aldx-10q_20200331.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                                to                               

Commission File Number: 001-36332

 

ALDEYRA THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

20-1968197

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

131 Hartwell Avenue, Suite 320

 

 

Lexington, MA

 

02421

(Address of principal executive offices)

 

(Zip Code)

 

(781) 761-4904

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.      Yes         No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).      Yes         No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer a smaller reporting company or an emerging growth company. See the definitions of the “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

  

Smaller reporting company

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      Yes         No  

Securities registered pursuant to 12(b) of the Act:

 

Title of Class

Trading Symbol

Name of exchange on which registered

Common Stock, $0.001 par value per share

ALDX

The Nasdaq Stock Market LLC

 

As of May 5, 2020, there were 29,791,146 shares of the registrant’s common stock issued and outstanding.

 

 

 


 

 

Aldeyra Therapeutics, Inc.

Quarterly Report on Form 10-Q

For the Quarter Ended March 31, 2020

INDEX

 

 

Page

PART I – FINANCIAL INFORMATION

ITEM 1.

Condensed Consolidated Financial Statements:

3

 

Consolidated Balance Sheets at March 31, 2020 (Unaudited) and December 31, 2019

3

 

Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019 (Unaudited)

4

 

Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2020 and 2019 (Unaudited)

5

 

Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2020 and 2019 (Unaudited)

6

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019 (Unaudited)

7

 

Notes to Condensed Consolidated Financial Statements

8

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

ITEM 3.

Quantitative and Qualitative Disclosures about Market Risk

25

ITEM 4.

Controls and Procedures

25

PART II – OTHER INFORMATION

 

ITEM 1.

Legal Proceedings

26

ITEM 1A.

Risk Factors

26

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

62

ITEM 3.

Defaults Upon Senior Securities

62

ITEM 4.

Mine Safety Disclosures

62

ITEM 5.

Other Information

62

ITEM 6.

Exhibits

62

Signatures

63

 

2


 

Part I – FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements

ALDEYRA THERAPEUTICS, INC.

CONSOLIDATED BALANCE SHEETS

 

 

 

March 31,

 

 

 

 

 

 

 

2020

 

 

December 31,

 

 

 

(unaudited)

 

 

2019

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

15,542,971

 

 

$

16,425,830

 

Cash equivalent - reverse repurchase agreements

 

 

23,000,000

 

 

 

28,000,000

 

Marketable securities

 

 

22,833,583

 

 

 

28,938,545

 

Prepaid expenses and other current assets

 

 

1,375,129

 

 

 

1,804,450

 

Total current assets

 

 

62,751,683

 

 

 

75,168,825

 

Right-of-use assets

 

 

152,666

 

 

 

201,007

 

Fixed assets, net

 

 

124,750

 

 

 

148,449

 

Total assets

 

$

63,029,099

 

 

$

75,518,281

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,072,897

 

 

$

808,302

 

Accrued expenses

 

 

3,641,724

 

 

 

11,873,122

 

Current portion of operating lease liabilities

 

 

172,241

 

 

 

226,328

 

Total current liabilities

 

 

4,886,862

 

 

 

12,907,752

 

Long-term debt

 

 

14,669,717

 

 

 

14,528,212

 

Total liabilities

 

 

19,556,579

 

 

 

27,435,964

 

Commitments and contingencies (Notes 13 and 14)

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common stock, voting, $0.001 par value; 150,000,000 authorized and 29,506,829

   and 28,656,832 shares issued and outstanding, respectively

 

 

29,507

 

 

 

28,657

 

Additional paid-in capital

 

 

252,615,578

 

 

 

247,409,793

 

Accumulated other comprehensive income

 

 

57,594

 

 

 

5,866

 

Accumulated deficit

 

 

(209,230,159

)

 

 

(199,361,999

)

Total stockholders’ equity

 

 

43,472,520

 

 

 

48,082,317

 

Total liabilities and stockholders’ equity

 

$

63,029,099

 

 

$

75,518,281

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3


 

ALDEYRA THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

$

6,633,603

 

 

$

7,848,590

 

Acquired in-process research and development

 

 

 

 

 

6,597,551

 

General and administrative

 

 

3,004,841

 

 

 

2,985,038

 

Loss from operations

 

 

(9,638,444

)

 

 

(17,431,179

)

Other income (expense):

 

 

 

 

 

 

 

 

Interest income

 

 

210,100

 

 

 

499,140

 

Interest expense

 

 

(439,816

)

 

 

(1,962

)

Total other income (expense), net

 

 

(229,716

)

