Otonomy, Inc.
Q3 2016 Earnings Call Transcript

Published: 7 Nov 2016

[Operator:]

Good day, ladies and gentlemen, and welcome to the Q3 2016 Otonomy Incorporated Financial Results. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce your host for today’s conference, Robert Uhl with Westwicke Partners. Sir, you may begin.

[Robert Uhl:]

Thank you, Heather. Good afternoon and welcome to Otonomy’s third quarter 2016 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 calls 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 Otonomy’s expectations regarding the commercial success of OTIPRIO, potential coverage and reimbursement relating to OTIPRIO, the timing of clinical trials and results for OTIPRIO and expansion indications, the timing of the supplemental NDA filing for OTIPRIO in acute otitis externa, the timing of the OTO-104 Phase 3 clinical trials in Ménière’s disease, the timing of the Phase 2 clinical trial for OTO-104 in cisplatin-induced hearing loss, the timing of the OTO-311 clinical trials and the financial guidance for 2016 and 2017. 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 third quarter 2016 financial results and business updates. I will start by providing an update on the OTIPRIO commercial launch and our product development activities, then Paul will review our financials, and we will finish with questions from call participants. Before jumping into the detailed update, I’d like to highlight the key accomplishments in the third quarter. First, we continue to make progress with the OTIPRIO launch and yesterday’s news regarding CMS’s assignment of a unique J code is favorable not only for reimbursement of OTIPRIO in the current indication, but also the potential label expansion indication we are pursuing. Second, we strengthened and broadened the clinical support for our pipeline by announcing successful results for OTIPRIO in an expanded ear tube surgery population, as well as patients with existing ear tube and recurrent infections. We also announced positive results from a multiple dose clinical safety trials of OTO-104 that is intended to repeat dosing in patients with Ménière’s disease. Third, we focused on execution of our clinical trial. This included enrollment in the OTIPRIO Phase 3 acute otitis externa or AOE trial to keep us on track, with announcing top line results by the end of this year and recruitment in both the U.S. and Europe for the OTO-104 Phase 3 trial program in Ménière’s that is expected to have results in the second-half of 2017. Four, we advanced our early-stage programs, which we believe will create significant shareholder value. Tinnitus remains an important unmet medical need and we believe that our stepwise development plan for OTO-311 is prudent. We also have growing excitement regarding our fourth program for sensorineural hearing loss as outlined at our recent Investor Day. Finally, we continue to manage our business carefully, as evidenced by extending level for this third quarter that is in line with our guidance and projections for 2017 that put us on a path to profitability. Now, I would like to provide a bit more information about our third quarter commercial metrics and pipeline activity. During the recent Investor Day, we provided a comprehensive review of the OTIPRIO launch metric through the end of September which are again summarized in the earnings and business update release we issued today. In this call, I’d like to take the opportunity to highlight a few of the metrics that we believe are key to understanding our progress in achieving market access for OTIPRIO, which is the primary goal of our efforts in 2016. These relate to the three stakeholders involved; physicians, facilities and payors. With regards to physicians, we believe that the large-scale survey of EMTs participating in the OTIPRIO sample distribution program supports the favorable potential for OTIPRIO adoption. Of the 180 physicians surveyed, more than 90% indicated a positive overall impression of OTIPRIO after using the samples, and more than 90% indicated a likelihood to use the product in the future. We heard many positive anecdotal reports regarding the use of OTIPRIO at the beginning of the launch and its favorable response in a broader physician population underscores our plan to establish a broad-based group of advocates to support formulary review at target facilities. We continue to make progress gaining access to the hospitals during the third quarter. Through the end of September, we have received formulary approvals in 197 hospitals, including 81 targets and 116 non-target. With regards to ordering, 121 facilities have purchased OTIPRIO through the end of September and 49% of these facilities have placed multiple orders. Total end-user demand totaled 877 vials during the third quarter compared to 323 in the second quarter. We are obviously expecting these purchase levels to increase with continued growth in the number of facilities with formulary approval and overall increases in the number of ear tube procedures, as we come into the beginning of the peak season. Another factor that we believe is very important in supporting growth in OTIPRIO patient access is reimbursement. Availability of OTIPRIO C code and pass-through payment status, which were affected as of July 1, have been helpful to the OTIPRIO launch. CMS’s assignment of the permanent J code this week will we believe further benefit the launch and be very supportive for use of OTIPRIO and the potential label expansion indication such as AOE AOMT. The J code will be the permanent identifier for OTIPRIO as of January 1, 2017. This code replaces the C code, but maintaining the pass-through payment provision. We believe the J code will help to increase patient access to its OTIPRIO, since facilities are are more custom to using J code than C code, and some payors require a J code rather than a C code for reimbursement. As the permanent code, this will also allow us to train facility billing personnel and payors on a single