Otonomy said today it has suspended development of its Ménière’s disease candidate Otividex™, including the second of two parallel Phase III trials, after it failed its first pivotal study—news that caused the company’s share price to plunge more than 80%.

Otividex missed its primary endpoint in the AVERTS-1 trial of significant reduction in definitive vertigo days by Poisson regression analysis, with Otividex patients reporting a 58% reduction from baseline in vertigo frequency three months following the start of treatment, compared with 55% for patients randomized to placebo.

Otividex also missed all three of its key secondary vertigo endpoints at month three: Change in vertigo frequency from baseline, mean vertigo severity score, and average daily vertigo count.

“We are greatly disappointed by these results and surprised by both the higher placebo response and lower Otividex improvement than observed in our previous trials,” Otonomy president and CEO David A. Weber, Ph.D., said in a statement.

Shares of Otonomy free-fell by 81.49%, to $3.85 in premarket trading this morning as of 8:43 a.m., from a close of $20.80 yesterday.

AVERTS-1 was a 16-week, prospective, randomized, double-blind, placebo-controlled trial that enrolled 165 patients with unilateral Ménière’s disease in the U.S.

Second Pivotal Study Halted

The company’s suspension of Otividex development activity includes halting the Phase III AVERTS-2 trial, which is identical to AVERTS-1 but is occurring in Europe. In reporting second-quarter results on August 3, Otonomy said enrollment was nearly complete in AVERTS-2, with more than 160 patients already enrolled, with topline data scheduled by year’s end.

Otividex (formerly OTO-104) is a sustained-exposure formulation of the steroid dexamethasone that is in development for Ménière’s and other balance and hearing disorders. As of earlier this month, a Phase II trial of Otividex was ongoing in patients at risk for cisplatin-induced hearing loss.

Otividex had been granted the FDA’s Fast Track designation. There are no FDA-approved treatments for Ménière’s disease, with which more than 600,000 patients in the U.S. have been diagnosed, according to a National Institute of Deafness and Other Communication Disorders figure cited by the company.

Headquartered in San Diego, Otonomy specializes in developing drugs for ear diseases and disorders. The company markets a single drug, Otiprio® (ciprofloxacin otic suspension) 6%, the first and only single-dose fluoroquinolone antibacterial for children with bilateral otitis media with effusion for use during tympanostomy tube placement (TTP) surgery. The company is awaiting FDA review of its supplemental New Drug Application (sNDA) for Otiprio in acute otitis externa (swimmer’s ear), with the agency setting a Prescription Drug User Fee Act (PDUFA) action date of March 2, 2018.

Otiprio racked up net product sales of $684,000 in the first half of 2017, compared with $89,000 in January–June 2016.

The company said it will review its product pipeline and suggested it will sell off at least some of its candidates by saying it will seek “to identify opportunities to extend its cash runway and build shareholder value.”

The company’s cash runway includes cash, cash equivalents, and short-term investments totaling $150.5 million as of June 30—down from $196.4 million as of December 31, 2016.

In addition, Otonomy withdrew its 2017 expense guidance to investors, which called for the company to spend between $80 million and $85 million.

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