Otonomy, Inc.
Q1 2021 Earnings Call Transcript

Published: 11 May 2021

[Operator:]

Welcome to the Q1 2021 Otonomy Inc. Earnings Conference Call. . I will now turn the call over to your speaker today, Mr. Robert Uhl with the Westwicke ICR. You may begin your conference, sir.

[Robert Uhl:]

Good afternoon, and welcome to Otonomy's first 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.

[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 financial results for the first quarter of 2021. We are now fully focused on advancing our multiple programs for hearing loss and tinnitus. This is reflected by the following recent accomplishments and activities. In March, we announced initiation of the Phase 2 clinical trial for OTO-313 in tinnitus, and patient enrollment is underway. Setup activities continue for an expansion of our OTO-413, Phase 1/2 trial in hearing loss patients and we are on track to initiate the study this quarter. We also have additional details from a proof of concept cohort that I'll highlight in this call. We expect results from both of these trials in mid-2022. In addition, we announced the upcoming presentation of exciting preclinical hearing recovery data for our OTO-825 gene therapy program for congenital hearing loss. I can't discuss specifics of these results before the American Society of Gene and Cell Therapy presentation on Thursday, but will provide a high level summary, based on the published abstract. We're also continuing to progress our two other preclinical programs OTO-510 and OTO-6XX, that respectively target otoprotection for cisplatin-induced hearing loss and hair cell repair and regeneration for severe hearing loss. Finally, we have completed our analysis of the OTIVIDEX Phase 3 trial results. While we continue to believe that steroids provide a benefit to patients with Meniere's Disease, proving this in a clinical trial setting is a significant challenge. We do not see a path forward based on the existing clinical data for OTIVIDEX and have decided to not pursue additional development of the product candidate. During this call, I'll provide a brief update on our programs and then ask Paul to summarize the financial results, including our recently completed financing that extends our cash runway into the second half of 2023. We can then open up the lines for any questions.

[Operator:]

.

[A - David Weber:]

Beginning with OTO-313, we announced initiation of a Phase 2 trial at the end of March. 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 will also attract tinnitus loudness, annoyance, and Patient Global Impression of Change. To enrich the study population, the trial will exclude patients with severe hearing loss, who we believe are less likely to respond to treatment, and we are increasing the minimum severity of tinnitus required for entry. We will also expand the patient population eligible for enrollment by increasing the time from onset tinnitus onset from six months to one year.

[A - Paul Cayer:]

Thank you, Dave, and good afternoon everyone. With our development plan now defined, we have finalized our spending level for 2021, and also have improved visibility on our cash runway following our financing in April. I'll review both of these for you, but first, let me recap the financial results from the first quarter. We reported total GAAP operating expenses, totaling $11.7 million in the first quarter of 2021, and non-GAAP operating expenses of $9.7 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. For all of 2021, we expect GAAP operating expenses will be in the range of $46 million to $48 million, with non-GAAP operating expenses, totaling $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 website. From a cash perspective, we finished the first quarter with a cash balance, including cash, cash equivalents and short-term investments of $73.8 million. In April, we completed an underwritten public offering that raised gross proceeds totaling $34.7 million. Following this financing we believe that our current cash balance will be sufficient to fund company operations into the second half of 2023. This gives us plenty of runway beyond our clinical milestones in mid-2022, and continue advancing our preclinical programs, including our exciting gene therapy program. With that, I'll turn the call back over to Dave.

[A - David Weber:]

Thank you, Paul. Operator, we are now ready for questions.

[Operator:]

. And your first question comes from the line of Stacy Ku from Cowen and Company.

[Stacy Ku:]

I have a few. So first, can you talk about the enrollment rates for the 313 tinnitus study? What level of demand are you seeing based on this large opportunity? And then second question is on the hearing loss program. So it's a bit of a different patient population but given the recent news from competitor company Frequency, wondering if you guys can maybe talk about the benefits of a single injection, or maybe what you think would be the best dosing frequency to preserve the hearing structures. Also given the large placebo response observed in the comparator study, maybe remind us what kind of baseline enrollment criteria for your phase, let's say 1/30-patient study. What are you thinking about that and how you're working around any type of patient bias? And can we talk about your experiences there?

