OTONOMY, INC. MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)

The following discussion and analysis of our financial condition and results of
operations should be read together with our financial statements and the other
financial information appearing elsewhere in this Quarterly Report on Form 10-Q.
These statements generally relate to future events or to our future financial
performance and involve known and unknown risks, uncertainties and other factors
which may cause our actual results, performance or achievements to be materially
different from any future results, performance or achievements expressed or
implied by the forward-looking statements. The following discussion and analysis
contain forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Our actual results and the timing of events may
differ materially from those discussed in our forward-looking statements as a
result of various factors, including those discussed below and those discussed
in the section titled "Risk Factors" included in this Quarterly Report on Form
10-Q.

Forward-looking statements may include, but are not limited to, statements regarding the following:

the size of the market opportunity and the number of patients who suffer from the diseases and disorders we are targeting;

our expectations regarding the clinical development of OTO-313 in tinnitus
patients, including availability of top-line results from the ongoing Phase 2
clinical trial and clinical safety evaluation of higher and bilateral dosing of
OTO-313;

our expectations regarding the clinical development of OTO-413 in patients with hearing loss, including the availability of initial results from the ongoing higher dose evaluation of OTO-413;

our expectations regarding the future development of OTO-825 for congenital deafness and our collaboration with AGTC;

our expectations regarding potential impacts to our business, preclinical programs and clinical trials due to the COVID-19 pandemic;

the timing or likelihood of regulatory filings and approvals;

our expectations regarding the future development of other product candidates,
including but not limited to our development plans for our OTO-510 and OTO-6XX
programs;

our plans regarding the use of contractors to produce our product candidates for clinical trials and, if approved, for commercial use;

our plans and ability to effectively establish and manage our own sales and marketing capabilities, or seek and establish collaborative partners, to market our products;

our ability to advance product candidates into and successfully complete clinical trials;

the implementation of our business model, our strategic plans for our business, our product candidates and our technology;

the initiation, timing, progress and results of future non-clinical studies and clinical trials;

the extent of protection we are able to obtain and maintain for the intellectual property rights covering our product candidates and technology;

estimates of our expenses, future revenues, capital requirements and requirements and our intention to seek additional financing;

our expectations regarding the benefits of loans granted by Oxford Finance LLC;

•
our financial performance;

our expectations and statements regarding the benefits, pricing, market size,
opportunity and growth potential for OTO-313, OTO-413, OTO-825 and our other
product candidates, if approved for commercial use;

our expectations and statements regarding the adoption and use of OTO-313, OTO-413 and OTO-825, if approved;

our expectations regarding potential coverage and reimbursement related to OTO-313, OTO-413 and OTO-825, if approved, or any other approved product candidates;

accounting principles, policies and estimates;

developments and projections regarding our competitors and our industry; and

the adequacy of our existing cash, cash equivalents and short-term investments to fund our operations.

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These forward-looking statements are subject to a number of risks,
uncertainties, and assumptions, including but not limited to: delays and
disruption resulting from the COVID-19 pandemic and governmental responses to
the pandemic, including current and future impacts to our operations, our
limited operating history and our expectation that we will incur significant
losses for the foreseeable future; our ability to obtain additional financing;
the advancement of our product candidates, such as OTO-313, OTO-413 and OTO-825
through clinical development to regulatory approval and commercialization, the
uncertainties inherent in the clinical drug development process, including,
without limitation, our ability to adequately demonstrate the safety and
efficacy of our product candidates, the nonclinical and clinical results for our
product candidates, which may not support further development, and challenges
related to patient enrollment in clinical trials; our ability to obtain
regulatory approval for our product candidates; side effects or adverse events
associated with our product candidates; competition in the biopharmaceutical
industry; our dependence on third parties to conduct nonclinical studies and
clinical trials; our dependence on third parties for the manufacture of our
product candidates; our ability to protect our intellectual property related to
our product candidates in the United States and throughout the world;
expectations regarding potential market size, opportunity and growth; our
ability to manage operating expenses; implementation of our business model and
strategic plans for our business, product candidates and technology; the risk of
the occurrence of any event, change or other circumstance that could give rise
to the termination of promotional or collaboration agreements; the risks of the
occurrence of any event, change or other circumstances that could impact our
ability to repay or comply with the terms of the loans provided by Oxford
Finance LLC; and other risks. These forward-looking statements reflect our
beliefs and views with respect to future events and are based on estimates and
assumptions as of the date of this Quarterly Report on Form 10-Q and are subject
to risks and uncertainties.

