Aldeyra Therapeutics, Inc. Q1 FY2020 Earnings Call

Good morning and welcome to the Aldeyra Therapeutics First Quarter 2020 Financial Results Conference Call. After the speaker's remarks, there will be a question-and-answer session. I would now like to hand the call over to Mr. Joshua Reed, the company’s Chief Financial Officer. Please proceed.

Thank you, and good morning, everyone. On the call with me are Dr. Todd Brady, Aldeyra’s President and Chief Executive Officer; and David McMullin, our Chief Commercial Officer. Todd will begin with an overview of our recent highlights and upcoming clinical milestones. I will discuss our first quarter financial results. Todd will make some concluding comments and then we will take your questions. Please note that this morning’s conference call contains forward-looking statements regarding future events and the future performance of Aldeyra. Forward-looking statements include statements regarding the timing of planned clinical trial initiations, 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. As a result of the COVID-19 pandemic, clinical site availability, staffing, and patient recruitment have been negatively affected, and the time lines to complete our clinical trials may be delayed. 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, including the current and potential future impact of the COVID-19 pandemic on our business, results of operations, and financial position. 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 this morning containing financial results for the quarter ended March 31, 2020, and the company’s filings with the SEC. And with that, I will turn the call over to Todd.

Thank you, Josh. Good morning to everyone, and thank you for joining us today. In just a few short weeks, COVID-19 has affected virtually every aspect of our lives. On behalf of everyone at Aldeyra, I want to extend our thoughts to those that have been touched by this devastating illness. Over the past two months, it’s been inspiring to see the selfless commitment of doctors, nurses, and other health care professionals working around the clock to extinguish the virus, and it’s also been encouraging to witness the collaboration of companies across our industry as they attempt to solve this global health care crisis. Along these lines, I want to thank our own employees for their tireless efforts over the past months regarding our initiatives to treat COVID-19 infection, which I will discuss later in this call. From Aldeyra’s perspective, although the stay-at-home orders and other government-mandated measures have affected certain of our clinical enrollment time lines, we believe we remain well-positioned to execute on our strategic objectives. As noted in this morning’s press release, we concluded the first quarter with $61.4 million in cash, cash equivalents, and marketable securities, and are updating our guidance to extend our projected cash runway into 2022. On our fourth-quarter call, we discussed the strategic prioritization of our late-stage ocular disease programs, including our trials in dry eye disease, allergic conjunctivitis, and proliferative vitreoretinopathy. Since our fourth-quarter call, two events have prompted us to accelerate the development of our systemic disease programs with ADX-629, a first-in-class orally available and irreversible covalent inhibitor of pro-inflammatory RASP. First, was the potential applicability of ADX-629 to mitigate respiratory compromise in patients infected with COVID-19. In preclinical models, ADX-629 and structural analog reproxalap have demonstrated activity in cytokine release syndrome, which is thought to lead to acute respiratory distress and other forms of respiratory compromise that require mechanical intubation in COVID-19-infected patients. Second, in April, we reported positive topline results from our Phase 1 clinical trial of ADX-629. To summarize those findings, ADX-629 was well-tolerated, and no treatment adverse events were recorded in the trial at any of the doses tested. Clinically relevant plasma concentrations exceeding known levels of RASP were observed, suggesting that near-total RASP inhibition is theoretically possible in plasma, and relative to subjects treated with placebo, a reduction in the commonly described pro-inflammatory RASP malondialdehyde was observed in drug-treated subjects, confirming target engagement. With the success of ADX-629 in Phase 1, we now plan to embark on a comprehensive systemic disease initiative to assess the activity of ADX-629 in three types of severe inflammation: cytokine release syndrome, autoimmune disease, and allergy. Our positive Phase 1 data, as mentioned above, is supported by strong preclinical evidence demonstrating that ADX-629 reduced levels of TH1, TH2, and TH17-related cytokines, suggesting potential activity across a broad array of inflammatory diseases. Contingent on FDA review in the third quarter, we plan to initiate a Phase 2 clinical trial of ADX-629 in subjects with COVID-19-associated respiratory compromise. ADX-629, either as a single agent or as an adjunct to other therapies, has the potential to reduce levels of a broad array of inflammatory cytokines, thereby mitigating respiratory compromise and potentially improving patient outcomes. We are also targeting two Phase 2a clinical trials of ADX-629 for the second half of this year to test the ADX-629 activity in autoimmune and allergic diseases. The first of these planned trials is in patients with psoriasis, an autoimmune condition associated with TH1 cytokines. The other planned trial is in patients with atopic asthma, an allergic inflammatory disease associated with TH2 cytokines. Regarding our ocular disease franchise, reproxalap continues to advance toward NDA filing in allergic conjunctivitis and dry eye disease. In dry eye disease, at midyear we have a Type C meeting scheduled with the FDA to review the remaining NDA requirements for reproxalap. Dry eye disease affects approximately 34 million people in the United States and remains inadequately addressed by current therapies. Results from our trials with reproxalap, which include clinically relevant change from baseline in two well-controlled trials, suggest potentially best-in-class rapid onset and broad symptomatic improvement. We plan to update on our clinical development plans in dry eye disease following receipt and review of the FDA feedback. For allergic conjunctivitis, we now expect results from our Phase 3 INVIGORATE trial in the first half of 2021. The timing of trial completion is later than initially planned, primarily due to delays associated with an extended allergy season. As many of you know, allergen chamber trials like INVIGORATE are conducted outside of allergy seasons to avoid the confounding effects of pollen in the environment. Based on the successful Phase 3 ALLEVIATE trial announced last year and assuming continued clinical success and positive regulatory review, reproxalap has the potential to be the first new mechanistic approach in decades for the treatment of allergic conjunctivitis, which affects 66 million patients in the United States, and importantly, is often associated with dry eye disease. As with dry eye disease, we think reproxalap could fill a significant gap in treatment. The current therapeutic landscape of allergic conjunctivitis is generally restricted to antihistamines and corticosteroids. The studies have shown that antihistamines are unsatisfactory for as many as one-third of patients, while chronic use of corticosteroids may lead to potentially serious adverse events. Lack of clinical site availability and staffing due to COVID-19 has delayed patient enrollment in our Phase 3 GUARD trial of ADX-2191 for the prevention of proliferative vitreoretinopathy. We plan to update the enrollment and completion timelines by year-end. At the same time, we are exploring additional indications for ADX-2191, including primary intraocular lymphoma, a rare but serious ocular cancer. With that, I will hand it back over to Josh, who will cover our financial results in detail.

