Otonomy, Inc.
Q3 2021 Earnings Call Transcript

Published: 10 Nov 2021

[Operator:]

Good day, everyone, and thank you for standing by. Welcome to the Otonomy Third Quarter 2021 Financial Results and Corporate Update 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. I would now like to hand the conference over to your speaker today, Contessa Semaan, the Vice President, Investor Relations at Westwicke. Please go ahead.

[Contessa Semaan:]

Good afternoon, and welcome to Otonomy's third 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 website 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.

[Dr. David Weber:]

Thank you, Contessa. 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 third quarter of 2021. We have continued the strong momentum in our ongoing clinical trials and the key takeaways for this quarter's update are as follows

[Operator:]

And now our first question comes from Ken Cacciatore of Cowen. Please go ahead.

[Ken Cacciatore:]

Congratulations on all the really good progress. Dave, you gave a good description of TFI. And just wondering, though, can you talk about what we should be expecting for clinically meaningful improvement? Can you help us maybe set a threshold as we kind of await those results? And then a little bit on the implications of expanding from six months to one year. Obviously, it just sounds like you want to be able to kind of quicken the pace of enrollment. You got to give a little bit to get a little bit to maybe talk about though some of the implications of doing that? And then on 413, can you talk a little bit about the enrollment criteria? Obviously, a lot of heterogenicity and hearing loss, how you're screening for that and ensuring that we have the kind of the patient population that you would want?

[Dr. David Weber:]

Sure, Ken. Thank you. Thank you. I'm very delighted with the progress that we continue to make in achieving our clinical milestones on a reliable basis. So let's talk about 313 first and the TFI. So TFI is a clinically validated instrument for measuring tinnitus severity. And in establishing that clinical validation, what the developers identified as a clinically meaningful level of change is a 13-point or greater change. And that is what we use for our requirement as the clinically meaningful improvement of the 13-point change. Now a little background there. The TFI has eight subscales. There are 25 questions that add up to 100 possible points. And so what we're looking for here is reduction in the number -- in the score. And so that 13-point or greater changed. Now what I will mention also is that we've actually even increased our hurdle even more, and I think this is important. Most of us are clinical trials being based on single endpoint. But we really believe we are changing biology here in terms of reverting the effect of tinnitus. And in doing so, what we're looking for is really a prolonged effect. And the reason I say that is we actually use multiple time points. As you know, we use both month one and month two have to achieve that clinically meaningful level of improvement. And that's something we saw in our Phase 1/2 trial we saw patients improving and achieving clinically meaningful improvements at both month one and two. And so that's really our responder analysis that we will use as our primary in the Phase 2. In addition, we will continue to have in that Phase 2 trial, the loudness and annoyance measures, which are done on a daily scale as well as the patient global impression of change all which showed consistent results to the TFI improvement in the Phase 1/2. So very clear in terms of our primary efficacy outcome that we're looking for. In terms of the patient profile of extending from six months since tinnitus onset up to one year, that was really based on now as we go into Phase 2. With a Phase 1/2 proof of concept, clearly, you want to really make a homogeneous population as we could. And so that was the reason for the type up to six months to really create a homogeneous population. Based on those very favorable results, which showed a 43% of the patients had at least a 13-point or greater change at both month one and two, we now felt that we have the data we needed to really look at longer-term patients. And that was partially based on data that we present in our corporate deck that's available on the website, where we showed that patients that had longer duration improved, in fact, quite dramatically improved. And so one of the -- that's what drove the impetus to therefore increase up to one year. We are stratifying for patients that are from two months up to six months and longer than six months up to one year. But clearly, we believe that it is likely that patients with longer duration in the six months will respond favorably as well. So we're taking that step-wise approach in our development to expand with steps to look at a wider patient population while still having the capability of showing improvement. So now let's turn to OTO-413 in the enrollment criteria there. Again, we are really the first company to be focused on identifying improvements in what patients complain about the most when they appear to the physician, which is the ability to hear other people talking in daily environments, which are noisy environments. And so speech and noise tests are the test to test that speech perception. What we require for these patients are that they have to have a certain minimum level on what we call the Digit-in-Noise speech and noise tests. We're using the DIN as we call it, Digits-in-Noise. As our criterion, this was based on work with KOLs to establish the minimum level of speech and noise hearing threshold that we want to test for. We also assess these patients in terms of their audiometry, and so patients can have up to up to profound hearing loss, so they can be -- either show no changes on normal audiometry or they can show moderate to severe loss of hearing on audiometry but they cannot have profound hearing loss. And so that is part of our criteria as well.

