Aldeyra Therapeutics, Inc. (ALDX) Q3 2017 Earnings Report, Transcript and Summary

Good morning and welcome to the Aldeyra Therapeutics' Third Quarter 2017 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Steve Tulipano, Chief Financial Officer. Please go ahead.

Thank you, Andrea. Good morning, everyone. I'm Steve Tulipano, CFO of Aldeyra, and welcome to the Aldeyra Therapeutics' conference call to discuss our Q3 2017 financial results. With me today is Dr. Todd Brady, President and Chief Executive Officer of Aldeyra Therapeutics. Before we get started, we would like to remind you that this conference call contains forward-looking statements regarding future events and future performance of Aldeyra. Forward-looking statements include statements regarding Aldeyra's possible or assumed future results of operations and expenses, business strategies and plans, research and development plans or expectations, trends, market sizing and other market data, competitive position, industry environment and potential growth opportunities amongst other things. These statements are based upon the information available to the company today. And Aldeyra assumes no obligation to update these statements as circumstances change. Future events and actual results could differ materially from those projected in the company's forward looking statements. Additional information concerning factors that could cause results to differ materially from our forward-looking statements are described in greater detail in the company's press release and the company's filings with the SEC. Now, I would like to turn the call over to Dr. Todd Brady, President and Chief Executive Officer of Aldeyra. Dr. Brady?

Thank you, Steve. Today, we issued a press release summarizing our financial results for the third quarter. And I encourage you to review the press release as it contains important information relevant to our comments today. It has been another very productive quarter for Aldeyra as we continue generation consistent results that support the activity of our lead product candidate across multiple diseases. During the third quarter, Aldeyra announced positive results from a Phase 2a clinical trial in dry eye disease, our fifth positive Phase 2 clinical trial announced in the past two years. Results from the trial demonstrated clear and consistent improvement in drug-treated patients across a variety of dry eye disease signs and symptoms. The data suggested remarkably broad and rapid activity compared to current therapy for dry eye disease. Importantly, improvement in signs and symptoms correlated with reduction in levels of pro-inflammatory aldehydes, supporting the activity and mechanism of drug. Dry eye disease, as many of know, is a common and chronic condition that affects an estimated 20 million patients in United States, and with only two approved therapies, represents one of the largest ophthalmic markets. Based on the results of the Phase 2a trial, we expect to initiate Phase 2b clinical testing in the first quarter of next year. The breath of Aldeyra's clinical results across dry eye disease, allergic conjunctivitis, non-infectious anterior uveitis, and Sjögren-Larsson syndrome now supports three Phase 3 clinical programs and one Phase 2b clinical program. In aggregate, we believe the results validate aldehyde mediators as important clinical targets in human disease and also validate aldehyde sequestration as a new therapeutic approach. As we developed our small molecule aldehyde trap program for topical ocular indications, we continue to advance our systemic program which we expect to begin clinical testing next year. The clinical efficacy observed with drug applied to eye and skin suggests that overall our parenteral administration of drug may also be effective for the treatment of systemic inflammatory diseases as well as the neurologic disease associated with Sjögren-Larsson syndrome and succinic semi-aldehyde dehydrogenase deficiency. A variety of preclinical data generated by Aldeyra and others supports the role of aldehyde mediators in a large array of human disease across the body. And we look forward to continuing to expand our pipeline. There are two other third quarter events I would like to highlight before I review the late stage clinical trial catalyst for next year. First, the generic name of Reproxalap has been adopted for our lead compound formerly known as ADX-102. The last four letter of Reproxalap are a new and unique generic name stem that signifies the novelty of aldehyde traps, recognizing Reproxalap as a first-in-class product candidate. Second, in October, Aldeyra held a Research and Development Day. During which, we announced important new clinical results from our allergic conjunctivitis Phase 2b trial which demonstrated that drug-treated patients were statistically more likely to achieve a clinical response than vehicle-treated patients and also the drug-treated patients achieved clinical response statistically faster than vehicle-treated patients. We also presented new data from a market survey conducted on our behalf that highlighted the dissatisfaction with antihistamines which following allergen challenge only worked acutely in contrast to the durable activity of Reproxalap over at least an hour following allergen challenge. Finally, we introduced ADX-103, a novel aldehyde trap and development for the treatment of retinal diseases. ADX-103 represents what we hope would be the first of several new aldehyde traps derived from our aldehyde sequestration platform; looking forward, 2018 promises to be a late-stage catalyst-rich year for Aldeyra. In the first half of next year, we expect to initiative Phase 3 trial in allergic conjunctivitis and Sjögren-Larsson syndrome, and a Phase 2b clinical trial in dry eye disease. In the second half of next year, we expect to announce Phase 3 results in allergic conjunctivitis and non-infectious anterior uveitis as well as results from part I of Phase 3 and Sjögren-Larsson syndrome and Phase 2b in dry eye disease. Importantly, as a result of the recent financing completed last quarter, all of these catalysts are funded. As always, we look forward to continuing to updating you on our progress in offering a novel therapeutic modality to patients with diseases that are not well-addressed by current standard of care. Now, I would like to turn the call back over to Steve to review the third quarter financial results. Steve?

