Otonomy, Inc.
Q2 2021 Earnings Call Transcript

Published: 4 Aug 2021

[Operator:]

Ladies and gentlemen, thank you for standing by. And welcome to Otonomy, Incorporated Second Quarter 2021 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. . Please be advised, today's conference is being recorded. . Now it’s my pleasure to hand the conference over to your first speaker today, Robert Uhl, Managing Director of Investor Relations. Please go ahead, sir.

[Robert Uhl:]

Thank you, operator. Good afternoon, and welcome to Otonomy's second quarter 2021 financial results and business update conference call. Joining me on the call from Otonomy are Dr. David Weber, President and Chief Executive Officer; and Paul Cayer, Chief Financial and Business Officer. Before I turn the call over to Dr. Weber, I would like to remind you that today's call will include forward-looking statements based on current expectations. Such statements represent management's judgment as of today, and may involve risks and uncertainties that could cause actual results to differ materially from expected results. Please refer to Otonomy's filings with the SEC, which are available from the SEC or on the Otonomy Web site, for information concerning the risk factors that could affect the company. Otonomy specifically disclaims any obligation to update any forward-looking statements, except as required by law. I will now turn the call over to Dave Weber, President and CEO of Otonomy.

[David Weber:]

Thank you, Robert. Good afternoon everyone and thank you for joining us on this call to discuss Otonomy's recent business updates as well as our financial results for the second quarter of 2021. We are making solid progress across our multiple programs for tinnitus and hearing loss, and the key takeaways from this update include the following; enrollment for the OTO-313 Phase 2 trial in tinnitus and the OTO-413 Phase 1/2 extension study in hearing loss are off to good starts, with both studies on track for top line results in mid-2022. We have achieved several important milestones for our OTO-825 gene therapy program, including demonstration of preclinical proof-of-concept in two independent models of congenital hearing loss and completion of a pre-IND meeting with the FDA. We have initiated IND-enabling activities for this program and expect to file an IND in the first half of 2023. We're also continuing to progress our two other preclinical programs, OTO-510 for otoprotection and OTO-6XX for severe hearing loss. Finally, we significantly strengthened our financial position during the second quarter by completing a financing in April and modifying our debt facility to extend the interest-only period. These actions provide us with a cash runway into the second half of 2023. During this call, I'll provide a brief update on our programs and then Paul will recap our financial results. We can then open up the line for any questions. Beginning with OTO-313, enrollment in the Phase 2 trial is going well. The design of this trial is based on the successful Phase 1/2 trial that demonstrated a higher proportion of responders in the OTO-313 group versus placebo, based on the Tinnitus Functional Index, or TFI. The Phase 2 will enroll approximately 140 patients with persistent, unilateral tinnitus of at least moderate severity based on the TFI. As in the prior trial, where we observed a high correlation between the various metrics and responders, we are also tracking tinnitus loudness, annoyance and Patient Global Impression of Change. To enrich the study population, we are excluding patients with severe hearing loss, who we believe may be less likely to respond to treatment. And we have increased the minimum severity of tinnitus required for entry. We have also expanded the patient population eligible for enrollment by increasing the time from tinnitus onset from six months to one year. Finally, while we will continue to use responsive at both months one and two, following a single treatment for primary efficacy, we are extending the total observation period out to four months to assess durability of the treatment effect. This is because patients who responded to OTO-313 in the Phase 1/2 trial were still improving at the end of the study. We are encouraged by the level of investigator and patient interest in this trial. Multiple centers are enrolling in the U.S. and we are making good progress with our site initiation activities in Europe in order to have top line results in mid-2020. Our next clinical stage program is OTO-413, a sustained exposure formulation of brain-derived neurotrophic factor, or BDNF, which is an endogenous nerve growth factor. This therapeutic approach is highly relevant for the treatment of a broad hearing loss population, based on the growing body of evidence indicating that damage to neuronal connections in the cochlea, due to aging or noise, occurs earlier than hair cell loss. Delivery of BDNF to the inner