We discuss many of these risks in greater detail in the section titled "Risk
Factors" included in Part II, Item 1A and elsewhere in this report. Moreover, we
operate in a very competitive and rapidly changing environment. New risks emerge
from time to time. It is not possible for our management to predict all risks,
nor can we assess the impact of all factors on our business or the extent to
which any factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements we may make.

Given these uncertainties, you should not place undue reliance on these
forward-looking statements. We qualify all the forward-looking statements in
this Quarterly Report on Form 10-Q by these cautionary statements. Except as
required by law, we assume no obligation to update these forward-looking
statements publicly, or to update the reasons actual results could differ
materially from those anticipated in any forward-looking statements, whether as
a result of new information, future events or otherwise.

Otonomy, the Otonomy logo, OTIVIDEX and other trademarks or service marks of
Otonomy appearing in this report are the property of Otonomy. Trade names,
trademarks and service marks of other companies appearing in this report are the
property of their respective holders. We have generally omitted the ®, ™ and
other designations, as applicable, for the trademarks used in this report.

You should not rely upon forward-looking statements as predictions of future
events. Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee that the future
results, levels of activity, performance or events and circumstances reflected
in the forward-looking statements will be achieved or occur. Moreover, neither
we nor any other person assumes responsibility for the accuracy and completeness
of the forward-looking statements. We undertake no obligation to update publicly
any forward-looking statements for any reason after the date of this Quarterly
Report on Form 10-Q to conform these statements to actual results or to changes
in our expectations, except as required by law.

You should read this Quarterly Report on Form 10-Q and the documents that we
reference in this Quarterly Report on Form 10-Q and have filed with the SEC as
exhibits to this Quarterly Report on Form 10-Q with the understanding that our
actual future results, levels of activity, performance, and events and
circumstances may be materially different from what we expect.

Insight

We are a biopharmaceutical company dedicated to the development of innovative
therapeutics for neurotology. We pioneered the application of drug delivery
technology to the ear and are utilizing that expertise and proprietary position
to develop products that achieve sustained drug exposure from a single local
administration. Our primary focus is currently on the advancement of three
programs in our 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, we
are conducting preclinical development of OTO-510 for otoprotection and OTO-6XX
for severe hearing loss. We estimate, based on an external market report
commissioned by us, that approximately 28 million people in the United States
suffer from moderate to severe tinnitus or hearing loss.

OTO-313 is a sustained-exposure formulation of gacyclidine, a potent and
selective N-Methyl-D-Aspartate (NMDA) receptor antagonist, in development for
the treatment of tinnitus. In July 2020, we announced positive top-line results
from a Phase 1/2 clinical trial of 0.32 mg OTO-313 in 31 evaluable patients with
persistent tinnitus of at least moderate severity. We have completed enrollment
in a Phase 2 clinical trial for OTO-313 that enrolled153 patients with
persistent tinnitus of at least moderate severity randomized 1:1 to 0.32 mg
OTO-313 or placebo. Top-line results are expected in August 2022. We have also
completed patient enrollment in a clinical

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safety evaluation of higher (0.64 mg) and bilateral dosing of OTO-313 that
includes three dose cohorts (0.64 mg unilateral, 0.32 mg bilateral and 0.64 mg
bilateral) with 12 tinnitus patients randomized 3:1 to OTO-313 or placebo in
each cohort. Top-line results are expected in the third quarter of 2022. If
positive, we expect these clinical data to support an End-of-Phase 2 meeting
with the United States Food and Drug Administration (FDA) and inform the design
of the OTO-313 Phase 3 clinical program planned to start in the first half of
2023.

OTO-413 is a sustained-exposure formulation of brain-derived neurotrophic factor
(BDNF) in development for the treatment of hearing loss. In December 2020, we
announced positive top-line results from a Phase 1/2 clinical trial of 0.3 mg
OTO-413 across multiple speech-in-noise hearing tests. In April 2022, we
announced positive top-line results from a Phase 2a clinical trial of 0.3 mg
OTO-413 in 33 patients with speech-in-noise hearing loss randomized 2:1 to
treatment with OTO-413 or placebo. Additionally, we have completed patient
enrollment for the evaluation of higher dosing of OTO-413 that includes two dose
cohorts (0.75 mg and 1.50 mg) with 19 speech-in-noise hearing loss patients
randomized 2:1 to OTO-413 or placebo in each cohort. Top-line results are
expected in the fourth quarter of 2022. Based on results from the positive Phase
2a, we plan to initiate a dose-ranging Phase 2 efficacy trial in the first
quarter of 2023.

