Aldeyra Therapeutics (ALDX) acquired a private biotech by the name of Helio Vision Incorporated. The reason for acquiring this biotech was so that it could add an additional phase 3-ready asset into its pipeline. Typically, a small-cap biotech won't acquire another company. However, I believe that this acquisition makes sense because it is complementary to the company's current business model of developing therapies for a variety of eye diseases. In addition, this acquisition was made in a position of strength, because the biotech has been able to achieve positive results in other mid-stage studies treating eye diseases.
The acquisition of Helio Vision added a product in the pipeline known as ADX-2191, which is an intravitreal methotrexate injection. This product was developed to treat a rare disease known as proliferative vitreoretinopathy (PVR). PVR occurs when retinal scar tissue forms in the eye, and in most circumstances, is accompanied by retinal detachment as well. Being that this is a rare disease, it has already received Orphan Drug Designation from the FDA. The best part about this acquisition is that ADX-2191 is already in phase 3 clinical testing. That means most of the hard work needed to develop a product up to phase 3 testing has already been completed.
In my opinion, this acquisition makes a lot of sense. Not just because of the complementary aspect of being a drug that treats an eye disease, but also because I believe Aldeyra got a good bargain on this deal. It only had to give an upfront payment of $10 million in stock, which then ends up being incorporated with a six-month lock-up period. Then, Aldeyra owes a $2.5 million payment to Helio Vision 2 years after the close of this transaction. Lastly, Aldeyra will be forced to give an additional $12.5 million stock payment up reaching certain regulatory milestones. This means the company gains a solid phase 3-ready product without having to pay a large amount of cash.
Aldeyra made notable progress with its dry eye disease before the end of 2018. It had reported positive results from its phase 2b study, using reproxalap to treat patients with dry eye disease. The phase 2b clinical trial used reproxalap (topical ocular treatment) to treat patients with dry eye disease. This trial tested 2 different concentrations of topical reproxalap (these concentrations were 0.1% and 0.25% respectively). These two concentrations from reproxalap were tested against a vehicle treatment over a 12-week period in 300 patients. For patients who were treated with 0.25% of reproxalap, they obtained a statistically significant and clinically relevant reduction in the Four-Symptom Ocular Dryness Score with a p-value of p<0.05. That also includes a stat sig and clinically relevant reduction in a measure known as Overall Ocular Discomfort Symptom Score with a p-value of p<0.05. The drug was superior to the vehicle (control of the study), and this effect was observed as early as 2 weeks. That means this drug was able to achieve early onset mechanism of action for these patients, which could provide a significant advantage over other available therapies currently on the market.
The dry eye disease market is huge. This is expected to become a $7.78 billion market by 2025. There are plenty of competitors in this space, but as you can see, the market is big enough to where Aldeyra can possibly become a major player. The second key positive is that a lot of the prescription drugs for dry eye disease are starting to have their patents expire. This opens up the door for new players to come in. Especially for Aldeyra, because its mechanism of action is unique compared to many other pharmaceutical companies that have their own dry eye disease treatments. The phase 3 study for dry eye disease is expected to start sometime in 2019, pending discussions with the FDA.
According to the 10-Q SEC filing, Aldeyra Therapeutics has cash, cash equivalents, and marketable securities of $35.1 million as of September 30, 2018. However, the biotech knew that the current cash on hand was not sufficient enough to fund the large pipeline it has. At the end of September, Aldeyra decided to raise around $72.7 million in a public offering. It offered to sell 5.2 million shares of its common stock at a price of $13.75 per share. In addition, there was a 30-day option for underwriters to purchase up to an additional 787,500 shares of the stock at the same price point. With the cash on hand, the company believes it can fund its operations through 2020.
Barring any unforeseen circumstance, Aldeyra shouldn't have to raise additional cash until the end of 2019 or beginning of 2020. However, by then all the catalysts will have been released. If one or most of the studies have positive readouts, then the biotech can raise cash again at a higher price.
Aldeyra acquiring Helio Vision was good in that it added another product in its pipeline known as ADX-2191. The phase 3 study is in the process of being initiated. This move will add another catalyst for the pipeline, because results for this study could be released by 2020. The first item is that Aldeyra has to meet with the FDA to design the trial and seek approval to start it in 2019. The risk is that there is no guarantee that the acquired product will meet the primary endpoint once the phase 3 study is completed. Another risk is the dry eye disease program. It did successfully pass a phase 2b study, but there is no guarantee that the phase 3 study will achieve a similar outcome. The final risk is that a cash raise will become necessary towards the end of the year. The flip side is that there will be the release of results from many studies before the end of this year. Aldeyra has stated that it has enough cash to get through all these trial readouts.
This article is published by Terry Chrisomalis, who runs the Biotech Analysis Central pharmaceutical service on Seeking Alpha Marketplace. If you like what you read here and would like to subscribe to, I'm currently offering a two-week free trial period for subscribers to take advantage of. My service offers deep dive analysis of many pharmaceutical companies. The Biotech Analysis Central SA marketplace is $49 per month, but for those who sign up for the yearly plan will be able to take advantage of a 33.50% discount price of $399 per year.
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