Otonomy, Inc.
Q3 2018 Earnings Call Transcript

Published: 6 Nov 2018

[Operator:]

Good afternoon, ladies and gentlemen, and welcome to Otonomy's Third Quarter 2018 Financial Results and Business Update Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Laurence Watts. Please go ahead.

[Laurence Watts:]

Good afternoon, and welcome to Otonomy's Third 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; Dr. Kathy Bishop, Chief Scientific 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, the potential benefits and expectations regarding the co-promotion agreement between Otonomy and Mission; timing of top line results and patient recruitment and enrollment plans for the Phase III clinical trial for OTIVIDEX and Ménière's disease; timing of a Phase I/II clinical trial for OTO-313; timing of a Phase I/II clinical trial for OTO-413; timing of candidate selection for OTO-5XX and OTO-6XX programs; expectations regarding autonomous programs and pipeline -- excuse me, and product pipeline, including, but not limited to, potential market opportunity and value-creating milestones; expectations regarding our ability to protect our intellectual property and technology; expectations regarding funding of clinical development and program advancement; and the financial guidance for 2018. Please refer to Otonomy's filings with the SEC, which are available from the SEC or on the Otonomy website for information concerning the risks -- excuse me, 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 third quarter 2018 financial results and business update. In my remarks, I'll briefly summarize a recent accomplishment and updates regarding our product pipeline and corporate partnership, highlight upcoming milestones and review our continued strong financial position. I'll then turn the call over to Kathie, who will provide a review of the OTO-413 hearing loss program. We're very excited about this program, which has been recognized as a hot topic by the Society for Neuroscience in its annual meeting occurring this very week here in San Diego. In case you want to follow along, the slides Kathie will reference are 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. The 2 key accomplishments completed during the third quarter were the initiation of the Phase III clinical trial for OTIVIDEX and Ménière's disease, and the signing of an agreement with Mission Pharmacal for the co-promotion of OTIPRIO in acute otitis externa. In July, we announced the initiation of the additional Phase III 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, which achieved it's primary endpoint as well as the number of secondary endpoints. For the additional Phase III trial, we have retained the same primary efficacy endpoint, daily diary of vertigo scale, use of a one-month lead-in period and primary analysis at 3 months after a single treatment. We've also taken additional steps to manage patient expectation bias and the placebo response, including refinement of site selection criteria, emphasizing recruitment of well-characterized Ménière's patients who are 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. During the third quarter, we also announced the signing of a co-promotion agreement for OTIPRIO with Mission Pharmacal, a privately held pharmaceutical company that has been in operation for more than 70 years. The agreement provides Mission with an exclusive right to promote OTIPRIO for acute otitis externa to pediatricians, primary care physicians and urgent care centers in the United States at their own expense. Otonomy will achieve -- will receive an annual co-promotion fee and reimbursement for promotion of products -- and reimbursement for proportion, excuse me, of product support expenses, and we will retain a share of growth profit from OTIPRIO sales to Mission accounts. We also keep exclusive commercial rights to all other audiences for acute otitis externa and use of OTIPRIO in all other indications, including ongoing sales for ear tube surgery. This agreement achieves our immediate goal of fully covering our expenses for OTIPRIO and will, we believe, generate cash that can help support the advancement of our product pipeline going forward. Turning now to our pipeline. 2018 has been a formative year for Otonomy as we focused our full development efforts on the 3 largest market opportunities in neurotology, each with significant unmet medical need, namely, hearing loss, tinnitus and balance disorder. With the great progress we've made this year, we expect that in 2019 Otonomy will be the only company conducting clinical trials across all 3 of these indications. Furthermore, we believe that our proven drug delivery technology, and as you will hear shortly from our Chief Scientific Officer, Dr. Kathie Bishop, our strong understanding of the neuroscience of the ear puts us in a unique and highly promising position, which is yet to be recognized or appreciated by investors. I will now provide a quick review of our tinnitus and hearing loss programs, after which Kathie will provide a more in-depth look at our OTO-413 program for synaptopathic hearing loss. OTO-313 is a sustained exposure formulation of the NMDA-receptor antagonist gacyclidine in development for the treatment of tinnitus, a debilitating disorder affecting a significant population. We've completed a Phase I trial for gacyclidine in healthy volunteers, with no safety concerns observed. Top line data from this study, together with preclinical data supporting the potent and selective receptor profile of gacyclidine and our ability to provide sustained exposure of gacyclidine to the inner ear from a single administration locally, are being presented at the Society for Neuroscience meeting this week. Regarding next steps, we're completing IND-enabling work on an improved formulation and working through details of a proof-of-concept clinical trial in tinnitus patients that we plan to initiate in the first half of 2019. We will provide an outline of this trial in January. In addition to OTO-413 for the treatment of synaptopathic hearing loss, we are actively working on OTT-5XX for the protection of hearing from exposure to ototoxic substances, including cisplatin chemotherapy. In September, we attended and helped sponsor a patient-focused drug development workshop on chemotherapy-induced hearing loss in pediatrics that was organized by several patient advocacy groups. Presentations made by patients and parents of children who survived their bout of cancer because of the cisplatin treatment but who were left with profound hearing loss due to the drug's ototoxic effect were, frankly, heart wrenching. The unmet need for treatment that provides otoprotection without tumor protection is crystal clear for all to see, including representatives from the FDA who were in attendance at the meeting. We are on track to select a clinical candidate by the end of this year, and we'll provide an update on the program in January. Our third hearing loss program, OTO-6XX, is focused on regeneration of sensory hair cells to treat severe hearing loss. We've demonstrated proof-of-concept in a preclinical model and still expect to select a clinical candidate by end of year. Two final updates before I turn the call over to Kathie

