Aldeyra Therapeutics, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2015. Financial statements are unaudited. Aldeyra is an early-stage biotechnology company developing aldehyde-trapping therapies, primarily NS2, for inflammatory diseases and inborn errors of metabolism. The company had no approved products and generated no product revenue.
Financial position and key metrics
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Revenue | No product revenue | No product revenue |
| Research and development expense | $2.1 million | $4.5 million |
| General and administrative expense | $1.3 million | $3.2 million |
| Loss from operations | $3.3 million | $7.7 million |
| Net loss attributable to common stockholders | $3.4 million, or $0.35 per share | $7.7 million, or $0.94 per share |
| Net cash used in operating activities | Not separately reported | $6.3 million |
| Cash and cash equivalents at period end | $30.6 million | |
| Credit facility outstanding | $1.4 million principal; $1.3 million net carrying amount after debt discount | |
| Stockholders’ equity | $28.7 million |
No meaningful profit or operating margin was reported because the company had no revenue and incurred operating losses. Stock-based compensation was $1.6 million for the nine months ended September 30, 2015.
Material changes versus the prior comparable period
- Third-quarter research and development expense increased by $0.9 million to $2.1 million, primarily due to higher external preclinical, manufacturing and clinical costs and increased personnel costs.
- Third-quarter general and administrative expense increased by $0.5 million to $1.3 million, primarily due to higher insurance, legal and personnel costs.
- For the nine-month period, research and development expense increased by $2.2 million, while general and administrative expense increased by $0.6 million.
- Nine-month net loss increased to $7.7 million from $2.7 million; the 2014 period benefited from a $2.3 million gain related to changes in the fair value of preferred stock warrant liabilities and included preferred-stock accretion and a deemed dividend.
- Cash used in operations increased to $6.3 million from $3.2 million, reflecting increased development and corporate spending.
- Cash increased by $22.1 million during the first nine months, primarily from $28.5 million of net financing proceeds. The financing included approximately $9.0 million from January private placements and approximately $19.6 million from a May follow-on public offering.
- Common shares outstanding increased to 9,712,521 at September 30, 2015 from 5,565,415 at December 31, 2014, creating dilution risk for existing holders. An additional 2.5 million common-stock equivalents, consisting of options and warrants, were excluded from diluted loss-per-share calculations because they were antidilutive.
Development, outlook, liquidity and risks
- Phase II trials of NS2 in Sjögren-Larsson Syndrome and noninfectious anterior uveitis began in March and April 2015. A Phase II allergic conjunctivitis trial began in September 2015 following a Canadian Clinical Trial Authorization.
- Management expected SLS enrollment to be complete by the end of the first quarter of 2016 and enrollment in the uveitis and allergic conjunctivitis trials to be complete in the second quarter of 2016, subject to recruitment rates.
- Systemic formulations of NS2 were planned for clinical testing in 2016, including potential applications in SLS, SSADH deficiency and autoimmune crises.
- Management believed available resources, including potential credit-facility proceeds, would fund expected obligations into approximately 2017 under its current business plan. The resources would not be sufficient to commercialize products or conduct substantial additional development requested by the FDA.
- The company expects operating losses and research and development expenses to increase for the foreseeable future and expects to require substantial additional capital. Additional financing may be unavailable or may dilute existing stockholders.
- The $5.0 million credit facility is secured by company assets, including intellectual property. The $3.0 million Tranche B Loan remained conditional on positive Phase II data in SLS or noninfectious anterior uveitis. On November 9, 2015, the company amended the facility to extend the interest-only period and the deadline for satisfying the Tranche B conditions through November 2016.
- The credit facility bears variable interest at the greater of prime plus 2.0% or 5.25%; the reported effective interest rate through September 30, 2015 was 6.04%. Principal repayment was scheduled to begin after the interest-only period, with maturity in November 2019.
- Key risks include clinical-trial failure or delays, insufficient patient enrollment, adverse events, regulatory non-approval, reliance on third-party manufacturers and contract research organizations, intellectual-property challenges, competition, limited personnel and the need for additional financing.
- The company had eight full-time employees as of September 30, 2015. No material legal proceedings were reported, and management concluded that disclosure controls were effective at the reasonable-assurance level.
Most important facts for investors to verify
- Whether Phase II trials met enrollment, safety and efficacy milestones and whether the conditions for the Tranche B Loan were satisfied.
- The company’s subsequent cash burn, financing activity and liquidity runway relative to the approximately 2017 funding estimate.
- Any further amendments, covenant compliance issues or acceleration risks under the secured credit facility.
- Clinical, regulatory and manufacturing developments for NS2, including any FDA-requested additional studies.
- The dilutive impact of outstanding options, warrants and future equity financings.
- Whether the company can obtain regulatory approval and ultimately generate revenue, given that no product has been approved or commercialized.