ear can induce neurite sprouting and promote the reconnection of auditory nerve fibers to hair cells. And by repairing these cochlear synapses, OTO-413 can improve functional hearing, which is demonstrated using speech-in-noise hearing tests. During the second quarter, we initiated an expansion of the positive Phase 1/2 trial reported in December. This Phase 2 expansion cohort will randomize approximately 30 hearing loss patients; 20 will be treated with a single intratympanic injection of OTO-413 and 10 will receive placebo. Patients will be followed for three months and assessed using the same three clinically-validated speech-in-noise hearing tests used in the prior cohorts. That is the American English Matrix phrase test, the Words-in-Noise test and the Digits-in-Noise test. In these tests, the subject is presented with a set of phrases, words or numbers, at varying loudness with a constant background noise level that is typically set to the loudness of a normal conversation. A significant advantage of speech-in-noise test over conventional testing inquired is that they test overall speech intelligibility, mimicking the real-world setting for patients who complain that they can't hear in a noisy setting. This is especially important because it has been well established that neither audiometry nor word recognition inquired predict hearing in a noisy setting. The enrollment criteria of the expansion study will continue to target a broad hearing loss patient population to support the design of a Phase 2 trial. We expect results to be available in mid-2022. Our third development program is OTO-825, a gene therapy targeting GJB2, or gap junction beta-2, which is the most common cause of congenital hearing loss. Patients born with this mutation can have severe to profound deafness in both ears that is identified in screening tests, now performed routinely in newborns. Together with our partner, AGTC, we have presented preclinical data demonstrating that OTO-825 provides excellent expression of Connexin 26, the gene product of GJB2 in the non-sensory cells of the cochlea. In May, we achieved an important milestone for this program by presenting preclinical proof-of-concept results for OTO-825 at the American Society of Gene & Cell Therapy meeting. These results demonstrate the successful recovery of hearing in cochlear morphology in two independent mouse models of GJB2 deficiency. In these models, Connexin 26 expression is knocked out which results in hearing loss and structural changes of the cochlea that mimic the human condition. A single intraocular administration of OTO-825 rescues Connexin 26 expression in both models. Furthermore, OTO-825 induces significant improvement in hearing across multiple frequencies and normalizes cochlear morphology in both of these models. A summary of these impressive results is provided in the corporate slide deck available on our Web site. We're very excited about these results because they validate the therapeutic potential of OTO-825 across a range of hearing loss levels observed in patients and support its advancement into clinical development. To this end, we have also completed a productive pre-IND meeting with the FDA. This meeting provided guidance for the design of IND-enabling non-clinical studies, requirements for the manufacturing and testing of clinical drug product, and helpful considerations for our design of the clinical trial program. Based on this feedback, we have initiated IND-enabling activities and anticipate filing an IND in the first half of 2023. Our remaining two programs are OTO-510, an otoprotectant for patients at risk for cisplatin-induced hearing loss, and OTO-6XX, which targets hair cell repair or regeneration for patients with severe hearing loss. Preclinical development continues on both of these programs. In summary, we are focused on advancing our multiple programs for treating hearing loss and tinnitus, which represent large untapped markets with significant unmet medical need. Patient enrollment in the OTO-313 and OTO-413 clinical trials is going well. And our ongoing review of results from the prior studies with key opinion leaders is very encouraging. They support the endpoints we have chosen, and view the results from these trials as demonstrating a clinically meaningful improvement for patients. We believe that both of these programs are well positioned to address blockbuster market opportunities. Additionally, we are the first and only company to present preclinical proof-of-concept results for gene therapy targeting GJB2 deficiency, the largest congenital hearing loss patient population. We have clear evidence from the FDA on what is required to move this program into clinical development and are excited to have initiated our IND-enabling activities. With that, I'll turn the call over to Paul Cayer, our Chief Financial and Business Officer, who will provide a summary of our financial results and plans.

