Otonomy (OTIC) Q1 2022 Earnings Call Transcript

Otonomy (OTIC)
Q1 2022 Earnings Call
May 09, 2022, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by. Welcome to the Otonomy first quarter 2022 financial results conference call. [Operator instructions]. I would now like to hand the conference over to your first speaker for today, Mr.

Robert Uhl, with ICR Westwicke. Please go ahead, sir.

Robert Uhl -- Managing Director of Clinical Assessment

Thank you, operator. Good afternoon, and welcome to Otonomy's first quarter 2022 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. 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.

Otonomy specifically disclaims any obligation to update any forward-looking statements, except as required by law. I will now turn the call over to Dave Weber, president and CEO of Otonomy.

Dave Weber -- President and Chief Executive Officer

Thank you, Robert. Good afternoon, everyone, and thank you for joining us on this call to discuss Otonomy's recent business updates as well as our financial results for the first quarter. Our key update is a positive OTO-413 Phase 2a results we announced several weeks ago. These results are important because they provide a second independent placebo-controlled trial demonstrating the treatment benefit of OTO-413 in a broad hearing loss patient population.

With this corroboration of the clinical benefit of OTO-413, we are excited to move forward with a Phase 2 dose-ranging efficacy trial expected to start by end of the year. I'll recap the top-line results from this trial and then highlight the status of our other programs, which include multiple clinical readouts coming in the second half of this year. Importantly, our OTO-313 Phase 2 trial in tinnitus is on track with top-line results expected in August. I'll keep my prepared remarks brief, including a summary of our first quarter financials, and then we can open up for any questions.

Beginning with the OTO-413 Phase 2a results, this trial demonstrated that a single intratympanic injection of 0.3 milligrams of OTO-413 provided clinically meaningful treatment benefit versus placebo across multiple speech-in-noise hearing tests as well as the Patient Global Impression of Change at consecutive time points of day 57 and day 85. The randomized, double-blind, placebo-controlled trial enrolled a total of 33 patients with self-reported hearing difficulty in a noisy environment that was confirmed by speech-in-noise testing. 30 of these patients were considered evaluable by a blinded reviewer, including 20 patients treated with OTO-413 and 10 who received placebo. Overall, OTO-413 demonstrated a treatment benefit across all of the efficacy metrics and time points evaluated consistent with the positive results from the prior Phase 1/2 trial cohort.

To this point, 40% of OTO-413 treated subjects demonstrated a clinically meaningful improvement on at least one of the three speech-in-noise tests at both day 57 and day 85 versus 20% for placebo. We were especially pleased to again see a clear signal for the Words-in-Noise test, which is well established and validated in hearing loss patients. 40% of OTO-413 subjects with a valuable WIN test demonstrated a clinically meaningful improvement at both day 57 and day 85 versus 0% for placebo. One important advantage of the WIN test compared to the Digits and Phrase test is the ability to generate a speech intelligibility curve for each patient at each time point.

We included these curves for the OTO-413 responders in the results slide deck posted on our corporate website. So you can see the extent of the speech intelligibility improvement from baseline to day 85 across a range of word loudness levels. Based on our review of the data with KOLs, these improvements are both clinically significant and meaningful for a patient's hearing function in everyday situations. We were also very encouraged to see the treatment benefit of OTO-413 reflected in the Patient Global Impression of Change, or PGIC.

In this trial, the patient was asked the following PGIC question during each visit. Since the beginning of the clinical study, how would you rate your ability to hear in a noisy environment. 50% of OTO-413 subjects reported an improvement from baseline at both day 57 and day 85, compared to only 10% for placebo. Taken together, with the speech-in-noise data, we believe these results demonstrate a clear clinical signal for OTO-413 versus placebo when evaluated and presented in the same way as a successful Phase 1/2 trial, a finding further strengthened by repeated observation across two independent study populations.

