Good morning. My name is Carol, and I will be your operator today. At this time, I would like to welcome everyone to the Aldeyra Therapeutics reports second quarter 2019 financial results call. [Operator Instructions]. At this time, I would like to turn the call over to Joshua Reed, Chief Financial Officer. Please go ahead, sir.

Good morning, everyone. I'm Joshua Reed, Chief Financial Officer of Aldeyra Therapeutics, and welcome to the Aldeyra Therapeutics conference call to discuss our second quarter 2019 financial results. With me today is Dr. Todd Brady, Chief Executive Officer. This conference call contains forward-looking statements regarding future events and the future performance of Aldeyra. Forward-looking statements include statements regarding Aldeyra's possible or assumed future results of operations, expenses and financial position, business strategies and plans, research, development and commercial plans or expectations, trends, market sizing, competitive position, industry environment and potential growth opportunities, among 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 issued earlier this morning containing financial results for the second quarter of 2019, 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, Josh, and thank you all for joining us. This morning, I'm excited to share with you the progress we've made in advancing our lead candidates towards commercialization. In addition to the milestones we expect to announce in the coming months. First, we expect to complete Part 1 of the adaptive Phase III RENEW trial in dry eye disease in the fourth quarter of this year. Following completion of RENEW Part 1, we expect to report the endpoints, dosing regimen and sample size for Part 2 of the trial. Top line results from RENEW are expected to be disclosed following completion of Part 2. We believe that reproxalap is the most advanced novel therapeutic approach and development for the treatment of dry eye disease. Results from the Phase IIb clinical trial released last year suggest that reproxalap has the potential to offer market-leading, rapid onset and broad symptomatic activity, which strongly differentiate us from competitive programs. Thus, if our Phase III clinical trials are successful, reproxalap, if approved, could capture significant share in a market of more than 20 million patients, only a small portion of which are treated with current therapies. In addition, we intend to finalize our second Phase III clinical trial in allergic conjunctivitis, following feedback from the FDA, which we expect to receive in the fourth quarter of this year. The ALLEVIATE Phase III trial announced in March of this year and the allergen chamber trial announced in June demonstrated highly-statistically significant and clinically-relevant reduction in ocular itching and those chronically aggrevating symptom of allergic conjunctivitis. Allergic conjunctivitis is estimated to afflict nearly 1/3 of the population worldwide, and a significant number of patients report suboptimal response to standard of care. Importantly, we believe that reproxalap represents the first new mechanism for the treatment of…

Thank you, Todd. For the second quarter of 2019, we reported a net loss of approximately $13.3 million compared to a net loss of approximately $9.1 million for the second quarter of 2018. Basic and diluted net loss per share was $0.49 for the quarter compared to $0.46 per share for the same period last year. Losses have resulted from the cost of research and development programs as well as from our general and administrative expenses. Research and development expenses were $10.7 million for the second quarter of 2019 compared to $6.8 million for the same period in 2018. The increase of $3.9 million is primarily related to the increase in manufacturing, preclinical and clinical development costs, an increase in personnel costs and noncash compensation costs related to a portion of upfront consideration that are subject to vesting based on continued service. General and administrative expenses were $3.1 million for the second quarter of 2019 compared to $2.4 million for the same period last year. The increase of $700,000 is primarily related to an increase in personnel costs. In the second quarter of 2019, total operating expenses were $13.7 million compared to $9.2 million in the prior year. Cash, cash equivalents and marketable securities were $69.5 million as of the end of the second quarter of 2019. This concludes my comments on the second quarter financial results. Thank you for your participation. Operator, we would now like to open the call to questions.

[Operator Instructions]. Our first question today comes from the line of Yigal Nochomovitz from Citi.

This is Victor on for Yigal. One question we have is for Part 1 of the Phase III RENEW trial in dry eye disease. You specified two separate patient population based on ocular dryness score greater or equal to three, and fluorescein nasal scaling greater or equal to two at baseline. Will you assess ocular dryness in the fluorescein nasal staining prespecified population? And vice versa, will you assess fluorescein nasal staining in the ocular dryness score prespecified population?

Thanks for the question. The short answer is no. Those are two different prespecified populations. So the dryness score will be assessed in high-dryness patients and the staining score will be assessed in high-staining population. The reason for that is that changes from baseline are easier to detect in patients with higher baseline scores. You can imagine if a patient comes in with a low baseline score, let's say, close to zero, changes from baseline are impossible to detect in some cases. So that's why we prespecified with the agency, the high-baseline populations and the agency has agreed to what amounts to two separate analyses in patient populations that may have some overlap, but not necessarily.

Great. And that brings me to my second question. How much overlap do you actually expect between the two prespecified populations?

