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Edited Transcript of EARS earnings conference call or presentation 15-May-18 12:00pm GMT

Thomson Reuters StreetEvents

Q1 2018 Auris Medical Holding AG Earnings Call

ZUG May 22, 2018 (Thomson StreetEvents) -- Edited Transcript of Auris Medical Holding AG earnings conference call or presentation Tuesday, May 15, 2018 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Hernan Levett

Auris Medical Holding AG - CFO

* Thomas Meyer

Auris Medical Holding AG - Founder, Chairman, CEO & MD

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Conference Call Participants

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* Juan Pedro Rodríguez Serrate

Edison Investment Research Limited - Associate Analyst

* Michael John Higgins

Ladenburg Thalmann & Co. Inc., Research Division - MD & Senior Biopharmaceuticals Equity Research Analyst

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Presentation

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Operator [1]

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Good day, and welcome to the Auris Medical to announce first quarter 2018 financial results and business and strategy update conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Hernan Levett, CFO. Please go ahead.

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Hernan Levett, Auris Medical Holding AG - CFO [2]

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Thank you, operator, and thanks to everybody on the call for joining. I'm Hernan Levett, Chief Financial Officer of Auris Medical. With me today on today's call is Thomas Meyer, Auris Medical's Chairman and Chief Executive Officer.

Earlier today, Auris Medical issued a news release with a business and strategy update and the first quarter 2018 financial results. The release is available on the company's website, www.aurismedical.com, and filed with the SEC.

During today's call, we will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include statements that address future operating, financial or business performance or strategies or expectations. Forward-looking statements are based on management's current expectations and beliefs and involve significant risks and uncertainties that could cause actual results, developments and business decisions to differ materially from those contemplated by these statements.

These risks and uncertainties include, but are not limited to, the timing and conduct of our clinical trials, the clinical utility of our product candidates, the timing or likelihood of regulatory filing and approvals, our intellectual property position, and our financial position as well as those described in the Risk Factors section in our annual report on Form 20-F and future filings with the Securities and Exchange Commission.

In addition, any forward-looking statements represents our views only as of today and should not be relied upon as representing our views of -- as of any subsequent date. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our views change.

With that, I will hand the call over to Thomas.

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Thomas Meyer, Auris Medical Holding AG - Founder, Chairman, CEO & MD [3]

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Thank you, Hernan. Good morning to our listeners in the U.S., and good afternoon to our listeners in Europe. Welcome to our Q1 earnings and business strategy update call. Earlier this morning, we announced an important strategic decision to expand with our intranasal betahistine development program beyond the treatment of vertigo into mental health supported care indications.

Under project code AM-201, we will develop intranasal betahistine also for the treatment of histaminergic receptor mediated weight gain and drowsiness, also known as somnolence, which are major side effects of many antipsychotic drugs. We believe that the AM-201 program will be highly synergistic to the AM-125 program and represents a natural extension into an attractive therapeutic area.

Betahistine, as a reminder, is a structural analog of histamine and of all known neurotransmitter modulator of the histaminergic system. The drug acts as an agonist at the H1 histamine receptor and as an antagonist at the H3 receptor. Betahistine increases inner ear and cerebral blood flow, histamine turnover and histamine release in the brain, enhances the release of acetylcholine, dopamine and norepinephrine in the brain and results in general brain arousal.

Betahistine is marketed today in about 115 countries, with the U.S. being a notable exception. It is the #1 anti-vertigo drug, acting both on the peripheral and the central vestibular system and having a very good safety profile. Unlike many other anti-vertigo drugs, betahistine is non-sedating.

Betahistine, as it is currently marketed, has one major drawback. Following oral intake, the drug gets rapidly and almost completely metabolized into 2-pyridylacetic acid and metabolite with no known pharmacological activity. This results in a very poor bioavailability of oral betahistine and clearly limits the drug therapeutic utility.

We believe that intranasal administration of betahistine offers a convenient and effective way to increase its bioavailability. We announced earlier this year data from a single-dose pharmacokinetic study in beagle dogs. Some of the results are shown on the left side of this slide.

Betahistine concentrations in blood plasma following intranasal administration exceeded those that were observed after oral administration by far. Relative bioavailability was 5 to 35x in favor of intranasal betahistine. This study confirms and complements, with its results, dose from an earlier single and repeated dose study in a smaller number of beagle dogs.

