Joshua Reed - Chief Financial Officer Todd Brady - Chief Executive Officer.

Neil Carnahan - Stifel Esther Hong - Janney.

Good morning and welcome to the Aldeyra Therapeutics Third Quarter 2018 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Joshua Reed, Chief Financial Officer. Mr. Reed, please go ahead..

Good morning, everyone. I am Joshua Reed, Chief Financial Officer of Aldeyra Therapeutics. And welcome to the Aldeyra Therapeutics conference call to discuss our third quarter 2018 financial results. With me today is Dr. Todd Brady, Chief Executive Officer of Aldeyra Therapeutics.

Before we get started, we would like to remind you that this morning we filed a press release containing financial results for the third quarter of 2018. I encourage you to review the press release as it contains important information.

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, development and commercial 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, Joshua. The third quarter was another landmark quarter for Aldeyra, as we announced positive results from two important clinical trials, our Phase IIb Clinical trial in dry eye disease and an investigator sponsored clinical trial of ADX-1612 in mesothelioma.

In terms of disease, our broadly active topical ocular product candidate, reproxalap, demonstrated clear and consistent efficacy versus vehicle across a variety of signs and symptoms, and perhaps, most important from our perspective was the finding a drug activity appears of occurs early as two weeks after initiation of dosing, a commercially differentiating factor that could potentially physician reproxalap as a first line therapy in a market where currently available therapies may require weeks or months or even modest efficacy, and where patients and physicians are generally dissatisfied with the standard of care.

As many of you know, the demand for novel therapies and dry eye disease is high. Dry eye disease is a persistently disturbing condition that affects approximately 20 million patients in the United States.

And based on the Phase IIb clinical results, we believe reproxalap has the potential to represent an important therapeutic approach in dry eye disease. And we expect to initiate Phase III clinical testing in 2019, following an end of Phase II discussion with the FDA, early next year.

Relative to other dry eye disease therapies, reproxalap has demonstrated a uniquely broad therapeutic profile particularly interesting is the efficacy of reproxalap in allergic conjunctivitis, a condition that often occurs in conjunction with dry eye disease, potentially due to the fact that Pollen is a major determinant of ocular dryness and irritation.

Following two successful Phase II clinical trials and allergic conjunctivitis, the Phase III ALLEVIATE clinical trial was initiated earlier this year. And we look forward to announcing the results in early 2019.

Topical ocular reproxalap is also demonstrated activity and noninfectious anterior uveitis, a rare but severe autoimmune disease of the eye that can lead to blindness. Topical ocular corticosteroids can be used to treat this disease, but lead to serious ocular toxicities, including glaucoma and cataract formation.

Based on previous Phase II clinical results demonstrating that reproxalap was statistically noninfectious corticosteroid therapy and noninfectious anterior uveitis, and reproxalap did not lead to increase as an intraocular pressure that were observed in corticosteroid-treated patients, we initiated the Phase III SOLACE Trial last year, and we remain on track to announce results next year.

Reproxalap is also a potential therapy for Sjögren-Larsson Syndrome, an orphan inborn error of metabolism characterized by a severe and intractable skin disease known as chthyosis. Based on Phase II results demonstrating unprecedented activity, the Phase III RESET clinical trial was initiated earlier this year.

And we remain on track to announce results from Part 1 of the Phase III trial in the second half of next year. We expect that 2019 will represent a late stage catalyst filled year for Aldeyra as results from the ALLEVIATE, SOLACE and RESET Part 1 Phase III trials are expected to be announced.

In the third quarter, we were pleased to report positive results from the investigators sponsored Phase ½ clinical trial of ADX-1612 and pleural malignant mesothelioma, a rare but terminal cancer with a poor prognosis.

In contrast, the typical response rates of 20% to 40% with currently available therapy, response rates in the MESO-2 investigator-sponsored trial announced at the World Conference on Lung Cancer in September, were 61%. We expect to initiate a Phase II clinical trial next year pending discussion with regulatory authorities.

We are also excited for the planned 2019 initiation of clinical testing for our earlier development programs, including ADX-629 for immune-mediated disease, ADX-103 for retinal disease, and ADX-1612 in post-transplant lymphoproliferative disorder and ovarian cancer.

Now I'd like to turn the call back over to Joshua to discuss the third quarter financial results..

Thank you, Todd. For the third quarter of 2018, we reported a net loss of approximately $10.8 million compared to a net loss of approximately $5 million for the same period last year. Basic and diluted net loss per share was $0.52 for the quarter compared to $0.32 per share of last year.

Losses have resulted from the cost of our clinical trials and research and development programs as well as from our general and administrative expenses. R&D expenses were $7.9 million for the third quarter of 2018 compared to $3.5 million for the same period in 2017.

The increase of $4.4 million is primarily related to increase in research and development expenditures, including manufacturing, preclinical and clinical development costs and an increase in personnel costs. General and administrative expenses were $3.1 million for the third quarter compared to $1.5 million for the same period last year.

The increase of $1.6 million is primarily related to an increase in legal and patent-related costs, consulting costs and personnel costs. In the third quarter of 2018, total operating expenses were approximately $10.9 million compared to $5 million in the prior year.

Cash, cash equivalents and marketable securities were $35.1 million as of the end of the third quarter of 2018. In October 2018, we were pleased to close an underwritten public offering of 525,000 shares of common stock, raising net proceeds of $67.6 million after deducting underwriting discounts, commissions and estimated expenses.