[Kathie Bishop:]

Thanks, Dave, and good afternoon, everyone. I'm pleased to be able to walk you through a review of OTO-413, the first of our several hearing loss programs. As a neurobiologist, I'm excited to be working on treatments for hearing loss because it is the most prevalent neurologic health issue. In fact, we view all of our research and development efforts as advancing neuroscience for the ear, whether we're working on balance disorders, tinnitus or hearing loss. This frame of reference has been especially helpful as we considered various approaches to treating hearing loss where there are no pharmaceutical treatments, and medical devices, such as hearing aids and cochlear implant, have achieved only limited usage because of their significant shortcomings. Before jumping into the program details, let me provide some general context about hearing loss and the pathology called cochlear synaptopathy that we're targeting with OTO-413. Beginning on Slide 3 of the presentation that's available on our website under Events and Presentations on our Investor page, it's widely accepted that hearing loss is a large and growing unmet need worldwide. The World Health Organization estimates that more than 360 million people have disabling hearing loss, and this ranks the condition as the fourth leading cause of disability globally. The economic burden associated with this condition is significant, especially when the impact to quality of life and work productivity are considered. It has also been demonstrated in multiple studies that hearing loss leads to cognitive decline and is associated with increased rates of dementia and depression. The common causes are also well understood and include aging, noise, exposure to ototoxic drugs and causes, with increased noise exposure from recreational music devices accelerating the onset. Slide 4 provides an estimate of the hearing loss market opportunity, with segmentation of the population by symptomology and underlying pathology. Overall, recent market research suggests that there are more than 50 million people in the U.S. living with hearing loss. Of this total, approximately 9 million complained of having difficulty hearing in a noisy environment, called speech-in-noise hearing difficulty, but had no significant deficit when given a standard hearing test in a quiet environment. As I'll describe in a moment the pathology underlying this condition relates to the loss or damage of cochlear synapses that is known as synaptopathy, there is also a segment of the population that has synaptopathy as well as hearing deficit in a standard hearing test. This includes elderly patients with age-related hearing loss as well as patients who have experienced noise-induced hearing loss. OTO-413 addresses these synaptopathy hearing loss segments that have a combined population well in excess of 10 million people in the U.S. alone. Slide 5 shows a graphical representation of the transmission pathway in the cochlea that includes inner hair cells, which translate a sound wave into an electrical signal as spiral ganglion neurons that conduct the signal to the brain. In the last decade, extensive evidence in both preclinical and clinical studies has demonstrated the synaptopathy, which is a loss or damage to the synaptic connections between inner hair cells and neurons, plays an important role in hearing loss pathology. It is known that synapses can be damaged or lost due to loud noise, aging and/or exposure to ototoxic chemicals. The identification of cochlear synaptopathy as an underlying cause of speech and noise difficulty and a contributing factor in age-related and noise-induced hearing loss was also important for the field because it pointed to a viable therapeutic approach. Local delivery of a neurotophic factor, such as BDNF, or brain-derived neurotophic factor, to repair or reestablish the synaptic connections. Slide 6 is a montage of various references to underscore the point that there is extensive preclinical and clinical evidence from a number of research groups supporting cochlear synaptopathy as an underlying cause of hearing loss. Furthermore, there is considerable preclinical research from other labs that corroborates our work and supports the attractive potential for treatment using a neurotrophic agent such as BDNF. The excitement around this approach was likely a contributing factor in the Society for Neuroscience's selection of our OTO-413 presentation as a hot topic of this year's annual meeting. Slide 7 provides some background on OTO-413, which is a sustained exposure to formulation of BDNF. First of all, we have been working on this program for several years and selected BDNF as a lead molecule only after running head-to-head preclinical comparisons of various neurotrophic factors as well as multiple monoclonal antibody agonist for the TrkB and TrkC receptors, which are involved in neuronal development and repair. The assessment included evaluations in cochlear explant assay, in vitro testing and in vivo evaluations, all of which we perform in-house. Leveraging our expertise in drug delivery, we have formulated BDNF in the same thermosensitive polymer we use for OTIPRIO and OTIVIDEX products and demonstrated in animal PK studies that a single intratympanic injection provides weeks