Otonomy's (OTIC) CEO David Weber on Q2 2016 Results - Earnings Call Transcript

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Otonomy, Inc. (NASDAQ:OTIC) Q2 2016 Earnings Conference Call August 4, 2016 4:30 PM ET

Executives

Robert Uhl - Westwicke Partners

David Weber - CEO

Paul Cayer - CFO

Analysts

Tyler Van Buren - Cowen & Company

Joshua Schimmer - Piper Jaffray

Mike Guo - SunTrust Robinson Humphrey

Caroline Palomeque - WallachBeth Capital

Operator

Good afternoon, and welcome to Otonomy's Second Quarter 2016 Financial Results and Business Update Conference Call. At this time, all participants are in a listen-only mode. Later, we will have a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to turn the call over to your host for today's conference Mr. Robert Uhl with Westwicke Partners. Sir, you may begin.

Robert Uhl

Thank you, Janice. Good afternoon and welcome to Otonomy's second quarter 2016 financial results and business update conference call. Joining me on the call from Otonomy are Dr. David Weber, President and Chief Executive Officer; and Paul Cayer, Chief Financial and Business Officer. Before I turn the call over to Dr. Weber, I would like to remind you that today's calls will include forward-looking statements based on current expectations.

Such statements represent management's judgment as of today and may involve risks and uncertainties that could cause actual results to differ materially from expected results. Such statements include but are not limited to Otonomy's expectations regarding the commercial success of OTIPRIO. The timing of clinical trials and results for OTIPRIO and expansion indications, the timing of the SNDA filing for OTIPRIO in acute otitis externa, the timing of the OTO-104 Phase 3 clinical trials in Ménière's disease and if successful the timing of the NDA filing. The timing of the Phase 2 clinical trial for OTO-104 instance cisplatin induced hearing loss, the timing of the OTO-311 clinical trials and the financial guidance for 2016. Please refer to Otonomy's filings with the SEC, which are available from the SEC or on the Otonomy website for information concerning the risk factors that could affect the company.

I will now turn the call over to Dave Weber, President and CEO of Otonomy.

David Weber

Thank you, Robert. Good afternoon everyone and thank you for joining us on this call to discuss Otonomy's second quarter 2016 financial results and business updates. I will start by providing an update on the OTIPRIO commercial launch, product development activities and several updates regarding the board of directors and management team, then Paul will review our financials, and we will finish with questions from call participants.

Beginning with the OTIPRIO launch, let me remind you that in 2016 our commercial effort is focused on gaining access which we define as availability of OTIPRIO for use by physicians in the hospital and ambulatory surgery centers or ASCs where ear tube surgeries are performed. These efforts involved multiple stakeholders, and as we have consistently said can be slow with formulary approvals after requiring six to nine months to complete.

We completed formulary review with a limited number of facilities from the launch in March 2016 through the second quarter which is reflected in the minimal revenues. A graphic and outline of this process is provided in our corporate review presentation on our website. So let me briefly review the key components for you now including reference to the relevant performance metrics for the launch through the end of July.

The first step in gaining access for OTIPRIO is building awareness and advocacy with our target physician. To this end, we have identified approximately 2000 EMTs who performed approximately 70% of ear tube surgeries in the United States. In the short time since launch, our 40 otology cell specialists have been successful in making cells presentations to most of our targets, including one or more meetings with 90% of the top 100, 85% of the top 500, and 80% of our total 2000 physician target group. We have been very pleased with the high level of physician interest in OTIPRIO which we attribute to the product's strong clinical trial results, novel thermo-sensitive gel formulation and single dose profile that assured treatment compliance.

For some physicians, a self-presentation or a discussion at a medical conference provides physician-product information for them to take the next step to gain access to OTIPRIO for their patient by requesting formulary review in the hospital or administrator review in the ASC where they perform their procedure. For other physicians, product information along is not enough and there is an interest in using OTIPRIO during ear tube surgery in order to experience first-hand the products characteristics and benefit.

Anticipating this perspective, we initiated a sample distribution program during the second quarter whereby a physician can request a sample pack of four units which is sufficient for ear tube surgeries in four patients. This program is proving to be very successful with approximately 400 physicians who are affiliated with more than 650 facilities participating thus far. We are also very encouraged by early feedback from physicians with most reporting a high-level of satisfaction and likelihood to use following their sample use. We plan to continue the sample distribution program through the summer to provide further opportunities for physician experience with OTIPRIO across additional target facilities.

Once one or more physicians request OTIPRIO for use in a particular hospital, the next step is navigating the formulary review process. This can be a lengthy process with multiple stakeholders involved on a pharmacy and therapeutic or P&T committee. A number of factors are typically considered in this review including the product indication, clinical efficacy and safety, availability of competitive products and economics. We support this process with a broad set of resources including our local sale specialist, a national accounts director who can address economic question and a medical science liaison who is able to provide additional medical information when requested.

