Otonomy Pockets $10M For Hearing Loss

6/10/10Follow @xconomy

Hearing loss and other diseases of the ear affect millions of people, but that hasn’t translated into millions of dollars for biotech entrepreneurs. But that may be changing, as San Diego-based Otonomy has collected an initial round of $10.5 million in venture capital.

The financing in Otonomy (Oh-TAWN-uh-me) could be worth as much as $26 million over time, according to a regulatory filing. But the deal is actually a little more complicated than the SEC filing suggests, says founder and CEO Jay Lichter. Avalon Ventures has provided $10.5 million in bridge loans over the past two years, and the new transaction represents a conversion of that debt into equity. The financing is being structured to go much larger, in anticipation of bringing in new equity investors, Lichter says.

“The company is going fantastic. We’re making progress on every front,” Lichter says.

Otonomy, which I first profiled in March 2009, was inspired by a serious bout of dizziness that Lichter suffered one day while driving down Prospect Street in San Diego. He later found out it was a case of Meniere’s disease (Men-yay’s), an imbalance of inner ear fluid that can cause severe dizziness, vertigo, and gradual hearing loss. Being a biotech venture capitalist, that naturally got him thinking about how good the existing therapies are, what the state of research looks like, and whether there was a market for something better. The answer is that even though almost 30 million Americans have debilitating hearing loss and balance disorders from noisy workplaces, overactive iPods, or simply old age, there are no drugs specifically FDA approved to treat hearing loss.

“The potential is to be the world leader in treatment of the ears,” Lichter said in the March 2009 feature.

Otonomy announced in February that it had gotten clearance to start its first clinical trial in people with Meniere’s. The company’s lead drug candidate isn’t a radical sort of thing built on gee-whiz molecular biology. It’s called OTO-104, a long-lasting dexamethasone gel that can be directly injected into the ear, where it is supposed to suppress inflammation. The company presented some data from animal trials last month at a medical meeting in Las Vegas. A second drug candidate is expected to enter clinical trials next year for otitis media, an inflammation of the middle ear.

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