Thank you, Todd. For the three months ended March 31, 2020, we reported a net loss of $9.9 million, compared with a net loss of $15.6 million for the quarter ended March 31, 2019. Net loss per share was $0.34 for the quarter ended March 31, 2020, compared with $0.58 for the same period last year. Losses have resulted from the cost of Aldeyra’s clinical trials and research and development programs, as well as from general and administrative expenses. Research and development expenses were $6.6 million for the quarter ended March 31, 2020, compared with $7.8 million for the same period in 2019. The decrease of $1.2 million is primarily related to the decreases in clinical and preclinical development and manufacturing costs. Expenses for the 2019 period also included $6.6 million of in-process research and development expenses incurred in connection with the acquisition of Helio Vision. General and administrative expenses were flat at $3 million for the quarter ended March 31, 2020, compared with March 31, 2019. Increases in personnel-related costs, including stock-based compensation, were offset by a decrease in legal and other miscellaneous administrative costs. In Q1 of 2020, total operating expenses were $9.6 million, compared with total operating expenses of $17.4 million for the same period in 2019. As Todd noted, cash, cash equivalents, and marketable securities were $61.4 million as of March 31, 2020. Based on current operating plans, we believe that our cash, cash equivalents, and marketable securities at March 31 will be sufficient to fund currently anticipated operating expenses into 2022, including completion of the Phase 3 INVIGORATE trial for reproxalap, completion of the Phase 3 clinical trials of ADX-629 and COVID-19-associated respiratory compromise, atopic asthma and psoriasis, the commencement of one or more additional clinical trials in dry eye disease, subject to the outcome of the FDA meeting scheduled for mid-year 2020, and the continuation of Part 1 of the adaptive Phase 3 clinical trial in proliferative vitreoretinopathy contingent on patient enrollment. Before concluding, I want to let you know that next month we will be presenting and hosting one-on-one meetings at the Jefferies Virtual Health Care Conference. Details will be posted on the Investors and Media section of our website. For those investors who are participating, we look forward to meeting with you. Now, I will hand the call back over to Todd for closing comments.