OTO-825 is a gene therapy targeting mutations in the GJB2 gene, which is the
most common cause of congenital hearing loss. Preclinical proof-of-concept
results for OTO-825 demonstrate that a single administration of OTO-825 rescues
hearing loss and cochlear damage in two preclinical models representing a range
of hearing loss severity caused by GJB2 deficiency. We have completed a Pre-IND
meeting with the FDA that provided guidance regarding nonclinical study design,
manufacturing requirements and clinical trial considerations. Based on this
feedback, we have initiated IND-enabling activities that we expect to support an
IND filing in the first half of 2023.

OTO-510 is a product candidate in preclinical development for the prevention of
cisplatin-induced hearing loss (CIHL), which routinely occurs in patients
undergoing treatment with this chemotherapeutic agent. OTO-510 has demonstrated
improved otoprotection in preclinical studies compared to other drug candidates
in clinical development, and is being formulated to provide sustained exposure
from a single intratympanic injection. The goal of the OTO-510 program is to
preserve hearing without protecting the tumor.

Our OTO-6XX program focuses on developing a treatment for severe hearing loss through the repair of damaged cochlear hair cells.

We have a limited operating history. Since our inception in 2008, we have
devoted substantially all our efforts to developing and commercializing OTIPRIO,
developing OTIVIDEX and our current product candidates, and providing general
and administrative support for these operations. As of June 30, 2022, we had
cash, cash equivalents and short-term investments of $53.1 million and an
outstanding principal debt balance of $16.1 million.

We have never been profitable, and as of June 30, 2022, we had an accumulated
deficit of $582.4 million. Our net losses were $26.6 million and $24.7 million
for the six months ended June 30, 2022 and 2021, respectively. Substantially all
our net losses have resulted from research and development expenses related to
our clinical trials and product development activities, commercialization
expenses to launch OTIPRIO in the U.S. market, and other general and
administrative expenses.

We expect to continue to incur significant expenses and operating losses for the
foreseeable future as we continue to develop, seek regulatory approval, and, if
approved, commercialize our product candidates. In the near term, we anticipate
our expenses will continue to be substantial as we:

lead the clinical development of OTO-313 and OTO-413, and conduct studies leading to the IND of OTO-825;

lead the preclinical development of OTO-510 and OTO-6XX;

manufacturing contract for our product candidates;

evaluate opportunities for the development of additional product candidates;

maintain and develop our intellectual property portfolio;

hire additional staff as necessary to execute our product development plan; and

•
operate as a public company.

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We will need additional financing to support our continued operations. We expect
to finance our operations through public or private equity or debt financings or
other sources, such as potential collaboration arrangements. We may not be able
to raise capital on terms acceptable to us, or at all. Our failure to raise
capital could have a negative impact on our financial condition and our ability
to pursue our business strategies.

In November 2008, we entered into an exclusive license agreement with the
Regents of the University of California (UC). Under the license agreement, UC
granted us an exclusive license under their rights to patents and applications
that are co-developed and co-owned with us for the treatment of human otic
diseases. Our financial obligations under the license agreement include
development and regulatory milestone payments of up to $2.7 million per licensed
product, of which $1.9 million has been paid for OTIPRIO, $0.8 million has been
paid for OTIVIDEX, $0.4 million has been paid for OTO-413, and $0.1 million has
been paid for OTO-311 (but such milestone payments are reduced by 75% for any
orphan indication product), and a low single-digit royalty on net sales by us or
our affiliates of licensed products. In addition, for each sublicense we grant
we are obligated to pay UC a fixed percentage of all royalties as well as a
sliding-scale percentage of non-royalty sublicense fees received by us under
such sublicense, with such percentage depending on the licensed product's stage
of development when sublicensed to such third party. We have the right to offset
a certain amount of third-party royalties, milestone fees or sublicense fees
against the foregoing financial obligations, provided such third-party royalties
or fees are paid by us in consideration for intellectual property rights
necessary to commercialize a licensed product.

In April 2013, we entered into an exclusive license agreement with DURECT
Corporation (Durect), as part of an asset transfer agreement between us and
IncuMed LLC, an affiliate of the NeuroSystec Corporation. Under this license
agreement, Durect granted us an exclusive, worldwide, royalty-bearing license
under Durect's rights to certain patents and applications covering our OTO-313
product candidate, as well as certain related know-how. Under this license
agreement and the asset transfer agreement, we are obligated to make one-time
milestone payments of up to $7.5 million for the first licensed product. Upon
commercializing a licensed product, we are obligated to pay Durect tiered, low
single-digit royalties on annual net sales by us or our affiliates or
sublicensees of the licensed products, and we have the right to offset a certain
amount of third-party license fees or royalties against such royalty payments to
Durect. In addition, each sublicense we grant to a third party is subject to
payment to Durect of a low double-digit percentage of all non-royalty payments
we receive under such sublicense. Additionally, we are also obligated to pay the
Institut National de la Santé et de la Recherche Médicale (INSERM), on behalf of
Durect, for a low single-digit royalty payment on net sales by us or our
affiliates or sublicensees upon commercialization of the licensed product. The
foregoing royalty payment obligation to Durect would continue on a
product-by-product and country-by-country basis until expiration or
determination of invalidity of the last valid claim within the licensed patents
that cover the licensed product, and the payment obligation to INSERM would
continue so long as Durect's license from INSERM remains in effect.

