Good morning and welcome to the Aldeyra Therapeutics First Quarter 2019 Financial Results and Corporate Update Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note today’s event is being recorded.

I’d now like to turn the conference over to Joshua Reed, Chief Financial Officer. Please go ahead, sir..

Good morning, everyone. I am Joshua Reed, Chief Financial Officer of Aldeyra Therapeutics. And welcome to the Aldeyra Therapeutics conference call to discuss our first quarter 2019 financial results and corporate update. With me today is Dr. Todd Brady, Chief Executive Officer of Aldeyra.

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, expenses, and financial position, 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 issued earlier this morning containing financial results for the first quarter of 2019 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. Today we issued a press release which outlines our first quarter 2019 financial results and which provided a corporate update. We encourage you to review the press release as it contains information that is important to be considered in conjunction with today’s call.

2019 is off to a remarkable start with the announcement of positive results from our Phase 3 ALLEVIATE trial in allergic conjunctivitis. The initiation of our adaptive Phase 3 RENEW trial in dry eye disease and the completion of dosing in our Phase 3 SOLACE trial in noninfectious anterior uveitis.

The ALLEVIATE results announced in March represent the first Phase 3 results from our late-stage pipeline to concentrations at topical ocular reproxalap were tested in a challenge model of allergic conjunctivitis and we were thrilled to report that both concentrations of drug achieved statistical significance versus vehicle for the primary and the key secondary endpoint of the trial.

As we’ve previously disclosed, we intend to complete ongoing environmental allergen exposure of methods development studies and subsequently discuss the ALLEVIATE results in methods development study results with regulatory authorities to determine the remaining clinical requirements for NDA submission in allergic conjunctivitis.

Allergic conjunctivitis is a persistently disturbing disease that diminishes quality-of-life for the estimated 30 million patients in the United States that are treated sub-optimally with antihistamines, many physicians resort to treatment with topical corticosteroids.

But corticosteroids can be toxic, causing cataracts and glaucoma among other serious conditions in some patients, and are therefore generally limited to short-term use. In April, we announced the initiation of the Phase 3 RENEW trial in dry eye disease.

RENEW is an adaptive trial, the objective of the first part of which is to confirm the design of the second part of the trial.

In 2018, we announced results from the Phase 2b dry eye disease clinical trial, which demonstrated early onset and broad activity of reproxalap relative to vehicle and the moderate to severe patient groups to be tested in the RENEW trial.

The Phase 2b P values were 0.0048 and 0.0007 for ocular dryness symptom score and fluorescein nasal region ocular staining respectively, which will comprise the co-primary endpoint of RENEW.

Following completion of the first part of RENEW assuming the results support advancement to further testing, we expect to report the endpoints dosing regimen and sample size for the remainder of the trial. We expect to report full clinical results following the completion of RENEW.

The two dry eye disease drugs available in the United States today are generally regarded by physicians and patients as inadequate, leaving many of the estimated 20 million dry eye disease patients sub-optimally treated or untreated.

Thus, new therapies for dry eye disease, which is a chronic and in some cases debilitating condition are in high demand. Also, in April, we announced the completion of dosing in the Phase 3 SOLACE trial in noninfectious anterior uveitis.

The SOLACE trial is the largest ever vehicle controlled trial in noninfectious anterior uveitis, a rare but severe disease that can lead to blindness. Nearly all cases are treated with topical corticosteroids, which as mentioned previously can lead to serious ocular toxicity in some patients.

The [indiscernible] for reproxalap could represent a new and alternative approach in noninfectious anterior uveitis and other ocular conditions responsive to corticosteroid therapy.

In 2016, we announced positive results from a Phase 2 clinical trial in noninfectious anterior uveitis, in which topical ocular reproxalap was statistically not inferior to topical corticosteroid therapy in reducing inflammatory cell count score and the anterior chamber of the eye.

The primary endpoint of the Phase 3 SOLACE trial is timed to zero inflammatory cells in the anterior chamber versus that a vehicle. We look forward to announcing the results of the SOLACE trial later this year.

