UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2024
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For 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)
(781) 761-4904
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.001 par value per share
ALDX
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the
Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued
financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant
recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of June 30, 2024, the last business day of the registrant’s last completed second quarter, the aggregate market value of the registrant’s Common Stock held by non-affiliates of the registrant was approximately
$191,737,565, based on the closing price of the registrant’s Common Stock, as reported by The Nasdaq Capital Market. Shares of Common Stock held by each executive officer, director and stockholders known by the
registrant to be affiliated with such individuals based on public filings and other information known to the registrant have been excluded since such persons may be deemed affiliates. This determination of affiliate status is
not necessarily a conclusive determination for other purposes.
As of February 26, 2025 there were 59,708,654 shares of the registrant’s Common Stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Specified portions of the registrant’s proxy statement with respect to the registrant’s 2024 Annual Meeting of Stockholders, which is to be filed pursuant to Regulation 14A within 120 days after the end of the
registrant’s fiscal year ended December 31, 2024, are incorporated by reference into Part III of this Annual Report on Form 10-K.
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Aldeyra Therapeutics, Inc.
Annual Report on Form 10-K
For the Fiscal Year Ended December 31, 2024
Table of Contents
Page
Part I
Special Note Regarding Forward-Looking Statements
3
Industry and Market Data
5
Item 1.
Business
5
Item 1A.
Risk Factors
32
Item 1B.
Unresolved Staff Comments
86
Item 1C.
Cybersecurity
86
Item 2.
Properties
87
Item 3.
Legal Proceedings
87
Item 4.
Mine Safety Disclosures
87
Part II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
88
Item 6.
[Reserved]
88
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
89
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
100
Item 8.
Financial Statements and Supplementary Data
100
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
100
Item 9A.
Controls and Procedures
100
Item 9B.
Other Information
101
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
101
Part III
Item 10.
Directors, Executive Officers, and Corporate Governance
102
Item 11.
Executive Compensation
102
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
102
Item 13.
Certain Relationships and Related Transactions, and Director Independence
103
Item 14.
Principal Accounting Fees and Services
103
Part IV
Item 15.
Exhibits, Financial Statements Schedules
104
Item 16
Form 10-K Summary
107
Signatures
108
Index to Financial Statements
109
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Various statements throughout this report are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of
1995. Forward-looking statements involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this
report regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management
are forward-looking statements. These statements are subject to risks and uncertainties and are based on information currently available to our
management. Words such as, but not limited to, “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “contemplates,” “predict,”
“project,” “target,” “likely,” “potential,” “continue,” “ongoing,” “design,” “might,” “objective,” “will,” “would,” “should,” “could,” or the negative of
these terms and similar expressions or words, identify forward-looking statements. These statements reflect our current views with respect to future events
and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-
looking statements. The events and circumstances reflected in our forward-looking statements may not occur and actual results could differ materially from
those projected in our forward-looking statements. Meaningful factors which could cause actual results to differ include, but are not limited to:
•
our plans to develop and commercialize reproxalap, and any other product candidates, if approved;
•
delay in or failure to obtain regulatory approval of reproxalap or any of our other product candidates, including as a result of the U.S. Food
and Drug Administration (FDA) not accepting our regulatory filings or requiring additional clinical trials or data prior to review or approval
of such filings;
•
the likelihood and timing of the FDA’s potential approval of the resubmitted new drug application (NDA) for reproxalap (the Resubmitted
NDA);
•
the adequacy of the data included in the Resubmitted NDA or the supplemental responses to the FDA;
•
the likelihood and timing of the exercise of the exclusive option (the Option) by AbbVie Inc. (AbbVie) pursuant to the exclusive option
agreement with AbbVie;
•
the ability to maintain regulatory approval of reproxalap or any of our other product candidates, if received, and the labeling for any approved
products;
•
uncertainty as to our ability to commercialize (alone or with others) and obtain reimbursement for reproxalap or any of our other product
candidates following regulatory approval, if any;
•
the size and growth of the potential markets and pricing for reproxalap or any of our other product candidates following regulatory approval,
if any, and the ability to serve those markets;
•
the rate and degree of market acceptance of any of reproxalap or any of our other product candidates following regulatory approval, if any;
•
the timing of enrollment, commencement, and completion of our clinical trials;
•
the timing and success of preclinical studies and clinical trials conducted by us and our development partners;
•
the risk that prior results, such as signals of safety, activity or durability of effect, observed from preclinical or clinical trials, will not be
replicated or will not continue in ongoing or future studies or trials involving our product candidates;
•
the scope, progress, expansion, and costs of developing and commercializing our product candidates;
•
our expectations regarding our expenses and future revenue, the timing of future revenue, the sufficiency or use of our cash resources and
needs for additional financing;
•
our expectations regarding competition;
•
our anticipated growth strategies;
•
our ability to attract or retain key personnel;
4
•
our commercialization, marketing, and manufacturing capabilities and strategy;
•
our ability to establish and maintain development and commercialization partnerships;
•
our ability to successfully integrate acquisitions into our business;
•
our expectations regarding federal, state and foreign regulatory requirements;
•
political, economic, legal, social and health risks, public health measures, and war or other military actions, that may affect our business,
results of operations and financial position, or the global economy;
•
regulatory developments in the United States and foreign countries;
•
our ability to obtain and maintain intellectual property protection for our product candidates; and
•
the anticipated trends and challenges in our business and the market in which we operate.
All written and verbal forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the
cautionary statements contained or referred to in this section. We caution investors not to rely too heavily on the forward-looking statements we make or
that are made on our behalf. We undertake no obligation, and specifically decline any obligation, to update or revise publicly any forward-looking
statements, whether as a result of new information, future events, or otherwise. You are advised, however, to consult any further disclosures we make on
related subjects in any annual, quarterly, or current reports that we may file with the Securities and Exchange Commission (SEC). Investors, the media, and
others should note that we intend to announce material information to the public through filings with the SEC, the investor relations page on our website
(https://ir.aldeyra.com), press releases, public conference calls, webcasts, and social media channels, including LinkedIn. The information disclosed by the
foregoing channels could be deemed to be material information. As such, we encourage investors, the media, and others to follow the channels listed above
and to review the information disclosed through such channels. Any updates to the list of disclosure channels through which we will announce information
will be posted on the investor relations page on our website. The contents of the websites provided above are not incorporated into this filing or in any
other report or document we file with the SEC. These website addresses are intended to be inactive textual references only.