Given the unprecedented and evolving nature of the COVID-19 pandemic, including
the rise of new variants, there continues to be significant uncertainty about
the progression and ultimate impact of the pandemic on our business operations.
We have taken steps to mitigate the impact of the COVID-19 pandemic on our
clinical trials, including developing processes to ensure the integrity of data
collection from enrolled patients and supporting sites' ability to enroll
patients, among other activities. Nonetheless, we do not know the full extent of
potential future delays or impacts on our business operations, our preclinical
programs and clinical trials, healthcare systems, our financial condition, or
the global economy as a whole resulting from the COVID-19 pandemic.

In addition, as a result of the COVID-19 pandemic, we have taken steps to
protect the health and safety of our employees and community by generally
adopting policies in line with directives from the State of California and the
applicable local governments, and guidance from the CDC. Various safety
protocols have been implemented and we are currently allowing employees who can
remotely perform their essential functions to work from home as this was
determined to be in the best interest of our employees and the communities in
which we operate.

Financial Operations Overview

Operating Expenses

Research and development costs

Our research and development expenses consist primarily of costs associated with the non-clinical and clinical development of our product candidates.

Our research and development expenses include:

employee-related expenses, including salaries, benefits, travel and stock-based compensation;

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external development expenses incurred under arrangements with third parties,
such as fees paid to contract research organizations (CROs) in connection with
nonclinical studies and clinical trials, costs of acquiring and evaluating
clinical trial data such as investigator grants, patient screening fees,
laboratory work and statistical compilation and analysis, and fees paid to
consultants;

the costs of acquiring, developing and manufacturing clinical trial materials, including fees paid to subcontractors;

payments related to product candidates and licensed technologies without further future use;

costs related to meeting regulatory drug development requirements; and

facilities-related expenses, which include allocated expenses for right-of-use asset amortization, depreciation and other overhead, as well as direct costs for laboratory and other supplies.

We expense our internal and external research and development costs as incurred.

The following table summarizes our research and development expenses (in
thousands):

                                       Three Months Ended June 30,            Six Months Ended June 30,
                                        2022                2021              2022                2021
Third-party development costs:
OTO-313                             $       2,591       $       2,701     $       5,451       $       4,053
OTO-413                                       568                 650             1,190                 865
OTO-825                                       832                   -             1,406                   -
OTIVIDEX                                        -                  75                 -                 384
Total third-party development
costs                                       3,991               3,426             8,047               5,302
Other unallocated internal
research and
  development costs                         5,241               4,931            10,591              10,715
Total research and development
costs                               $       9,232       $       8,357     $      18,638       $      16,017




We expect our research and development expenses to continue to be substantial
for the foreseeable future as we advance our product candidates through their
respective development programs. The process of conducting nonclinical studies
and clinical trials necessary to obtain regulatory approval is costly and time
consuming. We may never succeed in achieving regulatory approval for our product
candidates. The probability of success will be affected by numerous factors,
including nonclinical data, clinical data, competition, manufacturing capability
and commercial viability. We are responsible for all of the research and
development costs for our programs.

Completion dates and completion costs can vary significantly for each of our
clinical development programs and are difficult to predict. We therefore cannot
estimate with any degree of certainty the costs we will incur in connection with
development of our product candidates. We anticipate that we will make
determinations as to which programs and product candidates to pursue and how
much funding to direct to each program and product candidate on an ongoing basis
in response to the results of ongoing and future clinical trials, regulatory
developments, and our ongoing assessments as to each current or future product
candidate's commercial potential. We may need to raise substantial additional
capital in the future to complete the development of and, if approved,
commercialize, our product candidates. We may enter into collaborative
agreements in the future in order to conduct clinical trials and gain regulatory
approval of our product candidates, particularly in markets outside of the
United States. We cannot forecast which programs or product candidates may be
subject to future collaborations, when such arrangements will be secured, if at
all, and to what degree such arrangements would affect our development plans and
overall capital requirements.

