Otonomy, Inc.
Q1 2019 Earnings Call Transcript

Published: 7 May 2019

[Operator:]

Good day, ladies and gentlemen, this is your conference operator. At this time, I would like to welcome everyone to the Q1 2019 Otonomy, Inc. Earnings Conference Call. [Operator Instructions] Thank you. I'd now like to turn the call over to Robert. You may begin your conference.

[Robert Uhl:]

Thank you. Good afternoon, and welcome to Otonomy's first quarter 2019 financial results and business update conference call. Joining me on the call from Otonomy are Dr. David Weber, President and Chief Executive Officer; Dr. Kathie Bishop, Chief Scientific Officer; and Paul Cayer, Chief Financial and Business Officer. Before I turn the call over to Dr. Weber, I'd 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, timing of results, patient recruitment and enrollment plans for, and design and conduct of, the Phase 3 clinical trial for OTIVIDEX; timing of initiation and results, patient recruitment and enrollment plans for, and design and conduct of, the Phase 1/2 clinical trial for OTO-313 and Phase 1/2 clinical trial for OTO-413; expectations regarding the market opportunity and reimbursement potential for OTO-313, the activity under, and potential benefits of, the co-promotion agreements between Otonomy and Mission Pharmacal and Otonomy and Glenmark Therapeutics; expectations regarding the benefits and value potential of Otonomy's programs; expectations regarding funding of clinical development, program advancement and company operations into 2021; and expectations regarding financial guidance including operating expenses for 2019. 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 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 business updates and first quarter 2019 financial results. In my remarks, I’ll briefly review the status and upcoming milestones for our clinical stage programs, discuss the additional OTIPRIO commercial partnership we recently announced and summarize our continued strong financial position. I’ll then turn the call over to Kathie and Paul who will provide a review of the OTO-313 tinnitus program and the large unmet medical need that it addresses. In case you want to follow along, the slides were posted on the Otonomy website on the Events and Presentations section of the Investor page. We will then open up the call for any questions. Beginning with the OTIVIDEX Phase III trial in the Ménière's disease, enrollment is on track. The conduct and design of the study is based on successful AVERTS-2 trial, which achieved its primary endpoint as well as the number of secondary endpoints. We plan to enroll approximately 160 patients in the United States and Europe with result expected in the first half of 2020. As is our practice, we will not be disclosing any metrics from the ongoing trial other than timing to topline results. The next product candidate in our pipeline is OTO-313, a sustained exposure formulation of the NMDA-receptor antagonist gacyclidine in development for the treatment of tinnitus. As you’ll hear from Kathie and Paul, tinnitus is a common condition that can severely impact a person’s daily activities with no FDA approved drug treatment available. In April, we announced the initiation of a Phase 1/2 trial in tinnitus patients, enrollment has been completed in the initial safety cohort and we are now initiating the exploratory efficacy part of the study that will enroll approximately 50 patients. We expect results from this trial in the first half of 2020 as well. The third program is OTO-413, a sustained exposure formulation of Brain Derived Neurotrophic Factor or BDNF that we are developing for the repair of cochlear synaptopathy. As Kathie reviewed during our earnings call in November, recent research has identified damage to synaptic connections as the underlying pathology in noise and age related hearing loss that manifest a speech in noise hearing difficulty. Neurotrophic factors including BDNF have therapeutic effects in the cochlear by promoting a survival of spiral ganglion neurons, increasing neurite outgrowth and reconnecting neurons with cochlear hair cells after damage. We are conducting IND enabling activities for OTO-413 and expect to initiate a Phase 1/2 clinical trial in the third quarter of 2019. This will be an Ascending Dose Safety and Exploratory Efficacy Study enrolling approximately 40 patients with speech-in-noise hearing difficulty. Top line results are expected from this trial in the second half of 2020. Turning now to our commercial product OTIPRIO, we announced last week the completion of a second co-promotion agreement for acute otitis externa or AOE. This agreement is with Glenmark Therapeutics, which is a U.S. subsidiary of Glenmark Holdings a global integrated pharmaceutical company with operations in more than 80 countries. Glenmark Therapeutics is building a franchise of branded products in the U.S. with an initial focus on respiratory and dermatology. OTIPRIO is a good fit for the respiratory team because they will be calling on ENT physicians who are important target audience for AOE treatment. This agreement provides Glenmark with an exclusive right to promote OTIPRIO for AOE to ENT in exchange for an annual co-promotion fee, reimbursement of a proportion of product support expenses and a share of the adjusted growth profit from the sale of OTIPRIO to Glenmark’s account. When combined with Mission Pharmacal, our partner promoting OTIPRIO to pediatricians, primary care physicians and urgent care centers, we have established commercial support for OTIPRIO across all the key physician groups involved in treating AOE and in time for the peak summer season. We expect that these co-promotion agreement will contribute to our already strong financial position that I’ll briefly review now. For full presentation of our financial results for the first quarter, please refer to the press release issued a few minutes ago and the 10-Q filed with the SEC. We finished the first quarter with $86.9 million in cash and short-term investments. GAAP operating expenses for the quarter totaled $12.1 million while non-GAAP expenses totaled $10.6 million. Both announced and in line with our financial guidance for the year which includes non-GAAP expenses of $45 million to $50 million. Importantly, our current capital funds, operation through Phase 3 results for OTIVIDEX, Phase 1/2 for both OTO-313 and OTO-413 and into 2021. At this time, I would like to turn the call over to Kathie and Paul, so that they can review the OTO-313 program and tinnitus market opportunity for you. Kathie?