code for OTIPRIO, regardless of whether the use in a hospital outpatient department, ambulatory surgical center or physician office, and the code will apply not only for use during ear tube surgery, but also for any of the label expansion indications we are pursuing. Getting the J code was an important building block for OTIPRIO’s long-term success, and we are very pleased to have the code assigned during this first review cycle. To further support patient access at our target facilities, we have established the Otonomy Answers program, which includes a third-party reimbursement resource to provide billing and coding information, claim reviews, and appeal support and national tracking of claim status. In parallel, we continue our active outreach to commercial and Medicaid payors. Through the third quarter, we have had discussions with commercial payors, representing over 125 million covered lives and have an initial contact with all of the state Medicaid programs. We expect to provide additional perspective on OTIPRIO reimbursement in future investor communication. In summary, the commercial launch of OTIPRIO is progressing with the key activity still focused around creating EMT advocates successfully navigating formulary approval in our target facilities and establishing reimbursement to support broad-based patient access. The progress we are making with the key metrics and the recent assignment of the J code give us confidence that we’re on the right track. I would like to switch gears now and provide a brief update on our product development efforts for OTIPRIO and our pipeline products. First of all, we announced in our earnings and business update today that we have adjusted the size of the ongoing Phase 3 trial of OTIPRIO in patients with acute otitis externaor AOE. There originally we proposed to the FDA, including 500 patients in this trial as part of our justification for conducting a single registration trial. This sizing provided us with greater than 99% power to achieve physical significance for the primary endpoint. In response to an FDA request regarding statistical powering of the trial, we revised the target enrollment to approximately 250 patients, which still provides greater than 90% power for the primary endpoints. We expect to complete this trial and announce top line results by the end of year. If the results are positive then we expect to submit a supplemental new drug application to the FDA in the first-half of 2017. During the third quarter, we announced favorable results for OTIPRIO from two other clinical trials. In September, we announced the successful completion of a Phase 3b clinical trial in a broader population of pediatric patients undergoing ear tube procedures. This open label trial enrolled 501 patients of approximately 40 sites in the U.S. Patients included those without bilateral infusion at the time of surgery, as well as patients undergoing concurrent surgeries. We also collected patient insurance information to evaluate differences in clinical outcomes for patients with Medicaid versus commercial insurance. Results from this trial supports utility of OTIPRIO in a broader population of patients undergoing ear tube surgery. In addition, this trial demonstrated similar clinical outcomes for patients covered by commercial insurance and Medicaid up to eight weeks after surgery, which is important, given the well-documented observation and other conditions that medication adherence is lower and clinical outcomes are worth in the Medicaid patient population. We have submitted these results for presentation at an upcoming medical conference and believe they will be supportive of our discussions with physicians, facilities and payors. One other results from the OTIPRIO Phase 3b is worth noting. For those patients requiring use of antibiotic ear drops during the trial, we administered a caregiver survey. This questionnaire documented that over 80% of caregivers reported patient discomfort during administration of the ear drops. Over 60% expressed a lack of confidence, as the correct amount of medication into the ear and more than 60% have reported noncompliance with the drops. These results are consistent with feedback from both physician and parents about the risk of noncompliance with multi-dose, multi-day antibiotic ear drops and supports the benefit of OTIPRIO single dose physician-administered profile. We will be working to leverage these results in our medical communications. In early October, we announced successful results from a Phase 2 trial for OTIPRIO and patients with acute otitis media with tube or AMOT. This trial evaluated as single administration of OTIPRIO placed on the tympanic membrane on or around the tube in a total of 95 pediatric patients. This trial demonstrated that both OTIPRIO doses 6 milligrams or 0.1 ml are well-tolerated and achieved higher and statistically significant clinical cure rate over sham or no treatment with the P value of less than 0.5. In particular, the proportion of patients achieving clinical care through day 15, following a single administration of 12 milligram of OTIPRIO, totaled 74% compared to 15% for sham for p value of 0.017. We believe that these results support the advancement of OTIPRIO into Phase 3 for this indication, and intend to discuss the requirements for such a program with the FDA, following completion of the Phase 3 acute otitis externa clinical trial. We are pleased with the results from the Phase 3b and Phase 2 AOMT trials, and look forward to completing the ongoing Phase 3 trial in acute otitis externa and sharing top line results with investors by the end of this year. With positive results in AOE, we’re well-positioned for a supplemental NDA filing in the first-half of 2017 and if approved, commercial launch for the peak summer season in 2018. Assignment of the J code this week is very supportive of this plan, since the code would apply to physician administration of OTIPRIO in the office setting, which is the primary side of care for