 

 

497,178

 

Loss before income taxes

 

 

(9,868,160

)

 

 

(16,934,001

)

Income tax benefit

 

 

 

 

 

1,309,973

 

Net loss

 

$

(9,868,160

)

 

$

(15,624,028

)

Net loss per share - basic and diluted

 

$

(0.34

)

 

$

(0.58

)

Weighted average common shares outstanding - basic and

   diluted

 

 

29,210,889

 

 

 

27,053,842

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

4


 

ALDEYRA THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited)

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

 

Net loss

$

(9,868,160

)

 

$

(15,624,028

)

 

Other comprehensive income:

 

 

 

 

 

 

 

 

Unrealized gain on marketable securities, net of tax

 

51,728

 

 

 

16,036

 

 

Total other comprehensive income

$

51,728

 

 

$

16,036

 

 

Comprehensive loss

$

(9,816,432

)

 

$

(15,607,992

)

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 


5


 

ALDEYRA THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)

 

 

 

Stockholders' Equity

 

 

 

Common Voting Stock

 

 

 

 

 

 

Accumulated

Other

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional

Paid-in Capital

 

 

Comprehensive

Income/(Loss),

net of tax

 

 

Accumulated

Deficit

 

 

Total

Stockholders'

Equity

 

Balance, December 31, 2019

 

 

28,656,832

 

 

$

28,657

 

 

$

247,409,793

 

 

$

5,866

 

 

$

(199,361,999

)

 

$

48,082,317

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,953,652

 

 

 

 

 

 

 

 

 

1,953,652

 

Release of restrictions on Helio

   founders’ shares

 

 

142,156

 

 

 

142

 

 

 

(142

)

 

 

 

 

 

 

 

 

 

Issuance of common stock, net of

   issuance costs

 

 

562,669

 

 

 

563

 

 

 

3,172,261

 

 

 

 

 

 

 

 

 

3,172,824

 

Issuance of common stock, exercise

   of stock options

 

 

2,000

 

 

 

2

 

 

 

10,268

 

 

 

 

 

 

 

 

 

10,270

 

Issuance of common stock, employee

   stock purchase plan

 

 

14,151

 

 

 

14

 

 

 

69,875

 

 

 

 

 

 

 

 

 

69,889

 

Issuance of common stock, vested

   restricted stock awards

 

 

129,021

 

 

 

129

 

 

 

(129

)

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

51,728

 

 

 

 

 

 

51,728

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,868,160

)

 

 

(9,868,160

)

Balance, March 31, 2020

 

 

29,506,829

 

 

$

29,507

 

 

$

252,615,578

 

 

$

57,594

 

 

$

(209,230,159

)

 

$

43,472,520

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2018

 

 

26,244,435

 

 

$

26,244

 

 

$

225,136,127

 

 

$

(9,224

)

 

$

(138,535,168

)

 

$

86,617,979

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,886,089

 

 

 

 

 

 

 

 

 

1,886,089

 

Issuance of common stock,

   acquisition of Helio Vision,

   Inc.

 

 

582,363

 

 

 

582

 

 

 

4,862,149

 

 

 

 

 

 

 

 

 

4,862,731

 

Issuance of common stock, net of

   issuance costs

 

 

83,557

 

 

 

84

 

 

 

720,879

 

 

 

 

 

 

 

 

 

720,963

 

Issuance of common stock, employee

   stock purchase plan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

16,036

 

 

 

 

 

 

16,036

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,624,028

)

 

 

(15,624,028

)

Balance, March 31, 2019

 

 

26,910,355

 

 

$

26,910

 

 

$

232,605,244

 

 

$

6,812

 

 

$

(154,159,196

)

 

$

78,479,770

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6


 

ALDEYRA THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(9,868,160

)

 

$

(15,624,028

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Acquired in-process research and development

 

 

 

 

 

6,597,551

 

Deferred taxes

 

 

 

 

 

(1,309,973

)

Stock-based compensation

 

 

1,953,652

 

 

 

1,886,089

 

Non-cash interest expense

 

 

141,505

 

 

 

1,962

 

Accretion on debt securities available for sale, net

 

 

(67,220

)

 

 

(175,396

)

Depreciation and amortization expense

 

 

72,040

 

 

 

24,242

 

Change in assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

429,321

 

 

 

(3,626,841

)

Accounts payable

 

 

264,595

 

 

 

358,918

 

Accrued expenses

 

 

(8,285,485

)

 

 

(764,502

)

Net cash used in operating activities

 

 

(15,359,752

)