[Kathie Bishop:]

Thanks, Dave, and good afternoon, everyone. As mentioned the slides that I’ll be referring to our posted on our website under Events and Presentations on the Investor page. Beginning on Slide 3, tinnitus is the perception of noise when there is no sound. It is often described as a ringing in the ear, but it can also sound like roaring, clicking, hissing or buzzing. Approximately 10% of U.S. adults live with the condition and about 8 million people report a moderate to severe level of impact on their daily lives. The constant annoyance of tinnitus can disrupt a person's ability to sleep, relax and concentrate at work. In turn this has been shown to lead to anxiety and depression and sadly even to suicide in severely affected individuals. Because exposure to loud noise is a major cause of tinnitus, it is the leading service related disability in the U.S. military. Unfortunately for these patients, there is no cure for tinnitus and there are no FDA approved drug treatments. So what is the underlying pathophysiology of tinnitus and the biological rationale supporting OTO-313 as a potential treatment? Slide 4 provides a set of graphic that address these questions in a simplified manner. The first panel on the left demonstrates signaling between the hair cell and the spiral ganglion neurons in a normal study. Following stimulation by noise, hair cells release various neurotransmitters including glutamate which activates NMDA receptors on spiral ganglion neurons which then relay the sound information to the brain where it is ultimately perceived. The middle pathway shows the damage to hair cells by cochlear injury such as by noise, trauma or ototoxic drugs can produce excessive glutamate release leading to over excitation of the NMDA receptor and the perception of persistent noise or tinnitus. Given this pathophysiology and attractive treatment approach involves the distraction of signaling using a selective NMDA receptor antagonist such as gacyclidine. By dampening over excitation in the spiral ganglion neurons, we believe that OTO-313 can reduce the severity of a patients tinnitus. Slide 5 provides some background information on the profile of OTO-313, a sustained exposure formulation of gacyclidine. Gacyclidine is a potent and selective NMDA receptor antagonists in fact, gacyclidine is 50 to 100 times more potent then as Ketamine, which is another NMDA receptor antagonists that has been tested as a potential treatment for tinnitus. Published preclinical data demonstrate gacyclidine inhibition of spontaneous neuron activity in spiral ganglion neurons. And in vivo studies nicely show proof-of-concept in a behavioral model of tinnitus in animals. Furthermore, a pilot clinical study conducted was locally administered gacyclidine by the prior developer demonstrated a clinical response in tinnitus patient. As the figure on the right of Slide 5 shows patients who received the higher doses of gacyclidine experienced an improvement in a functional assessment called the tinnitus handicap inventory. While patients receiving the low dose did not, this preliminary clinical data taken together with the preclinical results are supportive for the OTO-313 program. We had previously been developing an initial formulation of gacyclidine called OTO-311. As Slide 6 summarizes, we successfully completed a Phase 1 clinical safety trial with OTO-311 in normal volunteers. A single intratympanic injection was safe and well tolerated and no safety concerns were identified. While we were preparing to take OTO-311 forward into Phase 2 clinical studies, we identified an alternative formulation that had a number of advantages including most importantly improve pharmacokinetic properties. And thus we decided to switch to the new formulation for gacyclidine called OTO-313. After completing the IND enabling work, we have now initiated a Phase 1/2 clinical trials for OTO-313 that is outlined on Slide 7. This trial is a randomized, double-blind, placebo controlled safety an exploratory efficacy study in tinnitus patients. The trial design consists of two cohorts. The first cohort includes eight patients assessed for safety and tolerability following a single intratympanic injection of OTO-313 or placebo. We have completed enrollment of this cohort and are now initiating the second part of the study. This second cohort will enroll approximately 50 patients with persistent tinnitus or cochlear origin who will be assessed for safety and tolerability as well as exploratory efficacy. Importantly, for entry into Cohort 2, patients must have tinnitus severity that exceeds a specified level during the lead-in period, ensuring adequate baseline level of tinnitus. Patients in Cohort 2 will receive a single intratympanic injection of OTO-313 or placebo, randomized 1