Clinical trial costs can vary significantly over the life of a program for the following reasons:

•
per patient trial costs;

the number of sites included in the trials;

the countries in which the trials are conducted;

changes in regulatory and legal requirements for clinical trials;

the length of time required to enroll eligible patients;

the number of patients participating in the trials;

the number of doses patients receive;

patient attrition or default rates;

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potential additional safety monitoring or other studies requested by regulatory agencies;

the duration of patient follow-up;

the development phase of the product candidate;

the manufacturing process and complexity, expiration date and quantity of the drug product required for clinical trials;

the efficacy and safety profile of the product candidate; and

the impact of COVID-19.

Selling, general and administrative expenses

Our selling, general and administrative expenses consist primarily of
employee-related expenses, including salaries, benefits, travel and stock-based
compensation expense, as well as other related costs for our employees and
consultants in executive, administrative, finance and human resource functions.
Other selling, general and administrative expenses include facility-related
costs not otherwise included in research and development, costs associated with
prosecuting and maintaining our patent portfolio and corporate legal expenses,
costs required for public company activities and infrastructure necessary for
the general conduct of our business, and OTIPRIO product support expenses and
profit-sharing fees payable to our co-promotion partners, which are reduced by
payments received from them.

We expect our selling, general and administrative expenses to be substantial as we support the development of our product candidates, and as we incur ongoing expenses related to audit, legal, regulatory and tax services associated with maintaining compliance with stock exchange listing and SECOND
requirements, directors’ and officers’ liability insurance premiums and investor relations expenses.

Other income (expenses)

Other income (expense) primarily consists of interest income earned on cash and
cash equivalents and short-term investments and interest expense related to our
long-term debt and finance leases.

Critical Accounting Policies and Significant Judgments and Estimates

Our management's discussion and analysis of our financial condition and results
of operations is based on our condensed financial statements. Our financial
statements are prepared in accordance with generally accepted accounting
principles in the United States of America. The preparation of these financial
statements requires us to make estimates and assumptions that affect the
reported amounts of assets, liabilities, and expenses and the disclosure of
contingent assets and liabilities in our financial statements. On an ongoing
basis, we evaluate our estimates and assumptions, including those related to net
product sales, accrued expenses and stock-based compensation. We base our
estimates on our historical experience, known trends and events, and various
other factors that we believe to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.

We believe the estimates, assumptions and judgments involved in the accounting
policies described in the section titled "Management's Discussion and Analysis
of Financial Condition and Results of Operations" in Item 7 of our Annual Report
on   Form 10-K   for the year ended December 31, 2021, as filed with the SEC on
February 28, 2022, have the greatest potential impact on our financial
statements, so we consider them to be our critical accounting policies and
estimates.

Accruals for clinical trials

We estimate expenses resulting from our obligations under contracts with
vendors, CROs and consultants and under clinical site agreements in connection
with conducting clinical trials. The financial terms of these contracts vary and
may result in payment flows that do not match the periods over which materials
or services are provided.

We record clinical trial expenses in the period in which services are performed
and efforts are expended. We accrue for these expenses according to the progress
of the trial as measured by patient progression and the timing of various
aspects of the trial. We estimate accruals through financial models taking into
account discussion with applicable personnel and outside service providers as to
the progress of trials. During the course of a clinical trial, we may adjust our
clinical accruals if actual results differ from our estimates. We estimate
accrued expenses as of each balance sheet date based on the facts and
circumstances known at that time. Our clinical trial accruals are dependent upon
accurate reporting by CROs and other third-party vendors. Although we do not
expect our estimates to differ materially from amounts actually incurred, our
understanding of the status and timing of services performed relative

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to the actual status and timing of services performed may vary and may result in
reporting amounts that are too high or too low for any particular period. For
the three and six months ended June 30, 2022 and 2021, there were no material
adjustments to our prior period estimates of accrued expenses for clinical
trials.

Stock-based compensation

We recognize non-cash expense for the fair value of all stock options and other
share-based awards. We use the Black-Scholes-Merton option valuation model to
calculate the fair value of stock options, using the single-option award
approach and straight-line attribution method. For stock option and restricted
stock unit grants, we recognize the fair value as expense on a straight-line
basis over the vesting period of each respective stock option or restricted
stock unit, generally between two and four years.

Operating results

Comparison of the three months ended June 30, 2022 and 2021

The following table shows the significant components of our results of operations for the periods presented (in thousands):

                                         Three Months Ended June 30,
                                          2022                2021          Change
Research and development              $       9,232       $       8,357     $   875
Selling, general and administrative           3,523               3,669     

(146 )


Research and development expenses. The increase of $0.9 million resulted from a
number of activities including: (i) a $0.9 million increase in OTO-825
development costs; (ii) a $0.2 million increase in other operating expenses;
offset by (iii) a $0.2 million decrease in OTIVIDEX clinical trial and
development costs primarily due to discontinuation of development activities
following completion of the Phase 3 clinical trial in 2021.

