Otonomy Scraps Hearing Loss Drug After Phase 3 Flop, Shares Routed

Xconomy San Diego — 

Investment in experimental drugs for hearing loss, long an untapped field in the pharmaceutical industry, may be picking up, but drugs that actually help with these disorders remain elusive. One of the closest contenders suffered a big setback today, as Otonomy revealed that a drug it has been developing for Meniere’s disease, a condition defined by a fluid imbalance in the inner ear, failed badly in Phase 3 testing.

San Diego-based Otonomy (NASDAQ: OTIC) said this morning that a drug it had been hoping to sell as Otividex—an extended-release form of the steroid dexamethasone, injected directly into the ear—failed all of its goals in a Phase 3 trial of 165 patients with Meniere’s disease. The drug didn’t do much better than a placebo at reducing the number of days, and severity, of patients’ vertigo over three months of treatment.

The specifics: Patients on the Otonomy drug had a 58 percent reduction in the frequency of vertigo episodes, compared to a 55 percent reduction for those on placebo. The results weren’t statistically significant, and neither were the drug’s data on a variety of secondary measures calculating its impact on patients’ vertigo.

The results were so devastating that Otonomy has decided to immediately stop all ongoing tests of Otividex, including a second Phase 3 trial in Meniere’s, and halt development of the drug, according to a press release. CEO David Weber said in a prepared statement that the company will also review its “pipeline and commercial efforts” to find a way to build up cash and boost its share value. Otonomy had about $150.5 million in cash as of June 30 and is on pace to spend $80 million to $85 million this year.

Investors sent Otonomy shares into a free-fall Wednesday morning, plunging more than 80 percent in pre-market trading, from $20.80 per share at Tuesday’s closing bell to $3.95 apiece as of 8:51 a.m. ET.

Otonomy was formed in 2008 by Avalon Ventures partner Jay Lichter after he was diagnosed with Meniere’s disease, a disorder that can cause severe episodes of vertigo and hearing loss. (Lichter explained Otonomy’s founding, and its subsequent journey, in this April post). The company went public in 2014 in a $100 million IPO that valued Otonomy at $16 per share.

Since Otonomy has gone public, investments in hearing loss drugs have picked up. Two Boston-area startups, Decibel Therapeutics and Frequency Therapeutics, have attracted more than $80 million in venture financing combined. Those startups and others have been advancing treatments, encouraged by deeper understandings of the biology of the inner ear. (Check out this story from Chemical & Engineering News for a detailed look at the field).

Otonomy’s drugs aren’t based on new biological understandings, however. They are different formulations of existing drugs—like dexamethasone, or the antibiotic ciprofloxacin—that can be injected directly into the ear. The company has made progress with this approach. It won FDA approval of its first drug, ciprofloxacin otic (Otiprio) for children with an infection of the middle ear undergoing tube surgeries, in December 2015. But the drug has been a commercial bust so far, generating just $326,000 in sales during its last quarter compared to $100,000 over the same period in 2016.

Otonomy reorganized its sales team in March, but has yet to see a big spike in revenue. The company has never generated a profit and has burned through $325 million since its inception, according to a regulatory filing. Otonomy was looking to its drug for Meniere’s, a condition that affects an estimated 0.2 percent of the U.S. population, to help change its fortunes. Weber, in a press release earlier this month, referred to 2017 as “the year of Meniere’s disease.”

Here’s more on Otonomy, and the growing field of hearing loss startups.