Otonomy (OTIC) Q2 2022 Earnings Call Transcript

Otonomy (OTIC)
Q2 2022 Earnings Call
Jul 25, 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 second quarter 2022 Otonomy Inc. earnings conference call. [Operator instructions].

I would now like to hand the conference over to your speaker today, Mr. Robert Uhl with ICR Westwicke. Sir, floor is yours.

Robert Uhl -- Investor Relations

Thank you, Karmen. Good afternoon, and welcome to Otonomy's second 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. Now, 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 second quarter. The key message from this update is that we continue to execute well on our operational plan.

Most importantly, we are on track with our announcement of phase 2 tinnitus results for OTO-313 in August. We have also completed patient enrollment in the safety evaluation of higher and bilateral dosing about OTO-313. And have completed patient enrollment for the evaluation of higher dosing of OTO-413 in hearing loss patients. I'll briefly review these activities, provide a summary of our financial results for the quarter, and then we can open up the call for any questions.

Beginning with the OTO-313 program for tinnitus, we're excited to be approaching the availability of phase 2 results in the next month. As a reminder, we randomized 153 patients with persistent, unilateral tinnitus of at least moderate severity. This was above our target enrollment of 140 patients. Patients were randomized one-to-one to a single intratympanic injection of 0.32 mg OTO-313, or placebo and 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 month one and two following treatment. To assess the ability of the OTO-313 treatment effect, to assess durability of the OTO-313 treatment effect, we extended the follow-up period out to four months. And we will have data for all time points to report in August. All patients have completed their study visits and I can report that we had excellent compliance in the trial with completion of the TFI exceeding 98% across all randomized subjects and visits.

In parallel with completing the phase 2 trial, we have also fully enrolled 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. And the higher dose we're evaluating is 0.64 mg, twice the dose used in the phase 1/2 and phase 2 trials. As planned, we enrolled 12 tinnitus patients randomized three to one to OTO-313 or placebo in each of the three dose cohorts, 06.4 milligram unilateral, 0.32 mg bilateral, and then after a safety review of the first two cohorts, 0.64 mg bilateral.

While this is primarily a safety evaluation with a broader enrollment criteria, than in our phase 2 trial, we will have a TFI assessment one month after dosing to look for potential differences in response from baseline versus placebo. We expect top line results from these cohorts in the third quarter of 2022. This data together with the phase 2 results are expected to support and end up phase 2 meeting with the FDA and inform the design of the phase 3 clinical program plan to start in the first half of 2023. Moving to our next program OTO-413 for hearing loss, I summarize the positive results from our phase 2a trial during our last quarterly call.

This trial corroborated findings in the previous study, demonstrating that a single intratympanic injection of 0.3 mg OTO-413 provide a clinically meaningful treatment benefit versus placebo, across multiple speech and noise hearing tests, as well as the patient global impression of change at consecutive time points of day 57 and day 85. In particular, we were pleased to see a clear signal with the Words-in-Noise test, which is our preferred test because it is well regarded by audiologist and extensively validated in hearing loss patients. 40% of OTO-413 subjects demonstrated a clinically meaningful improvement at both day 57 and day 85 with WIN test versus 0% for placebo. Another important attribute of this test is its ability to generate a speech intelligibility curve for each patient at each time point.

The case studies that we have included in our corporate slide deck provided a nice demonstration of the hearing improvement following a single treatment with 0.3 mg of OTO-413. Similar to our approach without OTO-313, we have also been evaluating higher doses for OTO-413. In this case, we're conducting full clinical evaluations of two higher doses, 0.75 mg, and 1.5 mg, which equate to 2.5 and five times the dose used in the phase 2a trial. We have completed enrollment of 19 patients in each of these dose cohorts, randomized two to one to OTO-413 or placebo.

Patient enrollment criteria, the three month follow up period, and endpoints are all the same as the phase 2a trial. We expect to have results from these higher dose cohorts in the fourth quarter of 2022, which will support our initiation of a dose ranging phase 2 efficacy trial plan to start in the first quarter of 2023. Our third development program is OTO-825, a gene therapy targeting GJB2 which is the most common cause of congenital 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 the 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 non-clinical 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, an OTO protective 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 of these programs. In summary, we are making good progress in advancing our more multiple clinical programs for treating hearing loss and tinnitus, which represent large untapped markets with significant unmet medical need. We are looking forward to our phase 2 tinnitus results for OTO-313 in August. Additionally, we have clinical readouts for higher and bilateral dosing for OTO-313 expected in the third quarter, and results from an evaluation of higher dosing of OTO-413 in the fourth quarter.