Thank you, Todd. For the third quarter of 2017, we had a net loss of 5 million compared to a net loss of 4.8 million for the same period in 2016. Basic and diluted net loss per share was $0.32 for the quarter compared to $0.38 per share in the same period of 2016. Losses have resulted from the costs of our clinical trials and research and development programs as well as from general and administrative expenses. Research and development expenses were 3.5 million for the three months ended September 30, 2017 compared to 3.4 million for the same period last year. The increase is primarily related to the increases in our external research and development expenditures including clinical, preclinical, and manufacturing activities. General and administrative expenses were 1.5 million for the third quarter of 2017 compared to 1.4 million in the same period of 2016. For the first nine months of 2017, we had a net loss of 15.4 million compared to a net loss of 14 million for the same period in 2016. For the nine month periods of 2017 and 16 respectively, basic and diluted net loss per share was $1.04 and $1.28 respectively. Research and development expenses were 10.8 million for the nine months ended September 30, 2017 compared to 9.7 million for the same period last year. The increase of 1.1 million is related to the increases in our external research and development efforts including clinical activities partially offset by reduction in manufacturing and preclinical expenses. General and administrative expenses were 4.7 million for the nine months 2017, compared to 4.3 million for the same period of 2016. The increase of 0.4 million is related to increases in personnel costs including stock-based compensation cost. We ended Q3 2017 with 47.9 million in cash, cash equivalents, and marketable securities. And that concludes our remarks today. Thank you for your participation. Andrea, please open the call to questions.

Thank you. We will now begin the question-and-answer session [Operator Instructions] Our first question comes from Adam Walsh of Stifel. Please go ahead.

Good morning, guys, and this is Neil Carnahan. I am on for Adam. Congratulations on a good quarter. So I was just wondering [indiscernible] of your ADX-102 data. And then, they thought that it may have widespread implications for optimizing field [ph] in general application. Can you guys talk about have you given that any thought?

Yes. Hi, Neil. Thanks for the question. One of the things we try to emphasize today is that Reproxalap formerly known as ADX-102, it is -- could be sort of a one stop shop for ocular inflammation. If you think about ocular disease, there is many many kinds of ocular inflammation. Not just the three that we've tested which is allergic conjunctivitis and uveitis and dry eye disease. One day I think that the drug will likely be used assuming it makes into market across any ocular disease where a physician might use a steroid or an NSAID. And that's because the mechanism is unique, I think it has really broad applicability. The other thing I tried to emphasize today that inflammation isn't just restricted to the eye. Inflammation occurs everywhere in the body and aldehyde mediators that initiate inflammation occur throughout the body. So I think even more broadly, just speaking across the disease in the eye, the company intends to move systematically, i.e., to other parts of the body. Not just topical administration to eye and skin. And there is no reason to believe based on the data that we have today either clinically or pre-clinically that are pipeline or compounds wouldn't work more generically in inflammatory disease throughout the body. So, that's a good question.

All right. Thank you, guys.

Our next question comes from Yale Jen of Laidlaw & Co. Please go ahead.

Good morning and thanks for taking the questions. Maybe have two here. The first one is that given that you guys really do have a number of Phase 3 and 2 studies for the next year, should we think about R&D expenditure will be substantially increased? I know you typically will not comment on the next year's sort of guidance in the financial guidance, but just wanted to get sense of could that be double or what not, and so we can work on our models?

Excellent question, Yale. Thank you. This is Steve. I would say that what you could expect is a marginal increase in 2018 over 2017.

Okay, and -- okay, fine, thanks. The second question is that there is a reading chatters of the [indiscernible]. So the idea -– the thought is that whether your dry eye products may enter the market, but the successful maybe shortly after that the drug when generics -- generic, so how do you see them for landscape --– market landscape should that happen for you guys?

Yale, thanks -- thanks for the question. I think that's an interesting point these days given all the events in the dry eye industry specially those in the past two months. I think that the benefit that our platform has -- Reproxalap has is that it represents a new mechanism. So whether the competing products are generic or not, I still think there is the opportunity to cycle through different mechanisms, I think there is the opportunity to use Reproxalap as adjunctive therapy and depending on how the data shape out for Phase 2b and Phase 3 in our case I think there is the opportunity for Reproxalap to represent monotherapy to perhaps even first line depending on the data, I don't think that generic or not, I don't think that the two existing therapies in drive to these are regarded as highly efficacious by either physicians or patients. And I think there is a good deal of market data to support that and so while there maybe some pressure from generics, I think that because it is unique, we will be somewhat immune to that. From the Phase 2a data as you know there were a couple of existing findings that distinguish Reproxalap from existing therapies aside from the unique mechanism of action, one was a relatively rapid onset of activity, which is not typically seen in this disease. We saw activity as early as one week of therapy, I think most Phase 3 trials in this space require treatment for two to three months to see activity, so there is one distinguishing characteristic and the second is we were able to track a biomarker in our case aldehyde levels in the tiers of patients they're correlated with the responsiveness of patients to drop the activity of drug. That to our knowledge has never been done; I don't think you'll find similar trials with either of the two therapies that are marketed today in many of the therapies that are in development. So I think, I think we're well positioned, I think the industry is evolving but generic or not there is room for better therapy.

