiaries as of December 31, 2015 and 2014, and the results of its operations, and cash flows for each of the two years in the period ended December 31, 2015, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Deloitte AG

/s/ James D. HoriguchiMatthias Gschwend/s/ Adrian Kaeppeli
James D. HoriguchiAdrian Kaeppeli 
Auditor in Charge  
Zurich, Switzerland
March 14, 2019

Zurich, Switzerland

March 10, 2016

F-2


We have served as the Company's auditor since 2014.


F-2
Table of Contents

Report of Independent Registered Public Accounting Firm

The Board of Directors

Auris Medical AG:

We have audited the accompanying consolidated statements of profit or loss and other comprehensive loss, changes in equity and cash flows of Auris Medical AG and subsidiaries (the “Company”) for the year ended December 31, 2013.These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and the cash flows of Auris Medical AG and subsidiaries for the year ended December 31, 2013, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

KPMG AG

/s/ Martin Rohrbach/s/ Charles Errico
Martin RohrbachCharles Errico

Zurich, Switzerland

March 18, 2014

F-3

Table of Contents

AURIS MEDICAL HOLDING AG (formerly Auris Medical AG)



Consolidated Statement of Profit or Loss and Other Comprehensive Loss

Income / (Loss)

For the Years Ended December 31, 2015, 20142018, 2017 and 2013

2016

(in CHF)

  Note 2015 2014 2013
Research and development  16   -26,536,176   -17,704,461   -13,253,638 
General and administrative  17   -4,341,570   -4,489,051   -1,362,211 
Operating loss      -30,877,746   -22,193,512   -14,615,849 
Interest income  19   36,562   52,133   74,036 
Interest expense  19   -7,985   -55,810   -52,631 
Foreign currency exchange gains/(losses), net  19   1,144,106   4,012,174   -104,299 
Loss before tax      -29,705,063   -18,185,015   -14,698,743 
Income tax expense  20   –   –   -305,750 
Net loss attributable to owners of the Company      -29,705,063   -18,185,015   -15,004,493 
Other comprehensive loss:                
Items that will never be reclassified to profit or loss*                
Remeasurements of defined benefit liability, net of taxes of CHF 0  18   -53,916   -1,101,468   -57,716 
Items that are or may be reclassified to profit or loss      ��         
Foreign currency translation differences, net of taxes of CHF 0      -12,712   -105,104   31,720 
Other comprehensive loss, net of taxes of CHF 0*      -66,628   -1,206,572   -25,996 
Total comprehensive loss attributable to owners of the Company      -29,771,691   -19,391,587   -15,030,489 
Basic and diluted loss per share  21   -0.92   -0.66   -1.01 

*the net effect of taxes was CHF 0 for 2014 and 2013

 Note 2018
 2017
 2016
Research and development16 (6,689,589) (19,210,842) (24,776,763)
General and administrative17 (4,264,534) (5,150,409) (5,446,512)
Operating loss  (10,954,123) (24,361,251) (30,223,275)
Interest income19 —
 53,570
 67,565
Interest expense19 (1,070,177) (1,640,394) (828,547)
Foreign currency exchange loss, net  (139,870) (824,592) (100,097)
Revaluation gain from derivative financial instruments19, 24, 25 1,350,071
 3,372,186
 291,048
Transaction costs  (520,125) (1,026,766) —
Loss before tax  (11,334,224) (24,427,247) (30,793,306)
Income tax gain/(loss)20 (162,177) 17,773
 131,055
Net loss attributable to owners of the Company  (11,496,401) (24,409,474) (30,662,251)
Other comprehensive income/(loss):       
Items that will never be reclassified to profit or loss       
Remeasurements of defined benefit liability,       
net of taxes of CHF 018 1,277,192
 271,980
 (394,102)
Items that are or may be reclassified to profit or loss       
Foreign currency translation differences,       
net of taxes of CHF 0  (10,964) 50,497
 (19,723)
Other comprehensive income/(loss), net of taxes of CHF 0  1,266,228
 322,477
 (413,825)
Total comprehensive loss attributable to owners of the Company  (10,230,173) (24,086,997) (31,076,076)
Basic and diluted loss per share21 (0.72) (5.58) (8.93)
The accompanying notes form an integral part of these consolidated financial statements.

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Table of Contents

AURIS MEDICAL HOLDING AG (formerly Auris Medical AG)



Consolidated Statement of Financial Position

As of December 31, 20152018 and 2014

2017

(in CHF)

  Note December 31,
2015		 December 31,
2014
ASSETS      
Non-current assets      
Property and equipment 7  222,570   235,427 
Intangible assets 8  1,482,520   1,482,520 
Deferred tax asset 20  —   32,761 
Other non-current receivables    38,066   — 
Total non-current assets    1,743,156   1,750,708 
           
Current assets          
Other receivables 9  650,716   542,538 
Prepayments 10  181,044   265,170 
Cash and cash equivalents 11  50,237,300   56,934,325 
Total current assets    51,069,060   57,742,033 
           
Total assets    52,812,216   59,492,741 
EQUITY AND LIABILITIES          
Equity          
Share capital 12  13,721,556   11,604,156 
Share premium    112,662,910   93,861,171 
Foreign currency translation reserve    -63,821   -51,108 
Accumulated deficit    -81,578,733   -52,131,426 
Total shareholders’ equity attributable to owners of the Company    44,741,912   53,282,793 
           
Non-current liabilities          
Employee benefits 18  1,575,833   1,410,598 
Deferred tax liabilities 20  327,637   360,398 
Total non-current liabilities    1,903,470   1,770,996 
           
Current liabilities          
Trade and other payables 14  1,205,522   3,234,384 
Accrued expenses 15  4,961,312   1,204,568 
Total current liabilities    6,166,834   4,438,952 
           
Total liabilities    8,070,304   6,209,948 
           
Total equity and liabilities    52,812,216   59,492,741 

 Note December 31, 2018 December 31, 2017
ASSETS     
Non-current assets     
Property and equipment7 33,895
 252,899
Intangible assets8 3,535,240
 1,629,100
Derivative financial instruments  226,865
 —
Other non-current receivables  16,001
 76,710
Total non-current assets  3,812,001
 1,958,709
      
Current assets     
Other receivables9 320,374
 241,281
Prepayments10 351,283
 652,913
Cash and cash equivalents11 5,393,207
 14,973,369
Total current assets  6,064,864
 15,867,563
      
Total assets  9,876,865
 17,826,272
      
EQUITY AND LIABILITIES     
Equity     
Share capital12 710,336
 19,349,556
Share premium  149,286,723
 114,648,228
Foreign currency translation reserve  (44,011) (33,047)
Accumulated deficit  (146,303,398) (136,126,946)
Total shareholders' (deficit)/equity attributable to owners of the Company  3,649,650
 (2,162,209)
      
Non-current liabilities     
Loan24 —
 5,584,297
Derivative financial instruments24, 25 675,328
 1,836,763
Employee benefit liability18 648,287
 1,962,970
Deferred tax liabilities20 340,986
 178,809
Total non-current liabilities  1,664,601
 9,562,839
      
Current liabilities     
Loan24 1,435,400
 4,542,109
Trade and other payables14 1,836,335
 1,200,820
Accrued expenses15 1,290,879
 4,682,713
Total current liabilities  4,562,614
 10,425,642
Total liabilities  6,227,215
 19,988,481
Total equity and liabilities  9,876,865
 17,826,272
The accompanying notes form an integral part of these consolidated financial statements.

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F-4
Table of Contents

AURIS MEDICAL HOLDING AG (formerly Auris Medical AG)



Consolidated Statement of Changes in Equity

For the Years Ended

As of December 31, 2015, 2014,2018, 2017 and 2013

2016

(in CHF)

    Attributable to Owners of the Company
  Note Share Capital Share Premium Foreign Currency Translation Reserve Accumulated Deficit Total Equity
             
As of January 1, 2013    4,632,580   13,341,942   22,275   -18,240,831   -244,034 
Total comprehensive loss                      
Net loss    –   –   –   -15,004,493   -15,004,493 
Other comprehensive income (loss)    –   –   31,720   -57,716   -25,996 
                       
Total comprehensive loss    –   –   31,720   -15,062,209   -15,030,489 
                       
Transactions with owners of the Company                      
Issue of ordinary shares    1,854,550   22,625,510   –   –   24,480,060 
Share issuance costs    –   -359,242   –   –   -359,242 
Convertible loans - equity component    –   –   –   99,038   99,038 
Convertible loans - deferred tax    –   –   –   -21,886   -21,886 
Share based payments                110,198   110,198 
                       
Balance at December 31, 2013    6,487,130   35,608,210   53,995   -33,115,689   9,033,646 
                       
As of January 1, 2014    6,487,130   35,608,210   53,995   -33,115,689   9,033,646 
Total comprehensive loss                      
Net loss    –   –   –   -18,185,015   -18,185,015 
Other comprehensive loss    –   –   -105,104   -1,101,468   -1,206,572 
                       
Total comprehensive loss    –   –   -105,104   -19,286,483   -19,391,587 
                       
Transactions with owners of the Company                      
Issue of ordinary shares associated with Initial Public Offering (“IPO”) 12  4,045,294   47,261,446   –   –   51,306,740 
Issuance costs associated with IPO 12  –   -1,815,056   –   –   -1,815,056 
Conversion of convertible loan    1,043,180   12,717,655   –   –   13,760,835 
Share issuance costs    –   -136,697   –   –   -136,697 
Share based payments 13  –   –   –   270,747   270,747 
Share options exercised 13  28,552   225,613   –   –   254,165 
                       
Balance at December 31, 2014    11,604,156   93,861,171   -51,109   -52,131,426   53,282,793 
As of January 1, 2015    11,604,156   93,861,171   -51,109   -52,131,426   53,282,793 
Total comprehensive loss                      
Net loss    –   –   –   -29,705,063   -29,705,063 
Other comprehensive loss    –   –   -12,712   -53,916   -66,628 
                       
Total comprehensive loss    –   –   -12,712   -29,758,979   -29,771,691 
                       
Transactions with owners of the Company                      
Capital increase from follow-on offering 12  2,110,000   19,604,877   –   –   21,714,877 
Transaction costs    –   -643,796   –   –   -643,796 
Share issuance costs    –   -211,142   –   –   -211,142 
Share based payments 13  –   –   –   311,671   311,671 
Share options exercised 13  7,400   51,800   –   –   59,200 
                       
Balance at December 31, 2015    13,721,556   112,662,910   -63,821   -81,578,733   44,741,912 

 Note 
Share
Capital
 
Share
Premium
 
Foreign
Currency
Translation
Reserve
 
Accumulated
Deficit
 
Total
Equity / (Deficit)
As of January 1, 2016  13,721,556
 112,662,910
 (63,821) (81,578,733) 44,741,912
Total comprehensive loss           
Net loss  —
 —
 —
 (30,662,251) (30,662,251)
Other comprehensive loss  —
 —
 (19,723) (394,102) (413,825)
Total comprehensive loss  —
 —
 (19,723) (31,056,353) (31,076,076)
            
Transactions with owners of the Company           
Issue of bonus shares13 10,325
 177,767
 —
 —
 188,092
Share issuance costs13 —
 (1,862) —
 —
 (1,862)
Share based payments13 —
 —
 —
 290,783
 290,783
Balance at December 31, 2016  13,731,881
 112,838,815
 (83,544) (112,344,303) 14,142,849
            
As of January 1, 2017  13,731,881
 112,838,815
 (83,544) (112,344,303) 14,142,849
Total comprehensive loss           
Net loss  —
 —
 —
 (24,409,474) (24,409,474)
Other comprehensive income  —
 —
 50,497
 271,980
 322,477
Total comprehensive income / (loss)  —
 —
 50,497
 (24,137,494) (24,086,997)
            
Transactions with owners of the Company           
Capital increase from follow-on offering  5,617,675
 2,330,928
 —
 —
 7,948,603
Transaction costs  —
 (521,515) —
 —
 (521,515)
Share based payments13 —
 —
 —
 354,851
 354,851
Balance at December 31, 2017  19,349,556
 114,648,228
 (33,047) (136,126,946) (2,162,209)
            
As of January 1, 2018  19,349,556
 114,648,228
 (33,047) (136,126,946) (2,162,209)
Total comprehensive loss           
Net loss  —
 —
 —
 (11,496,401) (11,496,401)
Other comprehensive income / (loss)  —
 —
 (10,964) 1,277,192
 1,266,228
Total comprehensive loss  —
 —
 (10,964) (10,219,209) (10,230,173)
            
Transactions with owners of the Company           
Reorganization of group structure  (24,347,208) 24,347,208
 —
 —
 —
Capital increase / Exercise of warrants  5,707,988
 11,550,874
 —
 —
 17,258,862
Transaction costs  —
 (1,259,587) —
 —
 (1,259,587)
Share based payments13 —
 —
 —
 42,757
 42,757
Balance at December 31, 2018  710,336
 149,286,723
 (44,011) (146,303,398) 3,649,650
The accompanying notes form an integral part of these consolidated financial statements.

