Otonomy “pulled off a $100 million Wall Street debut, lining its pockets as it works to get a late-stage ear treatment through the FDA and onto the market.”

La Jolla ear boxing

A torrent of hype from high-flying La Jolla biotech investment outfits like Avalon Ventures continues apace, despite a growing stream of bad news for public investors. A sad case in point: the pending demise of the oddly named Otonomy, Inc. The company, which was “working on treatments for middle and inner ear diseases,” per a December 21 Union-Tribune report, “is shutting down after failing to find a buyer over the past few months.” It’s a far cry from the outfit’s glory days, when much-touted Avalon took Otonomy public in the late summer of 2014. Otonomy “pulled off a $100 million Wall Street debut, lining its pockets as it works to get a late-stage ear treatment through the FDA and onto the market,” wrote the website Fierce Biotech on August 13 of that year.

Jay Lichter: from suffering to startup.

“The company moved about 6.3 million shares at a top-of-the-range $16 each, earmarking another 937,500 shares to cover over-allotments and setting its maximum deal value at $115 million. Those proceeds would pile onto a $49 million Series D Otonomy closed in April, and the biotech intends to use its new cash to wrap up the development of its top prospect and pour the rest into two pipeline treatments for ear-related disorders. Otonomy quickly shot up more than 12% when its shares hit the market, trading at roughly $18 by mid-morning Wednesday.”

The buying frenzy was stirred up by online stories like a puffy March 2009 pre-Initial Public Offering piece by the website Xconomy.com, quoting Otonomy’s founding CEO and Avalon managing director Jay Lichter. “’The potential is to be the world leader in treatment of the ears. I like to say that we’ll be the Alcon of the ears,’ Lichter says, referring to the Switzerland-based eye care company. ‘That’s our goal, and we can do it.’” According to the Xconomy post, “Avalon has invested $3 million to get the company going in its first year.”

In April 2017, Lichter related in another Xconomy post his searing personal experience with an ear malady. “In January 2008, while driving along Wall Street in La Jolla, I suddenly got so dizzy and disoriented that I had to pull over. I thought I might be having a stroke or a heart attack. After 20 minutes, when I was still alive (and still in a free fall), I called a friend, and she picked me up and took me to the emergency room. I eventually ended up in the office of Dr. Jeff Harris, division chief of otolaryngology at UC San Diego Health. He said, ‘You have Meniere’s disease.’”

Adds the account: “After that appointment, I experienced the full throes of the disease. I would have two or three vertigo episodes a week, each one lasting between eight and 10 hours. I could not sleep through it. I would just close my eyes and lay there. Once the vertigo was over, I would get a vertigo hangover — a brain fog that would last several hours. I didn’t feel the spinning, but my mind was not as sharp as normal.”

Dr. Jeff Harris: from provider to patent partner.

Lichter’s health crisis marked the beginning of Otonomy, he wrote. “I feel extremely lucky because I was in a position to realize that treatment options were lacking, and I could actually do something about it. And that is what has always driven me — turning lemons into lemonade. At Otonomy, we are bringing new treatments for ear disorders like Meniere’s disease to thousands of people, and eventually, to hundreds of thousands (perhaps even millions) of people.” Harris, who still practices at UCSD, became a co-founder of Otonomy and now shares several ear drug patents with Lichter, assigned to Otonomy and the University of California, per the website justia.com. But Otonomy never delivered Lichter’s long promised miracle drugs, and the price of the firm’s stock has cratered, last week falling to 11 cents a share, reports Fierce Biotech.

But in the super-rich realm of La Jolla biotech investors, hope and hype are never far from each other, and without acknowledging past failures, Lichter is back drumming up investor cash, based on what he says are the latest putative cures. “On Dec. 6, partners from Avalon announced a first-time $135 million fund from Avalon BioVentures, L.P., a new venture capital firm dedicated to early-stage biomedical innovation,” the San Diego Business Journal reported December 20. “The new firm is a spin-out from Avalon Ventures – a San Diego-based VC which has raised approximately $750 million through 11 funds for both high-tech and life science companies.”

The story quoted Lichter as saying, “announcements about companies funded by [Avalon BioVentures] are ‘coming soon’ and that the goal of the fund is to invest in about three per year on average over the next four years. Despite the recent downturn in life science markets, Lichter said the partners and investors in Avalon BioVentures are bullish about the outlook for the fund’s future investments. ‘We’ve had a very consistent strategy over the years – early-stage investing, big ideas, new disease indications, novel targets, whole platforms. And if you’re starting something now, it doesn’t need public market exposure for three or four years. [The market] is going to come back around so we don’t really worry about that,’ he said.” Added Otonomy’s founder: “Our strategy works great because when times are bad, valuations are down, and we get better prices on companies.”

— Matt Potter (@sdmattpotter)

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