We encourage you to read the discussion and analysis of our financial condition and our financial statements contained in this annual report on Form
10-K. We also encourage you to read Item 1A of Part 1 of this annual report on Form 10-K, entitled “Risk Factors,” which contains a more complete
discussion of the risks and uncertainties associated with our business. In addition to the risks described above and in Item 1A of this report, other unknown
or unpredictable factors also could affect our results. Therefore, the information in this report should be read together with other reports and documents that
we file with the SEC from time to time, including Forms 10-Q, 8‑K, and 10-K, which may supplement, modify, supersede, or update those risk factors.
There can be no assurance that the actual results or developments anticipated by us will be realized or, even if substantially realized, that our results will
lead to the expected consequences to, or effects on, us. Therefore, no assurance can be given that the outcomes stated in such forward-looking statements
and estimates will be achieved.
As used in this annual report on Form 10-K, the terms “Aldeyra,” “Registrant,” “the Company,” “we,” “us,” and “our” mean Aldeyra Therapeutics,
Inc., together with its wholly-owned subsidiaries, unless the context indicates otherwise.
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INDUSTRY AND MARKET DATA
We obtained the industry, market and certain other data used throughout this annual report on Form 10-K from our own internal estimates and
research, as well as from industry and general publications, surveys and studies conducted by third parties. Internal estimates are derived from publicly-
available information released by industry analysts and third-party sources, our internal research, and our industry experience, and are based on
assumptions made by us based on such data and our knowledge of our industry and market, which we believe to be reasonable. In addition, while we
believe the industry, market, and other data included in this annual report on Form 10-K are reliable and based on reasonable assumptions, such data
involves risks and uncertainties and are subject to change based on various factors, including those discussed in “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” and “Risk Factors”. These and other factors could cause results to differ materially from those expressed
in the estimates made by independent parties and by us.
ITEM 1. BUSINESS
Overview
We are a biotechnology company devoted to discovering and developing innovative therapies designed to treat immune-mediated and metabolic
diseases. Our approach is to develop pharmaceuticals that modulate protein systems, instead of directly inhibiting or activating single protein targets, with
the goal of optimizing multiple pathways at once while minimizing toxicity. Our late-stage product candidates are reproxalap, a RASP (reactive aldehyde
species) modulator for the potential treatment of dry eye disease and allergic conjunctivitis, and ADX‑2191, a novel formulation of intravitreal
methotrexate for the potential treatment of retinitis pigmentosa. Our preclinical RASP platform includes ADX‑248, ADX‑743, ADX‑631, ADX‑246, and
other product candidates in development for inflammatory and metabolic diseases.
Our development pipeline, as of the date of filing of this annual report on Form 10-K is illustrated below.
Product Candidate Development Pipeline
On October 31, 2023 (the Option Agreement Effective Date), we entered into an exclusive option agreement (the Option Agreement) with AbbVie
Inc. (AbbVie), pursuant to which we granted AbbVie an exclusive option (the Option) to obtain (a) a co-exclusive license in the United States to facilitate a
collaboration with us to develop, manufacture and commercialize reproxalap in the United States, (b) an exclusive license to develop, manufacture and
commercialize reproxalap outside the United States, (c) a right of first negotiation for compounds that are owned or otherwise controlled by us in the field
of ophthalmology relating to treating conditions of the ocular surface, and (d) a right to review data for any other compounds that are owned or otherwise
controlled by us in the fields of ophthalmology and immunology before such data is shared with any other third party (the Collaboration Agreement).
AbbVie has paid us a non-refundable payment of $1.0 million in consideration of the Option (the Option Payment).
6
On December 21, 2023, pursuant to the Option Agreement, AbbVie extended the period during which it may exercise the Option (the Exercise
Period Extension) by paying us a non-refundable payment of $5.0 million (the Option Extension Fee). If the Collaboration Agreement is entered into, the
Option Payment and the Option Extension Fee will be credited against the upfront cash payment payable by AbbVie.
On November 15, 2024, we entered into the Expansion Side Letter (the Expansion Letter) with AbbVie, which amended certain terms of the Option
Agreement. The Expansion Letter makes certain changes to the Option Agreement, among other things, providing that we will conduct certain launch
activities, which costs shall not exceed mid-single-digit millions of dollars without AbbVie’s approval, and which costs will be considered allowable
expenses pursuant to the Collaboration Agreement upon the delivery of AbbVie’s written notice of exercising the Option and entry into the Collaboration
Agreement, such that 60% of our allowable expenses will be reimbursed by AbbVie in the event of exercise. If AbbVie does not deliver a written notice of
exercising the Option and we do not execute the Collaboration Agreement, we will remain solely responsible for such launch activities costs. AbbVie has
also independently initiated pre-commercialization planning activities. In addition, the Exercise Period (as defined in the Option Agreement) was further
modified to ten (10) business days following the date, if any, that we receive approval from the U.S. Food and Drug Administration of the NDA for
reproxalap in dry eye disease (the FDA Decision), provided that AbbVie shall provide us notice in case AbbVie determines that it will not exercise the
Option.
Upon AbbVie’s delivery of the agreement execution notice and the parties entering into the Collaboration Agreement, AbbVie would pay us a $100
million upfront cash payment, less the Option Payment and the Option Extension Fee. In addition, we would be eligible to receive up to approximately
$300 million in regulatory and commercial milestone payments, inclusive of a $100 million milestone payment payable if the FDA Decision is received
prior to or after the execution of the Collaboration Agreement. In the United States, we would share profits and losses with AbbVie from the
commercialization of reproxalap according to a split of 60% for AbbVie and 40% for us. Outside of the United States, we would be eligible to receive
tiered royalties on net sales of reproxalap. As of February 28, 2025, AbbVie has not exercised the Option.