[Operator:]

And our next question is from Charles Duncan from Cantor Fitzgerald. Go ahead please.

[Charles Duncan:]

Dave. Thanks for taking our questions. Congrats on the progress. Primarily interested in 313 right now, the tinnitus program, I guess I'm wondering, in addition to stratifying for time sense symptom onset. Are you also collecting information on etiology? Or is that really kind of difficult to nail down? And then secondarily, with regard to that time sense symptom onset, would you anticipate that two- to six-month patients are harder or less hard to treat versus 6- to 12-month patients?

[Dr. David Weber:]

All right. Thanks, Charles. So let's talk with regards to the onset first in the etiology. So we are tracking etiology. So we are collecting -- we ask the patients -- we are looking for an event that resulted in the tentative. So if they can point back to a cochlear oriented event. That was the trigger for the onset. And so we are collecting that information. It is information that helps both in terms of meeting the criteria for the study. But then obviously, we're also going to be looking at that data in this larger scale Phase 2 study to understand what patients based on etiology might benefit more or less than others. So, we are collecting that information and looking at that. With regards to the time since onset and whether or not there is maybe more response. That is the question we are trying to answer. Now, if we -- the reason that this is important, let's step back, is that tinnitus is a persistent effect right now. And so, as we look at patients, patients can have tinnitus for years, decades. And there is a belief in the field that at some point, it moves from being a cochlear origin to more of a centralized problem. What time frame that is? Will vary based on what KOL you talk to. But I think it's important to note that none of us really know because there's never been an effective treatment for tinnitus to assess where you can reverse and where it may no longer be reversible. One of the things I was pleased to see in the Phase 1/2 is that the patients that had longer duration up to that end of the six months responded very well. And so as a biologist, I don't believe that the body is a precise clock that there is a particular time point at which things just shift. And that's what made us comfortable to extend up to one year, is that we were still seeing that improvement in the patients. And in fact, very dramatic improvement in patients had the longer duration in that Phase 1/2 study. And I think that's what we're looking for in the up to 12 months. Most KOLs would agree that up to 12 months, it's likely still peripheral. And that's why we didn't push further for now and look further at longer duration than 12 months. What we're going to do is collect this information, evaluate it based on that stratification and determine what we see. Now clearly, if we see patients getting better even that have it as long as 12 months, that would be further impetus than to look even longer. But that's our kind of steps that we're taking in careful product development.

[Charles Duncan:]

Okay. That makes sense. Let me know -- I'd like to sign up for that study. But let's first talk about next steps. Yes, in terms of this trial readout, let's assume clear results that justify moving forward could you imagine the next study to be one that is a small multiple of the size of this study, I think it's in the N=140? Or could there be a need for a couple of studies which are much larger? And then secondarily, how do you plan to deal with bilateral versus unilateral tinnitus in the future?

[Dr. David Weber:]