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F-5
Table of Contents

AURIS MEDICAL HOLDING AG (formerly Auris Medical AG)




Consolidated Statement of Cash Flows

For the Years Ended December 31, 2015, 20142018, 2017, and 2013

2016

(in CHF)

  Note 2015 2014 2013
Cash flows from operating activities        
Net loss    -29,705,063   -18,185,015   -15,004,493 
Adjustments for:              
Depreciation 16,17  92,777   73,984   37,517 
Unrealized foreign currency exchange (gains)/losses, net    -1,167,227   -4,066,452   32,076 
Net interest income 19  -36,390   -2,498   -23,859 
Share option costs 13  311,671   270,747   110,198 
Employee benefits    111,321   -19,211   27,980 
Income tax expense 20  –   –   305,750 
     -30,392,911   -21,928,445   -14,514,831 
Changes in:              
Other receivables    -146,244   -17,634   -288,765 
Prepayments    84,126   -82,033   -98,812 
Trade and other payables    -2,028,862   2,279,626   530,080 
Accrued expenses    3,756,744   432,449   328,719 
Cash used in operating activities    -28,727,147   -19,316,037   -14,043,609 
               
Cash flows from investing activities              
Purchase of property and equipment 7  -79,920   -113,496   -108,936 
Purchase of intangibles    –   -1,125,000   – 
Interest received 19  36,562   52,133   74,036 
Net cash used in investing activities    -43,358   -1,186,363   -34,900 
               
Cash flows from financing activities              
Proceeds from share capital increase    –   –   24,120,818 
Proceeds from exercise of options 12  59,200   254,165   – 
Share issuance costs    -211,142   -136,697   – 
Proceeds from issue of convertible loans    –   –   13,769,976 
Proceeds from follow-on offering, net of underwriting fees and follow-on offering costs 12  21,071,081   –   – 
Proceeds from IPO, net of underwriting fees and IPO costs 12  –   50,037,847   – 
Share issuance costs IPO 12  –   -546,163   – 
Interest paid 19  –172   –   -9,915 
Net cash from financing activities    20,918,967   49,609,152   37,880,879 
               
Net (decrease)/increase in cash and cash equivalents    -7,851,538   29,106,752   23,802,370 
Cash and cash equivalents at beginning of the period    56,934,325   23,865,842   63,967 
Net effect of currency translation on cash    1,154,513   3,961,731   -495 
Cash and cash equivalents at end of the period    50,237,300   56,934,325   23,865,842 

 Note 2018
 2017
 2016
Cash flows from operating activities       
Net loss  (11,496,401) (24,409,474) (30,662,251)
Adjustments for:       
Depreciation16, 17 72,713
 122,784
 97,600
Unrealized foreign currency exchange loss, net  211,214
 776,165
 99,091
Net interest expense19 1,052,787
 1,568,781
 748,840
Loss on disposal of property and equipment  78,133
 —
 —
Share based payments13 27,730
 354,851
 290,783
Transaction costs  520,125
 1,026,766
 —
Employee benefits  (37,491) 142,514
 122,501
Revaluation gain derivative financial instruments24, 25 (1,350,071) (3,372,186) (291,048)
Income tax gain20 162,177
 (17,773) (131,055)
   (10,759,084) (23,807,572) (29,725,539)
Changes in:       
Other receivables  (18,390) 93,328
 277,483
Prepayments  301,628
 299,684
 (771,551)
Trade and other payables  635,516
 (637,177) 632,474
Accrued expenses  (3,391,834) (224,028) 133,522
Net cash used in operating activities  (13,232,164) (24,275,765) (29,453,611)
        
Cash flows from investing activities       
Purchase of property and equipment7 —
 (6,389) (244,324)
Purchase of intangibles8 (1,891,115) (146,580) —
Proceeds from disposals of property and equipment  68,160
 —
 —
Interest received19 —
 53,570
 67,553
Net cash from / (used) in investing activities  (1,822,955) (99,399) (176,771)
        
Cash flows from financing activities       
Share issuance costs12 —
 —
 (1,862)
Proceeds from issue of loan with warrant24 —
 —
 11,986,671
Proceeds from follow-on offering12, 25 17,447,499
 13,039,066
 —
Transaction costs12 (2,006,577) (1,548,281) —
Repayment of loan  (9,272,328) (2,087,076) —
Interest paid19, 24 (435,993) (1,182,369) (546,170)
Net cash from financing activities  5,732,601
 8,221,340
 11,438,639
        
Net decrease in cash and cash equivalents  (9,322,518) (16,153,824) (18,191,743)
Cash and cash equivalents at beginning of the period  14,973,369
 32,442,222
 50,237,300
Net effect of currency translation on cash  (257,644) (1,315,029) 396,665
Cash and cash equivalents at end of the period  5,393,207
 14,973,369
 32,442,222
The accompanying notes form an integral part of these consolidated financial statements.

F-7


F-6
Table of Contents

AURIS MEDICAL HOLDING AG (formerly Auris Medical AG)




Notes to the Consolidated Financial Statements

as of December 31, 2015, and 2014

and for the Years Ended December 31, 2015, 2014 and 2013 (in CHF)

1. Reporting entity

Auris Medical Holding AG (the “Company”) is a joint-stock companycorporation (Aktiengesellschaft) organized in accordance with Swiss law and domiciled in Switzerland. The Company’s registered address is Bahnhofstrasse 21, 6300 Zug. These consolidated financial statements comprise the Company and its subsidiaries (together referred to as the “Group” and individually as “Group entities”). The Company is the ultimate parent of the following Group entities:

·Auris Medical AG, Basel, Switzerland (100%) with a nominal share capital of CHF 2,500,000

·Otolanum AG, Zug, Switzerland (100%) with a nominal share capital of CHF 100,000

·Auris Medical Inc., Chicago, United States (100%) with a nominal share capital of USD 15,000

·Auris Medical Ltd., Dublin, Ireland (100%) with a nominal share capital of EUR 100

Auris Medical AG, Basel, Switzerland (100%) with a nominal share capital of CHF 2,500,000
Otolanum AG, Zug, Switzerland (100%) with a nominal share capital of CHF 100,000
Auris Medical Inc., Chicago, United States (100%) with a nominal share capital of USD 15,000
Auris Medical Ltd., Dublin, Ireland (100%) with a nominal share capital of EUR 100
On April 22, 2014, wethe Company changed ourits name from Auris Medical AG to Auris Medical Holding AG. On May 21, 2014 the domicile of Auris Medical Holding AG was transferred from Basel to Zug.

On March 13, 2018, the Company ("Auris OldCo") merged (the “Merger”) into Auris Medical NewCo Holding AG (“Auris NewCo”), a newly incorporated, wholly-owned Swiss subsidiary following shareholder approval at an extraordinary general meeting of shareholders held on March 12, 2018. Following the Merger, Auris NewCo, the surviving company, had a share capital of CHF 122,347.76, divided into 6,117,388 common shares with a nominal value of CHF 0.02 each. Pursuant to the Merger, the Company’s shareholders received one common share with a nominal value of CHF 0.02 of Auris NewCo for every 10 of the Company's common shares held prior to the Merger, effectively resulting in a “reverse stock split” at a ratio of 10-for-1. Auris NewCo changed its name to “Auris Medical Holding AG” following consummation of the Merger. On March 14, 2018 the common shares of Auris NewCo began trading on the Nasdaq Capital Market under the trading symbol “EARS.”

The Group is primarily involved in the development of pharmaceutical products for the treatment of inner ear and vestibular disorders, in particular tinnitus and hearing loss. Its most advanced projects are in the late stage of clinical development.


2. Basis of preparation

Statement of compliance

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”).

These consolidated financial statements were approved by the Board of Directors of the Company on March 10, 2016.

13, 2019.

Basis of measurement

The consolidated financial statements are prepared on the historical cost basis, except for the revaluation to fair value of certain financial assets.liabilities. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. The principal accounting policies adopted are set out below.

In addition, for financial reporting purposes, fair value measurements are categorized into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date
Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and
Level 3 inputs are unobservable inputs for the asset or liability.
Functional and reporting currency

These consolidated financial statements are presented in Swiss Francs (“CHF”), which is the Company’s functional (“functional currency”) and the Group’s reporting currency.


F-7

Use of estimates and judgments

The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions of accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Information about judgments made in applying accounting policies that have the most significant effects on the amounts recognized in the consolidated financial statements are described below.

Income taxes

As disclosed in Note 20 the Group has significant tax losses in Switzerland. These tax losses represent potential value to the Group to the extent that the Group is able to create taxable profits in Switzerland prior to expiry of such losses. Tax losses may be used within 7 years from the year the losses arose.

The Group also has tax losses in the United States which may be used within 20 years of the end of the year in which losses arose, or for a shorter time period in accordance with prevailing state law.

F-8

TableOther than a tax asset in the amount of Contents

TheCHF 305,206, the Group has not recorded any deferred tax assets in relation to these tax losses. The key factors which have influenced management in arriving at this evaluation are the fact that the business is still in a development phase and the Group has not yet a history of making profits. Should management’s assessment of the likelihood of future taxable profits change, a deferred tax asset will be recorded.

Income tax gain reflects the reassessment of deferred tax assets and liabilities booked in the 2018 fiscal year.

Development expenditures

The project stage forms the basis for the decision as to whether costs incurred for the Group’s development projects can be capitalized. GenerallyFor AM-101, AM-111 and AM-201 clinical development expenditures are not capitalized until the Group obtains regulatory approval (i.e. approval to commercially use the product), as this is considered to be essentially the first point in time where it becomes probable that future revenues can be generated. For the Group's intranasal betahistine program for the treatment of vertigo (AM-125), however, the development program of intranasal betahistine is primarily focused on the delivery route and formulation and not the drug itself (already an approved generic) and to demonstrate higher bioavailability through intranasal delivery. Given the current stagenature of the Group’s development projects, noapproach and the fact that there is an existing market in which oral betahistine for the treatment of vertigo has been approved, direct development expenditures have yet been capitalized. TheIn addition, the Group has capitalized certain milestone payments with regard to license payments.

As of each reporting date, the Group estimates the level of service performed by the vendors and the associated costs incurred for the services performed. As part of the process of preparing the Group’s financial statements, the Group is required to estimate its accrued expenses. This process involves reviewing contracts, identifying services that have been performed on the Group’s behalf and estimating the level of service performed and the associated cost incurred for the service when it has not yet been invoiced or otherwise notified of the actual cost.

Employee benefits

The Group maintains a pension plan for all employees in Switzerland through payments to a legally independent collective foundation. This pension plan qualifies under IFRS as defined benefit pension plan.

The Group’s net obligation in respect of defined benefit plans is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods, discounting that amount and deducting the fair value of any plan assets. The Company makes relevant actuarial assumptions with regard to the discount rate, future salary increases and life expectancy.





F-8

Considering reorganization / Merger

The Merger is not a business combination and is accounted for as a reorganization. Therefore, the consolidated financial statements of the Company are a continuation of the financial information of Auris Old Co except that the consolidated financial statements reflect a classification between share capital and share premium in order to reflect the share capital of Auris NewCo. For the periods prior to the Merger, in calculating loss per share, the weighted average number of shares outstanding is calculated based on the number of weighted average shares issued by Auris Old Co, adjusted for the reverse stock split ratio of 10-for-1 resulting from the Merger.

3. Significant accounting policies

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, unless otherwise indicated.

Basis of consolidation

Subsidiaries

Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.

Transactions eliminated on consolidation

All inter-company balances, transactions and unrealized gains on transactions have been eliminated in consolidation. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

Segment reporting

A segment is a distinguishable component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components.

The Chief Executive Officer is determined to be the Group’s Chief Operating Decision Maker (“CODM”). The CODM assesses the performance and allocates the resources of the Group as a whole, as all of the Group’s activities are focusing on the development of pharmaceutical products for the treatment of inner ear disorder.and vestibular disorders. Financial information is only available for the Group as a whole. Therefore, management considers there is only one operating segment under the requirements of IFRS 8, Operating Segments.

Foreign currency

Foreign currency transactions

Items included in the financial statements of Group entities are measured using the currency of the primary economic environment in which the entity operates. Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in profit or loss. Non-monetary items that are measured based on historical cost in a foreign currency are not re-translated.

F-9

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Foreign operations

Assets and liabilities of Group entities whose functional currency is other than CHF are included in the consolidation by translating the assets and liabilities into the reporting currency at the exchange rates applicable at the end of the reporting period. Income and expenses are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transaction).

Foreign


F-9

These foreign currency translation differences are recognized in Other Comprehensive Loss and presented in the foreign currency translation reserve in equity. When a foreign operation is disposed of such that control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal.

Closing rates for the most significant foreign currencies:

currencies relative to CHF:
Currency   Geographical area Reporting
entities		 December 31,
2015		 December 31,
2014		 December 31,
2013		   Geographical area 
Reporting
entities
 December 31, 2018 December 31, 2017 December 31, 2016
CHF Swiss Franc Switzerland  3/1*  1.0000   1.0000   1.0000  Swiss Franc Switzerland 3
 1.0000
 1.0000
 1.0000
USD Dollar United States  1   1.0014   0.9895   0.8894  Dollar United States 1
 0.9827
 0.9725
 1.0196
EUR Euro Europe  1   1.0875   1.2027   1.2255  Europe Europe 1
 1.1283
 1.1713
 1.0723
                            

* There were three operating entities in 2015 and 2014 and there was one operating entity in 2013.

Average exchange rates for the year for the most significant foreign currencies:

currencies relative to CHF:
Currency   Geographical area Reporting
entities		 2015 2014 2013   Geographical area 
Reporting
entities
 2018 2017 2016
CHF Swiss Franc Switzerland  3/1*  1.0000   1.0000   1.0000  Swiss Franc Switzerland 3
 1.0000
 1.0000
 1.0000
USD Dollar United States  1   0.9613   0.9150   0.9391  Dollar United States 1
 0.9768
 0.9849
 0.9855
EUR Euro Europe  1   1.0659   1.2144   1.2414  Europe Europe 1
 1.1573
 1.1116
 1.0901
                            

* There were three operating entities in 2015 and 2014 and one operating entity in 2013.

Property and equipment

Property and equipment is measured at historical costs less accumulated depreciation and any accumulated impairment losses. Historical costs include expenditures that are directly attributable to the acquisition of the items. When parts of an item of tangible assets have different useful lives, they are accounted for as separate tangible asset items (major components). Depreciation is calculated on a straight-line basis over the expected useful life of the individual asset or the shorter remaining lease term for leasehold improvements. The applicable estimated useful lives are as follows:

  
Production equipment5 years
Office furniture and electronic data processing equipment (“EDP”)3 years
Leasehold improvements5 years
  

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred.

Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. When an asset is reviewed for impairment, the asset’s carrying amount may be written down immediately to its recoverable amount, provided the asset’s carrying amount is greater than its estimated recoverable amount. Management assesses the recoverable amount by assessing the higher of its fair value less costs to sell or its value in use.

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Cost and accumulated depreciation related to assets retired or otherwise disposed are removed from the accounts at the time of retirement or disposal and any resulting gain or loss is included in profit or loss in the period of disposition.

Intangible assets

Research and development

Expenditures on the Group’s research programs are not capitalized, they are expensed when incurred.


F-10

Expenditures on the Group’s development programs are generally not capitalized except if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. For the development projects of the Group, these criteria are generally only met when regulatory approval for commercialization is obtained. GivenThis has been the current stagegeneral assessment for AM-101, AM-111 and AM-201. For the AM-125 program for the treatment of Vertigo it is the development projects, noGroup assessment that the criteria mention above is met and therefore direct development expenditures (other than certain milestone payments) have been capitalized for AM-125 in 2014 and 2015.2018. Intellectual property-related costs for patents are part of the expenditure for research and development projects. Therefore, registration costs for patents are expensed when incurred as long as the research and development project concerned does not meet the criteria for capitalization.

