Otonomy said today it will eliminate part of its workforce among actions intended to cut costs, extend its cash runway, and build shareholder value following the failure of its Ménière’s disease candidate Otividex™ two weeks ago.

The company said it will reduce its noncommercial workforce, affecting approximately one third of personnel not involved in commercial support for its marketed acute otitis externa (swimmer’s ear) treatment Otiprio® (ciprofloxacin otic suspension).

Otonomy did not state how many employee positions would be eliminated in its announcement. An Otonomy spokesperson told GEN the company would not provide additional details about its planned workforce reduction.

Otonomy employed 139 full-time people as of December 31, 2016, according to its Form 10-K for 2016, filed March 2. That number is now likely smaller, since during the second quarter, Otonomy halved its number of Otiprio sales representatives from 40 to 20 by realigning its sales territories—and replaced nearly all of the remaining 20 sales reps with people possessing “significant sales experience in the ENT [ear, nose, and throat] field with products routinely used in the hospital operating room setting,” the company disclosed in announcing second-quarter results on August 2.

Today, the company restated that it was suspending development of Otividex, including ending ongoing clinical trials and preregistration support efforts. On August 30, Otonomy announced the development halt after Otividex failed its first of two planned pivotal studies, the Phase III AVERTS-1 trial, saying the drug candidate missed its primary endpoint of significant reduction in definitive vertigo days by Poisson regression analysis.

Otonomy also halted the second Phase III study, AVERTS-2, which was identical to AVERTS-1 but was occurring in Europe.

Data collected from the clinical trials will be reviewed to better understand why Otividex failed AVERTS-1, explore possible development efforts in other indications, “and support potential monetization of the asset,” Otonomy stated.

“Pipeline Review” in Progress

Otonomy said it will launch no clinical trials for the rest of 2017. The company has planned to begin a Phase II study of OTO-311 (gacyclidine) in tinnitus patients and a Phase III registration trial for Otiprio in pediatric patients with acute otitis media with tympanostomy tubes (AOMT).

The timing of those trials “will be evaluated as part of the pipeline review and prioritization effort now underway,” the company added.

The FDA is reviewing Otonomy’s Supplemental New Drug Application (sNDA) for Otiprio in acute otitis externa and has set a Prescription Drug User Fee Act (PDUFA) action date of March 2, 2018.

Otonomy said it expects its cash balance—cash, cash equivalents, and short-term investments—to total $120 million to $125 million at the end of 2017, enough to fund the company into 2020. That would be 17% to 20% below the $150.5 million of cash, cash equivalents, and short-term investments the company reported as of June 30 in its form 10-Q for the second quarter.

Otonomy’s cash balance is 37% below that of June 30, 2016, when it reported $239 million in cash, cash equivalents, and short-term investments. Even worse, the company’s accumulated deficit has grown 47% since then, from $220.6 million to $325 million as of June 30, 2017.

The company says it expects its actions to generate approximately $7 million in cost savings for the remainder of 2017, net of project wind-down expenses and severance payments. Total generally accepted accounting principles (GAAP) operating expenses for 2017 are expected to total $95 million to $100 million (reduced from previous guidance of $103 million to $108 million), while non-GAAP operating expenses are now expected to total $73 million to $78 million for 2017 (reduced from $80 million to 85 million).

Otonomy will still continue preclinical development of multiple product candidates for the prevention and/or treatment of sensorineural hearing loss that are intended to target key mechanisms involved in the pathophysiology of hearing loss, including age-related hearing loss. The company reasons that these indications collectively account for the largest population of patients and market opportunity in otology.

“The changes we are making give us the cash runway we need to build shareholder value by focusing on key assets in our product pipeline which we believe is still the broadest in the otology field,” Otonomy president and CEO David A. Weber, Ph.D., said in a statement. “We have a tremendous opportunity to utilize our experience, expertise, and resources to address important unmet medical needs such as hearing loss and tinnitus, and I look forward to outlining our plans in future business updates.”

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