Stephen Tulipano - CFO Todd C. Brady - President and CEO.

Adam Walsh - Stifel Financial Corp Ritu Baral - Cowen and Company Yale Jen - Laidlaw and Company Corey Davis - H.C. Wainwright & Company John Newman - Canaccord Genuity Robert Kang - Stifel, Nicolaus & Company.

Please standby. Good day and welcome to the Aldeyra Therapeutics' Corporate Update and First Quarter 2017 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..

Thank you and good morning, everyone. I’m Steve Tulipano, CFO of Aldeyra Therapeutics and welcome to the Aldeyra Therapeutics conference call to discuss our Q1 2017 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. Today we are providing an important corporate update particularly as it relates to the progress of our clinical programs and most of which are now in late stage development.

Accordingly I encourage you to carefully review the press release we issued this morning which summarizes the status of our specifications [ph] regarding these clinical programs as well as our first quarter 2017 financial results that Steve will review shortly.

To begin I'm pleased to announce that during the first quarter of this year the progress of our Phase 2b clinical trial in Allergic Conjunctivitis and our Phase 2a clinical trial in Dry Eye Syndrome exceeded expectations. In April of this year we announced that our Allergic Conjunctivitis trial completed enrollment in dosing.

Relative to previous guidance we are accelerating the timing of expected results from the trial and we now expect data to be announced in June of this year.

The results of the trial will determine the feasibility, size, and number of trials for a Phase 3 program and contingent on the results it is possible that the current Phase 2b trial may qualify as one of two pivotal trials required for marketing approval in the United States.

It is important to note that Allergic Conjunctivitis represents a substantial market.

Between 20% and 40% of the population worldwide is affected with the disease and while possible anti-histamines are effective for the majority of the population, an estimated 1 million or more patients in the United States require adjunctive therapy with corticosteroids which may be toxic and many more patients respond sub-optimally to anti-histamines.

We're also refining prior guidance regarding the announcement of the results of our Phase 2a clinical trial in Dry Eye Syndrome which is proceeding ahead of schedule. Results from this trial are expected in the third quarter of this year.

Dry Eye Syndrome also represents a large and relatively underserved market, an estimated 5% to 10% of the United States population is affected with the disease and available therapy is often considered to be suboptimal by physicians and patients.

With regard to Non-infectious Anterior Uveitis, a rare inflammatory condition we announced in April of this year that our Phase 3 clinical trial has been initiated. Consistent with prior guidance we expect results from the trial to be announced in the second half of next year.

Because Anterior Uveitis is almost exclusively treated with corticosteroids which in many patients lead to serious ocular toxicities including glaucoma, a lifelong and potentially blinding disease, a medical need for a novel therapy is considerable.

Finally, initial top line data from our Phase 3 clinical trial in Sjögren Larsson Syndrome or SLS are expected to be announced sooner than planned. The Phase 3 trial will be run in two parts.

The first part is a blinded vehicle control body surface area escalation read in that will be used to confirm statistical power for part two which is a vehicle controlled crossover design.

Treatment for each part will be six months and depending on the results of part one the entire Phase 3 is expected to enroll in estimated 30 subjects approximately one third of which will be enrolled in part one. Data from part one of the trial are now expected in the second half of next year. SLS is an orphan disease with no FDA approved therapy.

There is considerable unmet need in SLS highlighted by a severe skin condition known as ichthyosis which covers nearly the entire body surface and results in considerable physical and emotional burden.

The disease is caused by genetic mutations that lead to high levels of toxic aldehydes and given that our lead product candidate ADX-102 traps aldehydes, our platform represents a mechanistically directed approach to the disease.

To coordinate the patient and physician community with our late phase clinical program we have recently established the Aldeyra SLS Registry and in addition Aldeyra and the SLS community achieved a major milestone last month with the receipt of U.S. FDA Orphan Designation for ADX-102 in congenital ichthyosis.

Last year we were pleased to announce positive data from a controlled Phrase 2 clinical trial on SLS as well controlled Phase II clinical trials in Allergic Conjunctivitis and Non-infectious Anterior Uveitis.

Our novel drug platform now in late stage clinical developments invalidated in Phase 2 testing across three diseases is the first concerted pharmaceutical effort that targets pro-inflammatory and toxic aldehyde mediators and we believe represents a major clinical stage advance for the treatment of inflammation, certain inborn errors of metabolism, and other serious medical conditions such as neurodegenerative diseases that are thought to be related to aldehyde mediators.

