Overview

Otonomy (OTIC) is a biopharmaceutical company focused on the development and commercialization of innovative therapeutics for diseases and disorders of the ear. OTIPRIOâ (ciprofloxacin otic suspension) is approved in the United States for use during tympanostomy tube placement (TTP) surgery in pediatric patients, has achieved positive pivotal trial results in patients with acute otitis externa (AOE), and has completed a successful Phase 2 trial in patients with acute otitis media with tubes (AOMT). OTO-104 is a steroid in development for the treatment of Ménière’s disease and other severe balance and hearing disorders. Two Phase 3 trials in Ménière’s disease patients are underway with results expected during the second half of 2017, and a Phase 2 trial has been initiated in patients at risk for cisplatin-induced hearing loss. OTO-311 is a N-Methyl-D-Aspartate (NMDA) receptor antagonist for the treatment of tinnitus that has completed a Phase 1 clinical safety trial with a Phase 2 trial expected to be initiated in the second half of 2017. A fourth program targeting sensorineural hearing loss including age-related hearing loss is in preclinical development. OTIPRIO and its current product candidates utilize its proprietary formulation technology that combines a thermosensitive gel with drug microparticles to enable a single dose treatment by a physician.1

The following graphic summarizes the status of its product and product candidate pipeline:

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OTIPRIO (ciprofloxacin otic suspension)

OTIPRIO, a single-dose, physician-administered antibacterial, was approved by the U.S. Food and Drug Administration (FDA) in December 2015 and was available for commercial purchase beginning in March 2016. OTIPRIO is the only product approved for the treatment of pediatric patients with bilateral otitis media with effusion undergoing TTP surgery. In two Phase 3 trials with a combined total of 532 pediatric patients, a single intraoperative administration of OTIPRIO demonstrated a statistically significant reduction in the cumulative proportion of study treatment failures compared to tubes alone (p-value <0.001). Otonomy is commercializing OTIPRIO using an internal sales force that calls on physicians who perform TTP surgeries and the facilities where these procedures are performed.

According to the American Academy of Otolaryngology—Head and Neck Surgery Foundation, TTP surgery is the most common ambulatory surgery performed on children. Overall, there are approximately one million TTP procedures performed each year in the United States, of which 85% are in pediatric patients who typically have middle ear effusion and receive tubes in both ears (bilateral). The tubes are placed for the treatment of persistent or recurrent otitis media (infection and/or inflammation of the middle ear). Placement of the tube helps to ventilate the middle ear and enables the administration of topical antibiotics to treat the infection.

Otonomy is also evaluating OTIPRIO for potential label expansion in several indications beginning with AOE, also known as swimmer's ear. Otonomy has completed a Phase 3 clinical trial in 262 pediatric and adult patients with AOE that met the primary endpoint by showing a statistically significant increase in clinical cure rate for OTIPRIO compared to sham (no treatment) at Day 8 (p<0.001). OTIPRIO also demonstrated a statistically significant superiority to sham in clinical cure rate at all other time points assessed including Day 4 (p<0.021), Day 15 (p<0.001) and Day 29 (p<0.001), and was well-tolerated. Based on these positive results, Otonomy expects to submit a supplemental New Drug Application (sNDA) with the FDA in the first half of 2017.

A second potential label expansion indication for OTIPRIO is AOMT. Otonomy has completed a Phase 2 clinical trial in 95 pediatric patients that demonstrated higher and statistically significant (p<0.05) clinical cure rates for a single administration of OTIPRIO (either 6 mg or 12 mg) compared to sham (no treatment), and showed that OTIPRIO was well-tolerated. The company believe this trial supports the advancement of OTIPRIO into Phase 3 in AOMT and intend to discuss the requirements for such a program with the FDA in the first half of 2017.

Otonomy has global commercialization rights to OTIPRIO with patent protection in the United States until 2035. Otonomy is evaluating whether to develop and, if approved, commercialize OTIPRIO outside the United States on its own or in collaboration with partners.

As of December 31, 2016, net sales of OTIPRIO totaled $0.7 million. The company sell OTIPRIO to specialty wholesale distributor customers. Three of its major customers – ASD Specialty Healthcare, Inc., Cardinal Health 108 LLC and McKesson Plasma and Biologics LLC – each accounted for 10% or more of its 2016 annual revenue.