The superior bioavailability with intranasal betahistine was also observed in humans. In an independent study with healthy volunteers, oral administration of 48 milligram, the total approved daily dose, resulted in a dose-adjusted plasma exposure that was substantially lower than the levels observed in a study with intranasal administration of betahistine up to 40 milligrams. So the relative bioavailability with intranasal administration in humans was 20 to 40x higher than with oral administration. I will get back to this later.

Betahistine is being used for treating vertigo. So why could it be of interest to use it also in mental health supported care? The rationale for this is quite straightforward. Obesity and related metabolic disorders are major issues in the treatment of mental illnesses like schizophrenia or bipolar disorder, arising largely as adverse side effects from the use of antipsychotic drugs.

Increased rates of diabetes, dyslipidemia and cardiovascular disease observed in this patient population are known complications of antipsychotic treatment. In addition, many of these antipsychotic drugs also result in drowsiness or somnolence, which can be very unpleasant for patients and a negative factor for long-term treatment and functional recovery, so these people are heavily sedated sometimes.

It is well known that histamine plays a key role in the brain's regulations of food intake and energy expenditure. And it is also well known that centrally acting drugs with high affinities for H1 histamine receptors can induce weight gain and that some antipsychotic drugs are really potent H1 histamine receptor antagonists. Blocking this activity would be an obvious target in order to address these major side effects of antipsychotic drugs. Now remember that betahistine acts as an H1 histamine receptor agonist.

Let me expand a bit on the importance of these side effects. A meta-analysis by Leucht and colleagues of the comparative efficacy and tolerability of 15 antipsychotic drugs in schizophrenia, which was published in Lancet, show that olanzapine and clozapine are among the most effective drugs. You can see on the left of the slide, the standardized mean difference between active drug and placebo, with clozapine on top and olanzapine at number 3. Both drugs belong to the class of so-called atypical second-generation antipsychotics. In spite of their good efficacy, certain treatment guidelines no longer recommend them for first-line use due to the risk of significant weight gain and other metabolic side effects.

As you can see on the right side of the slides, clozapine and olanzapine scored among the 3 worst in the meta-analysis in terms of weight gain. Those drugs have a high affinity for H1 histamine receptor. Olanzapine and clozapine are certainly among the worst offenders when it comes to weight gain. However, as you may have noted on the previous slide, the 13 other antipsychotic drugs reviewed also showed more weight gain than placebo.

It is not surprising then that in 2015 and a review paper by Manu and colleagues, it was stated, "All antipsychotics are associated with multiple weight gain in antipsychotic naïve and first episode patients." It is important to note that the weight gain, in many cases, is not just a small side effects. In the case of olanzapine, it has been shown that 64% of schizophrenia and bipolar disorder patients experience a clinically relevant weight gain that is 7% or more after 48 or more weeks of treatment. 32 patients have 15% or more weight gain and 12% experienced an increase of 25% of their body weight or more.

In patients with the first psychotic episode, another study showed a clinically relevant weight gain over 3 years of treatment with 3 other antipsychotic drugs or 23% to 45% of them. There have been many more studies published on the topic painting all a similar picture.

The potential ability of betahistine to treat antipsychotic-induced weight gain has been evaluated both preclinically and clinically. An Australian research group published several papers over the years, demonstrating that betahistine, co-administered with olanzapine, reduced weight gain in rat models by counteracting increased expression of the H1 histamine receptor, pAMPK, neuropeptide Y and decreased expression of neuropeptide proopiomelanocortin.

Clinically, betahistine was tested together with olanzapine in a Phase II study by a company called Obecure with the approved oral dose of 48 milligrams per day for 16 weeks and also in a Phase I pharmacokinetic/pharmacodynamic study with a 3x higher dose for 3 weeks. These studies showed a reduction in weight gain and somnolence and importantly, no indications for interference of betahistine with the antipsychotic effect of olanzapine.

These studies were obviously not large, yet they already showed promising signals in spite of the poor bioavailability of the oral betahistine that was used. Based on these findings we are very confident that intranasal betahistine, thanks to its markedly higher bioavailability, will show even greater therapeutics benefits.

As you may remember, I showed you on an earlier slide how plasma exposure following intranasal delivery compared against plasma exposure following oral betahistine. The level was 20 to 40x higher. The plasma data, which I showed for the oral administration are from this aforementioned pharmacokinetic/pharmacodynamic Phase I study, which already showed some effect on weight gain and somnolence. We consider this very promising.

