Aldeyra Therapeutics, Inc. (ALDX) Q4 2014 Earnings Report, Transcript and Summary

Greetings and welcome to the Aldeyra Therapeutics Full Year 2014 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Mr. David Burke of The Ruth Group. Thank you, Mr. Burke. You may now begin.

Good morning. Welcome to Aldeyra Therapeutics’ 2014 financial results conference call and audio webcast. With me today are Dr. Todd Brady, President and Chief Executive Officer; and Stephen Tulipano, Chief Financial Officer. Earlier today, Aldeyra issued a press release announcing the company’s financial results for the full year 2014. We encourage everyone to read today’s press release, which is available on Aldeyra’s website at www.aldeyra.com. In addition, this conference call is being webcast through the company’s website and will be archived there for future reference. Please note that various statements we make during this call about the company’s business, financial position, business strategy and plans and objectives for future operations are considered forward-looking statements within the meaning of the federal securities laws. Actual results could differ materially from those stated or implied by these forward-looking statements due to risks, changes in circumstance, assumptions and uncertainties associated with the company’s business. These risks are described in the Risk Factors and Management’s Discussion and Analysis of Financial Condition sections of Aldeyra’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014, which is on file with the SEC and available on the SEC and Aldeyra’s websites. Additional factors may also be set forth in those sections of Aldeyra’s Annual Report on Form 10-K for the year ended December 31, 2014 to be filed with the SEC in the first quarter of 2015. We encourage all investors to read these reports and our other SEC filings. This conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, March 19, 2015. Aldeyra undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call. With that, I would now like to turn the call over to Dr. Todd Brady. Todd?

Thank you, David, and thank you all for joining us this morning for our full year 2014 conference call. I will begin today with an overview of the year and then follow with our accomplishments so far in 2015 and our plans moving forward. 2014, as you all know, was a pivotal year in the company’s history. Our initial public offering enabled us to begin to implement our growth strategy and progress the clinical development of our product candidate NS2. As most of you know, NS2 traps free aldehydes, which are endogenously occurring class of toxic chemicals and high levels of aldehydes have been shown to mediate certain diseases both rare and common, but especially inflammatory diseases. NS2 traps aldehydes and facilitates the metabolism or degradation of those aldehydes. We are very pleased with the progress we’ve made to date with the development of NS2. We have accomplished the near term goals that we’ve set for the company early last year and we believe we are well positioned to move forward with our longer term strategy. Most importantly, we filed two Investigational New Drug Applications both of which were submitted to the FDA in December of last year are Phase II clinical studies in two diseases, Sjögren-Larsson Syndrome or SLS and noninfectious anterior uveitis. I should emphasize that SLS and uveitis are very different diseases. SLS is a disease caused by genetic mutations that lead to the loss of the function of a particular enzyme whereas uveitis is due to inflammation. In order to maximize the potential for successive NS2, we plan to test the compound in multiple diseases. And with SLS and uveitis, Aldeyra has two distinct opportunities that demonstrate the safety and efficacy of NS2. Both SLS and uveitis are rare diseases and are either treated inadequately or with drugs that are toxic. Thus, we believe that NS2 can help provide a much better quality of life for the patients that suffer from these diseases. Following our IND submissions for SLS and uveitis in December, I am very pleased to report that we are ready to move forward with Phase II development in both indications. As we have recently announced, we opened enrollment of our Phase II study of NS2 for patients with SLS. This study will take place at the University of Nebraska Medical Center which is the leading treatment center in the United States for this disease. We anticipate enrolling the first patient in the near term and given the concentration of patients at this facility, we expect that enrollment will be efficient. In addition, based on the trial protocol for SLS which will soon be posted on the website clinicaltrials.gov, the treatment time in this trial will be relatively short. As we have also recently announced our clinical trial protocol for noninfectious anterior uveitis has been accepted by the FDA and we expect to open enrollment for this trial after we receive Institutional Review Board approval, for both trials, we continue to expect data in the second half of this year. In addition to our clinical advancements, we further strengthened our balance sheet with two capital raises at the beginning of this year which in aggregate are almost $10 million. With this additional capital, we are better positioned to support our current trials and consider the expansion of our aldehyde trapping platform to include the clinical testing of additional indications. I would also like to note that we’ve received considerable interest in NS2 from the medical and scientific communities as we have recently announced data on NS2 has been accepted for poster presentations at several upcoming major medical conferences. Last month, we presented data suggesting the anti-inflammatory effects of NS2 at the American Academy of Allergy Asthma & Immunology Annual Meeting. This month, data on the effects of NS2 and a cellular model of SLS will be presented at the Society for Inherited Metabolic Disorders Annual Meeting. And in May at the Association for Research in Vision and Ophthalmology Annual Meeting, we will be presenting novel data on the effects of topically administered NS2 in two different models of ocular inflammation, one of which is an animal model of uveitis, and one of which is an animal model of ocular fibrosis or scarring. We are very excited to be part of these marquee conferences and believe this is further validation of NS2 and its potential to fill unmet medical needs in both SLS and uveitis. So, overall we are very excited about the direction of the company. We believe that we are well-positioned to advance the development of NS2 and continue to create value for our shareholders, while importantly also developing a therapy that could have a dramatic impact on the lives of patients. And now, I will ask Steve Tulipano, our Chief Financial Officer, to discuss the financial results for 2014. Steve?