In the second half of this year, we expect to complete Part 1 of the Phase 3 RESET trial in Sjögren-Larsson syndrome and orphan condition characterized in part by ichthyosis, a severe and intractable skin disease for which there is no FDA approved therapy and which affects most of the body surface. The RESET trial is an adaptive trial.

The objective of the first part of which is to design the second part of the trial. Following completion of the first part of RESET assuming the results support advancement to further testing, we expect to report the endpoints dosing regimen and sample size for the remainder of the trial.

We expect to report full clinical results following the completion of RESET. In 2016 we announced the topical dermal reproxalap lead to statistically significant and clinically meaningful reductions in ichthyosis over two months of treatment. The RESET trial will assess six months of treatment of up to 90% of the body surface.

In January of this year, we announced the acquisition of Helio Vision and thereby expanded our retinal disease pipeline with the addition of ADX-2191 an intravitreal drug for the prevention of proliferative vitreoretinopathy, a rare but potentially blinding retinal disease that occurs following retinal detachment and for which there is no therapy.

We expect to initiate an adaptive Phase 3 clinical trial of ADX-2191 in the second half of this year assuming initial results are sufficient to warrant advancement we expect to report the endpoints dosing regimen and sample size of subsequent clinical testing in 2020.

In 2019 for the first time, we intend to initiate clinical testing of our program for systemic immune mediated disease, a Phase 2 clinical trial of ADX-1612 in post transplant lymphoproliferative syndrome and a Phase 1 clinical trial of ADX-629 for autoimmune disease are expected to be initiated in the second half of this year.

Based on the upcoming announcement from SOLACE and RESET as well as the expected progress across the rest of our product pipeline, we hope the remainder of 2019 will be exciting.

We look forward to continuing to update you as we advance our pipeline towards commercialization and execute on our mission of improving the lives of patients suffering from immune mediated disease. Now I'd like to turn the call back over to Joshua to review our first quarter 2019 financials..

Thank you, Todd. For the first quarter of 2019, we reported a net loss of approximately $15.6 million compared to a net loss of approximately $8.4 million for the first quarter of 2018. Basic and diluted net loss per share was $0.58 for the quarter compared to $0.43 per share for the same period last year.

Losses have resulted from the cost of our clinical trial, research and development program, the January 2019 stock-for-stock acquisition of Helio Vision as well as from our general and administrative expenses. R&D expenses were $7.8 million for the first quarter of 2019 compared to $6.6 million for the same period in 2018.

The increase of $1.2 million is primarily related to the increase in research and development expenditures, including manufacturing, preclinical and clinical development costs, an increase in personnel costs and non-cash compensation costs related to a portion of the upfront consideration paid to the founders of Helio.

Acquired in-process research and development expenses were $6.6 million for the quarter ended March 31, 2019. There was no such expense for the three months ended March 31, 2018.

The acquired in-process research and development expense during the quarter was comprised of a non-cash charge related to the fair value of consideration given to the Helio non-founders, a cash charge related to the Helio acquisition transaction expenses and a non-cash charge related to the deferred tax liability arising from the accounting differences for book and tax purposes resulting from the Helio acquisition.

General and administrative were $3 million for the first quarter of 2019 compared to $1.9 million for the same period last year. The increase of $1.1 million is primarily related to an increase in personnel costs and legal and patent related costs.

In the first quarter of 2019, total operating expenses were approximately $17.4 million compared to $8.5 million in the prior year. The first quarter of 2019 total operating expenses include $6.6 million primarily related to non-cash charges in connection with in-process research and development as a result of the Helio acquisition.

Cash, cash equivalents and marketable securities were $82.1 million as of the end of the first quarter of 2019. In March 2019, we entered into a loan and security agreement that provides up to $60 million in non-dilutive financing. The facility advances capital at our option based upon certain funding conditions.

We elected not to draw down capital from the initial term loan advance, which expired on April 15, 2019. An additional term loan advance of $15 million is expected to be available at our option through September 30, 2019. This concludes my comments on our first quarter 2019. Thank you for your participation.

Operator, we’d now like to open the call for questions..

Absolutely. [Operator Instructions] Today’s first question comes from Yigal Nochomovitz from Citi. Please go ahead..