Let me turn now to the size of the market opportunity. According to Datamonitor, the number of patients in the U.S., EU top 5 and Japan is about 2.2 million diagnosed schizophrenia patients, 3.6 million diagnosed bipolar disorder patients and there are about 550,000 patients treated with olanzapine. So these numbers are quite significant.

With AM-201, our first development priority will be in the U.S. Fortunately, we'll be able to draw on the work previously done by some other parties, in particular Obecure. In this context, we have acquired 2 U.S. patents related to the use of betahistine for treating weight gain induced by olanzapine, which expands our intellectual property estate around intranasal betahistine. We look forward to providing further details on our AM-201 program through a KOL call, which we are planning to host in early June 2018.

While we have been working on the launch of the AM-201 program, we have also been advancing our AM-125 program in the treatment of vertigo. Here, we completed the dose escalation with oral betahistine up to 384 milligrams in the second Phase I clinical trial in healthy volunteers. Data from this first part of the study are expected to provide further support for bridging to existing safety data with oral betahistine.

In the second part of the study, intranasal betahistine will be administered to determine the maximum tolerated dose with single and repeated dosing and generate additional data on bioavailability in humans. We expect the results from the second phase I trial to become available in the third quarter of 2018.

In addition, we have initiated preparations for the planned Phase II clinical trial in vertigo. We are planning to start that randomized controlled study in patients suffering from acute surgery-induced vertigo towards the end of 2018. The preparations will include, among others, discussions with health authorities for validation of the study design, additional toxicology testing as well as further pharmaceutical development work.

Following the presentation of the intranasal betahistine programs, I will now turn to a strategy update on our late-stage programs, AM-111 for the treatment of acute inner ear hearing loss and AM-101 for the treatment of acute inner earning tinnitus.

As we are focusing on advancing our AM-125 and 201 programs, we plan to move forward with AM-111 and AM-101 through strategic partnering and with nondilutive funding. In line with this strategy, we are using the level of operating expenses. We believe that this will result in a further marked reduction of the cash burn rate. Our CFO, Hernan Levett, will talk about this shortly.

As for AM-111, we recently reported 2 positive developments, where we're very pleased to see the publication of a peer-reviewed article entitled Preclinical and Clinical Otoprotective Applications of Cell-penetrating Peptide DJNK1 in Hearing Research, which is one of the leading journals in the otolaryngology field.

Importantly, we received positive scientific advice protocol assistance from the European Medicines Agency, EMA, related to the development plan and regulatory pathway for AM-111. We have requested the scientific advice following the results of the HEALOS Phase III trial, which had shown a clinically meaningful and nominally significant improvement in hearing and some other measures in a subpopulation of patients with profound acute hearing loss.

We were very pleased that the agency endorsed the proposed design for a single pivotal trial with AM-111 0.4 milligram mL in patients suffering from acute profound hearing loss, the choice of efficacy and safety end points, as well as the statistical methodology. In addition, EMA provided important guidance on the regulatory path forward and the maintenance of AM-111's orphan drug designation. In the next steps, we plan to request a Type C meeting with the FDA to discuss the development and regulatory path forward there as well.

As for AM-101, that is Keyzilen, we conducted index analysis of the full set of outcomes from the TACTT3 trials. As you may remember, in March, we had reported that the study did not meet its primary efficacy end point of a statistically significant improvement in the Tinnitus Functional Index score in the active treatment group compared to placebo, either in the overall population or in the otitis media subpopulation.

Further investigation of the trial's outcomes confirmed these preliminary results. We believe that the lack of separation between the actives and placebo-treated groups may be viewed to certain elements of the study design and conduct.

There is a strong unmet medical need in tinnitus. There is no doubt about it. And in fact, we keep receiving many patient inquiries about accessing AM-101. People would like to try it. In view of the positive data from nonclinical studies, positive data from 2 Phase II trials and positive data from the 2 open-label AMPACT trials, we're currently assessing measures to address the issues arising in both TACTT trials and how best to advance the program.

With this, I will now turn the call over to Hernan for the financial update.

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Hernan Levett, Auris Medical Holding AG - CFO [4]

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Thank you, Thomas. Before reviewing our financial results for the first quarter of 2018, I would like to note that the financial statements are presented in Swiss francs.