We expect our current cash flow will be sufficient to fund our operations through the end of 2020, including the currently planned announcements of top line data from the Phase III clinical trial in dry eye disease, the Phase III SOLACE trial in noninfectious anterior uveitis, the Phase III ALLEVIATE clinical trial in allergic conjunctivitis, Part 1 of the Phase III RESET trial is showed in large Sjögren-Larsson Syndrome, a Phase Ib clinical trial in NASH and a Phase IIa trial in post-transplant lymphoproliferative disorder.

Additionally, we believe our funding will be sufficient to allow for in-licensing of technologies that are complementary to our current product candidate pipeline.

In summary, we believe that we are well-funded to execute on our mission of developing novel immune-modulating therapy across multiple mechanisms of actions and multiple product candidates. That concludes our remarks. Operator, please open the call for questions..

We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from Adam Walsh with Stifel. Please go ahead..

Good morning, guys. This is Neil on for Adam. Just a question on the Phase III dry eye study. Can you talk to us about what you’re thinking as far as inclusion criteria there, specifically on just severity of disease in patients? Thanks..

Yes, thanks for the question Neil, and thank you for hosting us yesterday at the sequel conference. It's a differed opportunity for us. Yes, so the Phase III is going to be very similar to the Phase IIb in terms of inclusion criteria. And the Phase IIb is very similar to more or less the industry standard in terms of enrollment.

The shrink is not to enroll patients that are too severe, because if they're attractable to therapy, if they don’t respond. And also companies that want to enroll patients that are two miles either because then there will be a more dramatic placebo vehicle response.

So moderate patients are generally what most trials enroll, we stuck to that premise in Phase IIb, we will continue that in Phase III. So as to change as little as possible and hopefully we can replicate the impressive results that we observed in Phase IIb..

The next question comes from I-Eh Jen with Laidlaw & Company. Please go ahead..

Hi. This is Chris speaking on behalf of I-Eh Jen. I wanted to ask, in the upcoming clinical trial of ADX-1612 in post-transplant lymphoproliferative syndrome.

How do you compare this dosage with the dosage of other cancers such as ovarian? Can you guys speak to that?.

Thanks, Chris. That’s a great question. We’re very excited about the general strategic transition or addition, I should say, of systemic programs to our pipeline, which in late stages, predominantly topical ocular, topical dermal. PTLD represents, I think, one of our first major efforts to new systemically with our product candidates.

This is a disease that is a serious immune-mediated disorder caused by hyperproliferation of leukocytes following solid-organ transplant. Now patients that have transplant, orange, the picture of health, that’s why they’re being transplanted to add -- to the issue there.

Some of these patients will get a lymphoma like hyper proliferation of predominantly lymphocytes. And this is the disease that we intend to test with ADX-1612. The doses of 1612 that have been previously used in cancer trials are generally MTDs that are maximally tolerated doses. We do not intend to test patients with MTD doses of 1612.

I think those generally, in all cancer therapeutics, generally be the toxicity. And PTLD, which is not a cancer per se, we could get away with lower doses of drug, and thereby increase our therapeutic index that is still manifest efficacy in disease without causing toxicity.

So I think when you see more details about the trial next year and as it's initiated, you’ll find that the doses we’re using are actually lower than what has been used in the past, in cancer trials..

[Operator instructions] The next question comes from Esther Hong with Janney. Please go ahead..

So, first in allergic conjunctivitis, can you remind us of the changes in the trial design, in the ongoing Phase III study from the Phase IIb and potential impact of those changes? And then second, can you provide any updates on the feasibility studies? And how those would impact the second Phase III study in allergic conjunctivitis? Thanks..

There is very little change from Phase IIb to the Phase III ALLEVIATE trial in allergic conjunctivitis. The major change is more patients. As you recall, this is an allergen provocation study, a challenge where allergen is administered directly to the eye that has been the industry standard over the past decade or so.

And that’s exactly what we did in the Phase IIb trial. That’s exactly what we’re doing in the ALLEVIATE trial. We were impressed with the statistical differentiation between drug and vehicle in the Phase IIb trial in allergic conjunctivitis. That was with approximately 30 patients per arm. As you know, the ALLEVIATE trial was about 100 patients per arm.

Thus we are over 90% powered for our primary end point, which is area under the itch scorecard, as you recall the itch score is 0 to 4, zero meaning no itch and four meaning incapacitating itch, and that’s measured over 60 minutes.

What’s interest is that most antihistamines is sort of a standard of care in allergic conjunctivitis, most antihistamines measure itch over about seven minutes. And as a physician, and even as a patient, I don’t think many of us are very concerned about what happens to patients over seven minutes.

I think we’re much more concerned about long-term activity. And that’s exactly how reproxolap works, and it's exactly what we’re testing in the Phase III ALLEVIATE trial, after the allergen challenge. Now your next question relates to the subsequent Phase III trial.

As you know, an allergic conjunctivitis and other non-orphan disorders two large well-controlled trials are required for approvals. The second Phase III trial will be based on environmental exposure to allergen. So instead of directly administering allergen to the eye, allergen will be in the environment.

There are two flavors of environmental exposure; one is a field trial, where drug is administered to patients during allergy season. Patients have a diary, and they know their itch and redness and other symptoms and so on.

The other flavor is a chamber, which is essentially a small room where allergen is aerosolized in defined quantities and patients are expose over 2 to 3 hour period to those allergens in the air. Both of those kinds of environmental exposure are the subject of methods development clinical trial that we have ongoing and enrolling at this moment.

And I think, early next year, around the time of the ALLEVIATE results, you could expect to hear from us on the preliminary top line results those methods-development trials and then how that informs the second Phase III that you mentioned in your question..

Since there appears to be no further questions, this concludes our question-and-answer session, and our conference. Thank you for attending today's presentation. You may now disconnect..