Okay, great. I thought that's very helpful. Maybe just screening which is that you talked -- we have talked about this delivered [indiscernible] quite a while and just get some things of you mentioned lot about the RO1 with more recently state but you also think suggesting there could be IV and maybe this version of that, is anyway you want to explore a little bit more on this subject?

Sure. And as I mentioned to Neil's question, our intent as a company on moving beyond the eye and moving beyond the skin I think the applicability of aldehyde biology merits the broad expansion across the diseases that can affect us systemically. I think that there is two kinds of diseases, there is those that are acute and those that are chronic. For acute diseases especially severe diseases and I mean in this case severe inflammatory disease as we call them inflammatory crisis, where patients are admitted to the hospital in many cases, they are admitted to intensive care units, that allows for intravenous dosing and the reason is because patients have intravenous lines in because it's a crisis, because it's an acute flare that in some cases can be life threatening if not very serious, they think the intravenous dosing that re-administration is applicable there. I think it's intravenous and perennial dosing is less applicable to chronic metabolic diseases such as Sjögren Larsson Syndrome and succinic semi-aldehyde dehydrogenase Deficiency those diseases will require therapy for life because patients have a generic mutation or mutations that can tear their ability to metabolize aldehydes and obviously it wouldn't be convenient to in some cases even practical to administer drugs perennially there. So we have also an oral drug development program. I think our intentions along these lines will revolve considerably over next year as we get closer to the clinic and we look forward to telling you about it but I think it's a major focus of Aldeyra going forward.

So, thanks Todd and that's and again congrats on the progress.

Thank you, Yale.

[Operator Instructions] Our next question comes from Elemer Piros of Cantor. Please go ahead.

Good morning gentlemen. I have a maybe a couple of regulatory questions. Todd, do you want to confirm the DX-BA on the Phase 2b design in Dry Eye and on in the conjunctivitis from do you have a meeting scheduled with these agencies to discuss?

Yes, those are excellent question. The answer to Dry Eye question is no. And the answer to the allergic conjunctivitis question is yes. Dry Eye is a development pattern is fairly standard. We ran a Phase 2a comparing efficacy or activity over time that is versus baseline. Our Phase 2b will be more the standard comparison versus vehicle. The patients will be treated for three months with either vehicle or one of two doses of Reproxalap, and that is a very well trodden path and Dry Eye disease development paradigm. We don't feel the need to approach the FDA a prior to that after that we will approach the FDA and I think I would look for an end of the Phase 2 meeting Sometimes of course the end of next year. As we release the Phase 2b results and Dry Eye. Allergic conjunctivitis try is a later stage spot we've already released Phase 2b data there. We release Phase 2a data both of those trials for vehicle control and both trials Reproxalap exceeded the activity of vehicles statistically. So we have scheduled and in the Phase 2 meeting we submitted information to the FDA. And that meeting will be held before the end of this year and we would expect to update discreet on the results of that meeting and the final planning for the Phase 3 program probably in the first quarter of next year.

Okay, thank you. And then Uveitis I notice that you have 25 sites off and running recruiting base now this is a relatively small trial of 100 patients 28 day duration. Are you conservative when you project that the results that will be available in second half of '18 or can you comment?

Well, Uveitis is tough as ease to enroll. It's that's why we have so many sites and diverse case it's a rare disease. And in second case as I was mentioning and response to Yale's question this is a flaring disease, so not only do you have small number of patients at baseline but within that small number of patients you have to wait for patients to flare. So Non-infectious Anterior Uveitis many of those patients look normal throughout much of the year but on average about once a year they go through a one to two months flare whether it's painful and hot and red and they can't go to work and there is some vision loss and photophobia and a variety of other issues that they make these flares very serious if fact if you don't treat this flare patients can rapidly lose vision. The problem is -- well, the good news for the patients is that it is infrequent that happens one to two months a year possibly but the bad news for enrollment for us is we have to wait for the flare to occur. We can just find patients and treat them when they're not flaring, so that's why we have so many sites. I'm currently comfortable with our release of data in the second half of next year but obviously we'll need to update the street in the first and second quarter of next year as enrollment progresses.

Thank you, sir. Thank you very much.

This concludes our question and answer session. The conference has now also concluded. Thank you for attending today's presentation. You may now disconnect your lines.