These multiple readouts will inform our next steps for both programs, which are expected to include initiation of a dose ranging phase 2 efficacy trial for OTO-413 in the first quarter of 2023, and initiation of the phase 3 program for OTO-313 in the first half of 2023. Finally, a brief update on our financials, we are on track with our spending guidance for 2022, which is GAAP operating expenses of $52 million to $54 million, and non-GAAP expenses of $42 million to $44 million. For the second quarter, we reported GAAP operating expenses totaling $12.8 million and non-GAAP expenses of $11 million. The adjustment for non-GAAP expenses is the exclusion of stock-based compensation.

From a cash perspective, we finished the second quarter with a cash balance including cash, cash equivalents, and short-term investments of $53.1 million. We expect that this current cash balance will fund the company through our multiple upcoming clinical readouts. Operator, we are now ready for questions.

Questions & Answers:

Operator

[Operator instructions]. Our first question is from Ken Cacciatore with Cowen.

Ken Cacciatore -- Cowen and Company -- Analyst

Hey, Dave and Paul, real good luck ahead of all this important data disclosures. Dave, maybe I had a 313, can you just remind us the steps that you all took to try to minimize the placebo response in this study? And then maybe either you or Paul can talk about the tinnitus market opportunity, just a review of it would be fantastic. Thanks so much.

Dave Weber -- President and Chief Executive Officer

OK, thanks, Ken. And I appreciate the questions here. So yes, so in terms of minimizing the placebo response, several steps that we've taken, first of all, I think it's important that it is a one-to-one randomization that does help based on historically looking at literature on placebo response, when you have more than two arms, the more arms you have tend to cause more placebo response. Additionally, it's randomized one-to-one, we did increase the level of severity, which we also think will help with the placebo response.

So patients are into more of a higher up in the moderate severe level of disease, which we think will help on the placebo. I think the other things that are important for placebo are both the endpoints that we're looking at, the TFI is 25 point questionnaire. So it's not a simple question, or single question. It really is a questionnaire that they have to answer on each of their study visits.

And so that really provides, I think, a nice control on placebo response. In addition, they have other endpoints as we know the loudness and annoyance that are done on daily and then the patient global impression of change. And then I think the final thing that really helps in terms of addressing placebo response is the multiple time points required to demonstrate that improvement in their tinnitus, that is that we require improvements at both day at both month one and at month two. So consecutive time points have to demonstrate that clinically meaningful level of improvement.

So I think all of those are key factors in helping to manage the placebo response. And obviously, we're looking forward to the results of the study. With regards to the market, well I turn that over to Paul, and let Paul address that question.

Paul Cayer -- Chief Financial and Business Officer

Yes, thanks, Dave. And thanks for the question, Ken. We have a slide in our slide deck, so I'll just make some comments referencing that if folks want to go and take a look at that after the call. It's a large market, about 10% of people in the US are affected by tinnitus, and about a quarter of those, so 2% to 3% of the adult population raised their tinnitus is sort of moderate to severe.

The level of disability these patients have is pretty significant. As you can imagine, if you had a loud noise, roaring, buzzing, humming, that was always on. It would be impactful, not only when you're trying to sleep or concentrate in a quiet room, but just going about your daily life. And so the level of impact these patients have is pretty significant.

And unfortunately, there really isn't much to help that. The approaches that are used today are basically coping mechanisms, whether it's a white noise machine, hearing aids will be tried but doesn't actually work for many patients. And then things like cognitive behavioral training that basically just helps the patient deal with it rather than actually providing an underlying treatment. So 313, we were excited about it because it's actually a disease modifying therapy.

And that's what patients and physicians really want. In terms of the other parts of the commercial opportunity. I think it fits very nicely into office space treatment as a physician administer drug would fit in under the buy-and-bill model, there's already a CPT code for the intratympanic injection it sell. And so assuming we get the product to market, then we would apply for J code, the product would be covered under that.

So it's, just to sum up, large patient population, significant disease burden associated, nothing that really is disease modifying or helping the underlying level of severity in these patients and sort of wide open commercial opportunity. And we think the market opportunity based upon third party research is over a $1 billion here in the US alone. Thanks for the question, Ken.

Ken Cacciatore -- Cowen and Company -- Analyst

Thank you.

Operator

Thank you. One moment for our next question. Our next question comes from Christopher Raymond with Piper Sandler. Please go ahead.

Chris Raymond -- Piper Sandler -- Analyst

Hey, thanks, guys. And just on 413, just on the timeline, you getting that initiation that dose ranging phase 2 in the first quarter, I think the last time you guys guided it was a yearend. Can you just maybe walk through that it's a slight delay? But maybe I think I remember you talking about end to phase 1 meeting that -- that you were going to have with FDA, if I'm remembering correctly, maybe is that driving the delay? Or is there some other driver just to getting that up and running? Thanks.