On November 18, 2024, we announced that the FDA accepted for review a resubmitted NDA for reproxalap for the treatment of dry eye disease.
The FDA assigned a Prescription Drug User Fee Act (PDUFA) date of April 2, 2025.
All of our development plans and timelines are subject to adjustment depending on recruitment rate, regulatory review, preclinical and clinical
results, funding, and other factors that could delay the initiation, completion, or reporting of clinical trials. Regulatory review timelines are flexible and
subject to change based on the regulator’s workload and other potential review issues. The timing of ongoing clinical trials depends, in part, on the
availability of clinical research facilities and staffing, and the ability to recruit patients.
We have no products approved for sale in the United States or elsewhere. We will not receive any revenue from sales of our product candidates that
we develop until we obtain regulatory approval. We intend to commercialize our products, if approved for sale, through collaborations. Although we may
receive commercial and license revenue in the future, we have to date primarily funded our operations through the sale of our common stock, convertible
preferred stock, convertible promissory notes, warrants, and borrowings under debt facilities. We will need to raise additional capital in the form of debt or
equity, or through partnerships to fund additional development of our product candidates, and as we continue to execute on our strategy of expanding our
product candidate pipeline, we may in-license, acquire, or invest in complementary businesses, or products. In addition, contingent on capital resources, we
may augment, diminish, or otherwise modify the clinical development plan described herein.
Since our incorporation, we have devoted substantially all of our resources to the preclinical and clinical development of our product candidates. If
we do obtain marketing approval for reproxalap or any other product candidate that we develop, we intend to partner with other companies for
commercialization, though there can be no guarantee that such partnership will be available. Our ability to generate revenues, if any, largely depends upon
our ability, alone or with others, to complete development of and obtain regulatory approvals for our product candidates, and to successfully manufacture,
market, and sell our products. The results of our operations will vary significantly from year-to-year and quarter-to-quarter, and depend on a number of
factors, including risks related to our business
7
and industry, risks relating to intellectual property and other legal matters, risks related to our common stock, and other risks that are detailed in the section
of this annual report on Form 10-K entitled “Risk Factors”.
The Science Supporting Our Product Candidates
RASP: Mediators of Disease
In response to infection, injury, endogenous and exogenous chemical triggers, heat, and other stimuli, RASP (reactive aldehyde species) are
generated through a variety of metabolic processes, including alcohol oxidation, enzymatic and non-enzymatic lipid oxidation, and polyamine and
sphingosine metabolism. RASP appear to effect inflammation signaling via covalent binding to thiol (sulfur-containing) and amine (nitrogen-containing)
residues on proteins, including receptors and enzymes. RASP-protein adducts directly influence the function of proteins, leading to activation of
intracellular inflammatory factors, including NF‑κB, an important mediator in the inflammatory response, and inflammasomes. In addition, RASP adducts
bind to Scavenger Receptor A, which also initiates pro-inflammatory signaling and leads to the formation of antibodies against the adducted protein, at
least in part explaining the presence of host-directed antibodies in autoimmune diseases such as rheumatoid arthritis. Levels of RASP are generally
observed to be elevated in ocular and systemic inflammatory disease, including the diseases represented in our RASP modulator pipeline, and thus
represent therapeutic targets for immune modulation. RASP are also associated with metabolic and neurodegenerative diseases, and, in addition to
upregulating inflammation, lead to DNA damage, accumulation of metabolic aggregates, and other pathologic manifestations.
Because of the inherent toxicity of RASP, most, if not all, living organisms contain enzymes, such as aldehyde reductases and aldehyde
dehydrogenases, that convert RASP into non-toxic molecules. Genetic mutations in the RASP-metabolizing enzymes cause disease. In Sjögren-Larsson
Syndrome, for example, mutations in fatty aldehyde dehydrogenase are responsible for skin, neurological, and retinal disease.
Aside from the potentiation of inflammation, there is no generally accepted biological role of high levels of RASP. Some physiologic molecules
have RASP forms, including retinaldehyde (a form of Vitamin A) and pyridoxal and pyridoxal phosphate (forms of Vitamin B6), but the activity of
physiological RASP is highly restricted by chaperone and other proteins that prevent reaction with other molecules, including our RASP modulators. Thus,
pharmacotherapeutic RASP modulation is expected not to adversely affect normal physiologic processes. Consistent with the lack of accessibility of
physiologic RASP, our most advanced RASP modulator, reproxalap, which has been administered as an ophthalmic solution to approximately 2,500
patients across a number of completed clinical trials for up to 12 months, has been observed to be generally well tolerated and has not been associated with
any serious adverse events; mild and transient instillation site irritation is the most commonly reported adverse event in clinical trials. Similarly, an orally
administered RASP modulator, ADX‑629, which has been administered to more than 150 patients across a number of Phase 1 and Phase 2 clinical trials for
up to 90 days, has been observed to be generally well tolerated and has not been associated with any serious adverse events.
The RASP Modulator Platform
Because RASP affect many proteins simultaneously, the RASP modulator platform represents a unique and novel pharmacologic approach that,
unlike almost all drugs in use today, is not designed to directly inhibit or activate a particular protein but instead targets a family of small molecules that in
turn affect the activity and structure of many proteins at once. RASP modulation, therefore, has the potential to down-regulate pro-inflammatory systems or
groups of proteins, and may lead to multiple beneficial clinical effects while avoiding toxicity associated with single-target inhibition or activation.
We are currently developing ADX‑629, ADX‑248, ADX‑743, ADX‑631, ADX‑246, and other novel RASP modulators for the treatment of a
number of diseases associated with RASP. RASP modulators are novel small molecules designed specifically to bind, and thereby allow for the
degradation and depletion of, RASP. The validity of the RASP platform is supported by reproxalap, our first-in-class product candidate for the treatment of
dry eye disease, which has demonstrated broad-based, rapid-onset activity and consistent safety across a number of Phase 2 and Phase 3 clinical trials. In in
vitro and animal studies, reproxalap does not appear to affect most cellular components, including most receptors, enzymes, ion channels, or other proteins.
