10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to .

Commission file number: 001-36591

 

Otonomy, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

26-2590070

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

 

4796 Executive Drive

San Diego, California 92121

(619) 323-2200

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common stock, par value $0.001 per share

 

OTIC

 

The NASDAQ Global Select Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

The number of shares of the registrant’s common stock, par value $0.001, outstanding as of July 19, 2022 was 56,990,363.

 

 


 

TABLE OF CONTENTS

 

 

Page

 

 

PART I. FINANCIAL INFORMATION

4

 

 

Item 1. Financial Statements

4

 

 

Condensed Balance Sheets

4

 

 

Condensed Statements of Operations

5

 

 

Condensed Statements of Comprehensive Loss

6

 

 

Condensed Statements of Stockholders’ Equity

7

 

 

Condensed Statements of Cash Flows

9

 

 

Notes to Condensed Financial Statements

10

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

28

 

 

Item 4. Controls and Procedures

28

 

 

PART II. OTHER INFORMATION

29

 

 

Item 1. Legal Proceedings

29

 

 

Item 1A. Risk Factors

29

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

64

 

 

Item 3. Default Upon Senior Securities

64

 

 

Item 4. Mine Safety Disclosures

64

 

 

Item 5. Other Information

64

 

 

Item 6. Exhibits

65

 

3


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Otonomy, Inc.

Condensed Balance Sheets

(in thousands, except share and per share data)

 

 

June 30,

 

 

December 31,

 

 

2022

 

 

2021

 

 

(unaudited)

 

 

 

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

53,148

 

 

$

77,412

 

Prepaid and other current assets

 

3,200

 

 

 

3,056

 

Total current assets

 

56,348

 

 

 

80,468

 

Restricted cash

 

702

 

 

 

702

 

Property and equipment, net

 

1,812

 

 

 

1,771

 

Right-of-use assets

 

11,898

 

 

 

12,696

 

Total assets

$

70,760

 

 

$

95,637

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

$

2,195

 

 

$

1,090

 

Accrued expenses

 

3,069

 

 

 

4,338

 

Accrued compensation

 

2,432

 

 

 

3,450

 

Long-term debt, current

 

457

 

 

 

 

Leases, current

 

3,505

 

 

 

3,455

 

Total current liabilities

 

11,658

 

 

 

12,333

 

Long-term debt, net of current

 

15,627

 

 

 

15,997

 

Leases, net of current

 

11,398

 

 

 

12,400

 

Total liabilities

 

38,683

 

 

 

40,730

 

Commitments and Contingencies

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock, $0.001 par value; 10,000,000 shares authorized at June 30, 2022
   and December 31, 2021;
no shares issued or outstanding at June 30, 2022 and
   December 31, 2021

 

 

 

 

 

Common stock, $0.001 par value; 200,000,000 shares authorized at June 30, 2022
   and December 31, 2021;
56,990,363 and 56,732,474 shares issued and outstanding
   at June 30, 2022 and December 31, 2021, respectively

 

57

 

 

 

57

 

Additional paid-in capital

 

614,458

 

 

 

610,655

 

Accumulated deficit

 

(582,438

)

 

 

(555,805

)

Total stockholders’ equity

 

32,077

 

 

 

54,907

 

Total liabilities and stockholders’ equity

$

70,760

 

 

$

95,637

 

 

See accompanying notes.

 

4


 

Otonomy, Inc.

Condensed Statements of Operations

(in thousands, except share and per share data)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

(unaudited)

 

Product sales, net

 

$

 

 

$

35

 

 

$

 

 

$

125

 

Costs and operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of product sales

 

 

 

 

 

140

 

 

 

 

 

 

370

 

Research and development

 

 

9,232

 

 

 

8,357

 

 

 

18,638

 

 

 

16,017

 

Selling, general and administrative

 

 

3,523

 

 

 

3,669

 

 

 

7,271

 

 

 

7,712

 

Total costs and operating expenses

 

 

12,755

 

 

 

12,166

 

 

 

25,909

 

 

 

24,099

 

Loss from operations

 

 

(12,755

)

 

 

(12,131

)

 