So let's take that stepwise here. So first, with regards to with positive results, what would be our next steps? Well, clearly, we'd be having a meeting with the FDA and end of Phase 2 meeting to then talk about the next steps. I think, I do expect that the FDA will require two registration trials. I think the size of those will be dependent on what we see from the Phase 2 and the power calculations that we can do based on that. So clearly, with what we saw in the Phase 1/2, we do not think that these have to be extremely large studies. But obviously, having more data to base it on that we will be getting from the Phase 2 will help us in our power calculations to determine what that population should look like. So that would be our approach there is to go into the registration trials with 2 registration trials and size based on the power that we would see using the Phase 2 data. I think in terms of bilateral and how we look at bilateral, clearly, there are patients -- it's about 50-50 roughly. And clearly, we are doing very well in rolling unilateral patients. There's obviously a lot of patients out there as our enrollment shows, and they are eager to be in clinical trials. But we recognize that there are patients suffering from bilateral. I think importantly -- it's important for us to realize that bilateral and unilateral are not different diseases. They are tinnitus. And so it just means that the patient either through their origin of cocoa origin of tentative or the biology was such that they got it in both ears. So our approach here is to approach it as what we are developing OTO-313 for is the treatment of tinnitus, and that would be whether it's unilateral bilateral. As you know, it's very common in clinical trials to try to create a homogeneous population to reduce variability. So that is why, at this point, we're focused on unilateral. However, what we are preparing for is for doing safety evaluation in both unilateral and bilateral patients that would then support the product to be used in bilateral patients by having the data to support that safety. And so that will be our approach. Obviously, that is a discussion that we want to have with I think it would also be very possible to see that we might need to do a single study in bilateral, for example, if the FDA required it. But that's something that we have discussions with them. I think importantly, what we think is the most important is to develop the safety data to support both unilateral and bilateral but utilize the lateral efficacy to support that it is a treatment that is effective for tinnitus.

[Operator:]

Our next question is from François Brisebois from Oppenheimer. Please go ahead, sir.

[François Brisebois:]

Just a couple here. So the 413 is a little ahead of schedule, I haven't heard that in a while with the pandemic. Is there any reason for that specific -- any color you can give on being ahead of what you had expected?

[Dr. David Weber:]

I think it's a combination of, François. So thank you for being on here and joining us. I think it's a combination of things here is that clearly, these are large populations. I think what we can say from being on track with 313 and a high -- ahead of schedule for 413 is obviously a clear indication of the size of the treatment audience that we're looking at here. These are high unmet need, large populations, and that's supported by what we're seeing clinically with recruitment. Now to say that, I also think I have to give credit to our team and our investigators and clinical site staff who are doing a fantastic job of working patients through screening and qualification and enrollment in the study. So obviously, in times of COVID, it's not easy. As we know, there's lots of different challenges there, but our team has done a very effective job. But I think first and foremost, is the number of patients that are looking for treatment. It dramatically emphasizes the size of these populations and the tremendous unmet need by the number of patients who are looking for therapy. I'll give OTO-313 as an example. I have never seen so much outreach in a clinical trial of interest as we do with tinnitus. And it's because almost everyone you talk to knows or have someone who is experiencing that. So I think that, first and foremost, and then an incredible job by all of the people, investigators, site staff and our CRO and teams all working with patients who are highly motivated.

[François Brisebois:]

Okay. Great. And how -- I don't know if you mentioned this, I apologize if you did. But how easy or hard is it to find the unilateral versus bilateral? I know you just talked about it a little bit, but -- and also just remind us in the patient -- in the population, I know tinnitus is a huge population, but how often -- what's the breakdown of unnatural versus bilateral? And is it something that always starts as unilateral and progresses? And so if you're -- ultimately, if you're in a trial in bilateral, is there one ear that's has to be dosed a lot differently potentially?

[Dr. David Weber:]

No, it breaks down pretty clearly, to about 50-50. I won't say that 50-50 is exact, but it's very close to being 50-50 of unilateral to bilateral. Now there is some suggestion that maybe some of those unilateral patients may have some slight tinnitus in the other ear, but it's just not well recognized, given the tentatives that they have in the treated ear that we have as a subject ear. So -- but we are really taking patients that identify as being unilateral and it is something that we assess. So -- but the breakdown is roughly 50-50. And when you look at tinnitus of the landscape, there's -- if we look at U.S. alone, 31 million people in the U.S. was subjective tinnitus, 8 million of which are moderate to severe. So you can then break it from there 50-50. You're talking 4 million basically are unilateral and 4 million that are bilateral. And clearly, those each other -- each individually are very large population, which is reflected obviously in our enrollment.

[François Brisebois:]

And then if I can -- sorry, go ahead.

[Dr. David Weber:]

No, go ahead. That's fine.

[François Brisebois:]

Okay. And just last one here was on the center on your tinnitus going from peripheral to central. It seems like you mentioned a lot of KOLs would disagree on when that happens. But is it possible that there's just also a lot of variability between patients for when that switch from peripheral to central can happen?