Licenses,

intellectual property and data rights

Intellectual property rights that are acquired by the Group are capitalized as intangible assets if they are controlled by the Group, are separately identifiable and are expected to generate future economic benefits, even if uncertainty exists as to whether the research and development will ultimately result in a marketable product. Consequently, upfront and milestone payments to third parties for the exclusive use of pharmaceutical compounds in specified areas of treatment are recognized as intangible assets.

Measurement

Intangible assets acquired that have finite useful lives are measured at cost less accumulated amortization and any accumulated impairment losses.

Subsequent expenditure

Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognized in profit or loss as incurred.

Amortization

All licenses of the Group have finite lives. Amortization will commence once the Group’s intangible assets are available for use which will be the case after regulatory approvals are obtained and the related products are available for use. Amortization of licenses is calculated on a straight line basis over the period of the expected benefit or until the license expires, whichever is shorter. The estimated useful life is 10 years or the remaining term of patent protection. The Group assesses at each statement of financial position date whether intangible assets which are not yet ready for use are impaired.

Impairment of non-financial assets

Property and equipment and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). An impairment loss is recognized as the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell or value in use. Impairment losses are recognized in profit or loss. Assets that were previously impaired are reviewed for possible reversal of the impairment at each reporting date. Any increase in the carrying amount of an asset will be based on the depreciated historical costs had the initial impairment not been recognized.

Financial instruments

The Group classifies its financial assets in the following categories: loans and receivables and available-for-sale financial assets.based on the expected loss model. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

The date of initial application (i.e. the date on which the Company classifies non-derivativehas assessed its existing financial assets and financial liabilities as other liabilities.

in terms of IFRS 9 requirements) is January 1, 2018. Accordingly, the Company has applied the requirements of IFRS 9 to instruments that continue to be recognized at January 1, 2018 whereas for the year ended December 31, 2017 IAS 39 was applied.




F-11

Recognition and derecognition of non-derivative financial assets and liabilities

The Group initially recognizes loans and receivables and debt securities issued on the date when they are originated. All other financial assets and financial liabilities are initially recognized on the trade date.

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The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred, or it neither transfers nor retains substantially all of the risks and rewards of ownership and does not retain control over the transferred asset. Any interest in such derecognized financial assets that is created or retained by the Group is recognized as a separate asset or liability.

The Group derecognizes a financial liability when its contractual obligations are discharged, cancelled, or expired.

Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.

Non-derivative financial assets and liabilities—measurement

Loans and receivables

receivable

These are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are initially recognized at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortized cost using the effective interest method, less any impairmentexpected losses. Loans and receivables are mainly comprised of other receivables and cash and cash equivalents.

Cash and cash equivalents

The Group considers all short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value with original maturities of three months or less at the date of the purchase to be cash equivalents.

Non-derivative financial liabilities - liabilities—measurement

Non-derivative financial liabilities are initially recognized at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these liabilities are measured at amortized cost using the effective interest method.

Share capital

All shares of the Company are registered shares and classified as part of shareholders’ equity. Incremental costs directly attributable to the issue of the Company’s shares, net of any tax effects, are recognized as a deduction from equity. The warrants are classified as a financial liability at fair value through profit or loss and the cost allocated to the liability component will be immediately expensed to the income statement.
The Company has not paid any dividends since its inception and does not anticipate paying dividends in the foreseeable future.

Repurchase and reissue of ordinary shares (treasury shares)

When shares recognized as equity are repurchased, the amount of the consideration paid, which includes directly attributable costs, net of any tax effects, is recognized as a deduction from equity. Repurchased shares are classified as treasury shares and are presented in the treasury share reserve. When treasury shares are sold or reissued subsequently, the amount received is recognized as an increase in equity and the resulting surplus or deficit (calculated as the difference between initial cost and fair value) on the transaction is presented within share premium.

Convertible loans

The component parts of convertible loans issued by the Company are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangement. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for a similar non-convertible instrument. This amount is recorded as a liability on an amortized cost basis using the effective interest method until extinguished upon conversion or at the instrument’s maturity date. The equity component is determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole. This is recognized and included in equity, net of income tax effects, and is not subsequently remeasured.

Impairment of non-derivative financial assets

Financial assets are assessed at each reporting date to determine whether there is objective evidence of impairment.

Objective evidence that financial assets are impaired includes:

·default or delinquency by a debtor;

·indications that a debtor or issuer will enter bankruptcy;

F-12


F-12
Table of Contents

·adverse changes in the payment status of borrowers or issuers;

·the disappearance of an active market for a security; or

·observable data indicating that there is measurable decrease in expected cash flows from a group of financial assets.



default or delinquency by a debtor;
indications that a debtor or issuer will enter bankruptcy;
adverse changes in the payment status of borrowers or issuers;
the disappearance of an active market for a security; or
observable data indicating that there is measurable decrease in expected cash flows from a group of financial assets.
Financial assets measured at amortized cost

The Group considers evidence of impairment for these assets at an individual asset level. An impairment loss is calculated as the difference between an asset’s carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognized in profit or loss and reflected in an allowance account. When the Group considers that there are no realistic prospects of recovery of the asset, the relevant amounts are written off. If the amount of impairment loss subsequently decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, then the previously recognized impairment loss is reversed through profit or loss.

Available-for-sale

Derivative Financial Instruments
Derivative financial assets

Impairment losses on available-for-sale financial assets are recognized by reclassifyinginstrument (asset) is accounted as the losses accumulatedcost to obtain the rights from a third party to issue shares under the purchase agreement and changes in the fair value reserve toare shown as profit or loss. The fair value calculation of the derivative financial instrument (asset) is adjusted on the utilization of the asset based on total dollar amount reclassifiedof the purchase agreement.

Derivative financial instruments (liabilities) are accounted at fair value and changes in fair value are shown as profit or loss. The fair value calculation of the derivative financial instruments is based on the difference between the acquisition cost (net of any principal repayment and amortization)Black-Scholes option pricing model. Assumptions are made for volatility and the currentrisk free rate in order to estimate the fair value less any impairment loss previously recognized inof the instrument. Transaction cost related to derivative financial instruments are recorded through profit orand loss.

Income tax

Income tax expense comprises current and deferred tax. It is recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in OCI.

Other Comprehensive Income.

Current tax

Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to tax payable or receivable in respect of previous years. It is measured using tax rates enacted or substantively enacted at the reporting date.

Deferred tax

Deferred income tax is recognized, using the balance sheet liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred tax is not recognized for:

·temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;

·temporary differences related to investments in subsidiaries to the extent that the Group is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future; and

·taxable temporary differences arising on the initial recognition of goodwill.

temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;
temporary differences related to investments in subsidiaries to the extent that the Group is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future; and
taxable temporary differences arising on the initial recognition of goodwill.
Deferred income tax is determined using tax rates and laws that have been enacted or substantively enacted by the reporting date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.


F-13

Deferred income tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off tax assets against tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its tax assets and liabilities on a net basis.

Employee benefits

The Group maintains a pension plan for all employees in Switzerland through payments to a legally independent collective foundation. This pension plan qualifies under IFRS as defined benefit pension plan. There are no pension plans for the subsidiaries in Ireland and the United States.

F-13

Table of Contents

The Group’s net obligation in respect of defined benefit plans is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods, discounting that amount and deducting the fair value of any plan assets.

The recognized asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. In order to calculate the present value of economic benefits, consideration is given to any minimum funding requirements.

Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognized immediately in OCI.Other Comprehensive Income. Past service costs, including curtailment gains or losses, are recognized immediately in general and administrative expenses within the operating results. Settlement gains or losses are recognized in general and administrative expenses within the operating results. The Group determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period or in case of any significant events between measurement dates to the then-net defined benefit liability (asset), taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to defined benefit plans are recognized in profit or loss.

Share-based compensation

The Company maintains various share-based payment plans in the form of stock option plans for its employees, members of the Board of Directors as well as key service providers. Stock options are granted at the Board’s discretion without any contractual or recurring obligations.

The share-based compensation plans qualify as equity settled plans. The grant-date fair value of share-based payment awards granted to employees is recognized as an expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The vesting of share options is conditional on the employee completing a period of service of three and four years respectively, from the grant date, in accordance with Stock Option Plans A and C. Under the Auris Medical Holding AG Long Term Equity Incentive Plan (“the 2014(the “Equity Incentive Plan” or “EIP”), 50% of granted share options granted to employees vest after a period of service of two years from the grant date and the remaining 50% vest after a period of service of three years from the grant date. Share options granted to members of the Board of Directors in 20152018, 2017 and in 2016 vest after a period of one year after the grant date. Stock Option Plan B was created to provide shares for share based compensation plans; it was used in the years 2008, 2009 and 2014 and has beenwas abolished in 2015.

The amount recognized as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that meet the related service and non-market performance conditions at the vesting date. Share-based payments that are not subject to any further conditions are expensed immediately at grant date. In the year the options are exercised the proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium.

Valuation of share options

The fair value of our shares is determined by our Management and our Board of Directors, and takes into account numerous factors to determine a best estimate of the fair value of our common shares as of each grant date.

In our historic financing rounds we have mainly relied on the prior sale of stock method where the Company and new investors negotiate the Company’s valuation at arm’s length. Typical considerations in this method may include the type and amount of equity sold, the estimated volatility, the estimated time to liquidity, the relationship of the parties involved, the timing compared to the common shares valuation date and the financial condition and structure of the Company at the time of the sale.

Following the completion of ourthe Company's initial public offering, option pricing and values are determined based on quoted market pricesthe Black Scholes option pricing model and assumptions are made for inputs such as volatility of our common shares at the grant date.

Company's stock and the risk free rate.


F-14

Provisions

Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, where it is more likely than not that an outflow of resources will be required to settle the obligation, and where a reliable estimate can be made of the amount of the obligation. Provisions are not recognized for future operating losses. Provisions are measured at the present value of the expenditures expected to be required to

F-14

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settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.

Leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease.

Earnings/(loss) per share

Basic earnings/(loss) per share are calculated by dividing the net profit/(loss) attributable to owners of the Company by the weighted average number of shares outstanding during the period. Diluted earnings/(loss) per share are calculated by dividing the net profit/(loss) attributable to the owners of the Company by the weighted average number of shares outstanding during the period adjusted for the conversion of all dilutive potential ordinary shares.


4. New standards, amendments and interpretations adopted by the group

Group


In the current year, the following revised standards have been adopted in these financial statements. Adoption has not had a significantmaterial impact on the amounts reported in these financial statements but may impact the accounting for future transactions and arrangements.

Annual Improvements to IFRSs 2010-2012 Cycle (July 2014)

Annual Improvements to IFRSs 2011-2013 Cycle (July 2014)

Amendments to IAS 19 (July 2014) Employee contributions

IFRS 9Financial instruments
IFRS 15Revenue from Contracts with Customers and the related clarifications
IFRS 2 - AmendmentClassification and Measurement of Share-based Payment Transaction
IFRIC 22Foreign Currency Transactions and Advance Consideration
A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after January 1, 2016,2019, and have not been applied in preparing these consolidated financial statements.

Standard/Interpretation

Impact

Effective date

Planned
application by the Group

New standards, interpretations or amendments   
IFRS 1416Regulatory Deferral AccountsLeases1)January 1, 20162019FY 20162019
IFRIC 23Uncertainty over Income Tax Positions2)January 1, 2019FY 2019
IFRS 11 amendment9Joint ArrangementAmendments to IFRS 9, Prepayment Features with negative Compensation1)2)January 1, 20162019FY 20162019
IAS 16 & 38 amendments28Property PlantAmendments to IAS 28, Long-term Interests in Associates and Equipment, Intangible AssetsJoint Ventures1)2)January 1, 20162019FY 20162019
IAS 16 & 41 amendments19Property Plant and Equipment, AgricultureAmendments to IAS 19, Plan Amendment, Curtailment or Settlement1)2)January 1, 20162019FY 2016
IAS 27 amendmentsConsolidated and Separate Financial Statements1)January 1, 2016FY 2016
IFRS 10,12, & IAS 28 amendmentsConsolidated Financial Statements, Disclosure of Interests in Other Entities1)January 1, 2016FY 2016
IAS 1 amendmentsPresentation of Financial Statements1)January 1, 2016FY 20162019
VariousAnnual Improvements to IFRSs:2012-2014 Cycle1)January 1, 2016FY 2016
IFRS 15Revenue from Contract with CustomersStandards 2015-2017 Cycle.2)January 1, 2018To be determined
IFRS 9Financial Instruments2)January 1, 2018To be determined
IFRS 16Leases2)January 1, 2019To be determinedFY 2019
VariousAmendments to References to Conceptual Framework in IFRS Standards.2)January 1, 2020FY 2020
IFRS 17Insurance contracts2)January 1, 2021FY 2021

F-15

1)No or no significant impacts are expected on the consolidated financial statements of the groupIFRS 16, Leases

The new standard eliminates the current classification model for lessee's lease contracts as either operating or finance leases and, instead, introduces a single lessee accounting model requiring lessees to recognize right-of-use assets and lease liabilities for leases with a term of more than twelve months. This brings the previous off-balance leases on the balance sheet in a manner largely comparable to current finance lease accounting. A lessee can choose to apply the standard using either a full retrospective or a modified retrospective approach. Adoption of IFRS 16 will result in the Group recognizing right of use assets and lease liabilities for all contracts that are, or contain, a lease. For leases currently classified as operating leases, under current accounting requirements the Group does not recognize related assets or liabilities, and instead spreads the lease payments on a straight-line basis over the lease term, disclosing in its annual financial statements the operating lease commitment. The Group current leasing arrangements relating to office space are for 6 months and will not be capitalized under IFRS 16.
2)TheNo material impact on the consolidated financial statements of the Group cannot yet be determined with sufficient reliability.is expected from these standards and amendments issued but not effective.


