The phase 2a test, which was primarily focused on finding the right dosage for the med (out of 0.1% ophthalmic solution, 0.5% ophthalmic solution, and 0.5% lipid formulation), looked at 51 dry eye disease patients (17 per arm) treated over four weeks.
Aldeyra says that results from the pooled data showed “significant improvement” from baseline in Symptom Assessment in Dry Eye (SANDE) Score (p=0.003), Ocular Discomfort Score (p=0.00002), Overall Four-Symptom Score (p=0.0004), Schirmer (tear volume) Test (p=0.008), tear osmolarity (p=0.003), and Lissamine Green ocular surface staining score (p=0.002).
The biotech also said that levels of malondialdehyde, a pro-inflammatory aldehyde mediator sequestered by ADX-102, were “significantly reduced in the tears of patients (p=0.009), supporting the differentiated mechanism of action relative to other therapies in dry eye disease.”
ADLX is up over 50% since the trial results were announced, giving the company a $96 million market capitalization. I had the following takeaways on the news.
Aldeyra Seeks Solutions For A Plethora Of Eye Diseases
Aldeyra is a biotechnology company focused on the development of products for inflammation, inborn errors of metabolism, and other diseases related to generated toxic and pro-inflammatory chemical species called aldehydes. The company’s flagship product, ADX-102 – is still under development for the potential treatments of the following illnesses:
[i] Noninfectious Anterior Uveitis, a rare inflammatory eye disease that can cause blindness;
[ii] Allergic Conjunctivitis, a disease related to rare allergic ocular diseases characterized by inflammation of the conjunctiva (membrane covering part of the front of the eye), resulting in ocular itching, excessive tea production and swelling;
[iii] Dry Eye Disease, an inflammatory disease characterized by insufficient moisture and lubrication of the eye;
[iv] Sjogren-Larsson Syndrome (“SLS”) a rare inborn error of metabolism caused by mutations in an enzyme that metabolizes fatty aldehydes, resulting in severe skin and neurological disorders; and
[vi] Succinic Semi-Aldehyde Dehydrogenase Deficiency (“SSADH”), a rare inborn error of metabolism that can lead to severe neurological disease.
None of the company’s current products under development has been approved for sale. Aldeyra will not be able to sell such products until it receives regulatory approval. An alternative is to work with third parties to help develop them. In Q2 2017 the company suffered $5.3 million in operating losses; the losses will likely continue until Aldeyra can commercialize some of its products. The company currently has $14.6 million in cash on hand, buoyed by an equity raise of nearly $11 million in Q1 2017. After the success of its dry eye midstage trial I would not be surprised if the company sought to partner with a bigger company to help develop ADX-102.
The Dry Eye Market Could Be Ripe For A New Entrant
The dry eye market is about $1.8 billion and is currently underserved. There are 30 million dry eye sufferers, but only about 1 million (3%) have a prescription. The market is dominated by Allergan’s (AGN) Restasis and Xiidra which is produced by Shire (SHPG); Restasis controls over 70% of the market and Xiidra controls about 20%. Allergan’s 2015 revenue from Restasis was $1.05 billion, and spiked to $1.49 billion in 2016. The market could grow further, but it involves convincing dry eye sufferers to get a prescription at an annual cost of about $5,000.
Both Restasis and Xiidra charge around $5,000 per year for treatment, and are likely fighting over the same 1 million people with a prescription. Xiidra markets itself as a cut above; it was actually approved to treat the signs of dry eye, while Restasis was approved for low tear production due to occular inflammation.
The 97% of the market without a prescription appears to be a major opportunity. If a new entrant offered its dry eye treatment for $3,000 per year (40% discount to competitors) and attracted 200,000 customers it could potentially generate $600 million in annual revenue. A decline in pricing and an expansion of the prescription pool could be on the horizon anyway. However, time is of the essence. Mylan (MYL), Teva (TEVA) and Pfizer (PFE) want to offer a generic version of Restasis. Generic Restasis could bring prices down immensely and reduce the opportunity for new entrants.
Allergan sued to block abbreviated drug applications (“ANDA”) from rival drug makers. A trial on the matter was recently completed in federal court. It is also partnering with St. Regis Mohawks to protect Restasis from an inter partes review at U.S. Patent and Trademark Office. Such legal maneuvers illustrate how important Restasis and the dry eye market are to Allergan. It could also buy Aldeyra precious time to continue to test and develop ADX-102 as an alternative to Restasis and Xiidra.
The company expects to have a Phase 2b clinical trial in dry eye disease in the first half of 2018. This could involve studying a larger patient group and seeking the optimal dose that ADX-102 could be effective with minimal side effects. I believe the opportunity in dry eye is tremendous and am long the stock.
On Shock Exchange
Shock Exchange: How Inner-City Kids From Brooklyn Predicted the Great Recession and the Pain Ahead explains the stock market and U.S. economy through the eyes of the New York Shock Exchange, a financial literacy program Ralph Baker started in 2006 to share his passion for investing and basketball with his 11-year-old son and other boys his age. The book predicts the “pain ahead” for the U.S. economy, the demise of China, the pending stock market crash and social unrest.
Shock Exchange has been trumpeted by President Obama, the Senate Finance Committee and House Ways and Means Committee. However, they conveniently forgot to cite the source. Critics try to make and unmake authors, but the market always decides. The book was also recently added to Trump Syllabus K12, crafted by Dr. Kaye Wise Whitehead of Loyola University Maryland. Shock Exchange is the best book on Wall Street in the past 20 years, and on economics, it may be the most important book since the Great Depression.