Thus far, we have received formulary approval in more than 110 hospitals and have review scheduled in an additional 240 hospitals, some of which represent multiple facilities. Our success rate for formulary approval is currently over 90% in target hospitals, demonstrating the importance of our methodical multiple stakeholder approach.

The final step in the adoption process is what we call pull-through. Once OTIPRIO has received formulary approval in a hospital or administrator approval in an ASC is the job of our sales specialist to work physicians and the facility personnel to include OTIPRIO in the routing protocols used for ear tube surgeries. This requires coordination with the pharmacy department to work through ordering logistic and training of operating room staff so that OTIPRIO is prepared and ready to go when needed.

Overtime, we believe that OTIPRIO will become a standard component of tube surgery procedures, and product reordering will become routine. For now we have 75 facilities that have purchased OTIPRIO of which 40% have placed multiple orders. These are key metrics of adoption and utilization that will be the focus of our attention once we have established broad-based access for OTIPRIO. An important factor in achieving broad-based patient access to OTIPRIO is the availability of reimbursement to offset the facilities cost of the product. We believe that the recent assignment of a unique C-Code to OTIPRIO and approval of transitional pass-through status by the Centers for Medicare and Medicaid Services or CMS, is a very positive development for the launch.

As we have previously discussed, hospital outpatient departments in ASCs, billing for drug assigned C-Code are eligible for payment via Medicare for the pass-through drug in addition to the fee received by the facility for the related procedure. And we believe that other payers including Medicaid and commercial insurers will in many instances follow Medicare's lead. The OTIPRIO code C94879 became effective as of July 1 of this year. Given the importance of reimbursement, we have an active payer outreach effort. Thus far we have had introductory discussions with 14 or the largest 20 commercial payers that represent over 125 million covered lives in the United States. We have also had initial contact with all of the state Medicaid programs.

Based on these discussions, we believe that there will be limited restrictions placed by payers on the use of OTIPRIO during ear tube surgery, and there will be an opportunity for many facilities to received reimbursement for OTIPRIO in addition to the ear tube placement procedure.

Now that the C-Code is active, we plan to expand our payer outreach effort and have hired a third-party to provide additional reimbursement support services to facilitate on a local, regional and national level. As you can tell from this launch update, there are many facets to our effort in 2016 to gain access for OTIPRIO in a broad set of target facilities. I believe we have made solid progress towards this goal in the first full quarter of launch. In fact, if we look collectively at the facilities that have purchased OTIPRIO, half formulary approvals were scheduled to review, and our affiliate with physicians to have received product sample, these facilities account for more than one-third of total ear tube surgery volume in the United States.

Going forward, we will continue to focus on access in our target accounts with an increasing emphasis on pull through for those facilities that now have formulary approval.

I would now like to switch gears and provide a brief update on our product development effort for OTIPRIO and our pipeline products. For OTIPRIO, we made significant progress across several label expansion indication within the second quarter. Most importantly, we initiated the Phase 3 registration trial for acute otitis externa or swimmer's ear in time to recruit patients during the peak summer season. This trial is expected to enrol approximately 500 patients including both children and adults. Patients will receive a single administration of OTIPRIO or sham, no treatment, to the external ear canal of the affected ear by the physician and then return for assessment of clinical cure at Day 8. This treatment approach compares favourably to anti-biotic eardrop which required twice daily dosing for seven to ten days.

This trial not only introduces OTIPRIO to the adult patient population but also an expanded group of physicians including pediatrician and general practitioner. We expect to complete this trial and report top line results in the fourth quarter of 2016. If the results are positive, we expect to submit a supplemental new drug application to the FDA in the first half of 2017. We also completed enrolment in the Phase 2 trial for OTIPRIO in patients with acute otitis media with tube or AOMT that was initiated in the first quarter of this year. This trial is intended to determine the appropriate dose of OTIPRIO for further development in this indication. A total of 95 pediatric patients were enrolled and we expect the top line results in the fourth quarter of 2016.

Finally, we also recently completed enrolment in a Phase 3B clinical trial evaluating OTIPRIO in expanded population of pediatric patients undergoing ear tube surgery. This trial initiated in the fourth quarter of 2016 enrolled a total of 501 pediatric patients including patients undergoing common concurrent surgery and patients without bilateral infusion on the day of surgery. This open-label study enrolled patients covered under both commercial insurance and Medicaid. Evaluated patients over an extended follow-up period of two months and assessed an ear drop caregiver burden questionnaire in those patients requiring treatment with anti-biotic ear drop. Top line results are expected to be available in the third quarter of this year.