And as always we look forward to updating you again shortly on the progress of our novel pipeline. Now I'd like to turn the call back over to Steve to discuss the first quarter 2017 financial results. .

Thank you, Todd. For the first quarter of 2017 we reported a net loss of 5.1 million compared to 5 million from our $5 million loss for the same period in 2016.

Basic and diluted net loss per share was $0.37 for the quarter compared to $0.51 per share in Q1 2016, losses that 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 at $3.4 million for the quarter compared to $3.5 million for the prior year. The decrease of 100,000 is related to reduction in expenses related to manufacturing and pre-clinical costs offset by a decrease in clinical development costs.

General and administrative expenses were $1.7 million for the quarter compared to $1.5 million for the same period in 2016. The increase of 200,000 is related to an increase in personnel costs, legal costs, and other expense. In Q1 total operating expense is 5.1 million compared to total operating expenses of 5 million for the prior year period.

We ended Q1 2017 with 31.2 million in cash, cash equivalents, and marketable securities and that concludes our remarks today. Thank you for your participation. Operator, we would like to now open it up to questions. Hello. Operator, can we begin to poll for questions. .

[Operator Instructions]. I will go to Adam Walsh with Stifel..

Hi guys, good morning. Can you hear me. .

Yes, good morning Adam.

How are you?.

I am well, thanks. Hey congrats on all the progress. It seems like the business is moving forward. I had a couple of questions; the first one on the orphan drug designations for ADX-102 in congenital ichthyosis.

I am just curious about the application or process for that, when you apply for that do you actually -- does the agency actually see the data that you have in house or is this something that they look at granting orphan drug in terms of the patient population addressed in terms of the size of that, that's the first question? Thanks. .

Yeah, that is a great question Adam. Yes, the agency does consider and in some cases insist on clinical data because I don't think they want to waste time granting orphan designations to programs that are in a way invalidated.

I think it's possible to receive orphan designation on pre-clinical data but I think it is rare and certainly in this case before the designation was granted the FDA did review our Phase II data and we consider that certainly a positive sign that they moved ahead with the designation. .

That's great. And on the Allergic Conjunctivitis data coming in June, the Phase 2b you mentioned Todd may qualify as one of two pivotal, can you give us a little bit more color on what the agency is thinking or you’re thinking around what it would take for the Phase 2b to actually qualify as a pivotal? Thanks..

Yeah, the FDA’s criteria for a pivotal study in Allergic Conjunctivitis using the model that we’re using which is an allergen challenge model is a fairly well worn path. As you know Adam itching is the primary endpoint for most of these programs as it is in ours and it's rated by the patient.

So the actual protocol as the drug is administered or vehicle or saline in our case is administered followed by allergen challenge which is a direct installation of allergen into the eye and then the patient rates itching on a scale of zero to three over a period of time.

Yes, they generally want to see approximately a point or so difference across two of three pre-specified time points after allergen installation or challenge as it were. And yes, those criteria are hit in the current Phase 2b study.

This study would qualify as one of two pivotal trials required for approval and thus we would expect Phase 3 to look very similar to Phase 2b except that the dose ranging component of course would be absent, it would be a single dose versus control. There are other studies required for registration such as safety studies.

But the mean to the application would be the two pivotal studies that I've described. .

That's great. Thank you so much. Have a good day. .

Thanks Adam..

And we will go next to Ritu Baral with Cowen. .

Good morning, sorry I was muted. I wanted to dig in a little further on the SLS Phase 3 that you discussed this morning. You mentioned it's two parts. Part A is about 10 patients with body area as the end point to confirm the statistics.

On the second part and that they were both six months does that mean the second part is three months, three months plus three months or is the second part six months plus six months crossover or am I thinking about this wrong?.

No, your last assumption is correct. The latter statement is correct its six months crossover with six months. With one segment of the population starting with drugs and crossing to vehicle and the other segment of the population starting with vehicle and crossing to drug is correct. .

And with Part A just given that you think you can set powering with 10 patients, what sort of delta or change in body area affected are you assuming at this point based off of your Phase 1 and 2 results?.