5. Financial instruments and risk management


The following table shows the carrying amounts of financial assets and financial liabilities:

  December 31,
2015		 December 31,
2014
Financial assets        
Available for sale        
Current financial assets  —   — 
Loans and receivables        
Cash and cash equivalents  50,237,300   56,934,325 
Other receivables  592,792   451,355 
Total financial assets  50,830,092   57,385,680 
         
Financial liabilities        
At amortized cost        
Trade and other accounts payable  1,205,522   3,234,383 
Accrued expenses  4,917,074   1,162,988 
Total financial liabilities  6,122,596   4,397,371 
         

F-15

    
Financial assets   
 December 31, 2018 December 31, 2017
Cash and cash equivalents5,393,207
 14,973,369
Loans and receivables   
Other receivables80,040
 79,840
Total financial assets5,473,247
 15,053,209
    
Financial liabilities   
At amortized cost   
Trade and other payables1,836,335
 1,200,820
Accrued expenses1,290,879
 4,395,609
Loan1,435,400
 10,126,406
At fair value through profit and loss   
Derivative financial instruments675,328
 1,836,763
Total financial liabilities5,237,942
 17,559,598
    

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Fair values

The carrying amount of cash and cash equivalents, other receivables, trade and other payables and accrued expenses is a reasonable approximation of their fair value due to the short term nature of these instruments.

In respect of the Company’s loan which has floating rates of interest, the fair value approximates carrying value.

Financial risk factors

The Group’s activities expose it to a variety of financial risks: market risk, credit risk, interest rate and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance. Management identifies, evaluates and controls financial risks. No financial derivatives have been used in 20152018 and 20142017 to hedge risk exposures. The Group invests its available cash in instruments with the main objectives of preserving principal, meeting liquidity needs and minimizing foreign exchange risks. The Group allocates its liquid assets to first tier Swiss or international banks with an S&P credit ratingbanks.


F-16

Liquidity risk

The Group’s principal source of liquidity is its cash reserves which are mainly obtained through the issuance of new shares. The Group has succeeded in raising capital to fund its development activities to date and has raised funds that will allow it to meet short term development expenditures. The Company will require regular capital injections to continue its development work, which may be dependent on meeting development milestones, technical results and/or commercial success. Management monitors rolling forecasts of the Group’s liquidity requirements to ensure it has sufficient cash to meet operational needs. The ability of the Group to maintain adequate cash reserves to sustain its activities in the medium term is highly dependent on the Group’s ability to raise further funds. Consequently, the Group is exposed to continued liquidity risk.

The table below analysesanalysis the remaining contractual maturities of financial liabilities, including estimated interest payments as atof December 31, 20152018 and 2014.2017. The amounts disclosed in the table are the undiscounted cash flows:

  Carrying
amount		 Less than 3
months		 Between 3
months and
2 years		 2 years
and later		 Total
December 31, 2015                    
Trade and other accounts payable  1,205,522   1,205,522   —   —   1,205,522 
Accrued expenses  4,917,074   4,780,737   136,337   —   4,917,074 
Total  6,122,596   5,986,259   136,337   —   6,122,596 
                     

 
Carrying
amount
 
Less than 3
months
 
Between 3
months and
2 years
 
2 years
and later
 Total
December 31, 2018         
Trade and other payables1,836,335
 1,836,335
 —
 —
 1,836,335
Accrued expenses1,290,879
 1,290,879
 —
 —
 1,290,879
Loan and borrowings1,435,400
 1,435,400
 —
 —
 1,435,400
Derivative financial instruments675,328
 —
 215,572
 459,756
 675,328
Total5,237,942
 4,562,614
 215,572
 459,756
 5,237,942
  Carrying
amount		 Less than 3
months		 Between 3
months and
2 years		 2 years
and later		 Total
December 31, 2014                    
Trade and other accounts payable  3,234,383   3,234,383   —   —   3,234,383 
Accrued expenses  1,162,988   1,162,988   —   —   1,162,988 
Total  4,397,371   4,397,371   —   —   4,397,371 

 
Carrying
amount
 
Less than 3
months
 
Between 3
months and
2 years
 
2 years
and later
 Total
December 31, 2017         
Trade and other payables1,200,820
 1,200,820
 —
 —
 1,200,820
Accrued expenses4,395,609
 4,395,609
 —
 —
 4,395,609
Loan and borrowings10,126,406
 1,349,531
 9,446,716
 1,166,225
 11,962,472
Derivative financial instruments1,836,763
 —
 —
 1,836,763
 1,836,763
Total17,559,598
 6,945,960
 9,446,716
 3,002,988
 19,395,664
          












F-17

Fair value measurement
Financial
assets / liabilities		Fair values as atFair value
hierarchy		Valuation technique(s) and key input(s)
December 31,
2018		December 31,
2017
Derivative financial liabilitiesLiability
675,328		 Liability
1,836,763		 Level 2Black-Scholes option pricing model

The share price is determined by Company's NASDAQ quoted-price. The strike price and maturity are coming from the contract. The volatility assumption is driven by Company's historic quoted share price and the risk free rate is estimated based on observable yield curves at the end of each reporting period.
Derivative financial assetAsset
226,865		 Asset
-		 Level 3
The fair value is equal to the price paid to the counter party for obtaining the right under the purchase agreement.
Subsequent, the fair value is adjusted proportionally for the part of the right consumed.

     Non-cash changes  
 01.01.2018
 
Financing
Cash
Flows 1)
 Fair
value
revaluation		 
Other
changes 2)
 31.12.2018
Derivative
financial
instrument		1,836,763
 188,636
 (1,350,071) —
 675,328
Loans10,126,406
 (9,272,328) —
 581,322
 1,435,400
Total11,963,169
 (9,083,692) (1,350,071) 581,322
 2,110,728
          
     Non-cash changes  
 01.01.2017
 
Financing
Cash
Flows 1)
 Fair
value
revaluation		 
Other
changes 2)
 31.12.2017
Derivative
financial
instrument		117,132
 5,091,817
 (3,372,186) —
 1,836,763
Loans12,364,204
 (2,087,076) —
 (150,722) 10,126,406
Total12,481,336
 3,004,741
 (3,372,186) (150,722) 11,963,169
          
1) The financing cash flows are from loan repayment and from issuance of new derivative
2) IRR-Correction and FX-Difference
Credit risk

Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents and deposits with banks, as well as from other receivables. The Company’s policy is to invest funds in low risk investments

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Table of Contents

including interest bearing deposits. For banks and financial institutions, only independently rated parties with a minimum rating of “A” are accepted. Other receivables were current as of December 31, 20152018 and December 31, 2014,2017, not impaired and included only well-known counterparties.


F-18

The Group has been holding cash and cash equivalents in the Group’s principal operating currencies (CHF, USD and EUR) with international banks of high credit rating.

The Group’s maximum exposure to credit risk is represented by the carrying amount of each financial asset in the consolidated statement of financial position:

 December 31,
2015		 December 31,
2014		December 31, 2018 December 31, 2017
Financial assets           
Cash and cash equivalents  50,237,300   56,934,325 5,393,207
 14,973,369
Other receivables  592,792   451,355 80,040
 79,840
Total  50,830,092   57,385,680 5,473,247
 15,053,209
           

As of December 31, 20152018 and December 31, 20142017 other receivables consisted of advance payments to suppliers, other non-current receivables from third party and deposits for rent.

Market risk

Currency risk

The Group operates internationally and is exposed to foreign exchange risk arising from various exposures, primarily with respect to US Dollar and Euro. Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities and net investments in foreign operations. The summary of quantitative data about the exposure of the Group’s financial assets and liabilities to currency risk was as follows:

  2015 2014
in CHF USD EUR USD EUR
Prepayments  179,674   —   183,779   11,489 
Other receivables  158,625   286,313   145,636   267,533 
Cash and cash equivalents  44,643,328   193,366   46,433,371   1,949,684 
Trade and other accounts payable  -284,620   -189,393   -1,686,733   -1,238,171 
Accrued expenses  -2,046,276   -2,638,638   -354,397   -590,001 
Net statement of financial position exposure - asset/(liability)  42,650,731   -2,348,352   44,721,656   400,534 
                 
 2018 2017
in CHFUSD EUR USD EUR
Cash and cash equivalents3,618,778
 208,507
 13,901,698
 116,942
Trade and other payables(1,646,910) (76,184) (365,999) (426,050)
Accrued expenses(82,847) (370,145) (1,750,752) (1,692,946)
Loan and borrowings(1,435,400) —
 (10,126,406) —
Derivative financial instruments(675,328) —
 (1,836,763) —
Net statement of financial position exposure -asset/(liability)(221,707) (237,822) (178,222) (2,002,054)
        

As atof December 31, 2015,2018, a 5% increase or decrease in the USD/CHF exchange rate with all other variables held constant would have resulted in a CHF 2,135,522 (2014:10,886 (2017: CHF 2,212,604)8,662) increase or decrease in the net result. Also, a 5% increase or decrease in the EUR/CHF exchange rate with all other variables held constant would have resulted in a CHF 127,692 (2014:13,413 (2017: CHF 24,086)117,320) increase or decrease in the net result.

The Company has subsidiaries in the United States and Ireland, whose net assets are exposed to foreign currency translation risk. Due to the small size of the subsidiaries the translation risk is not significant.

Interest rate risk

In


On July 19, 2016, the period under review,Company entered into a Loan and Security Agreement for a secured term loan facility of up to $20.0 million with Hercules Capital, Inc. as administrative agent (“Hercules”) and the Group had no borrowingslenders party thereto. An initial tranche of $12.5 million was drawn on July 19, 2016, concurrently with the execution of the loan agreement. The loan matures on January 2, 2020 and bears interest at variablea minimum rate of 9.55% per annum, and is subject to the variability of the prime interest rates.rate. The Group had no fixed rateCompany’s exposure to interest rates on financial assets and financial liabilities at fair value through profit or lossis resulting from loan and no derivatives. Therefore, a change in interest rates at the end of the reporting period would not affect profit or loss.

The only variable interest-bearing financial asset of the Group is cash at banks. As atof December 31, 20152018 an increase or decrease in interest rates on financial obligations by 50 basis points with all other variables held constant would have resulted in a CHF 275,256 (2014: CHF 169,455)3,721 (2017: 62,500) increase or decrease in the net result.



F-19

Capital risk management


The Company and its subsidiaries are subject to capital maintenance requirements under local law in the country in which it operates. To ensure that statutory capital requirements are met, the Company monitors capital, at the

F-17

Table of Contents

entity level, on an interim basis as well as annually. From time to time the Company may take appropriate measures or propose capital increases to ensure the necessary capital remains intact.


6. Segment information


Geographical information


The Group’s non-current assets by the Company’s country of domicile were as follows:

 December 31,
2015		 December 31,
2014		December 31, 2018
 December 31, 2017
Switzerland  1,743,156   1,750,708 3,812,001
 1,958,709
Total  1,743,156   1,750,708 3,812,001
 1,958,709
           

Non-current assets exclude financial instruments.


7. Property and Equipment


  Production
equipment		 Office
furniture
and EDP		 Leasehold
improvements		 Total
At cost        
As at January 1, 2014  166,750   132,045   17,132   315,927 
Additions  63,499   49,997   —   113,496 
As at December 31, 2014  230,249   182,042   17,132   429,423 
Additions  53,250   26,670   —   79,920 
As at December 31, 2015  283,499   208,712   17,132   509,343 
                 
Accumulated depreciation                
As at January 1, 2014  -31,362   -86,288   -2,362   -120,012 
Charge for the year  -42,230   -28,251   -3,503   -73,984 
As at December 31, 2014  -73,592   -114,539   -5,865   -193,996 
Charge for the year  -54,037   -35,334   -3,406   -92,777 
As at December 31, 2015  -127,629   -149,873   -9,271   -286,773 
                 
Net book value                
As at December 31, 2014  156,657   67,502   11,267   235,427 
As at December 31, 2015  155,870   58,839   7,861   222,570 
                 
 
Production
equipment
 
Office
furniture
and EDP
 
Leasehold
improvements
 Total
At cost       
As of January 1, 2017283,499
 233,706
 236,462
 753,667
Additions6,389
 —
 —
 6,389
As of December 31, 2017289,888
 233,706
 236,462
 760,056
Additions—
 —
 —
 —
Disposals—
 —
 (236,462) (236,462)
As of December 31, 2018289,888
 233,706
 —
 523,594
        
Accumulated depreciation       
As of January 1, 2017(184,329) (183,710) (16,334) (384,373)
Charge for the year(53,594) (21,918) (47,272) (122,784)
As of December 31, 2017(237,923) (205,628) (63,606) (507,157)
Charge for the year(32,485) (13,663) (26,565) (72,713)
Disposals—
 —
 90,171
 90,171
As of December 31, 2018(270,408) (219,291) —
 (489,699)
        
Net book value       
As of December 31, 201751,965
 28,078
 172,856
 252,899
As of December 31, 201819,480
 14,415
 —
 33,895

As atof December 31, 2015,2018, and 20142017 no items of property and equipment were pledged.

8. Intangible assets

Refer to note 24 for security provided to Hercules Capital, Inc. under the Loan and Security Agreement.








F-20
Licenses
At cost
As at January 1, 20141,482,520
As at December 31, 20141,482,520
As at December 31, 20151,482,520
Accumulated amortization and impairment losses
As at December 31, 2014—
As at December 31, 2015—
Net book value
As at December 31, 20141,482,520
As at December 31, 20151,482,520

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Table of Contents



8. Intangible assets
 LicensesIP & Data rightsInternally generatedTotal
At cost    
As of January 1, 20171,482,520
—
—
1,482,520
As of December 31, 20171,482,520
146,580
—
1,629,100
As of December 31, 20181,482,520
193,989
1,858,731
3,535,240
     
Accumulated amortization and impairment losses    
As of December 31, 2017—
—
—
—
As of December 31, 2018—
—
—
—
     
Net book value    
As of December 31, 20171,482,520
146,580
—
1,629,100
As of December 31, 20181,482,520
193,989
1,858,731
3,535,240
Intangible assets comprise upfront and milestone payments related to licenses. In 2013 a milestone of CHF 1,125,000 related to the AM-111 program was recorded. Amortization will commence once the intangible assets are available for use, which will be the case after regulatory approvals are obtained and the related products are available for use.


On February 2, 2017, the Company entered into an asset purchase agreement with Otifex Therapeutics Pty Ltd (“Otifex”), pursuant to which the Company agreed to purchase and Otifex has agreed to sell to the Company certain pre-clinical and clinical assets related to a formulation for the intranasal application of Betahistine, which the Company refers to as AM-125, as well as intellectual property rights. The Otifex transaction closed in July 2017 and the Company recorded CHF 146,580 as intangibles related to this transaction.
On December 6, 2018, in two related transactions the Company acquired an Orphan Drug Designation for betahistine in the treatment of obesity associated with Prader-Willi syndrome (PWS) and signed a binding letter of intent to in-license exclusive rights to two U.S. Patents relating to the use of betahistine for the treatment of depression and attention-deficit / hyperactivity disorder (ADHD), respectively. The Company recorded CHF 47,409 related to these transactions.
During the year ended December 31, 2018 the Company recorded intangibles related to direct development expenditure of its AM-125 program for an amount of CHF 1,858,731.

