Description

Aldeyra Therapeutics  (ALDX) Long

After a long period of stagnant development for the treatment of Dry Eye Disease (DED), Aldeyra is poised to stand out from a field of recent late stage entrants while providing an attractive valuation. ALDX has run multiple successful clinical trials for their DED candidate, Reproxalap, however the previous FDA requirements in dry eye have made approvals elusive.

A significant regulatory development in the company’s favor has recently occurred, though it has gone unappreciated by investors. On June 4th, the company announced the FDA simplified the “sign” endpoint allowing RASP reduction as an appropriate biomarker or “sign”. This biomarker inclusion should result in a clear and achievable pathway to clinical success for Aldeyra.  

Beyond DED, ALDX has a collection of worthy shots on goal including Reproxalap in a Phase 3 trial for Allergic Conjunctivitis, ADX-1612 in Covid-19, and ADX-629 (an oral systemic version of Reproxalap which completed phase 1 safety studies this year) in Psoriasis and Atopic Dermatitis. ALDX has a market cap of $135M, net cash at Q1 2020 of $46M for an enterprise value of $88M.

Dry Eye Disease background and competitive landscape 

DED is a large market is a large market with 20M diagnosed patients in the US (34M estimated total). The root cause is typically undetermined, though symptoms are universal and characterized by ocular pain, dryness and a gritty sensation.  Ophthalmologists we have spoken to concur dry eye is notoriously difficult to treat given the lack of efficacious therapies, the long duration of treatment before the therapies work, and their side effect profile. 

Typically, patients first try OTC drops like Allergan’s Refresh, though the relief they provide is extremely temporary since they only remain on the surface of the eye for a couple of minutes. There are currently two FDA approved therapies, Restasis and Xiidra.  Priced around the $500/month range, the market is a large prize in the context of 20M potential patients.  The approved products are mediocre and have a slow onset where patients need to use the therapy for weeks or months to have any impact. There are also adverse events including dysgeusia  (loss of taste) and burning or irritation upon administration of the drops.  Consequently, discontinuation of both Restasis and Xiidra by patients is high and satisfaction is low. 

Allergan’s Restasis (cyclosporine ) 

• Restasis did $1.4B in peak sales in 2017 sales; $1.1B in 2019

• Restasis is now off patent with generic competition coming imminently

• The franchise was so important to Allergan, management attempted extreme measures including a licensing scheme with the Saint Regis Mohawk Tribe of Native Americans to circumvent US Patent law. The US Supreme Court rejected their legal argument in 2019.  (U.S. Supreme Court rejects Allergan)

• Restasis has a long onset of action taking up to 6 months before patients achieve any DED relief

• Discontinuation is common due to the burning sensation of applying the drops

• Restasis showed efficacy only in “signs” in the clinic but failed in helping patient symptoms, which is the more important outcome for patients.

Novartis’s Xiidra (lifitegrast) 

• Novartis recently validated the size of the dry eye market by acquiring Xiidra from Takeda in May 2019 for $3.4B plus $1.9B in potential milestones.  Xiidra had sold $400M in 2018 sales after its approval in July of 2016. 

• Xiidra initially received a CRL in October 2015

• Xiidra takes weeks for patients to feel improvement

• Like Restasis, Xiidra is ironically unpleasant to apply.  Patients report eye irritation, discomfort, blurred vision and dysgeusia.

Late stage clinical competitors

• Kala Pharmaceutical’s (KALA) Eysuvis (KPI-121) now has an October 30th PDFUFA on its second submission after an August 2019 CRL.  Eysuvis is a generic ocular steroid drop (loteprednol etabonate) with proprietary nanoparticle coating using their Ampplify technology. Steroid drops are already used somewhat in the treatment of dry eye, however there are significant caveats.  They can only be used for a short course.  Topical steroids cause glaucoma and cataracts over time, a much more significant problem than dry eye. Consequently, ophthalmologists tend to be very conservative with respect to steroid use in dry eye. The same risks will apply to Eyesuvis. It is only seeking a label for short term treatment of acute dry eye flare ups. 

• Oyster Point’s (OYST) OC-01 just reported its successful Phase 3 Onset 2 trail in May and plans to submit an NDA in the second half of 2020.  OC-01 is a nasal spray version of varenicline, the API in smoking cessation therapeutic Chantix. The mechanism of action is designed to re-establish tear film homeostasis by activating the trigeminal parasympathetic pathway and stimulating the glands and cells responsible for natural tear film production.  In laymen’s terms, it makes you tear which alleviates dry eye.  OC-01 showed stat sig efficacy in symptoms at both week 2 and 4 with the only notable side effect of sneezing upon administration.  OYST is an interesting investment as well. 