The advancement of OTIPRIO development for both otitis externa and AOMT demonstrates our commitment to actively pursue extended indication for our lead commercial asset. OTIPRIO's single-dose, physician-administered profile is highly differentiated from ear drops that require a multiple dose, multi-day administration by the patient or caregiver. We believe that approval in these additional indications would more than double the market opportunity for OTIPRIO and will expand its use into the physician office setting.

With regard to OTO-104, patient enrolment is ongoing in the two parallel Phase 3 for Ménière's disease, AVERTS-1 in the U.S. and AVERTS-2 in the EU. Each trial is a 16-week, prospective, randomized, double-blind, placebo-controlled trial that will enrol approximately 160 patients with unilateral Ménière's disease. We are on track with enrolment and expect results of both Phase 3 trials in the second half of 2017. Patients completing AVERTS-1 and AVERTS-2 will be eligible to participate in an open-label, multiple-dose safety study where they can receive two quarterly doses of OTO-104.

In August, we announced the successful completion of a one-year, multiple-dose clinical safety trial for OTO-104 in Ménière's disease patients. This prospective, randomized, placebo-controlled clinical safety trial enrolled a total of 128 patients across multiple trial sites in the United Kingdom and demonstrated that quarterly dosing of OTO-104 was well tolerated. There were no notable differences in treatment emergent adverse event, audiometry or tympanometry between patients in the OTO-104 and placebo group.

In general, the safety profile observed with quarterly dosing of OTO-104 was comparable to that observed from previous clinical trials with a single-dose of OTO-104. A second one-year, multiple-dose clinical safety trial was initiated in Canada in the second quarter of 2016 to provide additional patients to meet our registration requirements for one-year repeat dose safety.

Finally for OTO-104, we are working to initiate a Phase 2 trial in a second indication. The prevention of hearing loss in pediatric patients undergoing cisplatin chemotherapy treatment. Cisplatin and other platamin-based agents are routinely used in treating numerous tumor types and has contributed to improvement in cancer patient survival. However, these agents are known to be autotoxic and permanent hearing loss occurs on up to 90% of children and young adults.

Earlier this year we announced the publication of a preclinical study that demonstrated protection against this platamin-induced autotoxicity with the administration of OTO-104, we believe these results together with a high on medical need support the evaluation of OTO-104 in pediatric patients undergoing cisplatin chemotherapy, and expect to initiate a Phase 2 trial at multiple leading oncology centers by the end of this year.

Our third program, OTO-311, is a sustained-exposure formulation of the NMDA receptor antagonist gacyclidine that we are developing as a single IT or intratympanic injection for the treatment of tinnitus. This is an important unmet medical need due to the large population, high-level of impact on patient life and lack of any FDA-approved drug treatment. Historic and emerging clinical data provides support for potentially use of an NMDA receptor antagonist including gacyclidine for the treatment of tinnitus, and we believe that formulation for sustained-release delivery provides significant competitive advantage. Several discourse in the Phase 1 clinical safety trial have been completed without concerns of patient tolerability. The trial will remain open in the second half of 2016, pending the potential evaluation of additional dose level.

Lastly, a few words about our fourth program which targets sensorineural hearing loss including age-related hearing loss. We have demonstrated sustained exposure audit [ph] delivery of multiple product candidate including small molecules and biologics, and are now conducting evaluations and various pre-clinical models of hearing loss. This is a very exciting program that we look forward to discussing in more detail in the future.

Before wrapping up my comments, I would like to provide an update regarding our board of directors and management team. In the earnings release, we announced the resignation of Mr. Chau Khuong and the appointment of Mr. Iain McGill to our board of director. Chau has resigned in order to devote additional attention to every possibilities as a private equity partner at OrbiMed Advisors. This decision is not the result of any disagreement with the company on any matter relating to its operations, policies or practices. I wish to thank Chau for his active participation and thoughtful guidance to the company through our IPO and transition commercial stage company.

I am very pleased to welcome Mr. Iain McGill to the board where he will also serve on the Audit Committee. Iain currently serves as Senior Vice President, Jazz Pharmaceuticals Europe and rest of the world. He joined Jazz following his acquisition of Ulca [ph] Pharma in 2012, at which time he held the position of Chief Commercial Officer. In total, Iain have nearly 25 years of experience in pharmaceutical sales and marketing focused primarily on the EU and other markets outside the U.S. which will be extremely valuable to us as we define our strategy for the development and commercialization of our product pipeline outside of the United States.