Hi. This is Samantha on for Yigal. Thanks very much for taking our question. First I noticed on clinical trials that you’ve initiated Phase 2 in dry eye disease, testing a novel formulation of reproxalap and the dosing there is the same QID to BID dosing that you have in Part 1 of RENEW.

I wonder if you could just provide a little bit more context here, details of the rationale for why you are developing the formulation in the first phase and what is different between this and the reproxalap that you’re using in particular [ph] trial? And what are your expectations like [indiscernible] use of this novel formulation? Thank you..

Hi, Sam. Good morning and thanks for the question. Excellent question. Obviously, we're very serious about dry eye disease. I think yesterday's announcement regarding the purchase of Xiidra for $3.4 billion sort of puts an exclamation point on the value and demand in this space.

We've decided to allocate resources here at Aldeyra towards dry eye disease and there is never a perfect formulation. I think we're quite good at developing novel formulations. In this case, the trial you reference on clinicaltrials.gov characterize as a minor formulation change, primarily designed to increase the resident time of drug.

There may be other benefits as well. But you are correct that the design of that trial mirrors what we're doing in the RESET trial and that’s intentional, obviously -- for obvious reasons. We are very excited about this trial.

We are obviously very excited about RESET in a way the formulation trial gives us yet another shot on goal for dry disease, which as I mentioned previously is a very high-value program for Aldeyra and throughout the industry..

Thanks. That’s helpful. And then just [indiscernible] a little bit more on the Novartis acquisition.

Is this changed your [indiscernible] strategy at all for reproxalap?.

I don’t think so. We're committed as a company to taking products to market. And the acquisition, obviously, of Xiidra we view as a very good sign, given the size of the acquisition. I think Xiidra is about a $400 million [indiscernible], so the -- a premium place on Xiidra was quite high and we were glad to see that.

Obviously, we know all the large companies quite well that are interested in the eyes space and we are actually interested in the large companies that didn’t buy Xiidra. But all in all, I don't think it changes much for us, we are moving forward.

As I previously mentioned, I think we have a superb chance to advance a molecule in dry eye disease and we're thrilled about that..

Got it. And then just one last for me on the SOLACE trial for noninfectious anterior uveitis. Could you remind us what the rationale was for using vehicle as a comparator rather than [indiscernible] SOLACE.

And what was the rationale for using the 0.5% dose in the study?.

SOLACE, excellent question. I will answer the latter one first. Noninfectious anterior uveitis is a very serious disease. This is a common cause of blindness. 0.5% reproxalap is our highest dose, our highest concentration of formulation.

It is double the concentration that we're using in the Phase 3 trials for dry disease and allergic conjunctivitis, .25%. so that’s the justification for the high concentration. And typically what’s done in noninfectious uveitis -- anterior uveitis is testing against other corticosteroids.

Corticosteroids are the only approved class of drug for noninfectious anterior uveitis and typically approvals of subsequent corticosteroids have been based on non-inferiority trials. As you know, statistically non-inferiority is a high bar. In fact, it is a much higher bar requiring much larger sample sizes than a superiority trial.

We were thrilled to be able to agree with the regulators that we could run a study against vehicle and thus aim for superiority. Again, which is that easiest, the typical hurdle in non-inferiority versus steroid. So for us that was a real regulatory win. Noninfectious anterior uveitis is a flaring disease, so patients get worse and they get better.

The reason for time to respond is very simple and that is while patients on vehicle may get better eventually, our understanding of the time course is that that may take a very long time, weeks to months.

So the SOLACE trial is four weeks of therapy and the endpoint as I mentioned is time to cure or time to zero cells in the anterior chamber of the eye, and that's precisely why we pick that endpoint that is a time to cure is important.

The longer that patients suffer with the inflammatory cells in the front of the eye have more likely permanent vision damage is to result. And so that's the reason why the trial is designed as it is..

Great. Thanks so much for taking the questions..

Thanks, Sam..

And our next question today comes from Adam Walsh at Stifel. Please go ahead..

Good morning, guys. It's Neil Carnahan on for Adam. Just following on the NAU question, for this Phase 3 trial will these results along with the Phase 2b sufficient to support an NDA? And then, can you talk a bit about the appetite for an alternative treatment to steroids in the treatment community for NAU? And I’ve got one follow-up..

