Otonomy, Inc.
Q2 2020 Earnings Call Transcript

Published: 5 Aug 2020

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Q2 2020 Otonomy, Inc. Earnings Conference Call. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Robert Uhl from Westwicke ICR. Please go ahead, sir.

[Robert Uhl:]

Good afternoon, and welcome to Otonomy's Second Quarter 2020 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. Such statements include, but are not limited to, statements relating to the timing of results, patient enrollment and activity for and the design and conduct of ongoing clinical trials; statements relating to the updated statistical analysis plan for the ongoing Phase III clinical trial of OTIVIDEX; expectations regarding advancement of clinical trials; expectations regarding preclinical programs, including potential benefits and development activities; statements relating to the potential benefits and opportunities of, and activities under, the collaboration agreement between Otonomy and AGTC, the co-promotion agreement between Otonomy and ALK-Abelló and the license agreement between in Otonomy and Kyorin; expectations regarding the outcomes, market opportunity and value potential of Otonomy's clinical and preclinical programs; expectations regarding operating expenses for 2020 and cash runway. 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. I will now hand 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 business updates as well as financial results for the second quarter of 2020. While the COVID-19 pandemic has created widespread disruption and challenges in everyone's lives, I am very proud of the focus and commitment that the entire Otonomy team has displayed in continuing to advance our product pipeline and achieving our corporate objectives. To this end, we have been able to accomplish the following in the last several months

[Paul Cayer:]

Thank you, Dave, and good afternoon, everyone. The key financial takeaways are that we are on track with our spending guidance for the year and significantly strengthen our balance sheet with the successful financing last month. Let me briefly review these results for you. Regarding spending, our GAAP operating expenses for the second quarter of 2020 totaled $10.6 million, which is reduced from $11.8 million for the second quarter of 2019. Non-GAAP operating expenses, which excludes stock-based compensation, totaled $9.1 million for the second quarter of 2020 compared to $10.6 million in 2019. These spending levels are on track with our financial guidance for the year, GAAP operating expenses of $45 million to $48 million and non-GAAP operating expenses of $35 million to $38 million. Our cash, cash equivalents and short-term investments totaled $41.1 million as of June 30, 2020. When combined with estimated net proceeds from our financing of $64 million, our pro forma cash balance totals approximately $105 million. This eliminates any potential concern about financial overhang as we approach our upcoming clinical trial readouts for OTO-413 and OTIVIDEX, provides the resources to advance our pipeline programs and funds the company's operations for at least 2 years. In addition to the incremental funds, this oversubscribed financing was also very successful in strengthening our shareholder base. As you will see from the quarterly filings, we attracted a number of top-tier biotech investors who were not already OTIC shareholders. Together with our existing investors, we believe we now have a very strong and supportive investor base for the company going forward. One last update regarding our term loan with Oxford Finance. Following the positive OTO-313 results and financing, we're able to amend the terms of this loan and extend the interest-only payment period for an extra 12 months, reducing our monthly payments during 2021. With that, I'll turn the call back over to Dave.

[David Weber:]

Thank you, Paul. In closing, we are continuing to execute on our business plan that will leverage our recent positive results for OTO-313 in tinnitus, focused on the timely and successful completion of our upcoming clinical readouts for OTO-413 and OTIVIDEX and advance our multiple preclinical programs. Each of these novel product candidates addresses significant unmet medical needs in neuro-otology, for which there is no FDA-approved drug treatment. I am very excited about the transformational opportunity our multiple clinical catalysts provide for the company over the next few quarters and look forward to keeping you updated on our progress. Operator, we are now ready for questions.

[Operator:]

[Operator Instructions]. Your first question comes from the line of Stacy Ku from Cowen & Company.

[Stacy Ku:]

Congratulations on the quarter. Now that we're in Q3, I'm going to try to ask a question about the patients enrolled for OTIVIDEX for Ménière’s. And if you're not willing to answer that, can you remind us of the differences geographically for part two in the current ongoing Phase III trial?

