Steve Tulipano - CFO Todd Brady - President and CEO.

Adam Walsh - Stifel Ritu Baral - Cowen and Company Yale Jen - Laidlaw.

Good day and welcome to the Aldeyra Therapeutics' Webcast and Conference Call for Full Year 2016 Financial Results. Today's conference is being recorded. At this time, I would like to turn the conference over to Steve Tulipano, Chief Financial Officer. Please go ahead, sir..

Good morning, everyone. I’m Steve Tulipano, CFO of Aldeyra Therapeutics and welcome to the Aldeyra Therapeutics conference call to discuss our year end 2016 financial results. With me today is Dr. Todd Brady, President and Chief Executive Officer of Aldeyra Therapeutics.

Before we get started, we would like to remind you that this conference call contains forward-looking statements regarding future events and the future performance of Aldeyra.

Forward-looking statements include statements regarding Aldeyra's possible or assumed future results of operations and expenses, business strategies and plans, research and development plans or expectations, trends, market sizing, competitive position, industry environment and potential growth opportunities among other things.

These statements are based upon the information available to the company today and Aldeyra assumes no obligation to update these statements as circumstances change. Future events and actual results could differ materially from those projected in the company's forward looking statements.

Additional information concerning factors that could cause results to differ materially from our forward-looking statements are described in greater detail in the company's press release and the company's filings with the SEC. Now I would like to turn the call over to Dr. Todd Brady, President and Chief Executive Officer of Aldeyra. Dr.

Brady?.

Thank you, Steve. And thank you all for joining us today to discuss our 2016 full year results. I think by almost any account 2016 was a productive year for Aldeyra.

Last year based on the results of three well controlled clinical trials, we became the first company to demonstrate that an aldehyde- sequestering drug can lead to clinically relevant improvements in human disease.

Specifically, the data released from the three trials suggest that aldehyde trap could represent a new and important therapeutic approach for the treatment of inflammation and certain inborn errors of metabolism.

In February of last year we announced positive Phase II results in Allergic conjunctivitis, a common ocular inflammatory disease where our lead product candidate ADX-102 would administer topically to the eye was statically superior to vehicle in reducing ocular tearing and itching.

In May of last year we announced positive Phase II results in Noninfectious Anterior Uveitis, a rare ocular inflammatory disease where ADX-102 was as effective as standard-of-care ocular corticosteroid but without the ocular toxicity observed in the corticosteroid treated patients.

In August of last year, we announced positive Phase II results in Sjögren-Larsson Syndrome, a rare inborn error of metabolism characterized by severe skin disease. ADX-102 would administer topically to the skin, improved to the severity of the skin disease and in fact that was statistically superior to vehicle.

Now following discussions with the US Food and Drug Administration, we plan to initiate Phase III clinical trials in Sjögren-Larsson Syndrome and Noninfectious Anterior Uveitis this year. And we have initiated a Phase 2b clinical trial in Allergic Conjunctivitis.

In addition, we expect to initiate a new clinical program in Dry Eye Syndrome, another common ocular inflammatory disease later this year for ADX-102. Subsequently, we may initiate a Phase 2a clinical trial in Dry Eye Syndrome with ADX-103, another aldehyde trap that is derived from our therapeutic platform.

In 2017, we expect to announce results of our Allergic Conjunctivitis Phase 2b clinical trial and our Dry Eye Syndrome Phase 2a clinical trial with ADX-102. We believe that our product candidates could address substantial markets with significant unmet medical need. There are currently no FDA approved therapies for Sjögren-Larsson Syndrome.

The only approved therapy for Noninfectious Anterior Uveitis and one that is often used to treat severe Allergic Conjunctivitis is corticosteroid which may lead to a variety of opsonic toxicity some of which can be severe. Finally, the therapy for Dry Eye Syndrome is often considered by both patients and physicians as an inadequate.

As a result of the progress we made last year, Aldeyra is now in late stage development with multiple value inflection points across multiple diseases and potentially multiple product candidates. Our mission in 2017 and beyond is clear.

We will seek to build on our clinical success and move forward towards commercializing our therapeutic platform with the ultimate goal of providing to patients novel and potentially better options for the treatment of disease. And to that end, we look forward to continuing to update you throughout 2017.

Now at this point I'd like to turn the call back over to Steve to discuss the 2016 year end financial results.

Steve?.

Thank you, Todd. For the year ended December 31, 2016, we had a net loss of $18.7 million compared to $12.1 million loss for the same period of 2015. Basic and diluted net loss per share was $1.65 for the year ended December 31, 2016 compared to $1.40 per share for the same period in 2015.