OTO-104: Sustained-Exposure Steroid for Inner Ear Disorders

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. Ménière’s disease is a chronic condition characterized by acute vertigo attacks, tinnitus, fluctuating hearing loss and a feeling of aural fullness. The underlying cause of Ménière’s disease is not well understood and there is no known cure. There are more than 600,000 patients diagnosed with Ménière’s disease in the United States and there are currently no FDA-approved drug treatments. Typical first line treatment in the United States is observance of a low-salt diet and off-label use of diuretics. Oral and intratympanic (IT) steroids are used in a subset of Ménière’s patients who have persistent or severe symptoms. Patients who are unresponsive to steroid treatment may resort to surgical or chemical ablation, which can cause irreversible hearing loss.

In May 2015, the company announced results from a Phase 2b clinical trial evaluating OTO-104 in 154 patients with unilateral Ménière’s disease. The primary endpoint of the clinical trial was reduction in vertigo frequency during Month 3 following treatment compared to a one month baseline period. In the topline analysis, OTO-104 demonstrated a 61% reduction from baseline in vertigo frequency in Month 3 vs. 43% for placebo with a p value of 0.067, which narrowly missed achieving statistical significance. The clinical trial achieved statistical significance (p < 0.05) for multiple prospectively defined secondary vertigo endpoints at multiple time points including the count of Definitive Vertigo Days (DVD) that achieved statistical significance in both Month 3 (p = 0.030) and Month 2 (p = 0.035). Based on these results and discussions with the FDA during an End-of-Phase 2 meeting, Otonomy is conducting two parallel Phase 3 clinical trials in Ménière’s disease using DVD during Month 3 as the primary endpoint. The AVERTS-1 trial was initiated in the United States in the fourth quarter of 2015 and the AVERTS-2 trial was initiated in Europe during the first quarter of 2016. Each trial is a 16-week, prospective, randomized, double-blind, placebo-controlled trial that is expected to enroll approximately 160 patients with unilateral Ménière’s disease. Results from the Phase 3 trials are expected in the second half of 2017. If successful, the company expect to submit a New Drug Application (NDA) for OTO-104 to the FDA in the first half of 2018. OTO-104 for Ménière’s disease has been granted Fast Track designation by the FDA.

The company plan to assess and prioritize additional opportunities for OTO-104 including other balance disorders, acute onset sensorineural hearing loss and tinnitus. In January 2017, the company announced the enrollment of the first patients in a Phase 2 clinical trial evaluating OTO-104 for the prevention of hearing loss in cancer patients undergoing chemotherapy with platinum-based agents. This multicenter, randomized trial is designed to assess the feasibility, safety and efficacy of OTO-104 given by intratympanic administration in subjects at risk for ototoxicity from cisplatin chemotherapy. Up to 60 subjects will receive an administration of OTO-104 in one ear prior to each of the first three cisplatin treatment cycles with hearing assessed throughout the trial and following the last chemotherapy treatment cycle.

OTO-311: Sustained-Exposure Treatment for Tinnitus

OTO-311 is a sustained-exposure formulation of the NMDA receptor antagonist gacyclidine in development for the treatment of tinnitus. Tinnitus is often described as a ringing in the ear but can also sound like roaring, clicking, hissing or buzzing. People with severe tinnitus may have trouble hearing, working and sleeping. At this time, there is no cure for tinnitus and there are no FDA-approved drugs for the treatment of this debilitating condition.

Historic and emerging clinical data provide support for the use of NMDA receptor antagonists, including gacyclidine, for the treatment of tinnitus. Mechanistically, agents from this therapeutic class may act to reduce dysfunctional activity resulting from injury to the hearing organ, or cochlea, and be perceived by the patient as tinnitus. Several clinical trials have demonstrated reductions in the severity of tinnitus and improvement in the functional status of patients following treatment with an NMDA receptor antagonist. The company expect that the results of these trials will be instructive in the design and implementation of its clinical development program.

The goal of its OTO-311 program is to develop a sustained-exposure formulation of gacyclidine that will provide a full course of treatment from a single IT injection. Otonomy has successfully completed a Phase 1 clinical safety trial in normal healthy volunteers and expect to initiate a Phase 2 clinical trial in tinnitus patients in the second half of 2017.

Program 4: Treatment for Sensorineural Hearing Loss

Otonomy has acquired the rights to multiple product candidates for its fourth development program, which will target sensorinerual hearing loss including age-related hearing loss, also known as presbycusis. According to the National Institute on Deafness and Other Communication Disorders, there are nearly 40 million adults in the United States who report hearing loss, which the company believe represents the largest market opportunity in the otology field. Otonomy is evaluating several different approaches to treat this condition, including repair of damaged ribbon synapses and regeneration of cochlear hair cells. Formulation and preclinical development is underway.

