CEO David Weber said Otonomy Inc.'s FDA clearance, well before the Christmas Day PDUFA date, of Otiprio for pediatric patients undergoing ear tube placement surgery paves the way for other compounds that use the same technology, and the company has a plan. "We can easily scale this," he said. "Our plan will be to go from the 40 sales reps that we will have with Otiprio to increase that to approximately 80 reps" when the next compound, OTO-104 for Ménière's disease, is launched.

Otiprio, meanwhile, a single-dose, physician-administered antibacterial, is the first ever cleared for the ear-tube indication in the U.S., and is intended to reduce the rate of treatment failure after the surgery. More than a million tube operations are undertaken every year in the U.S. to deal with recurrent ear infections, with 85 percent of them done in children.

"It's a very stable rate," Weber said during a conference call with investors, calling the annual number "very strong and consistent." Lately, though, the marketplace has "seen an uptick in the amount of reimbursements that facilities will have available," he said. About 60 percent of the procedures are done in a hospital, 25 percent in ambulatory surgery centers and 15 percent in physicians' offices. "We're going to obviously learn a whole lot more when we get out there," he added, but apparently the in-office surgeries involve "adults and perhaps older children" who don't need general anesthesia. These likely will remain in the minority.

Otiprio will be launched in the first quarter of next year. Paul Cayer, chief financial officer, said Otonomy "would expect that IMS [Health Inc.] and Symphony [Health Solutions] would have reasonable tracking of the product that goes out to the hospitals," but "it's not clear yet what the capture rate will be" for the rest.

Formerly OTO-201 and Auripro, Otiprio is made up of ciprofloxacin particles in a thermo-reversible gel, a technology that San Diego-based Otonomy is developing further with OTO-104 in a phase III trial for Ménière's disease and with OTO-311 in a phase I safety study for tinnitus. Data in Ménière's are not expected until the second half of 2017, though first proof-of-concept results in tinnitus are due around the middle of next year.

In May, Otonomy scored a near miss in the phase IIb Ménière's push, and shares took a 20 percent hit. Top-line data showed the effort barely failed to hit statistical significance on the main goal: reduction in vertigo frequency during the third month after treatment compared to a one-month baseline period. "Short of a win, this is the next best place to be," CEO Weber said at the time. (See BioWorld Today, May 26, 2015.)

Earlier this month, the firm said preliminary results of a phase II trial of Otiprio in patients with acute otitis externa, also known as swimmer's ear, showed clinical feasibility. The one-month, open-label phase II trial enrolled 75 pediatric and adult patients with unilateral acute otitis externa, and first data revealed a clinical cure at day 15 in the majority of patients with a greater than 80 percent rate for patients treated with the 0.2 mL (12 mg) dose. The compound also has reached phase II for the treatment of pediatric patients with acute otitis media with tympanostomy tubes

Otonomy raised $100 million in an upsized August 2014 IPO, selling 6.25 million shares priced at $16 each and building on its substantial $45.9 million series C round. In January, the firm completed a follow-on offering that reaped gross proceeds of about $86 million, including the underwriters' exercise of their option. (See BioWorld Today, Dec. 23, 2013, and Aug. 14, 2014.)

Piper Jaffray analyst Joshua Schimmer wrote in a research report that his firm is "impressed with the thoughtfulness of the management in preparing for Otiprio launch and continuous efforts in building awareness in the ear-nose-and-throat community. Otonomy plans to apply for transitional pass-through payment status (C-code) for Otiprio in March 2016, which would provide a nice add-on to facilitate early Otiprio adoption in the hospital outpatient setting," he noted. Schimmer reiterated his "overweight" rating on the stock and his price target of $46, calling it a "top pick."

J.P. Morgan analyst Cory Kasimov stuck with his "neutral" rating on the shares. Otonomy "has been actively engaged with key opinion leaders and physicians, including providing health economics data to help inform treatment decisions," he allowed in a research report. "Importantly, the company is working on finalizing pricing with an expected range of $200-$250 (in-line with prior guidance)." He modeled peak U.S. sales of around $300 million. "We expect sales to reach $165 million by 2020," hitting the top mark in the middle of the next decade, based on a U.S. gross price of $250, he wrote. "Raising our probability of approval to 100 percent from 85 percent results in a bump in our target to $32 from $30."

Otonomy also updated financial guidance for 2015. GAAP and non-GAAP operating expenses are expected to be below the previous guidance of $70 million to $75 million and $65 million to $70 million, respectively, as a result of program cost savings and expense timing differences, the company said. Total cash, cash equivalents and short-term investments as of year-end are expected to be in the range of $180 million to $185 million vs. previous guidance of $165 million to $170 million. The company maintained its expectation for 2016 non-GAAP operating expenses in the range of $90 million to $95 million.

The company's stock (NASDAQ:OTIC) closed Friday at $27.32, up 77 cents.