 

 

(12,631,978

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Acquisitions of property and equipment

 

 

 

 

 

(4,925

)

Cash acquired in Helio asset acquisition

 

 

 

 

 

562,362

 

Purchases of marketable securities

 

 

(5,776,090

)

 

 

(8,392,983

)

Sales of marketable securities

 

 

12,000,000

 

 

 

17,000,000

 

Net cash provided by investing activities

 

 

6,223,910

 

 

 

9,164,454

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock, net of issuance costs

 

 

3,172,824

 

 

 

807,607

 

Proceeds from exercise of stock options

 

 

10,270

 

 

 

 

Proceeds from employee stock purchase plan

 

 

69,889

 

 

 

 

Debt issuance costs paid in cash

 

 

 

 

 

(400,000

)

Net cash provided by financing activities

 

 

3,252,983

 

 

 

407,607

 

NET DECREASE IN CASH AND CASH EQUIVALENTS

 

 

(5,882,859

)

 

 

(3,059,917

)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

 

44,425,830

 

 

 

47,357,472

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

38,542,971

 

 

$

44,297,555

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:

 

 

 

 

 

 

 

 

Helio acquisition:

 

 

 

 

 

 

 

 

Assets acquired

 

$

 

 

$

75,632

 

Liabilities acquired

 

$

 

 

$

637,994

 

Fair value of securities issued

 

$

 

 

$

4,862,731

 

Debt issuance costs not yet paid

 

$

 

 

$

140,000

 

Right-of-use assets acquired through operating leases

 

$

 

 

$

377,920

 

Cash paid during the period for interest

 

$

345,042

 

 

$

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

7


 

ALDEYRA THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1.

NATURE OF BUSINESS

Aldeyra Therapeutics, Inc., together with its wholly-owned subsidiaries (the “Company” or “Aldeyra”), a Delaware corporation, is a clinical-stage biotechnology company focused on the development of novel therapies with the potential to improve the lives of patients with immune-mediated diseases.

The Company’s principal activities to date include raising capital and research and development activities.

2.

BASIS OF PRESENTATION

The accompanying interim condensed consolidated financial statements and related disclosures are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the Securities and Exchange Commission on March 12, 2020 (the “2019 Form 10-K”).

The financial information as of March 31, 2020, and the three months ended March 31, 2020 and 2019, respectively, is unaudited. In the opinion of management all adjustments, consisting only of normal recurring adjustments considered necessary for the fair presentation of financial position, results of operations, and cash flows at the dates and for the periods presented, have been included. The balance sheet data as of December 31, 2019 was derived from audited consolidated financial statements. The results of the Company’s operations for any interim periods are not necessarily indicative of the results that may be expected for any other interim period or for a full fiscal year.

 

Based on its current operating plan, and not including additional access to capital that may become available under the Company’s credit facility or from sales of common stock pursuant to the Company’s Open Market Sales Agreement SM (“Jefferies Sales Agreement”), the Company believes that its cash, cash equivalents, and marketable securities as of March 31, 2020, will be sufficient to fund currently anticipated operating expenses into 2022, including the completion of the Phase 3 trial in allergic conjunctivitis (the “INVIGORATE trial”) for reproxalap, as well as the Phase 2 clinical trials of ADX-629 in COVID-19-associated respiratory compromise, atopic asthma, and psoriasis; the commencement of one or more additional clinical trials in dry eye disease, subject to the outcome of the FDA meeting scheduled for mid-year 2020; and the continuation of Part 1 of the adaptive Phase 3 clinical trial in proliferative vitreoretinopathy contingent on patient enrollment. As a result of the COVID-19 pandemic, clinical site availability, staffing, and patient recruitment have been negatively affected and the timelines to complete the Company’s clinical trials may be delayed. The Company’s assessment of its liquidity and capital resources includes an estimate of the financial impacts of these changes.  The Company will need to secure additional funding in the future, from one or more equity or debt financings, collaborations, or other sources, in order to carry out all of the Company’s planned research and development activities; commercialize product candidates; or conduct any substantial, additional development requirements requested by the FDA. Additional funding may not be available to the Company on acceptable terms, or at all. If the Company is unable to secure additional capital, it will be required to significantly decrease the amount of planned expenditures and may be required to cease operations.  In addition, the disruption in the capital markets caused by the COVID-19 outbreak could make any financing more challenging, and there can be no assurance that Aldeyra will be able to obtain such financing on commercially reasonable terms or at all.

Curtailment of operations would cause significant delays in the Company’s efforts to develop and introduce its products to market, which is critical to the realization of its business plan and the future operations of the Company.

