Venturing Into the Ear Frontier

Otonomy, Inc.Otonomy_Box
Founded by Avalon Ventures in April 2008
San Diego, CA


“The ear is one of the last great frontiers of pharmaceutical science… We’ve got the team, we’ve got the technology, we’ve got the money. We’re going to make Otonomy the Alcon of ear care.”

— Jay Lichter, Ph.D., Co-founder of Otonomy

Otonomy’s genesis has all the makings of a biopharmaceutical legend. Jay Lichter, Ph.D., managing director of Avalon Ventures, was driving down Prospect Street in La Jolla, Calif. one afternoon in January 2008 when he was struck not by a great entrepreneurial idea, but rather an unbearable dizziness.

Upon diagnosis of an inner ear disorder called Ménière’s disease, Dr. Lichter, who specializes in the field of therapeutic drug discovery, found himself staring into a vast, untapped area of biomedical development.

Significant Unmet Medical Need
There is no known cause of Ménière’s disease and no FDA-approved drug treatment to control its symptomatic episodes of vertigo, tinnitus (ringing in the ears), and fluctuations in hearing or aural fullness (persistent pressure in the middle ear much like “airplane ear”). Furthermore, there is no approved drug treatment for any form of hearing loss, which affects some 30 million Americans.

“The great challenge in treating ear disorders is reaching the cochlear (hearing) and vestibular (balance) organs in the inner ear,” explains RiverVest Venture Partner John McKearn.

“The inner ear is a privileged site. It is physically and chemically designed to reject foreign substances,” says Dr. McKearn. “A physician would have to administer enormous amounts of oral or intravenous steroids to get significant drug levels to the inner ear. Such a high dosage would put a patient at risk for systemic toxicity with a full slate of side effects.”

Sustained Release
Recently, physicians have begun using intratympanic (IT) injections to deposit steroids directly into the middle ear via a small perforation in the tympanic membrane (eardrum). Once inside the middle ear, therapeutic drugs are absorbed through a thin membrane called the round window—the gateway to the inner ear.

“The injections are effective,” says Paul R. Lambert, M.D., professor and chair of the Department of Otolaryngology–Head & Neck Surgery at the Medical University of South Carolina. “But they don’t last. The solution drains down the Eustachian tube as soon as the patient talks, swallows or sits up.”

To address this problem, physicians administer multiple rounds of IT injections, each round requiring long periods of complete immobility. “It’s impractical,” says Dr. Lambert. “Patients stop coming after two or three injections.”

But what if there was a way to hold the medicine inside the middle ear for longer periods of time?  Perhaps a way to make it stick?

That was the question posed by Dr. Lichter to his physician, Jeffrey Harris, M.D., Ph.D., chief of the Division of Otolaryngology–Head & Neck Surgery at University of California, San Diego. The answer, believed Dr. Harris, was sustained release.

Powerful Intellectual Property Estate
While Dr. Harris set to work considering different sustained release formulations, Dr. Lichter started writing patents and began testing different sustained release ingredients.  “There wasn’t a single company working to discover, develop or market drugs for treating hearing loss diseases,” says Dr. Lichter.  “This was wide-open territory, a very exciting white space.”

The doctors filed 25 patents and founded Otonomy within four months of Dr. Lichter’s diagnosis.  “We’ve created an intellectual property estate that blocks anybody from injecting any drug with sustained release properties across the eardrum into the middle ear space to treat either middle or inner ear disorders,” says Dr. Lichter.

Fast Path to Clinical Studies
Within 18 months, the company was cleared to begin a Phase 1b clinical study of OTO-104 in patients with Ménière’s disease.  The drug formulation combines a thermo-sensitive poloxamer with a steroid active ingredient to provide sustained release from a single IT injection.

“The poloxamer is liquid and thus easy to inject at room temperature,” explains Dr. Lambert.  “But as soon as it reaches body temperature, it gels.”  As a gel, the formulation adheres to the epithelial lining of the middle ear space, where it can remain in place long enough to deliver the drug for a prolonged period of time to the inner-ear fluids.

As the data began to look more and more promising and the company entered a second formulation into investigational studies, RiverVest decided to lead a small financing of about $7 million.

“But the opportunity landscape improved dramatically and there was a huge spike in interest,” recalls Dr. McKearn.  “Suddenly we were looking at a much larger offering, and we had to understand a very different business model.  When we met with Novo Ventures, everything began to click.  The opportunity and the challenges were clear to us and our teams were excited to co-lead a bigger financing to make this a full platform company.”

“John and Niall (RiverVest Principal Niall O’Donnell, Ph.D.) played a pivotal role in helping to develop a financeable research and development plan that was instrumental in convincing not only Novo Ventures to invest, but also in convincing Domain and TPG to participate in the financing,” says Dr. Lichter.

In August 2010, RiverVest and Novo Ventures co-led a $38.5 million Series B Preferred Stock financing.  They were joined by Domain Associates and TPG Biotech Ventures.

“This is a very strong syndicate and a groundbreaking opportunity for RiverVest and the other investors,” says Dr. McKearn, who has joined Otonomy’s board of directors.  “The benefit to the patient is going to be enormous.”

Proceeds from the financing will support Otonomy’s first two product candidates through pivotal clinical studies and move a third program into the company’s pipeline of locally delivered drugs to treat disorders of the ear.

Otonomy, Inc. is a clinical stage biopharmaceutical company developing novel drug therapies for disorders of the inner and middle ear. The company’s core technology is a sustained release formulation developed for optimal delivery of drugs from a single intratympanic (IT) injection.  Two products have been advanced into active development.  The first, OTO-104, is in a Phase 1b clinical trial in Ménière’s disease patients, and future studies are being planned for acute onset hearing loss.  The second, OTO-201, is a sustained release drug for the treatment of otitis media.  OTO-201 clinical trials are expected to begin in 2011.