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Summary

  • Clinical-stage biopharmaceutical company focused on the development and commercialization of innovative therapeutics for the treatment of diseases and disorders of the ear.
  • Insiders may purchase up to $20 million on the IPO, or 25%.
  • The price-to-book is 2.1.
  • OTO-104 has a FDA Fast Track designation.

Based in San Diego, CA, Otonomy (Pending:OTIC) scheduled an $80 million IPO on the Nasdaq with a market capitalization of $291 million at a price range midpoint of $15 for Wednesday, August 13, 2014.

The full IPO calendar is available at IPOpremium.

SEC Documents

Manager, Co-Managers: J.P. Morgan/ BofA Merrill Lynch

Joint Managers: Piper Jaffray/ Sanford C. Bernstein

End of lockup (180 days): Monday, February 9, 2015

End of 25-day quiet period: Monday, Sept. 8, 2014

Summary

OTIC is a clinical-stage biopharmaceutical company focused on the development and commercialization of innovative therapeutics for the treatment of diseases and disorders of the ear.

Insiders may purchase up to $20 million on the IPO, or 25%

Valuation

Glossary

Accumulated deficit ($mm)

-$81

Per share dilution

-$7.76

Valuation Ratios

Mrkt Cap ($mm)

Price /Sls

Price /Erngs

Price /BkVlue

Price /TanBV

% offered in IPO

annualizing June 6 mos

Otonomy

$291

n/a

-6.9

2.1

2.1

27%

Conclusion

The rating is neutral plus, worth following.

The price-to-book is 2.1.

Insiders may purchase 25%.

The FDA has granted OTO-104 Fast Track designation, which is a process designed to facilitate the development and expedite the FDA's review of drugs to treat serious conditions and fill unmet medical needs.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above.

Business

OTIC is a clinical-stage biopharmaceutical company focused on the development and commercialization of innovative therapeutics for the treatment of diseases and disorders of the ear.

To overcome many of the limitations of delivering drugs to the middle and inner ear, OTIC has developed a proprietary technology that is designed to deliver drug that is retained in the ear for an extended period of time following a single local administration, which OTIC refers to as "sustained-exposure."

Utilizing this technology, OTIC has advanced three product candidates into development: AuriPro, OTO-104 and OTO-311.

AuriPro is a sustained-exposure formulation of the antibiotic ciprofloxacin for which OTIC has recently completed two identical Phase 3 clinical trials in 532 pediatric patients with middle ear effusion requiring TTP surgery.

Top-line results of these Phase 3 trials demonstrate that AuriPro achieved the primary efficacy endpoint with statistical significance (p<0.001) and that AuriPro was well tolerated.

Based on these results, OTIC plans to submit an NDA for AuriPro to the FDA in the first half of 2015.

If approved, OTIC plans to commercialize AuriPro in the United States in 2016.

OTO-104 is a sustained-exposure formulation of the steroid dexamethasone in development for the treatment of Ménière's disease and other inner ear conditions.

OTIC is conducting a Phase 2b clinical trial with 140 patients at more than 50 centers in the United States and Canada, which OTIC believes will serve as one of two pivotal, single-dose efficacy trials required to support U.S. regulatory approval.

OTIC expects to report results from this clinical trial in the first half of 2015.

If results are positive, OTIC plans to initiate a second pivotal trial of OTO-104 in 2015. OTIC also intends to initiate one or more open-label, multiple-dose safety studies for OTO-104 in Ménière's patients by the end of 2014.

The FDA has granted OTO-104 Fast Track designation, which is a process designed to facilitate the development and expedite the FDA's review of drugs to treat serious conditions and fill unmet medical needs.

OTO-311 is a sustained-exposure formulation of the NMDA, receptor antagonist gacyclidine in development for the treatment of tinnitus. OTIC plans to file an IND application for OTO-311 with the FDA in 2015.

OTIC has global commercialization rights to its product candidates.

OTIC's strategy is to advance its product candidates through regulatory approval and self-commercialize in the United States.

OTIC plans to build a focused sales force targeting ENTs, who specialize in the treatment of patients affected by diseases and disorders of the ear.

Outside the United States, OTIC plans to evaluate whether to commercialize its products on its own or in collaboration with partners.

OTIC has a broad patent portfolio of approximately 55 issued patents and allowed patent applications and at least 85 pending patents covering its product candidates and indications, as well as other potential applications of its technology in major markets around the world.

Dividend Policy

No dividends are planned

Intellectual Property

OTIC's patent estate includes patents and applications with claims directed to its AuriPro, OTO-104 and OTO-311 product candidates.

OTIC's patent estate also provides patents and applications with claims directed to a broad range of other active agents as potential future product candidates that are delivered through its proprietary technology.

OTIC's patent estate, on a worldwide basis, includes approximately 55 issued patents and allowed patent applications, and at least 85 pending patent applications with claims relating to its AuriPro, OTO-104, OTO-311, future product candidates, manufacturing processes and alternative otic delivery technologies.

For AuriPro, OTIC co-owns a patent family with The Regents of the University of California, or UC, that is directed to the composition and therapeutic use of AuriPro.

Through an exclusive license agreement, OTIC has acquired UC's rights in this patent family.

This family includes one issued U.S. patent and two pending U.S. applications.