Dave Weber -- President and Chief Executive Officer

Yes. Hi, Chris. Thanks. No, I don't believe there's a delay there.

I think we were originally, we are actually ahead on that. There was maybe a slight change there, and that we did enroll 19 patients versus the original plan of 12 patients. So we did go up on our enrollment, which of course for the additional cohorts and an additional group of patients. So in terms of our timing, I mean, the key focus that we have is to initiate a phase 2 program before the end of the year.

And I feel like we are on track with that, with the timing that we have. And so I think one of the things that's actually remarkable, and it kind of speaks to the unmet need that Paul was talking about for tinnitus is that each of our clinical trials has enrolled ahead of schedule. And even when we've increased the number of patients, so even for tinnitus, for example, going from 140 to 153. And that was still ahead of schedule, so I think it's actually quite remarkable.

Chris Raymond -- Piper Sandler -- Analyst

Yes. OK. Excellent. Thanks so much, guys.

Dave Weber -- President and Chief Executive Officer

Thank you.

Operator

Thank you. One moment for our next question. Our next question is from Francois Brisebois with Oppenheimer. Please go ahead.

Francois Brisebois -- Oppenheimer and Company -- Analyst

Hi, guys. Thanks for taking the questions. Just a couple of here on my end. Sorry, so in terms of the compliance on the 313, it's been excellent.

As you mentioned, is there -- is this surprising, maybe were your expectations maybe a little more difficult based on maybe the pandemic still kind of never ending, lingering, or any reason to why this compliance might have been so good here?

Dave Weber -- President and Chief Executive Officer

Yes, thanks for the question, Franc. Absolutely. It's this unmet need. I can tell you that only is the compliance just, we saw this in the phase 1/2 study for the program.

And so it wasn't a surprise to us. Based on what we've seen there that we're going to have very good compliance here, it still is even above our expectation. I think we were highly confident and having a 90% plus compliance, but 98% compliance is absolutely amazing. And I think ultimately, it goes down to the patients, the patients are highly motivated and committed to the study.

Now, I will say there are things that we've done to make that very useful for them, for example, in terms of making sure they have access to complete the questionnaires. This was important because of COVID if patients couldn't make it to the clinical center, so we did have ability to manage that. But I think it truly is a testament to the unmet need, really. And I can tell you as well, that even when you look at the enrollment, as I mentioned, we were ahead of schedule over enrollment, our target from 140 up to 153.

I think it again just speaks to that tremendous number of patients out there with the unmet need.

Francois Brisebois -- Oppenheimer and Company -- Analyst

OK, great. And then if I can sneak another one here, are you just focused on the responder analysis for this, this phase 2, or is the end number here big enough for potentially seeing efficacy on the overall population? And I guess got a two part question. Has there ever been in precedent here with just responder analysis with in tinnitus with the FDA?

Dave Weber -- President and Chief Executive Officer

Not with regards to the tinnitus, responder has been utilized for approval of some drugs. I can't go specifically into those, but they're ones that are statisticians are familiar with, and regulatory people. But we will be getting a full set of data. So clearly the responder analysis is our primary.

Based on the phase 1/2, we've carried that forward. But I think what people can expect is a full set of data. If you look at our corporate deck, we provide a good solid base of data there both on the overall population as well as on the responder analysis as well as the secondary endpoints, loudness and annoyance and patient global impression of change. So it will actually be a very large dataset.

And we will obviously look at it in a variety of different ways. It's all part of our pre-specified statistical analysis plan.

Francois Brisebois -- Oppenheimer and Company -- Analyst

OK, and I lied, I apologize. One last one for me, on the 413, in terms of the higher dose that you'll see, I guess, two higher doses here in the fourth quarter. Is there any, there's some look on TFI for 313 in the higher dose and bilateral but any sign of efficacy here to expect on the 413 side in the fourth quarter?

Dave Weber -- President and Chief Executive Officer

Well, I think that's what we will be looking for. As I mentioned, unlike the 313, where it is a safety evaluation, although we will have to TFI in one month, so we will be able to look into tinnitus, the patients weren't actually randomized to the same inclusion exclusion criteria that we had in the phase 2 for tinnitus. Whereas for 413, it was all kept consistent. So the same inclusion exclusion criteria, and all of the same endpoints.

And so we're be able to look at those patients, again, 19 patients per group, we're be able to look at that data for efficacy in the case of the 413, which will then inform of course, what we will do for phase 2.