AOE patients. Turning now to OTO-104, patient enrollment is ongoing in the two parallel Phase 3 for Ménière’s disease; AVERTS-1 in the U.S. and AVERTS-2 in the EU. Each trial is a 16- prospective randomized double-blind placebo-controlled trial that will enroll approximately 160 patients with Ménière’s disease. We are on track with enrollment and expect results of both Phase 3 trials in the second-half of 2017,. Patients completing AVERTS-1 and AVERTS-1 are eligible to participate in an open label multiple dose safety study, where they can receive two quarterly doses of OTO-104. In the third quarter, we announced a successful completion of a one-year multiple does clinical safety trial for OTO-104 in Ménière’s disease patient. This prospective randomized placebo-controlled clinical safety trial enroll the total of 128 patients across multiple trials sits in the United Kingdom, and demonstrated that quarterly dosing of OTO-104 was well tolerated. There were no notable differences in treatment of emergent adverse event, audiometry or tympanometry between patients in the OTO-104 and placebo group. In general, the safety profile observed with quarterly dosing of OTO-104 was comparable to that observed from previous clinical trials with a single-dose of OTO-104. For those who attended our Investor Day in October, you may recall that one of the patients from this one-year safety trial, Mr. Colin Breeze describes his journey with Ménière’s disease, including participation in the trial. We appreciated his willingness to discuss the debilitating impact that the frequent and severe Vertigo Episodes of Ménière’s have had on his career and family life in order to help us all appreciate the significant unmet medical need associated with this chronic disease. We thank Mr. Breeze for his participation in our clinical program and wish him. continued good health. Finally, for OTO-104, we continue to make plans during the third quarter to initiate a Phase 2 ttrial in the second indication. The prevention of hearing loss in pediatric patients undergoing cisplatin chemotherapy treatment. Cisplatin and other platamin-based agents are routinely used in treating numerous tumor types and have contributed to improvements in cancer patient survival. However, these agents are known to be autotoxic and permanent hearing loss occurs on up to 90% of children and young adults. Earlier this year, we announced the publication of a preclinical study that demonstrated protection against cisplatin-induced ototoxicity with the administration of OTO-104. We believe these results together with a high unmet medical need supports the evaluation of OTO-104 in pediatric patients undergoing cisplatin chemotherapy, and expect to initiate a Phase 2 trial at multiple leading oncology centers by the end of this year. Transitioning to our earlier programs, OTO-311 is a sustained-exposure formulation of the NMDA receptor antagonist gacyclidine that we are developing as a single IT injection for the treatment of tinnitus. This is an important unmet medical need due to the large population, high-level of impact on patient’s lives, and lack of any FDA-approved drug treatment. As you may know, there’s a competitive that has announced negative results for the first two Phase 3 trials. Based on their public disclosure thus far, we understand that there were both trial design and conduct tissue that would negatively impact the ability to demonstrate therapeutic benefit. We will continue to monitor their progress to learn what we can for application to our program. In the meantime, we are proceeding in a deliberate stepwise fashion by extending the ongoing Phase 1 clinical safety trial in healthy volunteers in the 2017 in order to establish a maximum tolerated dose. We are providing no guidance at this time regarding timing for initiating a Phase 2 trial intended to the patients. Lastly, a few words about our fourth program, which target sensorineural hearing loss, including age-related hearing loss. There are two technical approaches we are pursuing in this program. Repair of the ribbon synapses, which connects the cochlear hair cells to the auditory nerve fibers and which can be damaged in the presence of loud noise or other injury, and regeneration of the cochlear hair cell itself following damage our debt. As we briefly review, during the Investor Day, we have demonstrated sustained-exposure otic delivery of multiple product candidates, including small molecules and biological. We have also demonstrated preclinical proof-of-concept for reversal of damage to the ribbon synapses in a noisy injury model, which also results an reversal of hearing loss. This is an exciting area of scientific investigation, with potential to address, what we believe to be the largest market opportunity in the otology field. More to come on this program in the future. In summary, we are making steady progress with the OTIPRIO commercial launch and this week’s positive news about the J code will further support these efforts and position as well in our pursuit of the label expansion indication. We are on track with the OTO-104 Phase 3 trails and believe that this program is undervalued by investors, based on the Phase 2b trial completed in Ménière’s disease and broad set of potential label expansion indications for OTO-104, including cisplatin-induced hearing loss. We have also built the broadest product pipeline in the otology field with a third clinical program targeting tinnitus and a cutting-edge program broadly addressing hearing loss. We’re not appreciated in the market. We had a very productive third quarter and look to continue building value by meeting our development milestones and pursuing a path to profitability. In closing I would like to thank our shareholders for their continued support and look forward to providing additional updates in the coming months. At this time, I’ll turn the call over to Paul Cayer, our Chief Financial and Business Officer, who will give you a brief update on our financials.

