OTONOMY The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and the other financial information appearing elsewhere in this Quarterly Report on Form 10-Q. These statements generally relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. The following discussion and analysis contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Our actual results and the timing of events may differ materially from those discussed in our forward-looking statements as a result of various factors, including those discussed below and those discussed in the section titled "Risk Factors" included in this Quarterly Report on Form 10-Q.
Forward-looking statements may include, but are not limited to, statements concerning the following:
• the size of the market opportunity and the number of patients who suffer
from the diseases and disorders we are targeting;
• our expectations regarding the clinical development of OTO-313, including
availability of top-line results from the ongoing Phase 2 clinical trial
in tinnitus patients;
• our expectations regarding the clinical development of OTO-413, including
availability of top-line results from the upcoming Phase 1/2 expansion
clinical trial in hearing loss patients;
• our expectations regarding the future development of OTO-825 and our
strategic collaboration with AGTC to develop and commercialize a gene
therapy for congenital hearing loss;
• our expectations regarding the potential impacts on our business,
preclinical programs and clinical trials due to the COVID-19 pandemic;
• the timing or likelihood of regulatory filings and approvals;
• our expectations regarding the future development of other product
candidates, including but not limited to our development plans for our
OTO-510 and OTO-6XX programs;
• our expectations regarding the evaluation of strategic alternatives for
OTIPRIO;
• our plans regarding the use of contract manufacturers for the production
of our product candidates for clinical trials and, if approved, commercial
use;
• our plans and ability to effectively establish and manage our own sales
and marketing capabilities, or seek and establish collaborative partners,
to commercialize our products;
• our ability to advance product candidates into, and successfully complete,
clinical trials;
• the implementation of our business model, strategic plans for our
business, product candidates and technology;
• the initiation, timing, progress and results of future nonclinical studies
and clinical trials;
• the scope of protection we are able to obtain and maintain for
intellectual property rights covering our product candidates and
technology;
• estimates of our expenses, future revenue, capital requirements and our
needs for additional financing;
• our expectations regarding the benefits of the loan provided by Oxford
Finance LLC ;
• our financial performance;
• our expectations and statements regarding the benefits, pricing, market
size, opportunity and growth potential for OTO-313, OTO-413, OTO-825 and
our other product candidates, if approved for commercial use;
• our expectations and statements regarding the adoption and use of OTO-313,
OTO-413 and OTO-825, if approved;
• our expectations regarding potential coverage and reimbursement relating
to OTO-313, OTO-413 and OTO-825, if approved, or any other approved
product candidates;
• accounting principles, policies and estimates; and
• developments and projections relating to our competitors and our industry.
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These forward-looking statements are subject to a number of risks,
uncertainties, and assumptions, including but not limited to: delays and
disruption resulting from the COVID-19 pandemic and governmental responses to
the pandemic, including current and future impacts to our operations, our
limited operating history and our expectation that we will incur significant
losses for the foreseeable future; our ability to obtain additional financing;
the advancement of our product candidates, such as OTO-313, OTO-413 and OTO-825
through clinical development to regulatory approval and commercialization, the
uncertainties inherent in the clinical drug development process, including,
without limitation, our ability to adequately demonstrate the safety and
efficacy of our product candidates, the nonclinical and clinical results for our
product candidates, which may not support further development, and challenges
related to patient enrollment in clinical trials; our ability to obtain
regulatory approval for our product candidates; side effects or adverse events
associated with our product candidates; competition in the biopharmaceutical
industry; our dependence on third parties to conduct nonclinical studies and
clinical trials; our dependence on third parties for the manufacture of OTIPRIO
and our product candidates; our ability to protect our intellectual property
related to OTIPRIO and our product candidates in
We discuss many of these risks in greater detail in the section titled "Risk Factors" included in Part II, Item 1A and elsewhere in this report. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make.
Given these uncertainties, you should not place undue reliance on these forward-looking statements. We qualify all the forward-looking statements in this Quarterly Report on Form 10-Q by these cautionary statements. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, whether as a result of new information, future events or otherwise.