of drug exposure in the inner ear. Similar to our other programs, we have multiple layers of IP protection, including multiple patent applications protecting the formulation as well as trade secrets related to the manufacturing. Slides 8 and 9 together provide a summary of the preclinical data generated for OTO-413, including demonstration of the product's therapeutic potential in a cochlear synaptopathy model, which is the subject to tomorrow's hot topic presentation at the Society for Neuroscience annual meeting. The data on Slide 8 demonstrate the potential for BDNF to repair or reestablish the synaptic connection through several mechanisms following injury or damage. First, BDNF itself promotes a survival of spiral ganglion neurons. Second, application of BDNF increases neurite outgrowth, including increase in the number of primary neurites, the number of branch points and the number of extremities. And third, BDNF reconnects spiral ganglion neurons with hair cells following damage of the synapse by an ototoxicant. The number of intact synapses or puncta can be visualized as the small colored dot on the slide -- photomicrograph at the bottom of the slide. As you can see, the number of puncta decreases following application of an ototoxicant to reduce synaptopathy and that is normalized following treatment with BDNF. This result is quantified in the bar graph at the right. Slide 9 shows the results from a proof-of-concept in vivo evaluation of OTO-413. In this model, cochlear synaptopathy is induced using noise exposure in middle-aged rats. Following the damage, a single intratympanic injection of OTO-413 is administered, providing several weeks of BDNF dosing to the inner ear. The overall conclusion from this study is that OTO-413 provided a significant improvement in all measures of cochlear synaptopathy at the one-month follow-up. This included count of an intact synapses, which can be visualized based on the puncta shown in the panels on the right. Notice how the number of colored dots representing the puncta decline from control following noise damage and how this is reversed with the subsequent administration of OTO-413. Account of the synapses is shown on the top graph on the left. Importantly, the normalization of synapse count with OTO-413 also leads to improvement in auditory function as shown in the bottom graph. This can be seen as an increase in the height of the OTO-413 bars compared to vehicle over a range of sound frequencies tested. Taken together, the data summarized in Slides 8 and 9 demonstrate that OTO-413 promotes neuronal survival, neurite outgrowth and synapse repair following damage. Furthermore, the structural normalization of cochlear synapses, which is shown to translate into functional improvement in hearing, which is the proof-of-concept support for OTO-413 as a potential treatment for synaptopathic hearing loss. The last slide provides a brief overview of the OTO-413 program's status and plan. We have completed a pre-IND meeting with the FDA, and a number of IND-enabling activities are ongoing. We are also working on the design for the Phase I/II clinical study in hearing loss patients that we expect to initiate in the first half of 2019. The initial study population for OTO-413 will be patients with speech-in-noise hearing difficulty. As I mentioned earlier, this is a common problem that can be very disruptive for patients and is not helped by hearing aids. Although the standard hearing test is of limited value for this condition, audiologists have developed other types of hearing tests that provide objective endpoints for our clinical trials. We have spent considerable time with KOLs on the study design and look forward to outlining the clinical trial plan and study timing in an investor update in January. With that, I'll hand the call back to Dave.

[David Weber:]

Thank you, Kathie. In closing, our performance during the third quarter demonstrates our ongoing commitment to meeting our milestones. The start of the Phase III Ménière's trial for OTIVIDEX and completion of the Mission partnership for OTIPRIO are important accomplishments that will lead to value creation for those programs. Moreover Kathie's review of the OTO-413 program highlights the attractiveness of our pipeline that we believe is underappreciated by investors. Our hearing loss, tinnitus and vertigo programs target large patient populations with significant unmet medical need and no available therapies. This situation is similar to the retinal disease field or for the advent of intravitreal treatment that has since created a blockbuster market. Each of our programs builds on a strong biological rationale for the therapeutic approach we're taking and leverages our decade of experience, proven capability and proprietary position in effectively delivering drugs to the ear. I believe that our internal capabilities to pursue neuroscience for the ear are unmatched by other companies and researchers in the field, and we are fortunate to have a strong balance sheet to execute our plans. This is a message that I will be sharing with investors as we increase the level of our outreach in the coming months, and I look forward to the chance to further discuss our plans with you. Operator, could you please open the call for questions.