Reproxalap has been shown to outcompete cellular constituents to covalently bind and trap RASP. Reproxalap-RASP adducts appear to be rapidly
degraded in cellular environments, after which neither reproxalap nor RASP are detectable. Outside of biological systems, reproxalap-RASP adducts have
shown to be remarkably non-reactive and stable, suggesting that
8
reproxalap-RASP binding may be effectively irreversible. By forming covalent drug-RASP adducts that are then degraded, reproxalap and other RASP
modulators have the potential to substantially lower RASP levels.
We believe that we are the first biotechnology company to demonstrate the beneficial effects of RASP modulation in a variety of animal models
relating to immune-mediated disease, suggesting that RASP modulators may have potent anti-inflammatory effects that persist hours after administration at
a variety of different doses relevant to clinical testing:
•
In mice injected with a pro-inflammatory agent known as endotoxin, intraperitoneally administered reproxalap statistically reduced a variety
of inflammatory cytokines (protein inflammatory mediators), including IL‑5, IL‑1ß, IL‑17, and TNFα, while up-regulating the primary anti-
inflammatory cytokine IL‑10. (Data presented at The American Academy of Asthma Allergy & Immunology 2015 Annual Meeting)
•
In two different mouse models of inflammatory pain, intraperitoneally administered reproxalap dose-dependently reduced nociceptive
behavior, suggesting that reproxalap down-regulates pain signaling in inflammation. (Data presented at The 2016 International Conference
on Pain Research and Management)
•
In a mouse model of macular degenerative disease, intravitreal injections of RASP modulators ADX‑631 and ADX‑246 reduced the levels of
a toxic metabolite implicated in the dry form of age-related macular degeneration.
•
In a mouse model of diet-induced obesity, ADX‑743 administered orally in conjunction with subcutaneous injections of a GLP-1 agonist
demonstrated synergistic weight and fat loss while preserving muscle mass.
•
In a mouse model of atopic dermatitis, relative to vehicle treatment, ADX‑248 treatment resulted in decreased ear thickness, spleen weight,
epidermal thickness, epidermal erosion/ulceration, and histopathology scores.
Thus, we believe that the mechanism of action of RASP modulation is potentially multifactorial and may ameliorate inflammatory and other
diseases and deter disease progression in different ways simultaneously, consistent with a systems-based pharmacologic approach.
In addition to the development of ADX‑629, ADX‑248, ADX‑743, ADX‑631, and ADX‑246, we intend to continue the discovery and development
of other novel RASP modulators, and we intend to continue to develop intellectual property around the molecules derived from our RASP modulator
platform.
The Potential of ADX‑2191 to Treat Retinitis Pigmentosa
ADX‑2191 is a novel intravitreal formulation of methotrexate, a dihydrofolate reductase inhibitor that has been administered intravitreally for
decades to treat cancer and inflammatory diseases.
Retinitis pigmentosa is a group of rare genetic eye diseases characterized by retinal cell death and loss of vision, for which there is no treatment. In
vivo preclinical research has identified the activity of methotrexate in inducing misfolded rhodopsin (a visual cycle protein) clearance, suggesting the
potential of ADX‑2191 to treat genetic forms of retinitis pigmentosa that are characterized by misfolded rhodopsin.
Clinical Trial Results and Development Plans
Prior to applying for marketing approval, our product candidates must satisfy regulatory authority requirements for safety and efficacy, including
pivotal Phase 3 clinical assessment. Our material clinical results have been previously disclosed elsewhere in detail, and we encourage review of all of our
clinical trial disclosures in addition to this annual report on Form 10-K. All of our development plans and timelines are subject to adjustment
9
depending on recruitment rate, regulatory review, preclinical and clinical results, funding, and other factors that could delay the initiation, completion, or
reporting of clinical trials.
Systemic RASP Modulation for the Treatment of Immune-Mediated Diseases
ADX‑629 and related molecules are novel, orally administered RASP modulators in clinical development for the treatment of systemic immune-
mediated diseases. In a Phase 1 clinical trial of ADX‑629, no treatment-related adverse events were observed at any dose tested, and target engagement was
evidenced by statistically lower levels of the RASP malondialdehyde in drug-treated subjects relative to controls. Additionally, following ingestion of a
controlled high-fat meal, free fatty acids were statistically lower and HDL statistically higher in drug-treated subjects relative to placebo-treated subjects.
The lipid results in the Phase 1 clinical trial suggested that ADX‑629 diminished the inflammatory and pathologic metabolic response that typically occurs
following ingestion of a high-fat meal.
Figure 1: Phase 1 Clinical Trial of ADX‑629
MDA = malondialdehyde; SEM = standard error of the mean; HDL= high-density lipoprotein; LDL = low-density lipoprotein;
FFA = free fatty acids; AUC = area under the curve
In 2022, we announced results from Phase 2 clinical trials of ADX‑629 in patients with psoriasis, atopic asthma, COVID-19, or alcohol intoxication,
all of which suggested preliminary pharmacodynamic activity of ADX‑629. The Phase 2 trials were performed as part of a systematic strategy to assess
activity in different types of immunological and metabolic diseases, including autoimmune disease, allergic inflammation, infectious disease, and alcohol
intoxication. Across all Phase 2 clinical trials, in patients treated with ADX‑629, no safety concerns were evident from adverse events and there were no
treatment-related serious adverse events observed.
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Figure 2: Phase 2 Clinical Trials of ADX‑629 Psoriasis, Asthma, and COVID‑19
SEM = standard error of the mean; NIAID = National Institute of Allergy and Infectious Diseases;
LOCF = Last Observation Carried Forward
Psoriasis
Following treatment of 10 moderate psoriasis patients with ADX‑629 for 12 weeks, psoriasis area and severity index (PASI) scores were
statistically significantly decreased (P=0.0008 vs. baseline at Week 12), and peak PASI 50% and PASI 75% responder percentages were 57% (P=0.001)
and 25% (P=0.051), respectively. Investigator global assessment scores decreased over the duration of treatment (P=0.01 vs. baseline at Week 12).