No amortization or impairment was recorded in 2015, 20142018 and 2013.

2017.


9. Other receivables

 December 31,
2015		 December 31,
2014
Advance payments to suppliers  465,624   413,169 
December 31, 2018 December 31, 2017
Value added tax receivable  82,468   74,065 96,853
 63,452
Withholding tax receivable  13,522   17,118 18,526
 18,115
Deposit for rent  —   38,066 
Deposit credit cards80,040
 79,840
Other  89,102   120 124,955
 79,874
Total other receivables  650,716   542,538 320,374
 241,281
           

Other receivables were not considered impaired in the years under review.






10. Prepayments


F-21
  December 31,
2015		 December 31,
2014
Clinical projects and related activities  —   85,299 
Insurance  179,674   179,871 
Other  1,370   — 
Total prepayments  181,044   265,170 
         


 December 31, 2018 December 31, 2017
Advance payments to supplier212,207
 442,828
Insurance139,076
 200,246
Other—
 9,839
Total prepayments351,283
 652,913
    

11. Cash and cash equivalents


 December 31,
2014		 December 31,
2014		December 31, 2018 December 31, 2017
Cash in bank accounts  50,235,869   56,932,993 5,392,599
 14,972,761
Petty cash  1,431   1,332 
Cash on hand608
 608
Total cash and cash equivalents  50,237,300   56,934,325 5,393,207
 14,973,369
           

12. Capital and reserves


Share capital

The issued share capital of the Company at December 31 consisted of:

  December 31, 2015 December 31, 2014
  Number CHF Number CHF
Common shares with a nominal value of CHF 0.40 each  34,303,891   13,721,556   29,010,391   11,604,156 
Total  34,303,891   13,721,556   29,010,391   11,604,156 
                 

F-19

 December 31, 2018 December 31, 2017
 Number CHF Number CHF
Common shares with a nominal value of CHF 0.40 each—
 —
 48,373,890
 19,349,556
Common shares with a nominal value of CHF 0.02 each35,516,785
 710,336
 —
 —
Total35,516,785
 710,336
 48,373,890
 19,349,556
        

 Common Shares (Number)
 2018 2017
As of January 148,373,890
 34,329,704
Common shares issued for the follow-on offering with a12,800,000
 14,044,186
nominal value of CHF 0.40 each   
Adjustment during the Merger:   
Issuance of Auris NewCo Shares6,117,388
 —
Cancellation of Auris OldCo Shares(61,173,890) —
Common shares issued for capital increase with a
nominal value of CHF 0.02 each
29,399,397
 —
Total, as of December 3135,516,785
 48,373,890
    
    

All shares have a nominal value of CHF 0.02 and are fully paid in. As of December 31, 2018, the nominal value of the 35,516,785 issued shares amounted to CHF 710,335.70 (as of December 31, 2017, the nominal value of 48,373,890 issued shares was CHF 0.40 and amounted to CHF 19,349,556.00).
On November 30, 2018, the Company entered into a sales agreement (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

F-22
Table of Contents


  Common Shares (Number) Preferred Shares (Number)
  2015 2014 2015 2014
As of January 1  29,010,391   72,600   —   16,145,225 
Common shares issued for stock options exercises with a nominal value of CHF 0.40 each  18,500   71,381   —   — 
Preferred shares “C” issued for conversion of convertible loans with a nominal value of CHF 0.40 each  —   —   —   2,607,950 
Common shares issued for the IPO with a nominal value of CHF 0.40 each  —   10,113,235   —   — 
Common shares resulting from conversion of Preferred Shares at the time of the IPO with a nominal value of CHF 0.40 each
 

  —   18,753,175   —   -18,753,175 
Common shares issued for the follow-on offering with a nominal value of CHF 0.40 each  5,275,000   —   —   — 
Total, as at December 31  34,303,891   29,010,391   —   — 
                 

aggregate offering price of $25.0 million. As of December 31, 2018 the Company had sold 616,740 of its common shares for an aggregate offering price of CHF 350,486. As of the date of these consolidated financial statements, the Company has sold 2,595,814 of its common shares for an aggregate offering price of $1.3 million pursuant to the A.G.P. Sales Agreement.

Follow-On Offering on NASDAQ Global Market

On May 20, 2015,November 27, 2018 and December 11, 2018, the Company entered into purchase agreements with FiveT Capital AG, providing for the issuance and sale by us of an aggregate of 3,315,000 of its common shares for an aggregate purchase price of CHF 1.6 million in two separate registered direct offerings.

On July 17, 2018 the Company completed a public offering of 5,275,000 shares, yielding net proceeds after underwriting discounts of USD 23.6 million (CHF 21.7 million). Offering costs associated with the follow-on amounted to CHF 643,796. Following the offering (and settlement of the employee options mentioned below) there were 34,303,89117,948,717 common shares of the Company outstanding as of December 31, 2015.

IPO on NASDAQ Global Market

In August, 2014, the Company completed its IPO issuing 10,113,235 shares, including the underwriter’s overallotment option, yielding total net proceeds of CHF 51.3 million (USD 56.4 million). Offering costs associated with the IPO were CHF 2,091,259. As of March 31, 2014, management determined that successful completion of the IPO was not deemed to be more likely than not, thus CHF 822,367 was expensed in the first quarter of 2014.

Following the IPO there were 28,954,510 common shares of the Company outstanding. At December 31, 2014 there were 29,010,391 shares outstanding due to the exercise of options.

Pursuant to the agreements related to the preferred shares, all preferred shares outstanding at the time of the IPO converted automatically into common shares at the ratio of 1:1 upon consummation of the IPO.

Issuance of common shares upon exercise of options

In 2015, beneficiaries of Option Plan A exercised their right to acquire common shares of the Company at CHF 3.20 per share. This resulted in an increase in the number of outstanding common shares of 18,500 and an increase in the share capital of CHF 7,400. Total proceeds from the exercise to the Company were CHF 59,200.

In 2014, a total of 50,500 stock options were exercised under Stock Option Plan A at an exercise price of CHF 3.20 per common share with a nominal value of CHF 0.40. This resulted in0.02 each, Series A warrants each entitling its holder to purchase 0.35 of a common share and for an increase in theaggregate of 6,282,051 common shares, and Series B warrants entitling its holder to purchase 0.25 of a common share capitalfor an aggregate of 4,487,178 common shares (the “July 2018 Registered Offering”). The exercise price for both series Warrants is CHF 20,200. Total0.39 per common share. The net proceeds from the exercise to the Company from the July 2018 Registered Offering were approximately CHF 6.2 million, after deducting underwriting discounts and other offering expenses payable by us. The Company had transaction costs amounting to CHF 851,692. The transactions costs were recorded as CHF 742,833 in equity for the issuance of the common shares and CHF 108,809 to finance expense in the statement of profit or loss and comprehensive loss for the issuance of the warrants.


On May 2, 2018 the Company entered into a purchase agreement (the "2018 Commitment Purchase Agreement") and a registration rights agreement (the "2018 Registration Rights Agreement") with Lincoln Park Capital LLC ("LPC"). Pursuant to the 2018 Commitment Purchase Agreement, LPC agreed to purchase common shares for up to $10,000,000 over the 30-month term of the 2018 Commitment Purchase Agreement. As of the date of these consolidated financial statements, the Company has issued an aggregate of 1,750,000 common shares for aggregate proceeds of CHF 1.0 million to LPC under the 2018 Commitment Purchase Agreement. The 2018 Commitment Purchase Agreement replaces the 2017 Commitment Purchase Agreement (as defined below), which was terminated as a result of the Merger. Under the 2017 Commitment Purchase Agreement, LPC agreed to subscribe for up to $13,500,000 common shares and prior to its termination, the Company had issued an aggregate of 2,600,000 common shares for aggregate proceeds of CHF 1.7 million to LPC under the 2017 Commitment Purchase Agreement. The Company had transaction costs amounting to CHF 349,907. The payment of CHF 252,351 was recorded as a derivative financial instrument and classified as a non-current asset and CHF 97,556 to finance expense in the statement of profit or loss and comprehensive loss.

On January 30, 2018, the Company completed a public offering of 12,499,999 common shares with a nominal value of CHF 0.40 each and concurrent offering of 7,499,999 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 750,002 common shares (assuming the Company rounds up fractional common shares to the next whole common share) at an exercise price of $5.00 per common share. The Company had transaction costs amounting to CHF 654,985. The transaction costs were recorded as CHF 341,226 in equity for the issuance of the common shares and CHF 313,760 to finance expense in the statement of profit or loss and comprehensive loss for the issuance of the warrants.

On October 10, 2017, the Company entered into a purchase agreement (the “2017 Commitment Purchase Agreement”) and a Registration Rights Agreement (the “2017 Registration Rights Agreement”) with LPC. Pursuant to the 2017 Commitment Purchase Agreement, LPC has agreed to subscribe for up to $13,500,000 of the Company's common shares over the 30-month term of the 2017 Commitment Purchase Agreement. Regular purchases may be made from time to time under the 2017 Commitment Purchase Agreement subject to certain amount limitations. As of December 31, 2017, the Company has issued an aggregate of 2,300,000 common shares for aggregate proceeds of CHF 1,594,611 ($1,630,415) to LPC pursuant to the 2017 Commitment Purchase Agreement. The related transaction cost of CHF 25,701 were recorded in equity.

The transaction costs for obtaining the 2017 Commitment Purchase Agreement were recorded as CHF 265,205 in transaction costs in the statement of profit or loss and comprehensive income / (loss). The commitment fee of CHF 290,400 (US$ 300,000) represents the fair value of the right to require LPC to purchase common shares within the 2017 Commitment Purchase Agreement. The proportion of the commitment fee CHF 35,073 related to cash received from common shares issued pursuant to the 2017 Commitment Purchase Agreement as a percentage of the total contract value of US$ 13.5 million is recognized in equity as if this proportion of the commitment fee was incorporated into the strike price of the option. The remaining portion of the commitment fee of CHF 255,327 was derecognized through transaction costs in the statement of profit and loss and comprehensive income / (loss) as the 2017 Commitment Purchase Agreement did not have any significant future value as of December 31, 2017 due the fact that the 2017 Commitment Purchase Agreement terminated upon consumption of Merger on March 13, 2018.

F-23


Additionally, on October 16, 2017, the Company issued 1,744,186 of its common shares to LPC for aggregate proceeds of CHF 1,446,150 ($1,500,000) pursuant to the Company's effective shelf registration statement on Form F-3. The related transaction cost of CHF 63,056 were recorded in equity.

On February 21, 2017, the Company completed a public offering (the “February 2017 Offering”) of 10,000,000 common shares with a nominal value of CHF 0.40 each and 10,000,000 warrants, each warrant entitling its holder to purchase 0.70 of a common share. The gross proceeds to the Company from the February 2017 Offering were CHF 161,600.

9,998,305 (US$10,000,000). The Company had transaction costs amounting to CHF 903,919. The transactions costs were recorded as CHF 397,685 in equity for the issuance of the common shares and CHF 506,234 to finance expense in the statement of profit or loss and comprehensive loss for the issuance of the warrants.

Issuance of common shares with restrictions

For the business year 2015, 25,813 restricted common shares with a nominal value of CHF 0.40 were awarded and issued on January 7, 2016 under the Equity Incentive Plan for the purpose of share based bonus payments. The shares are fully vested on the grant date but remain subject to transfer restrictions for a period until January 7, 2019. The Company recorded a payroll charge of CHF 188,092.

In 2014, 20,881 restricted common shares with a nominal value188,092 in 2015.

Authorized share capital
On January 17, 2019, the extraordinary general meeting of CHF 0.40 each were issued under Stock Option Plan B forshareholders revised the purposeprovisions related to authorized and contingent capital of share based bonus payments. This resulted inthe Company and approved an increase inand extension of the authorized share capitalcapital. As of CHF 8,352 and proceeds to the Company of CHF 92,565. These shares vest upon grant and are subject to transfer restrictions until December 31, 2017.

In January 2014, a convertible loan was converted into 2,607,950 preferred shares Series C with a nominal value of CHF 0.40 at a conversion price of CHF 5.28 each.

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Table of Contents

Authorized share capital

Prior to the IPO,2018, the Company’s authorized share capital consistedamounted to CHF 22,580.26 and allowed to Board of common sharesDirectors, subject to the terms and preferred shares. Preferred shares (Series A, B, and C) hadconditions set forth in the same voting rights and dividend rights as common shares but enjoyed a liquidation preference.

In August 2014, the shareholders approved an extension and increaseArticles of the authorized capital of the Company. The Board is authorizedAssociation, to increase the share capital at any time until June 30, 2016 by the maximum amount of CHF 3,314,706 by issuing not more than 8,286,765issue up to 1,129,013 fully paid registered shares with a nominal value of CHF 0.400.02 each. The shares will have to be fully paid-in. After the follow-on offering in May 2015 and as of December 31, 2015 the authorized capital amounted to CHF 1,204,706 or 3,011,765 registered shares with a nominal value of CHF 0.40 each.

Conditional share capital

The share capital may be increased by the issuance of up to 1,425,6191,630,613 fully paid registered Common Shares with a nominal value of CHF 0.400.02 per share and to the maximum amount of CHF 570,24832,612.26 in execution of subscription rights, which may be granted to employees, members of the Board of Directors as well as key service providers (see Note 13 for further reference).

The Company’s share capital may be further increased by the issuance of up to 5,000,00011,771,002 fully paid registered Common Shares with a nominal value of CHF 0.400.02 per share and to the maximum amount of CHF 2,000,000235,420.04 in execution of conversion rights in connection with warrants and convertible bonds of the Company.

F-21

For the terms of the warrant issued to Hercules, refer to Note 24.


13. Share based compensation


Description

On November 21, 2008, the Company established share option programs (“Stock Option Plans A and B”) for employees, members of the Board of Directors as well as key service providers to purchase shares in the Company. Stock Option Plan A was amended and superseded by an updated version effective November 24, 2009, and replaced with amendments by Stock Option Plan C for any future option grants effective April 5, 2013. Grants under Stock Option Plan A and subsequently under Stock Option Plan C were offered in each year with vesting periods of three and four years; grants under Stock Option Plan B were made in 2008, 2009 and 2014 only. Stock Option Plan B was abolished in 2015 and no grants under Stock Option Plan B were made in 2015. In 2014, the Group introduced a further equity incentive plan, the Equity Incentive Plan.EIP. The Company granted 234,750911,983 options in 2015 (2014: 99,260)2018 (2017: 1,918,100) under the Equity Incentive Plan.

