Aldeyra Therapeutics, Inc. (ALDX) Q2 2015 Earnings Report, Transcript and Summary

Greetings. And welcome to the Aldeyra Therapeutics’ Second Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Sam Martin of The Ruth Group. Thank you, sir. You may begin.

Thank you. Good morning, everyone. And welcome to the Aldeyra Therapeutics’ second quarter conference call and audio webcast. With me today are Dr. Todd Brady, President and Chief Executive Officer; and Stephen Tulipano, Chief Financial Officer of Aldeyra Therapeutics. Earlier this morning, Aldeyra issued a press release announcing the company’s financial and operating results for the second quarter of 2015. 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 Aldeyra’s 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 Discussion and Analysis of Financial Condition sections of Aldeyra’s annual report on Form 10-K for the year ended December 31, 2014, which is on file with the SEC and available on the SEC and Aldeyra websites. Additional factors may also be set forth in those sections of Aldeyra’s quarterly report on Form 10-Q for the quarter ended June 30, 2015, which is expected to be filed with the SEC later this week. We encourage all investors to read these reports for -- our other SEC filings. This conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, August 11, 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, Sam. And thank you all for joining us this morning for our second quarter 2015 conference call. I hope you had a chance to read our release this morning. We have provided a detailed financial update, as well as development updates, all of which that we will discuss in more detail on today’s call. But first, I would like to say, we are excited with the direction in which we are headed. We are working to continue to enhance the long-term value of Aldeyra, specifically by adding an additional indication for topically administered NS2 our lead compound, as well as advancing systemic formulations of NS2 and the discovery and synthesis of new aldehyde traps. In addition to expanding the market potential of therapeutic platform, we were pleased to close the follow-on financing during the second quarter of approximately $20 million that funds all of the development activities that I will discuss today, as well as our corporate operations into 2017. Today we are very pleased to announce a new clinical program for NS2 ophthalmic drops, which will target allergic conjunctivitis. We have filed a clinical trial authorization with Health Canada, which is the Canadian version of filing an IND with the FDA for our Phase IIa clinical study in this indication. Now assuming a positive response from Health Canada, we expect to complete enrollment in this trial in 2016. I want to discuss briefly the unmet medical need in allergic conjunctivitis, which is a disease that is unfortunately known to many of us and in some estimates effects between 20% and 40% of the population worldwide. But first, ocular redness is a significant concern is this disease, but the efficacy of current standard of care which are adrenergic agonist weighing overtime. In addition, the long-term efficacy of antihistamines is not adequate in many patients, who must then resort to ocular steroids and other more potent, but also more toxic anti-inflammatory therapies. Finally the use of the available ocular allergy medication often leave to mydriasis, which is enlarged pupil, but in turn leads to photophobia and cosmetic issues. NS2 is a particularly interesting therapeutic approach for allergic conjunctivitis, Aldeyra presented data in a poster session at [indiscernible] earlier this year showing that the drug diminishes key cytokines possibly involved in the allergic response and diminishes swelling in an animal model of allergic dermatitis. In addition, as evidence in data presented at ARVO this year that I'll discuss later, NS2 administered topically to the eye has shown significant decreases in ocular redness and other important measures of ocular inflammation. As many of you know, allergic conjunctivitis represents the second indication of NS2 ophthalmic drop that we’ve announced. And during the past quarter, we were pleased to initiate enrollment of our double-masked, Phase II clinical trial in non-infectious anterior uveitis. During the quarter, enrollment in the uveitis trial subsequent to initiation has been slower than expected and we're in the process of responding aggressively and proactively to increase the rate of enrollment. We anticipate we’ll be able to complete enrollment in the trial in the second quarter of next year. For details on the trial design, I encourage you to access the study description on the clinicaltrials.gov website. But now, I like to switch topic to discuss another clinical development program of ours, Sjögren-Larsson Syndrome or SLS, which is different from inflammation and in this case, it’s an inborn error of aldehyde metabolism, that leads in part to a severe skin disease called ichthyosis. A note that there is no FDA-approved therapy specifically indicated for SLS. We have initiated a double-blind Phase II clinical trial of a dermatologic formulation of NS2 for ichthyosis due to SLS. We are extending our enrollment timelines to Q1 of next year, due to scheduling logistics consistent with a single site clinical trial at an academic medical center. Now as with our uveitis trial for details of the trial design, I encourage you to access the study description on the clinicaltrials.gov website. Moving now to our earlier stage programs, we’ve recently made considerable progress in the expansion of our aldehyde trap program. Now specifically, we announced today that we expect a systemic formulation of NS2 to enter clinical testing next year. The planned clinical indications we’ve targeted for the systemic formulation, include neurological and other manifestation of Sjögren Larsson Syndrome, as well as autoimmune crises, which are broad group of acute inflammatory diseases that are today treated with intravenous steroids and other toxic anti-inflammatory medications. The systemic formulation of NS2 could represent a therapeutic approach for another inborn error, aldehyde metabolism, called Succinic Semi-aldehyde Dehydrogenase Deficiency or SSADH deficiency which is characterized by cognitive and development delay, decreased muscle tone and seizures. Though an early stage program, SSADH deficiency is particularly exciting for Aldera. Like SLS, there is no FDA-approved therapies specifically indicated for the disease. The neurologic complications of SSADH deficiency which are often severe are thought to be due to aldehyde derived metabolites that accumulate because patients do not have the enzymatic capacity to breakdown the aldehydes. Now by sequestering aldehydes in patients with SSADH deficiency, an aldehyde trap could mitigate many of the serious manifestations of this disease. Finally, I want to review some of the recent posters of novel data on the effects of NS2 and animal models that were accepted and presented at leading medical meetings in both oncology and ophthalmology during the second quarter. At the 2015 Multinational Association of Supportive Care in Cancer Annual Meeting, known as MASCC, we presented data that demonstrated the ability of NS2 to increase the healing rate of radiation-induced oral mucositis, which can be a severe side effective chemotherapy. Additionally, we presented two posters at the third 2015 Annual Meeting of the Association for Research in Vision and Ophthalmology known as ARVO. Both -- lot of these posters exhibited the efficacy of NS2 ophthalmic drops as being comparable to topical steroids in some measures of ocular inflammation and the other poster demonstrated the efficacy in the prevention of development of corneal fibrosis, which is also known as haze. I think the recognition of these data by both MASCC and ARVO is further validation of our science and a positive impact that an aldehyde trap may have on diseases that are thought to be related to aldehydes. And as always, I encourage you to review the details of these posters which can be found on ir.aldeyra.com. And now I’d like to turn the call over to Steve Tulipano, our CFO, for a review of the financials before providing some closing remarks and opening the floor to questions. Steve?