The expiry date of the U.S. patent, without extensions, is April 2030, and this patent and any future U.S. patents issuing from the related applications are expected to be Orange Book (OB) listable.

This family also includes issued patents or allowed applications in Australia, Canada, Korea, Philippines, Russia, South Africa and Taiwan; and pending applications in Argentina, Brazil, China, Europe, India, Israel, Japan, Jordan, Mexico, Pakistan, Singapore, Thailand, Uruguay and Venezuela.

Divisional patent applications have been filed in select countries of this family. In addition, OTIC has filed two solely owned U.S. provisional applications directed to certain therapeutic uses of AuriPro.

Finally, OTIC has filed a solely owned U.S. provisional application directed to manufacturing methods of AuriPro.

For OTO-104, OTIC co-owns a patent family with UC directed to the composition and therapeutic use of OTO-104.

Through an exclusive license agreement, OTIC has acquired UC's rights in this patent family. This family includes four issued U.S. patents, one allowed U.S. application and one pending U.S. application.

The expiry dates of the U.S. patents, without extensions, range from May 2029 to September 2029, and these patents and any future U.S. patent issuing from this application are expected to be OB listable.

This family also includes issued patents or allowed applications in Australia, Canada, China, Hong Kong, Japan, Mexico, Russia, Singapore, South Africa, Taiwan and UK; and pending applications in Argentina, Brazil, Chile, Europe, India, Indonesia, Israel, Jordan, Korea, Malaysia, Pakistan, Peru, Philippines, Thailand, Uruguay, Venezuela and Vietnam. Divisional patent applications have been filed in select countries for this family.

In addition, OTIC solely owns a patent family directed to additional therapeutic uses of OTO-104. Finally, OTIC solely owns an issued U.S. patent directed to manufacturing methods of OTO-104. The expiry date of this U.S. patent, without extensions, is April 2030.

Competition

AuriPro

Antibiotic ear drops are currently the primary treatment option for middle ear effusion during TTP surgery.

The leading branded antibiotic ear drop is CIPRODEX Otic from Alcon, a division of the Novartis Group.

However, no antibiotic ear drop has been approved by the FDA for this use and the effectiveness of this current treatment option relies on patient compliance for the full course of the multi-dose, multi-day regimen.

The key competitive factors affecting the success of AuriPro, if approved, are likely to be its efficacy, safety, tolerability, dosing regimen, route of administration, convenience and price, and the availability of coverage and adequate reimbursement from government and other third-party payors. OTIC is also aware that Alcon is evaluating an antibiotic ear drop product in Phase 2 and 3 clinical trials for various otic indications.

OTO-104

There are no drugs currently approved by the FDA for the treatment of Ménière's disease.

Current treatments commonly used for Ménière's disease include observance of a low-salt diet and off-label use of diuretics, oral steroids, and repeat IT injections of steroid solution.

Patients who are unresponsive to treatment may resort to surgical or chemical ablation, which can cause irreversible hearing loss. OTIC is aware that Synphora AB is conducting a Phase 2/3 clinical trial with a formulation of latanoprost administered via single or repeat IT injections, and that Auris Medical Holding AG has indicated it intends to evaluate AM-111 in an open-label study of Ménière's patients.

OTO-311

There are no drugs currently approved by the FDA for the treatment of tinnitus.

Current treatments for tinnitus include the use of audio masking devices, such as white noise machines, hearing aids, cognitive behavioral therapy, and the off-label administration of antidepressants, anti-anxiety medications, and steroids.

OTIC is aware of other companies developing potential pharmaceutical treatments for tinnitus, including Auris Medical Holding AG, which is conducting Phase 3 clinical trials evaluating repeat IT injections of AM-101 in patients with acute and post-acute inner ear tinnitus, Autifony Therapeutics, which intends to initiate Phase 2 testing for their oral product candidate for tinnitus, Merz Pharmaceuticals GmbH, which has suspended development of oral neramexane for chronic tinnitus while its partner in Japan, Kyorin Pharmaceuticals Co., continues with a Phase 2 clinical trial for tinnitus, and Novartis AG, which has completed a Phase 2 clinical trial for chronic tinnitus.

5% stockholders

Entities affiliated with Avalon Ventures 16.5%

OrbiMed Private Investments IV, LP 14.8%

Novo A/S 14.1%

TPG Biotechnology Partners III, L.P. 14.1%

Entities affiliated with Domain Associates 11.6%

Entities affiliated with Rivervest Venture Partners 7.3%

Brian Dovey 11.6%

Chau Q. Khuong 14.8%

Jay Lichter, Ph.D. 16.5%

John P. McKearn, Ph.D. 7.3%

Use of proceeds

OTIC intends to use the $71 million in proceeds from its IPO as follows:

$35.0 million to fund expenses in connection with obtaining the regulatory approval and preparing for the commercialization of AuriPro, if approved;

$35.0 million to fund OTO-104 clinical development, including completion of the OTO-104 Phase 2b clinical trial and, if results are positive, initiation of a Phase 3 clinical trial, and initiation of one or more open-label, multiple-dose safety studies in Ménière's patients;

$15.0 million to fund preclinical development and a Phase 1 clinical trial for patients with tinnitus for OTO-311; and

the remainder for research and development activities, working capital and general corporate purposes.

Disclaimer: This OTIC IPO report is based on a reading and analysis of OTIC's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.

Source: IPO Preview: Otonomy