Thanks, Todd. Good morning everyone. So, I’m just going to point to a few financial highlights and then we are going to open it up for questions. In 2014, we reported basic net loss of $9.6 million or $2.51 per share based on a weighted average of 3.8 million shares and that compares to net income of $1.1 million or $3.49 per share based on 318,000 shares for the same period in 2013. R&D expenses for 2014 were $3.6 million compared to $1.5 million in 2013 and the increase of $2.2 million was related to increases in our pre-clinical, clinical and CMC efforts. General and administrative expenses were $3.6 million compared to $2.1 million in 2013 and the increase in G&A expenses were related to increases in costs associated with being a newly public company in 2014, including insurance cost, legal, audit and also additional personnel. Total operating expenses for the year for 2014 were $7.3 million compared to $3.7 million for the same period in 2013 and I’ll just remind everyone that including in operating expenses for the year were $2 million of non-cash stock compensation expense. We ended the year with $8.5 million in cash and as Todd discussed, we raised another $9.8 million in January. So with that, I will conclude my remarks and we will open it up for questions.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question is from Swayampakula Ramakanth of HC Wainwright. Please go ahead.

Good morning, Todd and Steve. Congratulations on the quarter and also getting the SLS study started. Could you highlight to us some of the timeline sort of study and when we could see final data?

Yes. Hi, good morning R.K. and thanks for the question. We have said for a long time and are continuing to guide that data from both trials will be in the second half of 2015. As I think you will see when the protocols are on clinical trials.gov and what we’ve disclosed previously, the SLS trial is a smaller trial. In addition, the patients as I mentioned earlier are concentrated around a single site in the U.S. or a single physician and finally for SLS there are really no good treatment options. So, given the size of the trial, the concentration of the patients, the unmet medical need, I think most people including us would expect the data from SLS will be available prior to data for the uveitis trial, which is a larger trial across multiple sites. In terms of the specific timing, I’m not sure that we can guide on that at this point until we see how the trial is enrolling, but I think the second half of this year is a good rule of thumb at this point for both studies.

That’s great. And then in the [indiscernible] setting of this trial, have you or the investigators at the University of Nebraska identified additional patients for this rare condition?

Yes. I mean that’s part of our strategy and I think its part of the strategy of any company that’s working in rare diseases or orphan diseases. Once a therapy is available for these diseases, I think it’s important to identify as many patients as quickly as possible. It would be candidates for that therapy and we press released a relationship with NORD, which is the National Organization for Rare Diseases. I think they are the top orphan disease organization in the U.S., if not the world and along with NORD, along with our physician investigators, we are quite serious about developing the market and the patient population long before we even have data from this trial.

Okay. And then considering that you are going to be successful in this study, do you need a second study or would this – would the data from the current study be sufficient enough for approval and also how easy with the trial patients, would it be easy for the trial patients to be converted to commercial patients?

Well, I can’t comment on the FDA’s thought process. I would say that – and let me make a couple of comments, the first comment is that the current trial in SLS is a valid clinical trial. This is a blinded or masked controlled trial with placebo vehicle cream. This is not your standard open label trial that is looking for rough signal. So, I do think that the data will be meaningful from the trial if there is an effect of NS2 in these patients. How the FDA will treat that is, I think depends on the data and depends on the FDA and depends on the opinions of the key opinion leaders and the patients. I just don’t know whether another trial will be needed or not. My suspicion is that the FDA generally wants to see at least two trials for any indication, but again it would be difficult for me to anticipate the FDAs position ahead of the data.

Okay. And then moving on to the uveitis study, if you are successful in this study what additional potential indications could NS2 find use for, especially considering uveitis more of an inflammatory condition as well.

Yes. Well that’s a good question R.K. I mean, I’ve – as most of you know, I am a big believer in biotechnology taking multiple shots on goal. I think with NS2 and other aldehyde traps we are developing, we really do have a platform technology that allows us to test many diseases that are related to inflammation. The eye is particularly interesting not only because it can be treated topically for anterior inflammation, but also you can see through the eye and measure all sorts of inflammation markers non-invasively, which is really not true with any other part of the body. And so we are pleased to begin in uveitis, which is a disease where steroids are used and are generally toxic over the long term. Additional indications, I would divide into two different camps and one camp is topical indications. As you know, we now have a topical ocular program in uveitis, we also have a topical dermatologic program with SLS, and so those kinds of superficial inflammation, I think would be logical indications to consider for expansion. But also systemic administration of an aldehyde trap would also seem reasonable and that’s something that we are seriously considering. In terms of the specific indications, I think any autoimmune disease or any local inflammation it would be difficult to find any such disease that aren’t related to aldehydes. And so I think from our standpoint, it will be the classic matrix of where is the unmet medical need, where is the drug most likely to work, which diseases are most time and cost-wise efficient to test.