Losses have resulted from the costs of our clinical trials and research and development programs, as well as from general and administrative expenses. Research and development expenses were $13.2 million for the year ended 12/31, 2016 as we reported augment three successful Phase II trials compared to $7.6 million for the prior year.

The increase of $5.6 million is related to the increase in R&D expenses, including manufacturing, preclinical and clinical development costs, and an increase in personnel costs. General and administrative expenses were $5.5 million for the year ended December 31, 2016, compared to $4.4 million for the year ended 2015.

The increase in G&A of $1.1 million is related to an increase in legal costs, rent, consulting costs, and personnel costs. In 2016, total operating expenses were $18.7 million for the year compared to total operating expenses of $12 million in the prior year. We entered 2017 with $24.9 million in cash and cash equivalent to marketable securities.

Additionally, in February this year we raised $10.5 million net of offering cost in a follow on. That concludes our remarks today. Thank you for your participation. Operator, we will like to open the call for questions please. .

We will go first to Adam Walsh at Stifel..

Hi, good morning, guys. Thanks for taking my questions here. Actually I have a series of them. For Allergic Conjunctivitis, can you compare and contrast for us the prior Phase 2a trial design with the ongoing Phase 2b? And also comment on the enrollment progress in the current Phase 2b..

Yes. Good morning, Adam. And thank you for the question. It's a very interesting question because there are some changes to the Phase 2b but I think they are very positive changes and they are based on discussions with the FDA. I'd say successful discussions with the FDA.

The first thing I'll note is the Phase 2b for Allergic Conjunctivitis is two doses of drug. This is a standard requirement from the agency that you establish what is generally known as the minimally effective dose. So we've selected the dose we used in the last trial which was statistically superior to vehicle.

And in addition a lower dose, it's 0.5% what we used prior, 0.1% is what we are using in this trial. As we said last year we did see a higher than anticipated vehicle response in the Phase 2a study that we described in February of last year.

The discussions with the agency centered around what is an appropriate control and we've convinced the agency to allow us to use [ceiling] as the control such that there is no doubt that there is any interaction between the vehicle and the allergens used to stimulate the response in the eyes of the subjects.

We consider this a major success we think in theory increases the odds of success in the Phase 2b. The one thing I will note, Adam, and I know you know this but if the trial, the Phase 2b trial is positive then it could emphasis on could be considered one of two pivotal trials for approval and the indication.

So one possible scenario I'd say an upside scenario is an addition to the Phase 2b if positive, you would perform a Phase III subsequently and then be in a potential position to file an NDA. So I think that answers your question. There are some differences but I think they are in our favor. .

How is enrollment going in the Phase 2b?.

One of the advantage is we are unique and that we are running trials in rare diseases and we are running trials in common diseases. And one of the advantages of the common disease is that it's easier to enroll them. So we are I think in a very strong position in terms of enrollment.

I think we are perfectly happy with our guidance that will have data from this trial, the Phase 2b in Allergic Conjunctivitis in the second half of the year. There are some upsides to that forecast but I think, Adam, we are in a good position. .

Terrific.

And then on ADX-103, how is that molecule differs exactly from ADX-102? And in terms of the preclinical results and regulatory feedback that you mentioned in the press release, what might compel you to initiate a Phase 2a trial in dry eye with ADX-103? And would you likely take both 102 and 102 in the latter stage trials for dry eye or would it be an either/or?.

Well, I am glad you asked the question. We are very excited about ADX-103, in part because we are serious about our intent to exploit this platform. We have had great success with ADX-102.

But as we said in our filings for -- I don't know many quarters now this is a platform we have many products, potential products that we could put forward towards the clinic. ADX-103 appears to be the next product we'll nominate for clinical development.

And because we are moving from a 100% focus on 102 to a multi product platform, we are very excited about 103. How is it differs from 102? Well, they are both aldehyde trap, Dry Eye Syndrome is interesting in that it's not even inflammatory disease but in parts it's a disease that involves lipids or fats in your tears.

I always give the analogy of putting water on shaft to lift, it doesn't work and your tears need to have certain amounts of fats to lubricate the eye and hold moisture in the eye. In Dry Eye Syndrome, the tear lipidome is dysfunctional. And one of the targets of aldehyde is lipids.

So aldehydes really are bad, are pathologic in dry syndrome for two reasons. One is they are pro-inflammatory and another is they destroy this lipid layer that so critical in tears. And 103 is interesting because it's a little bit more lipophilic than 102, in other words it may be more likely to protect the lipids in tears than 102.