The powering is augmented by our current results in Phase 2. The difference between Phase 2 and part one of Phase 3 is that more body surface area will be treated. And together those two trials will be used to estimate the power of the population size for part two of Phase 3.

As you know SLS is not a common disease and in our discussions with the agency we made it clear that our one shot approach is reasonable for our final trial and we want to make sure that it's powered appropriately. So that's why we have the part one and part two designed in this case. .

Are the baseline characteristics any different between the first data at Phase 1&2 and the planned Phase 3?.

No, they are essentially identical. In fact every patient we’re aware of has moderate to severe disease. We’re not going to change those criteria. We may be enrolling slightly younger patients. We will be adding international sites but the baseline characteristics of the disease in the patients we enroll will be identical. .

Great, thanks for taking all the questions guys. .

Yeah, thank you Ritu. .

The next question is from Yale Jen with Laidlaw and Company. .

Hi, good morning and also my congrats for the speedy progress.

First question I have is with the dry eyes that you will have the data ahead of schedule in the third quarter of 2017, what are the thoughts about having the second formulation study also started shortly after that or is it something to be decided when you have the data?.

Right, yes. So we have as we've described previously two product candidates applicable to dry eye, ADX-102 and then separately ADX-103. Each has its advantages in Dry Eye Syndrome as we have described previously.

I think you're correct Yale that the timing of the ADX-103 trial which will be subsequent ADX-102 will depend on the data and the results of the first trial. We have three formulations in the ADX-102 trial for Dry Eye Syndrome, two concentrations at 0.5% and 0.1% in our current formulation.

We've developed a novel formulation specifically for Dry Eye Syndrome which is more of a lipid base formulation for the 0.5% strength. We're absolutely thrilled to see the results. Dry eyes as I mentioned is a tremendous unmet medical need.

We're fairly convinced, I think the medical community is fairly convinced that dry eye is substantially an inflammatory condition. If you look at the two drugs approved for dry eye in United States they are both anti-inflammatory medications.

We have proven with ADX-102 certainly, recent Phase 2 trials that the drug is a potent anti-inflammatory therapeutic and thus we're optimistic about the results in Dry Eye Syndrome for 102 and we look forward to filing that with 103 at some point next year. .

So if I read it at least from a commercial perspective that given that the patients sort of -- is very different of driving the other few ocular indications that the maybe 103 is more of essential than simply just exploratory?.

Yes, I mean I think that true the patient populations are different across Allergic Conjunctivitis and Uveitis and Dry Eye Syndrome but the commonality amongst all the pieces is inflammation. And I think what we've proven is that aldehydes are broad, upstream inflammatory mediators that lead to all kinds of inflammation not just one kind or another.

I think the other thing that's interesting in Dry Eye Syndrome, not only should 102 and 103 block inflammation but these drugs also have the potential to preserve lipid function in the eye, aldehyde degrade fats which are needed for ocular surface lubrication.

They also inhibit proteins that are responsible for moving fats around in the anterior surface of the eye. So I think there's at least a couple of ways that 102 and 103 could work. 103 as we disclosed last quarter is a little bit more suited to preserve the fat layer in tears, the drug itself is a little more lipid full [ph].

And well we're sort of looking forward to compare the efficacy of 102 and 103. We do not expect 103 to move forward in Allergic Conjunctivitis or Uveitis. But we are eager to compare the two drugs in Dry Eye Syndrome.

To your point Yale, the Dry Eye Syndrome market is quite different from Allergic Conjunctivitis and Uveitis and that is possible that, that market deserves a separate product. .

Okay great, thanks.

And last sort of question here to just follow-up the earlier one which is for the potential Phase 3 or even -- something with conjunctivitis study that we are sort of heading to sort of finish -- hopefully finish, what sort of safety database in terms of size you anticipate with the another Phase 3 study will be sufficient or you need to have a larger exposure?.

That’s a very good question. The FDA is clear about the size of safety databases in ophthalmology. Generally those are in the couple of thousand patients range.

So another Phase 3 clinical trial would not be sufficient but safety databases are relatively easy to acquire and a simple matter I think of blocking and tackling in terms of enrolling those additional patients for the safety database. .

Okay, great. Thanks a lot. Again congrats on the speedy progress..

Thank you Yale. .