Francois Brisebois -- Oppenheimer and Company -- Analyst

OK. Great. All right. Well, thank you very much.

That's it for me.

Dave Weber -- President and Chief Executive Officer

Thank you, Frank. Appreciate it.

Operator

Thank you. [Operator instructions]. We have a question from the line of Oren Livnat with H.C. Wainwright.

Please go ahead.

Oren Livnat -- H.C. Wainwright -- Analyst

Thanks for taking the questions. I have a couple. Just following up on Ken's question about potential placebo response. I mean, obviously, that's a crucial variable here.

And can you just remind us what the lead -- what the sort of total lead in and screening process was here to sort of get a robust, persistent tinnitus population? And are you able now to give us any sort of color on what type of screen or lead in exclusions or failures you had such that you did, in fact, throw out a lot of patients that might not have been reliable.

Dave Weber -- President and Chief Executive Officer

Yes, thanks, Oren. With regard to placebo and the lead in time, so it's a two week lead in period. Now patients must have had persistent tinnitus from at least two months of onset. So they've already coming in, where we believe that will, that two months will exclude patients who have spontaneously resolving tinnitus what our research or what's in the literature suggests and work with KOL suggests that usually, within the first month, if it's going to spontaneous resolve, it will and so that two month gives us extra color.

And by the time patients are actually done with the lead in phase, which is two weeks, they're almost into their third month. So you can see that helps obviously from that standpoint. The other thing that we require is for consistency in the TFI. So these patients are taking the TFI at both their, at their screening visit.

And then at baseline, and so we're able to look at the consistency of that result. And it is something that we do look at to ensure that there's consistency and not a wide differentiation between the screening and baseline. So we have a very stable disease. And we think that's important as well for screening out maybe patients who are not really responding to the questionnaire appropriately, that will help us then address that placebo response as well.

And I think I just point out, remember that there was only one patient that really drove placebo response as we looked at the higher levels of response and clinically meaningfulness in the phase 1/2, so it was a very stark contrast with just that really one patient driving placebo response there. So obviously, this trial will tell us a lot, but I think those steps in the lead in as well as then the nature of the endpoints themselves. And then, of course, again, the multiple time points required to be a responder we think will help us address placebo response.

Oren Livnat -- H.C. Wainwright -- Analyst

And maybe you aren't fully dodged this portion, but I guess it could help us from a commercial perspective too in terms of identifying truly chronic patients, but of that 150 something patients who enrolled, were there many more who screened out because of a sort of waxing and waning nature [Technical Difficulty] of their or inconsistent nature of their TFI scores.

Dave Weber -- President and Chief Executive Officer

No, not really, really wasn't a matter of the inconsistency of their scores, it really was more of other inclusion exclusion criteria. And the inconsistency of their scores, it really was more of other inclusion exclusion criteria. And that would either be the level, some of the majority were the level of the TFI, because we had increased the threshold to have a higher level of moderate severity. And so that was really the number one driver of patients failing inclusion and exclusion was just where their tinnitus was the scale that was acquired.

Oren Livnat -- H.C. Wainwright -- Analyst

All right. And I know in the past, you've spoken about the study, the phase 2 for tinnitus being conducted in the fashion of a potentially registration quality or a pivotal study. So can you just remind us what might you now and that could change, obviously, once you see the data, but what do you think you need to see in the study, for it to potentially be registration quality or fileable? And I guess, as importantly, is that higher dose data crucial for just, crucial to deciding what you do in phase 3? If you see better efficacy signal in phase 3, are you more likely to just add that as a second dose and have two dose phase 3? Are you think you would risk potentially just moving up entirely for phase 3?

Dave Weber -- President and Chief Executive Officer

Oh, I don't think I've risked moving up entirely. I think, I mean, clearly, this is an area of significant unmet needs. So I think if we see a strong treatment response, similar to what we saw in phase 1/2, I think it is a totally commercially available, viable product with a 40% responder rate. So I think that really the exploration of the higher dose is one that allows us great flexibility.

I would not see us jumping to the higher dose alone, if anything, we would include the higher dose in our development program. But I think that all depends on the benefit that we see here with this current dose. And whether we can replicate what we saw in phase 1/2, so I think it gives us a lot of opportunity to look at how we want to proceed based on what we learned from the phase 1/2. In addition, of course, that covers off the bilateral safety, which will be important for our safety program.

So I think together that information, and then going in with the FDA with all of that in hand, will be very informative. And they help us lay out what the program looks like. Just on the current phase 2, yes, it is a phase 2 that we've ran as a fully potential registration program, in that it has a statistical analysis plan that had been reviewed by the FDA. Now, at that point, obviously, we have not talked about our endpoints with the FDA at this point that was the plan for end of phase 2.