Hard to know. Based on the Phase IIb trial, roughly half of the patients will have both high-baseline staining scores and high-baseline dryness scores. But the beauty of the trial is that a patient that only has high dryness or high staining at baseline can still be enrolled in the trial and count towards the primary endpoint. And that saves us significant time on enrollment.

Our next question comes from the line of Adam Walsh from Stifel.

This is Edwin Ng [ph] for Adam Walsh. Congrats on the fast enrollment of the RENEW trial. Just as following the previous question, can you please remind us on the major inclusion and exclusion criteria of this trial on the TD patient? Any changes from the Phase II trial? My second question may be for Josh. There are quite some clinical activities, including new trial initiations in the second half of the year. Can you please give us some color on the R&D or operational expenses in the next few quarters?

Edwin, thank you for your question. The enrollment criteria for Phase III in dry eye are essentially the same as the enrollment criteria for Phase IIb, and that's obviously an intentional choice. The fewer variables to change the better, if we're intending on replicating one in Phase II, we're highly-statistically significant results in both dryness and staining. The key criteria in Phase IIb and Phase III are essentially a history of dry eye disease of six months or so, patients must meet certain criteria at baseline, both in terms of symptoms and in terms of staining. And as we just discussed with Victor, patients must be a high-baseline in either staining or dryness or both to be enrolled in the trial.

And on part two of your question, yes, R&D expenses can be somewhat variable based on when milestones are achieved. However, as you accurately pointed out, given the activity that we expect in the second half of this year, you should expect to see an increase in our R&D costs later in the year.

Our next question comes from the line of Esther Hong from Janney.

Congratulations on all the progress. So first, for Part 1 of the Phase III RENEW trial in dry eye, can we expect some high-level details that are similar to those provided in Part 1 of the Phase III study in Sjögren-Larsson Syndrome, particularly with regards to stack seg. And then what can we expect from Part 2 of the RESET study in Sjögren-Larsson?

Thank you for the question, Esther. Yes, I think you can expect to hear from us something similar about RENEW that you heard from us today on RESET. The intent of any adaptive trial is to run patients, initial to tap patients, initially then to design subsequent pivotal parts of the trial. Generally, I think with any adaptive trial, there are three outcomes, potential outcomes. One is the trial that didn't generate sufficient spec size to move forward. The other potential outcome is that the trial works so well that there's no point in continuing the trial. And then the third is that we're advancing to Part 2 of the trial based on certain parameters. Typically, what I would expect to hear after RENEW Part 1 of the dry eye Phase III trial Part 1 is -- what we expect to do in Part 2, in particular, confirmation of primary endpoint. The patient size for and the number of patients needed for enrollment and so forth. So that's sort of a standard adaptive trial output from the first part. As far as Sjögren-Larsson is concerned, Part 2, I think, depends on our discussions with the regulatory authorities. Obviously, we saw drug activity. As we mentioned, the drug was well tolerated. Sjögren-Larsson Syndrome, as you know, is a rare disease and the regulatory path is uncertain. And so we intend before outlining the design of Part 2 to discuss that specifically with both the FDA and the EMA before moving forward.

Our next question comes from I-Eh Jen from Laidlaw & Company.

Congrats on the quicker advancement of -- in all fronts. My first question is that for the RESET study that -- do you have some data on the -- one? First of all, are you going to reveal more details of that? And how would you compare the RESET preliminary readout to the previous Phase II study in Sjögren-Larsson Syndrome?

Thanks for the interesting question, I-Eh. I can tell you that the results are very consistent with Phase II. And if they had not been, we wouldn't even be moving forward. That's the first part. I think, in general, we are in the middle of a trial, right? So the RESET trial is ongoing. And as we've disclosed previously, during adaptive trial, and companies tend not to quantify as investigators and our patients so as not to influence the outcome of the trial ultimately or unduly affect enrollment either positively or negatively. So our announcement today represents what we feel comfortable in conjunction with the DSMB and our investigators in terms of the amount of disclosure.

Great. And when you are scheduled to have the discussion with agencies, would that be also in the third or fourth quarter of this year?

Well, it's a complicated process because it's not just the FDA, but also Europe. As we've discussed previously, Sjögren-Larsson Syndrome is evident worldwide that particularly well-described and first-described in Europe. And so we're very keen on a so-called parallel process where both the U.S. and European regulators are kept informed simultaneously. All that means that the timing and scheduling is complicated. And at this time, it really depends on the particular agencies that we're approaching in terms of timing.

Okay, great. And maybe just one more question here, which is for the allergic conjunctivitis, and you have successfully tested the environmental challenging studies earlier and then report that. So in the -- within that context, was that something that, overall, you will present it to the agency for the second part of the Phase III study? And is there any other colors you may share before you speak with them?

