Aldeyra Therapeutics, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2014. The interim financial statements are unaudited. Aldeyra is an early-stage biotechnology company developing NS2 and other aldehyde-trapping therapies. The company had no approved products and no revenue from product sales or other arrangements.
Business Context and Key Developments
- NS2 had completed a Phase I trial in 48 healthy volunteers as an eye drop and was reported to be safe and well tolerated in that study.
- Management planned to file IND applications in 2014 for a Phase II/III trial in Sjögren-Larsson Syndrome and a Phase II trial in acute anterior uveitis.
- The company completed its initial public offering on May 7, 2014, selling 1.5 million shares at $8.00 per share for approximately $10.0 million of net proceeds.
- Series A and Series B preferred stock converted into approximately 3.64 million common shares in connection with the IPO. Preferred-stock warrant exercises produced an additional 74,001 common shares, and a $170,000 related-party convertible note converted into 21,250 common shares.
Financial Metrics
| Metric | Three Months Ended June 30, 2014 | Six Months Ended June 30, 2014 | Comparable 2013 Period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Research and development expense | $663,908 | $1,108,186 | $325,050 and $475,283 |
| General and administrative expense | $982,579 | $1,783,225 | $660,640 and $801,945 |
| Loss from operations | $(1,646,487) | $(2,891,411) | $(985,690) and $(1,277,228) |
| Net loss | $(1,135,145) | $(733,373) | $(1,568,783) and $(5,543,717) |
| Net loss attributable to common stockholders | $(5,330,228) | $(5,120,025) | $(1,718,878) and $(5,816,971) |
| Basic loss per share | $(1.43) | $(2.51) | $(5.47) and $(18.50) |
| Net cash used in operating activities | Not separately presented | $(1,958,346) | $(588,766) |
Profit margins are not meaningful because the company had no revenue. The six-month net loss included a $2.3 million favorable change in the fair value of preferred-stock warrant liabilities. The three-month and six-month losses attributable to common stockholders included a $4.1 million deemed dividend related to preferred-stock conversion.
Liquidity, Debt and Capital Resources
- Cash and cash equivalents were $11.5 million at June 30, 2014, compared with $3.3 million at December 31, 2013.
- Total assets were $11.8 million and stockholders’ equity was $9.8 million at June 30, 2014, compared with a $40.2 million stockholders’ deficit at year-end 2013, primarily reflecting the IPO and preferred-stock conversions.
- Net cash provided by financing activities was $10.2 million for the six months, primarily from the IPO. Cash increased by $8.3 million during the period.
- The Square 1 Bank credit facility was fully drawn. Approximately $1.4 million of principal was outstanding at June 30, 2014, with interest at 6.5%. Interest-only payments were expected through November 2014, followed by principal payments of approximately $58,160 plus interest through November 2016. The facility is secured by the company’s assets, including intellectual property.
- Management stated that existing cash resources were expected to fund operations through approximately the end of 2015, but additional capital would be required for continued clinical development and commercialization.
Material Changes Versus the Prior Comparable Period
- Research and development expense increased 104% for the quarter and 133% for the six-month period, driven by higher external development spending and stock-based compensation.
- General and administrative expense increased 49% for the quarter and 122% for the six-month period, reflecting higher headcount, public-company costs, insurance, professional fees and stock-based compensation.
- Operating cash use increased to $2.0 million from $0.6 million for the comparable six-month period.
- The six-month net loss improved versus 2013 primarily because 2013 included significant unfavorable changes in derivative liability fair values. The 2014 results also included noncash preferred-stock accounting effects that materially affected the loss attributable to common stockholders.
- Preferred stock, preferred-stock warrant liabilities and related-party convertible notes were eliminated or converted as part of the IPO transactions.
Outlook, Risks and Unusual Items
- Management expected research and development and general and administrative expenses to increase as clinical development advances and public-company compliance costs continue.
- The company estimated approximately $5.0 million of costs to complete the clinical trials and related research and development described in the filing, but emphasized that actual costs and timelines could vary materially.
- The company expected operating losses and negative operating cash flow for the foreseeable future and stated that substantial additional financing would be required.
- Key risks include failure to obtain IND clearance or regulatory approval, unsuccessful clinical trials, lack of demonstrated efficacy in humans, adverse events, manufacturing and third-party contractor dependence, intellectual-property challenges, competition and inability to obtain additional capital.
- The company had no operating lease commitments. A license and supply agreement could require milestone payments of up to $2.15 million upon specified development or regulatory events, as well as royalties upon commercialization.
- Disclosure controls and procedures were determined to be ineffective because of a continuing material weakness involving sufficient accounting resources and expertise for complex accounting matters. Management had begun remediation efforts.
- No legal proceedings were reported.
Investor Verification Items
- Verify the timing and status of the planned IND submissions and clinical trials for SLS and acute anterior uveitis.
- Assess cash burn, remaining cash runway and the timing, terms and dilution risk of future financing.
- Review the Square 1 Bank facility, collateral, covenants and scheduled principal repayments.
- Separate recurring operating performance from noncash fair-value changes, stock-based compensation, the preferred-stock deemed dividend and other IPO-related accounting effects.
- Monitor remediation of the material weakness in internal control over financial reporting.
- Evaluate contingent license milestones, royalties, regulatory requirements and the company’s dependence on third-party manufacturers and research organizations.