Thank you, Josh. From my perspective, a key takeaway from this morning’s call is that we are ramping our systemic inflammatory disease program, with a new comprehensive clinical initiative that complements our late-stage pipeline in ocular disease. The systemic disease initiative stimulated by the opportunity to potentially address a major morbidity associated with COVID-19 infection and bolstered by Phase 1 data demonstrating safety, tolerability, and target engagement, creates a number of new potential catalysts for Aldeyra in the coming quarters, and we are excited about the path forward for ADX-629. As always, we remain committed to executing efficiently on our strategic plan and bringing to market novel therapies that improve the lives of patients with serious unmet medical needs. With that, Joshua, Dave, and I will be happy to take your questions. Operator?

Okay. Your first question comes from Yigal Nochomovitz from Citi. Your line is open.

This is Samantha on for Yigal. Just want to be sure. Can you hear me okay?

Yeah. Loud and clear, Samantha.

Okay. Okay. I just wanted to start with the cash runway extension into 2022. What cost-saving measures have you implemented that factor into the extension, especially given the announcement that you are going to have three new ADX-629 studies starting in the second half of this year?

Yeah. Thank you, Samantha. As you might expect, we frequently look at our capital and we are pretty fiscally responsible. What I would say is that, given some of the trial delays, we sort of looked at our portfolio and looked at the pace of spend over time, and so I think that contributes to sort of the extension of the runway, in addition to some changes from an infrastructure standpoint. With respect to ADX-629 in development there, I think it’s important to understand that the Phase 2 trials are not very expensive at all. So this is not a huge capital drain.

Got it. That’s helpful. Regarding ADX-629, what are you envisioning in terms of patient numbers and treatment duration for the autoimmune and allergy studies, and what do you believe would be sufficient to establish proof-of-concept in those areas?

Great question, Samantha. I think our plan is as the year progresses to detail those trial designs. At this point, I think it’s fair to assume that these would be Phase 2a like proof-of-concept studies, generally including 30 patients or less. And the idea is to demonstrate activity of ADX-629, not only from a clinical standpoint but also from a biomarker standpoint. So, for example, in atopic asthma, a sputum analysis for cell counts would be an interesting biomarker. In psoriasis, transcription of inflammatory cytokines from biopsies would be an interesting example. In COVID-19 infected patients with respiratory compromise, not only clinical parameters, including time to mechanical ventilation or time on mechanical ventilation, but also levels of RASP in plasma and cytokine profiles in plasma. So these are the kinds of studies we are envisioning. The idea is to more or less comprehensively test ADX-629 across those three different kinds of inflammation, which I think will guide us in terms of going forward into larger Phase 2 trials, which I hope we will be in a position to announce early next year.

Got it. Thank you. That’s very helpful. Thanks for taking my question.

The next question will come from Louise Chen from Cantor. Your line is open.

Hi. Good morning. This is Carvey filling in for Louise. I have a few questions. There are several dry eye programs out there. What sets your asset apart from the others? In your trial design, what are the competitive advantages of your product compared to others? Additionally, how do you perceive the slowdown in ophthalmology due to COVID-19? Can the industry adjust to telemedicine or other methods for treating new and existing patients if this situation continues? Lastly, how should we view operational expenses in 2020? Thank you.

Great. Why don’t I turn the call over to Dave McMullin to comment on the competitive advantages in dry eye and the initial data that we are seeing regarding the impact of telemedicine on ophthalmology procedures and prescribing. Dave, are you on the line?