No, we don't have data supporting that until we run the clinical trials but in theory 103 could be a better candidate than 102 for Dry Eye Syndrome, both I believe are pro and anti inflammatory drugs. The other part of the answer, Adam, relates to Dry Eye Syndrome as a market. This is a massive disease as everyone knows.

Very common and only two drugs have been approved up until last year. One drug was approved in and really talking about a disease that affects millions of people around the world but the therapy is generally considered to be an adequate.

So it's a tremendous market and from our standpoint as a company, it might be nice to have a distinct product for that disease not only for marketing purposes eventually but also for partnering purposes. As we look forward to expanding the product portfolio along the line of the aldehyde trap platform..

Thanks. That's really helpful. I have one more quick then I'll jump back in the queue. For the SLS trial with ADX-102, you expect to launch that in the back half of this year.

What is the gating factor to getting that trial up and running? And do you have a sense of what the primary end points going to be there?.

The gating factors are multi factorial and really relate to the regulatory attention we have to pay to Phase III program in a rare disease where we are hoping the one trial would suffice for filing.

And what that means is crossing our t's and dotting our i's along formal CMC lines that is the commercial formulation as well as any unanswered questions in terms of the regulatory preclinical package. They all relate to that, in addition as you know this trial is moving, this program is moving from a US based program to an international program.

So we are almost certainly likely to enroll clinical sites across Europe as well as the US. We are increasing the number of patients at versus what we did in phase -- what we tested in Phase II. We are increasing the duration of treatment versus what we tested in Phase II.

So there is a variety of factors, Adam, that probably you can explain all the things we need to do to get ready to launch a Phase III, it's really a much more expensive version of a clinical trial than we did in Phase II..

And we'll go next to Ritu Baral at Cowen..

Good morning, guys. Thanks for taking the question.

Todd, I was hoping you could drill in further about your thoughts on the dry eye market opportunity and maybe more detail on what you guys feel is the major unmet need there that 102 or 103 may specifically be able to go after? Is it sort of onset of benefit? Is it a degree of benefit or durability of benefit? Can you sort of take us through the unmet need? And then my follow up is where you guys are on potentially speaking to your European regulators or European regulatory consultants for primarily the SLS and NAU program but potentially the other indication?.

Yes, great. Ritu, so it's excellent questions and thank you for asking. Let me talk about the European situation first. We've had conversations as we mentioned before regarding SLS in Europe with two countries specifically over there. And I think those conversations will necessarily expand to the EMA. The European program in SLS is very important to us.

SLS is discovered in Sweden, thas is the country that if it doesn't have the most patients it's second in line with the most patients in Europe. And obviously they know a lot about the disease. Another country in Europe with a large patient population is a Netherlands.

So as we move forward in Phase III those regulatory conversations not only in these countries but others. The UK, France and probably other countries are critical. And we'll probably play a major role in terms of a global watch.

Obviously, the goal for a rare disease like this is to do a single trial in US and Europe that can be used for registration in US and Europe. And for that reason we are taking those conversations very seriously. And I think they've gone very, very well consistent with our conversations that domestically with the FDA. .

Do you get a sense of this general alignment on -- alignment on how the EMA and FDA sort of look at SLS?.

I do. I do get that sense.

It is interesting when you are having conversations with multiple parties sometimes it is interesting to see who is waiting for who to say something but we will have definitive responses from the FDA or have definitive responses from the FDA that then we are going to re-approach or have re-approached our colleagues in Europe.

So I think everyone will end up perfectly aligned in what it is we are doing. .

Got it. .

I do think that there is considerable unmet medical need. That is a consistent theme that I think we are all aware of. Anyone knows anything about dry disease is aware that it is a difficult disease to treat. The onset is a challenge. The onset of therapeutic efficacy has been a challenge for sure.

I can tell you pre-clinically and the data that we have on our website suggest and the data that we have with Allergic Conjunctivitis clinically, all suggest that the onset of action the anti inflammatory onset of action ADX-102 is rapid. If you think about this physiologically aldehydes lead to [sidacaine] release which leads to inflammation.

So aldehydes are an early, appeared to be an early mediator of inflammation and if those are blocked, you could expect a fairly rapid continuation of inflammation. Obviously, that's what we are hoping to see in our dry eye trial. Now we are treating patients for a month so the question is in 30 days how much can you influence a patients' symptom.