 

(25,909

)

 

 

(23,974

)

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

89

 

 

 

11

 

 

 

100

 

 

 

26

 

Interest expense

 

 

(415

)

 

 

(392

)

 

 

(824

)

 

 

(774

)

Net loss

 

$

(13,081

)

 

$

(12,512

)

 

$

(26,633

)

 

$

(24,722

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share, basic and diluted

 

$

(0.19

)

 

$

(0.19

)

 

$

(0.39

)

 

$

(0.42

)

Weighted-average shares used to compute net loss per share, basic and diluted

 

 

68,049,320

 

 

 

65,627,778

 

 

 

67,948,065

 

 

 

59,010,204

 

 

See accompanying notes.

5


 

Otonomy, Inc.

Condensed Statements of Comprehensive Loss

(in thousands)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

(unaudited)

 

Net loss

 

$

(13,081

)

 

$

(12,512

)

 

$

(26,633

)

 

$

(24,722

)

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on available-for-sale securities

 

 

 

 

 

(4

)

 

 

 

 

 

 

Comprehensive loss

 

$

(13,081

)

 

$

(12,516

)

 

$

(26,633

)

 

$

(24,722

)

 

See accompanying notes.

6


 

Otonomy, Inc.

Condensed Statements of Stockholders’ Equity

(in thousands, except share data)

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Equity

 

Balance at March 31, 2022
   (unaudited)

 

 

56,921,605

 

 

$

57

 

 

$

612,549

 

 

$

 

 

$

(569,357

)

 

$

43,249

 

Issuance of common stock upon
   exercise of stock options (unaudited)

 

 

23,465

 

 

 

 

 

 

41

 

 

 

 

 

 

 

 

 

41

 

Issuance of common stock under
   employee stock purchase plan (unaudited)

 

 

45,293

 

 

 

 

 

 

74

 

 

 

 

 

 

 

 

 

74

 

Stock-based compensation
   expense (unaudited)

 

 

 

 

 

 

 

 

1,794

 

 

 

 

 

 

 

 

 

1,794

 

Net loss (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,081

)

 

 

(13,081

)

Balance at June 30, 2022
   (unaudited)

 

 

56,990,363

 

 

$

57

 

 

$

614,458

 

 

$

 

 

$

(582,438

)

 

$

32,077

 

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Equity

 

Balance at March 31, 2021
   (unaudited)

 

 

48,319,202

 

 

$

48

 

 

$

572,805

 

 

$

5

 

 

$

(516,834

)

 

$

56,024

 

Issuance of common stock and pre-
   funded warrants, net of issuance
   costs (unaudited)

 

 

8,298,890

 

 

 

9

 

 

 

32,198

 

 

 

 

 

 

 

 

 

32,207

 

Issuance of common stock
   upon exercise of stock
   options (unaudited)

 

 

2,604

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

5

 

Issuance of common stock
   under employee stock
   purchase plan (unaudited)

 

 

60,619

 

 

 

 

 

 

122

 

 

 

 

 

 

 

 

 

122

 

Stock-based compensation
   expense (unaudited)

 

 

 

 

 

 

 

 

1,811

 

 

 

 

 

 

 

 

 

1,811

 

Net loss (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,512

)

 

 

(12,512

)

Unrealized loss on available-
   for-sale securities (unaudited)

 

 

 

 

 

 

 

 

 

 

 

(4

)

 

 

 

 

 

(4

)

Balance at June 30, 2021
   (unaudited)

 

 

56,681,315

 

 

$

57

 

 

$

606,941

 

 

$

1

 

 

$

(529,346

)

 

$

77,653

 

 

See accompanying notes.

 

 

7


 

Otonomy, Inc.