Finally, we have announced that our Chief Scientific Office, Dr. Carl LeBel, has decided to retire. Carl is one of our early employees and played a key role in building our development group and its capabilities. I would like to offer my sincerest thanks for Carl's significant contributions to Otonomy and his commitment to our ongoing success. He will continue on a full-time capacity until his replacement has been hired plus an additional transition period. After that Carl has committed consulting support for an extended period. Given this plan, I expect to manage the transition in a seamless manner.

In summary, the second quarter of 2016 was a productive period for us as we started to build the commercial foundation for OTIPRIO and continued to execute on our product development programs. Going forward through the rest of the year, we will remain focused on achieving asset for OTIPRIO in our target facilities by building advocacy with physician, increasing the number and maintaining a high success rate in formulary reviews, and expanding the level of reimbursement support we are providing now that the C-Code is effective.

On the development side, we will continue to focus on patient recruitment for our clinical trials especially the OTIPRIO Phase 3 trial for acute otitis externa and the AVERTS-1 and AVERTS-2 Phase 3 trials for Ménière's Disease. I believe that successfully executing these efforts will build significant value for our shareholders throughout 2016 and into 2017.

And closing, I would like to thank our shareholders for their continued support and looking forward to providing additional updates on the commercial launch and pipeline development efforts in the fall.

At this time, I'll turn the call over to Paul Cayer, our Chief Financial and Business Officer, who will give you an update on our financials.

Paul Cayer

Thank you, Dave, and good afternoon everyone. We finished the second quarter of 2016 with a strong balance sheet and continue to work towards the financial guidance we have previously provided with our first quarter earnings release.

As of June 30, 2016, we had cash, cash equivalents, and short-term investments totalling $239 million, this compared favourably to the $184.8 million we held as of December 31, 2015, and reflects the public finance and completed in January. In the second quarter of 2016, Otonomy reported total GAAP operating expenses of $30 million, compared to $12.6 for the second quarter of 2015. Non-GAAP operating expenses which excludes stock-based compensation and depreciation expense totalled $26.6 million for the second quarter of 2016 compared to $10.8 for the second quarter of 2015.

GAAP research and development expenses for the second quarter of 2016 totalled $16.7 million compared to $7.3 million for the second quarter of 2015. The increase is primarily result of clinical expenses for OTIPRIO related to the open-label Stage 3B clinical trial initiated in late 2015, and label expansion trials initiated during the first half of 2016. As well as clinical expenses for OTO-104 related to the AVERTS-1 and AVERTS-2 trials initiated in the fourth quarter of 2015 and first quarter of 2016 respectively. R&D related stock-based compensation expense was $0.8 million for the second quarter of 2016, compared to $0.7 million for the second quarter of 2015.

GAAP selling, general and administrative expenses in the second quarter of 2016 were $12.9 million, compared to $5.3 million for the second quarter of 2015. The increase was primarily attributable to increased personnel expense and operating costs related to the commercial launch of OTIPRIO. SG&A-related stock-based compensation expense was $2.4 million for the second quarter of 2016, compared to $1.0 million for the second quarter of 2015.

Finally, with regard to our financial outlook, we reaffirm our expectation that non-GAAP operating expenses for 2016 will total $100 million to $105 million. Through the first six months of 2016, non-GAAP operating expenses totalled $50.6 million, so we're on track to meeting this guidance.

With that, I'll turn the call back over to Dave.

David Weber

Thank you, Paul. Operator, we are now ready for questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Tyler Van Buren with Cowen & Company. Your line is now open.

Tyler Van Buren

Good afternoon, guys. Thanks for providing many of the launch metrics. It sounds like you guys are making great progress in terms of formulary approvals as well as physicians using the product, and you guys have given a lot of background on the sort of mechanics required for approvals and getting the products in the hospitals. As far as pull-through's concerned, in terms of once a facility is approved and on formulary, what's the process like there and some of your more successful hospitals or centers perhaps that were signed up earlier, did it kind of start with one doctor and how is the training involved there and kind of what's the internal process to get the entire staff on board? And do you have any centers that are there yet? Just curious to hear that, as well as with the C-Code, is it as simple as flipping a switch or how could we expect the process to play out in terms of getting the C-Code implemented in the centers? Then I have a follow up. Thank you.

David Weber

Thank you, Tyler, for your question. So with regard to pull-through it really does vary by institution, by facility, and this is why it's important to have our sales specialist on the ground working at each of the facility. In many cases you're correct, it's a physician or a couple of physicians who are really working to pull the product through, and so several of the steps that are taken is first of all, in many of the facilities today there is just mechanics that are required internally to start ordering the logistics of the product. And so those are things kind of in the background that have to be worked through. And mainly it's the work of our sales specialist to make sure that those activities are actually getting done. Trying to, if you will, trying to encourage the movement there that they don't get lost in the kind of all the other activities that need to be done day to day. The other is with regards to physicians and once the product is there and available for the surgery.