Otic Drug Delivery Technology

To overcome many of the limitations of delivering drugs to the ear, Otonomy 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 the company refer to as “sustained-exposure.” The company's technology utilizes a thermosensitive polymer vehicle, which transitions from a liquid to a gel at body temperature. The polymer vehicle is combined with drug microparticles to create a suspension that is retained in the ear for an extended period of time. This prolonged residence time provides high and sustained drug exposure.

Potential benefits for its product and product candidates include:

  • Single local administration.
  • High drug levels in the target location and minimal systemic exposure.
  • Eliminates the need for the patient to remain in a prone position for an extended period of time.
  • Simple, office-based administration by an ear, nose and throat physician (ENT).
  • Avoids patient compliance concerns.

Otonomy has a broad patent portfolio of approximately 88 issued patents and allowed patent applications and at least 115 pending patent applications covering its product, product candidates and indications as well as other potential applications of its technology in major markets around the world.

Competition

The biopharmaceutical market is highly competitive. Successful competitors in the biopharmaceutical market must have the ability to effectively discover, develop, test and obtain regulatory approvals for products, as well as the ability to effectively commercialize, market and promote approved products, including communicating the effectiveness, safety and value of products to actual and prospective customers and medical staff. Numerous companies are engaged in the development, manufacture and marketing of biopharmaceutical products competitive with those that Otonomy is developing. The company's potential competitors may have substantially greater manufacturing, financial, research and development, personnel and marketing resources than Otonomy has. The company's competitors may also have more experience and expertise in obtaining marketing approvals from the FDA and other regulatory authorities. In addition to product development, testing, approval and promotion, other competitive factors in the biopharmaceutical industry include industry consolidation, product quality and price, product technology, reputation, customer service and access to technical information. As a result, its competitors may be able to develop competing or superior technologies and processes, and compete more aggressively and sustain that competition over a longer period of time than the company could. The company's technologies and products may be rendered obsolete or uneconomical by technological advances or entirely different approaches developed by one or more of its competitors. As more companies develop new intellectual property in its market, the possibility of a competitor acquiring patent or other rights that may limit its products or potential products increases, which could lead to litigation.

Any product candidates that the company successfully develop and commercialize will compete with existing treatments, including unapproved and off-label drug alternatives that are currently utilized by physicians to treat the indications for which the company seek approval, as well as new treatments that may become available in the future.

OTIPRIO

Antibiotic ear drops are currently the primary treatment option for use during TTP surgery even though no ear drop product has been approved by the FDA for this indication. Multiple ear drops are approved and marketed for use in treating patients with AOE and AOMT. Marketed antibiotic ear drops include CIPRODEXâ Otic from Alcon, a Novartis company, and Otovelâ from Arbor Pharmaceuticals, LLC. The key competitive factors affecting the success of OTIPRIO 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.

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. Otonomy 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, Sound Pharmaceuticals has initiated a Phase 1b clinical trial with SP-1005 which is an oral formulation of ebselen, and Auris Medical Holding AG has indicated it intends to develop AM-125 for the treatment of vertigo disorders including Ménière’s disease.

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. Otonomy is aware of other companies developing potential pharmaceutical treatments for tinnitus, including Auris Medical Holding AG, which is conducting a Phase 3 clinical program evaluating repeat IT injections of Keyzilenâ (formerly AM-101) in patients with acute and post-acute inner ear tinnitus. The first Phase 3 trial failed to achieve the primary endpoint and a second Phase 3 trial is ongoing. Otonomy is also aware that Autifony Therapeutics terminated a Phase 2 trial for AUT00063 in tinnitus patients following a planned interim analysis, Merz Pharmaceuticals GmbH suspended development of oral neramexane for chronic tinnitus while its partner in Japan, Kyorin Pharmaceutical Co., continues with a Phase 2 clinical trial for tinnitus, and Novartis AG completed a Phase 2 clinical trial for chronic tinnitus.

Sales and Marketing

Otonomy is commercializing OTIPRIO and plan to commercialize OTO-104, OTO-311 and any other approved products in the United States with its own focused, specialized sales force. Outside of the United States, the company plan to evaluate whether to commercialize its products on its own or in collaboration with partners.