Condensed Statements of Stockholders’ Equity

(in thousands, except share data)

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2021

 

 

56,732,474

 

 

$

57

 

 

$

610,655

 

 

$

 

 

$

(555,805

)

 

$

54,907

 

Issuance of common stock upon
   exercise of stock options and
   vesting of restricted stock units (unaudited)

 

 

212,596

 

 

 

 

 

 

41

 

 

 

 

 

 

 

 

 

41

 

Issuance of common stock
   under employee stock
   purchase plan (unaudited)

 

 

45,293

 

 

 

 

 

 

74

 

 

 

 

 

 

 

 

 

74

 

Stock-based compensation
   expense (unaudited)

 

 

 

 

 

 

 

 

3,688

 

 

 

 

 

 

 

 

 

3,688

 

Net loss (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(26,633

)

 

 

(26,633

)

Balance at June 30, 2022
   (unaudited)

 

 

56,990,363

 

 

$

57

 

 

$

614,458

 

 

$

 

 

$

(582,438

)

 

$

32,077

 

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2020

 

 

48,318,970

 

 

$

48

 

 

$

570,841

 

 

$

1

 

 

$

(504,624

)

 

$

66,266

 

Issuance of common stock and pre-
   funded warrants, net of issuance
   costs (unaudited)

 

 

8,298,890

 

 

 

9

 

 

 

32,198

 

 

 

 

 

 

 

 

 

32,207

 

Issuance of common stock
   upon exercise of stock
   options (unaudited)

 

 

2,836

 

 

 

 

 

 

6

 

 

 

 

 

 

 

 

 

6

 

Issuance of common stock
   under employee stock
   purchase plan (unaudited)

 

 

60,619

 

 

 

 

 

 

122

 

 

 

 

 

 

 

 

 

122

 

Stock-based compensation
   expense (unaudited)

 

 

 

 

 

 

 

 

3,774

 

 

 

 

 

 

 

 

 

3,774

 

Net loss (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(24,722

)

 

 

(24,722

)

Balance at June 30, 2021
   (unaudited)

 

 

56,681,315

 

 

$

57

 

 

$

606,941

 

 

$

1

 

 

$

(529,346

)

 

$

77,653

 

 

See accompanying notes.

8


 

Otonomy, Inc.

Condensed Statements of Cash Flows

(in thousands)

 

 

 

Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

 

 

(unaudited)

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(26,633

)

 

$

(24,722

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Depreciation

 

 

372

 

 

 

436

 

Stock-based compensation

 

 

3,688

 

 

 

3,774

 

Amortization of premiums on short-term investments

 

 

 

 

 

49

 

Amortization of debt discount

 

 

87

 

 

 

88

 

Impairment of property, plant and equipment

 

 

 

 

 

727

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid and other assets

 

 

(144

)

 

 

(194

)

Accounts payable

 

 

1,137

 

 

 

448

 

Accrued expenses

 

 

(1,326

)

 

 

(879

)

Accrued compensation

 

 

(1,018

)

 

 

(1,587

)

Right-of-use assets and lease liabilities, net

 

 

(154

)

 

 

(90

)

Net cash used in operating activities

 

 

(23,991

)

 

 

(21,950

)

Cash flows from investing activities:

 

 

 

 

 

 

Maturities of short-term investments

 

 

 

 

 

42,745

 

Purchases of property and equipment

 

 

(388

)

 

 

(243

)

Proceeds from disposition of business

 

 

 

 

 

768

 

Net cash (used in) provided by investing activities

 

 

(388

)

 

 

43,270

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from issuance of common stock and pre-funded warrants, net of issuance costs

 

 

 

 

 

32,207

 

Proceeds from issuance of long-term debt, net of issuance costs

 

 

 

 

 

674

 

Proceeds from exercise of stock options

 

 

41

 

 

 

6

 

Proceeds from issuance of common stock under employee stock purchase plan

 

 

74

 

 

 

122

 

Net cash provided by financing activities

 

 

115

 

 

 

33,009

 

Net change in cash, cash equivalents and restricted cash

 

 

(24,264

)

 

 

54,329

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

78,114

 

 

 

31,469

 

Cash, cash equivalents and restricted cash at end of period

 

$

53,850

 

 

$

85,798

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

53,148

 

 

$

85,096

 

Restricted cash at end of period

 

 

702

 

 

 

702

 

Cash, cash equivalents and restricted cash at end of period

 

$

53,850

 

 

$

85,798

 

 

 

 

 

 

 

 

Supplemental cash flow disclosures

 

 

 

 

 

 

Cash paid for interest

 

$

724

 

 

$

686

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing activities:

 

 

 

 

 

 

Purchase of property and equipment in accounts payable and accrued expenses

 

$

111

 

 

$

29

 

 

See accompanying notes.