I’m here, Todd. We're excited about our development of reproxalap so far because it has shown several advantages over existing treatments. Reproxalap effectively addresses a wide range of symptoms, which is significant since dry eye disease is primarily symptom-driven. This motivates patients to seek help from their physicians. Additionally, we observe broad improvements in eye signs with reproxalap, which are important for assessing eye health. However, on a daily basis, managing symptoms is more prominent and is the real motivator for patients to visit the doctor. Reproxalap has also demonstrated a rapid impact on both symptoms and signs. We believe this quick improvement and the broad effectiveness will provide reproxalap with an edge in treating dry eye disease. Regarding the current situation’s impact on the patient-doctor dynamic, it's clearly evolving. We’ve been monitoring the marketplace weekly and observed that chronic treatments can be easily prescribed and refilled remotely, which was reflected in increased prescriptions in March at the onset of the disruption. We have noticed a decline in April, but the AAO has issued guidance for eye care professionals on how to meet patient needs through virtual visits. Especially for dry eye disease, where symptoms drive patients, these can be effectively reported in a telemedicine setting. However, assessing the disease's signs requires a doctor visit and testing. Therefore, I expect that managing dry eye disease will temporarily prioritize symptom management using telemedicine, while signs will be addressed later in a more spaced-out manner due to the pandemic constraints.

Thank you, Dave. Before I hand the call over to Josh to discuss OpEx, I want to highlight a couple of points. First, we continue to believe that our drug for dry eye disease has the best symptom profile in its class. It would be hard to find another treatment that shows symptom control like what we have illustrated in our corporate presentation. Second, we are not a nasal spray, and I don't believe any thorough market research will show that patients are seeking nasal sprays. We are a topical agent aimed at providing relief for dry eye syndrome. I also want to clarify that we are not a steroid; reproxalap is not a steroid, which, as I've previously mentioned, cannot be used long-term due to significant potential side effects. In addition to the quick onset of action that we believe showcases a best-in-class symptomatic profile—something that is crucial for most patients and physicians—our unique mechanism of action compared to other advanced treatments in dry eye disease places reproxalap in a strong position. Josh, I’ll now turn it over to you to discuss OpEx.

Yeah. Just regarding OpEx, a slowdown in enrollment will lead to lower expenses, and that will give us the ability to fund some near-term catalysts, specifically those items that we talked about earlier related to ADX-629.

Okay. All right. Thank you so much. That’s really helpful. Thank you.

Your next question comes from Esther Hong from Janney. Your line is open.

Hi. Good morning and thanks for taking my questions. So on ADX-629, there are multiple potential indications, of psoriasis and atopic asthma, how will you prioritize which program moves forward, assuming that the Phase 2a’s are successful? Is there a way to streamline the programs? And then, my second question is on ADX-2191. Can you discuss the potential of that for primary intraocular lymphoma? Thanks.

Thanks, Esther. In terms of asthma and psoriasis, both of those diseases represent different flavors of inflammation. And the intent of the program we have initiated is to demonstrate the activity of ADX-629 and more broadly RASP inhibition as a novel mechanism in those different types of inflammation. Whether we pursue psoriasis and asthma as indications, I think, depends on the strength of the data. In that, if there are signals that are generated from those clinical trials, then I think the company has considerable optionality in terms of moving forward in those particular diseases or moving forward in diseases that are TH1 or TH2 cytokine related or autoimmune and allergy related that are different from asthma and psoriasis. Examples may include diseases such as chronic cough or alcoholic hepatitis or minimal change disease, which is a rare form of renal inflammation that affects children and adolescents. There are many kinds of inflammation that relate to TH1 and TH2 diseases. I think most experts would agree that asthma and psoriasis are superb proof-of-concept indications to study in Phase 2a trials. But in terms of ultimate indications that we will pursue internally, we are leaving our options open. They may include psoriasis and asthma, depending on the strength of the results, as I mentioned, but also may include related diseases that relate to the mechanisms in which we are attempting to demonstrate activity. PBR is one of many indications that I think are addressable by ADX-2191. Ocular lymphoma, which we mentioned this morning, is a rare but serious form of cancer that generally affects the retina or the uvea and is treated almost exclusively with methotrexate, which is the active ingredient of ADX-2191. There is a very long history of the use of methotrexate for primary intraocular lymphoma. Unfortunately, today that cancer is treated by compounding methotrexate. The pharmacies at hospitals will essentially make up their own formulation of methotrexate for intravitreal injection into the eye, which as you can imagine has many drawbacks. So the intent would be to investigate our own novel formulation of methotrexate for intravitreal injection ADX-2191 for use in ocular lymphoma. And one question is the extent of clinical data, if any that Aldeyra would need to generate for filing and that’s something we are exploring over the next several months. So I expect you will hear more from us regarding ocular lymphoma as an additional indication for ADX-2191 over the next quarter or two.