The company's net loss decreased from CHF 8.4 million or CHF 2.15 per share in the first quarter of 2017 to CHF 1.7 million or CHF 0.30 per share in the first quarter of 2018. Our research and development expenses decreased from CHF 6 million in the first quarter of 2017 to CHF 2.9 million in the first quarter of 2018. The reduction in research and development expenses was maybe driven by the completion of our several Keyzilen AM-111 trials, lower employee-related expenses and lower expenses related to drug manufacturing and regulatory affair activities.

General and administrative expenses were CHF 1.4 million in the first quarter of 2018, which was in line with the first quarter of 2017, which was also CHF 1.4 million. We expect that our operating expenses in 2018 continue to be in line with our previous guidance of CHF 10 million to CHF 12 million and that the existing cash and cash equivalents will enable then funding of operations into the fourth quarter of 2018.

During the first quarter of 2018, we had an important corporate development. The company regained compliance with the minimum bid price requirement for continued listing on Nasdaq Capital Markets, following a reverse share split at a ratio of 10 for 1 of the company shares effective March 13, 2018.

At the end of the first quarter of 2018, the company had a total of 6,117,388 common shares outstanding. On May 2, 2018, the company entered into a new equity line for up to CHF 10 million with Lincoln Park Capital. The previous equity line with Lincoln Park Capital had been terminated upon the company's merger with one of its subsidiaries in order to effect the reverse share split.

On April 5, 2018, the company entered into an agreement with Hercules where the terms of the company's 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. The repayment will reduce the company's annual interest expense by more than $0.5 million.

In sum, our operating expenses have been significantly reduced and will continue to decline sequentially during 2018, following the completion of our Phase III trials for Keyzilen and AM-111 and the adjustment of our internal expenses. The renewal of the equity line with Lincoln Park Capital will provide further financing flexibility, and the reduction of our debt will reduce our interest expense. We believe these measures will allow the company to move forward its programs through the next phases of development.

With that, I would like to now turn the call back to Thomas, who will conclude our presentation and open the line for questions.

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Thomas Meyer, Auris Medical Holding AG - Founder, Chairman, CEO & MD [5]

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Thank you, Hernan. So we have several important milestones lying ahead of us. In the third quarter of this year, we will announce the results from the second Phase I trial with AM-125. For AM-201, we plan to request a pre-IND meeting with AM-201. And following the EMA scientific advice on AM-111, we expect to obtain feedback also from the FDA on the development and regulatory path forward.

Towards year-end, we are planning to initiate a Phase II trial with AM-125 in acute vertigo. And during the third and fourth quarter, we expect to submit our IND for AM-201 and if all goes well, to initiate pharmacokinetic/pharmacodynamic study on the compound.

We are very excited to launch the development of intranasal betahistine for mental health supportive care indications. We believe that this is a great extension to our vertigo program and that we can make a real difference for patients treated with antipsychotic drugs.

With intranasal delivery, we can significantly improve betahistine's bioavailability, which we expect to translate into enhanced treatment outcomes in both indications. We plan to bring this new treatment option to patients in all key markets, including in the U.S., where the compound currently is not approved. Last but not least, we look forward to advancing our late-stage assets through strategic partnering.

With that, I would now like to turn the call back to the operator who will open the line for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question today comes Juan Serrate from Edison.

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Juan Pedro Rodríguez Serrate, Edison Investment Research Limited - Associate Analyst [2]

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It's just a quick question on the readout of the AM-125 product in Q3. So I wanted to know, I mean, if you can explain a bit what we should be looking out for in this trial? What should investors draw their attention to?

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Thomas Meyer, Auris Medical Holding AG - Founder, Chairman, CEO & MD [3]

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Yes. Thank you very much. Well, this Phase I trial will provide several results. So first of all, it will allow to fine-tune the calculations on the relative bioavailability oral intranasal. So this will be within the same study. Previously, we compare the data from 2 separate studies. We can, in addition, also analyze the PK samples here for additional metabolites, which were never characterized before, so the PK profile will be more complete. In addition, we expect to push higher with the doses because in the previous study, we feel that the maximum tolerated dose, probably it was not already achieved. And last but not least, we will have also data from multiple dosing over several days. So this program here evidently -- it derives PK properties of betahistine. Therefore, it is very important that we have here some additional data for informing us also what doses to take into phase II, what is the most appropriate choice.

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Operator [4]

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(Operator Instructions) And our next question today comes from Michael Higgins from Ladenburg Thalmann.