8


 

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions, including fair value estimates for investments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of expenses during the reporting periods. The Company’s management evaluates its estimates and assumptions on an ongoing basis. Management’s most significant estimates in the Company’s consolidated financial statements include, but are not limited to, estimates related to clinical trial accruals, estimates related to prepaid and accrued research and development costs, acquired in-process research and development (“IPR&D”) expense, and accounting for income taxes and related valuation allowance. Although these estimates and assumptions are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results may ultimately materially differ from these estimates and assumptions.

Summary of Significant Accounting Policies

There were no changes to significant accounting policies during the three months ended March 31, 2020, as compared to the those identified in the 2019 Form 10-K.

Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires that credit losses be reported as an allowance using an expected losses model, representing the entity’s current estimate of credit losses expected to be incurred. The accounting guidance currently in effect is based on an incurred loss model. For available-for-sale debt securities with unrealized losses, this standard now requires allowances to be recorded instead of reducing the amortized cost of the investment. The amendments under ASU 2016-13 are effective for interim and annual fiscal periods beginning after December 15, 2022. The Company does not expect the adoption of ASU 2016-13 to have a material impact on its consolidated financial statements.

3.

Helio Vision Acquisition

On January 28, 2019 (the “Closing Date”), the Company acquired Helio Vision, Inc. (“Helio”). As a result of the acquisition, the Company initially issued an aggregate of 1,160,444 shares of common stock to the former securityholders and an advisor of Helio. The founders of Helio were issued 568,627 shares and non-founders were issued 591,817 shares. The Helio founders’ shares are subject to vesting based on continued service to the Company over three years from the Closing Date, of which, 50% are vested as of March 31, 2020. The Company recognizes the expense associated with the founders’ restricted shares as compensation expense on a straight-line basis as the shares vest over the three-year period. For the three months ended March 31, 2020 and 2019, the Company recorded $0.4 million and $0.4 million, respectively, of research and development compensation expense for the founders’ restricted shares.

The Company, subject to the conditions of the acquisition agreement, is contingently obligated to make additional payments to the former securityholders of Helio as follows: (a) $2.5 million of common stock on the date that is 24 months following the Closing Date (assuming certain technical milestones are met); (b) $10.0 million of common stock following approval by the FDA of a new drug approval application for the prevention and/or treatment of proliferative vitreoretinopathy or a substantially similar label prior to the 10th anniversary of the Closing Date; and (c) $2.5 million of common stock following FDA approval of a new drug application for an indication (other than proliferative vitreoretinopathy) prior to the 12th anniversary of the Closing Date (the shares of common stock issuable pursuant to the preceding clauses (a) – (c) are referred to herein as the “Milestone Shares”), provided that in no event shall the Company be obligated to issue more than an aggregate of 5,248,885 shares of common stock. Additionally, in the event of certain change of control or divestitures by the Company, certain former convertible noteholders of Helio will be entitled to a tax gross-up payment in an amount not to exceed $1.0 million.

The Company determined that liability accounting is not required for the Milestone Shares under FASB ASC Topic 480, Distinguishing Liabilities from Equity (“ASC 480”). The Company also determined that the Milestone Shares meet the scope exception as a derivative under FASB ASC Topic 815, Derivatives and Hedging (“ASC 815”), from inception of the Milestone Shares through March 31, 2020. Accordingly, the Milestone Shares are evaluated under FASB ASC Topic 450, Contingencies (“ASC 450”) and the Company will record a liability related to the Milestone Shares if the milestones are achieved, and the obligation to make additional payment(s) becomes probable. At that time, the Company will record the cost of the Milestone Shares issued to the founders as compensation expense and to the Helio non-founders as IPR&D expense if there is no alternative future use. No milestones related to the Milestone Shares are probable of being achieved as of March 31, 2020.

 

9


 

The Company assessed the acquisition of Helio under the FASB ASC Topic 805, Business Combinations (ASC 805). Under ASC 805, the Company determined that the acquired assets did not constitute a business since substantially all the assets acquired were related to ADX-2191 and that the transaction would be accounted for as an asset acquisition. The asset and development program acquired from Helio are at an early stage of development and will require a significant investment of time and capital for development. There is no assurance that the Company will be successful in developing such asset, and a failure to successfully develop such asset could diminish the Company’s prospects. Under ASC 805, the asset acquired is considered to have no alternative future uses, since the future economic benefit of the acquired asset at the date of acquisition is highly uncertain. The fair value of the assets was determined using the quoted market price of the Company’s common stock on the Closing Date and was fully expensed as IPR&D. Additionally, the Company assessed the Helio acquisition under ASC Topic 740, Income Taxes (ASC 740). The acquisition resulted in an income tax benefit of $1.3 million and a corresponding increase to acquired IPR&D expense. The expense resulted from the reduction in the Company’s valuation allowance due to the deferred tax liability created as a result of the book and tax basis difference during the quarter ended March 31, 2019. During the three months ended March 31, 2019, the Company recorded $6.6 million of IPR&D expense related to the fair value of consideration given which includes transaction costs and the deferred tax impact of the Helio acquisition.