[David Weber:]

Yes. Thank you, Stacy. Yes. I mean, I think one of the things I just want to point out is that we have been very, very careful with our enrollment on OTIVIDEX and then held very tightly to our criteria, even through COVID-19. We feel that, that was the important thing to do is really ensure that we have the highest quality Ménière's patients that are well-defined and also working closely with our clinical investigators and trial site staff to ensure that we take all the steps necessary to ensure that we've minimized any placebo response. The third is, as you mentioned, the geographical differences with the current trial versus AVERTS-2 and the other prior Phase III trial. And that really is that this is a trial that is conducted both in the U.S. and in Europe. Roughly 1/4 of the sites are in the U.S. spread across geographic regions in the U.S. and the rest are in European sites. And with that, we expect the majority of patients will come from Europe, given that there are 60 centers overall with 3/4 in Europe. So I think that will be at least 3/4 of patients and actually probably closer to 80% to 85%, will be from Europe with the remainder in the U.S. That said, I think we've been very happy and impressed by both clinical site investigators, staff and their patients in terms of the continued commitment to the trial through COVID-19 restrictions, as well as ensuring the quality of the study. So we've been able to ensure that our daily diary compliance remains quite high, and patients have been following up with their visits. More importantly, the clinical site staff have also continued their enrollment efforts. And as we've shown over the past months, we've continued to enroll and make good progress to bring ourselves to completion of enrollment in this third quarter, with results in the first quarter of 2021.

[Stacy Ku:]

Okay. Sounds good. And then just a follow-up question for one of the pipeline products. So given that we're expecting results for 413 in Q4, how should we be thinking about the results and what might be the expected threshold? Are we -- should we be focusing on the high dose?

[David Weber:]

Well, I think we will look clearly at all the doses. We've escalated through 4 dose cohorts now. We did start at very low levels, given the biologic nature of brain-derived neurotrophic factor to ensure safety. But now that we've gone to the highest dose, we will be looking at all the doses for activity, but clearly expect the highest dose to be the most likely to show us activity. And as a result of that, we chose to expand that cohort. It was always a part of our plan to get to the highest supported dose cohort for safety and then expand the cohort for exploratory efficacy, which we've done here. And the target is to enroll 16 patients in this final fourth cohort. In terms of what we're looking for is clearly, we will be looking at electrophysiological changes, but more importantly, it's really the speech and noise hearing tests. So we have a number of tests. We've done that on purpose as there have been a number of tests developed and we're trying to understand the relative sensitivity between those tests. And that should allow us a good ability to detect exploratory activity with the molecule in those patients. So we will definitely be looking -- and as I've mentioned, it's a 3

[Operator:]

Your next question comes from the line of Tara Bancroft from Piper Sandler.

[Tara Bancroft:]

Yes. So I kind of want to focus on the preclinical pipeline as there's a ton of potential there. But now that you've selected a candidate for the GJB2 program, what's left to do for the IND-enabling studies? And more so on that. Can you offer any points of differentiation from other GJB2 programs such as the colossus other than vector selection?

[David Weber:]

Well, I think there's a number of -- thank you, Tara. And I think you're right. I think we believe that our preclinical programs represent a tremendous amount of potential upside for the company and for investors, and happy to be talking about these programs and continuing -- particularly if we continue to move forward. For the GJB2 program, one of the important things to do was to identify a vector, a capsid that really provided the transfection rate that we were looking for in the supporting cells. The reason for that is most of the vector work that had been done in the field has really focused on the hair cells as the field has been very hair-cell centric, really. And as we've learned now that there is much more involved in just the hair cells and even including in hearing loss, such as with our 413 program. With -- here, what we're targeting is the supporting cells, as they are the cells that need to express the product of the GJB2 gene, the gap junction beta-2 protein, and that is really to allow the environment to be established for hair cells to function. And as a result of that, we needed to see high transfection, which is the work that we've recently recorded on, showing that we've identified a capsid that really gives us a high transfection rate and expression rate in the supporting cells. What I think is the advantage of working for us, working with a company like AGTC is not only do they have proven manufacturing, which is important here, but also, of course, their knowledge in terms of building the construct of the vector, the capsid and the promoter sequence with the gene. And so all of those are things that we've worked together to refine in this identification of the product candidate for advancing into clinical. So one of the -- that's really what we've seen is very powerful working with AGTC. Is that accumulated knowledge and capability that they've demonstrated through multiple programs that they have. What we're focused on now is the work going on to support pre-IND and getting progress toward the IND, which we'll be updating more as we move towards later this year, starting to provide perspective in terms of our timing and expectations of approaching clinical work. And so we are actively working in areas pre-IND work, manufacturing as well as expression studies that will be used to support that IND effort.

[Operator:]

[Operator Instructions]. Your next question comes from the line of Francois Brisebois.

[Francois Brisebois:]

I'm just wondering on the OTO-313 you had -- you might have had a chance to analyze the data a little further. Is there still data to analyze anything to -- that you might have seen that can change your plan going forward? And in terms of what to expect in the fall here, is there anything specific that we should be looking forward to in terms of your update on the design or whatnot?

