Aldeyra Therapeutics, Inc. — Q1 2015 Form 10-Q Summary
Business context and reporting period
Unaudited quarterly results for the three months ended March 31, 2015. Aldeyra is an early-stage biotechnology company developing NS2, an aldehyde-trapping product candidate for Sjögren-Larsson Syndrome, noninfectious anterior uveitis, and other inflammatory or aldehyde-related diseases. The company had no approved products and generated no product revenue.
Phase II trials in Sjögren-Larsson Syndrome and noninfectious anterior uveitis began in March 2015. Data were expected in the second half of 2015. The company had six full-time employees and relied extensively on third-party contractors.
Financial metrics
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Revenue | $0 | $0 | No product revenue |
| Research and development expense | $1.14 million | $0.44 million | +$0.69 million |
| General and administrative expense | $0.97 million | $0.80 million | +$0.17 million |
| Loss from operations | $2.11 million | $1.24 million | Loss increased $0.86 million |
| Net loss attributable to common stockholders | $2.14 million | $13,237 | Material deterioration |
| Basic and diluted loss per share | $0.32 | Basic: $0.04; diluted: $4.04 | Not directly comparable because of 2014 preferred-stock and derivative effects |
| Net cash used in operating activities | $1.84 million | $1.06 million | Use increased $0.78 million |
| Cash and cash equivalents, period-end | $15.72 million | $2.15 million | Increased $13.58 million |
Because the company had no revenue, revenue-based margins are not meaningful. Operating expenses increased as clinical, preclinical, manufacturing, personnel, and public-company activities expanded. Stock-based compensation was $640,073, compared with $365,686 in Q1 2014.
At March 31, 2015, total assets were $15.93 million, total liabilities were $2.10 million, and stockholders’ equity was $13.83 million. The company had $1.40 million of principal outstanding under its Square 1 Bank credit facility, presented net of a $133,453 debt discount. The facility was secured by company assets, including intellectual property, carried a variable rate of the greater of prime plus 2.0% or 5.25%, and matured in November 2018. Interest-only payments were scheduled through November 2015, followed by principal and interest payments over 36 months.
Material changes versus the prior comparable period
- Research and development expense increased 156%, primarily from higher external development, clinical, manufacturing, and personnel costs.
- General and administrative expense increased 21%, primarily from higher insurance, legal, and personnel costs.
- Net loss increased substantially because Q1 2014 included $1.76 million of noncash income from a change in the fair value of preferred-stock warrant liabilities. That item was absent in Q1 2015.
- Operating cash use increased as development and corporate expenses grew.
- January 2015 private placements generated approximately $9.0 million of net financing proceeds and increased common shares outstanding from 5.57 million at December 31, 2014 to 6.89 million at March 31, 2015.
- Potential dilution included approximately 1.38 million common-stock warrants and 874,032 stock options excluded from diluted loss-per-share calculations because they were antidilutive.
Guidance, outlook, risks, and unusual items
Management expected research and development and general and administrative expenses to increase as NS2 advanced through clinical development and the company expanded its public-company infrastructure. Management stated that resources, including the subsequent May 2015 financing, were expected to fund obligations through approximately the end of 2017 under the current business plan. Those resources were not expected to fund commercialization or substantial additional FDA-requested development.
On May 13, 2015, after the reporting date, the company sold 2.7 million shares at $7.50 per share in a public offering and received approximately $18.8 million of net proceeds. This financing is not included in the March 31, 2015 balance sheet or Q1 cash flows.
Up to $3.0 million remained potentially available under the Tranche B portion of the credit facility, subject to conditions including positive Phase II data in either Sjögren-Larsson Syndrome or noninfectious anterior uveitis. The company could not assure that those conditions would be met.
- The company expected significant operating losses and negative operating cash flows for the foreseeable future and had no revenue-generating products.
- Additional capital would be required for continued clinical development and potential commercialization; financing might be unavailable or dilutive.
- NS2 was an early-stage, novel chemical entity with no demonstrated efficacy in humans and limited human safety data outside eye-drop administration.
- Clinical, regulatory, manufacturing, enrollment, intellectual-property, reimbursement, competition, and third-party contractor risks could delay or prevent commercialization.
- Failure to meet debt covenants or an event of default could accelerate repayment and permit the lender to pursue collateral, including intellectual property.
- No material legal proceedings were reported. Management concluded that disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Phase II trial enrollment, progress, safety findings, and the timing and quality of expected 2015 data.
- Actual cash burn and whether the May 2015 financing extends the stated runway under the current development plan.
- Availability of the $3.0 million Tranche B loan and compliance with credit-facility covenants.
- Future dilution from the May offering, outstanding warrants, stock options, and any additional financings.
- Clinical and regulatory requirements for NS2, including whether additional studies are required by the FDA.
- Reliance on third-party manufacturers, clinical research organizations, and other contractors.
- Patent protection and licensing obligations, including the Ligand Pharmaceuticals excipient license.