Sure, Neil. Yes, thanks for the question. Corticosteroids have been approved for a long time for this disease, many of them are generic.

Although, the generic penetration in the ocular space for corticosteroids is not very strong, the branded [ph] presence of corticosteroids that’s generally the dominant usage for corticosteroids in this disease and other ocular inflammatory diseases.

So I think with correct promotion and marketing, new entrants can compete in the branded [indiscernible] very effectively. The regulatory question you ask is interesting. And I think, obviously, the standard for the FDA is too large well-controlled trial to satisfy the clinical requirements of an NDA filing.

I don't know that that standard is any different here. However, noninfectious anterior uveitis is an extremely rare disease. There is high unmet need considering the toxicity of steroids, many of these patients will recur in terms of their flares. They will relapse 1 to 2 to 3x a year. Chronic even episodic use of steroids can lead to glaucoma.

Most of these patients will eventually develop cataracts, partially as a result of steroid therapy. So there may be some levers that we can follow with regulatory authorities to argue for an accelerated course to approval. However, our assumption at this point is that the standard approval pathway applied..

Okay. And then I got one follow-up kind of on that same thought process for the dry eye program. The Part 1 study -- the Part 1 of the Phase 3 is similar to the Phase 2b ran [ph]. If you see statistical significance in those results, I know the plan is for it to inform on powering for Part 2 of the study.

But if you see statistical significance on endpoint in that study, is there the possibility that that could be considered a standalone trial? Thanks..

Yes. Thanks, Neil. Thank you for asking me that question. I think a brief description of adaptive trials is appropriate. The short answer to your question is yes.

A long answer is in any adaptive trial, not just our adaptive trial, there is sort of these initial phases of a trial were -- certain parameters are tested by the results of the first phases of the trial are used to power the latter aspect of the trial and confirm the dosing and confirm the endpoints etcetera.

There is always a possibility in any adaptive trial that if the first phases of the adaptive trial hit certain endpoint with fiscal significance that the trial can be terminated on grounds of early success, right? And in other words, there's no reason to keep going if the trial is statistically significant and so forth.

However, that’s obviously not the point of the initial phases of an adaptive trial. But there's some upside scenarios you mentioned, Neil, but that's certainly not how really any adaptive trial is designed.

I think what I just said applies not only to the RENEW trial and dry disease, but potentially also the RESET trial in Sjögren-Larsson syndrome and the adaptive Phase 3 trial that we intend to initiate later this year in proliferative vitreoretinopathy..

Thank you..

And the next question today comes from Esther Hong of Janney. Please go ahead..

Hi. Good morning. Congrats on another strong quarter of clinical execution.

So just to follow-up on the uveitis study, so you do expect to complete another -- or have to complete another Phase 3 study and if another Phase 3 study is required, when can we expect that to initiate and then potentially read out? And then would you -- would this occur post allergic conjunctivitis in dry eye disease NDA filing or in parallel? Any comments on that.

Thanks..

Esther, thanks for the question.

Your question is about uveitis?.

Yes..

Yes. Well, I think that and as I mentioned previously, that the standard is two trials for NDA filing. I think it depends on the results of the SOLACE trial.

If they are tremendously strong, I do think that there may be some potential to argue for less clinical testing than it typically required especially given the medical needs that I highlighted and the severity of the disease. In terms of sequencing relative to other programs, that’s an excellent question.

I don't know that we are particularly concerned about the sequence of uveitis versus the programs in allergic conjunctivitis in dry disease. And the reason I say that gets back to Sam's question earlier about the .5%.

The concentration of the product and uveitis is different from the concentration of the product in dry disease and allergic conjunctivitis. Therefore, they’re different products, different SAUs.

The uveitis product comes in a kit, right? And by that I mean typically to treat a flare of uveitis, there is a frequent dosing administration that occurs initially that’s tapered down over time. That’s precisely how steroids are given, although often steroids are given that way for safety reasons.

That is different in theory from how allergic conjunctivitis and dry disease may be treated. Although as has been pointed out in the RENEW trial we are assessing a QID to BID taper throughout the 12 weeks of therapy..

Okay. All right. Great. Thank you..