Thanks Todd. Thank you all for joining us today. As Todd indicated, we raised approximately $20 million in a follow-on in May which brings our total raises for 2015 to nearly $30 million. Equally important is the impressive list of sophisticated healthcare investors that are now shareholders in Aldeyra. As Todd also indicated, the cash on hand that we have will allow us to fund our operations into 2017. Let me briefly discuss the quarter and the year-to-date periods. In the second quarter of 2015, we recorded a basic net loss of $2.2 million while $0.27 per share based on weighted average shares of 8.4 million. That compares to a basic net loss of $5.3 million or $1.43 per share based on 3.7 million shares to the same period in '14. R&D expenses totaled $1.2 million for the second quarter of 2015 compared to $664,000 for the second quarter of '14. The year-over-year increase of $585,000 was related to our ongoing manufacturing and clinical efforts, including the increased headcount when compared to the prior period. For our Q2 2014, G&A expenses were $955,000, compared to $983,000 for the second quarter, resulting in a decrease of $28,000. Total operating expenses for the second quarter of 2015 were $2.2 million, compared to total operating expenses of $1.6 million for second quarter of 2014. Included in total operating expenses for the quarter were $464,000 in non-cash, stock compensation expense. For the six months ended June 30, 2015, our net loss was $4.4 million, which include $1.1 million in non-cash, stock based compensation expense. Again, we ended the quarter with $33.6 million in cash and cash equivalents. Todd, would you like to make closing remarks?