In 2014, the Company granted 20,881 shares (2013: 0) to employees under Stock Option Plan B. The options were exercised on the grant date. There were no Stock Option Plan B options outstanding as of December 31, 2014, or December 31, 2013. The exercise price for the 2014 awards was CHF 4.43 per share and resulted in a total payroll charge of CHF 92,565 (2013: 0). These shares vested immediately and have a sale restriction for a period of 3 years. The fair value of the shares was defined in the pre-IPO Phase based on DCF-valuation and historical shares transactions and discounted for the fact the shares cannot be sold during the restriction period of three years.

For the business year 2015, the Company granted 25,813 restricted shares to employees under the Equity Incentive Plan on January 7, 2016. The grant price for these awards was the closing price of our shares on January 7, 2016 (USD 7.08) and resulted in a total payroll charge of CHF 188,092. These shares vest upon grant and have a sale restriction for a period of 3 years.

EIP.

Holders of vested options are entitled to purchase common shares of the Company. For the stock option plans that were in place before the IPO, the exercise price corresponded to the value per share at the most recent financing round. Under the Equity Incentive Plan, the Board of Directors defined the exercise price as the average daily closing price of the Company’s shares during the 30 days preceding the date of grant. All options are to be settled by the physical delivery of shares. The key terms and conditions related to the grants under these programs are as at December 31, 2018 as follows:


F-24

Plan

Plan
Number of
options awarded (1)

outstanding

Vesting conditions

Contractual
life of
options

Stock option plan APlan C 236,5003 years’11,530
4 years' service from grant date5 years
Stock option plan B 93,231Immediately3 months
Stock option plan C 173,7504 years’ service from grant date6 years
Equity Incentive Plan Board45,000185,340
1 year service from grant date8 years
Equity Incentive Plan Employees / Board 2014289,010

405,280


2 years’years' service from grant date (50%),

8 years
Equity Incentive Plan Employees / Board390,627
3 years’years' service from grant date (50%)

8 years
(1) For grants predating December 27, 2013: Number of instruments adjusted to reflect the 25:1 share split.

Measurement of fair values

The fair value of the options was measured based on the Black-Scholes formula.

F-22

 Stock Option Plan
 Equity Incentive
Plan 2018		Equity Incentive
Plan 2018		Equity Incentive
Plan 2017		Equity Incentive
Plan 2017
Fair value at grant date
USD 0.340 (1 year vesting) 1)
USD 0.449 (2 year vesting) 1)
USD 0.514 (3 year vesting) 1)
USD 1.074 (1 year vesting) 2)
USD 1.299 (2 year vesting) 2)
USD 1.390 (3 year vesting) 2)
USD 0.198 (1 year vesting) 1)
USD 0.287 (2 year vesting) 1)
USD 0.352 (3 year vesting) 1)
USD 0.233 (1 year vesting) 2)
USD 0.335 (2 year vesting) 2)
USD 0.406 (3 year vesting) 2)
Share price at grant dateUSD 0.64USD 1.46USD 0.76USD 0.72
Exercise priceUSD 0.66USD 1.58USD 0.82USD 0.82
Expected volatility137.06%93.38%72.85%93.01%
Expected life1,2 and 3 years1,2 and 3 years1,2 and 3 years1,2 and 3 years
Expected dividends————
Risk-free interest rate3.06%2.92%2.38%2.19%
     
1) October grants for the respective year
   
2) April grants for the respective year
   

Table of Contents


  Stock Option Plan
  Equity Incentive Plan 2015 Equity Incentive Plan 2015 Equity Incentive Plan 2014 Plan C
2014 (CHF)		 Plan C
2013 (CHF)		 Plan A
2013 (CHF)
Fair value at grant date USD 1.161 (1 year vesting); USD 1.679 (2 years vesting); USD 2.052 (3 year vesting) USD 2.289 (2 years vesting); USD 2.773 (3 year vesting) USD 1.572 (2 years vesting); USD 1.902 (3 year vesting)  3.03   3.03   2.43 
Share price at grant date USD 4.33 USD 5.75 USD 3.92  5.28   5.28   4.80 
Exercise price USD 4.68 USD 5.98 USD 4.05  5.28   5.28   4.80 
Expected volatility 74.2% 74.2% 74%  74%  78%  78%
Expected life 1, 2 and 3 years 2 and 3 years 2 and 3 years  4 years   4 years   3 years 
Expected dividends — — —  —   —   — 
Risk-free interest rate 2.28% 2.06% 2.22%  0.96%  1.0%  1.0%
                   

The Company has historically been a private company and started trading publicly in August 2014. Therefore, for Plan A, Plan C, the 2014 and March 2015 grants under the 2014 Plan the Company lacks significant Company-specific historical and implied volatility information For the aforementioned grants, the Company estimates expected volatility based on comparable public company data for these grants. For September 2015 award under the 2014 Plan, the Company useduses its own historic volatility to calculate expected volatility. The expected life of all options is assumed to correspond to the vesting period.

The total expense recognized for equity-settled share-based payment transactions were CHF 110,19842,757 in 2013,2018 (2017: CHF 270,747354,851, 2016: 290,783).
Share based compensation loss related to employee stock options amounted to CHF 27,730 in 2014 and2018 (2017: CHF 311,671 in 2015.

354,851, 2016: 290,783).


Share based compensation expense of CHF 15,027 related to the purchase of intangibles was capitalized for the year ended December 31, 2018.
The number and weighted average exercise prices (in CHF) of options under the share option programs for Stock Option Plan A, Stock Option Plan C and the Equity Incentive PlanEIP are as follows:

 2015 2014 201320182017
 Number of
options		 Weighted
average
exercise
price		 Weighted
average
remaining term		 Number of
options		 Weighted
average
exercise
price		 Weighted
average
remaining term		 Number of
options		 Weighted
average
exercise
price		 Weighted
average
remaining term
Number of
options
Weighted average
exercise price
Weighted average
remaining term
Number of
options
Weighted average
exercise price
Weighted average
remaining term
Outstanding at January 1  419,010   4.61   4.86   272,750   4.32   3.64   146,500   3.66   3.29 225,154
17.40
6.88
1,038,140
3.36
6.14
Expired during the year  (6,250)  —   —   —   —   —   —   —   — (5,000)—
—
(67,500)—
—
Forfeited during the year(139,360)—
—
(637,200)—
—
Exercised during the year  (18,500)  3.20   —   (50,500)  3.20       —   —   — —
—
—
—
—
—
Granted during the year  234,750   5.31   7.61   196,760   4.64   6.71   126,250   5.09   5.24 911,983
1.04
7.73
1,918,100
0.82
7.70
Outstanding at December 31  629,010   4.92   5.42   419,010   4.61   4.86   272,750   4.32   3.64 992,777
1.10
7.45
2,251,540
1.74
6.88
Exercisable at December 31  71,250   4.15   1.31   146,000   4.21   2.33   69,000   3.20   1.12 63,314
26.28
5.08
326,510
4.48
4.24
                                     


F-25


The range of exercise prices for outstanding options was CHF 3.200.66 to CHF 6.0159.80 as of December 31, 2015,2018 and CHF 3.200.80 to CHF 5.285.81 as of December 31, 2014, and CHF 3.20 to CHF 5.28 as of December 31 2013.

2017.


14. Trade and other payables


  December 31, 
2015		 December 31,
2014
Trade accounts payable - third parties  965,472   3,141,194 
Other  240,050   93,190 
Total trade and other payables  1,205,522   3,234,384 
         

F-23

 December 31, 2018 December 31, 2017
Trade accounts payable - third parties1,810,445
 1,032,557
Other25,890
 168,263
Total trade and other payables1,836,335
 1,200,820
    


15. Accrued expenses


  December 31,  
2015		 December 31,  
2014
Accrued research and development costs including milestone payments  4,403,622   949,561 
Professional fees  291,629   178,000 
Accrued vacation & overtime  44,238   41,580 
Accrual for share based payment (1)  188,092   — 
Board of Directors fees  —   32,056 
Other  33,731   3,371 
Total accrued expenses  4,961,312   1,204,568 

(1)For the business year 2015, the Company granted 25,813 restricted shares to employees under the 2014 Plan on January 7, 2016. The grant price for these awards was the closing price of our shares on January 7, 2016 (USD 7.08) and resulted in a total payroll charge of CHF 188,092.

 December 31, 2018 December 31, 2017
Accrued research and development costs including milestone payments700,866
 4,060,048
Professional fees315,657
 227,363
Accrued vacation & overtime54,557
 69,455
Employee benefits incl. share based payments146,949
 217,649
Other72,850
 108,198
Total accrued expenses1,290,879
 4,682,713
    

16. Research and development expense

 2015 2014 2013December 31, 2018 December 31, 2017 December 31, 2016
Pre-clinical projects  468,326   1,160,058   2,078,407 873,453
 642,821
 546,429
Clinical projects  20,808,025   12,141,571   8,753,398 846,235
 12,365,768
 16,639,304
Drug manufacturing and substance  1,866,148   1,383,581   1,036,152 2,185,292
 2,027,184
 2,608,814
Employee benefits  2,140,664   1,718,212   1,074,398 
Employee benefits and expenses1,652,791
 2,773,516
 2,854,624
Lease expenses  42,953   68,082   74,065 65,921
 111,680
 84,344
Patents and trademarks  824,201   665,023   100,702 634,986
 603,892
 941,836
Regulatory projects  331,822   519,104   106,325 398,426
 632,387
 1,043,287
Depreciation tangible assets  54,037   48,830   30,191 32,485
 53,594
 58,125
Total research and development expense  26,536,176   17,704,461   13,253,638 6,689,589
 19,210,842
 24,776,763
                 


















F-26


17. General and administrative expense


  2015 2014 2013
Employee benefits  1,502,900   1,136,677   195,739 
Business development  72,562   237,720   479,027 
Travel expenses  257,454   169,602   77,616 
Administration costs  2,386,791   2,014,178   556,445 
IPO costs, expensed  —   822,367   — 
Lease expenses  59,665   35,072   3,968 
Depreciation tangible assets  38,740   25,153   7,326 
Capital tax expenses  23,458   48,281��  42,090 
Total general and administrative expenses  4,341,570   4,489,051   1,362,211 
             

As of March 31, 2014, management determined that a successful completion of an IPO was not deemed to be more likely than not thus CHF 822,367 were expensed in the first quarter of 2014.

F-24

 December 31, 2018 December 31, 2017 December 31, 2016
Employee benefits and expenses1,084,112
 2,097,853
 2,174,543
Business development43,816
 161,985
 45,649
Travel expenses70,944
 199,484
 158,774
Administration expenses2,797,526
 2,522,217
 2,969,796
Lease expenses52,416
 81,277
 63,695
Depreciation tangible assets186,520
 69,190
 39,475
Capital tax expenses29,200
 18,403
 (5,420)
Total general and administrative expenses4,264,534
 5,150,409
 5,446,512
      


18. Employee benefits


 2015 2014 2013December 31, 2018 December 31, 2017 December 31, 2016
Salaries  2,833,741   2,259,112   836,686 2,542,952
 3,761,171
 3,662,180
Pension costs  282,517   118,755   78,917 108,978
 378,588
 342,805
Other social benefits  191,079   131,939   71,878 188,138
 277,468
 301,537
Share based payments costs  311,671   270,748   110,198 27,730
 354,851
 290,783
Other  24,557   74,334   172,458 
Recruitment costs—
 125,731
 391,035
Other personnel expenditures(130,895) (26,439) 40,827
Total employee benefits  3,643,565   2,854,888   1,270,137 2,736,903
 4,871,370
 5,029,167
                 

Benefit plans

The Company participates in a retirement plan (the “Plan”) organized through enrollment inas an independent collective foundation, that covers all of its employees in Switzerland, including management. The collective foundation is governed by a foundation board. The board is made up of an equal number of employee and employer representatives of the different affiliated companies. The Company has no direct influence on the investment strategy of the collective foundation. Moreover, certain elements of the employee benefits are defined in the same way for all affiliated companies. This is mainly related to the annuity factors at retirement and to interest allocated on retirement savings. The employer itself cannot determine the benefits or how they are financed directly. The foundation board of the collective foundation is responsible for definingthe determination of the investment strategy, for making changes to the pension fund regulations and in particular, also for defining the financing of the pension benefits.

The old age benefits are based on retirement savings for each employee, coupled with annual retirement credits and interest (there is no possibility to credit negative interest). At retirement age, the insured members can choose whether to take a pension for life, which includes a spouse’s pension, or a lump sum. In addition to retirement benefits, the plan benefits also include disability and death benefits. Insured members may also buy into the scheme to improve their pension provision up to the maximum amount permitted under the rules of the plan and may withdraw funds early for the purchase of a residential property for their own use subject to limitations under Swiss law. On leaving the Company, retirement savings are transferred to the pension institution of the new employer or to a vested benefits institution. This type of benefit may result in pension payments varying considerably between individual years. In defining the benefits, the minimum requirements of the Swiss Law on Occupational Retirement, Survivors and Disability Pension Plans (BVG) and its implementing provisions must be observed. The BVG defines the minimum pensionable salary and the minimum retirement credits. In Switzerland, the minimum interest rate applicable to these minimum retirement savings is set by the Swiss Federal Council at least once every two years. In 2013 theThe rate was 1.5%1.25% in 2016, 1.00% in 2017 and 1.00% in 2014 and 2015 it was 1.75%.

2018.

The assets are invested by the collective foundation in a diversified portfolio that respects the requirements of the Swiss BVG. Under the Plan, both the Company and the employee share the costs equally. The structure of the plan and the legal provisions of the BVG mean that the employer is exposed to actuarial risks. The main risks are investment risk, interest risk, disability risk

F-27

and the risk of longevity. Through the affiliation to a collective foundation, the Company has minimized these risks, since they are shared between a much greater number of participants.