[Paul Cayer:]

Thank you, Dave, and good afternoon, everyone. As with our development programs, we also made significant progress with our financing and business activities during the second quarter. I'll review those updates for you. But first, let me recap the second quarter financial results, which are more fully reviewed in our 10-Q filing today. We reported GAAP operating expenses totaling 12.0 million in the second quarter of 2021 and non-GAAP operating expenses of 10.2 million. The primary adjustment for non-GAAP expenses is the exclusion of stock-based compensation. So this is the financial metric that best approximates our spending level. These results are on track with our financial guidance for the year that include GAAP operating expenses expected to be in the range of 46 million to 48 million, with non-GAAP operating expenses of 38 million to 40 million. A detailed reconciliation of GAAP to non-GAAP numbers can be found at the end of today's press release posted on the Investor Relations page of our Web site. From a cash perspective, we finished the second quarter with a cash balance including cash, cash equivalents and short-term investments of 97.9 million. This reflects an underwritten public offering we completed in April that raised gross proceeds totaling 34.7 million. Following this financing, we were able to modify our term loan with Oxford Finance to extend the interest-only repayment period from the end of this year to June of 2023. The combined effect of these two transactions is to extend our cash runway into the second half of 2023. One other business update to note. In May, we completed the sale of our OTIPRIO-related assets to our former co-promotion partner, ALK-Abelló. This enables us to fully focus on advancing our multiple development programs for hearing loss and tinnitus, and eliminates the remaining cash burn we have related to commercial activities. With that, I'll turn the call back over to Dave.

[David Weber:]

Thank you, Paul. As you can see, we are in a strong position with financial runway into the second half of 2023 and a broad clinical and preclinical pipeline targeting the largest patient populations in neurotology. Both of our clinical programs have progressed based on promising proof-of-concept data, and we have reported the first preclinical data demonstrating the potential to treat the most common top form of congenital hearing loss. Our focus is on executing against these programs and achieving important clinical catalysts during the coming year. Operator, we are now ready for questions.

[Operator:]

Thank you. . And our first question is going to come from the line of Stacy Ku with Cowen and Company.

[Stacy Ku:]

Hi. Good afternoon. Thanks for taking my questions. First, would you be willing to give us an update when enrollment is completed for 313 and 413? And then I have two questions on 825. Can you speak a little bit more to the pre-IND meeting, maybe the key considerations for safety as you think about the gene therapy program, and particularly in young pediatric or the newborn indication, just talk about what the FDA might require there? And then as it relates to maybe the rescue results you've seen so far in the knockout mice, what's your base case expectations regarding durability effect, given that you see kind of weak gene expression in the preclinical models with a single administration? Thanks so much.

[David Weber:]

Thank you, Stacy. First, in terms of the enrollment update, we will keep investors apprised to our timing to top line results. As is our practice, we do not disclose the actual status of enrollment in terms of specific numbers of patients. That way, all the clinical sites are working toward the common goal of completing enrollment. But we will keep investors informed as has been our practice on the timing to top line results, which as I've mentioned, is on track for middle of 2022. And we have a high level of confidence in that expectation for both of the programs. With regard to 825, the pre-IND meeting that really focused on a number of areas that we discussed with the FDA, it was a very productive meeting. First and foremost was discussion of our proposed preclinical program in which we did achieve agreement with the FDA on our proposal to support what is our intended patient population for this clinical program, which is, as you've mentioned, is added in the pediatric population. Clearly, our interest is in trying to treat these patients in the early stages of this disorder, particularly among those who obviously are pre-lingual in development. So our focus there was -- in that non-clinical program was in that patient population and we did reach agreement on our proposal for that. We also received I think very good feedback on the proposed clinical program, again, coming specifically to the patient population we intend to treat. And we had no surprises there. We felt that the guidance and considerations were very good from the FDA. And it was really a matter of just details around what we will track in the clinical trial. And then finally, the third part was on manufacturing and very good collaborative interactions there as well. The manufacturing program, of course, is based on a very solid and improving experience of our partner AGTC and their capabilities in this area. And as we had expected, the FDA was very knowledgeable about the work that has previously been done by AGTC in the other area, and obviously filtered through into this program. So we feel very good about the manufacturing as well. So, it was a very productive meeting and no surprises from our point. It was really mainly just confirmation of what our intentions were and what our proposals were, and then just some additional details that will add to the quality and conduct of the program. I think your third question was on the rescue and the durability of gene expression. Clearly, this is something that we are seeing good durability on the non-human primate. We continue to explore that as we continue. We've also seen that in our preclinical rescue models. We see good duration of effect, but this is clearly something that we will look at long term in the clinical program as well.