You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q to conform these statements to actual results or to changes in our expectations, except as required by law.
You should read this Quarterly Report on Form 10-Q and the documents that we
reference in this Quarterly Report on Form 10-Q and have filed with the
Overview
We are a biopharmaceutical company dedicated to the development of innovative
therapeutics for neurotology. We pioneered the application of drug delivery
technology to the ear and are utilizing that expertise and proprietary position
to develop products that achieve sustained drug exposure from a single local
administration. Our primary focus is currently on the advancement of three
programs in our broad pipeline: OTO-313 in a Phase 2 trial for tinnitus;
OTO-413, for which we are planning to initiate a Phase 1/2 expansion trial for
hearing loss; and OTO-825, a gene therapy for congenital hearing loss, in
investigational new drug (IND)-enabling activities. Additionally, we are
conducting preclinical development for OTO-510 in otoprotection and OTO-6XX for
severe hearing loss. We estimate, based on an external market report
commissioned by us, that approximately 28 million people in
OTO-313 is a sustained-exposure formulation of gacyclidine, a potent and
selective NMDA receptor antagonist, in development for the treatment of
tinnitus. In
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OTO-413 is a sustained-exposure formulation of BDNF in development for the
repair of cochlear synaptopathy, an underlying pathology in age-related and
noise-induced hearing loss. In
OTO-825 is a gene therapy targeting mutations in the GJB2 gene, which is the
most common cause of congenital hearing loss. In
OTO-510 is a product candidate in preclinical development for the prevention of cisplatin-induced hearing loss (CIHL), which routinely occurs in patients undergoing chemotherapy with platinum-based agents. OTO-510 has demonstrated improved otoprotection in preclinical CIHL studies compared to other agents in development, and is being formulated to provide sustained exposure from a single intratympanic injection. The goal of the OTO-510 program is to preserve hearing without protecting the tumor.
The OTO-6XX program is focused on hair cell repair and regeneration for the
treatment of severe hearing loss. In
OTIVIDEX is a product candidate for the treatment of Ménière's disease for which
we completed three Phase 3 clinical trials. The AVERTS-1 trial failed its
primary endpoint (p value = 0.62), while the parallel AVERTS-2 trial was
successful (p value = 0.029). In order to support the filing of a New Drug
Application to the FDA, we conducted a third trial with results announced in
In addition, we developed, received FDA approval for and commercially launched
OTIPRIO (ciprofloxacin otic suspension) for use during tympanostomy tube
placement (TTP) surgery in pediatric patients. OTIPRIO was also approved by the
FDA for the treatment of acute otitis externa (AOE). In
We have a limited operating history. Since our inception in 2008, we have
devoted substantially all our efforts to developing and commercializing OTIPRIO,
developing OTIVIDEX and our current product candidates, and providing general
and administrative support for these operations. In
We have never been profitable, and as of
In
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We expect to continue to incur significant expenses and operating losses for the foreseeable future as we continue to develop, seek regulatory approval, and, if approved, commercialize our product candidates. In the near term, we anticipate our expenses will continue to be substantial as we:
• conduct clinical development of OTO-313 and OTO-413;
• conduct preclinical development of OTO-825, OTO-510 and OTO-6XX;
• contract to manufacture our product candidates;
• evaluate opportunities for development of additional product candidates;
• maintain and expand our intellectual property portfolio;
• hire additional staff as necessary to execute our product development
plan; and
• operate as a public company.
We believe that our existing cash, cash equivalents and short-term investments will be sufficient to fund our operations for a period of at least twelve months from the date of this report. When additional financing is required, we anticipate we will seek funding through public or private equity or debt financings or other sources, such as potential collaboration arrangements. We may not be able to raise capital on terms acceptable to us, or at all. Our failure to raise capital could have a negative impact on our financial condition and our ability to pursue our business strategies.