[Paul Cayer:]

Thank you, Dave, and good afternoon, everyone. In summary, we finished the third quarter with a strong balance sheet and continued to work towards the financial guidance we previously provided. As of September 30, 2016, we had cash, cash equivalents, and short-term investments totaling $215.3 million. This compares favorably to the $184.8 million we held as of December 31, 2015, and reflects the public financing we completed in January. In the third quarter, we reported net sales for OTIPRIO totaling $0.3 million. This reflects our switch to recognizing revenue upon delivery of OTIPRIO to our specialty distributors, since we considered channel inventories to have normalized. In the third quarter 2016, we reported total GAAP operating expenses of $28.2 million, compared to $16.1 million for the third quarter of 2015. Non-GAAP operating expenses, which excludes stock-based compensation expense and depreciation expense totaled $24.7 million for the third quarter of 2016, compared to $13.8 million for the same period in 2015. GAAP research and development expenses for the third quarter of 2016 totaled $15.9 million compared to $9.6 million in 2015. The increase was primarily a result of increased clinical trial activities for both OTIPRIO and OTO-104 versus the prior year period. R&D-related stock-based compensation expense was $0.8 million for each of the third quarters of 2016 and 2015. GAAP selling, general administrative expenses in the third quarter of 2016 were $11.9 million, compared to $6.5 million to 2015. The increase was primarily attributable to increased personnel and operating costs associated related to the commercial launch of OTIPRIO. SG&A-related stock-based compensation expense was $2.5 million for the third quarter of 2016 compared to $1.4 million for the third quarter of 2015. Finally, with regard to our financial outlook, we reaffirm our expectation that non-GAAP operating expenses for 2016 will total $105 million. Through the first nine months of 2016, non-GAAP operating expenses totaled $75.3 million, so we are on track for meeting this guidance. We also expect that non-GAAP operating expenses for 2017 will not exceed levels for 2016. And that the cast burn for 2017 will decline from 2016, as a result of the flat operating expense levels combined with expected increases in OTIPRIO revenue. With that, I’ll turn the call back over to Dave.