4.

NET LOSS PER SHARE

As of March 31, 2020 and 2019, diluted weighted average common shares outstanding is equal to basic weighted average common shares due to the Company’s net loss position.

The following potentially dilutive securities outstanding have been excluded from the computation of diluted weighted-average shares outstanding, because such securities had an antidilutive impact:

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Options to purchase common stock

 

 

5,432,554

 

 

 

4,679,542

 

Warrants to purchase common stock

 

 

-

 

 

 

40,300

 

Restricted stock units

 

 

936,591

 

 

 

495,437

 

Unvested restricted shares (1)

 

 

284,317

 

 

 

568,627

 

Total of common stock equivalents

 

 

6,653,462

 

 

 

5,783,906

 

 

(1)

Represents 284,317 shares of common stock that are issued and outstanding but that were subject to a right of repurchase by the Company at March 31, 2020 and are not included in stockholders’ equity pursuant to GAAP.

 

10


 

5.

CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES

Cash, cash equivalents, and marketable securities were comprised of:

 

 

 

March 31, 2020

 

 

 

Carrying

Amount

 

 

Unrecognized

Gain

 

 

Unrecognized

Loss

 

 

Estimated

Fair Value

 

 

Cash and Cash

Equivalents

 

 

Current

Marketable

Securities

 

Cash

 

$

7,128,602

 

 

$

 

 

$

 

 

$

7,128,602

 

 

$

7,128,602

 

 

$

 

Money market funds

 

 

8,414,369

 

 

 

 

 

 

 

 

 

8,414,369

 

 

 

8,414,369

 

 

 

 

Reverse repurchase agreements

 

 

23,000,000

 

 

 

 

 

 

 

 

 

23,000,000

 

 

 

23,000,000

 

 

 

 

Total Cash and cash equivalents

 

 

38,542,971

 

 

 

 

 

 

 

 

 

38,542,971

 

 

 

38,542,971

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agency securities

 

 

22,775,989

 

 

 

57,594

 

 

 

 

 

 

22,833,583

 

 

 

 

 

 

22,833,583

 

Available for Sale (1)

 

 

22,775,989

 

 

 

57,594

 

 

 

 

 

 

22,833,583

 

 

 

 

 

 

22,833,583

 

Total Cash, cash equivalents, and

   current marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

38,542,971

 

 

$

22,833,583

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

 

Carrying

Amount

 

 

Unrecognized

Gain

 

 

Unrecognized

Loss

 

 

Estimated

Fair Value

 

 

Cash and Cash

Equivalents

 

 

Current

Marketable

Securities

 

Cash

 

$

15,363,462

 

 

$

 

 

$

 

 

$

15,363,462

 

 

$

15,363,462

 

 

$

 

Money market funds

 

 

1,062,368

 

 

 

 

 

 

 

 

 

1,062,368

 

 

 

1,062,368

 

 

 

 

Reverse repurchase agreements

 

 

28,000,000

 

 

 

 

 

 

 

 

 

28,000,000

 

 

 

28,000,000

 

 

 

 

Total Cash and cash equivalents

 

 

44,425,830

 

 

 

 

 

 

 

 

 

44,425,830

 

 

 

44,425,830

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agency securities

 

 

28,932,679

 

 

 

5,866

 

 

 

 

 

 

28,938,545

 

 

 

 

 

 

28,938,545

 

Available for Sale (1)

 

 

28,932,679

 

 

 

5,866

 

 

 

 

 

 

28,938,545

 

 

 

 

 

 

28,938,545

 

Total Cash, cash equivalents and

   current marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

44,425,830

 

 

$

28,938,545

 

 

(1)

Available for sale securities are reported at fair value with unrealized gains and losses reported net of taxes, if material, in other comprehensive income.

The contractual maturities of all available for sale securities were less than one year at March 31, 2020.

6.