Based on these positive results, we intend to initiate a full dose-ranging Phase 2 trial in hearing loss patients by the end of 2022. This trial will also incorporate learnings from the ongoing higher dose evaluations that are assessing the tolerability and treatment activity of two higher doses of OTO-413, 0.75 and 1.5 milligrams, which equate to 2.5 and five times the dose used in the Phase 2a trial. Results from these higher doses will include all of the same time points used in the Phase 2a study and are expected in the second half of 2022. We're very excited about the clinical results for OTO-413 and are actively working on next steps for the program that targets tens of millions of hearing loss patients in the U.S.

alone. Turning now to the OTO-313 program for tinnitus. The Phase 2 trial is on schedule with top-line results expected in August. As a reminder, we randomized 153 patients with persistent unilateral tinnitus of at least moderate severity.

This was slightly above our target enrollment of 140 patients. Patients were randomized 1:1 to a single intratympanic injection of 0.32 milligram OTO-313 or placebo and are being followed for four months. The primary endpoint is the same as reported for the successful Phase 1/2 trial, a responder analysis based on the proportion of patients who report a clinically meaningful improvement in the Tinnitus Functional Index, or TFI, from baseline to months one and two following treatment. To assess durability of the OTO-313 treatment effect, we extended the follow-up period out to four months.

We are continuing to see high compliance for completion of the TFI and daily symptom diary, which is important for our analysis of the results. We also believe this indicates the high level of commitment that patients have in supporting the trial and finding a treatment for tinnitus. In parallel, with completing the Phase 2 trial, we are enrolling tinnitus patients in several study cohorts to evaluate the safety of bilateral as well as higher dosing for OTO-313. This effort is important for the program since bilateral patients comprise approximately 50% of the tinnitus population.

Furthermore, the higher dose we're evaluating 0.64 milligrams, twice the dose used in the successful Phase 1/2 and ongoing Phase 2 trial. We expect results from the one-month safety evaluations in the second half of 2022. This data, together with the Phase 2 results are expected to support an end of Phase 2 meeting with the FDA and inform the design of the Phase 3 clinical program planned to start in the first half of 2023. Our third development program is OTO-825, a gene therapy targeting GJB2, which is the most common cause of congenital to hearing loss.

Patients born with this mutation can have severe to profound deafness in both ears that is identified in screening tests now performed routinely in newborns. Preclinical proof-of-concept results for OTO-825 demonstrate that a single administration of OTO-825 rescues hearing loss and cochlear damage in two preclinical models representing a range of hearing loss severity caused by GJB2 deficiency. We have completed a pre-IND meeting with the FDA that provided guidance regarding nonclinical study design, manufacturing requirements, and clinical trial considerations and have incorporated this feedback into our IND-enabling program. These activities are ongoing, and we expect to file an IND in the first half of 2023.

Our remaining two programs are OTO-510 and Otoprotection for patients at risk for cisplatin-induced hearing loss and OTO-6XX, a potential treatment for patients with severe hearing loss. Preclinical development continues on both programs. In summary, we are making good progress in advancing our multiple clinical programs for treating hearing loss and tinnitus, which represent large untapped markets with significant unmet medical need. The attractive potential of these target indications was highlighted by multiple KOLs during our investor R&D event in March.

If you were not able to participate, then I would encourage you to access the webcast and associated slide deck via the Investors section of our website. The presentations are informative and there's even an abbreviated words-in-noise tests that you can hear for yourself how that test works. Switching briefly to our financials. We are on track with our guidance for 2022.

We reported GAAP operating expenses totaling $13.2 million in the first quarter and non-GAAP operating expenses of $11.3 million. The adjustment for non-GAAP expenses is the exclusion of stock-based compensation as outlined in today's earnings release. From a cash perspective, we finished the first quarter with a cash balance, including cash, cash equivalents, and short-term investments of $62.9 million, and we continue to expect that this cash balance will fund the company into the second half of 2023. Going forward, we expect non-GAAP expenses for 2022 to total $42 million to $44 million and GAAP expenses to be in the range of $52 million to $54 million.