[David Weber:]

Let me take those one at a time here. So first, with regards to the enrollment rate for 313, we feel very confident about our middle of 2022 readout for top-line results from the Phase 2 trial, in which we enrolled 140 patients, and those patients will have a follow-up of four months. So two months for the efficacy and then an additional two months of follow-up, I think we feel very, very good about that timing. I think it's important to note that we've been very effective in terms of enrolling our trials in the past on the timing that we say. I will say that there is tremendous demand. Frankly we've heard from many patients suffering from tinnitus who are interested in enrolling in the trial. Of course the trial has very set criteria for enrollment, as most clinical trials do, and so many patients are unfortunately not eligible at this stage. But we see tremendous outreach from patients who are interested in a therapy, in a very much -- is consistent with what we know as being a very large and market with unmet need. So with regards to then moving toward the other questions, I think with the -- in terms of -- let's just talk about single injection in our 413 program, and hearing loss but this applies to 313 and tinnitus, and frankly anything being done in the year. Obviously as a company, Otonomy is really one of the oldest focused on the ear, and our focus has been driven by the fact of, how do you develop effective treatment for inner ear disease by getting drug to the inner ear and keeping it there for a prolonged period by a single administration. I think investors understand this is where we have a tremendous amount of intellectual property and know-how, with regards to drug delivery to establish an effective pharmacokinetic profile from a single administration. We believe that is incredibly important for efficacy, and I think the recent data further support, the -- both the value of what we've developed and the need for what we've developed, to really provide effective therapy.

[Stacy Ku:]

No, that's incredibly helpful.

[Operator:]

And your next question comes from the line of Chris Raymond from Piper Sandler.

[Christopher Raymond:]

I just wanted to drill down a little bit more on 313. So I know you guys in the last question addressed the demand and the enrollment dynamics, but just maybe if you can fill in a little bit of color. I think you're using a different inclusion criteria than the Phase 1/2 trial in patients with a higher TFI level. Just talk to, if you can -- I know you've maintained the guidance in terms of having data in mid-2022, but just if you can, what are you guys doing to counteract that enrollment criteria difference? Is it -- does it matter given now that you have the higher demand? Just maybe walk through that dynamic if you would. And then I know you mentioned 6XX in your prepared comments, but I wonder if you could maybe tell us when you'd be willing to maybe fill in a few more blanks on this program as well?

[David Weber:]

Yes. Thank you, Christopher. So with regards to 313 and the enrollment, you are correct in that we did make additional criteria around that enrollment to further homogenize the population. We're no longer allowing patients with severe hearing loss, as well as we increased the minimum level of the Tinnitus Functional Index where that is required. And both of those obviously would then mean that fewer patients may qualify for the study. The way we address that was actually in the number of clinical sites that we will be enrolling. And importantly, we will be enrolling the study, both in the U.S. and Europe. The Phase 1/2 was conducted only in the U.S., and what we are doing is both increasing the number of clinical sites, and that includes -- including Europe in the clinical study. That was done really for two reasons. One is, obviously not understanding how things will proceed with COVID, but hopefully with the vaccination things will be much smoother. But basically to be prepared. But we wanted to be able to not be dependent on any one country, and so we felt that was important to spread geographical risk at this point. But I also -- also for clear -- for the number of clinical sites involved. So there's tremendous -- a larger number of clinical sites, approximately 40 clinical centers that will be involved in enrolling this trial of 140 patients. So, we think with that, we're very confident in the middle of 2022 and that's based on also looking at the Phase 1/2 and understanding how those patients came in that would now meet our criteria, and understanding what we needed to do to enroll it. Like I said, there's been great enthusiasm for this trial. The amount of outreach makes it, I will say a little bit easier for clinicians because patients are actively seeking treatment, and the largest challenge, they have, is to really be able to screen patients prior to having them coming in for any screening for the study. With regards to 6XX, I think that is something we'll be looking to do a little bit later this year. Clearly we're focused right now on the 825 and the data there, and we do look forward to talking more about that in the middle of 20 -- of this year middle of 2021, to really take people through the rescue data that we're seeing, and the excitement that we have for that program. And I think what you can expect from us is to follow-up then a little bit later in the year, both with 510 as well as 6XX with additional updates there. I do want to say the other areas that we plan to do is outreach with investors to further talk about both tinnitus but also for our cochlear synaptopathy program. We understand that there is a lot of information and a very complex amount of testing that is done for these indications, and it's something we understand that we need to help educate investors, and take them through the endpoints that we have. So we look forward to doing that through the year.

[Operator:]

And your next question comes from the line of Charles Duncan from Cantor Fitzgerald.

[Charles Duncan:]

Hello? Can you hear me?

[David Weber:]

Yes, we can.

[Charles Duncan:]

David and Paul, had a follow-up to Chris' question on tinnitus, in particular the patient phenotypes. I guess I'm wondering, in terms of enrollment criteria, are you keeping track of any initiating event or say time since onset? Or do you think that TFI does a good job of homogenizing or reducing that heterogeneity in the sample?