Yes. Thanks, Steve. Just to summarize, we believe that Aldeyra remains in a great position and are looking forward. We are executing on our growth strategy to develop multiple short-term goal and have made several important advancements to expand our long-term opportunities, as I described in this call. And as Steve mentioned, we are well capitalized and have improving track record of accessing capital to significantly grow the company over the long run and create value for the company and its shareholders. That concludes our prepared remarks for today. We would now like to open the call for questions. Operator?

[Operator Instructions] Thank you. Our first question comes from the line of David Lebowitz with Janney Capital. Please proceed with your question.

Good morning. And thank you for taking my question. I had a question regarding the uveitis trial in light of what occurred with the XOMA in their release. If you could just kind of run through what the differences are between your trial and the indication versus what occurred with XOMA would be appreciated? Thank you.

Thanks, David. Good morning. And thanks for the question. That’s one example of another company that’s running a trial on uveitis. XOMA is a little different, because in that case they are working on posterior or pan-uveitis, which affects the back or all of the eye and they are also working on specific forms of uveitis due to certain autoimmune diseases. Aldeyra is working on anterior uveitis, which is the most common form of uveitis. In fact, 90% or so of uveitis is estimated to be anterior. I will say, however, as I mentioned in the call in the remarks, that the flares in uveitis are intermittent. And as you can see on our study synopsis on clinicaltrials.gov, the protocol is such that we treat patients that are flaring. I think it’s difficult for any company to predict the rates of flare for the disease. We know in anterior uveitis that a typical patient will flare about once every year. But really the flare rates can be difficult to project. And I think in any uveitis trial, probably ours included, that’s the reason for the difficulty and anticipating the completion of enrollment.

Thank you very much for taking my question. It’s nice to see the progress.

Thank you.

Our next question comes from the line of Keay Nakae with Chardan Capital Markets. Please proceed with your questions.

Yes. Thanks. So with respect to the point you just made Todd, what are you guys doing to try to improve the rates of enrollment?

Hi. Good morning, Keay. Thank you for the question. Yes, that’s the first question I would ask as well in any of these situations and all of us here have been in clinical development for a long time. There is a standard list of activities that any responsible company runs through to evaluate the involvement criteria of the trial, the exclusion criteria to evaluate the number of sites, to visit with the sites, to discuss with site coordinators issues and so forth. And as I mentioned in the call, you can expect that that we're doing all of that. I will note that we have done quite aggressive in increasing the number of sites relative to where we thought we would be at the start of the trial. And we’ve been in touch with the investigators and fact that was just on a visit last week. I think there is a tremendous amount of enthusiasm for all the obvious reasons, as we and others have disclosed and as commonly known steroids, which were the standard of care for this indication or toxic. And there remains a great deal of interest in the medical community and I think in the patient community as well for filing an alternative therapy here. I think it's a matter of blocking and tackling and some of the activities, it’s not all of the activities I just mentioned Keay or ones that we are pursuing as we speak.

Todd, how many sites are currently enrolling patients in the study and where would you like to take that number upto?

We had to disclose the number of sites and I preferred not to right now, but you can expect that it’s a respectable number. We have said that the top anterior ocular inflammation site in the US at least, but we believe to be top anterior ocular inflammation sites in the U.S. are actively involved in the study. I think that we check the enrollment rates as any company does almost immediately after initiation. We started responding to that immediately. So I hope we have now reached our limit in terms of number of sites because we've been quite proactive in getting reasonable sites on board. And I think at least we anticipate enrollment will increase, but again, and this disease, that’s difficult to project.

All right. Shifting gears to SLS, you hinted at some logistical issues with respect to the patient enrollment. There obviously, we’re talking about a rare disease. But any color you can share on that would be helpful as well?

Yes. I mean, I haven’t disclosed anything new in terms of the design of the study as is evidenced on a clinicaltrials.gov synopsis. This is one site. It is an academic medical center. And we of course chose that site because it’s the premier, if not the only valid SLS site in the United States. But given the location of that site, given the number of visits in this study, which is all on the left, it has proven to be a bit more challenging logistically than we thought. I think there are lots of reasons why trials enrolled lower than planned. This is a unique one in our experience. But as you mentioned, Keay, and I think you hit the nail in the head, this is an orphan disease with a single site and that combination sometimes in any company leads to a slower enrollment.