In
In
Given the unprecedented and evolving nature of the COVID-19 pandemic, including the rise of new variants, there continues to be significant uncertainty about the progression and ultimate impact of the pandemic on our business operations. We have taken steps to mitigate the impact of the COVID-19 pandemic on our clinical trials, including developing processes to ensure the integrity of data collection from enrolled patients and supporting sites able to enroll patients, among other activity. Nonetheless, we do not know the full extent of potential future delays or impacts on our business operations, our preclinical programs and clinical trials, healthcare systems, our financial condition, or the global economy as a whole resulting from the COVID-19 pandemic.
In addition, as a result of the COVID-19 pandemic, we have taken steps to
protect the health and safety of our employees and community by generally
adopting a work from home policy in line with directives from the
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Financial Operations Overview Operating Expenses
Research and development expenses
Our research and development expenses primarily consist of costs associated with the nonclinical and clinical development of our product candidates.
Our research and development expenses include:
• employee-related expenses, including salaries, benefits, travel and
stock-based compensation expense;
• external development expenses incurred under arrangements with third
parties, such as fees paid to CROs in connection with nonclinical studies
and clinical trials, costs of acquiring and evaluating clinical trial data
such as investigator grants, patient screening fees, laboratory work and
statistical compilation and analysis, and fees paid to consultants;
• costs to acquire, develop and manufacture clinical trial materials,
including fees paid to contract manufacturers;
• payments related to licensed product candidates and technologies;
• costs related to compliance with drug development regulatory requirements;
and
• facilities expenses which include allocated expenses for amortization of
ROU assets, depreciation and other overhead expenses, and direct costs for
laboratory and other supplies.
We expense our internal and third-party research and development expenses as incurred.
The following table summarizes our research and development expenses (in
thousands):
Three Months Ended March 31,
2021 2020
Third-party development costs:
OTIVIDEX $ 309 $ 1,606
OTO-313 1,353 608
OTO-413 214 716
Total third-party development costs 1,876 2,930
Other unallocated internal research and
development costs 5,784 4,742
Total research and development costs
We expect our research and development expenses to continue to be substantial for the foreseeable future as we advance our product candidates through their respective development programs. The process of conducting nonclinical studies and clinical trials necessary to obtain regulatory approval is costly and time consuming. We may never succeed in achieving regulatory approval for our product candidates. The probability of success will be affected by numerous factors, including nonclinical data, clinical data, competition, manufacturing capability and commercial viability. We are responsible for all of the research and development costs for our programs.
Completion dates and completion costs can vary significantly for each of our
clinical development programs and are difficult to predict. We therefore cannot
estimate with any degree of certainty the costs we will incur in connection with
development of our product candidates. We anticipate that we will make
determinations as to which programs and product candidates to pursue and how
much funding to direct to each program and product candidate on an ongoing basis
in response to the results of ongoing and future clinical trials, regulatory
developments, and our ongoing assessments as to each current or future product
candidate's commercial potential. We may need to raise substantial additional
capital in the future to complete the development of and, if approved,
commercialize, our product candidates. We may enter into collaborative
agreements in the future in order to conduct clinical trials and gain regulatory
approval of our product candidates, particularly in markets outside of
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The costs of clinical trials may vary significantly over the life of a program owing to the following:
• per patient trial costs;
• the number of sites included in the trials;
• the countries in which the trials are conducted;
• changes in regulatory and legal requirements for clinical trials;
• the length of time required to enroll eligible patients;
• the number of patients that participate in the trials;
• the number of doses that patients receive;
• the drop-out or discontinuation rates of patients;
• potential additional safety monitoring or other studies requested by
regulatory agencies;
• the duration of patient follow-up;
• the phase of development of the product candidate;
• the manufacturing process and complexity of, expiration of, and amount of
the drug product required for the clinical trials;
• the efficacy and safety profile of the product candidate; and
• the impacts of COVID-19.