Operator, we are now ready for questions.

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question is from the line of Ken Cacciatore with Cowen. Your line is now open.

Ken Cacciatore -- Cowen and Company -- Analyst

Thanks, guys. Lots of progress. Real exciting time. I know it's still recent from the release of the 413 data, and I know we still have to wait for the higher doses as well.

But wondering if you've been able to do a little bit more work with kind of outside consultants and thought leaders about whether we could move forward with words-in-noise as a primary endpoint. Just kind of any conversations you've had any more confidence you got that, that could be the primary endpoint to complement the patient global impression. I think you still talk about making that a secondary endpoint. So I just wanted to understand any more progress there.

And then as we wait for the higher doses and obviously, depending on that data, can you talk about the Phase 2b potentially being powered as registrational? I know you're still talking dose finding, but just wondering if that study could in fact depending on the data, be registrational. And then lastly, just ahead of 313, can you just remind us some of the steps that you've taken to try to minimize the placebo response as we wait for the August results? Thanks so much.

Dave Weber -- President and Chief Executive Officer

Hi. Ken. Thank you very much for your questions. I think we have continued to talk about the WIN and shared those results with our KOLs as well as talk about the potential for that as a suitable primary endpoint.

I think we continue to be very encouraged by data. What was obviously key for us in our data was seeing confirmation from both the Phase 1/2 and the Phase 2a study with the WIN response. As you may recall, it's very consistent between the two and clearly showed the WIN is doing a great job of picking up the benefit of OTO-413. So we do have conversations ongoing, but I think as we look at both the knowledge base of the WIN in the United States, audiologists are quite familiar with the WIN test.

And the WIN test is one that has been heavily researched and validated in the hearing loss population. We do think it is a very good endpoint. And then obviously, it was part of our goal in looking at these three different tests was really to establish and identify which of these would probably be the most likely. So while we're at this point, still not confirming that, I think we do feel that the WIN is very encouraging and I can see that as a potential primary end point as we move forward, and that's something we're continuing to work on and talk about.

So with regard to your second question and the dose finding and potential for registration, I mean, clearly, I think we have to recognize that this is a stepwise development. We're doing the first kind of research of its kind. We're the first to ever have demonstrated this kind of treatment benefit for a hearing loss population in two consecutive studies. And so I think we do have to expect that we're going to learn a lot more as well as, obviously, we'd be powering on very limited data.

That said, I think it's important to understand, we always conduct our Phase 2 trials in a registration type format. We've done that with the 313 Phase 2 trial that we'll read out in August. And I think you can expect us to do the same with regards to the Phase 2b dose-ranging study for 413. We always feel it's best to run those trials very rigorously and to have them potentially prepared as registration if FDA is agreeable to the endpoints.

So I think that's what you can expect for us here. And then finally, I think your last question was on the placebo response for 313. I think critically here, we saw a very low placebo response, as you may recall, in the Phase 1/2. And in fact, there was really only one patient that was showing that placebo response to at the lowest level.

And I think part of that reason is because of this very strong requirement to have the clinical meaningful benefit be shown at both time points month one and two. And as well as the other parameters around the study that we have, including the TFI itself. So I think we do feel that it's important that we evaluate the placebo response, but we feel very good based on the Phase 1/2 I'm very encouraged by that. And I think that is one of the reasons you've seen us hold very strongly to that clinical trial design as well as the utilization of that responder analysis of both day 57 -- I'm sorry, at both month one and two in the case of 313.

So again, we'll evaluate that, but I think we're very encouraged by that early data.

Ken Cacciatore -- Cowen and Company -- Analyst

OK. Congratulations on all the progress and really an exciting moment for the company. Thanks.

Dave Weber -- President and Chief Executive Officer

Thank you, Ken. Appreciate it.

Operator

Next, we have Chris Raymond from Piper Sandler. Your line is now open.