Selling, general and administrative expenses. Selling, general and administrative expenses remained constant for the periods presented above.

Comparison of the six months ended June 30, 2022 and 2021

The following table shows the significant components of our results of operations for the periods presented (in thousands):

                                          Six Months Ended June 30,
                                          2022                2021          Change
Research and development              $      18,638       $      16,017     $ 2,621
Selling, general and administrative           7,271               7,712        (441 )




Research and development expenses. The increase of $2.6 million resulted from a
number of activities including: (i) a $1.4 million net increase in OTO-313
clinical trial and development costs; (ii) a $1.4 million net increase in
OTO-825 development costs; (iii) a $0.7 million net increase in OTO-413 clinical
trial costs; offset by (iv) a $0.4 million net decrease in facilities and other
operating expenses mainly due to the impairment of OTIVIDEX manufacturing
equipment in early 2021; and (v) a $0.5 million decrease in OTIVIDEX clinical
trial and development costs primarily due to discontinuation of development
activities following completion of the Phase 3 clinical trial in 2021.

Selling, general and administrative expenses. Selling, general and administrative expenses remained constant for the periods presented above.

Cash and capital resources

We have incurred significant losses and negative cash flows from operations
since our inception. As of June 30, 2022, we had an accumulated deficit of
$582.4 million and we expect to continue to incur significant losses for the
foreseeable future. We expect our research and development and selling, general
and administrative expenses to continue to be substantial for the foreseeable
future and, as a result, we will need additional capital to fund our operations,
which we may obtain through one or more public or private equity or debt
financings, or other sources such as potential collaboration arrangements.
However, additional capital may not be available in sufficient amounts or on
reasonable terms, if at all.

As of June 30, 2022, we had cash and cash equivalents of $53.1 million. We
believe that the balance of cash and cash equivalents may not be sufficient to
fund our planned expenditures and meet our obligations for the twelve months
following the

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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 our 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. Our ability to continue as
a going concern is dependent upon our ability to obtain additional funding or
adjust operating plans or programs and associated spending. However, we believe
that our liquidity position provides sufficient runway to achieve critical near
term research and development milestones, and we intend 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 we are not able to
secure adequate additional funding, we 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 our business, results of operations, and future prospects. Our
future capital requirements and the adequacy of available funds will depend on
many factors, including those described in "Risk Factors".

The following table presents a summary of the main sources and uses of cash for the six months ended June 30, 2022 and 2021 (in thousands):

                                                          2022          

2021

Net cash (used in) provided by:
Operating activities                                    $ (23,991 )   $ (21,950 )
Investing activities                                         (388 )      43,270
Financing activities                                          115        33,009

(decrease) net increase in cash, cash equivalents and

  restricted cash                                       $ (24,264 )   $  54,329




Operating activities. The primary uses of cash were to fund increased levels of
development activities for our product candidates. We expect to continue the use
of cash for development of our product candidates for the foreseeable future.

Net cash used in operating activities was $24.0 million during the six months
ended June 30, 2022 compared to $22.0 million, for the prior year period. The
$2.0 million increase in the utilization of cash was primarily due to an
increase in operating losses compared to the prior year period.

Investment activities. The primary source of cash from investing activities was from short-term investment maturities and the primary use of cash from investing activities was for capital expenditures.

Net cash used in investing activities was $0.4 million during the six months
ended June 30, 2022 compared to net cash provided by investing activities of
$43.3 million during the prior year period. The decrease in net cash provided by
investing activities was primarily due to net maturities of short-term
investments in the prior year period.

Fundraising activities. The main sources of net cash provided by financing activities were the net proceeds from the sale of our equity securities.

Net cash provided by financing activities was $0.1 million during the six months
ended June 30, 2022, compared to net cash provided by financing activities of
$33.0 million during the prior year period. The decrease was related to proceeds
from the issuance of common stock and pre-funded warrants and proceeds from the
debt modification during the prior year period.