[Operator Instructions]. And we'll go next to Corey Davis with Wainwright. .

Thanks very much, good morning. First of all with respect to conjunctivitis let's assume that this study comes out positive.

At that point would you choose to take it forward on your own into another Phase 3 or think about partnering at that point in time? And then secondarily how good do you think this has to be not only to be statistically significant but to be commercially successful compared to all the other options out there right now?.

Yes Corey, that's our favorite question at the moment because the more we learn about Allergic Conjunctivitis the more excited we become in terms of the market potential. We’ve adjusted our vault last week and had numerous convocations with a variety of key opinion leaders in other companies in the ocular space.

I can tell you that interest in Allergic Conjunctivitis is growing. And the answer to both of your questions is really the same. There are two major underserved population in Allergic Conjunctivitis. The first and the most obvious ones are those patients and as I mentioned in the comments on this call that are dependent on steroids.

There is about a million or so in United States that are estimated to be steroid dependent and that would require something other than anti-histamines to treat their disease. Because of the toxicity of steroids, ADX-102 is a logical choice.

As we’ve shown last year in the Uveitis data ADX-102 does not manifest the toxicities that corticosteroids do at least. That’s one option. I think that option is something that a small company can commercialize. We estimate there's about 30 anterior segment information centers in the U.S.

for the eye which could be covered with a very reasonable MSL or sales force and I mean probably fewer than 10 representatives.

On the other hand the much larger market in Allergic Conjunctivitis are what we call anti-histamine suboptimal responders, that is patients that take anti-histamines but don’t achieve an optimal response and are thus unsatisfied.

Many of those don't take steroids just given the toxicity of steroids but simply remain unfulfilled in terms of the efficacy of anti-histamines. That could be up to a third of the Allergic Conjunctivitis population in the U.S. If you assume that somewhere between 20% and 40% of the U.S.

population has a disease we're talking tens of millions of patients. And in terms of pricing we've discussed where branded steroids are in the $300 to $400 range, if you multiply all those numbers out this is a tremendous multi-billion dollar market. So I'm glad you asked the question this is something that we've become more and more excited about.

The latter market probably would require a partner. I don't think that is a small sales force given the size of the population but the upside is tremendous. .

And how about in terms of percent of reduction, what do you need in terms of numbers to be statistically significant and commercially relevant?.

Well the FDA requires clinically relevant rates which they define as we've discussed a few minutes ago is around a point difference in itching score between your control and your drug.

Our argument is that if patients are required to take steroids to control their disease is that any change for an approved drug that is around the point of difference in itching should be market acceptable.

I think for anti-histamine suboptimal responders it will depend on the magnitude of response that these patients are having to anti-histamines but again I think with an approved drug on the market that doesn't work by blocking histamines and isn’t a steroid I think patients and physicians are like or likely to try the drug and clinical practice benefits in any way useful would stay off steroids and improve the response to anti-histamines.

.

Great, thank you Todd. .

Thanks Corey. .

The next question is from John Newman with Canaccord. .

Hey guys, good morning. Congrats on the ahead of time progress. Just had a question on the dry eye study, I apologize if you discussed this a little bit earlier on the call.

But could you describe some of the ways that you’ll be looking at the composition of lipid [ph] if you'll be able to do that in this study or if you’ll look more at that aspect in the Phase 3? Thanks..

Great question John, thank you. So the dry eye study is as we mentioned it's a three arm study. It’s a treatment over one month or 28 days. The endpoints of the study will be the standard signs and symptoms used to assess dry eye.

As you mentioned John, we are particularly interested in tier film break up time which is an indicator of lipid function in the tears. There are other measures that we intend to analyze in tears ex-vivo including aldehyde load.

So we’re obviously looking at a variety of different factors because there is a potential that the mechanism of our drug is multifactorial.

We're looking at inflammatory and lipid measures alike but, these are the kinds of things that I think will be fascinating to review when the data come in not only because they hint at the potential mechanisms of the drug but, also because we could attempt to identify some of the market angles where the drug may fit in clinical practices as Ritu asked about on the last release..

Okay, great. Thank you..

[Operator Instructions]. And we’ll go next to Robert Kang with Stifel. .

My questions have been answered. Thank you. .

[Operator Instructions]. And with no questions in the queue this does conclude today's call. Thank you for your participation. You may now disconnect..