Third-Party Payor Coverage and Reimbursement

Sales of pharmaceutical products depend in significant part on the availability of coverage and adequate reimbursement by third-party payors, such as state and federal governments, including Medicare and Medicaid, and commercial insurers. Decisions regarding the extent of coverage and amount of reimbursement to be provided for its products will most likely be made on a plan-by-plan basis.

OTIPRIO

The company expect OTIPRIO to be reimbursed as a physician-administered drug in the United States. Otonomy has set the Wholesale Acquisition Cost for OTIPRIO at $283.20 per vial which is sufficient for treating both ears of a single patient. This pricing represents a premium to CIPRODEX Otic, the leading branded ear drop product, which has a current reported Wholesale Acquisition Cost of approximately $200 per unit which is sufficient for a full course of treatment. In order for physicians to use OTIPRIO, the company will need to have the product available in hospital outpatient facilities and ambulatory surgery centers (ASCs) where the majority of pediatric TTP procedures are performed.

The stocking of OTIPRIO in hospital outpatient facilities and ASCs typically requires approval from hospital pharmacy and therapeutic committees and ASC administrators, respectively. The review by hospital pharmacy and therapeutic committees typically considers the product profile, clinical safety and efficacy results, current treatments used for the indication, level of interest/advocacy by the physician user base, and impact on facility economics. This process can require up to a year to complete and approval is uncertain. The time and requirements for approval by ASC administrators typically varies by center and depends on a number of factors including level of interest / advocacy by the physician user base and impact to the facility economics.

As an FDA-approved, physician-administered medication, the company applied to the Centers for Medicare and Medicaid Services (CMS) for a unique C Code and J Code for OTIPRIO. The C Code was assigned by CMS and became effective as of July 1, 2016. Use of this code could provide for pass-through payment of OTIPRIO when used in the outpatient hospital and ASC setting for a transitional period of two to three years. In November 2016, the company announced that CMS had established a unique J Code for OTIPRIO which became effective as of January 1, 2017. The J Code replaces the C code while retaining transitional pass-through payment status. The J Code could also provide for reimbursement of OTIPRIO when used in the physician office setting. If the J Code is accepted for separate payment by payors then OTIPRIO could be reimbursed based on the product’s average selling price. The OTIPRIO commercial launch plan includes a comprehensive set of programs to support the value proposition of OTIPRIO with facility administrators and payors.

OTO-104 and OTO-311

If approved by the FDA, the company intend to apply to CMS for unique J Codes for both OTO-104 and OTO-311 to support reimbursement in the physician office setting. If a J Code is granted and accepted by payors then each product is expected to be reimbursed according to its average selling price and in addition to the fee the physician receives for performing the IT injection procedure itself. The company currently project that the average selling price for both OTO-104 and OTO-311 will be in excess of $1,000 per treatment.

Manufacturing

The company currently contract with third parties for the manufacture, testing and storage of its product and product candidates and intend to continue to do so in the future. The company do not own and have no plans to build its own clinical or commercial manufacturing capabilities. The use of contracted manufacturing is relatively cost-efficient and has eliminated the need for its direct investment in manufacturing facilities. Because the company rely on contract manufacturers, the company employ personnel with extensive technical, manufacturing, analytical and quality experience to oversee contract manufacturing and testing activities, and to compile manufacturing and quality information for its regulatory submissions.

Manufacturing is subject to extensive regulations that impose various procedural and documentation requirements, and which govern record keeping, manufacturing processes and controls, personnel, quality control and quality assurance, among others. The company's systems and its contractors are required to be in compliance with these regulations, and this is assessed regularly through monitoring of performance and a formal audit program. To date, its third-party manufacturers have met its manufacturing requirements for clinical trials and its third-party manufacturer for OTIPRIO successfully passed a pre-approval inspection conducted by the FDA. The company expect third-party manufacturers to be capable of providing sufficient quantities of its product and product candidates to meet anticipated commercial demands. The company believe that there are alternate sources of raw material supply and finished goods manufacturing that can satisfy its requirements, although the company cannot be certain that transitioning to such vendors, if necessary, would not result in significant delay or material additional costs.

Poloxamer 407

The basis for the formulation of its product and current product candidates is P407, a thermosensitive polymer. The company currently purchase P407 from a single supplier on a purchase-order basis under a supply agreement. Although P407 is available from other sources, changing suppliers could disrupt its supply chain. The company believe that the company can effectively manage the risk of supply chain disruption by purchasing and storing quantities of P407 sufficient for its clinical and commercial requirements.