[Operator:]

[Operator Instructions] And your first question comes from the line of Edward Nash from SunTrust.

[Unidentified Analyst:]

This is Nat on for Edwards Nash. So I have a few questions. So the first one is how's the enrollment of the Phase III study of OTIVIDEX and how many enrollment sites do you have in the U.S. and in the EU?

[David Weber:]

Thank you for your question. So with regards to enrollment, we do not give specific numbers through the course of the enrollment and conduct of the study. It's just been our tradition. However, we are still on track with our original time line that we have stated at the beginning of the program, which is that we are on track for data in the first half of 2020. We have a high level of confidence, I would say, in this because of our prior clinical work and our ability to deliver on time with both programs. So that's our current status, and we remain on track. With regards to the number of clinical sites, I'll let Kathie kind of give an overview of the overall number of clinical sites in the trial.

[Kathie Bishop:]

Thanks, Dave. So we're planning for approximately 50 clinical sites and getting those up and running now, some sites in the U.S., but the majority of sites in the states stayed [ph] on the call. We expect the majority of enrollment to come from Europe where we conducted the positive Phase III trial AVERTS-2.

[Unidentified Analyst:]

Got it. And another question is on OTO-413. So I know it's kind of early, but like can you tell us what should we think about the potential efficacy endpoint that you will look for in the program -- in the Phase I/II program?

[Kathie Bishop:]

Thanks. So as Dave mentioned, we're busy consulting with KOLs on the final trial design, but there have been -- I think the entire field is very excited about the findings over the last 10 years, identifying cochlear synaptopathy as a major factor in hearing loss. And so the audiologists have really done a great job of developing tests that can be used in clinical trials, and we're taking advantage of that. So there are several objective measures, which are more, let's say, electrophysiological outcomes, very similar to something called ABR, which is what we do in rats. And then there's hearing tests, like speech-in-noise hearing tests, so playing speech to the patients and seeing if they can assess it in a noisy environment. So we plan on including an array of tests in our clinical trial.

[David Weber:]

I think, importantly, these are very objective type tests. Obviously, compared to our previous program with -- in Ménière's, for example, where there are patient-reported outcomes that are used because there are no ability to actually quantitate in those patients. So we're very excited about that because, obviously, it gives us a very clear and objective measure of the performance of our product in those patients.

[Operator:]

Your next question comes from the line of Tyler Van Buren from Piper Jaffray.

[Tyler Van Buren:]

On 313, I just wanted to hear from you guys a little more about the historical data that has been demonstrated. Seen some published literature and extracochlear perfusions of gacyclidine over, I guess, 2 or 3 days or even longer where you've seen some positive effects in patients with tinnitus. So I guess, review of the published data and the evidence to suggest the gacyclidine works well in these patients and also how that's impacted your formulation and development efforts.

[David Weber:]

Yes. Thanks, Tyler, for that question. I think that's something we're happy to talk about. I'm going to let Kathie go into more detail. I'll just remind that in addition to what's been published, there's also been work that we were -- as you may recall, we acquired this molecule from NeuroSystec. And as part of that, we were able to also acquire additional data that they had completed in a small Phase I study themselves in Europe. So we have, basically, a range of data that we're able to look at that gave us confidence in this program. And I think Kathie can summarize that for you.

[Kathie Bishop:]

Thanks, Dave. And, Tyler, you're correct, there are, if you think about the publications, certainly positive data. These are very small studies and open label, so you do have to take it with a note of caution. But I think consistently, the published data as well as the data that Dave was talking about in-licensed from NeuroSystec are consistent in that they point to positive effects in patients with tinnitus, both looking at tinnitus loudness or tinnitus annoyance or some of the quality of life measures that have been used. We feel comfortable that our formulation provides sustained exposure to the cochlear where gacyclidine is needed and that we have adequate drug exposure to move this program forward, and we'll be testing it next year in a proof-of-concept study.

[Tyler Van Buren:]

Great. And with respect to 413, really fascinating program looking at a novel target, really interesting immunohistochemistry data. As we think about a potential objective endpoint, something like auditory brainstem response testing that you mentioned, just moving forward, if we look at some of the initial data, it looks like maybe there is larger treatment benefit at higher frequencies. Or how should we think about, I guess, the data that you're seeing with respect to frequency and how that could affect future clinical trials and measuring an endpoint in these patients?