I am confident based on the data that we have both pre-clinically and clinically that we'll see a change. And that's why we are doing the trial to measure that. The other thing I will say is that no therapy, the two therapies out there Ciclosporin and Methotrexate are anti-inflammatory, right. This is their mechanism of action.

I don't think they have other mechanism of action. There is no drug that is focused at least in part on lipids. And what so interesting is that lipids are just critical.

As I mentioned prior in a way if you could fix lipids in tears and you could lubricate the eye and hold more moisture in the ocular tissue, it seems that you could make a measure impact. So I think there is a big hole in medical community in terms what we've been able to develop for this disease mechanistically.

Focusing on inflammation is important, there is no doubt that this inflammatory component of disease but there is also a lipid deficiency and that's the very thing we are going after with 102. How it actually plays to the market, Ritu, I think depends on the data and we are obviously very eager to see the data.

My suspicion going back to Adam's question is we will see data for 102 and 103. And we are looking forward to that really to answer the question you asked, how does this fit with today's pharmacotherapy. .

We will go next to Yale Jen at Laidlaw and Company. .

Good morning, Todd and congrats for lot of progress. My first question is that actually little continuation from the earlier one.

Which is the if the 103 seems to be a even better match for dry eye, why not just start with that or it just because it is still in the stages not yet to be able to put the human and you need have 102 to start first?.

Good morning, Yale. And thanks for the question. It's an interesting question and at this point before we started clinical trials both 103 and 102 appeared to be very good product candidates for this disease. I think, Yale, one reason 102 is advancing to the clinic more quickly, if at all, is that we know or it appears that 102 is active clinically.

We've shown that it has been active in Allergic Conjunctivitis in a 100 patient's trial we've shown that it has been active in Anterior Uveitis in 50 odd patients. So I think that there is a good chance that it will be active at least an anti inflammatory agent in dry syndrome and that's why 102 will be tested.

The other reason is these trials are relatively quick to enroll because it's a common disease from my comments earlier. And they are not -- these trials are not terribly expensive.

And one of the advantages of testing drug topically whether it is in the eye or in the skin is that the trials are less expensive than long systemic study that require invasive techniques for measurement and so forth.

So I think it make sense strategically for us to push 102 forward in Dry Eye Syndrome but 103 as I mentioned is very interesting drug candidate. It is perhaps for Adam's question, perhaps better suited at least for the lipid component of Dry Eye Syndrome. And to that regard I think we are intent on testing both if possible. .

Okay, great. That's very helpful. And just maybe a one question that outside of that you just mentioned are these which is the RO drug, I know guys can probably talk more about the later but any sort of progress report at this point. .

Well, as you know, Yale the Sjögren-Larsson Syndrome is not just a dermatologic disease. Patients also manifest and cognitive delay and some patients have seizures, almost all patients have movement disorders due to the aldehyde degradation of myelin and the neurological compromise that result from that.

So we are very interested and remain intent on testing a systemic aldehyde trap in the disease. Our guidance has been that in the first half of 2018, we are going to run a Phase I clinical trial in healthy volunteers so that we can assess the safety and pharmacokinetics of systemic aldehyde trap. We should have results in the first half of 2018.

I think we are perfectly comfortable maintaining that guidance.

Our guidance has also been the second half of 2018 that we will test a systemic aldehyde trap in SLS and attempt test in a similar aldehyde inborn error metabolism called Succinic Semi-Aldehyde Dehydrogenase Deficiency which is almost exclusively an neurological disease and many of those patients are autistic because the aldehyde that accumulates in those patients is metabolize to what Jazz Pharmaceutical markets for Xyrem which is a CNS depressant.

So we remain very interested and I think based on what we know from a development standpoint we are comfortable with our prior guidance. .

Thanks. And maybe I just sneak in one more question which again into the 102 or 103 for the dry eye.

Is the dosing frequency per day will be the same as the other two indication for your test -- for your trial or you have changed that -- do you have any changes on that?.

Well, yes, the short answer is yes. The dosing frequency is going to be the same. And typically we have tested ADX-102 four times a day not because we believe that's the ultimate commercial application but because it's a good way of testing an ocular drug.

Fewer than that sometimes you have to answer PK questions and more frequently is untenable commercially. So I believe we will maintain the 4 times a day application at least in this Phase 2a trial.

How that evolves over time I think it gets back to Ritu's question and how the data look and how this would fit in the current drug market for Dry Eye Syndrome. .

And there are no further questions in the queue. That does conclude today's question-and-answer session and today's conference. Thank you for your participation. You may now disconnect..