OTIPRIO

OTIPRIO is a suspension containing the antibiotic ciprofloxacin and P407. The raw materials needed for the manufacture of OTIPRIO are commercially available from multiple sources. Otonomy has qualified two sources of ciprofloxacin and have a supply agreement in place with one of the vendors. The company currently use a single third-party contract manufacturer, Siegfried Irvine, located in Irvine, California, to produce OTIPRIO, and the company believe this manufacturer can satisfy its commercial requirements as specified under a commercial supply agreement executed with this manufacturer.

OTO-104

OTO-104 is a suspension containing the steroid dexamethasone and P407. The company currently purchase dexamethasone from a single supplier on a purchase-order basis and the company do not have a long-term supply agreement. Although dexamethasone is commercially available from other sources, the company do not anticipate needing an alternative supplier. The company believe that the company can effectively manage the risk of supply chain disruption by purchasing and storing quantities of dexamethasone sufficient for its clinical, and, if OTO-104 is approved for marketing by the applicable regulatory authorities, its commercial requirements. The company currently use two third-party contract manufacturers to produce OTO-104 that the company believe can satisfy its clinical requirements. Otonomy is currently evaluating its supply chain for the commercial manufacture of OTO-104.

OTO-311

OTO-311 is a suspension containing gacyclidine and P407. The company currently purchase gacyclidine from a single supplier on a purchase-order basis and the company do not have a long-term supply agreement. The company currently use one third-party contract manufacturer to produce OTO-311 that the company believe can satisfy its clinical requirements.

Intellectual Property

The company's commercial success depends in part on its ability to obtain and maintain proprietary protection for its product, product candidates, novel discoveries, product development technologies and other know-how, to operate without infringing on the proprietary rights of others and to prevent others from infringing its proprietary rights. The company's policy is to seek to protect its proprietary position by, among other methods, filing U.S. and foreign patent applications related to its proprietary technology, inventions and improvements that are important to the development and implementation of its business. The company also rely on trademarks, trade secrets, know-how, continuing technological innovation and potential in-licensing opportunities to develop and maintain its proprietary position.

As for the product candidates the company develop and plan to commercialize, as a normal course of business, the company intend to pursue composition and therapeutic use patents, as well as novel indications for its product candidates. The company also seek patent protection with respect to novel discoveries, including new active agent, delivery vehicle and delivery target applications. Otonomy has also pursued patents with respect to its proprietary manufacturing processes. Otonomy has sought and plan to continue to seek patent protection, either alone or jointly with its collaborators, as its collaboration agreements may dictate.

It is possible that its current patents, or patents which the company may later acquire, may be successfully challenged or invalidated in whole or in part. Nevertheless, Otonomy is not aware of any issued patents that the company believe would prevent it from marketing OTIPRIO or its product candidates. It is also possible that the company may not obtain issued patents from its pending patent applications or other inventions the company seek to protect. Due to uncertainties inherent in prosecuting patent applications, patent applications are sometimes rejected and the company subsequently abandon them. It is also possible that the company may develop proprietary products or technologies in the future that are not patentable or that the patents of others will limit or altogether preclude its ability to do business. In addition, any patent issued to it may provide it with little or no competitive advantage, in which case the company may abandon such patent or license it to another entity. For more information, please see “Risk Factors—Risks Related to The company's Intellectual Property.”

The company's patent estate includes patents and applications with claims directed to OTIPRIO, and its OTO-104 and OTO-311 product candidates. The company'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. The company's patent estate, on a worldwide basis, includes approximately 88 issued patents and allowed patent applications, and at least 115 pending patent applications with claims relating to its OTIPRIO, OTO-104, OTO-311, future product candidates, manufacturing processes and alternative otic delivery technologies.

For OTIPRIO, the company co-own a patent family with The Regents of the University of California (UC) that is directed to the composition and therapeutic use of OTIPRIO. Through an exclusive license agreement, Otonomy has acquired UC’s rights in this patent family. This family includes four issued U.S. patents and three pending U.S. applications. The latest expiry date of the U.S. patents, without extensions, is April 2030, and the first three issued U.S. patents have been Orange Book (OB) listed. The fourth issued patent is expected to be OB listable for OTIPRIO’s expanded indication (AOE) if approved by FDA. Any future U.S. patents issuing from the related applications and directed to OTIPRIO are also expected to be OB listable. This family also includes issued patents or allowed applications in Australia, Canada, Europe, Israel, Japan, Korea, Mexico, Philippines, Russia, Singapore, South Africa and Taiwan; and pending applications in Argentina, Brazil, China, India, Jordan, Pakistan, Thailand, Uruguay and Venezuela. Divisional patent applications have been filed in select countries of this family. In addition, the company solely own a patent family directed to certain therapeutic uses of OTIPRIO, which includes an issued U.S. patent that has been submitted for OB listing and can extend patent protection of OTIPRIO to August 2034. Furthermore, the company solely own a patent family directed to OTIPRIO and its manufacturing methods, which includes an issued U.S. patent that has been OB listed and extends patent protection of OTIPRIO to July 2035. Finally, the company solely own a patent family directed to the packaged OTIPRIO product, and have filed two solely owned U.S. provisional applications directed to certain therapeutic use of OTIPRIO.