[David Weber:]

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

[Operator:]

Thank you. [Operator Instructions] Our first question comes from the line of Anupam Rama from JPMorgan. Your line is open.

[Eric Joseph:]

Hey, guys, this is Eric in for Anupam. Thanks for taking the question. First just wanted to try to better understand the FDA’s motivation to recommend adjusting the trial size [indiscernible] somehow reflect their views on the unmet need in the setting? And what are your options in [indiscernible]?

[David Weber:]

Thank you, Eric, for that question. So actually this was not really surprising, I think it’s important to understand why we proposed 500 in the first place, because normally what you would have proposed and what we know the FDA, it really wants to see in terms of primary efficacy endpoint who is targeting about 90% power. They do not actually like to see clinical trials having a significantly high power as they can obviously achieve statistical significance in light of a very small clinical benefit and also be viewed as kind of hunting for p values, if you will. So they’re typically looking for a size of 90%. The reason we went in proposing 500 patients is actually not because of power, it was because we were really trying to get the FDA to agree to a single registration trial for the acute otitis externa indication. And we believe that that words, therefore, are going to be driven by safety. So we wanted to make sure that we gave the FDA adequate number of patients to address any safety questions that they might have, given that obviously acute otitis externa is placement of the outer ear canal as opposed to the middle ear, which is the approved indication. We were happy to see that the FDA actually agreed to a single clinical trial. And what you’re seeing here by the ability to reduce the sample size is that, they don’t have concerns about safety. So they’re not saying, they are not requiring a large number of patients for purposes of safety evaluation for the acute otitis externa indication. For that reason, we were then looked at the power calculation and reexamined that and put it to where it was in the more traditional 90%, in this case, it’s s still greater than 90% power for the primary outcome.

[Eric Joseph:]

Got it, thanks. And maybe just a question on the launch and plans now that having a J code in place at the beginning of the year. I know you guys are not currently marketing our plans to market to [indiscernible] AMOT ahead of an expanded label. But these applications are well known to the ENT community. To what extent have middle and external your applications come up in discussions with payors? And what’s your sense of whether there would be any meaningful pushback from docs for the user of OTIPRIO in the office setting?

[David Weber:]

It’s important o understand, obviously under our commercial launch, we have to ensure that our sales force is remaining fully compliant, and therefore, we do not permit discussions about any potential off-label use. So the discussion about the use for other indications such as acute otitis externa, acute otitis media were two of our purely developmental discussions that would not be subject matter of our sales force with the ENT, but more on that with our investigators doing the clinical trials in developing those indication. I think, obviously, we’ve talked in the past that we see those markets together more than doubling the market opportunity for the approved indication. So, from the market opportunity, we believe that it is substantial. And we believe that obviously with the approval of the J code now for the approved indication will actually help us. And as we continue to advance both the acute otitis externa and the other expansion indications.

[Eric Joseph:]

Got it. Thanks very much for taking the question.

[David Weber:]

Thank you, Eric.

[Operator:]

Thank you. Our next question comes from [indiscernible] from Cowen and Company. Your line is open.

[Unidentified Analyst:]

Hi, guys. Thanks for taking the question. I was just wondering if you go into a little bit the discussion around the J code and what was different about it this time around that led to successful discussions? Thanks, guys.