So we will need to discuss the endpoints and selection with them. But of course, I think the FDA recognizes that there's tremendous unmet need here. And I think that with success of the phase 2, I think it'll give us a good approach into the phase 3 program.

Oren Livnat -- H.C. Wainwright -- Analyst

And just lastly, and pardon me if I should know this, can you remind us, are there any pre-specified subgroup analysis for this phase 2?

Dave Weber -- President and Chief Executive Officer

Yes, there are. Yes, there are. There are, as you know, we increase the duration of tinnitus from looking at just up to six months to looking up to one year. So we will be looking at the duration of tinnitus as one of our pre-specified subgroup analysis.

Oren Livnat -- H.C. Wainwright -- Analyst

All right. It's coming back me to now. Thanks.

Dave Weber -- President and Chief Executive Officer

No problem. There's a lot of studies here between 413 and 313, there's a lot of data and that we've both collected to date as well as what's coming ahead of us. So we're very excited, but it does. It does make it complicated to make sure we remember what's what for each of the studies.

Oren Livnat -- H.C. Wainwright -- Analyst

OK. Thanks so much.

Dave Weber -- President and Chief Executive Officer

Thank you, Oren. Appreciate it.

Operator

Thank you. And we have a follow-up. One moment please. Francois, your line is open.

Francois Brisebois -- Oppenheimer and Company -- Analyst

OK, yes. Sorry. Just in terms of when you were enrolling for 313, just on the bilateral side. Can you discuss is the 50-50 split with? Does that kind of jive with what from the literature as to how the enrollment went? And just from you're talking to KOL in the space and your thoughts on it? Can you just discuss maybe the sensitivity of the TFI analysis for someone that's bilateral versus unilateral?

Dave Weber -- President and Chief Executive Officer

Well, I don't think anyone really knows in a clinical setting. I mean, that's part of what we obviously are doing is really the first ones to apply the TFI to pharmaceutical therapy in these studies, I mean, it has been applied before I shouldn't say that it hasn't. It has been applied. But in terms of looking rigorously, at a unilateral versus bilateral will really be something that we're able to learn from.

The enrollment of the 313 bilateral groups went very smoothly. Again, we did that ahead of schedule, and largely driven by the fact that there's such large populations of both bilateral and the unilateral. So I think we feel the 50-50 is generally correct. And I think the TFI being able to look at how that bilateral patients respond on that will be informative for us.

But I think it is a difficult thing when you are depending on what we see there, whether the ears respond differently, how that impacts the TFI, which is, of course, why in the phase 2 trial, we've remained focused on only unilateral patients, it makes it a much cleaner study, we believe and really being able to look at that efficacy end point, clearly.

Francois Brisebois -- Oppenheimer and Company -- Analyst

OK, great. And so if a patient just to be clear, sorry, if a patient is bilateral, but has mild tinnitus in one ear and then severe in the other ear, if you [Technical Difficulty] would that be not eliminated not allowed, because overall, it's not moderate to severe, it does have to be moderate to severe in both ears. How did that work?

Dave Weber -- President and Chief Executive Officer

Well, you're testing when you're testing bilateral patients, you're only doing the TFI. I mean, so the TFI score is based on whatever they're feeling, so you don't know the interaction between the ears with the TFI. It is what their overall -- their score is, which is what makes it again, what will be interesting to look at the data and see how it responds and how patients report it. So it is something that is not as clean as in the unilateral patient.

Francois Brisebois -- Oppenheimer and Company -- Analyst

Perfect. All right. Thank you.

Dave Weber -- President and Chief Executive Officer

So that's also why we're looking at those patients more from a safety perspective, as opposed to efficacy in the bilateral patients.

Francois Brisebois -- Oppenheimer and Company -- Analyst

Understood. Thanks.

Dave Weber -- President and Chief Executive Officer

Sure. Thank you, Frank.

Operator

Thank you. And I would now like to turn the conference back to Dave Weber for closing remarks.

Dave Weber -- President and Chief Executive Officer

Yes. Well, thank you, everyone. I appreciate you participating in our call today. We look forward to talking with you soon.

We have you have a good evening. Thank you.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Robert Uhl -- Investor Relations

Dave Weber -- President and Chief Executive Officer

Ken Cacciatore -- Cowen and Company -- Analyst

Paul Cayer -- Chief Financial and Business Officer

Chris Raymond -- Piper Sandler -- Analyst

Francois Brisebois -- Oppenheimer and Company -- Analyst

Oren Livnat -- H.C. Wainwright -- Analyst

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