Lesional pan-gene expression analysis suggested a trend toward normalization of global gene expression patterns; by Week 12 no gene expression
pathways in lesional tissue were dysregulated compared to non-lesional skin. Plasma levels of the commonly described pro-inflammatory RASP
malondialdehyde were reduced relative to baseline as soon as four weeks after initiation of treatment (P=0.02).
Asthma
In a placebo-controlled crossover trial of eight mild asthma patients treated for seven days, asthma symptom scores and sputum eosinophil cell
counts were numerically reduced following treatment with ADX‑629 relative to treatment with placebo. Compared to placebo treatment, treatment with
ADX‑629 led to statistically significant reductions in plasma levels of the pro-inflammatory cytokines IL‑5 (P=0.02) and TNFα (P<0.0001), and numerical
reductions in symptoms and in plasma levels of malondialdehyde.
COVID-19
Following treatment of 11 mild to moderate COVID-19 patients with ADX‑629 or placebo for four weeks, change from baseline in the National
Institute of Allergy and Infectious Diseases Score (1=death, 8=no activity limitation) was numerically higher in ADX‑629-treated patients (n=7) than in
placebo-treated patients (n=4) over all days assessed. Consistent with the clinical findings, relative to placebo-treated patients, reductions in plasma levels
of the cytokines CXCL9 (P=0.0008), IFNγ (P=0.02), and TNFα (P=0.07) were observed in patients treated with ADX‑629.
Alcohol Intoxication
In a crossover trial of 23 healthy volunteers, where each subject received ADX‑629 or placebo prior to ethanol ingestion, ADX‑629 was statistically
superior to placebo in improving Romberg test balance time (P=0.02); reducing facial flushing (P=0.0007); and lowering levels of the RASP acetaldehyde
(P=0.03), total cholesterol (P=0.02), and LDL (P=0.047).
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In 2023, as an extension of the strategy to assess activity in different types of diseases, we announced results from Phase 2 clinical trials of
ADX‑629 in patients with chronic cough and atopic dermatitis, both of which are persistently disturbing diseases thought to be related, at least in part, to
inflammation.
Chronic Cough
Fifty-one patients with refractory or unexplained chronic cough, which is often defined as a cough that persists for more than eight weeks and is
unresponsive to treatment were enrolled in a multicenter, randomized, double-blind, placebo-controlled, two-period Phase 2 crossover trial. Patients were
randomized to receive ADX‑629 or placebo twice daily for 14 days, followed by a 14-day washout period prior to crossing over to 14 days of treatment
with ADX‑629 or placebo, whichever was not received in the first period. All patients completed both treatment periods. Relative to placebo, statistical
significance was achieved for the key secondary endpoint of reduction in awake cough frequency (P=0.01), the secondary endpoint of 24-hour cough
frequency (P=0.001), and the related post-hoc analyses of awake cough count (P=0.001) and 24-hour cough count (P=0.001).
Figure 3: Phase 2 Clinical Trial of ADX‑629 in Chronic Cough
Atopic Dermatitis
Eight mild to moderate atopic dermatitis patients were treated in an open-label, single-center Phase 2 clinical trial of ADX‑629. Relative to baseline,
over three months of treatment, improvement was observed in all patients. Statistical significance was achieved for improvement in Eczema Area and
Severity Index (EASI, p=0.0006). EASI thresholds for 50% improvement (EASI‑50), 75% improvement (EASI‑75), and 90% improvement (EASI‑90)
were met in four patients (50%), three patients (38%), and one patient (13%), respectively. Statistical significance was achieved for improvement in
affected body surface area (p<0.0001); one patient (13%) achieved complete clearance of affected body surface area. Statistical significance was achieved
for improvement in Investigator Global Assessment (IGA, p<0.0001). The IGA threshold score of 0 (clear) or 1 (almost clear) was met in one (13%)
patient. Statistical significance was achieved for improvement in patient-reported itching (p=0.0002); the clinically relevant threshold of improvement by
four or more points was met in three patients (38%), and two patients (25%) reported elimination of itching. Statistical significance was achieved for
improvement in patient-reported eczema severity (p<0.0001); the clinically relevant threshold of improvement by four or more points was met in six
patients (75%). Statistical significance was achieved for improvement in depression the Hamilton Rating Scale for Depression (p=0.02) and numerical
improvement was observed for improvement in the Beck Anxiety Inventory (p=0.1).
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Figure 4: Phase 2 Clinical Trial of ADX‑629 in Atopic Dermatitis
ADX‑629 is currently in Phase 2 clinical trials for moderate alcohol-associated hepatitis and Sjögren-Larsson Syndrome. Clinical trials of RASP
modulators in atopic dermatitis and retinal disease are expected to be initiated in 2025.
Dry Eye Disease
Reproxalap is a first-in-class, topically administered RASP modulator for the treatment of anterior segment ocular inflammation, and is currently in
late-stage development for the treatment of dry eye disease and allergic conjunctivitis. In 2022, Aldeyra submitted to the FDA an NDA for reproxalap for
the treatment of dry eye disease. On November 27, 2023, Aldeyra announced that the FDA issued a Complete Response Letter regarding the NDA
submission. Although no safety or manufacturing issues with reproxalap were identified, the FDA stated in the letter that the NDA did not demonstrate
“efficacy in treating ocular symptoms associated with dry eyes” and that “at least one additional adequate and well-controlled study to demonstrate a
positive effect on the treatment of ocular symptoms of dry eye” should be conducted. On November 16, 2023, Aldeyra submitted to the FDA a Special
Protocol Assessment (SPA) for a proposed Phase 3 dry eye disease chamber clinical trial (the chamber crossover trial). In response to the SPA, the FDA
issued a SPA - No Agreement letter which provided feedback to Aldeyra on the proposed chamber crossover trial. Based on the feedback, Aldeyra
amended the design and protocol of the chamber crossover trial and, per FDA SPA Guidance, Aldeyra and the FDA held a Type A meeting, during which
we believe that the FDA concurred with the principal aspects of the chamber crossover trial design.