[David Weber:]

Yes. Thank you, Bill. I think it’s important to point out that the rejection with a preliminary rejection, so the processes used for the J code of submission in January for the J code. And as part of that process, they undergo an initial review indicating either preliminary approval or preliminary rejection. And so it was not an outright rejection, it was a preliminary rejection. And that rejection was based on the comment, which is in the public document that they considered it to already be part of the bundled payment for that year to surgery procedure. Importantly, we can point out that obviously the C code, which is a grant transitional pass-through payment is actually recognizing that that’s not the case. So clearly, the C code by grant of that, which came just before the – pulling their rejection had indicated that they see it as not part of the bundled – current bundled payment. So I think coupled with both the grants of the C code, but also the fact that, we had a number of advocates. We had a physician who presented in the public hearing that occurred in May, indicating that they did conduct some of their ear tube surgeries in the office setting. And typically those might be older children, but they would do those on occasions. And we had other advocates – physician advocates in particular writing in and supporting the grant of a J code for the product for the same reason. So I think it was a – so first of all, preliminary rejection, so that then gave the opportunity for public comment, which was provided and based on that public comment than they overturned their preliminary rejection to an approval.

[Unidentified Analyst:]

Great.Thanks so much.

[Operator:]

Thank you. And our next question comes from Edward Nash with SunTrust. Your line is open.

[Unidentified Analyst:]

Hi, thanks for taking my question. This is Mike Gould on for Edward. So maybe just want to understand more about the AOE part. So could you remind us again the reason for a lack of dose dependency in the high dose, 24 milligram in the Phase 2 trial?

[David Weber:]

I’m sorry, could you say that, again, Mike?

[Unidentified Analyst:]

So basically, in the Phase 2 trial result for AOE, your announcement during the Investor Day, that’s a high dose 24 milligram here was sort of a smaller efficacy as compared to a lower dose 12 milligram, what’s the reason for that?

[David Weber:]

Well, I don’t think we can say specifically what might have resulted? Importantly, the 24 milligram still showed a benefit and was the same as the six milligram, but neither were as good as the 12 milligram, which was in the middle. And I think we can speculate of what we think might be happening there, but obviously, without a lot more clinical research and further work to understand the differences. I think a couple of things are important here is that, one, we have never tested a volume a 0.4 ml in human, and that’s quite a large amount of material. So we’re not sure if they have affected gelation of the polymer because of the high volume, or if in fact, you might have had some loss of that because of the high volume of material applied. So recognize in children, we’ve applied 0.1 ml and 0.2 ml and in an adult we’re applying 0.2 ml from a nearest, for example. So we think they might have been in a factor both the high volume there that might have resulted in that. The other thing I think we have to point out is, they are small sample sizes. So, we’re talking 17 patients per group. So there could have been some influence from that. Importantly, the 0.4 ml is really not the favored form for commercialization. It really was the 0.2 ml, because our product would allow the administration of 0.2 ml into the bilateral years, if necessary for treatment of a single patient. So from the standpoint of ensuring that we were able to use our current commercial form of OTIPRIO, the 0.2 ml was all along, or I should say they’re 12 milligram, which is 0.2 ml, all along with our commercial intent for the product.

[Unidentified Analyst:]

Got it. Also so could you just remind us how is the powering calculated for the 90% powering based on 250 patients? And could you share with us spontaneously cover rates for AOE, in general?

[David Weber:]

Yes. So in terms of the Phase 3 trial design, the 90% power, the greater the 90% power assumes a 50% placebo response. And that’s based on prior year drop trials that are in the literature. So we were conservative. And as well in our treatment effect, as you know, we saw a 80% clinical cure rate with the 12 milligram dose. But we utilized a more conservative estimate for powering of the study. So those numbers represent them when you get to 500 patients greater is actually much greater than 99% power. And so we it was not unexpected to ask that once the FDA agreed to a single trial, they did not need those numbers for safety that we would go down in size, based on getting to a more traditional 90% power. And so approximately 250 patients gives us more than 90% power for the primary endpoint based on those assumption.

[Unidentified Analyst:]

Okay, got it. So the last question from me is about upcoming peak seasons for your subsidiary. Could you just help us understand on relative magnitudes of the peak season versus the non-peak season, how much of increase [indiscernible].

[David Weber:]

Sure. Why don’t I let Paul take that question?

