Aldeyra Therapeutics, Inc. — FY2015 Form 10-K Summary
Business context and reporting period
Annual report for the fiscal year ended December 31, 2015, filed March 30, 2016. Aldeyra is an early-stage biotechnology company developing aldehyde-trapping drug candidates, primarily NS2, for inflammatory diseases and rare inborn errors of aldehyde metabolism. NS2 was being studied in allergic conjunctivitis, noninfectious anterior uveitis, and Sjögren-Larsson Syndrome (SLS), with systemic development planned for SLS, SSADH Deficiency, and severe inflammatory crises.
The company had no approved products and generated no product or collaboration revenue. It had eight full-time employees at year-end and relied substantially on contract research organizations, consultants, and third-party manufacturers.
Financial performance and position
| Metric | 2015 | 2014 | Change |
|---|---|---|---|
| Revenue | $0 | $0 | No revenue in either period |
| Research and development expense | $7.6 million | $3.7 million | Increased $3.9 million |
| General and administrative expense | $4.4 million | $3.6 million | Increased approximately $0.9 million |
| Loss from operations | $12.0 million | $7.3 million | Higher operating loss |
| Net loss attributable to common stockholders | $12.1 million | $9.6 million | Higher loss |
| Basic and diluted loss per share | $1.40 | $2.51 basic; $3.09 diluted | Improved per-share loss due primarily to increased share count and the 2014 preferred-stock items |
| Net cash used in operating activities | $9.3 million | $4.8 million | Higher cash use |
| Net cash used in investing activities | $13.0 million | $14,000 | Primarily purchases of marketable securities in 2015 |
| Net cash provided by financing activities | $28.5 million | $10.1 million | Primarily equity offerings |
| Cash and cash equivalents | $14.6 million | $8.5 million | Increased $6.1 million |
| Cash, cash equivalents, and marketable securities | $27.6 million | $8.5 million | Increased materially |
| Total stockholders’ equity | $24.9 million | $6.3 million | Increased following equity financing |
| Accumulated deficit | $58.6 million | $46.5 million | Increased $12.1 million |
Comprehensive loss was $12.1 million, including an $8,000 unrealized loss on marketable securities. Stock-based compensation was $2.2 million in 2015. No profitability or operating margin was reported; the company remained pre-commercial and loss-making.
Material changes versus the prior comparable period
- Research and development spending more than doubled as clinical development of NS2 expanded and headcount increased.
- General and administrative expense rose because of higher legal, insurance, personnel, and public-company compliance costs.
- The company raised approximately $28.5 million net through January private placements and a May follow-on public offering, issuing approximately 4.15 million common shares in total, excluding warrant effects.
- 2015 results did not include the approximately $2.3 million favorable change in preferred-stock warrant liabilities recorded in 2014, or the 2014 preferred-stock accretion and deemed dividend.
- Marketable securities increased to approximately $12.9 million, reflecting investment of financing proceeds.
- NS2 Phase II clinical trials were initiated in allergic conjunctivitis, noninfectious anterior uveitis, and SLS dermatologic disease.
Debt, liquidity, and commitments
- Pacific Western Credit Facility principal outstanding was approximately $1.4 million at December 31, 2015. The facility is secured by company assets, including intellectual property, and carried an effective interest rate of 7.89% at year-end.
- The facility allows up to $5.0 million of term loans, but the remaining $3.0 million Tranche B Loan was contingent on positive Phase II data in SLS or noninfectious anterior uveitis and was not assured.
- Management stated that cash, cash equivalents, marketable securities, and available credit were expected to fund operations through approximately the end of 2017, but not commercialization or substantial additional FDA-requested development.
- The company expected to require substantial additional capital through equity, debt, partnerships, or other financing. Additional financing could be unavailable or dilutive.
- Contractual obligations included approximately $1.4 million of credit-facility principal and $126,000 of operating lease obligations. Up to $2.15 million of contingent license milestone payments and low-single-digit royalties may become payable upon specified development or commercialization events.
Guidance, outlook, commentary, and risks
- Management expected to report noninfectious anterior uveitis Phase II results in the second quarter of 2016 and SLS dermatologic Phase II results in the second or third quarter of 2016.
- Management expected to initiate Phase I testing of a systemic NS2 formulation by the end of 2016. Timelines were subject to recruitment, regulatory review, manufacturing, and other delays.
- In February 2016, after the reporting period, the company announced that its allergic conjunctivitis Phase IIa trial showed statistically and clinically significant reductions in ocular itching and tearing versus vehicle. NS2 was generally well tolerated, although transient mild stinging occurred and two treated patients discontinued.
- The company remained dependent primarily on the successful development and approval of NS2. No product candidate had received FDA or foreign marketing approval.
- Key risks included clinical-trial failure or delay, limited safety data in diseased populations and for systemic administration, regulatory rejection, patient-enrollment challenges in rare diseases, third-party manufacturing and CRO dependence, intellectual-property challenges, competition, product liability, reimbursement uncertainty, and the need for additional financing.
- The secured debt agreement contains operating covenants and events of default. An acceleration could require immediate repayment and permit the lender to proceed against pledged assets.
- The company reported no material pending litigation and concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2015.
Facts investors should verify
- Whether the reported allergic conjunctivitis efficacy is confirmed in larger or pivotal studies and whether subsequent uveitis and SLS results support continued development.
- Current cash, marketable securities, burn rate, financing runway, and the timing and terms of any subsequent equity, debt, or partnership financing.
- Whether the conditions for the $3.0 million Tranche B Loan were satisfied and whether debt covenants or collateral arrangements have changed.
- The status, scope, and enforceability of NS2 composition-of-matter and use patents, including the expected U.S. patent expiration in 2028 before any potential extension.
- Whether systemic NS2 development has produced acceptable toxicology, pharmacokinetic, safety, and efficacy data.
- Potential dilution from approximately 1.38 million outstanding warrants and 1.08 million outstanding stock options at December 31, 2015.
- The impact of the March 2016 headquarters sublease and other post-year-end commitments.