Chris Raymond -- Piper Sandler -- Analyst

Thanks. Hey. Just two questions. I guess, first on 413, you had some variability, I guess, on speech-in-noise measures at baseline between the Phase 1/2 and the Phase 2a.

I guess maybe a question going forward, have you thought about maybe having a hearing loss exclusion criteria going forward to try to ensure a bigger treatment benefit? I guess that's the first question. And then on 313, I know -- I think I remember you guys talking about FDA contributing to that four-month time point in terms of durability. But kind of just curious, this might be sort of a hot courser for the -- cut for the horse question here, but what sort of durability do you think you'll need commercially in that setting? Thanks.

Dave Weber -- President and Chief Executive Officer

Thank you, Raymond. So with regards to the first question on the variability with 413 and the SIN at baseline, this is one of the reasons we're really happy to have the two studies, the independent studies showing a similar benefit. And that gives us a very nice data set to work from to look at some of the parameters for how we might start to create a homogeneous population. I mean, to your point, it's important that people recognize the treatment benefit we're seeing is across a very broad patient population.

We've actually set a very limited amount of criteria because that's exactly what we wanted to do with this study was also learn about the patient population. And as we've reported, we've seen very good effect for patients from mild to even modern-to-severe hearing loss showing benefit with OTO-413. That said, you're exactly right. We are thinking about how we can add additional exclusion criteria and inclusion criteria that will allow us to start refining that population for the treatment benefit.

And I think you can consider the -- looking at the initial levels of speech intelligibility impact that these patients have as being one of those potential criteria as we've done with the 313 study and program where we've increased the level of tinnitus required for entry, I think it's a very similar here. You would expect to see more treatment benefit with people that have more severity in their disease. And so that is definitely something that we're looking at. And I think while we're not prepared to say exactly what that will look like, I think it's something you can definitely expect us to be talking about as well as some other parameters that we're focused on as well that we think can help us refine that patient population.

With regards to the durability with 313, I think from a commercial standpoint, I'll let Paul talk to this, is I think it is important that the most important thing we're trying to do right now is to set up the safety program for 313 that will run in parallel to the efficacy trials. And that's really what those that extended observation is set up to do for us is to tell us what the repeat dosing scenario might be from a safety perspective. But I'll let Paul talk to that on the commercial side as well.

Paul Cayer -- Chief Financial and Business Officer

Yes. Thanks for the question, Chris. So just to set up the context here, tinnitus large population, significant level of patients -- number of patients who have moderate to severe symptoms. And unfortunately, there's no really good treatment option for these patients, certainly no approved drug treatments, and essentially what's used our coping mechanisms.

And the hearing aids are often tried but don't actually help with most patients. And so they'll go to things like white noise machines, cognitive behavioral training, basically helping the patient to cope with it rather than actually dampening down the severity of tinnitus. So the bar is really low here in terms of what would be clinically acceptable. And we do know from routine use of intratympanic steroids by ENTs that there's no safety issues with repeat injections, and there's very good tolerability by patients.

So you couple those two things together at this very high level of disease burden and high demand level that patients have in a very kind of low level of any concerns about retreatment. And I think we view the retreatment path is very viable. We don't think that one size will fit all, we'll have to pick a retreatment interval as Dave said, from a registration standpoint. But then once the product gets in the market, we think that essentially patients will be treated as needed.

Some patients, as shown in our Phase 1/2 trial will do very well just on one dose alone. You had patients going from severe levels of severity based upon the TFI down to very minimal levels. So those patients may not need a second dose anytime soon. And then you have other patients, the nonresponders or the patients that didn't come down all the way that would likely want to be retreated.

So commercially, that's the way we view it to be subdependent upon the patients, but we will need to further registration program, identify an interval of retreatment to demonstrate safety, as Dave said.

Chris Raymond -- Piper Sandler -- Analyst

Great. Thank you very much.

Dave Weber -- President and Chief Executive Officer

Thank you, Raymond.

Operator

Next, we have Charles Duncan from Cantor Fitzgerald. Your line is now open.