Okay. And one last question. What would be management’s strategy and thoughts regarding bringing on additional products into the pipeline either organically or [indiscernible]?

Well, that’s an important question. So we’ve disclosed and remained very serious about developing other aldehyde traps, number one. Number two, I think as any biotechnology company or specialty pharmaceutical company does over time as our financial resources grow, we are opportunistic about other products that may or may not be related to aldehyde trapping, but are related to the indications or the types of indications and, specifically, rare diseases for instance that we are interested in developing internally.

Thank you for taking all my questions.

Thank you. The next question is from Yale Jen of Laidlaw. Please go ahead.

Good morning, Todd and Steve, and congrats on a good starting year.

Thanks, Yale.

I think most of the question being addressed, I have two quick ones. First is a little bit housekeeping or – I’m trying to get some sense of any guidance in terms for the 2015 financial expenditure so we can sort of think about the modeling?

Yeah, it’s a really good question, Yale. Thank you very much. I think I will start with saying that we’ve just raised approximately $10 million along with our – ending the year with in an additional $8 million, we expect that cash will take us through the end of 2016.

Okay.

Having said that, I will try to give you some indication relative to what our expenditures will be in 2015. I think that when you think about general and administrative expense for instance, I think that for 2015 will be fairly consistent with what it was for 2014. Research and development is where the big question mark is. And I think that for 2015, at a minimum, it will be marginally higher than 2014; however, at a maximum, it could be double what it was in 2014. I think it depends upon the results that we get out of these two trials and any other further indications we may proceed to custom. I hope that answers your question.

Okay, great. That’s very helpful. And I think as Todd mentioned earlier that with the supportive balance sheet, now you guys are going to explore additional studies or more researches in other areas, so would you be able to expand that a little bit, give a little more color – granularity on that?

Well, I don’t want to expand too much. We have not announced any new specific indications to-date. What I am saying is thanks to the group of investors that have supported the company as late as January, all of which are, I would say, leading the healthcare investors. We now have the opportunity to consider additional indications. On the other hand, we take our cash position very seriously. And, at least, we have the option of testing topical NS2 in the near-term; and in the long-term, systemic NS2 or other aldehyde traps in, I would say, diseases that are more systemic in nature. And so, Yale, I can’t really tell you right now or certainly don’t risk to disclose right now specific indications, but that would be something that I would look for at least the potential later throughout this year.

Great. That’s helpful, very helpful. And then, lastly, just that I know you guys have a very good IP protection right now. Is that an area that going forward you are going to continue fortified or enhanced?

Absolutely. In planning for success, I’m a big believer in spending resources on intellectual property. I think, as I said to probably all of you on the phone before, I think Aldeyra has discovered something new, I think it is important, I think it has the potential to change the way we think about diseases and treat diseases. And if all that is true, I also think in the near-term, we own the field or at least own the compositions that are logical aldehyde traps. Now there are other ways of expanding intellectual property that include methods and formulations and as we’ve disclosed for some time now, of course all those are things that we are working on. But I think that as we grow, as we develop other traps, as we come up with new indications, these are all sources of new IP and I can tell you we are spending a lot of time and money on them.

Okay, great. Thanks a lot. And, again, congrats on a good start for the year.

Thanks, Yale.

Thank you. [Operator Instructions] The next question is from Keay Nakae of Chardan Capital. Please go ahead.

Thanks. Good morning. Todd, just two questions for you. First, now that your protocol for uveitis has been approved, can you tell us what the inclusion/exclusion criteria that you settled on?

Yes, I can tell you generally and then specifically those details will be up, I would say, in the near-term on clinicaltrials.gov. What we’ve announced is that we have excluded a minority subset of the most severe uveitis patients and adjusted our dosing appropriately to treat, let’s call it, moderate patients down to mild patients. I emphasize the word or the term minority subset, those patients with uveitis are not severe and do not present as severe patients. So we’ve really considered this amendment to be a minor amendment and it has been consistent with our guidance over the past 12 months. We’ve really never talked about enrollment criteria and so forth. These are details that need to be worked out in any trial. But for now, that’s the information I can give you. I think clinicaltrials.gov will have more information shortly.

And is shortly meaning like within a couple of weeks?

Yes. I mean we are awaiting, Keay, we are awaiting Institutional Review Board approval of the new protocol, and if we expected major issues with that, we would have told you by now. So I’m hoping that near-term means weeks, but as you know these decisions are out of our control.

Okay. And just a follow-up question on your IP. Exiting 2014, how many U.S.-issued patents do you now have? And I know, obviously, hard to predict, but how many would you expect to possibly be issued in 2015?

Well, let me differ that question to our 10-K filing. That’s detailed there and rather than give you an answer now that’s less specific, I differ you to our filing which will happen in matter of days.

Okay, very good. Thanks.

Thank you. We have no further questions at this time. I would like to turn the conference back over to Dr. Brady for any closing remarks.

Well, thank you all for joining us again today. It’s always a pleasure to have your participation and your questions. We look forward to providing you with further status updates in the coming months. Thanks again for your participation.

Thank you. Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time and thank you for your participation.