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Otonomy’s Stock Plummets Over 80 Percent After Failed Clinical Trial

Following a truly dismal clinical trial flop, San Diego drugmaker Otonomy Inc. watched its stock nosedive over 82 percent by close of market Wednesday.

The stock’s tailspin is coming as a surprise to investors and analysts. Out of all the public life science companies in San Diego, Otonomy performed at the top during the second quarter, seeing a 58 percent increase in the share price. Investors were banking on experimental drugs in Otonomy’s research pipeline, and that bet just backfired.

Investors viewed one of Otonomy’s experimental treatments as the stock’s main value driver – a steroid candidate called Otividex, which was in late-stage human trials. The data on that trial was just published, and the drug failed miserably when compared to the placebo.

The drug, a treatment for vertigo associated with Meniere’s disease, is a formulation of an existing steroid designed to become a viscous gel upon injection, allowing for a quicker and more painless procedure. But in the late-stage trial, Optividex did not outperform the placebo.

“At this point, we have no explanation for the unequivocal negative result,” the company said on a call with analysts, adding that it planned to further analyze the data to investigate what went wrong.

The results were bad enough that Otonomy said it will immediately suspend a nearly identical trial currently underway in Europe. That will help the company conserve its cash balance, which totaled $150.5 million at the end of June. But there’s still a serious gap between revenue and expenses. The company’s burn rate is about $80 million per year, while sales of the company’s first approved drug, Otiprio, only brought in about $700,000 in sales during the first half of the year.

Otonomy may be able to boost those sales of Otiprio if the company can get FDA approval to use Otiprio to treat two additional indications: swimmer’s ear and ear infections.

Otonomy’s stock closed at $3.58 per share on Aug. 30, down from $21.05 the day prior.

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