A number of companies had a great week this week in the biotechnology space, including Dynavax Technologies Corporation (DVAX), which finally picked up regulatory approval in the US for Heplisav B, its low dose requirement hepatitis B vaccine, and OncoSec Medical Inc (ONCS), which was able to show that its development stage ImmunoPulse IL-12 asset is effective when used as a combination therapy alongside Keytruda in patients with melanoma.

One that stands out from the crowd, however, is Otonomy Inc (OTIC).

This is a small-cap biotechnology company that has had an incredibly rough twelve months and that – at the end of August – fell from more than $20 a share to just $3.50 on the back of an update as to the progress of its then-lead development asset along its pathway to commercialization in the US.

This week, however, the company has staged something of a turnaround, currently trading for just shy of $5, up close to 60% on its price at the bell on Monday.

There's still plenty of gap between the pre-crash pricing and today's market capitalization, but the driver behind the recent run suggests that this gap may start to close over the coming months. Importantly, there are a few key developments to keep an eye on between now and the start of the first quarter of next year that, if they play out favorably, will suggest a longer-term return to the $20 mark and, potentially, higher, isn’t too much of a stretch.

Here's what happened and what to watch going forward as supportive of a return to $20.

All told, this one is a bit of a strange situation in the biotech space.

Otonomy's lead development asset is a drug called Otividex. It's a steroid type asset that's designed to be injected into the inner ear as a treatment for what's called Ménière’s disease, which is a debilitating form of vertigo that also causes tinnitus and hearing loss.

Back in August, the company announced that a phase III trial set up to investigate the safety and efficacy of this asset in patients suffering from Ménière’s disease had failed to meet its primary and secondary endpoints and that – as a result – the company would move to "immediately suspend all development activities for (the drug) including the ongoing AVERTS-2 trial."

This is the announcement that caused the crash mentioned above.

The trial that failed was called the AVERTS-1 trial and the trial that the company is referring to in the just quoted statement, the AVERTS-2 trial, is a study that was essentially identical to the AVERTS-1 trial but conducted in Europe as opposed to the US.

So, nothing strange so far but here's where things get interesting.

As per Otonomy's latest announcement, the AVERTS-2 trial has just completed and has hit on its primary and secondary endpoints. Patients in the trial had a baseline number of vertigo days of 9.2 on average. This is across 174 patients enrolled. After administration, this reduced by 6.2 days on average in the active group (i.e. those treated with the drug) as compares to just a 2.5 days' reduction in a placebo arm.

Those are great results and – what's more – came in as statistically significant based on a p-value of 0.029.

So, what's happened is the company hasn’t actually halted its AVERTS-2 study as indicated back in August and now it looks as though the data from the US study, AVERTS-1, is an anomalous failure and that – in turn – the drug does work in this patient population after all.

And it's a large population with no available treatment. In the US alone, there are around 600,000 confirmed cases of Ménière’s disease, all of which are individuals that essentially have no treatment options available to them right now.

So what comes next?

Otonomy has said it wants to sit down with the FDA to discuss the path forward. The assumption here is that the company is going to try and persuade the agency to accept the European results as supportive of efficacy instead of the US results.

If the FDA is willing to do this, it means Otonomy could file for approval as soon as early next year.

That's some turnaround from a dropped asset back in August.

So what are the developments to watch as indicative of long-term strength?

First and foremost, the outcome of the company's meeting with the FDA is going to dictate near-term valuation. If the agency green lights a submission based on the European data, we'll see the stock run to $10 no problem.

Beyond that, an NDA submission and subsequent acceptance (acceptance, not approval) is a key catalyst ahead of the obvious one – regulatory approval. Based on a submission in the first quarter, approval could come as early as start-2019.