The chamber crossover trial, as announced on August 8, 2024, achieved the primary endpoint (P=0.004) of reducing patient-reported ocular discomfort in a
dry eye chamber. On October 3, 2024, Aldeyra announced resubmission of the NDA (the Resubmitted NDA), which included results from the chamber
crossover trial and a draft label describing chronic and acute symptomatic benefit, in addition to acute reduction of ocular redness. On November 18, 2024,
Aldeyra announced that the FDA accepted for review the Resubmitted NDA. The FDA assigned a PDUFA date of April 2, 2025.
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Figure 5: Phase 3 Clinical Trial of Reproxalap in Dry Eye Disease
Allergic Conjunctivitis
Allergic conjunctivitis is an anterior segment ocular inflammatory disease characterized by ocular itching and redness, and is often associated with
dry eye disease. We estimate there to be 66 million patients with allergic conjunctivitis in the United States. In a number of Phase 2 and Phase 3 clinical
trials in allergic conjunctivitis, reproxalap demonstrated consistent statistically significant and clinically relevant activity in improving ocular itching and
redness. Thus, we believe reproxalap could offer differentiated efficacy relative to existing dry eye disease medications with regard to the potential
treatment of the signs and symptoms of allergic conjunctivitis.
In 2021, we announced that the randomized, double-masked, vehicle-controlled allergen chamber Phase 3 INVIGORATE Trial of topically
administered reproxalap in patients with allergic conjunctivitis achieved the primary endpoint (patient-reported ocular itching score after the second dose of
test article) and all secondary endpoints (investigator-assessed ocular redness score and patient-reported ocular tearing score, Figure 6). In June 2023, we
announced that INVIGORATE-2, a confirmatory clinical trial substantially similar to INVIGORATE, achieved the primary endpoint (patient-reported
ocular itching score after the second dose of test article) and all secondary endpoints (investigator-assessed ocular redness score and patient-reported ocular
tearing score).
Figure 6: Phase 3 INVIGORATE Trial Results for Reproxalap in Allergic Conjunctivitis
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Aldeyra plans to discuss remaining regulatory requirements with the FDA for reproxalap for the treatment of allergic conjunctivitis in light of the
positive results from INVIGORATE and INVIGORATE-2. Across all clinical indications, topical ocular reproxalap has been studied in more than 2,500
patients with no observed clinically significant safety concerns; mild and transient instillation site irritation is the most commonly reported adverse event in
clinical trials.
Retinitis Pigmentosa
Retinitis pigmentosa is a group of rare genetic eye diseases characterized by retinal cell death and loss of vision, for which there is no treatment. In
vivo preclinical research has identified the activity of methotrexate in inducing misfolded rhodopsin (a visual cycle protein) clearance, suggesting the
potential of ADX‑2191 to treat genetic forms of retinitis pigmentosa that are characterized by misfolded rhodopsin .
In June 2023, we announced top-line results from the Phase 2 clinical trial of intravitreal ADX‑2191 in eight patients with retinitis pigmentosa. Four
patients were dosed monthly, and four patients were dosed twice monthly. Relative to baseline, across all patients, statistical significance was achieved for
improvement in best corrected visual acuity (P<0.0001), low-light visual acuity (P=0.0001), time to electroretinographic response to light (P=0.02),
macular sensitivity to light (P<0.0001), and dark-adapted peripheral sensitivity to light (P<0.0001). All enrolled patients completed the trial per protocol.
ADX‑2191 was well tolerated, and no safety concerns were identified. No treatment-related adverse events associated with retinal morphology were
observed. No serious adverse events were reported, and no patients discontinued due to adverse events.
Figure 7: Phase 2 Clinical Trial Results for ADX‑2191 in Retinitis Pigmentosa
The Markets for Our Product Candidates
Immune-Mediated and Metabolic Systemic Diseases
Immune-mediated systemic diseases, such as autoimmune disease, and metabolic diseases, such as diabetes and liver disease, are generally chronic
conditions that impair quality of life and lead to significant healthcare expenditures. In aggregate, immune-mediated and metabolic diseases afflict in
excess of millions of individuals worldwide.
Given the complex pathophysiology of systemic immune-mediated and metabolic disorders, therapy often requires combinations of drugs with
distinct mechanisms of action. As such, we believe novel product candidates for immune-mediated and metabolic diseases are in high demand.
Our RASP modulator platform represents a potential novel therapeutic approach for a variety of common diseases. We are not aware of any other
company actively developing therapeutics that target RASP. Because RASP appear to be involved in the generation and potentiation of inflammation in
general, we believe the potential therapeutic applicability of RASP modulators is broad. In 2022 and 2023, we announced results from Phase 2a
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clinical trials of ADX‑629, a first-in-class orally administered RASP modulator, in patients with COVID-19, atopic asthma, psoriasis, alcohol intoxication,
chronic cough, and atopic dermatitis, all of which suggested preliminary pharmacodynamic activity of ADX‑629. The Phase 2 clinical trials followed a
successful Phase 1 clinical trial of ADX‑629, in which ADX‑629 was well-tolerated; no treatment-related adverse events were observed; and, following
ingestion of a fatty meal, levels of cholesterol and fatty acids were lower during ADX‑629 treatment than with placebo.
Dry Eye Disease
The validity of the RASP platform is supported by reproxalap, our first-in-class product candidate for the treatment of dry eye disease, which has
demonstrated broad-based, rapid-onset activity and consistent safety across a number of Phase 2 and Phase 3 clinical trials. Dry eye disease is an immune-
mediated disease, the symptoms of which - ocular pain, dryness, burning, and stinging - are chronic and persistently disturbing, impacting quality of life
and leading to loss of work and substantial economic burden. Dry eye disease is one of the most common diseases treated by ophthalmologists and
optometrists, and healthcare providers and patients regard therapy as inadequate in a substantial number of cases.