Pete Stavropoulos -- Cantor Fitzgerald -- Analyst

Hi. This is Pete Stavropoulos on for Charles. So I have one question on 313. So the Phase 2 study is supposed to read out in August.

Can you talk about what would be viewed as clinically meaningful improvement? And then also with regard -- a second question, with regard to the time since symptom onset, would you anticipate that patients with tinnitus for less than six months are harder or easier to treat versus patients six to 12 months?

Dave Weber -- President and Chief Executive Officer

Pete, yes. Thanks for the question. So looking at 313, as you mentioned, the data is expected in August as we've announced today. With regard to clinical meaningful level, the nice thing about the TFI is it was developed -- when it was developed by the consortium of researchers who put the test together and published the test, they did clearly state what was a clinically meaningful level of improvement, which is that 13 or greater point reduction in the score for the TFI.

And so clearly, we see that as the primary endpoint for a clinically meaningful improvement. Of course, with the responder analysis, we're also looking for that to be at consecutive time points months one and two. Now that said, you recall from our data, we actually saw patients that had quite a large improvement. In fact, even at 15 points, all of the patients that we saw a 13-point change had a greater than 15-point chain in fact.

And so that obviously means that we do have some flexibility there. But I think it's very clear that the CMI level for clinically meaningful improvement is quite large with the TFI. And I think the other thing we're looking for there is, of course, that corroboration that we had and observed with the tinnitus loudness and annoyance as well as PGIC. So I think all of those things lead us to give us very good endpoints and the data to understand the improvement that we see with 313 and that we expect to see with this Phase 2 study.

With regards to the time point since onset of tinnitus and its impact, clearly, in the Phase 1/2, we looked at patients that were six months or less, and we saw, obviously, the data that we've reported, which is a very clear benefit for 313 over placebo. We are now extending that out to look at patients up to one year. But I think from a biological mechanism perspective, we still believe that those patients will have benefit. And that's really supported by the patients that we saw after that six months that even at that six months, they were still benefiting from the drug.

And so I think we do expect that we still see benefit in that longer-term population, but that's obviously part of what the study is designed to tell us. And our KOLs are consistent. If you listen to our investor R&D and the discussions are our KOLs had with regards to tinnitus duration. They -- most KOLs do anticipate that patients that have tinnitus of one year or less would be amenable to the therapy.

And so I think all of that is what we're looking for in terms of the outcome.

Pete Stavropoulos -- Cantor Fitzgerald -- Analyst

All right. Thank you very much for taking our questions.

Dave Weber -- President and Chief Executive Officer

Thank you, Pete.

Operator

[Operator instructions] Next, we have Francois Brisebois from Oppenheimer. Your line is open.

Francois Brisebois -- Oppenheimer and Company -- Analyst

All right. Thanks for taking the questions. Maybe the first one for Paul here. I'm just wondering, in terms of the expenses going forward, is there may be a reason for whether it's R&D or SG&A to maybe come down? Or should we see the spend kind of increase here throughout the year?

Paul Cayer -- Chief Financial and Business Officer

Hi, Frank. Yeah. I think we're expecting the expenses to continue on a rather flat basis across the year. We're right on our target guidance, which, as we mentioned in the release, again, is the -- at least on a non-GAAP basis, the $42 million to $44 million.

So we're tracking to that. It might come off a little bit toward the end of the year as we roll off of the Phase 2 for tinnitus, a roll-off of these higher dose trials. But then at that point, we'll be sort of gearing up for initiating the Phase 2 for full entry and making some prep work in anticipation of starting the Phase 3 for tinnitus next year. So I think the important point is that we are on track with the guidance and importantly, from a cash perspective, that keeps us on track with our runway guidance, which is cash into the second half of 2023.

Francois Brisebois -- Oppenheimer and Company -- Analyst

OK. Great. And then on the 413 side, I know it's fresh data. But I was wondering, I think there were discussions of maybe talking to the FDA, but it wasn't set in stone.