[Paul Cayer:]

Thanks Katherine. Good afternoon, everyone. Slide 10 provides the summary of the OTO-313 market opportunity which we believe is significant. The graphic on the left summarizes the patient population in the United States. The overall prevalence is more than 30 million people with 8 million experiencing moderate to severe tinnitus. Using health claims data, we also estimate the number of new patients seeking treatment each year and more than 1 million, which is the initial focus of our clinical program. As mentioned by Kathie, at the beginning of her review, there are no FDA approved drug treatments. Cognitive behavioral therapy and noise masking devices are sometimes used, however these are ways for patients to cope with tinnitus and do not address the underlying pathology. Lack of any standard of care treatment and the level of disruption that a large population of tinnitus patients experience translates into a significant unmet medical need. If approved,OTO-313 will be administered by a physician in the office setting provided for reimbursement under the buy-and-bill system. Our procedure code already exists for the intratympanic injection, we would expect OTO-313 to begin reimbursed on a cost plus basis. Approaching similar to other products treating debilitating disorders, such as the CGRP’s for migraine, independent market research has projected the commercial potential of OTO-313 and more than $1 billion in the U. S. alone. We're excited the advancing of pipeline program was such importance to patients and that has a significant market opportunity in high potential value for shareholders. With that I’ll turn the call back to Dave for final comments.

[David Weber:]

Thank you, Kathie and Paul. In summary, this quarterly update highlights the continued expectation of our business strategy that includes a plan to report clinical results from three trials in 2020. The Phase 3 trial of OTIVIDEX in the Ménière’s disease in the first half of 2020, the Phase 1/2 trial of OTO-313 and tinnitus also in the first half of 2020 and the Phase 1/2 trial of OTO-413 and hearing loss in the second half of 2020. Furthermore, we are pleased to have completed a second co-promotion partnership for OTIPRIO that ensures the product will have broad promotional support for the peak swimmer's ear season this summer. We expect this will contribute to our already strong balance sheet that will fund the company's operation through the three clinical trial results next year and into 2021. I am excited about our programs and plans and look forward to sharing this information and updates more broadly with investors throughout this year. Operator, we are not ready for questions.

[Operator:]

[Operator Instructions] Your first question comes from the line of Tyler Van Buren from Piper Jaffray. Please ask your question.

[Tyler Van Buren:]

It’s exciting to be thinking about three pretty significant readouts here in about a year's time. I have some questions on the 313 program and discussion. So, on one of the slides obviously you discuss the transition of 311 to 313 and improved pharmacokinetic properties and you I guess, described it on the later slide is increased inner ear exposure of gacyclidine. So is it just simply higher magnitude of exposure and can you define that or is there also a quicker onset any more color on the PK properties would be helpful?

[Kathie Bishop:]

We need to switch primarily based on the PK properties, which were improved both in terms of getting higher levels of drug I think about three to five times at its peak and then very importantly, also longer duration of exposure in the cochlear tissue itself. So now with OTO-313 probably get more than a month exposure from a single injection. So mostly those properties.

[Tyler Van Buren:]

Yes that definitely does sound improved and I'm assuming that with an oral NMDA and antagonist you can't get anywhere close to those same level of exposure in the ear?

[Kathie Bishop:]

Correct, yes.

[Tyler Van Buren:]

And you mentioned enrolling patients with a certain level of tinnitus severity, so can you just I guess walk through the – is it based upon the TFI and can you help understand maybe how that scale is or that index is quantified and at what level of severity you guys think is appropriate based upon a limited data that's out there?

[Kathie Bishop:]

Yes, so we, in clinical trial we’re enrolling in 50 patients randomized 1

[Operator:]

Your next question comes from the line of Charles Duncan from Cantor Fitzgerald. Your line is now open.