There are approximately 18 million dry eye disease patients diagnosed in the United States, but only four classes of prescription topical ocular drugs
are approved for dry eye disease treatment, cyclosporine (a generic immune modulator), lifitegrast (an immune modulator), loteprednol (a generic
corticosteroid), and perfluorohexyloctane (a water-free solution). The activity of cyclosporine and lifitegrast has been observed to be minimal or lacking in
the majority of patients, and weeks or months of treatment may be required to achieve even modest clinical benefit; over 60% of patients discontinue
treatment within 12 months of initiation. Loteprednol, a generically available corticosteroid, is indicated only for short-term treatment (up to two weeks)
due to corticosteroid-associated toxicity, which includes increases in intraocular pressure that may lead to glaucoma, the development of cataracts, ocular
infection, and other ocular morbidities. Perfluorohexyloctane is available over-the-counter in certain countries outside the United States as a lubricating
eyedrop. Thus, there is considerable demand for a novel, efficacious topical ocular drug that can be used chronically but that acts quickly.
By modulating RASP, which are elevated in a variety of inflammatory diseases, reproxalap represents a novel mechanism for diminishing ocular
inflammation. In a number of Phase 2 and Phase 3 clinical trials in dry eye disease, reproxalap demonstrated consistent statistically significant and
clinically relevant activity across a variety of symptoms and signs, occurring as early as within minutes of dosing. Given the broad activity and rapid onset
of action observed in clinical trials, we believe that reproxalap may have a commercially differentiated product profile versus currently approved drugs for
dry eye disease.
Many patients with dry eye disease also manifest symptoms of allergic conjunctivitis, another common inflammatory disease that affects the front of
the eye and is characterized by ocular itching and redness. Distinguishing between dry eye disease and allergic conjunctivitis can be challenging for
healthcare providers. Approximately half of dry eye patients complain of itching, which is generally considered the result of allergy, and approximately
half of allergic conjunctivitis patients complain of dryness, which is generally considered the result of dry eye disease. There are currently no FDA-
approved products that are indicated for the chronic treatment of both dry eye disease and allergic conjunctivitis. Further, antihistamines, which are
commonly used in allergic conjunctivitis, are known to exacerbate ocular dryness. In a number of Phase 2 and Phase 3 clinical trials in allergic
conjunctivitis, reproxalap demonstrated consistent statistically significant and clinically relevant activity in improving ocular itching and redness. Thus, we
believe reproxalap could offer differentiated efficacy relative to existing dry eye disease medications with regard to the potential treatment of the signs and
symptoms of allergic conjunctivitis.
Retinitis Pigmentosa
Retinitis pigmentosa is a group of rare genetic eye diseases characterized by retinal cell death and loss of vision, for which there is no treatment. In
vivo preclinical research has identified the activity of methotrexate in inducing misfolded rhodopsin clearance, suggesting the potential of ADX‑2191 to
treat genetic forms of retinitis pigmentosa that are characterized by misfolded rhodopsin. The prevalence of retinitis pigmentosa is more than one
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million people worldwide, and mutations leading to rhodopsin misfolding account for approximately one-third of cases. ADX‑2191 has received Orphan
Drug Designation from the FDA for the treatment of retinitis pigmentosa.
The Competitive Landscape of Our Product Candidates
The pharmaceutical industry is characterized by intense competition and rapid innovation. Our potential competitors include large pharmaceutical
and biotechnology companies, specialty pharmaceutical companies, academic institutions, government agencies, and research institutions. We believe that
the key competitive factors that will affect the development and potential commercial success of our product candidates are efficacy, safety, tolerability,
and the ability to reduce the dependence on, or the dose of, other drug products.
Many of our potential competitors have substantially greater financial, technical, and human resources than we do and significantly greater
experience in the discovery and development of product candidates, obtaining FDA and other regulatory approvals of products, and the commercialization
of those products. Accordingly, our competitors may be more successful than we may be in obtaining regulatory approval for products and achieving
widespread market acceptance. Our competitors’ products may be more effective, or more effectively marketed and sold, than any product that we may
commercialize, and may render our product candidates obsolete or non-competitive before we can recover the expenses of developing and commercializing
any of our product candidates. Further, competitors with numerous approved products may be able to negotiate pricing and reimbursement that is more
favorable than that which we may be able to achieve. We anticipate that we will face intense and increasing competition as new products enter the market
and advanced technologies become available. In addition, the development of new treatment methods for the diseases we are targeting could render our
products non-competitive or obsolete.
While our product candidates may manifest efficacy, tolerability, or safety advantages, many marketed therapies are generic or may be priced
considerably lower than the pricing we anticipate for our product candidates. Pricing, in addition to healthcare plan coverage, prior authorization
requirements, step edits, co-pay amounts, and related factors, may discourage the initial or prolonged use of our product candidates. Further, the recent
growth of Pharmacy Benefit Managers and similar entities has diminished the profitability of drug commercialization for smaller companies, and may
hamper our ability to support our operations or compete effectively in the marketplace following regulatory approval, if any.
RASP Modulator Platform
A number of academic groups have published on the concept of reducing RASP levels, primarily by using compounds with amines (certain
nitrogen-containing molecules) that react with RASP through a chemical process known as the Schiff base reaction. Various RASP-binding amines have
been described, particularly carnosine (a naturally occurring dipeptide), which has other potential mechanisms of action unrelated to RASP. At least one
group has published on the use of certain nitrogen-containing marketed products to temporarily bind the RASP retinaldehyde as a potential therapy for
retinal disease. Schiff base reactions have also been mentioned as possible explanations for a portion of the activity of aminoguanidine, pyridoxamine, and
possibly other non-proprietary amine-containing compounds that have been tested in clinical trials for diabetic nephropathy. However, the Schiff base
reaction is reversible, and generally the substrates (precursors) and products of the reaction exist in equilibrium such that, at any point in time, the RASP
substrate may be bound or unbound. In this way, Schiff base reactions alone represent temporary RASP binding, and likely lead to the relocation of RASP
rather than the elimination or long-term modulation of RASP. We believe that our RASP modulator product candidates that we have discovered are
differentiated from the above approaches in that the chemical structures of our product candidates are novel, and the reaction with RASP has been observed
to be essentially irreversible in vivo, which, we believe, may result in a more effective means of modulating RASP levels.