FAIR VALUE MEASUREMENTS

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value are performed in a manner to maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820, Fair Value Measurements, establishes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following:

Level 1 – Quoted prices in active markets that are accessible at the market date for identical unrestricted assets or liabilities.

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs for which all significant inputs are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

11


 

There were no liabilities measured at fair value at March 31, 2020 or December 31, 2019.

Money market funds included in cash and cash equivalents in the consolidated balance sheets, are recorded at fair value and considered as Level 1 inputs under the fair value hierarchy.

Reverse repurchase agreements and U.S. government agency securities are recorded at fair market value and considered as Level 2 inputs under the fair value hierarchy.

Financial instruments including cash equivalents, clinical trial prepayments to contract research organizations, and accounts payable are carried in the consolidated financial statements at amounts that approximate their fair value based on the short maturities of those instruments. The carrying amount of the Company’s term loan under its credit facility approximates market rates currently available to the Company.

7.

ACCRUED EXPENSES

Accrued expenses were comprised of:

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Accrued compensation

 

$

1,047,917

 

 

$

1,489,475

 

Accrued research and development

 

 

1,960,419

 

 

 

9,493,093

 

Accrued general and administrative

 

 

633,388

 

 

 

890,554

 

Accrued expenses

 

$

3,641,724

 

 

$

11,873,122

 

 

8.

CREDIT FACILITY

The Company’s long-term debt obligation consists of amounts the Company is obligated to repay under its credit facility with Hercules Capital, Inc. (“Hercules”). In March 2019, the Company entered into a Loan and Security Agreement with Hercules and the several banks and other financial institutions or entities, from time-to-time parties thereto (collectively, referred to as “Lender”), providing for a term loan of up to $60.0 million, subject to the satisfaction of certain conditions contained therein, that is secured by a lien covering all of the Company’s assets, other than the Company’s intellectual property (the “Loan and Security Agreement” or the “Hercules Credit Facility”). The Loan and Security Agreement provided for (i) an initial term loan advance of up to $5.0 million at the Company’s option, which expired unutilized on April 15, 2019; (ii) three additional term loan advances of up to $15.0 million each, at the Company’s option, available to the Company upon the occurrence of certain funding conditions prior to September 30, 2019 (the “2019 Tranche”), March 31, 2020 (the “2020 Tranche”), and March 31, 2021 (the “2021 Tranche”); and (iii) a final additional term loan advance of up to $10.0 million prior to December 31, 2021, at the Company’s option, subject to approval by the Lender’s investment committee. The 2019 Tranche was drawn down in full by the Company in September 2019 and the 2020 Tranche expired unutilized prior to the Company satisfying the funding conditions for such tranche.  As of March 31, 2020, the Company had not satisfied the funding conditions for the 2021 Tranche.  As of March 31, 2020, $15.0 million was outstanding under the Hercules Credit Facility and no additional amounts were available for borrowing. As of March 31, 2020, the Company was in material compliance with all covenants of the Hercules Credit Facility.

The term loan bears interest at an annual rate equal to the greater of (i) 9.10% and (ii) the prime rate (as reported in the Wall Street Journal or any successor publication thereto) plus 3.10%. The Loan and Security Agreement provides for interest-only payments until May 1, 2021, with an option to extend the interest-only period to May 1, 2022 based upon the achievement of certain milestones. Repayment of the aggregate outstanding principal balance of the term loan, in monthly installments, starts upon expiration of the interest-only period and continues through October 1, 2023 (the “Maturity Date”). Associated with this debt facility, the Company incurred a commitment charge of $25,000, transaction costs of $273,186, a fee of $375,000 upon closing, and is required to pay a fee (the “End of Term Charge”) of 6.95% multiplied by the aggregate amount of advances under the Loan and Security Agreement at maturity. The fees, transaction costs, and the End of Term Charge are amortized to interest expense through the Maturity Date using the effective interest method. The effective interest rate was 12.9% at March 31, 2020. At the Company’s option, the Company may elect to prepay all, but not less than all, of the outstanding term loan by paying the entire principal balance and all accrued and unpaid interest thereon plus all fees and other amounts due under the Loan and Security Agreement, including a prepayment charge equal to the following percentage of the principal amount being prepaid: 3% if the term loan is prepaid prior to March 25, 2021 and 1.5% if the term loan is prepaid any time thereafter, but prior to March 25, 2022.