Market offer program

In August 2019, we entered into a sales agreement (Sales Agreement) with Cowen
and Company, LLC (Cowen) to sell shares of our common stock having aggregate
sales proceeds of up to $40.0 million, from time to time, through an
"at-the-market" equity offering program under which Cowen will act as sales
agent or principal. Under the Sales Agreement, we set the parameters for the
sale of shares, including the number or dollar value of shares to be issued, the
time period during which sales are requested to be made, limitation on the
number of shares that may be sold in any one trading day and any minimum price
below which sales may not be made. The Sales Agreement provides that Cowen will
be entitled to compensation for its services that will equal 3.0% of the gross
sales price per share of all shares sold through Cowen under the Sales
Agreement. The Sales Agreement shall automatically terminate upon the issuance
and sale of placement shares equaling sales proceeds of $40.0 million and may be
terminated earlier by either us or Cowen upon five days' notice. We have no
obligation to sell any shares under the Sales Agreement and may at any time
suspend solicitation and offers under the Sales Agreement. In August 2021, we
filed a prospectus supplement in connection with an "at-the-market" offering
under which we may sell shares of common stock for up to an aggregate of $40.0
million, and entered into a superseding sales agreement with Cowen on terms
substantially similar to the Sales Agreement. Through June 30, 2022, we have not
sold any shares under the Sales Agreement.

                                       25
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Term Loans

Oxford Loans

On December 31, 2018 (the Closing Date), we entered into a Loan and Security
Agreement with Oxford Finance LLC (the Loan Agreement). On June 2, 2021 (the New
Closing Date), we entered into the Third Amendment to the Loan Agreement (the
Third Amendment and together with the Loan Agreement, the Loan Agreements),
which amends the Loan Agreement. The Third Amendment was accounted for as a
modification. The Loan Agreement provides for a $15.0 million secured term loan
credit facility (the Original Term Loan) and the Third Amendment provides for an
additional $1.0 million term loan (the New Term Loan and together with the
Original Term Loan, the Term Loans). The proceeds of the Term Loans may be used
for working capital and general corporate purposes. We had the right to prepay
the Original Term Loan in whole or in part at any time, subject to a prepayment
fee of 1.00%. Under the Third Amendment, we have the right to prepay the Term
Loans in whole or in part at any time, subject to a prepayment fee of 3.00% if
prepaid on or prior to the first anniversary of the New Closing Date, 2.00% if
prepaid after the first anniversary of the New Closing Date and on or prior to
the second anniversary of the New Closing Date, and 1.00% thereafter. Amounts
prepaid or repaid under the Term Loans may not be reborrowed. The Original Term
Loan was fully funded on the Closing Date and the New Term Loan was fully funded
on the New Closing Date. The Original Term Loan's maturity was extended under
the Third Amendment from December 1, 2023 to April 1, 2026 (the Maturity Date),
and the New Term Loan matures on the Maturity Date. We paid a facility fee of
0.75% of the Original Term Loan and customary closing fees on the Closing Date
and customary closing fees in respect of the Third Amendment on the New Closing
Date.

The Term Loans bear interest at a floating rate equal to the greater of 5.25%
and the prime rate as reported in the Wall Street Journal from time to time,
plus 3.75% (9.0% as of June 30, 2022, the minimum interest rate). Interest on
the Term Loans is payable monthly in arrears. We were permitted to make
interest-only payments on the Original Term Loan until February 1, 2022,
followed by consecutive equal monthly payments of principal and interest in
arrears through original maturity on December 1, 2023. Under the Third
Amendment, we are permitted to make interest-only payments on the Term Loans
until June 1, 2023, followed by consecutive equal monthly payments of principal
and interest in arrears through the Maturity Date. The Third Amendment also
permits the interest-only period to be extended by an additional twelve months
subject to the achievement of certain milestones. The outstanding principal
amount of the Term Loans, together with accrued and unpaid interest, is due on
the Maturity Date. The net outstanding balance of the Term Loans was $16.1
million as of June 30, 2022.

Upon repayment or acceleration of the Term Loans, a final payment fee equal to
4.00% of the aggregate original principal amount of the Term Loans is payable
(the Final Payment Fee). The Final Payment Fee of $0.6 million, as well as the
initial facility fee and all other direct fees and costs associated with the
Loan Agreements, was recognized as a debt discount. The debt discount is
amortized to interest expense over the term of the Loan Agreements using the
effective interest method.

Our obligations under the loan agreements are secured by substantially all of our assets, excluding intellectual property and subject to certain other exceptions and limitations.