We want to make sure that for the first time that people are using the product that we have our people there, our sale specialist is there to answer any questions with regards to preparation. It obviously is a thermal-sensitive product. It's important that the product be handled carefully, in that regard. In other words you don't hold it in the palms of your hands for an extended period of time while talking to someone in the hallway. And so we wanted to have our sales specialist there for the first time to make sure that the surgical staff are appropriately trained. We found very good reception to that, and that obviously makes the process very smooth then for the physician to use the product. Frankly, it's not something that's difficult. It's something that just really just reminding people that it is thermal-sensitive is really the key there.

With regards to centers, I think you can see that out of the 110 where there are formulary approval, we've already have 70 plus facilities that have now ordered, 40 something that have done multiple orders, and so clearly the process is happening there. And really our goal is to get it to be routine. What you really want is to see the facilities get into a habit and the physicians as well. And obviously in those facilities where there have been a couple of physicians using it, encouraging and sharing that information with the other physicians that are there practicing in that institution.

With regards to the C-Code, I think that the key here is with the C-Code effective in July 1, there were some facilities where we decided to hold-off on formulary review or basically slowed things down a little bit because we wanted to have that C-Code actually approved and effective July 1, in order to go into that formulary review. So there was some intentional tracking on our part to make sure that we well-position where we felt the C-Code was going to be important for formulary approval. What comes now in addition to continuing to secure formulary scheduling and approval is to really then work with people in terms of filing up claims.

So where there have now been orders, obviously, we want to make sure there is good success rate in terms of claims, and that those are filed appropriately with the C-Code. And let's get into why we have brought on a third-party to help us here in terms of providing local assistance, and regional, and national assistance, in terms of filing those claims, so that we can make sure that when those claims are filed, there's good success in getting reimbursement. Because that will be the really most important thing we see coming which is to demonstrate that product can get reimbursed, obviously then we can utilize that as we continue to roll out into scheduling other facilities for formulary review and trying to expand the adoption and utilization of the product from there.

Tyler Van Buren

Great, thanks, that's helpful. In terms of, second question was on the indication expansions. Clearly, you all are very busy in development in adding on additional indications for OTIPRIO, a lot of activity at your end. How should we think about the overall market opportunity? The three main indications, including the two kind of near-term expansions relative to each other, especially in the context of branded ciprodex which if I recall correctly had about 60% to 70% in Swimmer's ear. Just curious to get your thoughts there again. Thanks.

David Weber

Let me talk at a high level and I'll turn it over to Paul so he can go ahead for more details here. But I think the key is that we see the expansion indications, first of all, more than doubling the commercial opportunity for OTIPRIO beyond the ear tube surgery, and also bringing OTIPRIO into the physician-office setting. Now this is where the J-Code would then come to effect, and obviously that's been a focus of ours because all of our products will ultimately be physician-office administered including OTO-104 and OTO-311. So clearly not only building the market opportunity for OTIPRIO which is important for our strategy, but also then we're already be starting to educate physicians on the use the J-Code for our other products which will help in the introduction or launch of those products. So that's really the key and obviously our focus at the beginning here is the ENT physician that as I mentioned some of these work that we're doing in the acute otitis externa, we'll be introducing the product to some other physicians beyond the ENT specialists, and I think Paul can do into more depth here as how we see the indications and use.

Paul Cayer

Yes, if you look at the sizing of them, the two surgeries, about a million procedures a year as we've discussed. The number of recurrent infections which we call AOMT is nearly goal for that, 900,000 I believe per year, and that's clearly all physician-based, physician office-based treatment paradigm where patient is seen in the office and then the script is called in to the pharmacy for treatment at home. The otitis externa, we've only capture about 400,000 patients in our market estimates because that's the portion of the otitis externa episodes that are treated by the ENT. Those are sort of the worst of the worst if you will. And as they said that's our core focus. However, there's a very broad market for otitis externa treatment. There are about four million episode each year, so the ENTs are only seeing a small portion of that, and that's why, as Dave said, the Phase 3 trial that we've initiated it's important in expanding not only in terms of the patient population in the adults from pediatric. But we expect about half of our Phase 3 trial centers will in fact be, have pediatricians into our general practitioners as the principal investigators.

So that's a very interesting sample for us to look at in terms of understanding how they see a product like OTIPRIO fitting in and could in fact expand the market into this sort of majority of the otitis externa episode that we haven't captured. And as you referenced with Ciprodex, clearly that's where ear drops are primarily used today, the physician-based treatment with scripting ready and the treatment at home. So OTIPRIO provides a very differentiated profile for the single-administration performed by the physician in the office. So for all those reasons we really look to the expansion indications developing in market up quite significantly.