For OTO-104, the company co-own a patent family with UC directed to the composition and therapeutic use of OTO-104. Through an exclusive license agreement, Otonomy has acquired UC’s rights in this patent family. This family includes six issued U.S. patents and one pending U.S. application. The latest expiry date of the U.S. patents, without extensions, is September 2029, and these patents and any future U.S. patent issuing from the related applications are expected to be OB listable. This family also includes issued patents or allowed applications in Australia, Canada, China, Europe, Hong Kong, India, Israel, Japan, Korea, Mexico, Peru, Philippines, Russia, Singapore, South Africa, Taiwan and UK; and pending applications in Argentina, Brazil, Chile, Indonesia, Jordan, Malaysia, Pakistan, Thailand, Uruguay, Venezuela and Vietnam. Divisional patent applications have been filed in select countries for this family. In addition, the company solely own a patent family directed to additional therapeutic uses of OTO-104, including prevention of chemotherapeutic drug-induced ototoxicity. Finally, the company solely own 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.

For OTO-311, the company co-own two patent families with UC directed to the composition and therapeutic use of OTO-311. Through an exclusive license agreement, Otonomy has acquired UC’s rights in both patent families. These families include three issued U.S. patents and two pending U.S. applications. The latest expiry date of the U.S. patent, without extensions, is April 2031, and these patents and any future U.S. patent issuing from this application are expected to be OB listable. These families also include issued patents or allowed applications in Australia, Canada, Chile, China, Japan, Korea, Mexico, Russia, South Africa, Taiwan and UK; and pending applications in Argentina, Brazil, Europe, India, Israel, Jordan, Pakistan, Thailand, Uruguay and Venezuela. Divisional patent applications have been filed in select countries for those families. In addition, Otonomy has licensed from Durect a patent family directed to the therapeutic use of OTO-311. This family includes one issued U.S. patent and one issued Japanese patent. The expiry date of the U.S. patent, without extension, is June 2024, and the patent is expected to be OB listable.

For Program 4, Otonomy has acquired rights in a patent family that are directed to certain product candidates. Otonomy has also filed three families of patent applications, which the company co-own, that are directed to certain product candidates.

For its future product candidates, the company co-own eight other patent families with UC directed to a broad range of other active agents, including but not limited to, anti-TNF agents, auris pressure modulators, CNS modulators, cytotoxic agents, anti-apoptotic agents, bone-remodeling modulators, free radical modulators and ion channel modulators. As above, Otonomy has acquired, though an exclusive license, UC’s rights in those co-owned families. Furthermore, to strengthen its protection against potential design-around, the company solely own a patent family directed to alternative formulations. Finally, Otonomy has acquired from IncuMed LLC, an affiliate of the NeuroSystec Corporation, patent families directed to formulations or devices that deliver active agents, such as the active agent of OTO-311, into the ear for treatment of otic diseases through alternative delivery technologies. The company will continue to pursue additional patent protection as well as take appropriate measures to obtain and maintain proprietary protection for its innovative technologies.

Individual patents extend for varying periods depending on the date of filing of the patent application or the date of patent issuance and the legal term of patents in the countries in which they are obtained. Generally, patents issued for regularly filed applications in the United States are effective for 20 years from the earliest effective filing date. In addition, in certain instances, a patent term can be extended to recapture a portion of the U.S. Patent and Trademark Office (USPTO) delay in issuing the patent as well as a portion of the term effectively lost as a result of the FDA regulatory review period. However, as to the FDA component, the restoration period cannot be longer than five years and the total patent term including the restoration period must not exceed 14 years following FDA approval. The duration of foreign patents varies in accordance with provisions of applicable local law, but typically is also 20 years from the earliest effective filing date. In addition to the patents and allowed applications described in the preceding paragraphs, its pending patent applications related to its product candidates, if issued, are expected to expire on dates ranging from 2029 to 2032. However, the actual protection afforded by a patent varies on a product by product basis, from country to country and depends upon many factors, including the type of patent, the scope of its coverage, the availability of regulatory-related extensions, the availability of legal remedies in a particular country and the validity and enforceability of the patent.