The Loan Agreements contain customary affirmative covenants, including covenants
regarding compliance with applicable laws and regulations, reporting
requirements, payment of taxes and other obligations, and maintenance of
insurance. Further, subject to certain exceptions, the Loan Agreements contain
customary negative covenants limiting our ability to, among other things, sell
assets, allow a change of control to occur (if the Term Loans are not repaid),
make acquisitions, incur debt, grant liens, make investments, pay dividends or
repurchase stock. Upon the occurrence and during the continuance of an event of
default, the lenders may declare all outstanding principal and accrued and
unpaid interest under the Loan Agreements immediately due and payable, increase
the applicable rate of interest by 5.00%, and exercise the other rights and
remedies provided for under the Loan Agreements and related loan documents. The
events of default under the Loan Agreements include payment defaults, breaches
of covenants or representations and warranties, material adverse changes,
certain bankruptcy events, cross defaults with certain other indebtedness, and
judgment defaults.

Funding Requirements

We expect to continue to incur significant losses for the foreseeable future as
we: (i) develop and seek regulatory approvals for our product candidates
OTO-313, OTO-413 and OTO-825; and (ii) work to develop OTO-510, OTO-6XX and
additional product candidates through research and development programs. We are
subject to all the risks incident in the development of new therapeutic
products, and we may encounter unforeseen expenses, difficulties, complications,
delays and other unknown factors that may adversely affect our business.

We believe that our existing cash, cash equivalents and short-term investments
may not be sufficient to fund our operations for a period of at least twelve
months from the date of this report without raising additional funding or making
changes to operating plans or programs to reduce expenses. As a result, we
intend to seek funding through public or private equity or debt financings or
other

                                       26
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sources, such as potential collaboration arrangements. For example, in August
2021, we filed with the SEC a new shelf registration statement on Form S-3,
pursuant to which we may offer debt securities, preferred stock, common stock
and certain other securities from time to time up to a maximum aggregate amount
of $150,000,000. In August 2021, we filed a prospectus supplement under such
shelf registration statement in connection with an "at-the-market" offering
under which we may sell shares of common stock for up to an aggregate of $40.0
million. Additional capital may not be available in sufficient amounts or on
reasonable terms, if at all, and our ability to raise additional capital may be
adversely impacted by potential worsening global economic conditions and the
recent disruptions to and volatility in the credit and financial markets in the
United States and worldwide resulting from the COVID-19 pandemic. If we are
unable to raise additional capital in sufficient amounts or on terms acceptable
to us, we may have to significantly delay, scale back or discontinue the
development or commercialization of one or more of our product candidates. If we
raise additional funds through the issuance of additional debt or equity
securities, it could result in dilution to our existing stockholders, increased
fixed payment obligations and the existence of securities with rights that may
be senior to those of our common stock. If we incur indebtedness, we could
become subject to covenants that would restrict our operations and potentially
impair our competitiveness, such as limitations on our ability to incur
additional debt, limitations on our ability to acquire, sell or license
intellectual property rights and other operating restrictions that could
adversely impact our ability to conduct our business. Any collaboration
agreements we enter into may provide capital in the near-term but limit our
potential cash flow and revenue in the future. Any of the foregoing could
significantly harm our business, financial condition and prospects.

Our forecast of the period of time through which our financial resources will be
adequate to support our operations is a forward-looking statement and involves
risks and uncertainties, and actual results could vary as a result of a number
of factors. We have based this estimate on assumptions that may prove to be
wrong, and we could utilize our available capital resources sooner than we
currently expect. The amount and timing of future funding requirements, both
near- and long-term, will depend on many factors, including:

the design, initiation, progress, size, timing, costs and results of non-clinical studies and clinical trials for our product candidates, including OTO-313, OTO-413 and OTO-825;

the outcome, timing and cost of regulatory approvals by the FDA and comparable
foreign regulatory authorities, including the potential for the FDA or
comparable foreign regulatory authorities to require that we perform more
studies than, or evaluate clinical endpoints other than, those that we currently
expect;

revenue generated by our product candidates, if approved;

the timing and costs associated with manufacturing our product candidates for clinical trials, non-clinical studies and for commercial sale;

the cost of building and maintaining sales, marketing and distribution capabilities for any product for which we may receive regulatory approval and market, including the costs of expanding related facilities;

the number and characteristics of product candidates we are pursuing;

the potential acquisition and licensing of other technologies, products or assets;

the extent to which we are obligated to pay milestone or other payments under our license agreements and the timing of such payments;

the cost of obtaining, maintaining, defending and enforcing any claims of patents and other intellectual property rights, including the costs of litigation and the outcome of such litigation;

the cost associated with legal and regulatory compliance;

our need to expand our development activities, including our need and ability to hire and adequately compensate additional employees;

the potential impacts of the COVID-19 pandemic;

the costs associated with being a public company;

the effect of competing technological and business developments; and

the cost of litigation, including potential patent litigation.

If we are unable to expand our business or otherwise take advantage of our business opportunities because we lack sufficient capital, our business, financial condition and results of operations could be adversely affected.

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