Tyler Van Buren

Great, thanks again.

David Weber

Thanks, Tyler.

Operator

Our next question comes from the line of Joshua Schimmer with Piper Jaffray. Your line is now open.

Joshua Schimmer

Thank you for questions. I just have a couple of follow up questions to Tyler's. First, on the kind of pull through efforts after P&T approval, can you give us a sense of kind of the time component from when you have the P&T approval to when you really expect the center to be up and running with the product? I'm not sure I'd heard that in the earlier comments. And then for the seasonality of tympanostomy tubes placements, can you give us a little bit more color on the modes or the seasons and to what extent, or what percent of procedures I should say occur maybe in the winter season versus the summer? Thanks.

David Weber

Okay, thank you, Josh, I appreciate it. With regard to pull through in the P&T committee and what happens once you have the approval. Again, we're finding it -- it's very variable depending on the institution. Some institutions you have very rapid process from there, and that's obviously evidenced by the fact that we've already had 110 facilities already go through the approval process and obviously then 75 facilities that have already purchased in product, and some of those top 40% repeat order. So it does vary. We have, I would say that we kind of understand but we don't really have clarity to what's happening in the background there. It really depends on the institution and it's just a matter of simple things like electronic systems, they have to load things up on to their systems, they have to have code numbers, they've got to make sure that they have the logistics worked out.

For example, if they have a main pharmacy and they're doing their ear tube surgery in an outpatient surgical that might be supported by a satellite pharmacy; they've got to make those kinds of provisions if you will. So it does vary by institution, and that again is why it's important for our sales specialist to be there trying to help move those things forward. I would say that we've seen that to be quite rapid as evidenced by the 110 that we've seen so far with approval, some of those have already ordered. Others seem to take a lot longer for that to work through. Part of that could be that when we talk about these facilities, we should remember that some of them are actually managing multiple sites.

So there are some of these where there are multiple facilities. When we're saying a single facility, there might be one hospital formulary for review, but it may be eight, nine, hospital facility that's actually across the region that they're in, and so that also can add to that factor of timing as they work through those mechanics. With regard to seasonality, I mean obviously you hit on a very important topic. It's one that we've been focused on from the beginning. One thing that why we're so focused in 2016 on market access and getting through this formulary review process to set us up for the seasonality, and this disease does, ear tube surgeries do follow the flu season. And so clearly that's an area that we're acutely aware.

Maybe Paul can go in some more details on the actual percentages.

Paul Cayer

Yes, so just to give you some high-level metrics, Josh, if you look at month-over-month procedures, the kind of the above average months are typically December through May. Now, the sort of June through November doesn't go to zero, so about two-thirds of the procedures are in the six months sort of December to May. So that's clearly why we've been focusing on getting through access so we're ready to go when that start to heat up, but there's significant amount of volumes in the period that we're in now. So we're clearly working towards being ready and having good access for when the season starts to heat up, but that's one. Even in the meantime we're going to be working on pull-through as we've discussed.

Joshua Schimmer

Got it, and then just to follow up based on your kind of learnings and observations of reimbursement and the follow through to-date. I know you've characterized this year as the year of access. Is that likely to drift into 2017 as well? When do you think you'll really be done putting the access pieces into place?

David Weber

I think we'll have a better perspective on that as we move through in this quarter. We are now at kind of our, as you can see with our number here really ramping up on the formulary schedules and getting through reviews. I think we've learned a lot in the first quarter about how to get through those reviews positively with positive outcome which was very important. And we learned in those cases that sometimes it's more important to go a little bit slower than to go fast to secure that positive outcome since there are multiple stakeholders that need to be there. For example, if a physician who's an advocate that asks for the formulary review turns out that for some reason they cannot be at the meeting, we'd rather that meeting be delayed than to have that meeting go forward without the physician advocate there.

So those are things that we have learned that factor in. I think as you can see with the numbers we've given, we're doing very good against our target, and that's really what we're going to remain focused on. And I think as we go through here, given that we're just now through our first full quarter of launch, I think we'll be able to get a better handle on that as we move through the year.

Joshua Schimmer

Good, thanks very much.

Operator

Our next question comes from the line of Edward Nash with SunTrust. Your line is now open.

Mike Guo

Hi, this is Mike Guo on for Edward. Thanks for taking the question and congrats on the progress in this quarter. So a couple of quick questions from me; the first one, and that's -- you mentioned 40% of facility has a repeat order. Just want to get your thought as to for the ones who refused to do a repeat order, what are the reason?