[Stacy Ku:]

Thank you so much.

[David Weber:]

Thank you.

[Operator:]

. And our next question is going to come from the line of Chris Raymond with Piper Sandler.

[Christopher Raymond:]

Thanks. Maybe a follow-up question to your answer on 825. So just I wanted to clarify. So there’s a decent amount of time between now and IND filing. I guess with all the preclinical data you already generated, should we expect maybe more presentations between now and when you file your IND? I guess that's the first question on 825. And then maybe on 313, just to clarify the Phase 2 update. The premier analysis I think will be TFI response at month one and two. But I think you're following these patients out to four months. When we get that update next year, should we expect that longer-term follow up in the initial top line? And I guess what I'm getting at is will that tell us more about potential redosing frequency?

[David Weber:]

Yes. Thanks, Chris, and happy to speak with you. So with regard to 825 and the IND filing and the timeline that we have to there, yes, I think we'll continue to do more work in our animal models as well as our administration. And so we're continuing to provide updates as we go. And indeed, we'll also be presenting at upcoming meetings. So we have more information that will be forthcoming. But I think clearly the data that we have now in the rescue models is extremely powerful and important obviously, demonstrating the proof-of-concept in the animal models for this therapy. So I think you can expect more from us. But I think the most important data we think is what we've now presented with, which is the rescue data. With regards to 313 and the Phase 2 program, you're correct. The TFI at month one and two and the responders, that is patients who have a 13 point or greater change in the TFI from baseline at month one and at month two, not only sets a very high hurdle, one that we've heard very positively from KOLs. We think that's a very significant hurdle to hit. That will remain our primary. And we will have that data for the top line. The additional data that you mentioned, which is looking at patients beyond that second month to month three and four is additional data that will be coming following the top line. We will have some patients likely who have completed their fourth month. So we will provide what we have. But that importantly, we'll look at the durability of the effect. And the idea there will be to understand two things really; do patients continue to get better, because that's what the data is telling us from the Phase 1/2 that patients were still improving following that single administration. So we want to understand what happens to the patients post that single dose, because if many of those patients come to loud tinnitus, the question would be do you even retreat? Do you even need to retreat as opposed to maybe there are patients who do not get all the way to loud and that might set up a retreatment scenario. So I think it will actually answer a number of questions for us both in terms of the number of patients achieving loud tinnitus results from a single administration as well as then, is there a patient population that requires retreatment? And if so, what kind of interval that might be at? So I think it will be very informative for us. But again, I'm very encouraged by the fact that in the Phase 1/2, we saw patients that were still improving following that single administration. So I think most importantly, we got to see what happens with those patients.

[Christopher Raymond:]

Thank you.

[David Weber:]

Thank you, Chris.

[Operator:]

Thank you. . And seeing no further questions, I would like to turn the call over to Otonomy, Incorporated’s President and Chief Executive Officer, Dave Weber.

[David Weber:]

Thank you everyone for participating in our call today, and we hope to meet with many of you at the upcoming Cantor Fitzgerald and H.C. Wainwright healthcare conferences in September. Have a good evening everyone. Thank you.