[Kathie Bishop:]

So -- thanks. We do -- we are encouraged by this program because there are, as you mentioned, these objective measures like looking at wave line of auditory brainstem responses, and there are some other measures that you can find in the literature that the audiologists have worked out that are sort of electrophysiological response mechanisms. I think if you look at the bottom left-hand graph in Slide 9 of our presentation, there is probably, I would say, consistent drug effect. It's close -- the blue line is close to the black line across the cohorts. We do see a little bit of variability and the red line, which is the effect of the noise. But we've repeated this experiment several times now in different cohorts of rats. And we see pretty consistent responses across the frequencies when compared to control, I'll say.

[David Weber:]

Thank you, Tyler. Any other questions?

[Operator:]

[Operator Instructions] Your next question comes from the line of Bill Maughan from Cowen.

[Bill Maughan:]

So do you think that you'll be able to progress all these early pipeline programs at full speed? Or are we coming to a point eventually that you might have to hold off on development of 1 program to prioritize and progress another? Also, you mentioned in the ongoing Ménière's trial that you're looking specifically for patients with known Ménière's disease known to the investigator. Do you have the stat on how many patients in AVERTS-2 had -- were known to the investigator prior to the trial as having Ménière's. And then just one final question is, are there any examples of approved therapies and maybe other indications that achieve synaptic regeneration like BDNF is apparently doing at this stage of development?

[David Weber:]

Thank you, Bill. Well, I'll take the first one and then turn the other 2 over to Kathie. In terms of prioritizing programs, (inaudible) what we have focused on doing with our cash position and our projections in terms of our cash runway. So as you look in as we've stated here as well as continued to state, we are on track with the budget that we've laid out and spending guidance that we've given for this year. And that was set up with the idea by getting the OTIPRIO burn off of our coverage by the partnership that we successfully completed now with Mission Pharmacal, but also with the way that we've set these programs up that we can get to completion of the clinical development for OTIVIDEX as well as achieving significant value inflection points for the proof-of-concept studies that we are outlining here for 313 and 413. So you can -- we're basically looking to be able to get through those important clinical outcomes. And we'll talk more about this in the coming months and lay that out much more clearly as we, obviously, talk then in the coming months also about our guidance for 2019 and lay out the clinical programs for the 313 and 413 programs in addition to the Phase III trial already underway. I think it's important to just note that these are not highly expensive trials unlike some other areas. And again, Kathie, if you have questions, can talk about that more. But one of the nice attractive things about this phase is that the cost of these clinical trials is relatively low. If you recall, our Ménière's Phase III trials are roughly $10 million to $13 million trials and, obviously, the Phase I/II proof-of-concept studies that we're talking about for both 313 and 413 will be much lower than that. And so that's one of the things that makes this very attractive and why we have a high level of confidence in our cash position.

[Kathie Bishop:]

Thanks, Bill, for the questions. So with regards to well-characterized Ménière's patients known the clinical sites, almost all of the patients in the AVERTS-2 Phase III trial were known clinic patients previously diagnosed. And that was one of the key differences that we identified between AVERTS-2 and AVERTS-1. Here in the U.S., the type of trial sites we had were slightly different. We'd also conducted several clinical trials already here in the U.S. in Ménière's patients, so we think that there were patients coming out from outside the clinical trial sites here in the U.S. whereas that didn't happen in AVERTS-2 in Europe. So we're trying to really match what worked in AVERTS-2 with the new ongoing Phase III trial. With regards to your question about are there any approved drugs working through the synaptic repair mechanism, the answer is no. But there is -- if you look in the literature, you'll see a pretty big literature looking at mechanisms that synaptic repair or synaptic loss as a pathological mechanism in a number of neurological disorders, including depression, where BDNF actually is implicated in that process and neurodegenerative diseases. So certainly within neuroscience, this is a well-known phenomenon, and people are working on it. I think the problem with those diseases in the brain is drug delivery. You cannot deliver BDNF effectively to the entire brain. The advantage we have in the cochlea, and one of the reasons I'm excited by our program, is that cochlea with our local delivery, we can get very good levels of BDNF, where we see sustained exposure. So we're able to deliver the neurotrophic factor where it needs to be to test whether a synaptic repair can have a positive clinical benefit. But you'll see in the literature a lot of work on synapse loss and synapse repair and neurotrophic factors in the brain and other indications as well.

[Operator:]

I'm showing no further questions at this time. I would like to turn the conference back over to Dr. David Weber. Please go ahead.

[David Weber:]

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

[Operator:]

Ladies and gentlemen, this does conclude today's conference. Thank you for your participation, and have a wonderful day. You may all disconnect.