[Dr. David Weber:]

Well, I think as a biologist, I have to say here that at this point in time, we really don't know what happens here. And this is where developing an effective therapy will allow us to evaluate that. I think I expect populations to be diverse. So I would expect that there are patients who could have tinnitus for a prolonged period that is still peripherally driven. And I think one of the things that we also have to look at is really whether or not patients who may have what may be characterized as central tinnitus couldn't be treated with this and affected by it. Maybe it still is peripheral and large degree. So I think it's a matter of until we have -- are able to look further with 313 and look at longer term. But again, rather than looking at take all comers, people who've had tenants for a very long period of time, we are going to do this gradually and work it out. Clearly, we recognize there's a tremendous number of patients out there that have had tentative for a prolonged period of time. It'd be wonderful if 313 works for them but it's something we will approach stepwise. Let's look at a homogeneous population that we can clearly define, demonstrate activity in that, and then it continued to expand out from there. I will say as a biologist, there's differences among KOLs of when exactly the transition can occur, whether that's a year, two years, three years that you move from peripheral and central. No one really knows. No one has data that really clearly points at that. It really is more of an opinion. And I think what we have to do is just do careful development to look at patient populations and where we see that effect with 313.

[Operator:]

And our next question is coming from Oren Livnat from H.C. Wainwright. Please go ahead.

[Oren Livnat:]

I have a few questions, if you will indulge me. On 313, I think people dance on this a little bit, but how comfortable are you that you're going to have enough power in the different stratified groups for time from onset such that if it's the case that people -- efficacy wanes a longer you have on set. Are you confident you have enough patients in the two to six months that you're not going to sacrifice overall statistical significance by expanding? And on the three and four months extended observation, can you just remind us what trends you saw in the Phase 3, I know it's small, but is it likely that do you expect efficacy to be getting better, getting worse or no idea? And is there a decent chance that Phase 3 might even have different primary time points? And then I have a follow-up.

[Dr. David Weber:]

Okay. Well, first, I think in terms of the power calculations, let's be clear, it is a Phase 2 trial. So we are powering based on a limited data set from the Phase 1/2, obviously. So, we -- that's part of why we're doing the Phase 2 trial is to get powering data that will really allow us then to more accurately define a registration program and what the size of those trials must be. So I think it is important for people to realize that 313 Phase 1 is based on limited data to power. So it is based on our best judgment there based on the data we have. And it's really focused on the overall outcome, not on the -- looking at the individual up to six months and six months to 12 months. So -- but at the same time, I would say, Oren, I don't expect that there is a magic cutoff there. Clearly, as you're looking at the population, the majority of the patients are going to be in that round six months range, which we've already shown in the Phase 1/2 is looking very good from the patients that had it for that longer period of time. There will be some patients up to one year, but that is why we're stratifying the store and allow us to have that range that should still allow the power to be effective. With regards to the Phase 1/2 efficacy profile and time period, I think we saw clearly the patients getting better. If you look at -- go back to our data, patients were clearly improving as we show in those case studies that we have in our corporate deck available on the website we saw with those patients, they were clearly still improving. And so that is one of the things we're looking at in this Phase 2 trial. Our primary endpoint will remain month one and two. But we are looking at month three and four, and that will inform us from the standpoint of looking at whether or not these patients continue to improve from a single administration. We haven't even talked about the potential for retreatment which we will look at in the future. But clearly, the longer that we see that benefit means that patients would be able to go longer before we even need to assess whether or not retreatment is necessary. And some of these patients I'll just remind you as well, we're actually going from severe to mild. So there's even a question of whether they need to even further treatment and particularly if they continue to improve beyond that month two. So all of this, I think, is going to be an important part of our learnings from the Phase 2 trial with this larger patient population that will allow us then to make very informed decisions as we continue to progress into registration trials.