Selling, general and administrative expenses
Our selling, general and administrative expenses consist primarily of employee-related expenses, including salaries, benefits, travel and stock-based compensation expense, as well as other related costs for our employees and consultants in executive, administrative, finance and human resource functions. Other selling, general and administrative expenses include facility-related costs not otherwise included in research and development, costs associated with prosecuting and maintaining our patent portfolio and corporate legal expenses, costs required for public company activities and infrastructure necessary for the general conduct of our business, and OTIPRIO product support expenses and profit-sharing fees payable to our co-promotion partners, which are reduced by payments received from them.
We expect our selling, general and administrative expenses to be substantial as
we support development of our product candidates, and as we incur ongoing
expenses related to audit, legal, regulatory, and tax-related services
associated with maintaining compliance with stock exchange listing and
Other Income (Expense)
Other income (expense) primarily consists of interest income earned on cash and cash equivalents and short-term investments and interest expense related to our long-term debt and finance leases.
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of our financial condition and results
of operations is based on our condensed financial statements. Our financial
statements are prepared in accordance with generally accepted accounting
principles in
We believe the estimates, assumptions and judgments involved in the accounting
policies described in the section titled "Management's Discussion and Analysis
of Financial Condition and Results of Operations" in Item 7 of our Annual Report
on Form 10-K for the year ended
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Clinical Trial Expense Accruals
We estimate expenses resulting from our obligations under contracts with vendors, CROs and consultants and under clinical site agreements in connection with conducting clinical trials. The financial terms of these contracts vary and may result in payment flows that do not match the periods over which materials or services are provided.
We record clinical trial expenses in the period in which services are performed
and efforts are expended. We accrue for these expenses according to the progress
of the trial as measured by patient progression and the timing of various
aspects of the trial. We estimate accruals through financial models taking into
account discussion with applicable personnel and outside service providers as to
the progress of trials. During the course of a clinical trial, we may adjust our
clinical accruals if actual results differ from our estimates. We estimate
accrued expenses as of each balance sheet date based on the facts and
circumstances known at that time. Our clinical trial accruals are dependent upon
accurate reporting by CROs and other third-party vendors. Although we do not
expect our estimates to differ materially from amounts actually incurred, our
understanding of the status and timing of services performed relative to the
actual status and timing of services performed may vary and may result in
reporting amounts that are too high or too low for any particular period. For
the three months ended
Stock-based Compensation
We recognize non-cash expense for the fair value of all stock options and other share-based awards. We use the Black-Scholes-Merton option valuation model to calculate the fair value of stock options, using the single-option award approach and straight-line attribution method. For options granted to employees and directors, we recognize the resulting fair value as expense on a straight-line basis over the vesting period of each respective stock option, generally four years.
Results of Operations
Comparison of the Three Months Ended
The following table sets forth the significant components of our results of operations for the periods presented (in thousands):
Three Months Ended March 31,
2021 2020 Change
Research and development $ 7,660 $ 7,672 $ (12 )
Selling, general and administrative 4,043 3,836 207
Research and development expenses. Research and development expenses were
consistent year-over-year due to a number of activities including: (i) a
decrease of
Selling, general and administrative expenses. The increase of
Liquidity and Capital Resources
We have incurred significant losses and negative cash flows from operations
since our inception. As of
As of
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The following table sets forth a summary of the primary sources and uses of cash
for the three months ended
2021 2020
Net cash (used in) provided by:
Operating activities $ (12,367 ) $ (12,141 )
Investing activities 32,615 17,986
Financing activities 1 -
Net increase in cash, cash equivalents and
restricted cash$ 20,249 $ 5,845
Operating activities. The primary uses of cash were to fund increased levels of development activities for our product candidates. We expect to continue the use of cash for development of our product candidates for the foreseeable future.
Net cash used in operating activities was
Investing activities. The primary source of cash from investing activities was from maturities of short-term investments and the primary use of cash from investing activities was for purchases of short-term investments and capital expenditures.
Net cash provided by investing activities was
Financing activities. The primary sources of net cash provided by financing activities were net proceeds from the sale of our equity securities.
