JPMorgan this morning upgraded Otonomy (OTIC) to Overweight from Neutral, saying that the stock could rise up to 95% if the results of an upcoming trial of its Otividex drug are positive. Otividex is supposed to treat Meniere's disease, which affects the inner ear and causes vertigo and hearing loss.

RISK/REWARD FAVORABLE: There is a 70% chance that the results of the trial will be positive, wrote JPMorgan analyst Anupam Rama in a note to investors. Adjustments the company made ahead of the trial, whose results are due out next month increase the probability that the trial will be successful, according to the analyst. If the results are positive, Otonomy's stock will jump 65%-95%, while a negative outcome would cause the stock to fall 25%-35%, he predicted.

HIGH UNMET NEED: There are currently no treatments that have been approved specifically for Meniere's disease, according to Rama. Steroids, which are currently used to treat the condition, produce "variable" outcome that are "not optimal in all cases," while surgery/ablative treatment is viewed as "a last resort," he stated. The analyst believes that there is a "high unmet need" for a Meniere's disease treatment.

TARGET: Rama raised his price target on the stock to $28 from $17.

PRICE ACTION: In morning trading, Otonomy jumped 8.7% to $18.70.