[Paul Cayer:]

Yes. So if you look at the 12 months, obviously, if every if there was no seasonality every month would average out 8.5%, where the current volume in the distribution across the month rises about that 8.5% is in December and it stays about that May. So that’s why when we talked about this code peak season, we believe it starts in December and goes through May. I don’t have the exact numbers in front of me, Mike, in terms of what percentage of the cases are during that six-month period. But I think it’s approximately 75%, or I should say between 65% and 70% of the cases are within those three to six months December and May.

[Unidentified Analyst:]

Got it. That’s very helpful. Thanks for taking the question.

[David Weber:]

Sure. Thank you, Mike

[Operator:]

Thank you. And our next question comes from the line of Caroline Palomeque from WallachBeth Capital. Your line is open.

[Caroline Palomeque:]

Hi, thanks for taking the question. Just on the Phase 3 trial in AOE, I was just wondering if you’ve seen any challenges to enrollment and also how many patients are enrolled so far? Thanks.

[David Weber:]

Thank you, Caroline. No, I think, the enrollment has been progressing fine. We have all through been saying that we are on track for data by the end of this year and we remain on track for completing the enrollment and having data by the end of the year. I think, what is, obviously, what we – we’ve not talked specifically about enrollment numbers, we don’t tend to give out specific enrollment numbers. But what I can tell you is that, the trial is a one-month follow-up study, which means that, obviously we will complete enrollment before the end of the year and complete the one-month observation of those patients in order to, obviously, have data by the end of the year.

[Caroline Palomeque:]

Okay, thanks.

[Operator:]

Thank you. [Operator Instructions] Our next question comes from the line of Steve Chen of Bank of America. Your line is open.

[Steve Chen:]

Hey, Dave, hey, Paul, this is Steve Chen on for Sumant. Quick questions here. I was wondering if the management team had any takeaways from the results of one of your competitors recent trial its tinnitus product candidate, and subsequent alteration of the primary endpoint? Does that change the way you guys are thinking about designing your Phase 2 trial for OTO-311? And I have one follow up?

[David Weber:]

Okay. Well, first, thanks Steve. I think, first of all, the company itself indicated a number of concerns that they had with the outcomes from their study. So I think they’ve indicated where they’ve observed a much higher variability across clinical center as well as other things such as the diary and endpoint that they think could have resulted in the lack of activity in that trial. And they obviously have made adjustments in their ongoing trial, the second trial to try to account for those observations. I think what we can say is that based on what we’ve heard so far publicly, we do see things that we would do differently. I think, we’ve shown through our work both in Ménière’s and in our other programs that we have a very strong clinical capability. And we believe that both trial conduct and design are critical to success. And I think there are a number of things that we see important. And I will say one as an example is, we do believe – I think we illustrate this with our Ménière’s program. In that AVERTS-1 is the U.S. trial with U.S. clinical centers and AVERTS-2 is European trials, clinical centers involved in that trial. We do not mix rest of the world into those trials and we do them based on geographical areas. And the reason for that is that, we know there are practice differences across geographies and that can result in variability. And of course, in a clinical trial setting, what you’re trying to control is variability. So I think that’s just one example. But we do believe and we think we have observed things from the public reported information that give us some good insight, where we would definitely do things differently.

[Steve Chen:]

Okay, gotcha.

[David Weber:]

I think importantly, I mean, just say that, it does not reduce because of those observations on the clinical trial design and conduct, we remain very bullish on this program. We do not believe that those results really offset the potential for the NMDA receptor antagonist as a class and specifically our molecule and our delivery system, we think it’s a matter of designing the right program to that.

[Steve Chen:]

Okay, understood. And then, Paul, one quick one for you. It looks like the third quarter revenue seems to imply unit price per vial of 366. Is that some sort of stocking effect or revenue recognition effect that’s driving that the kind of sequential increase in price per vial, and should we expect it to be choppy quarter-to -quarter going forward, just want to double check if there’s any change in the way you guys are thinking about price per vial going forward? Thanks.