So is this the thought to have an end of, I guess, Phase 2a? Or is the thought to wait until full Phase 2, get everything together and then discuss with the FDA just in terms of really getting comfort with the endpoint of choice?

Dave Weber -- President and Chief Executive Officer

Yes. So thanks, Francois. With regards to the FDA, I mean, I think our approach here is we do expect that we will be having some level of conversations with them prior to the initiation of the Phase 2 study. I mean, that is in part, not just due to the clinical, but also even on the manufacturing side, there are obviously things that we want to make sure that we're talking about with the agency as we move forward.

And so we do expect to have some dialogue there. With regards to the specifics around the endpoint, I think that's something we're still evaluating. And I think we'll be able to talk about that more as we move into the second half of the year and really start looking at the design of that discussion. Clearly, there's no doubt the word-in-noise test is showing the best improvement and consistency in that.

And as I've already talked about with my response to Ken, it shows very good attributes as a potential clinical endpoint and is well established in the United States. I think it clearly is one that we think can be useful in our dialogues with the FDA. But I think we're going to continue working on our side. We're going to continue to work with our KOLs and other consultants to flush that out.

And I think we can come back on that. But -- and we'll also get into more details of our potential discussions with the agency.

Francois Brisebois -- Oppenheimer and Company -- Analyst

OK. Great. And if I can sneak in a last one here. Any -- can you just remind us of the differences between the upcoming readout, the Phase 2 for 313 versus the prior trial? Anything in design that might be derisking here, maybe more severe patients or whatnot? And then lastly, in terms of -- on the tone of the FDA here, why did you guys choose a responder analysis? And why do we feel comfortable that the FDA would probably be OK with this endpoint here for Tinnitus? Thank you.

Dave Weber -- President and Chief Executive Officer

Yes. I mean we did make a number of changes in addition to obviously expanding the population to look at patients with duration of tinnitus up to one year. So beyond the original 6 months in the Phase 1/2, we have taken some steps in the design of that study where we actually did increase the level of TFI severity required for these patients to enter into the study. And so we do think -- we do expect that based on our analysis to have a benefit here as well as then, of course, our -- we overall think the trial design is working.

There's no question that the screening and baseline period is very key and something that we think is very important. I think others are starting to recognize that, but it's something we've always done as well as then having the multiple time points that we have for the responder analysis. With regard to the responder analysis, it is something our statistician likes. I mean, statisticians, they like to see that consistency in the outcome at multiple time points, particularly where you have something which is a biological improvement like what we expect the mechanism to be here with 313.

And responder analysis is something that has been used in FDA approvals in the past. So it is something that we think is very powerful and something we're looking forward to looking at in our Phase 2 trial. That said, I think we also have shown the data for our population that people can see in our slide deck available on our website that shows very clearly that there's an improvement just on the basis of mean TFI change as well for the population. So there's no question that we have flexibility of how we want to approach the endpoint.

And if the FDA does come back and want to look on a mean basis, I think we're completely comfortable with that. But we do believe the responder analysis is particularly powerful, and it's something that we would like to talk with them about.

Francois Brisebois -- Oppenheimer and Company -- Analyst

OK. Thank you very much.

Dave Weber -- President and Chief Executive Officer

Sure. Thank you.

Operator

And there are no further questions at this time. I will now hand the call back to Dave Weber for closing remarks.

Dave Weber -- President and Chief Executive Officer

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

Operator

[Operator signoff]

Duration: 39 minutes

Call participants:

Robert Uhl -- Managing Director of Clinical Assessment

Dave Weber -- President and Chief Executive Officer

Ken Cacciatore -- Cowen and Company -- Analyst

Chris Raymond -- Piper Sandler -- Analyst

Paul Cayer -- Chief Financial and Business Officer

Pete Stavropoulos -- Cantor Fitzgerald -- Analyst

Francois Brisebois -- Oppenheimer and Company -- Analyst

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