12


 

Long-term debt consisted of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Term loan payable

 

$

15,000,000

 

 

$

15,000,000

 

End of term charge

 

 

178,186

 

 

 

89,094

 

Unamortized debt issuance costs

 

 

(508,469

)

 

 

(560,881

)

Carrying value of term loan

 

$

14,669,717

 

 

$

14,528,212

 

 

Future principal payments, including the End of Term Charge, are as follows:

 

 

 

Years Ending

 

 

 

December 31,

 

2020

 

$

 

2021

 

 

3,659,776

 

2022

 

 

5,931,718

 

2023

 

 

6,451,006

 

Total

 

$

16,042,500

 

 

The Loan and Security Agreement also contains certain events of default, representations, warranties and non-financial covenants of the Company. In addition, the Company granted the Lender the right to purchase up to an aggregate of $2.0 million of the Company’s equity securities, or instruments exercisable for or convertible into equity securities, sold to investors in financings upon the same terms and conditions afforded to such other investors.

9.

STOCKHOLDERS’ EQUITY

In December 2018, the Company entered into an Open Market Sales Agreement SM (“Jefferies Sales Agreement”) with Jefferies LLC (“Jefferies”), as sales agent, pursuant to which the Company could offer and sell, from time to time through Jefferies, shares of common stock providing for aggregate sales proceeds of up to $50.0 million.  The Company has no obligation to sell any shares under the Jefferies Sales Agreement, and may at any time suspend solicitations and offers under the Jefferies Sales Agreement. During the three months ended March 31, 2020, the Company sold, at a volume-weighted average price of $5.79, an aggregate of 562,669 shares of common stock and received $3.2 million after deducting commissions related to the Jefferies Sales Agreement and other offering costs.

10.

INCOME TAXES

No provision for federal and state income taxes has been recorded as the Company has incurred losses since inception for tax purposes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

In assessing the realizability of net deferred taxes in accordance with ASC 740, the Company considers whether it is more likely than not that some portion or all the deferred tax assets will not be realized. Based on the weight of available evidence, primarily the incurrence of net losses since inception, anticipated net losses in the near future, reversals of existing temporary differences, and expiration of various federal and state attributes, the Company does not consider it more likely than not that some or all of the net deferred taxes will be realized. Accordingly, a 100% valuation allowance has been applied against net deferred taxes.

Under Section 382 of the Internal Revenue Code of 1986, as amended, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating losses (“NOLs”) and certain other tax assets (tax attributes) to offset future taxable income. In general, an ownership change occurs if the aggregate stock ownership of certain stockholders increases by more than 50 percentage points over such stockholders’ lowest percentage ownership during the testing period (generally three years). Transactions involving the Company’s common stock, within the testing period, even those outside the Company’s control, such as purchases or sales by investors, within the testing period could result in an ownership change. A limitation on the Company’s ability to utilize some or all its NOLs or credits could have a material adverse effect on the Company’s results of operations and cash flows. Prior to December 31, 2018, Aldeyra had undergone three ownership changes and it is possible that additional ownership changes have occurred since. However, the Company’s management believes that there is sufficient “Built-In-Gain” to offset any Section 382 limitation generated by such ownership

13


 

changes. Any future ownership changes, including those resulting from the Company’s recent or future financing activities, may cause the Company’s existing tax attributes to incur additional limitations.

All tax years are open for examination by the taxing authorities for both federal and state purposes.

The Company accounts for uncertain tax positions pursuant to ASC 740 which prescribes a recognition threshold and measurement process for financial statement recognition of uncertain tax positions taken or expected to be taken in a tax return. If the tax position meets this threshold, the benefit to be recognized is measured as the tax benefit having the highest likelihood of being realized upon ultimate settlement with the taxing authority. Accordingly, in the provision for income taxes, the Company recognizes interest accrued related to unrecognized tax benefits and penalties; however, management is currently unaware of any uncertain tax positions.

The Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted in the United States on March 27, 2020. CARES includes several income tax provisions such as NOL carryback and carryforward benefits and other tax deduction benefits. As noted previously, the Company’s U.S. deferred tax asset has a full valuation, accordingly these NOL and other benefit provisions have no impact on the Company’s financial statements for the period ended March 31, 2020.

11.

STOCK BASED-COMPENSATION

The Company has two equity incentive plans that provide for the granting of stock options, restricted stock, stock appreciation rights, stock units, and performance cash awards to certain employees, members of the board of directors, and consultants of the Company with a generally prescribed contractual term of ten years.  As of March 31, 2020, there were 615,238 shares of common stock available for grant under the Company’s equity incentive plans.