Thanks, Esther..

And our next question comes from Matthew Cross of JonesTrading. Please go ahead..

Hey, guys. Good morning and congrats on another quarter of progress, and thanks for taking my question. Wanted to start off to your and clarify that given your recent announcement of the completed dosing for the SOLACE trial.

Does this mean that all patients have experienced treatable flares and as we can expect a pretty standard timeline to presentation of data in the second half, or is it possible that patient flare cycles could leave this timing to their inept way? And then could you also maybe clarify, what you’re hoping to see from the secondary flare endpoints beyond the primary of bringing [indiscernible] kind of down to zero?.

Yes. Matt, thanks for the question. So the last patient has completed the last visit and the last dose and what that means is that flare has resolved. We are only looking at primary flares. So to be enrolled into the trial not only to the subject have to have noninfectious anterior uveitis, but they have to be an active flare.

So the [technical difficulty] is designed to treat active flares. So patients that are enrolled are in flare and based on our announcement in April, the last patient has completed dosing for that flare.

So, yes, I think a standard timeline to data announcement apply to your -- across the industry I typically see something like 90-day from last patient to last visit to the announcement of results for a Phase 3 trial, I don't expect we will differ materially from that. But until we’ve the data on our hand anything can happen.

It is a Phase 3 trial and thus data queries and adjudication and confirmation of statistics and so forth is very important to us. We take all that very, very seriously and we certainly don't intend to rush results out prematurely, but given the guidance that I just gave, I think it's a fairly standard release process from here on now, Matt..

Okay, great. Thank you for the clarification. And then we had a lot of discussion about what endpoints could look like for this second Phase 3 in allergic conjunctivitis based on these ongoing feasibility studies and FDA feedback? I was hoping to hear some of the same as far as SLS. You’ve noted [indiscernible] side on endpoint, now the design element.

For Part 2, one it's completed.

But is there anything you can say about some of the possibilities for endpoints here? I guess how validated or reliable would you say the visual assessment measures are that are being employed in Part 1 and would you consider [technical difficulty] Part 2 or what are some of other alternative?.

Right. Excellent question. SLS is unique in our portfolio because it's an ultra-rare condition. And endpoints per ultra-rare condition often are not validated and in this case there has been no large controlled trial ever in Sjögren-Larsson syndrome. And that's why there is some flexibility around endpoints.

However, having said all that, I do think that the key clinical characteristic of ichthyosis which is this severe intractable skin disease that I mentioned earlier in these patients. The clinical characteristic is scaling. The skin is excessively dry, it flakes off. It does not have adequate moisture and blood supply.

It putrefy that leads to a foul odor and bacterial overgrowth and some cases cracked and bleed and gets infected. So this is a severely debilitating condition, but scaling -- the scaling part of ichthyosis which is actually what ichthyosis means is the key clinical characteristics. So, I suspect that the endpoint would focus around scaling.

And that’s what we’ve released as part of Part 2. We have made some modifications to enhance the quality of the assessment at scaling. As you know, we’ve two different parameters. We have a investigator assessed scale and then we have a central reader that reviews digital photography of the patients over time.

So I think within that broad set of parameters, [indiscernible] something in terms of endpoints regarding scaling..

Got it. Okay. That’s helpful as well.

[indiscernible] like squeezing just one more quick housekeeping one which was just as far as -- can you give us an update in terms of your expectations for the timeline or setting for presentation of full details of ALLEVIATE and in terms of [indiscernible] over time any [indiscernible] wise comparison to prior trials [indiscernible] nature?.

Yes, we expect to announce ALLEVIATE the full data of ALLEVIATE at a major medical conference. I'm sure you can guess, which one might be a candidate for that.

We are very interested in clinical relevant [indiscernible] sizes and by that I mean [indiscernible] effect sizes minimally important differences and so forth will something -- will be something you'll see more of, and a full disclosure of ALLEVIATE. But I would hope for that data -- those data to be released later this year..

Fair enough. I think that does with me. Thanks, guys..

Thanks, Matt..

And ladies and gentlemen, this concludes today’s question-and-answer session and today’s conference. We thank you all for attending today’s presentation. You may now disconnect your lines, and have a wonderful day..