Otonomy, Inc.
Q2 2018 Earnings Call Transcript

Published: 8 Aug 2018

[Operator:]

Good day, ladies and gentlemen, and welcome to the Otonomy, Inc Second Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions for how to participate will follow at that time. [Operator Instructions] I would like to introduce your host for today's conference, Mr. Laurence Watts of Westwicke Partners. Sire, you may begin.

[Laurence Watts:]

Good afternoon and welcome to Otonomy's second quarter 2018 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, who will be available for the Q&A portion of the call. 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, the potential benefits and expectations regarding the co-promotion agreements and other information relating to the transaction between Otonomy and Mission, timing of top line results and patient recruitment and enrollment plans for the Phase 3 clinical trial for OTIVIDEX in Ménière's disease, timing of Phase 1/2 clinical trial for OTO-313, timing of Phase 1/2 clinical trial for OTO-413, timing of candidate selection for OTO-5XX and 6XX programs, expectations regarding value-creating milestones and product pipeline, expectations regarding our ability to protect our intellectual property and technology, and the financial guidance of 2018. Please refer to Otonomy's filings with the SEC, which are available from the SEC or on the Otonomy Web site for information concerning the risk factors that could affect the company. I will now turn the call over to Dave Weber, President and CEO of Otonomy.

[David Weber:]

Thank you, Laurence. Good afternoon everyone and thank you for joining us on this call to discuss Otonomy's second quarter 2018 financial results and business updates. Consistent with our first quarter call, I plan to keep my prepared remarks brief. I will summarize the recent accomplishments for OTIVIDEX and OTIPRIO, highlight upcoming milestones for the rest of our product pipelines, review our continued strong financial position, and finally touch on two other corporate updates. We can then open up the call for any questions. The first important accomplishment we announced a few weeks ago was the initiation of the additional Phase 3 clinical trial required to support submission for U.S. registration of OTIVIDEX in Ménière's disease. The conduct and design of this study is based on the successful AVERTS-2 trial. We have retained the same primary efficacy endpoint, daily diary vertigo scale, use of the one-month lead in period, and primary analysis at three months after a single IT treatment. We have also taken additional steps to manage patient's expectation bias and the placebo response, including refinement of site selection criteria, emphasizing recruitment of well-characterized Ménière's patients known to the investigators, and careful management of clinical site communication with study subjects. We plan to enroll approximately 160 patients with the majority expected to be recruited in Europe where the AVERTS-2 trial was conducted. Based on our previous clinical experience with OTIVIDEX, we expect to have top line results in the first-half of 2020. The second update is our announcement earlier this week regarding the signing of a co-promotion agreement for OTIPRIO acute otitis externa with Mission Pharmacal. Mission is a privately-held family-owned company based in San Antonio that has been in operation for more than 70 years. The company has a number of business units involved in pharmaceutical product commercial, including sales teams calling on pediatricians and primary care physicians. These are important targets for the use of OTIPRIO in AOE and promotion by Mission to these audiences will significantly increase the product's commercial reach. The co-promotion agreement provides Mission with an exclusive right to promote OTIPRIO for AOE to pediatricians, primary care physicians, and urgent care centers in the United States at their own expense. Otonomy will receive an annual co-promotion fee and reimbursement for proportionate product support expenses, and we will retain a share of gross profit from OTIPRIO sales to Mission accounts. We also keep exclusive commercial rights to all other audiences for AOE and use of OTIPRIO in all other indications, including ongoing sales for ear tube surgery. This agreement achieved our immediate goal of fully covering our OTIPRIO comp expenses and will, we believe, generate cash that can help support the advancement of our product pipeline. Furthermore, we now have an experienced commercial partner who will be using their own promotional resources to establish OTIPRIO in the pediatric and primary care market, and by doing so build value in the brand. Turning now to our pipeline, we continue to make progress during the second quarter across our tinnitus and hearing loss programs. A quick recap of the program status and upcoming milestones is as follows. OTO-313 is an improved formulation of the NMDA receptor antagonist gacyclidine in development for the treatment of tinnitus, a debilitating disorder affecting a significant population. We have completed a Phase 1 trial for gacyclidine, and are working through details of proof of concept clinical in tinnitus patients that we plan to initiate in the first-half of 2019. OTO-413 is a sustained exposure formulation of the neurotrophin BDNF which promotes spiral ganglion neuron survival, neurite growth, and synapse repair. IND-enabling activities are in process, with the Phase 1/2 clinical trial on patients with speech-and-noise hearing difficulty expected to begin in the first-half of 2019. OTO-5XX is an otoprotectant in development for the prevention of cisplatin-induced hearing loss. We expect to select a candidate for clinical development by end of this year. And finally, OTO-6XX is our hearing loss program focused on regeneration of sensory hair cells to treat severe hearing loss. We have demonstrated proof of concept in a preclinical model, and expect to select a candidate for clinical development by the end of the year. We are excited to have an attractive set of programs that address high unmet medical needs in neurotology and are well positioned with the cash resources to support their advancement. To this point, we finished the second quarter with $100 million in cash and short-term investments, and are tracking to our financial guidance for the year with projected non-GAAP operating expenses totaling $40 million to $45 million. As we have previously stated, we are managing the business using the cash on hand, and now have additional proceeds from a mission co-promotion to support our development activities. Before closing, I would like to briefly mention two other updates included in today's earnings release. First, we announced the favorable final ruling in the patent interference case we initiated in 2015. While this does not apply to OTIPRIO or any of our product candidates, winning this case against Auris Medical demonstrates our strategy and ability to broadly protect our technology in the field of sustained exposure OD drug delivery. And second, I would like to note a recent change to our Board of Directors. I am pleased to report that Dr. James Breitmeyer was elected to the Board as of our annual meeting in June. Jim is an accomplished drug developer that currently serves as President, CEO, and a Director of Oncternal Therapeutics, in San Diego. His development experience is a great fit and are delighted to have Jim involved. I would also like to take this opportunity to thank George Morrow, who did not stand for reelection. It was a pleasure to have George on our Board, and we appreciate his significant support and contribution. In closing, our recent announcements highlight that we are fully focused on meeting our commitments and achieving our milestones. I believe that the value of our product pipeline, which is the broadest and deepest in the new and emerging field of neurotology is highly undervalued and substantially underappreciated by investors today. I am committed to addressing this disconnect through upcoming investor outreach initiatives and future informational activities. With that, I'll turn the call back over to the operator and open the call for your questions.

[Operator:]

And I'm showing no questions in the queue at this time. I would like to turn the call back over to David Weber, CEO for any closing remarks.

[David Weber:]

Thank you for participating in our call today. Have a good evening everyone.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude your program, and you may all disconnect. Everyone have a great day.