[Paul Cayer:]

Yes, there is any, I mean, it’s great, you notice that. Thanks very much. Nice to actually hear that someone actually baked into the financials, and we spend a lot of time getting right. We haven’t changed in terms of what we expect the net sales price to be. I think we’ve been consistent that’s it’s in the range of 225 to 250. But what you’re seeing in the Q3 revenue number is sort of one-time change between the revenue recognition math. And so we had for the – for March, which is only a month we had revenue for the first quarter. So that was when we launched. And then for Q2, we had used sell-in, I’m sorry, sell-through. So basically recording revenue based on actual purchases by the end-user and we have been sort of recording a – recording the – and including the revenue that was going – was based on the shipments to the the distributors. and now we’ve switched to sell in, that’s one that had accrued revenue came back in. So that’s what you’re saying. It’s just the kind of one-time change based on the modification and the revenue recognition. And so going forward, I think, you can expect that the net sales will be based on the net sales price that we’ve been consistent about.

[Steve Chen:]

Okay, great. Thanks.

[Operator:]

Thank you. And we do have a follow up question from the line of Anupam Rama. Your line is open, with JPMorgan. If your phone I unmute, please unmute.

[Eric Joseph:]

Hey, guys, it’s Eric. Thanks for taking the follow-up. Sorry for being unmute. Just a follow-up for 104 and Ménière’s. Particularly, with respect to sort of the current shipment paradigm. I know there are no approved therapies currently for Ménière’s, BDC, some half-way use of steroid and your gentamicin injections, How widely used are these approaches they? And and how does their prior use get factored into the exclusion criteria for the ongoing Phase 3 trials? Thanks.

[David Weber:]

So in terms of, I would say that, steroids are of increasing use in Ménière’s disease in the US., given that solutions and that’s based both on the – what was observed by Otonomy in terms of what our Founder went through, where he was treated by a very knowledgeable expert in Ménière’s, prior to the start of the company, because they had seen a growing level of data supporting the use of steroids for Ménière’s disease to treat their Vertigo symptom. And I think what you can see is based on a heart clinical work, Phase 1, Phase 2, and now in the Phase 3. But that has, obviously, continued to drive the awareness among clinicians, but also the obviously the evidence space, obviously, with the Phase 2 that the steroids may have a beneficial activity. So those numbers have been increasing. But overall, still think we are comfortable saying that the use of steroids by ENT physicians, it’s still for many years it’s only 15% to 20% of their use. So they’re still – they’re using steroids for a lot of other things, which is why those expansion indication and the market opportunity is much larger than just Ménière’s is ultimately. We are showing with the cisplatin-induced hearing loss. I think when it comes to and let me just point out that the gentamicin is ab-lady. In other words, what you’re doing there is, gentamicin is obviously, like all other immuno glaxide associated with the other toxicity and hearing loss. And so you’re actually using it in a – what is basically an awareness that you are going to damage hearing with the use of gentamicin, but you’re obviously undergoing that with the idea of trying to relieve the Vertigo symptom. So what we allow in our clinical trial enrollment is patients may have had prior steroid use. They just cannot have had steroids within 30 days – in – going into the lead-in phase. So with regard to other treatments, they can be on any other types of treatments. For example, diuretic, a low fat, or low-salt diet, I should say, they can remain on those throughout the trial. The reason being is that, if they’re in the lead-in Phase in their exhibiting Vertigo, it’s very clear that whatever they’re currently on is not existing with their vertigo and treating them in Ménière’s disease. And so we allow them. But they must continue those treatments through the course of the study. Does that help?

[Eric Joseph:]

Great. Absolutely. Thanks for taking the follow-up.

[David Weber:]

Sure. Thank you.

[Operator:]

Thank you. And I’m showing no further questions at this time I’d like to turn the call back over to Dave Weber for closing remarks.

[David Weber:]

Thank you for participating in our call today. If you have any additional questions, please feel free to contact us. Have a good evening, everyone. Thank you.

[Operator:]

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