[Pete Stavropoulos:]

This is Pete Stavropoulos on for Charles. Congrats on the progress in 1Q, 2019. And I have a couple of questions. So on the 313 program, have you any thoughts on using something a little bit more objective to a select patients, such as a minimum masking level so to engage how the patients perceive volume wise?

[Kathie Bishop:]

So we did, as I mentioned when we designed the trial I talked to a lot of people in the field in KOLs and people who have conducted clinical trials in tinnitus, not only to consider the inclusion and exclusion criteria but with endpoints to include as well. And tinnitus masking was one we talked to a lot of people doing this about and have a lot of conversations. I personally would not characterize tinnitus masking as more objective because you’re still relying on the patient to report the masking level. So I think its just as subjective as any other report of tinnitus despite what other people might have characterize. In OTO it can be very variable and it doesn’t get some of the key characteristics of patients tinnitus. Also in our FDA interactions that we've had so far, I think the endpoints that were including are more along the lines of the ones that the FDA would prefer.

[Pete Stavropoulos:]

And again including criteria is there going to be any specific like the time of the patient has been suffering from tinnitus?

[Kathie Bishop:]

So in order to again, I think maximize our chances of seeing a therapeutic benefit in this trial, we are focused on patients who have tinnitus of peripheral origin and in talking to KOLs we’re also focused on patients with I call more recent on set tinnitus rather than patients have had tinnitus for a very long time like five or 10 years It's a big controversy on the field, how tinnitus have peripheral origin may over time potentially, become more sensually modulated so in order to maximize our chance of success we’re focusing on what I'll call those more recent patients. We again are not giving out the exact criteria on this, so that's about as far as I'll go on that.

[Pete Stavropoulos:]

And for OTIVIDEX Phase 3 study, for the U. S. sites, are you enrolling from the same centers that you did for versus 1 and if you are – are you avoiding centers that may have had a higher than average placebo effects due to expectation bias or some other factor?

[Kathie Bishop:]

The OTIVIDEX Phase 3 trial is a global trial, so it does include sites here in the U. S. as well as a number of countries in Europe. We can very carefully selected the U.S. sites, so its some of the sites we used previously in our Phase 3 U.S. trial. Certainly not all of them and we did really carefully select those sites focusing more on academic clinicians, who really know Ménière’s disease very well and how a good set of Ménière’s patients and understand the disease.

[Operator:]

Your next question comes from the line of Stacy Ku from Cowen and Co. Please ask your question.

[Stacy Ku:]

I have two questions. First, you might not be able to comment but I just want to confirm their involvement for OTIVIDEX is progressing on schedule and then for my second question, you guys spoke a lack of FDA approved drug humans for tinnitus, can you help us understand what’s currently the used open-label and shipment to cope and could you add additional colors for the other competitors in clinical development? Thanks.

[Kathie Bishop:]

Yes, we confirm that moment for OTIVIDEX Phase 3 trial is on talk expectations and we expect data in the first half of 2020. With regards to the OTO-313 trial. So these patients as you mentioned they do take various medications and I think the way you put it was very different for coping. So when we look at the medications that they're on some of them might be on anti-anxiety medication because tinnitus increases anxiety and also depression so anti-anxiolytics and antidepressant are pretty common in these patients. We allow them during the trial to take those medications, but they have to be on a stable regime of taking it and remain on stable doses during the trial. With regards to competitive, there is as I mentioned in another an NMDA receptor antagonist esketamine which has been in clinical trials by Auris Medical. It had positive results during Phase II, but then was not positive in Phase III. We have in preclinical animal experiments compared OTO-313 alongside their drug and their formulation. As I mentioned, our data and I think as well published data indicates that our drug gacyclidine is about 50-fold more potent than esketamine. So we think we have an advantage there, and I think more importantly we also have a drug exposure advantage. They use the formulation called HA or hyaluronic acid when we test that in animals we get less than a day exposure in the cochlear compared to OTO-313 which in animals as I mentioned we get several weeks exposure and much higher drug levels as well. So we think based on sort of for scientific principles, OTO-313 definitely offers an advantage.

[Operator:]

[Operator Instructions] There are no further questions at this time. I will turn the call over to Dr. Weber for closing remarks.

[David Weber:]

Thank you everyone for participating in our call today. We will be at the SunTrust Investor Conference in New York on Wednesday and hope to see many of you there. Have a good evening everyone. Thank you.

[Operator:]

This concludes today's conference call. Thank you everyone for your participation. You may now disconnect.