9


 

Otonomy, Inc.

Notes to Condensed Financial Statements

(unaudited)

 

1. Description of Business and Basis of Presentation

Description of Business

Otonomy, Inc. (Otonomy or the Company) was incorporated in the state of Delaware on May 6, 2008. Otonomy is a biopharmaceutical company dedicated to the development of innovative therapeutics for neurotology. The Company pioneered the application of drug delivery technology to the ear and is utilizing that expertise and proprietary position to develop products that achieve sustained drug exposure from a single local administration. The Company’s primary focus is currently on the advancement of three programs in its broad pipeline: OTO-313 in Phase 2 for tinnitus; OTO-413 in Phase 2 for hearing loss; and OTO-825, a gene therapy for congenital hearing loss, in investigational new drug (IND)-enabling activities. Additionally, the Company is conducting preclinical development for OTO-510 in otoprotection and OTO-6XX for severe hearing loss.

Liquidity and Financial Condition

The Company follows Accounting Standards Codification (ASC) Topic 205-40, Presentation of Financial Statements—Going Concern, which requires that management perform a two-step analysis over its ability to continue as a going concern. Management must first evaluate whether there are conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern and to meet its obligations as they become due within one year after the date that the financial statements are issued (step 1). If management concludes that substantial doubt is raised, management is also required to consider whether its plans alleviate that doubt (step 2).

The Company has incurred operating losses and negative cash flows from operating activities since inception. As of June 30, 2022, the Company had cash, cash equivalents and short-term investments of $53.1 million, outstanding debt of $16.1 million and an accumulated deficit of $582.4 million. Management concluded that the balance of cash and cash equivalents may not be sufficient to fund the Company’s planned expenditures and meet its obligations for the twelve months following the financial statement issuance date without raising additional funding or making changes to operating plans or programs to reduce expenses. As a result, there is substantial doubt about the Company’s ability to continue as a going concern for twelve months following the issuance date of the condensed financial statements as of and for the three and six months ended June 30, 2022. The Company’s ability to continue as a going concern is dependent upon its ability to obtain additional funding or adjust operating plans or programs and associated spending. Management believes that the Company’s liquidity position provides sufficient runway to achieve critical near term research and development milestones. Management intends to raise additional funding through future debt and/or equity financings or other sources, such as potential collaboration agreements. But, additional capital may not be available in sufficient amounts or on reasonable terms, if at all. If the Company is not able to secure adequate additional funding, the Company may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, and/or suspend or curtail planned programs. Any of these actions could materially harm the Company’s business, results of operations, and future prospects. The condensed financial statements have been prepared assuming the Company will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty.

Basis of Presentation

The accompanying interim condensed financial statements are unaudited. These unaudited interim condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and following the requirements of the United States Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP can be condensed or omitted. In the Company’s opinion, the unaudited interim condensed financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, which include only normal recurring adjustments necessary for the fair presentation of the Company’s financial position, results of operations and cash flows for the periods presented. These condensed financial statements do not include all disclosures required by GAAP and should be read in conjunction with the Company’s audited financial statements and accompanying notes for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K, as filed with the SEC on February 28, 2022. The results presented in these unaudited condensed financial statements are not necessarily indicative of the results expected for the full fiscal year or any other interim period or any future year or period.

 

2. Summary of Significant Accounting Policies

Use of Estimates

The condensed financial statements have been prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of product

10


 

sales and expense during the reporting period. Although these estimates are based on the Company’s knowledge of current events and anticipated actions it may undertake in the future, actual results may ultimately materially differ from these estimates and assumptions.

Short-term Investments

From time to time, the Company carries short-term investments classified as available-for-sale debt securities at fair value as determined by prices for identical or similar securities at the balance sheet date. Short-term investments consist of both Level 1 financial instruments in the fair value hierarchy (see Note 6 – Fair Value).