The following tables present information about the net defined benefit liability and its components:

Change in defined benefit obligation

  2015 2014
Defined benefit obligation at January 1  4,895,667   1,626,241 
Service cost  261,778   111,513 
Plan participants’ contribution  171,196   137,966 
Interest cost  58,943   52,097 
Actuarial losses  7,750   1,484,222 
Benefits paid  -353,925   -539,920 
Transfer-in amounts of new employees  386,367   2,023,548 
Defined benefit obligation at December 31  5,427,776   4,895,667 
         

F-25

 2018 2017
Defined benefit obligation at January 17,999,617
 7,122,841
Service costs90,162
 348,172
Plan participants' contribution144,287
 236,074
Interest cost50,845
 50,494
Actuarial losses(1,911,382) 60,781
Transfer-out amounts(3,367,834) (440,950)
Transfer-in amounts of new employees79,930
 622,205
Defined benefit obligation at December 313,085,625
 7,999,617
    

Table of Contents

The defined benefit obligation includes only liabilities for active employees. The weighted average modified duration of the defined benefit obligation at December 31, 20152018 is 22.421.8 years (2014: 22.6(2017: 20.9 years).

Change in fair value of plan assets

 2015 20142018 2017
Fair value of plan assets at January 1  3,485,069   1,297,899 6,036,647
 5,030,407
Interest income  44,070   47,909 36,304
 37,500
Return on plan assets excluding interest income  -46,164   382,755 (634,190) 332,759
Employer contributions  171,196   137,966 146,245
 236,074
Plan participants’ contributions  171,196   137,966 
Benefits paid  -353,925   -539,920 
Plan participants' contributions146,245
 236,074
Transfer-out amounts(3,367,834) (440,950)
Transfer-in amounts of new employees  386,367   2,023,548 79,930
 622,205
Administration expense  -5,866   -3,054 (6,009) (17,422)
Fair value of plan assets at December 31  3,851,943   3,485,069 2,437,338
 6,036,647
           

Net defined benefit liability recognized in the statement of financial position

 December 31,
 
2015		 December 31,
 
2014		December 31, 2018 December 31, 2017
Present value of funded defined benefit obligation  5,427,776   4,895,667 3,085,625
 7,999,617
Fair value of plan assets  -3,851,943   -3,485,069 (2,437,338) (6,036,647)
Net defined benefit liability  1,575,833   1,410,598 648,287
 1,962,970
           

Defined Benefit Cost

 2015 2014 20132018 2017 2016
Service cost  261,778   111,513   72,803 90,162
 348,172
 319,173
Net interest expense  14,873   4,188   3,739 14,541
 12,994
 14,922
Administration expense  5,866   3,054   2,375 6,009
 17,422
 8,710
Total defined benefit cost for the year recognized in profit or loss  282,517   118,755   78,917 
Total defined costs for the year recognized in profit or loss110,712
 378,588
 342,805
                 

F-28


Remeasurement of the Defined Benefit Liability

  2015 2014 2013
Actuarial loss (gain) arising from changes in financial assumptions  -167,623   699,456   -44,737 
Actuarial loss arising from experience adjustments  175,375   784,766   181,670 
Return on plan assets excluding interest income  46,164   -382,755   -79,217 
Total defined benefit cost for the year recognized in other comprehensive loss  53,916   1,101,467   57,716 
             

In 2016, the Group anticipates to contribute CHF 205,935 to the Plan.

F-26

 2018 2017 2016
Actuarial loss (gain) arising from changes in financial assumptions(119,117) (150,552) 412,396
Actuarial loss arising from experience adjustments(1,792,265) 211,331
 264,417
Actuarial gain arising from demographic assumptions—
 —
 (258,876)
Return on plan assets excluding interest income634,190
 (332,759) (23,835)
Total defined benefit cost for the year recognized in the other comprehensive loss(1,277,192) (271,980) 394,102
      

Table of Contents

Assumptions

Assumptions

At December 31 2015 2014 20132018 2017 2016
Discount rate  1.10%   1.20%   2.20% 0.95% 0.80% 0.70%
Future salary increase  1.10%   1.50%   1.50% 1.10% 1.10% 1.10%
Pension indexation  0.00%   0.00%   0.00% 0.00% 0.00% 0.00%
Mortality and disability rates  BVG 2010G   BVG 2010G   BVG 2010G BVG2015G
 BVG2015G
 BVG 2015G
                 

Sensitivity analysis

Reasonably possible changes at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant, would have affected the defined benefit obligation by the amounts shown below.

December 31, 2015    
December 31,2018 2017
Change in assumption 0.25% increase 0.25% decrease0.25 % increase
 0.25 % increase
Discount rate  -248,110   271,492 (138,606) (354,477)
Salary increase  39,749   -38,688 13,121
 49,707
Pension indexation  148,095   N/A 65,943
 189,965
Change in assumption  +1 year   -1 year + 1 year
 + 1 year
Life expectancy  106,136   -108,343 60,369
 182,977
           

19. Finance income and finance expense


 2015 2014 20132018 2017 2016
Interest income  36,562   52,133   74,036 —
 53,570
 67,565
            
Net foreign exchange gain  1,806,206   4,164,189   1,711 
Net foreign currency exchange gain1,103,067
 1,912,681
 843,950
Revaluation gain from derivative financial instruments1,350,071
 3,372,186
 291,048
Total finance income  1,842,768   4,216,322   75,747 2,453,138
 5,338,437
 1,202,563
Interest expense related parties  —   49,635   50,177 
Interest expense (incl. bank charges)  7,985   6,175   2,454 
Net foreign exchange loss  662,100   152,015   106,010 
Interest expense (incl. Bank charges)1,070,177
 1,640,394
 828,547
Net foreign currency exchange loss1,242,938
 2,737,273
 944,047
Total finance expense  670,085   207,825   158,641 2,313,115
 4,377,667
 1,772,594
Finance income/(expense), net  1,172,683   4,008,497   -82,894 140,023
 960,770
 (570,031)
                 




F-29


In 2014, interest expense on convertible loans of CHF 49,635 (2013: CHF 40,262) was not cash relevant. In 2015,2018, net foreign currency exchange gains contain translation gains of CHF 1,154,513 (2014:264,029 (2017: CHF 3,961,731)1,315,029; 2016: CHF 396,665) which arose on the Company’s USD and EUR denominated cash and cash equivalents.

F-27

In 2018, interest expenses include interest paid to Hercules Capital, Inc. under the Loan and Security Agreement in an amount of CHF 435,993 (2017: CHF 1,182,369; 2016: CHF 546,170).


20. Taxation

The Group’s income tax expense recognized in the consolidated statement of profit or loss and other comprehensive loss was as follows:

 2015 2014 20132018 2017 2016
Deferred income tax expense  -32,761   -32,761   -305,750 (294,056) (21,415) —
Deferred income tax gain  32,761   32,761   — 131,879
 39,188
 131,055
Total income tax expense  —   —   -305,750 
            (162,177) 17,773
 131,055
     

The Group’s effective income tax expense differed from the expected theoretical amount computed by applying the Group’s applicable statutoryweighted average tax ratesrate of 21.9% (2014: 23%; 2013: 23.7%21.1% in 2018 (2017: 21.7%, 2016: 21.5%) as summarized in the following table:

Reconciliation 2015 2014 2013
Loss before income tax  -29,705,063   -18,185,015   -14,698,743 
Income tax at statutory tax rates applicable to results in the respective countries  6,493,569   4,177,780   3,488,916 
Effect of unrecognized temporary differences  -105,395   -273,073   1,343,556 
Effect of unrecognized taxable losses(1)  -6,438,609   -4,160,118   -5,160,108 
Effect of unrecognized taxable losses in equity  50,435   99,406   — 
Effect on unrecognized deferred tax due to change in income tax rate  —   156,005   — 
Deferred tax recognized directly in equity  —   —   21,886 
Income tax expense  —   —   -305,750 
             

(1)CHF 457,125 related to the expiry of losses carry forward during 2015 are included in the effect of unrecognized taxable losses.

Reconciliation 2018 2017 2016
Loss before income tax (11,334,224) (24,427,247) (30,793,306)
Income tax at statutory tax rates applicable to results in the respective countries 2,397,177
 5,311,030
 6,629,237
Effect of unrecognized temporary differences 140,371
 193,598
 (27,072)
Effect of unrecognized taxable losses (2,553,594) (5,429,935) (6,360,837)
Effect of previously unrecognised deferred tax asset 114,116
 39,189
 131,055
Effect of expenses deductible for tax purposes —
 9,696
 2,505
Effect of expenses not considerable for tax purposes —
 —
 23,716
Effect of impact from application of different tax rates (260,247) (105,805) (267,695)
Effect of unrecognized taxable losses in equity —
 —
 146
Income tax gain (162,177) 17,773
 131,055
       

The tax effect of taxable temporary differences that give rise to deferred income tax liabilities or to deferred income tax assets as atof December 31 is presented below:

Deferred Tax Liabilities December 31, 2015 December 31, 2014
Intangible assets  -327,637   -327,637 
Provisions  —   -32,761 
Total  -327,637   -360,398 

Deferred Tax Asset

        
Net operating loss (NOL)  —   32,761 
Total  —   32,761 
         
Deferred Tax, net  -327,637   -327,637 
         

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Deferred Tax Liabilities December 31, 2018 December 31, 2017
Intangible assets (627,540) (349,052)
Hercules Loan Facility (889) (47,477)
Derivative financial asset (17,763) —
Total (646,192) (396,529)
     
Deferred Tax Asset December 31, 2018 December 31, 2017
Net operating loss (NOL) 305,206
 217,720
Total 305,206
 217,720
     
Deferred Tax, net (340,986) (178,809)

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Deferred Tax 2015 Opening Balance Recognized in Profit or Loss Recognized in Equity Closing Balance
Intangible assets  -327,637   —   —   -327,637 
Provisions  -32,761   32,761   —   — 
Net operating loss (NOL)  32,761   -32,761   —   — 
Total  -327,637   —   —   -327,637 

Deferred Tax 2014 Opening Balance Recognized in Profit or Loss Recognized in Equity Closing Balance
Deferred Tax 2018 Opening Balance 
Recognized in
Profit or Loss
 
Recognized in
Equity
 Closing Balance
Intangible assets  -327,637   —   —   -327,637  (349,052) (276,293) (2,195) (627,540)
Provisions  —   -32,761   —   -32,761 
Hercules Loan Facility (47,477) 46,588
 —
 (889)
Derivative financial asset —
 (17,763) —
 (17,763)
Net operating loss (NOL)  —   32,761       32,761  217,720
 85,291
 2,195
 305,206
Total  -327,637   —   —   -327,637  (178,809) (162,177) —
 (340,986)
                        
        
Deferred Tax 2017 Opening Balance 
Recognized in
Profit or Loss
 
Recognized in
Equity
 Closing Balance
Intangible assets (327,637) (21,415) —
 (349,052)
Hercules Loan Facility (76,390) 28,913
 —
 (47,477)
Net operating loss (NOL) 207,445
 10,275
 —
 217,720
Total (196,582) 17,773
 —
 (178,809)
        

As of December 31, 2015,2018, the Group had total gross tax loss carry forwards amounting to CHF 86.0151.4 million (2014:(2017: CHF 58.6142 million), of which CHF 84.9150.3 million related to Auris Medical AG, Auris Medical Holding AG and Otolanum AG in Switzerland and CHF 1.1 million to Auris Medical Inc. in the United States (2014:(2017: CHF 57.5140.9 million for Auris Medical AG and Otolanum AG and CHF 1.1 million for Auris Medical Inc.).

The Group’s tax loss carry-forwards with their expiry dates are as follows:

 December 31,
2015		 December 31,
2014		December 31, 2018 December 31, 2017
Within 1 year  1,686,986   2,068,441 8,173,993
 1,754,398
Between 1 and 3 years  3,613,999   3,546,587 41,980,704
 31,089,191
Between 3 and 7 years  79,651,641   51,963,606 100,136,349
 108,055,089
More than 7 years  1,073,609   1,056,556 1,070,993
 1,072,260
Total  86,026,235   58,635,190 151,362,039
 141,970,938
        

The tax effect of the major unrecognized temporary differences and loss carry-forwards is presented in the table below:

  December 31, 2015 December 31, 2014
Deductible temporary differences        
Employee benefit plan  348,259   311,742 
Stock option plans  183,023   114,145 
         
Total potential tax assets  531,282   425,887 
         
Taxable unrecognized temporary differences        
Property and equipment  —   — 
Total unrecognized potential tax liabilities  —   — 
         
Offsetting potential tax liabilities with potential tax assets  —   — 
Net potential tax assets from temporary differences not recognized  531,282   425,887 
Potential tax assets from loss carry-forwards not recognized  19,049,472   13,067,988 
Total potential tax assets from loss carry-forwards and temporary differences not recognized  19,580,754   13,493,874 
         

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 December 31, 2018 December 31, 2017
Deductible temporary differences   
Employee benefit plan143,271
 433,816
Stock option plans148,407
 400,764
Total potential tax assets291,678
 834,580
Taxable unrecognized temporary differences   
Property and equipment—
 —
Total unrecognized potential tax liabilities—
 —
Offsetting potential tax liabilities with potential tax assets—
 —
Net potential tax assets from temporary differences not recognized291,678
 834,580
Potential tax assets from loss carry-forwards not recognized31,387,022
 29,959,963
Total potential tax assets from loss carry-forwards and temporary differences not recognized31,678,700
 30,794,543



F-31

21. Loss per share

 December 31, 2015 December 31, 2014December 31, 2018 December 31, 2017 December 31, 2016
Loss attributable to owners of the Company  -29,705,063   -18,185,015 (11,496,401) (24,409,474) (30,662,251)
Weighted average number of shares outstanding  32,299,166   27,692,494 
Weighted average number of shares outstanding *15,900,865
 4,374,187
 3,432,928
Basic and diluted loss per share  -0.92   -0.66 (0.72) (5.58) (8.93)
        

* The basic and diluted loss per share for the year ended December 31, 2017 and the year ended December 31, 2016 is revised to reflect the reverse-split ratio of 10 to 1 following the Merger on March 13, 2018.


For the years ended December 31, 20152018 and 20142017 basic and diluted loss per share is based on the weighted average number of shares issued and outstanding and excludes shares to be issued under the Stock Option Plans (Note 13) and the warrant issued to Hercules (Note 24) as they would be anti-dilutive. As of the date hereof,December 31, 2018, the Company has 629,010992,777 options outstanding under its stock option plans. The average number of options outstanding between January 1, 20152018 and December 31, 20152018 was 524,010 (345,880459,645 (1,676,526 for the period between January 1, 20142017 and December 31, 2014)2017).

As of December 31, 2018, the Company issued warrants to purchase up to 6,544,791 of its common shares outstanding.