In
At the Market Offering Program
In
Term Loan
Oxford Loan
On
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The Term Loan bears interest at a floating rate equal to the greater of 5.25%
and the prime rate as reported in the
Upon repayment or acceleration of the Term Loan, a final payment fee equal
to 4.00% of the aggregate original principal amount of the Term Loan is payable
(the Final Payment). The Final Payment of
Our obligations under the Loan Agreement are secured by substantially all of our assets, excluding intellectual property and subject to certain other exceptions and limitations.
The Loan Agreement contains customary affirmative covenants, including covenants regarding compliance with applicable laws and regulations, reporting requirements, payment of taxes and other obligations, and maintenance of insurance. Further, subject to certain exceptions, the Loan Agreement contains customary negative covenants limiting our ability to, among other things, sell assets, allow a change of control to occur (if the Term Loan is not repaid), make acquisitions, incur debt, grant liens, make investments, pay dividends or repurchase stock. Upon the occurrence and during the continuance of an event of default, the lenders may declare all outstanding principal and accrued and unpaid interest under the Loan Agreement immediately due and payable, increase the applicable rate of interest by 5.00%, and exercise the other rights and remedies provided for under the Loan Agreement and related loan documents. The events of default under the Loan Agreement include payment defaults, breaches of covenants or representations and warranties, material adverse changes, certain bankruptcy events, cross defaults with certain other indebtedness, and judgment defaults.
Funding Requirements
We expect to continue to incur significant losses for the foreseeable future as we: (i) develop and seek regulatory approvals for our product candidates OTO-313, OTO-413 and OTO-825; and (ii) work to develop additional product candidates through research and development programs. We are subject to all the risks incident in the development of new therapeutic products, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business.
We believe that our existing cash, cash equivalents and short-term investments
will be sufficient to fund our operations for a period of at least twelve months
from the date of this report. When additional financing is required, we
anticipate that we will seek funding through public or private equity or debt
financings or other sources, such as potential collaboration arrangements.
Additional capital may not be available in sufficient amounts or on reasonable
terms, if at all, and our ability to raise additional capital may be adversely
impacted by potential worsening global economic conditions and the recent
disruptions to and volatility in the credit and financial markets in
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Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. The amount and timing of future funding requirements, both near- and long-term, will depend on many factors, including:
• the design, initiation, progress, size, timing, costs and results of
nonclinical studies and clinical trials for our product candidates,
including OTO-313, OTO-413, and OTO-825;
• the outcome, timing and cost of regulatory approvals by the FDA and
comparable foreign regulatory authorities, including the potential for the
FDA or comparable foreign regulatory authorities to require that we
perform more studies than, or evaluate clinical endpoints other than,
those that we currently expect;
• the revenue generated by OTIPRIO and our product candidates, if approved;
• the costs related to manufacturing commercial supplies of OTIPRIO;
• the timing and costs associated with manufacturing our product candidates
for clinical trials, nonclinical studies and for commercial sale;
• the cost of building and maintaining sales, marketing and distribution
capabilities for any products for which we may receive regulatory approval
and commercialize, including related facilities expansion costs;
• the number and characteristics of product candidates that we pursue;
• the potential acquisition and in-licensing of other technologies, products
or assets;
• the extent to which we are required to pay milestone or other payments
under our in-license agreements and the timing of such payments;
• the cost of obtaining, maintaining, defending and enforcing any patent
claims and other intellectual property rights, including litigation costs
and the outcome of such litigation;
• the cost associated with legal and regulatory compliance;
• our need to expand our development activities, including our need and
ability to hire and adequately compensate additional employees;
• the potential impacts of the COVID-19 pandemic;
• the costs associated with being a public company;
• the effect of competing technological and market developments; and
• the cost of litigation, including potential patent litigation.
If we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, financial condition and results of operations could be materially adversely affected.
Off-Balance Sheet Arrangements
During the periods presented we did not have, nor do we currently have, any
off-balance sheet arrangements as defined under the applicable rules of the
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