Thread by @ErikOtto2

Biotech Idea of the Day: $OTIC. This co. has a number of injectable treatments for the ear, including ones for hearing loss and tinnitus that both read out mid-2022. Market cap is ~$105 M (including pre-funded warrants) and they have $98 M cash on hand as of the end of Q2. 1/18

Both these readouts could demonstrate proof of concept in indications with significant $ potential, (OPPY has $860 M peak sales for tinnitus, hearing loss believed to be >$1 billion), so the company’s valuation could be a multiple of where it is now if either succeeds. 2/18

One of the cool things about their platform is that it allows the drug to form a hydrophobic gel inside the ear at body temperature. So rather than getting flushed out the ear through the eustation tube, the matrix stays there for an extended period releasing active drug. 3/18

This could be a significant competitive advantage, and why other treatments have failed (drug flushed out too fast). It reminds me of $OCUL’s hydrogel technology; it can be applied to multiple drugs and indications allowing for barriers to entry and good expansion potential. 4/18

The active tinnitus drug OTO-313 is a sustained-exposure formulation of gacyclidine, an NMDA receptor antagonist reduce the over-activation of auditory nerve fiber signaling. They get several weeks of drug exposure from single intratympanic injection. 5/18

The P2 readout looks like it has a reasonable shot at success based on the totality of the data, study design etc. This responder analysis shows the potential for clinically meaningful improvement. A number of 2ndary endpoints support the effect. 6/18

The cochlear synaptopathy hearing loss (OTO-413) active drug is Brain-derived neurotrophic factor (BDNF), an endogenous protein with neurotrophic effects on spiral ganglion neurons. It is supposed to induce regrowth of neurons and repair synapses so could improve hearing. 7/18

OTO-413 caught my eye as promising because of the attached chart showing dramatic differences between the high dose and placebo. I find it hard to believe that the drug is not active with this placebo vs active arm disparity. 8/18

Mid-2022 is far away for many event-driven investors, but I see $OTIC as a time arbitrage as much as a data play. I wouldn’t be surprised to see the stock in the ~$4 range by Q2 2022 on anticipation of good data in at least one of these readouts. 9/18

Eye and ear stocks are out of favor. Some see this as bearish, but I see this as bullish, for any company that has treatments that could have a big impact are currently more undervalued than biotech peers. 10/18

They have little competition. $FREQ and $DBTX are the closest I could find, but they have costly gene therapy approaches that have either weak initial data and higher adoption hurdles than $OTIC. It’s rare to find wide open markets like these in biotech. 11/18

The company has some nice fund ownership; Baker Brothers, Orbimed, Adage and Cormorant have appreciable stakes. While the specialist fund participation is nice to see, it doesn’t necessarily mean the science is good (I’m looking at you $FBRX). 12/18

Some concerns and risks: 1) Hearing aids are an option for hearing loss patients, so they will need to show a big effect size in that indication. Although if the treatment actually regenerates nerve fibers, that is something hearing aids cannot do. 13/18

2) The company has had a bad track record with prior drugs. They should have never pursued the Meniere’s drug after the weak signal in Phase 2. Thankfully mgmt has discontinued this asset and is pursuing indications for which their technology is better suited. 14/18

3) While the ear market is wide open, it is also untested with less developed marketing and reimbursement dynamics. I expect a risk discount to linger on the stock for this reason, even if the treatments show a significant benefit. 15/18

4) Development timelines could be long because there are few standards for what is considered an acceptable clinical program. They couldn’t move OTO-413 directly into a Phase 2b trial after last year’s impressive data because more data was needed to determine design. 16/18

5) Also the company has an ATM and could raise before data, although not very likely given the strong cash position. 17/19

These risks notwithstanding, the company appears to be undervalued at $105 M MC and ~$7 M EV when it could be on track to $1 B in sales, with two legitimate shots on goal, in indications with little competition. 18/19

Thanks for reading! The reason I do these threads is to test my thesis. I appreciate any challenges to my assumptions, so don’t hold back if you have questions or concerns. 19/19