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Edited Transcript of OTIC earnings conference call or presentation 1-Aug-19 8:30pm GMT

Q2 2019 Otonomy Inc Earnings Call

SAN DIEGO Aug 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Otonomy Inc earnings conference call or presentation Thursday, August 1, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David Allen Weber

Otonomy, Inc. - President, CEO & Director

* Paul E. Cayer

Otonomy, Inc. - Chief Financial & Business Officer

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Conference Call Participants

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* Stacy Ku

Cowen and Company, LLC, Research Division - Equity Research Associate

* Stephen Jasper

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen, and welcome to the Quarter 2 2019 Otonomy, Inc. Earnings Conference Call. (Operator Instructions) Thank you.

I would now like to turn the call over to your host, Mr. Stephen Jasper. The floor is yours, sir.

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Stephen Jasper, [2]

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Good afternoon, and welcome to Otonomy's Second 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; 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, timing of results, patient recruitment and enrollment plans for and design and conduct of the Phase III clinical trial for OTIVIDEX and the Phase I/II clinical trial for OTO-313 and the timing of initiation and results, patient recruitment and enrollment plans for and design and conduct of the Phase I/II clinical trial for OTO-413; expectations regarding preclinical development; expectations regarding the benefits and value potential of Otonomy's programs; 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.

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David Allen Weber, Otonomy, Inc. - President, CEO & Director [3]

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Thank you, Stephen. Good afternoon, everyone, and thank you for joining us on this call to discuss Otonomy's business update and second quarter 2019 financial results.

There are 2 key takeaways from our quarterly update: first, our clinical stage programs are on track with results expected from the OTIVIDEX Phase III trial, the OTO-313 Phase I/II trial and the OTO-413 Phase I/II trials in 2020. And second, we have the capital on hand to fund the company through these 3 catalysts and into 2021.

In my remarks, I'll briefly review the pipeline and corporate updates. I'll then turn the call over to Paul, who will provide a brief review of the financial results for the quarter. We will then open up the call for any questions.

Beginning with the OTIVIDEX Phase III trial in Ménière’s disease, enrollment is on track. The conduct and design of this study is based on the successful AVERTS-2 trial, which achieved its primary endpoint as well as a number of secondary endpoints. We plan to enroll approximately 160 patients in the United States and Europe, with results expected in the first half of 2020.

As it is our practice, we will not be disclosing any metric from the ongoing trial other than timing to top line results. The next product candidate in our clinical development pipeline is OTO-313, a sustained exposure formulation of the NMDA receptor antagonist, gacyclidine, in development for the treatment of tinnitus.

In April, we announced the initiation of a Phase I/II trial in tinnitus patients. The trial design consists of 2 cohorts. The first cohort included 8 patients assessed for safety and tolerability, following a single intratympanic injection of OTO-313 or placebo. We have successfully completed this cohort and are now enrolling patients in the exploratory efficacy part of the study.

Cohort 2 will enroll approximately 50 patients with persistent tinnitus who will be assessed across a number of endpoints, including the Tinnitus Functional Index, or TFI, which is a validated clinical instrument that measures tinnitus severity and its impact on patients.

Importantly, for entry into Cohort II, patients must have tinnitus severity that exceeds a specified level during the lead-in period, ensuring an adequate baseline level.

Patients in Cohort II receive a single intratympanic injection of OTO-313 or placebo, randomized 1:1 and are followed for 2 months. We expect results in the first half of 2020.

Our third clinical stage 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. Recent research has identified damage to synaptic connections as the underlying pathology in noise and age-related hearing loss that manifests as speech-in-noise hearing difficulty.

Neurotrophic factors, including BDNF, have therapeutic effects in the cochlea by promoting the survival of spiral ganglion neurons, increasing neurite outgrowth and reconnecting neurons with cochlear hair cells after damage. We are on track to initiate a Phase I/II clinical trial this quarter, with results expected in the second half of 2020. This will be in ascending dose safety and exploratory efficacy study, enrolling approximately 40 patients with speech-in-noise hearing difficulty.

Finally, we continue preclinical development of program for the prevention of cisplatin-induced hearing loss and the treatment of severe hearing loss via cochlear hair cell regeneration.

Overall, I'm very pleased with the progress we continue to make across our broad product pipeline that addresses significant unmet needs and the largest market opportunities in the neurotology field.

One other update, before I turn the call over to Paul to review financials for the quarter. As we mentioned in the earnings release, Dr. Kathie Bishop, Chief Scientific Officer, has resigned to join a former colleague in an early stage venture. We appreciate the support that Kathie provided, particularly during the last 2 years, as we position the company for our upcoming clinical milestones. We wish Kathie well, and look forward to her continued support of Otonomy as a scientific adviser. We are fortunate to have a deep bench in clinical development as well as research and preclinical product development and are fully focused on the execution of our clinical trial plans and the advancement of our preclinical programs.