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Michael John Higgins, Ladenburg Thalmann & Co. Inc., Research Division - MD & Senior Biopharmaceuticals Equity Research Analyst [5]

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We took a look at the clinical publications out there in olanzapine and betahistamine -- betahistine, rather, just since the TR and there's quite a bit out there. It certainly hasn't been in the bottom of it. A question for you is, how long is the acquired IP that you've got on 201?

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Thomas Meyer, Auris Medical Holding AG - Founder, Chairman, CEO & MD [6]

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Okay. So the key IP here, Michael, that is clearly what we filed last year. So this is about the intranasal delivery of betahistine to treat a variety of disorders, vertigo is among them, antipsychotic-induced weight gain is another one and there are a couple of others, with a certain formulation, in order to achieve certain levels of plasma concentrations. And so this is IP that will carry relatively far. Well, we accept that during development, we will expand on that. Now what we actually got here, in addition, these are 2 patents that go on to until 2024. They were generated by Obecure. I mean, this is an addition around this, specifically, here for this antipsychotic-induced weight gain. We have, by the way, also managed here to get access to certain data that Obecure, which was dissolved voluntarily a few years ago, that were generated as part of their development program. So this is obviously very helpful here in preparing us for regulatory interactions. They had an IND open at the time and also here for designing the next trials.

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Michael John Higgins, Ladenburg Thalmann & Co. Inc., Research Division - MD & Senior Biopharmaceuticals Equity Research Analyst [7]

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That's helpful. Yes, I assume the patents you have on 125 will hold up here as well. Regarding AM-111, congratulations on the outcome on the European regulatory agencies. If you can give us some sense for what the trial may look like, number of patients, is there any change in the inclusion criteria? Is it just time since hearing loss and is this a placebo-controlled trial?

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Thomas Meyer, Auris Medical Holding AG - Founder, Chairman, CEO & MD [8]

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Yes. So this trial would be pretty close to the HEALOS trial. So this will be placebo-controlled, one dose, so the 0.4, that's the one dose that's in the Phase II and in the HEALOS trial performed best. And there will be a reserved therapy option again as in the previous trials. We estimate that there would be between 120 and 140 patients to be recruited, and that would be in the profound hearing loss subpopulation as we had also shown in the HEALOS trial.

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Michael John Higgins, Ladenburg Thalmann & Co. Inc., Research Division - MD & Senior Biopharmaceuticals Equity Research Analyst [9]

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Well, and then just a follow-up. In terms of -- if you're talking with FDA next, if you can give us some updates on the timing for that, when we -- and also, when we may hear some feedback. And then finally, is this meant to be a U.S., European, global trial? Or do you expect to enroll -- any estimates on the number of sites as well?

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Thomas Meyer, Auris Medical Holding AG - Founder, Chairman, CEO & MD [10]

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Yes. So the plan is here, we are pretty much ready. Very shortly, we expect here to request the Type C meeting, so during the third quarter, we should have the feedback. And with regards to the trial conduct, now as we are planning to partner this program here, obviously, there will be also some other considerations coming into play. I think it's a safe bet to assume that the countries that participated in the HEALOS trial, they would -- most of them would be part again. We also have some Asian countries, we have North America. So it's very likely that it's going to be a global trial. But as I said, there may be also some other considerations based on the partnering.

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Michael John Higgins, Ladenburg Thalmann & Co. Inc., Research Division - MD & Senior Biopharmaceuticals Equity Research Analyst [11]

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And the timing, that would be a start in late 2018?

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Thomas Meyer, Auris Medical Holding AG - Founder, Chairman, CEO & MD [12]

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Well, the time to set up here a trial, that would typically be approximately 6 months. So obviously, we now want to see first the FDA feedback as well. I think we have to hear the chance to receive a very positive and very encouraging supportive feedback from the EMA. Now we hope, obviously, that also the FDA will support our plans. I think what was very important with EMA, it is an unmet medical need, especially as we are talking about profound hearing loss, which can be very debilitating functional impact day-to-day functioning here of patients. So that clearly helped.

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Operator [13]

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Gentlemen, we have no further questions. I would like to hand back over to you for any closing remarks.

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Thomas Meyer, Auris Medical Holding AG - Founder, Chairman, CEO & MD [14]

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Okay. Thank you very much, operator, and thanks to everyone for joining the call today and your interest in Auris Medical. Have a great day. And as always, take care of your ears. Thank you.

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Operator [15]

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Ladies and gentlemen, that will conclude today's conference call. Thank you for your participation today. You may now disconnect.