[David Weber:]

Yes. Thanks, François. I think with regard to 313, we do continue to analyze the data, and we will be reporting on that in the future. We do plan to make -- submit for presentation at upcoming meetings, both in terms of the data we've already presented as well as additional data that we've continued to build on as we further analyze the data. So you can expect more from us in terms of additional data. I think we'll probably discuss later this fall, as well as then in presentations to come at future meetings. I think one of the things that we've been very focused on is starting to look now at the subsets of -- that is to both look for are there characteristics set that really help us predict responder patients? Are there, for example, subscales of the TFI that appear to be very sensitive to changes, perhaps more sensitive than other parts of that subscale. So pieces really to try to understand both sensitivity and also help us identifying and reach -- potentially reach -- and reach population. We'll also be looking at things importantly like duration of the tinnitus and whether there was any relationship to outcome in that as well. I think the other piece that we're doing is really now starting to work on the Phase II trial designs. So at this point, we are looking at a number of approaches we can take, and that it will be informed by the statistical work we're currently doing, to see what we feel is the best approach into additional Phase II clinical work. And that's really what we look forward to talking more about in the fall, is really our approach on the clinical side, both in terms of expanding perhaps the duration of the tinnitus. In the present trial, it was up to 6 months, we may likely expand that to start looking at 8 to 12 months as well just to get a longer cohort of patients. And also, we will be looking at whether we would progress into bilateral patients. We think that is doable. Obviously, we've seen great response in unilateral patients. So there's no question that we can continue with unilateral, but we may want to explore bilateral patients as well. So I think what you'll see from us is discussion about how we intend to approach these different areas and refine the Phase II work in order to then design the best Phase III program.

[Francois Brisebois:]

Okay. Great. No, that's very helpful. And then lastly, on the -- can you talk about tinnitus and the patient population in terms of market of who you're targeting that can maybe prevent some of the subjectivity that's related to tinnitus? Obviously, it's a huge market. But can you talk about your targeted approach to the commercial opportunity here?

[David Weber:]

Yes. Paul, would you like to take that?

[Paul Cayer:]

Yes, sure. So we have a slide in our slide deck that reviews the population. I mean, overall, it's a large percentage of the adult population in the U.S., and we expect this is true in markets outside the U.S. as well. About 10% of patients actually report some level of tinnitus. About 8 million patients, actually, report levels that are moderate to severe and would warrant treatment. Clearly, what we are expecting out in the clinical design is capturing patients early in the onset of their tinnitus. So if you look at kind of a different metric based upon time to onset, there are about 1.5 million patients, we believe, who are sort of newly diagnosed with tinnitus. So I think the plan would be to, as we've done with Ménière’s, define for the clinical trials, a population that is straightforward in terms of demonstrating a treatment benefit. And then in those studies as well as then once we get to the market, sort of expanding the population from there. So even though we may continue to sort of look at less than 6 months or, as Dave said, explain that a bit, we likely will not go into patients that have had tinnitus for much more than a year. That said, we would expect that once the products were available, physicians would likely expand use from there. So just to sort of recap from a population standpoint, we'll likely be focused on the 1.5 million newly diagnosed tinnitus patients per year. The next group that we would target and broaden to the 8 million that have moderate to severe tinnitus and then expand from there. From a pricing standpoint, clearly, a lot depends on how the clinical trials play out. Is a single dose sufficient? Or is a retreatment necessary? Is that the course of therapy? Or do patients need to be retreated in the future as well. Those will weigh on the pricing. But the opportunity for a premium-priced product here is significant, because there is no therapeutic alternative for these patients. The only available options for physicians today essentially are coping strategies. And what we're talking about here is actually a treatment that changes the kind of the clinical profile of the disease. So we think from a pricing standpoint, we have a lot of flexibility. But the ultimate sort of clinical paradigm will factor into that. Did that answer your question, sorry?

[Francois Brisebois:]

No, that does. That's great. Congrats on the progress.

[Operator:]

And I'm currently showing no other questions at this time. I will turn the call back over to Mr. David Weber, CEO. Please go ahead, sir.

[David Weber:]

Thank you, operator, and thank you, everyone, for participating on our call today. We will be virtually attending multiple investor health care conferences during September, including those sponsored by Citi, H.C. Wainwright, Cantor and Oppenheimer, and hope to speak with many of you then. Have a good evening, everyone. Thank you.

[Operator:]

This concludes today's conference call. Thank you for your participation. Have a wonderful evening. You may now disconnect.