At this point, I'll turn the call over to Paul Cayer, our Chief Financial and Business Officer, who will provide a brief summary of our financial results and guidance.

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Paul E. Cayer, Otonomy, Inc. - Chief Financial & Business Officer [4]

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Thank you, Dave, and good afternoon, everyone. In summary, our expenses for the second quarter of 2019 were in line with our financial guidance for the year, and we are on track with our plan to utilize existing capital to fund the company through the 3 clinical trial readouts next year and into 2021.

Now let me briefly recap the financial results and guidance that are more fully described in today's earnings release and 10-Q filing. In the second quarter of 2019, we reported total GAAP operating expenses of $11.8 million, with non-GAAP operating expenses totaling $10.6 million.

Regarding the breakdown of expenses, GAAP R&D expenses for the quarter totaled $8.9 million, with SG&A expenses totaling $2.9 million. The SG&A number reflects payments made by Mission Pharmacal and Glenmark Therapeutics, related to their co-promotion of OTIPRIO.

As mentioned in the 10-Q, we have been informed by Glenmark that they have discontinued the promotional support of OTIPRIO due to the delay in FDA approval of their Ryaltris allergy product and are in discussions with them regarding the financial and contractual terms impacted by this decision.

As of June 30, we held a cash balance, including cash, cash equivalents and in short-term investments totaling $78.5 million. Based on our non-GAAP operating expense guidance of $45 million to $50 million for 2019 and lower spending plan for 2020, we expect that our current capital will fund the company's operations through the 3 clinical trial readouts in 2020 and into 2021.

With that, I'll turn the call back over to Dave.

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David Allen Weber, Otonomy, Inc. - President, CEO & Director [5]

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Thank you, Paul. In summary, I am very pleased with the team's continued execution of our clinical trial plans and product development activities during the second quarter. Our 3 clinical stage programs addressing vertigo, tinnitus and hearing loss represent 3 of the largest market opportunities in neurotology and reinforce our leadership position in this untapped field.

Furthermore, the OTIVIDEX Phase III trial, OTO-313 Phase I/II trial and OTO-413 Phase I/II trial provide multiple value creation catalysts for the company in 2020, which is fully funded by our existing capital.

I am proud of our continued execution across our clinical and development programs and look forward to sharing further updates with you in our future communications.

Operator, we are now ready for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Ms. Stacy Ku.

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Stacy Ku, Cowen and Company, LLC, Research Division - Equity Research Associate [2]

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I have two questions. Looking forward beyond the current ongoing OTIVIDEX study, have you initiated any pre-commercialization activities? Are ENTs and neurotology familiar with the buy-and-bill model? And I have another question, follow-up question.

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David Allen Weber, Otonomy, Inc. - President, CEO & Director [3]

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Okay. I think, first, Stacy, thank you for your questions. Yes, beyond OTIVIDEX, obviously, we've had some experience with working with ENTs in terms of their familiarity with buy-and-bill. And it is something relatively new with them as we have learned through our work with OTIPRIO. And -- but obviously, it is something that others, both in their practice environment, for example, their practice managers, as well as very common colleagues in their practice environment, such as ophthalmologists, are very familiar with it.

So I think it is something that the buy-and-bill is a relatively widespread model that is used by many programs and products. And I think it is something we feel that is easily -- we can easily educate and inform clinicians and their office managers in the use of buy-and-bill.

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Paul E. Cayer, Otonomy, Inc. - Chief Financial & Business Officer [4]

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Maybe just one other comment to jump in there, Dave. So Stacy, the other sort of important factor here is that, with respect to the intratympanic injection itself, there's already a CPT code. So reimbursement has already been established for the administration. So the piece that we would need to execute is getting a J code for the product, which we've already been through with OTIPRIO.

And then, as Dave said, educating them. But I think it's important to note that there already is adequate reimbursement for the intratympanic injection itself and existing CPT code.

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Stacy Ku, Cowen and Company, LLC, Research Division - Equity Research Associate [5]

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That's really helpful. And moving on to the OTO-313 program in tinnitus. Were the patients in the first 50 cohort suffering from tinnitus? And if yes, was there any descriptive examples of efficacy?

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David Allen Weber, Otonomy, Inc. - President, CEO & Director [6]

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Yes. So they were tinnitus patients in the safety cohort. Obviously, it's a very small number of patients, and they were randomized to placebo, but they did not complete all of the efficacy measures that we are exploring in the second cohort. So they were primarily a pure safety cohort. And as the second cohort, that will be the exploratory efficacy component of the study.

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Operator [7]

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(Operator Instructions) I am now showing no further questions at this time. I would now like to turn the call over back to Mr. Dave of -- Dr. David Weber. Sir, you may continue.

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David Allen Weber, Otonomy, Inc. - President, CEO & Director [8]

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

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Operator [9]

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