• Eyegate’s (EYEG) Ocular Bandage Gel (OBG) is specially formulated, crosslinked version of hyaluronic acid. It is like an improved version of a OTC drops as their formulation stays on the surface of the eye for hours rather than minutes.  

KALA and OYST have market caps of $830M and $900M respectively, highlighting the relative undervaluation of ALDX, though we could make the case that all of them are undervalued. 

Reproxalap 

Aldeyra was founded to exploit RASP (Reactive Aldehyde Species) inhibition as a novel anti-inflammatory target.  Reproxalap topical eye drops is the most clinically advanced and meaning program, however, since anti-inflammatories have broad therapeutic applications, there are a number of potential indications to investigate.  

Reproxalap has hit its Ocular Dryness Score endpoint (“symptoms”) in the induction-maintenance dosing arm of its Phase 3 as well as the induction-maintenance dosing arm of its Phase 2 formulation study.  Onset of relief is quick and persistent:

The “sign” endpoint of fluorescein staining that has been used to date in Reproxalap’s trials have been more mixed.  The initial clinical plan was to run a Renew Part 2 Induction-Maintenance Phase 3 trial similar to Part 1 with a shorter time endpoint for staining.  However, new guidance from the FDA allowing for RASP reduction as “sign” endpoint means the originally planned part 2 of the Phase 3 will be changed.  

Relative to the adverse event profile of Xiidra mentioned above, Reproxalap is very clean and has few side effects.  ALDX ran a head-to-head study against Xiidra showing a superiority in various patient experience categories. 

FDA Indicates willingness to accept RASP Reduction as acceptable “sign”

For approval in DED, the FDA requires successful endpoints in both “symptoms” of dry eye relief and a biological/biomarker “sign”.  The dual endpoint coupled with the high placebo impact in dry eye trials has made new approvals challenging despite patient need.  On June 4th Aldeyra indicated the FDA and the company have reached an agreement to allow for RASP reduction as an approvable end point (FDA Agreement). As a result of this agreement, the company will most likely need to run a short trial measuring Reproxalap’s RASP reduction.  Aldeyra has demonstrated lowering RASP is a direct consequence of Reproxlap in earlier studies and it is the actual method of action of the therapy.  This is a game changing regulatory development for the company. 

Aldeyra’s RASP Platform beyond Dry Eye Disease

Reactive Aldeyde Species (RASP) mechanism of action is broadly thought to reduce inflammation, which opens the doors for a variety of other therapeutic areas

Reproxalap in Allergic Conjunctivitis (AC):

AC is characterized by ocular itching and tearing and has a high co-morbidity with DED.  AC is also a very large market with no new products in a decade.  Standard of care remains antihistamines and now biologics in some cases.   There are an estimated 100M patients in the US and 30M don’t respond adequately to antihistamines. ALDX has run a Phase 2a, Phase 2b and a Phase 3 Alleviate study. A second Phase 3 study, Invigorate is expected to read out in H1 2021

Oral RASP ADX-629 

In May, ALDX reported data from its first in human oral RASP trial (close to an oral version of Reproxalap).  ALDX plans on running Phase 2 trials in, psoriasis, atopic asthma and Covid-19 (specifically treatment of CRS) 

Chaperome Inhibition ADX-1612

This is ALDX’s non RASP platform that was in-licensed in 2016 from Madrigal.   New Covid-19 data suggest chaperone protein HSP90 plays a role in replication making ADX-1612’s HSP90 inhibition MOA a potential anti-viral. The company is submitting a BARDA application in June. 

Financing

In light of COVID 19, the company reprioritized their pipeline to focus only on their lead asset, Reproxalap, and their oral formulation ADX-629 despite having a larger preclinical and clinical pipeline of additional RASP and non-RASP assets. The current cash $61M is expected to fund the company through the end of 2021. The company has $15M of debt drawn on a $60M loan from Hercules. 

Summary

For $100M Aldeyra offers investors a pivotal stage, wholly owned Dry Eye asset with composition of matter IP through 2028 (2033 including Hatch Waxman).  New FDA guidance has created a materially easier clinical pathway in a very desirable therapeutic area and the company is funded through pivotal data.  The “sign” agreement with the FDA has materially de-risked the Phase 3 trial which is not reflected in ALDX current market cap.  Additional clinical programs such as Allergic Conjunctivitis has demonstrated consistent efficacy and is Phase 3 ready.  Oral RASP programs and potential BARDA funding of their anti-viral Covid-19 therapy provide incremental opportunities to create value.

Catalyst

• Additional clarification of RASP as an approvable "sign" endpoint for Reproxalap in Dry Eye Disease
• Color around the pivotable Phase 3 Dry Eye trial design
• Potential BARDA funding of ADX-1612 in Covid-19 
• Phase 3 read out of Reproxalap in Allergic Conjunctivitis in H1 2021