Absolutely, the -- both ALLEVIATE, which was a conjunctival challenge trial that is allergen administered directly to the eye. And the allergen chamber data, which are in our corporate deck, are strongly, statistically-positive and clinically meaningful. Both trials will be discussed with the agency. I think it's reasonable to assume, as we've disclosed previously that now that we've successfully completed a positive Phase III with a conjunctival challenge, we will then propose the agency an environmental challenge. And the allergen chamber trial is an example of environmental challenge, that is patients go into a small confined room, the pollen, at certain levels, controlled levels, is blown into the room, patient sit there for 3 to 4 hours and rate ocular itch either after drug or vehicle administration, and in some cases, drug and vehicle are administered during the challenge itself. Those data were remarkably positive, not only in terms of ocular itch, but in terms of redness. So I think your assumption that we'll be discussing an allergen trial with the agency is accurate.

Again, congrats on the fast movements.

Our next question comes from Matthew Cross from JonesTrading.

Congrats on the rapid progress this quarter. I'll start with kind of a lengthier one, if you'll forgive me. But I was hoping you could clarify and then maybe follow-up a little bit on your prepared remarks about the dry eye market, how much of a need for reproxalap there is? And then how we fit into the existing landscape? I guess, thinking particularly about those patients with de novo dry eye that isn't overlapping with allergy. I'm wondering most, where do you feel reproxalap best outcompete Xiidra? You have just kind of enough problems with RESTASIS. But do you need to show an at least mathematically superior effect size to get physicians excited to use this? Is it about side effects like visual acuity and bad taste? Or do you really need to compete with Xiidra in a market that I think you kind of alluded to, seems to be far from saturated?

Right. Matt, I'm particularly interested in the dry eye market because there's only two drugs. There's 20-plus million patients that suffer from this disease. But if you look at the number of patients that are actually treated with either RESTASIS or Xiidra, it's very low. And we think the reason for that is that the drugs don't work that well. Otherwise, patients would be taking more of them. Xiidra itself, in our view, suffers from two critical issues: one is taste disturbance, that is a well-characterized side effect of Xiidra that is in some patients as persistently annoying as dry eye disease itself. And the second is onset of action. As you know, these drugs often take weeks or months to work. I don't know that reproxalap, in itself, needs to compete directly with Xiidra or RESTASIS, but you can imagine the advantages that reproxalap offers, there's obviously no taste disturbance or any other serious side effect that we're aware of with reproxalap when administered to the eye. And the other critical advantage that reproxalap may have is rapid onset of action. I think that you can see from the Phase II results and the Phase IIa results that there is the potential that reproxalap could be working as soon as one week of therapy, which is a market-leading characteristic. The other thing I'll say is that we've disclosed more data on dry eye disease symptoms and signs broadly than any other drug. If you look at slides in our corporate deck and the slides in the Phase IIb data release, it was very clear and what seems to be very clear to key opinion leaders is that reproxalap is broadly active across a variety of different symptoms, across a variety of different signs, staining, osmolarity, tear volume or the Schirmer test. This is really quite unprecedented and it's certainly unprecedented to release this much data. And I think between the onset of action and the breadth of activity and the safety and tolerability profile, we are impressed with reproxalap's potential to compete versus what's out there today.

Absolutely, agree. Obviously, data has been very impressive and hoping to see more of the same as RENEW keeps going. But thanks for kind of recapping that. And then as far as SLS, I know we're not digging in too deep today, given that this is Part 1. But as we're speculating about what might come out of regulatory discussions on SLS, you mentioned that reproxalap showed a statistical significant improvement from baseline, but a mathematic improvement over vehicle. And I would imagine any benefit from vehicle in these cases is likely to be fairly transient. So would you see any validity in utilizing some sort of a durability measure in Part 2? Or are there any other kind of potential changes that you'd like to suggest that you're open to discussing today?

All kinds of possibilities with Sjögren-Larsson Syndrome. As I mentioned in a previous answer, the regulatory path is untrodden. But that presents opportunities for us to work with the various agencies to demonstrate activity in a patient trial with six patients on drug and three on vehicle, it's really hard to distinguish one group from another using standard statistics. And that's actually the case with orphan disease generally. Most of these orphan diseases have a few patients and the standard techniques that we might use, say, for instance, in dry eye disease or allergic conjunctivitis don't apply. And so we're open to all kinds of alternatives, some of which we'll be suggesting to the regulatory authorities along the lines of what you suggest shortly.

I'll now turn the call back to Dr. Todd Brady for closing remarks.

Thank you, operator, and thank you all for joining us today. We look forward to a busy fourth quarter as we keep you informed of our progress and advancing our late-stage pipeline of product candidates for the treatment of immune-mediated disease.

This concludes today's conference. You may now disconnect.