[David Weber:]

Good question, Charles, you're exactly right. In addition to the TFI criteria and hearing loss -- not being severe hearing loss, we do have other criteria. We are carefully tracking what is the origin of the tinnitus. So it is actually a point of which we ask patients for the nature of origin. We are looking at tinnitus that is due to cochlear origin, which means the patients have to be able to point to a given place in time and situation in which the tinnitus onset occurred. So we are tracking that. That also then goes hand-in-hand with the time since onset. In this study, we will look at on-set up to 12 months. So we do want to be able to point back to that initiating event. And so that is a very key part of our criteria. In addition to the TFI level.

[Charles Duncan:]

And then, when you think about the geographic dispersion of the 40 sites, 140 patients, and then the very few number of patients, call it 3.5 patients per site, on average, that will be enrolled. How do you feel about being able to track the quality of patients as you conduct this?

[David Weber:]

I think -- first let me say that not all sites enroll. I think all of us having worked in clinical trials, know that you do frequently have a fairly significant number of sites that don't actually enroll patients. And part of what we're doing here is, as I mentioned, managing risk on the geographical side with COVID. The other part is obviously we've started in the U.S., and we'll be expanding into Europe. So part of that will be based on what we feel we need to do to drive the enrollment. So I think we can handle quality through careful consideration of what sites we open up as well as obviously, tracking to the criteria that we have and being very careful about the patients meeting the criteria. So I think those are key parts of that of managing that. Did you -- was there another part to your question, that I didn't address?

[Charles Duncan:]

No, I think you got it with regard to 313. I did have a question on 413 unless you wanted to add on 313?

[David Weber:]

No, that's fine.

[Charles Duncan:]

Okay. Regarding the expansion trial, I guess it's a twist to what I had anticipated. And I'm wondering if you could give us a little bit of additional color, if you will, on the observations you want to make out of that expansion trial to better inform the design and conduct of the Phase 2. And would you anticipate being able to come out with that design by the end of '22 for the 413 trial?

[David Weber:]

Yes, it could. I think it is probably a little confusing of what we've done here, but let me explain. For all intents and purposes, what we're actually doing is a Phase 2 trial, if you will. It's not atypical to go from a Phase 1 to initial safety study and initial proof of concept into a Phase 2 study, in which you've enrolled 30,40 patients for example. To further refine your criteria, you may call that a Phase 2a or such. What we've done here is really taken advantage of what we see happening in oncology. Where, as you know, we have many -- we have clinical centers for these -- for this study who are highly specialized centers in terms of being able to do the audiological testing. And as a result of that, we want to keep those centers and those centers are already up and functioning. So the idea here is to leverage that, and so rather than just stop the study and go into a separate Phase 2 study and enroll 30 patients, what we're literally doing here is just keeping the study open and adding an additional cohort. So you can think about it is an efficiency play. We're doing that on less cost and speed with centers that are already up and available. And so I call it a Phase 2 like expansion because it's literally -- it could be a separate Phase 2 study, we're just doing it for reasons of those efficiencies. And I think the reason we're going in all these 30 patients, 20 on drugs, 10 on placebo. Part of what we're trying to do is further learn about these speech-in-noise tests. The reason we're doing three tests is because we're still trying to understand those tests. We're the first in the world to have done this kind of work on looking at a therapeutic product -- a drug product through these different speech-in-noise tests. And not only are we trying to demonstrate the benefit of 413, the activity and safety of 413, but also then to try to decide what do we want to use as we advance further into clinical development. And that is part of what we're learning, is a lot about these tests, and which ones of those we think may be the best as we continue to move forward. If you will, we've already done that through what we've done to date. As you know, we had a lot of different testing we did in the Phase 1/2. In addition to the speech-in-noise test that were based on input from key opinion leaders, things like electric physiological, middle ear muscle reflex. Things that they thought might be able to be used in a clinical setting to evaluate treatment effect. What we found through doing that work was that those were not beneficial, either due to poor repeatability or what we call a lack of sensitivity. And that is where this free speech-in-noise test clearly show their benefit, and obviously are the real world tests for these patients, in terms of improving they're deficits and hearing. And what we now need to do is really define further which of those tests look to be the best to extend forward, as well as of course I think people seeing data on 30 patients in addition to the data we've already shown will be quite compelling for the efficacy OTO-413.

[Charles Duncan:]

Last question, OTIVIDEX and Meniere's. Any further update on OTIVIDEX or is this just a program that we should forget about at this point?

[David Weber:]

Yes, I think as we have said, we're pivoting to the other programs. We will not conduct any additional development work on OTIVIDEX. I think I -- we do want to say very clearly we still believe, as I've said that steroids do provide a benefit to these patients. We think it's important to say that because these patients are looking for treatment, are looking for help, and our data continue to support. And in fact that we see both at month two and month three numerically greater improvement with placebo, I'm sorry for OTIVIDEX than placebo. The challenge is conducting the regulatory type of study you need in this patient population to separate the treatments from placebo. And it's just extremely difficult clinical setting. And so I think we definitely want to ensure that people do not misinterpret that this means that the drug may not -- that steroids may not be a benefit. We do believe they are, but obviously that's the difference there between that and what clinicians can provide their patients, and what we can successfully develop for regulatory approval.