Great. Thank you.

Good morning, and thank you for the detailed update. I have a couple of questions. First, could you provide an update on what you plan to present to the FDA at the Type C meeting regarding dry eye and RENEW Part 2? There has been some discussion about a competitor that recently submitted an NDA using ocular discomfort as the main efficacy measure and hyperemia as a secondary endpoint. Do you believe the FDA will require fluorescein nasal staining as a co-primary measure going forward instead of focusing solely on ocular dryness? Additionally, what adjustments are you considering in terms of staining time frame assessments, dosing schedule, and other factors to achieve the best clinical outcomes and potential labeling?

Matt, that’s something we have been thinking a great deal about, as you can imagine. Typically, the FDA has required symptoms and signs to be demonstrated for approval in dry eye disease. As you know, we have now demonstrated in two adequate and well-controlled trials clear symptomatic control, we would argue best-in-class symptomatic control in dry eye disease. And thus, we have requested and received a scheduling for a Type C meeting in the middle of this year with the agency to discuss our remaining NDA requirements. One question is whether signs are required. One question is if signs are required, what kinds of signs are required. I will say, I do not think, I do not have any evidence that the agency has historically required a particular sign, such as staining or redness. The other comment I will make in terms of recent programs. I do think that ocular discomfort was a primary endpoint because the symptom had been missed on a prior trial, and if sponsors are required to achieve statistical significance twice on a symptom and a sign, one way to do that is to run more than two clinical trials in Phase 3, and I think that was what was happening in the case that you referenced here. Obviously, we are optimistic going into the FDA meeting. We wouldn’t have requested the meeting otherwise, and we are positively surprised with the strength of our symptom data, which we have confirmed now in two trials, and we are eager to have that discussion. And as we mentioned, we will be updating the street on the remaining clinical requirements for NDA once we have reviewed feedback from that meeting.

Got it. Okay. And I am looking forward to the feedback later in the year. And then just had one more around the COVID program starting in the third quarter. I guess, I am curious, how much of a need do you anticipate in that time frame for an additional agent for COVID complications, again, in the third quarter and do you have any kind of concerns about enrollment beginning in that time frame? I guess, currently, we are seeing some of these leading clinical trials report a shortage of patients in certain geographies as this kind of subsides due to preventative measures and natural immunity. So just kind of thoughts on the use of cash for this program in that time frame and any kind of enrollment challenges you might face?

Enrollment is always uncertain in any disease. We have been in discussions with government agency representatives this week, and they generally believe that COVID will persist and that there won’t be a long-term shortage of patients. We agree with this perspective. While we don’t currently have a definitive solution for COVID in our pipeline, there is always potential for new agents with unique mechanisms in inflammatory diseases, including psoriasis, asthma, and COVID. Based on the preclinical evidence we've shared in our March press release regarding broad cytokine reduction—an approach that appears to impact respiratory function and the need for mechanical ventilation in COVID—we remain hopeful about ADX-629. This drug, which is a structural homolog of ADX-629, has demonstrated significant activity in animal models of acute respiratory distress syndrome. Our optimism lies in its oral administration that allows for immediate use once patients are admitted to the hospital. It can also be given via nasogastric tube to patients requiring ventilators and continued for those who are weaning off ventilation and once discharged. We aim to enroll patients who show respiratory compromise upon admission, defined as hypoxia and pulmonary imaging involvement, and treat them during their hospital stay for around 28 days. There is ample opportunity for agents like this. As you know, enrollment can be challenging to anticipate, but neither Aldeyra nor the government agencies we've consulted expect COVID to disappear soon.

Okay. No. Yeah. That’s great additional detail on kind of the program and the opportunity there. I tend to agree and looking forward to seeing how all these new programs progress. Thanks, guys.

Yeah.

I have no further questions in queue. I turn the call back to Dr. Brady for closing remarks.

Thank you, Operator. I’d like to thank you all again for joining us today, and as always, we look forward to continuing to update you on our progress. Thank you.

Thank you, everyone. This will conclude today’s conference call. You may now disconnect.