By Luke Timmerman

XCONOMY Driving down Prospect Street in La Jolla one day in January 2008, Jay Lichter got so dizzy he had to pull over. After a stop in the ER, he ended up in the office of Jeff Harris, the chief of ear, nose, and throat surgery at the UC San Diego. The diagnosis: Meniere’s (Men-yay’s) disease, an inner ear fluid imbalance that leads to episodes of severe dizziness, vertigo, and gradual hearing loss.

There wasn’t much the doctor could really do, which got the patient and doctor talking. Since Lichter makes a living as a venture capitalist with San Diego-based Avalon Ventures, their discussion quickly advanced beyond the usual small talk. They kicked around ideas on how to better treat all sorts of hearing loss. A month later, a company was born—San Diego-based Otonomy.

Hearing loss is one of the great frontiers of the pharmaceutical and biotechnology business. Almost 30 million Americans have debilitating hearing loss and balance disorders. It comes from a variety of sources—occupational hazards from noisy workplaces, military veterans who get exposed to gunfire, overactive iPods, or simply age-related hearing loss. Yet there are still no drugs specifically approved by the FDA for these diseases, and Lichter says there’s not even serious research and development going on at big drugmakers. Ever since his days more than a decade ago in management at Pfizer, and long before he was diagnosed with his own ear condition, he has been on the lookout for promising new ways to tap this market. Now he’s diving in completely by getting involved in this new startup.

“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.”

Before diving into the nitty gritty of the company’s game plan, I had to ask Lichter to explain the name. Otonomy (pronounced Oh-TAWN-uh-me), draws its inspiration from the self-direction of the word “autonomy” and “otolaryngology” the branch of medicine that specializes in ear, nose, and throat as well as head and neck disorders.

The effort is still in its early days. Lichter is serving as the founding CEO, and recruited Harris (a past president of the American Otological Society) to join the company’s scientific advisory board. Avalon has invested $3 million to get the company going in its first year. It currently has a staff of just seven, outsources much of its work to contractors, and has poured a lot of its energy into 18 patent applications with various methods of delivering drugs to the ears for various conditions, Lichter says. If everything breaks right, Otonomy could enter its first clinical trial a year from now. Lichter says he’s currently attempting to parlay this work into $20 million in a Series A financing, which he hopes to close in two to three months.

One of the initial product candidates is aimed at Meniere’s disease, which currently affects about 615,000 people in the U.S., according to the National Institutes of Health. The existing treatments for this condition are diuretics, and putting patients on a low-salt diet, which is hard to stick with, Lichter says. When that doesn’t work, patients sometimes take oral corticosteroid drugs that circulate through the body, although they only work about one-third of the time, Lichter says.

Otonomy’s idea is to make a gel formulation of a common corticosteroid drug, dexamethasone, that can be injected directly into the ear, Lichter says. The main advantage is that it can last several days, much longer than current formulations. The raw materials are cheap, and well-understood by the FDA from experience in numerous clinical trials with other drugs, which lowers the risk of regulatory delays, he says. By giving concentrated doses of the steroid directly into the ear, it is hoped that the Otonomy drug will be more effective, and also avoid some of the side effects associated with long-term use when these drugs circulate throughout the body, like weakening of the immune system, weight gain, and thinning of the bones.

This could also have a much bigger application than Meniere’s disease—noise-induced hearing loss. Otonomy has been encouraged to go down this path by some data published in December 2007 on soldiers in the Greek Army. The study looked at 52 young soldiers who were exposed to intense gunfire noise. They were divided into three treatment groups: those who got intravenous steroids within an hour of exposure, between one hour and 16 hours, or a full 24 hours later. The study showed 65 percent had complete recovery of their hearing when they got the treatment within an hour of damaging exposure to noise. The response rate that went downhill if it took longer for the soldiers to get treatment, researchers said.

Further in future, Otonomy has its eyes on other opportunities as well—including middle ear infections commonly found in children (otitis media), and age-related hearing loss, which is found in about one-third of all adults between the ages of 65 and 75.

There are only a couple of competitors to Otonomy: Seattle-based Sound Pharmaceuticals and Basel, Switzerland-based Auris Medical. Both of them have programs further along in the middle stage of clinical trials. They have continued to push forward after two biotech leaders, Amgen and Genentech, had hearing loss research programs in the late 1990s and early 2000s that failed, said Sound Pharmaceuticals CEO Jonathan Kil. That experience has made most drug companies in the field back off, he says.

“Big Pharma is actually risk averse,” Kil says. “They’d rather go after a validated market and out-market their competition with a second or third generation product versus truly innovate in a new therapeutic area.” For those who do actually create something innovative, the rewards could be big. Otitis media alone costs the nation $5 billion a year in medical costs and lost wages from parents shuttling kids to the doctor, according to the NIH. “You don’t need a lot of market penetration, or a very high price to make for really interesting products,” Lichter says.