In addition to patents, Otonomy has obtained trademark registration for “OTIPRIO” in the United States, Europe, Japan, Korea, and New Zealand, and have pending trademark application for “OTIPRIO” in Australia, Canada, and China. Furthermore, the company rely upon trade secrets and know-how and continuing technological innovation to develop and maintain its competitive position. The company seek to protect its proprietary information, in part, using confidentiality agreements with its commercial partners, collaborators, employees and consultants and invention assignment agreements with its employees. The company also have confidentiality agreements or invention assignment agreements with its commercial partners and selected consultants. These agreements are designed to protect its proprietary information and, in the case of the invention assignment agreements, to grant it ownership of technologies that are developed through a relationship with a third party. These agreements may be breached, and the company may not have adequate remedies for any breach. In addition, its trade secrets may otherwise become known or be independently discovered by competitors. To the extent that its commercial partners, collaborators, employees and consultants use intellectual property owned by others in their work for it, disputes may arise as to the rights in related or resulting know-how and inventions. For more information, please see “Risk Factors—Risks Related to The company's Intellectual Property.”

The company's commercial success will also depend in part on not infringing upon the proprietary rights of third parties. It is uncertain whether the issuance of any third-party patent would require it to alter its development or commercial strategies, or its drugs or processes, obtain licenses or cease certain activities. The company's breach of any license agreements or failure to obtain a license to proprietary rights that the company may require to develop or commercialize its future products may have a material adverse impact on it. If third parties prepare and file patent applications in the United States that also claim technology to which Otonomy has rights, the company may have to participate in interference proceedings in the USPTO, to determine priority of invention. Although it is not expected to be relevant to its product or any of its product candidates, on April 17, 2015, the company filed a request for interference between one of its U.S. pending applications and a U.S. pending application that appears to be controlled by Auris Medical AG (Auris). On July 20, 2015, the company received notice from the USPTO that the Patent Trial and Appeal Board (PTAB) declared an interference between its pending application and the Auris patent (issued as U.S. Patent No. 9,066,865 on June 30, 2015). On January 26, 2017, the PTAB determined that all of Otonomy’s patent claims and all but one of the Auris’ patent claims are not patentable. In addition, the PTAB determined that the written description supporting Auris’ single claim is as of Auris’ filing date of 2014 rather than the 2005 dated argued by Auris. This interference decision does not involve issued U.S. patents covering its product or product candidates. For more information, please see “Risk Factors—Risks Related to The company's Intellectual Property.”

License and Other Agreements

The Regents of the University of California

In November 2008, the company entered into an exclusive license agreement with UC that was subsequently amended in January 2010, June 2010, and November 2012. Under the license agreement, UC granted it an exclusive license under UC’s rights to patents and applications that are co-developed and co-owned with it (see above regarding its patent estate) for the treatment of human otic diseases. As such, Otonomy has acquired the entire commercial rights in those patents and applications that cover OTIPRIO and its current and future product candidates. Under the agreement, UC reserved the right to use the patents and applications for its and other nonprofit institutions’ research and educational purposes.

Under its agreement with UC, Otonomy is obligated to diligently proceed with the development, manufacture and commercialization of licensed products. If the company do not satisfy its diligence obligations, UC may either terminate the agreement or convert its license to a non-exclusive license. In addition, Otonomy is responsible for diligently prosecuting and maintaining the licensed patents, at its own expense; provided that if the company decide to abandon a licensed patent, UC may elect to continue prosecution and maintenance of such patent at its own expense. UC has the first right to prosecute and control any action for infringement of the patents licensed to it under its agreement with UC; provided that if UC does not initiate an enforcement action against a potential infringer within the time limits specified in the agreement, Otonomy has the right to do so itself .

The company's financial obligations under the license agreement include annual license maintenance payments until the company commercialize the first product covered under the license agreement, development milestone payments of up to $2.7 million per licensed product, of which $1.9 million has been paid for OTIPRIO, $0.8 million has been paid for OTO-104, and $0.1 million has been paid for OTO-311 (but such milestone payments are reduced by 75% for any orphan indication product), and a low single-digit royalty on net sales by it or its affiliates of licensed products. In addition, for each sublicense the company grant Otonomy is obligated to pay UC a fixed percentage of all royalties as well as a sliding scale percentage of non-royalty sublicense fees received by it under such sublicense, with such percentage depending on the licensed product’s stage of development when sublicensed to such third party. Otonomy has the right to offset a certain amount of third-party royalties, milestone fees or sublicense fees against the foregoing financial obligations, provided such third-party royalties or fees are paid by it in consideration for intellectual property rights necessary to commercialize a licensed product.