Okay. And just one follow-up question on the systematic formulation of the product, you gave us a timeline for going in clinic next year. Now the key things you need to button down before you’re ready to take that forward?

Yeah. Thank you for asking that question. I think that the -- I saw the people all the time that Aldeyra is a novel, that Prologis is topical and novel itself is systemic. And we are very excited about being able to announce initiation of clinical testing at some point next year. Obviously, the key thing is, which is the optimal systematic formulation to take into humans. Obviously we are going to get it right or hope to get it right the first time and we’re being very methodical and very careful about using something which is sufficiently potent and at the same time should yield at least in our expectations of reasonable safety and tolerability profile. So that said, it’s a process that that we are undertaking this year and as we move into next year, you could expect to here from us all the standard that drug development checkpoints that all the companies talk about including IND enabling studies and filing an IND, et cetera.

Great. Thanks.

And our next question comes from the line of Yale Jen with Laidlaw. Please proceed with the question.

Good morning, gentlemen. Thanks for taking the questions.

Hi, Yale.

Good morning. Just a quick things about allergic conjunctivitis, first of all, is this be same formulation as to one for the uveitis or the same -- or the different dose, could you share a little bit more color on that?

The dose will be a part of the trial design that will be on clinical trials that the formulation, the drug product is exactly the same, Yale.

And it seems to me that you guys now actually expended much more in the ophthalmological indications, is that these are the two sort of trail blazer indication that you may see even more in this space or how should we people see that?

Yeah. That’s a great question. We’ve always said that even over the past 18 months that one of the things we intend to do in the company is to take multiple shots on goal with topical formulations that we have. Ocular inflammation is a particularly interesting area for us, not only because wherever you look there is unmet medical need but also because we’ve had a lot of experience with NS2 ophthalmic drops. We’ve completed Phase I with the drops. We’re enrolling a clinical study in patients. So we actually know quite a bit about these drops in not only animals but also humans. The other thing that’s been really beneficial for us, as you can see from the ARVO posters that I discussed in the call is that this drug appears in animal to be particularly active in the eye would administered topically. So for all these reasons and the fact that if anything NS2 appears to have an anti-allergy, anti-inflammatory profile, we chose allergic conjunctivitis as our next indication to pursue. I think it was a fairly easy choice, Yale. As you alluded to there is probably two or three ocular inflammation indications that company’s look to test that are in this space. Others might be a dry eye ocular rosacea, postoperative inflammation. There is a variety of different diseases and conditions that could be tested. But for our case, relative to the mechanism of NS2 and what we know about NS2 in terms of its efficacy in animals and a behavior in humans, allergic conjunctivitis seem to be the obvious choice and not only internally but also externally with our key opinion leaders and other stakeholders.

Thanks. And just two brief questions here. First is that the two indications that currently, so the completion will be in 2016 in the first and second quarter, should we anticipate a data, let say, a quarter after that, is that the expectation?

Well, I think, you can look at the trial design and the endpoints and make that judgment for yourself. Just to reiterate the primary endpoint uveitis is the anterior ocular exam, which most of us have had done in our lives with the slit lamp. And the endpoint in Sjögren Larsson Syndrome is the visual ichthyosis scale. Neither of those are overly complex and neither of them require a lot of data analysis. So I think that probably tells you something there, Yale.

Okay. Great. And the last question I have is that, you develop systemic delivery drops, probably going to target the CNS condition of SLS and for SSADH? Should we anticipate all these studies will be done -- and clinical study will be done at the same site you currently doing with the SLS study or you anticipate a broader site you might -- other number of site you might choose? So could you also give some color on that?

Yes. That’s a great question too, Yale. I would anticipate expanding the number of sites, simply because its easier from a logistical standpoint to run a clinical trial that way, especially with a rare patient population, it is prevalent as spread across the United States. SSADH is interesting as you can see in the literature, there are a couple of academic centers working on the disease, one is at Washington State University and one is here at children at Harvard. And so I would expect that as we move forward, as we expand the number of patients in these trials and as we look to do future trials in these diseases and particularly as they relate to neurological complications that we would have multiple sites.

Okay. Great. Thanks and congrats for expansion of studies.

Yes. Thank you.

[Operator Instructions] Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. And with that the conclusion of today’s conference call. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.