[Operator:]

. And your next question comes from the line of Francois Brisebois with Oppenheimer.

[François Brisebois:]

A lot's been hit here. I think a lot of people are just checking on the enrollment but not to discuss too much more on OTIVIDEX, but just the placebo response is so important in this field. Was there anything -- is very few patients that move the needle here on the trial readout. Anything from the specific patients that you can share or no?

[David Weber:]

No, we have done extensive analysis Frank, and thanks for your question. Extensive analysis of this now and spend considerable time both from a statistical standpoint as well as clinical standpoint, looking at the data, and what I can say is that there is no -- other than the fact that the intent to treat was obviously missed, the per protocol is statistically significant. As we look at this, there's no clear pattern that emerges, that provides the basis to make any kind of statement. It really is a matter of that those particular patients just -- with what they experienced drove that outcome on a per protocol. And that was not observed in the intent to treat, so really no clear pattern there. I think it is important to understand that this is incredibly different than the other conditions that we're studying, like tinnitus and hearing loss. And I think you can see that in the placebo response that you see, and that's really driven by the fact that I think both these patients have the waxing and waning that's occurring. You look at hearing loss, you look at tinnitus, these are persistent conditions, in fact we require them to be persistent. And additionally patients were reporting their vertigo, which of course is just really a yes-no, and then the duration of it. There's obviously much more extensive testing going on in these other areas, both for tinnitus with the Tinnitus Functional Index, that is 25 different questions as well as loudness and annoyance that we conduct. And then of course with the 413, for cochlear synaptopathy, you have these highly developed tests that are speech-to-noise tests that these patients go through. So very different on a placebo basis, in those conditions, and that's consistent with what we've seen in the Meniere's. And just being very difficult because of that waxing and waning and patient experiences, that we think cause a lot of changes there.

[François Brisebois:]

Okay. Understanding the placebo effect between different diseases is extremely helpful. And then, you mentioned the COVID. I think there is pretty high-profile case here, and a symptom I guess was tinnitus. And I was just wondering, is this something -- who knows how long COVID will still be around, this is a yearly thing or whatnot, but have you done any research? Could it help enrollment that this is potentially a side effect or symptom of the coronavirus?

[David Weber:]

We've not done a research. We carefully follow that obviously, and we're watching the literature and people that are looking at Sequela associated with COVID. Obviously there are reports such as this, where there is worsening of existing pre-existing conditions in the presence of COVID, and it is something we will continue to follow. That also goes for hearing loss. There's reports of hearing loss being worsened with COVID. So I think all of these things are worth us continuing to follow. Obviously, I don't think they are at a point yet in terms of development to say whether or not those would be additional populations, we would go after.

[François Brisebois:]

Okay, great. And then just lastly, any developments in terms of maybe your thought process through bilateral versus unilateral tinnitus and maybe seeing the bilateral population as well?

[David Weber:]

Yes. First of all, I think we're obviously focused on the best way to develop and as we work with KOLs, while half the population is unilateral, about half is bilateral. Unilateral is pretty direct in that you can point to the origin, typically patients are -- here we require that they can point to a source of origin and what that event was, so that we can pinpoint both time and causation and localize that to the cochlea. With bilateral, that's not always the case. The other part with bilateral is on the testing. You are asking general questions. You're asking the question of the TFI, you're asking about loudness and annoyance, and can patients really do that on the basis of one single ear versus the both ears at the same time? So as you can imagine, that sets up a totally another understanding you've got to have, if you will, in terms of how do your endpoints work in that patient population. And we don't believe and our KOLs don't believe, It's probably the same for unilateral as it is bilateral, in terms of what changes they can detect. And so, for that reason we're focusing on the unilateral for now, so that we can build additional data and that doesn't even mean treatment data. Really data to understand how bilateral patients respond to these endpoints is going to be important and whether they are not, they have the ability to discern which is ear getting better or not, is one of the questions that we have. So we think it's important to do this step-wise. Obviously, we're the first of many of these conditions that we're doing this kind of research, and we really need to understand the endpoints and the testing tools as much as we do just demonstrating the efficacy of our products and safety of them.

[Operator:]

And I'm showing no further questions at this time, I would now turn the conference back to Dr. David Weber, President and CEO, for closing remarks.

[David Weber:]

Yes. Well, thank you everyone for participating in our call today. Have a good evening. Thank you.

[Operator:]

And this concludes today's conference call. Thank you for participating. You may now disconnect your line.