Aldeyra Therapeutics, Inc. — Q2 2015 Form 10-Q Summary
Business context and reporting period
Aldeyra Therapeutics is a development-stage biotechnology company focused on therapies for diseases associated with elevated free aldehydes. Its lead candidate, NS2, was being developed for Sjögren-Larsson Syndrome, noninfectious anterior uveitis, allergic conjunctivitis and other indications. The filing covers the three and six months ended June 30, 2015; financial statements are unaudited.
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. As of June 30, 2015, Aldeyra had seven full-time employees.
Key financial metrics
| Metric | Three months ended June 30, 2015 | Six months ended June 30, 2015 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $1.25 million | $2.39 million |
| General and administrative expense | $0.95 million | $1.93 million |
| Loss from operations | $2.20 million | $4.31 million |
| Net loss attributable to common stockholders | $2.23 million | $4.37 million |
| Basic and diluted loss per share | $0.27 | $0.58 |
| Net cash used in operating activities | Not separately provided | $3.45 million |
| Net cash provided by financing activities | Not separately provided | $28.52 million |
At June 30, 2015, cash and cash equivalents were $33.57 million, compared with $8.53 million at December 31, 2014. Total assets were $33.88 million and stockholders’ equity was $31.52 million. The accumulated deficit was $50.88 million.
Debt consisted primarily of the Square 1 Bank credit facility. Approximately $1.40 million of principal was outstanding, presented net of a $124,099 debt discount. The facility bears interest at the greater of prime plus 2.0% or 5.25% and matures in November 2018. Interest-only payments were scheduled through November 2015, followed by 36 months of principal and interest payments. The facility is secured by company assets, including intellectual property.
Material changes versus the prior comparable period
- Second-quarter research and development expense increased $585,189, or approximately 88%, to $1.25 million, primarily due to higher external preclinical, manufacturing and clinical costs and increased personnel costs.
- Six-month research and development expense increased $1.28 million, or approximately 115%, to $2.39 million as clinical and development activities expanded.
- Second-quarter general and administrative expense decreased $27,700 to $954,879, while six-month expense increased $143,755 to $1.93 million, primarily due to higher insurance, legal and personnel costs.
- Second-quarter net loss attributable to common stockholders was $2.23 million versus $5.33 million in the prior-year period. The prior-year loss included preferred-stock accretion and a $4.05 million deemed dividend.
- Six-month net loss attributable to common stockholders decreased from $5.12 million to $4.37 million, although net loss before preferred-stock-related items increased substantially because the prior-year period benefited from a $2.33 million favorable change in warrant liabilities.
- Net cash used in operating activities increased from $1.96 million to $3.45 million for the six-month period, reflecting higher operating expenses.
- Financing provided $28.52 million during the first six months of 2015, including approximately $9.0 million from January private placements and approximately $19.6 million from a May follow-on public offering. Shares outstanding increased to 9,712,521 from 5,565,415 at December 31, 2014.
Guidance, outlook, commentary and risks
- Management expected available resources, including the May offering proceeds and amounts potentially available under the credit facility, to fund expected obligations into approximately 2017 under the current business plan.
- Management stated that existing resources would not be sufficient to commercialize product candidates or conduct substantial additional development requested by the FDA. Additional capital will be required, and may not be available on acceptable terms.
- The company expected to fully enroll the Sjögren-Larsson Syndrome Phase II trial by the end of the first quarter of 2016 and the noninfectious anterior uveitis Phase II trial in the second quarter of 2016. Enrollment timelines could slip if recruitment was slower than projected.
- A July 2015 Clinical Trial Authorization filing with Health Canada was described for a Phase IIa allergic conjunctivitis trial, expected to complete enrollment in 2016. Systemic NS2 formulations were planned for Phase I testing in 2016.
- A $3.0 million Tranche B loan was conditionally available under the credit facility following positive Phase II data, as determined by the board, in either Sjögren-Larsson Syndrome or noninfectious anterior uveitis. There was no assurance that the conditions would be satisfied.
- The principal risks were clinical or regulatory failure of NS2, delays or inadequate enrollment, adverse safety findings, manufacturing and third-party contractor dependencies, intellectual-property challenges, competition, need for additional financing, dilution, and possible acceleration of secured debt upon default.
- The company had incurred losses since inception, expected continued operating losses, and could be required to significantly curtail activities or cease operations if it could not obtain financing or comply with debt requirements.
- No material legal proceedings were reported. Management concluded that disclosure controls and procedures were effective as of June 30, 2015, and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Current cash runway relative to the company’s stated approximately-2017 funding outlook and projected clinical spending.
- Enrollment progress, safety findings and efficacy data from the Phase II NS2 trials.
- Whether the conditions for the $3.0 million Tranche B loan are met and whether debt covenants remain satisfied.
- Future financing requirements, potential equity dilution and the availability and terms of additional capital.
- Regulatory status of the allergic conjunctivitis program and planned systemic NS2 studies.
- Outstanding warrants and stock options, including approximately 2.42 million common-stock equivalents excluded from diluted share calculations because they were antidilutive.
- The filing’s risk disclosures concerning the unproven aldehyde-trapping mechanism, limited human data, reliance on third parties and lack of any approved or revenue-generating product.