[Oren Livnat:]

Okay. And you mentioned OTO-413 being ahead of schedule. If I could take the other side of that coin, not to criticize, I'm just coming from a place of ignorance on study conduct, but obviously, like you said, this is a huge population, and it sounds like you're generally taking something like an all-comers population, excluding only, I guess, profound hearing loss. So I'd imagine in theory, one could recruit the study in days or weeks, if not months, to get 30 patients into a cohort. So can you just -- to the extent you can disclose, can you just talk about really how are we screening patients out? How and why? I guess, why is this someone not a good candidate for the study? What sort of patient profile are you really looking for?

[Dr. David Weber:]

Yes. Obviously, we are looking at the nature of that patient in terms of their hearing loss. So for example, we exclude things like traumatic brain injury would be an example of something that we exclude. So there is exclusion criteria there around, I'm not going to go into a list of the things, but there are exclusions there for things that the types of hearing loss that you may not expect to recover. But that's a relatively small population. Like I said, one example would be traumatic brain injury. The other would be really looking at patients, and this is where the DIN, we think, very effective is using the Digits-in-Noise test to screen these patients for their initial speech and noise perception difficulty. Now part of the reason that this is -- you do have a large number of patients. These are patients that are self-reported. They're coming in already complaining about the problem. So I think it's important to start there or and if I back up a bit and say where do these patients come from? Well, these are patients, these clinical sites already have seen they're not going out needing to recruit them. They have them in their patient files. And it's because these are patients that come in, it's the majority of what patients when they come in complaining about hearing loss, it's that ability to hear in the background noise, other people talking. Now what clinicians will do is they will analyze that patient and try to determine whether or not the patient has some kind of structural damage or injury that if they fix by surgery, they would help the hearing or if there's other something else going on. Now for the majority of patients, that's not the case. It's just what we typically know, noise exposure and aging result in hearing loss. And so these patients are already coming in, they're already presenting and in many cases, they're already being referred to the audiologist for potential hearing aids. And so that's the reason we already have a pool of patients there and it's a large pool. What we have been able to do is work with the clinical sites that they can then go in and look at that patient population based on our criteria and screen against it, as well as then, obviously, having these patients do the den test to see if they qualify. So I think that's an important piece of why we're able to go and approach this the way we are is we're not having to go out and advertise. These are patients that are already in that population already identified as having speech and noise hearing difficulty because they're complaining about it. And that clearly helps on the enrollment side.

[Oren Livnat:]

Okay. And just on the higher doses. Is that just going higher because you can because it's safe? Or have you already seen some indication of a dose response maybe somewhere along the way? And just can you remind us, given your formulation, does the higher dose, I mean it should have a longer duration of action at the site based on your formulation?

[Dr. David Weber:]

Yes. So first of all, let me be clear, we've not looked at any data from the Phase 2a is blinded. It's a randomized blinded study, so we have no access to that data. So this is based on just as a developer, we saw very clean, in fact, if I remind people about it, the safety data actually showed the patients on OTO-413 actually did better and have fewer adverse effects than the patients on placebo. And so obviously, a very clean safety profile was well tolerated. And then also based on other things of looking back, we did a very large dose range there. I'll just remind people, we did a 30-fold range in our dose. So it's a very strong four different doses that we tested across a broad range, but we felt that we could probably go higher if we develop additional data and capability information. And so that's what we did. We decided that given that well tolerated at the highest dose, even though we're very, very happy with the efficacy that we're seeing based on that proof of concept, if you recall, 67% of patients improved in at least one of the three speech and noise tests and 33% on at least two of those tests by a single administration. Clearly, if we can go higher in dose, it's something we want to look at. And so that is why we stepped back. We did additional work. We took that to the FDA and are happy to say now that we can now look at going into dose escalation. And we'll do that with safety and then be ready to go into a Phase 2 study that would then be a full dose ranging study.

[Operator:]

Thank you. And I'm not showing any further questions on the queue. At this point, I would like to turn it over back to Dr. Dave Weber. Please go ahead, Dr. Weber.

[Dr. David Weber:]

Well, thank you, everyone, for participating in our call today, and we hope to meet with many of you at the upcoming Piper Sandler Healthcare Conference. Have a good evening, everyone.

[Operator:]

And this concludes today's conference call. Thank you, everyone, for your participation. You may now all disconnect. Have a great day.