David Weber

I don't think it's a refusal. Well thanks first for your question and joining us. I think it's not so much a refusal to order. That doesn't indicate that, it's more of they haven't placed an additional order, and that could vary either because their initial order was sufficient that they've not gone through their initial order and they're waiting to reorder. It could be there are examples that we've seen where there are physicians really at this point because their first kind of levels of experience with the product, but they're really kind of following some patients and getting familiar with the product and the outcomes with it.

So I don't think it's a matter of -- we've not heard anywhere where there's a refusal to order more products, it's more of just where they are from their initial order, and what the rate is going to be. The third thing I would add that we see happening as well, and this is why we're bringing in a third party support to help with reimbursement support is that also some of the facilities we believe will do, basically order a few vials and then have them utilized and submit them for reimbursement, and they're basically verifying the reimbursement process before they really open that up. And so that would be something that we would expect, and that's fine in our view. We want to make sure therefore by having that third-party support that we can fully support that reimbursement effort.

Remember that given that this is the first, the product has just launched, the C-Code is the new C-Code. Payers were obviously having a very strong payer outreach where we're trying to reach payers to introduce them to the product, make them aware of it. But that may not yet; our penetration may not yet be across all payers. So there may be examples where those payers were not familiar with the product and what we need to do is go in and help inform the payer when they get that claim, what that product did and what its indication is. Paul, do you have anything you want to add to that?

Paul Cayer

Well, the only thing I was going to add, Mike, is that I think part of your question was what's the level of interest and satisfaction once people have used the product, and as you've heard Dave say, those facilities that haven't yet reordered, the lack of reorder is more of a timing rather than a lack of interest. And the other peak information that we were pointed to is some of the early feedback they were getting from our sample distribution program where we are specifically conducting a survey once they have completed their samples to just understand how their experience went and their interest in sort of moving to the next step, and we didn't provide a lot of detail around on this call because we're at the initial stage of collecting the information. But I think that's something that we'll certainly share with investors in the future and so far I think we're very pleased with the initial results that there in fact is a very high level of satisfaction with the product and also a high likelihood of use.

So we actually believe that provides sort of good feedback to us from average clinical users that in fact they like the product. They're finding it easy to use and its meeting their expectations.

Mike Guo

Okay, got it, that's very helpful. So the second question from me is about your AOMT. So it's a data we are going to expect fourth quarter this year. So if I'm not mistaken, so you are using a higher dose, like you're checking tube doses in your AOMT trial, as compared to the feasibility Phase 2 trial as well as the TTP Phase 3 trials. So what's the reason for that piece? And also in terms of space-rate trial design, we know it's pretty early now but would you just share some of your thoughts as, for example what's hard, the comparator that is JAM [ph] or it can be active comparator?

David Weber

So with regards to the Phase 2 and the dose, we obviously proceeded from the Phase 3 trials with the approved indication. We proceeded into some exploratory trials since we were in pediatric patients; we wanted to go slow, make sure we understood obviously the best course to move forward. And you've seen sensing us perform trials, first of all with a Phase 2 trial in AOMT where we looked at putting the product outside of the tube and around the tube. And that was a very small study to demonstrate that we could apply the product in the physician's office in an awake child; so key differences there was an awake child, not one that was sedated in the outpatient surgical. So once we've verified that, we proceeded to move into studies in the physician-office setting.

And the next one up was the acute otitis externa where we looked at multiple doses there including 0.1 mL which is used in the approved indication, as well as 0.2 mL. And what we learned was the 0.2 mL worked, we felt was the better dose from just the coverage standpoint. In addition to the data that we saw, we saw that it worked very well. It did not occlude the ear canal for example. So it provided good amount of drug in that space. And so for that reason, now that we're again going back to AOMT which is the pediatric population, we wanted to verify that in a pediatric population that would 0.1 versus 0.2 dose, would 0.2 be a reasonable dose to take for it would not occlude the ear canal so it provide a good level of drug.

So that's the purpose there for that dose-response study. It's not really that we expected differences necessarily in the actual outcome because the anti-biotic is still effective, it's really that we're just trying to make sure that volume-wise as well is an important consideration.

Paul Cayer

And then with regard to the comparator, obviously this will be based on discussions with the FDA. So as we move forward just as we had discussions with the FDA on acute otitis externa, and the FDA wanted to have a no treatment sham comparator. We will be doing the same with AOMT. We will consult with the FDA. We will obviously make our recommendations but ultimately work to understand what the FDA would like to see in terms of registration.

Mike Guo

Okay, got it. That's very helpful. So last question from me is about Dr. Carl LeBel. So Dr. Carl LeBel is a very important member of the management team. So could you share a little bit more detail as to the reason why Dr. Carl LeBel decides to leave the company? Is he trying to pursue another opportunity or something like that?