Unless earlier terminated, the agreement will continue in effect until expiration of the longest lived patent licensed to it thereunder. UC may terminate the license agreement for its uncured breach, or if a claim challenging the validity of the licensed patents is filed by or on behalf of it. Otonomy has the right to terminate this agreement for any reason at any time upon prior notice to UC. The termination of its license agreement with UC may affect a portion of its patent portfolio for OTIPRIO, OTO-104, and OTO-311. For more information, please see “Risk Factors—Risks Related to its Intellectual Property.”

DURECT Corporation

In April 2013, the company entered into an exclusive license agreement with Durect as a part of an asset transfer agreement between it and IncuMed LLC, an affiliate of the NeuroSystec Corporation. Under this license agreement, Durect granted it an exclusive (even as to Durect), worldwide, royalty-bearing license under Durect’s rights to certain patents and applications that cover its OTO-311 product candidate, as well as certain related know-how. Included within the rights licensed from Durect is a sublicense from the Institut National de la Sante et de la Recherche Medicale (INSERM) with respect to INSERM’s ownership interest in certain patents and patent applications owned jointly by INSERM and Durect.

Otonomy is obligated to use commercially reasonable efforts to develop and commercialize licensed products containing the active ingredient gacyclidine, and in the event the company do not satisfy this obligation following an opportunity to cure, Durect may elect to either terminate the agreement or convert its license to a non-exclusive license. In addition, Otonomy is responsible for prosecuting and maintaining the licensed patents, at its own expense; provided that if the company decide to abandon a licensed patent, Durect may elect to continue prosecution and maintenance of such patent at its own expense. Otonomy has the first right, but not obligation, to prosecute and control any action for infringement of the patents licensed to it under its agreement with Durect.

Otonomy is also subject to certain financial obligations under the license agreement. Otonomy is obligated to make one-time development milestone payments of up to $2.3 million for the first licensed product. Upon commercializing a licensed product, Otonomy is obligated to pay Durect tiered low single-digit royalties on annual net sales by it or its affiliates or sublicensees of the licensed products, and Otonomy has the right to offset a certain amount of third-party license fees or royalties against such royalty payments to Durect, provided such third-party fees or royalties are paid by it in connection with patent rights necessary to sell a licensed product containing the active ingredient gacyclidine. In addition, each sublicense the company grant to a third party is subject to payment to Durect of a low double-digit percentage of all non-royalty payments the company receive under such sublicense. Additionally, Otonomy is also obligated to pay INSERM, on behalf of Durect, a low single-digit royalty payment on net sales by it or its affiliates or sublicensees upon commercialization of the licensed product. The foregoing royalty payment obligation to Durect would continue on a product-by-product and country-by-country basis until expiration or determination of invalidity of the last valid claim within the licensed patents that cover the licensed product, and the payment obligation to INSERM would continue so long as Durect’s license from INSERM remains in effect.

Unless earlier terminated, the agreement will continue in effect until expiration of all its royalty payment obligations thereunder. Durect may terminate the license agreement for its uncured material breach, and either party may terminate the agreement upon written notice in the event of insolvency or bankruptcy of the other party. Otonomy has the right to terminate this agreement for any reason at any time upon prior notice to Durect. The termination of its license agreement with Durect would affect a portion of its patent portfolio for OTO-311. For more information, please see “Risk Factors—Risks Related to its Intellectual Property.”

Asset Transfer Agreement

In April 2013, the company entered into an asset transfer agreement with IncuMed, LLC, an affiliate of NeuroSystec Corporation, pursuant to which the company acquired assets and patent rights related to gacyclidine. Pursuant to the asset transfer agreement, the company made a one-time payment of $0.2 million and Otonomy is obligated to make certain one-time milestone payments in connection with the development and commercialization of products containing the active ingredient gacyclidine, up to a maximum of $5.3 million.

References

  1. ^ https://fintel.io/doc/sec-otic-otonomy-10k-annual-report-2018-march-08-18034
Tags: US:OTIC
Created by Asif Farooqui on 2019/12/09 15:48
     
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