22. Commitments and contingencies

Operating lease commitments

On April

In August 2018, the Group assigned its lease agreement for its office space entered into on October 1, 2013, the Group2016 to a third party and entered into a new lease agreement for new office space under an operating lease agreement with indefinite duration and a cancelation option at the Company’s discretion for March 2016. The option was not exercised. The lease agreement expires in March 31, 2018 with an option to extend it for another 5 years.

six-month cancellation period.

The future minimum lease payments under non-cancellable operating leases that are not accounted for in the statement of financial position were as follows:

 December 31, 2015 December 31, 2014December 31, 2018 December 31, 2017
Within one year  100,572   103,572 24,374
 161,110
Between one and five years  114,465   58,893 —
 446,051
Total  215,037   162,465 24,374
 607,161
           

Office lease expenses of CHF 107,450 were booked in 2015118,337, CHF 192,957 and CHF 99,072148,039 were recorded in 2018, 2017 and CHF 78,033 were booked in 2014 and 2013,2016, respectively, in the consolidated statement of profit or loss and other comprehensive loss.


23. Related party transactions

For purposes of these consolidated financial statements, parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions. Also, parties under common control of the Group are considered to be related. Key management personnel are also related parties. In considering each possible related party relationship, attention is directed to the substance of the relationship, and not merely the legal form.

Compensation of the members of the Board of Directors and Management

In 2015,2018, the total compensation paid to management amounted to CHF 1,619,208 (2014:1,403,250 (2017: CHF 1,220,677; 2013:1,973,167; 2016: CHF 463,132)1,871,406). The fees paid to members of the Board of Directors in 20152018 for their activities as board members totaled CHF 329,827 (2014:287,384 (2017: CHF 143,647; 2013:337,619; 2016: CHF 46,681)364,276).




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Table of Contents


Up to the Company’s IPO, non-executive directors received part or all of their remuneration in stock options; travel and out of pocket expenses were reimbursed in cash by the Group. Executive directors and directors delegated and remunerated by a shareholder for its representation on the Board were not entitled to any specific remuneration for their Board membership and work. Following the IPO, the Board’s remuneration policy was modified in that all non-executive directors received remuneration for their work as members of the Board as well as of the newly constituted Compensation Committee and Audit Committee.

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Table of Contents

  Executive Management Board of Directors Total
  2015 2014 2013 2015 2014 2013 2015 2014 2013
Short term benefits  1,363,796   1,008,817   418,332   268,810   81,567   10,500   1,632,606   1,090,384   428,832 
Post-employee benefits years  78,721   63,386   6,836   —   —   —   78,721   63,386   6,836 
Share-based payment charge  176,691   148,474   37,964   61,017   62,080   36,181   237,708   210,554   74,145 
Total  1,619,208   1,220,677   463,132   329,827   143,647   46,681   1,949,035   1,364,324   509,813 

 Executive Management Board of Directors Total
 2018 2017 2016 2018 2017 2016 2018 2017 2016
Short term benefits1,002,707
 1,576,864
 1,554,850
 200,421
 280,762
 325,493
 1,203,128
 1,857,626
 1,880,343
Post-employee benefits years55,278
 94,839
 88,838
 —
 —
 —
 55,278
 94,839
 88,838
Share-based payment charge204,224
 190,659
 217,981
 60,657
 72,647
 103,380
 264,881
 263,306
 321,361
Total1,262,209
 1,862,362
 1,861,669
 261,078
 353,409
 428,873
 1,523,287
 2,215,771
 2,290,542
In 2015,2018, CHF 237,708 (2014:264,881 (2017: CHF 210,554; 2013:263,306; 2016: CHF 74,145)321,361) was expensed for grants of stock options to members of the Board of Directors and management. The 2018 share based payment charge shown above excludes adjustments for instruments forfeited in 2018 due to termination of service. Contributions to pension schemes amounted to CHF 78,72155,278, CHF 94,839 and CHF 63,38688,838 during the years 20152018, 2017 and 2014,2016, respectively. No termination benefits or other long term benefits were paid.

Members of the Board of Directors and management held 457,510, 287,510703,235, 1,782,605 and 187,500656,355 stock options as atof December 31, 2015, 2014,2018, 2017, and 2013,2016, respectively.

For 2015, the Company granted 25,813 (2014: 20,881; 2013: 0) options to members of Management under the Equity Incentive Plan (2014: Stock Option Plan B) on January 7, 2016. The payroll charge corresponded to CHF 188,092 (2014: CHF 92,565; 2013: 0). These shares vested upon grant and have a sale restriction for a period of 3 years.

The

Related Party Transaction

On February 9, 2018, Thomas Meyer, our Chief Executive Officer, was compensatedentered into a shares transfer agreement with the Company to facilitate the rounding up of fractional shares resulting from the exchange ratio used in 2013 by meansthe Merger. Pursuant to the terms of the share transfer agreement, Mr. Meyer has committed to transfer, at no consideration, a common share to any shareholder entitled to a fraction of a managementcommon share as part of the Merger. Pursuant to the share transfer agreement, betweenthe Company nor the Mr. Meyer will receive any compensation for this arrangement. Any expenses incurred by Mr. Meyer in connection with the transfers under such agreement were borne by the Company.
Controlled Equity OfferingSM
Thomas Meyer, the Company's Chief Executive Officer, or the Share Lender, has entered into a share lending agreement with Cantor to facilitate the timely settlement of common shares sold under the Controlled Equity Offering Sales Agreement with Cantor. Pursuant to the terms of the share lending agreement, the Share Lender will lend common shares to Cantor so that those common shares may be delivered by Cantor to purchasers of common shares sold in the offering. Cantor will return common shares to the Share Lender upon the issuance of new common shares by the Company to Cantor. Neither the Company nor the Share Lender received any compensation for this arrangement. In the year ended December 31, 2017, the Company did not offer or sell any common shares under the Controlled Equity Offering Sales Agreement. The Controlled Equity Offering program terminated upon consummation of the Merger on March 13, 2018.

24. Loan and Warrant

On July 19, 2016, the Company entered into a Loan and Security Agreement (the “Hercules Loan and Security Agreement”) for a secured term loan facility of up to $20.0 million with Hercules Capital, Inc. as administrative agent (“Hercules”) and the lenders party thereto. An initial tranche of $12.5 million was drawn on July 19, 2016, concurrently with the execution of the Hercules Loan and Security Agreement. The loan matures on January 2, 2020 and bears interest at a minimum rate of 9.55% per annum, and is subject to the variability of the prime interest rate. The loan is secured by a pledge of the shares of Auris Medical AG and Altamira Pharma GmbH, a company fully owned by the CEO. During 2013,Company, all intercompany receivables owed to the Group paid CHF 248,000Company by its Swiss subsidiaries and a security assignment of the Company’s bank accounts.







F-33

On April 5, 2018 the Company entered into an agreement with Hercules whereby the terms of the Hercules Loan and Security Agreement were amended to eliminate the $5 million liquidity covenant in exchange for a repayment of $5 million principal amount outstanding under the Hercules Loan and Security Agreement. The Company shall maintain a blocked cash account denominated in United States Dollars as a blocked account (the “Blocked Account”) as collateral for the management services.

remaining principal balance of the Secured Obligations and the End of Term Charge. The carrying value of the cash serving as collateral is USD 2,120,257. The Blocked Account will be reduced on a dollar for dollar basis by the amount of such principal payments or end of term charge when such payments are received by Lender. Following the modification of the loan to repay $5 million, a loss of CHF 334,747 was recognized in connection with the modification of the loan and transaction costs. This loss is presented in the line interest expense in the condensed consolidated interim statement of profit or loss and other comprehensive income or loss.


The loan was initially recognized at transaction value with deductions of the fair value of the warrant at transaction date and directly attributable transactions costs. Subsequent to initial recognition, the loan is measured at amortized cost using the effective interest method. Applying this method, the calculated value of the loan as of December 31, 2018 is CHF 1,435,400. Of the CHF 1,435,400 amortization payments due within the next 12 months in an amount of CHF 1,435,400 are reclassified as current liabilities.

In January 2013 Auris Medical AG obtained bridge financing from Altamira Pharma GmbH through unsecured revolving credit facilities ofconnection with the loan facility, the Company issued Hercules a warrant to purchase up to 241,117 of its common shares at an exercise price of $3.94 per share. As of July 19, 2016, the warrant was exercisable for 156,726 common shares. Upon Hercules making the second advance under the loan facility, the warrant shall become exercisable for the additional 84,391 common shares. The warrant expires on July 19, 2023. The fair value calculation of the warrant is based on the Black-Scholes option price model. Assumptions are made regarding inputs such as volatility and the risk free rate in order to determine the fair value of the warrant. As the warrant is part of the loan transaction, its fair value was deducted from the loan proceeds and accounted for separately as non-current financial liability. Following the initial recognition, the warrant is measured at fair value and the changes in fair value are shown as profit or loss.
As of December 31, 2018 the fair value of the warrant amounts to CHF 1,400,0003,804. Therefore, the fair value decreased by the total amount of CHF 19,546 in the current year (2017: CHF 93,782).

As of March 13, 2018, following the consummation of the Merger, the warrant was exercisable for 15,673 common shares at an exercise price of $39.40 per common share.

25. Warrants from Public Offering

On February 21, 2017, the Company completed a public offering (the “February 2017 Offering”) of 10,000,000 common shares with a nominal value of CHF 0.40 each and 10,000,000 warrants, each warrant entitling its holder to purchase 0.70 of a common share. The net proceeds to the Company from the February 2017 Offering were approximately CHF 9.1 million (US$ 9.1 million), after deducting underwriting discounts and other estimated offering expenses payable by us. The Company had transaction costs amounting to CHF 903,919. The transactions costs were recorded as CHF 397,685 in equity for the issuance of the common shares and CHF 506,234 to finance expense in the statement of profit or loss and comprehensive loss for the issuance of the warrants.
The underwriter was granted a 30-day option to purchase up to EUR 300,0001,500,000 additional common shares and/or 1,500,000 additional warrants. On February 15, 2017, the underwriter partially exercised its 30-day option to purchase additional common shares and/or warrants in the amount of 1,350,000 warrants.

 Consequently, the Company issued warrants to purchase up to 7,945,000 of its common shares at an interestexercise price of US$1.2 per share. The warrants are exercisable during a five-year period beginning on date of issuance. The fair value calculation of the warrants is based on the Black-Scholes option price model. Assumptions are made regarding inputs such as volatility and the risk free rate in order to determine the fair value of 5% p.a. The bridge financing was repaid bythe warrant. If a warrant is exercised, the Company will receive variable proceeds because the Company’s functional currency is CHF and the exercise price is in USD, which results in the warrants being considered liability instruments. Therefore, the warrants were assigned fair values using the Black-Scholes model. The residual value was assigned to the common share sold along with each warrant in accordance with IAS 32 Financial instruments. The gross proceeds from the February 2017 offering were CHF 9,998,305 of which CHF 5,091,817 (fair value as of February 21, 2017) was assigned to the warrants and CHF 4,906,488 was assigned to equity.
As of December 31, 2018, the fair value of the warrants amounted to CHF 166,301 (2017:1,813,413). The fair value decreased by CHF 1,647,112 resulting in a revaluation gain of the same amount for the year ended December 31, 2018.


F-34

As of March 13, 2018, following the consummation of the Merger, the outstanding warrants issued in the February 2017 Offering are excisable for up to 794,500 common shares at an exercise price of $12.00 per common share.

On January 30, 2018, the Company issued 7,499,999 warrants in connection with a direct offering of 12,499,999 common shares, each warrant entitling its holder to purchase one common share at an exercise price of $0.50 per common share. As of March 13, 2018, following the consummation of the Merger, the warrants became exercisable for an aggregate of 750,002 of our common shares (assuming the Company decides to round up fractional common shares to the next whole common share), at an exercise price of $5.00 per common share. As of December 31, 2018 the fair value of the warrants amounted CHF 289,651. Since its initial recognition on April 10, 2013. InterestJanuary 30, 2018, the fair value of the warrants has decreased by CHF 2,194,096, resulting in a gain in the corresponding amount (fair value as of January 30, 2018: CHF 2,483,747).

On July 17, 2018, the Company issued 6,282,051 Series A warrants and 4,487,178 Series B warrants in connection with the July 2018 Registered Offering of 17,948,717 common shares, each warrant entitling its holder to purchase one common share at an exercise price of CHF 6,3860.39 per common share. Revaluation gain/(loss) show the changes in fair value of the outstanding Series B warrant issued in connection with this offering.

As of December 31, 2018, 2,904,518 Series A warrants were exercised for an aggregate amount of CHF 1,132,762 and EUR 2,847 was paid2,864,422 Series B warrants were exercised for an aggregate amount of CHF 1,117,125.

As of December 31, 2018, 2,864,422 Series B exercised warrants were subject to revaluation at the time that they were exercised and the fair value amounted to CHF 3,005,348. Since its initial recognition on July 17, 2018 the fair value of the warrants has increased by CHF 2,433,098, resulting in 2013 undera loss in the agreementscorresponding amount (fair value as of July 17, 2018: CHF 572,249).

As of December 31, 2018, the number of Series B warrants outstanding subject to revaluation were 690,702 and the lender.

Liabilitiesfair value of the amounted to related parties

  2015 2014
Interest expense related parties  —   -49,635 
Net interest expense—related parties  —   -49,635 
         

In 2014, interest expense to related parties includesCHF 215,572. Since its initial recognition on July 17, 2018, the calculated effective interest onfair value of the convertible loans from shareholders.

24.warrants has increased by CHF 77,585, resulting in a loss in the corresponding amount (fair value as of July 17, 2018: CHF 137,987).


26. Events after the balance sheet date

No events

Equity Offering
As of March 14, 2019, the Company had issued an aggregate of 1,979,074 common shares under the "At-the-market" agreement with AGP for a total amount of $978,415.
Redomestication
On January 24, 2019, the Company's board of directors determined that it would require adjustments to or disclosurebe in the consolidated financial statements occurred betweenCompany's best interest to change its legal seat and jurisdiction of incorporation, respectively, from Switzerland to Bermuda pursuant to the dateRedomestication. the Company's shareholders approved the Redomestication and adopted the Memorandum of the statement of financial positionContinuance and the dateBye-laws at an extraordinary general meeting of shareholders held on March 8, 2019. The Company expects to effect the consolidated financial statements were approved byRedomestication prior to the Boardend of Directors of the Company.

March 2019.


F-35