David Weber

No, it's purely personal. It's retirement. He is retiring from full-time employment. He is in a position that him and his family want to enjoy their time together and wants to retire from full-time work, so it is not to pursue another company or effort. He has committed to continuing to consult with us and as I mentioned to work through the transition with us. So we clearly value Carl and all the efforts and contributions he has made. Importantly, we have been able, working with Carl, to put together a very strong research and development organization now that it includes not only strong leadership at the pre-clinical level but also at the research level as shown by our fourth program in neurosensory hearing loss, as well as in other clinical where we continue to deliver on our clinical timelines and commitments and clinical results. So I think we put together a very strong team and Carl thought as a very appropriate time for him to move forward with his family plans because when he'd accomplished one of the things he wanted which was to see approval of OTIPRIO and felt that he was leaving behind a company as he is, a very, very strong position that we believe we can move forward very well from.

Mike Guo

Got it. Thanks so much for taking my question.

David Weber

Thank you.

Operator

Our next question comes from the line of Erica Cazalon [ph] with Bernstein. Your line is now open.

Unidentified Analyst

Hi, this is Erica Cazlon for Ronny Gal. Congrats on the quarter and thanks for taking our questions. I was wondering if you could provide any additional details on either adoption or physician/P&T feedback in the different settings where the tube surgeries take place. Since there's about 60% of surgeries that takes place in the hospital setting. We know reimbursement there is fee for service, and obviously easier to get reimbursement. But how has feedback been in the ambulatory surgery centers where the 30% or so of surgeries are done and payments are based on global rate payments? And then second, I just was wondering if you could provide any updated thoughts on what your plans are for U.S. expansion. Are you still planning on going into the EU market, and if so are you considering that on your own or through a partnership? Thanks.

David Weber

Thank you, Erica. Well first, I think in terms of feedback across the facilities, it's important to understand that the, and this is why the sampling program is so very important. The 400 physician sample, in many cases those are not being done just in the hospital outpatient, they're actually being done in ambulatory surgical and that's because, and that's one of the reasons of sample program is important to us. There are hospitals out there that will limit or even not allow samples to be utilized in the hospital setting, and therefore it's important to put those physicians to be able to go elsewhere to try the product.

Now for these physicians, in most cases, many of them actually practice at multiple institutions. That is they have their physician office, so when they do these surgeries they will do some patients in the hospital outpatient and other patients in an ambulatory surgical center. So they're actually going to multiple centers, and that's one of the reasons the statistics you see we talk about 400 specialists across 650 facilities because they're going to multiple facilities. And so the feedback we get is really representative across the board of the physicians as opposed to where they might be doing a particular ear tube surgery, whether it's in the hospital or ASC.

And as Paul mentioned that we'll be working to put together this data and present this data in the future, we're seeing very high-levels of both interest as well as very high positive in terms of use of the product, in interest and use of the product. And so we view that across the board. So with regards to your second with regards to XUF [ph], I think this is something that we obviously as you see now with the addition of Iain to the board of directors, with his experience in the commercial side outside of the U.S. you can see that we are clearly focused on that starting to try to understand and develop our plans for going outside of the U.S.

So this is a very active effort now in the company and I hope that people see that this addition to the board basically demonstrates and makes visible back effort that we have going on internally. At this point we're not ready to say exactly how we will do that, I will tell you that we are looking at all of those options. And looking at each of the regions to figure out what is the best way to move forward. So I think you will hear more about that from us as we go forward, and I think Iain will be an important part in helping us in the board as we navigate and think through our strategy.

Unidentified Analyst

So, can we assume that you may have different strategies for different geographies?

David Weber

Yes.

Unidentified Analyst

Okay, thank you.

David Weber

Thank you.

Operator

Our next question comes from the line of Caroline Palomeque with WallachBeth Capital. Your line is now open.

Caroline Palomeque

Hi, thanks for taking the question. So on the open-label Phase 3 for OTIPRIO in pediatric TTP surgery, so I'm assuming you're also looking at unilateral effusion but are you, can you elaborate more on what other concurrent surgeries you've seen in the patients with TTP, they're also having TTP surgeries done? Just wondering a little bit about that.

David Weber

Yes, this will be thankful -- first, thank you Caroline for joining here. There's are few things, like mastoidectomy [ph].

Caroline Palomeque

Okay, thank you.

Operator

[Operator Instructions] And at this time I'm showing no further questions. I would now like to turn the call back over to Dave Weber, President and CEO, for closing remarks.

David Weber

Well, thank you everyone for participating on our call today. If you have any additional questions, please feel free to contact us. Have a good evening everyone.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.

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