The Company recognizes stock-based compensation expense over the requisite service period. The Company’s share-based awards are accounted for as equity instruments. The amounts included in the consolidated statements of operations relating to stock-based compensation associated with the two equity incentive plans and Helio founders’ shares are as follows:

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Research and development expenses

 

$

945,738

 

 

$

1,031,492

 

General and administrative expenses

 

 

1,007,914

 

 

 

854,597

 

Total stock-based compensation expense

 

$

1,953,652

 

 

$

1,886,089

 

 

Stock Options

The table below summarizes activity relating to stock options under the incentive plans for the three months ended March 31, 2020:

 

 

 

Number of

Shares

 

 

Weighted

Average

Exercise Price

 

 

Weighted

Average

Contractual

Term

 

 

Aggregate

Intrinsic

Value(a)

 

Outstanding at December 31, 2019

 

 

4,193,814

 

 

$

6.62

 

 

 

 

 

 

 

 

 

Granted

 

 

1,423,225

 

 

$

3.71

 

 

 

 

 

 

 

 

 

Exercised

 

 

(2,000

)

 

$

5.13

 

 

 

 

 

 

 

 

 

Forfeitures

 

 

(182,485

)

 

$

7.90

 

 

 

 

 

 

 

 

 

Outstanding at March 31, 2020

 

 

5,432,554

 

 

$

5.82

 

 

$

7.79

 

 

$

580,810

 

Exercisable at March 31, 2020

 

 

2,663,131

 

 

$

5.91

 

 

 

6.28

 

 

$

580,810

 

 

(a)

The aggregate intrinsic value in this table was calculated on the positive difference, if any, between the closing price per share of the Company’s common stock on March 31, 2020 of $2.47 and the per share exercise price of the underlying options.

 

14


 

As of March 31, 2020, unamortized stock-based compensation for all stock options outstanding was $9,835,003 and is expected to be recognized over a weighted average period of 2.80 years. Total unrecognized compensation cost will be adjusted for future forfeitures, if necessary.

Restricted Stock Units

The table below summarizes activity relating to RSUs for the three months ended March 31, 2020:

 

 

 

Number

of Shares

 

Outstanding at December 31, 2019

 

 

430,425

 

Granted

 

 

635,187

 

Vested/released

 

 

(129,021

)

Outstanding at March 31, 2020

 

 

936,591

 

 

The weighted-average fair value of RSUs granted was $3.78 per share for the three months ended March 31, 2020. As of March 31, 2020, the outstanding RSUs had unamortized stock-based compensation of $4.3 million with a weighted-average remaining recognition period of 3.12 years and an aggregate intrinsic value of $0.7 million.

Employee Stock Purchase Plan

At March 31, 2020, the Company had 873,549 shares available for issuance under the 2016 Employee Stock Purchase Plan (“2016 ESPP”). A summary of the weighted-average grant-date fair value, and total stock-based compensation expense recognized related to the 2016 ESPP are as follows:

 

 

Three Months Ended March 31,

 

 

2020

 

 

2019

 

Weighted-average grant-date fair value per share

$

2.24

 

 

$

3.12

 

Total stock-based compensation expense

$

12,332

 

 

$

36,527

 

 

12.

LEASES

 

The Company currently leases an office used to conduct business. The exercise of lease renewal options is at our discretion and the renewal to extend the lease terms are not included in the Company’s Right-Of-Use assets and lease liabilities as they are not reasonably certain of exercise. The Company regularly evaluates the renewal options and when they are reasonably certain of exercise, the Company includes the renewal period in its lease term. As the Company’s lease does not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments.

As of March 31, 2020, the Company maintained an unamortized Right-Of-Use asset with a corresponding operating lease liability of approximately $0.2 million based on the present value of the minimum rental payments as a result of adoption of ASC Topic 842, Leases. The weighted average discount rate used for leases as of March 31, 2020 is 9.1%. The weighted average lease term as of March 31, 2020 is 0.75 years. The operating lease expense for the three months ended March 31, 2020 was $53,088. Maturities and balance sheet presentation of our lease liabilities for all operating leases as of March 31, 2020 is as follows:

 

2020 remaining total lease payments

 

$

178,838

 

Less: effect of discounting

 

 

(6,597

)

Present value of lease liabilities

 

$

172,241

 

 

 

 

 

 

Current operating lease liabilities

 

$

172,241

 

Non-current operating lease liabilities

 

 

 

Total

 

$

172,241

 

 

15


 

The Company’s gross future minimum payments under all non-cancelable operating leases as of March 31, 2020, are:

 

 

 

Total

 

 

2020

 

 

2021

 

 

2022

 

 

2023

 

Operating lease obligations

 

$

178,838