Other Immune-Modulating Pharmacotherapies
A myriad of new treatments have been or are being developed to treat inflammatory diseases, and have been used, or in theory could be used, for the
treatment of the diseases that our product candidates are intended to target. Immune-modulating products include cytokine inhibitors, immune cell receptor
inhibitors, immune cell depletion agents, complement inhibitors, phosphodiesterase inhibitors, and Janus kinase inhibitors. Companies that currently
market such therapies include AbbVie Inc., Johnson & Johnson, UCB Inc. and UCB S.A., Amgen, Inc.,
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Bristol-Myers Squibb Co., Eli Lilly and Company, Novartis AG, Regeneron Pharmaceuticals, Inc., Roche, Sanofi, Takeda, AstraZeneca, GlaxoSmithKline,
Merck, and Pfizer, Inc. Currently marketed products may manifest efficacy and safety advantages over our product candidates, and may be used to treat the
diseases for which we are developing our product candidates.
Methotrexate, the active drug substance of ADX‑2191, is generically available and has been used as a chemotherapeutic and immune modulating
agent, and other formulations or application methods of methotrexate could be developed for the treatment of retinal diseases. Though not approved by the
FDA for the treatment of retinal disease, intraocular injection of intravenous methotrexate formulations is the de facto standard of care for primary
vitreoretinal lymphoma (a cancer that affects the back of the eye), and off‑label methotrexate is now commonly administered for the treatment of
proliferative vitreoretinopathy, posterior uveitis, and other retinal diseases. The off‑label intraocular injection of intravenous methotrexate for retinal
diseases is an example of a practice known as compounding. The disadvantages of compounding are significant, and include a risk of microbial
contamination that can lead to severe ocular infection resulting in vision loss or surgical removal of the eye. Unlike compounded intravenous formulations,
ADX‑2191 is specifically formulated for intraocular injection such that pH, viscosity, and tonicity have been designed to be compatible with the vitreous
humor, the fluid in the back of the eye. Further, ADX‑2191 is a concentrated formulation of methotrexate that requires a small injection volume, thereby
reducing injection site reflux and ensuing corneal toxicity relative to off‑label ocular injections of methotrexate. Unlike off‑label ocular injections of
methotrexate, ADX‑2191 is denser than the vitreous, the fluid in the back of the eye, allowing for the concentration of methotrexate in the vicinity of
retina.
Competitive Pharmaceuticals by Indication
We believe the primary competitors by indication with respect to our current programs in late-stage clinical testing are as follows:
Competitive Pharmaceuticals for Reproxalap
Indication
Competitive Products
Dry Eye Disease
Topical immunomodulators, such as cyclosporine (0.05% as
Restasis , 0.09% as Cequa , and 0.1% as Vevye ) and lifitegrast
(Xiidra ); loteprednol (a corticosteroid as Eysuvis ); an intranasal
spray (varenicline as Tyrvaya ), a lubricating eyedrop
(perfluorohexyloctane as Miebo
); and other generic steroids; and
artificial tear solutions
Allergic Conjunctivitis
Over-the-counter and prescription topical ocular and oral
antihistamines, and prescription mast cell stabilizers and
corticosteroids
We believe that there is significant unmet medical need for the diseases that we intend to target. If proven to be safe and effective, we believe that
our product candidates could be used in place of, or in addition to, current therapies. Currently available therapies for the chronic treatment of dry eye
disease are often considered by physicians and patients to be inadequate, may require weeks or months of treatment to achieve even moderate clinical
benefit, and have not demonstrated clinical activity in allergic conjunctivitis, a common comorbidity.
Many drugs are in development for dry eye disease or related indications. In addition, generic versions of Restasis® became available in the United
States in 2022. The competitive products for allergic conjunctivitis, which may be generic or sold over-the-counter, include topical antihistamines and
corticosteroids, nonsteroidal anti-inflammatory drugs, and mast cell stabilizers. For the diseases we intend to study, there may be other developmental
therapies of which we are not aware.
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Our ability to compete successfully will depend in part on our ability to utilize our drug development expertise to identify, develop, secure rights to,
and obtain regulatory approvals for promising pharmaceutical products before others are able to develop competitive products. Our ability to compete
successfully will also depend on our ability to attract and retain skilled and experienced personnel. Additionally, our ability to compete may be diminished
by insurers and other third-party payors, which often encourage the use of less expensive, non-innovative, or generic products.
Intellectual Property and Proprietary Rights
Overview
In the United States and abroad, we are building an intellectual property portfolio for reproxalap and other RASP modulators and for therapeutic
methods of use of methotrexate for the treatment of retinal disease. We currently seek, and intend to continue to seek, patent protection in the United States
and internationally for our product candidates, methods of use, and processes for manufacture, and for other technologies, where appropriate. Our current
policy is to actively seek to protect our proprietary position by, among other things, filing patent applications in the United States and abroad relating to
proprietary technologies that are important to the development of our business. We also rely on, and will continue to rely on, trade secrets, know-how,
continuing technological innovation and in-licensing opportunities to develop and maintain our proprietary position. We cannot be sure that patents will be
granted with respect to any of our pending patent applications or with respect to any patent applications filed by us in the future, nor can we be sure that
any of our existing patents or any patents that may be granted to us in the future will be commercially useful in protecting our technology.
Our success will depend significantly on our ability to obtain and maintain patent and other proprietary protection for the technologies that we
consider important to our business, our ability to defend our patents, and our ability to preserve the confidentiality of our trade secrets and operate our
business without infringing the patents and proprietary rights of third parties.
Patent Portfolio
Our patent portfolio currently includes patents and patent applications covering the composition, formulation, and uses of reproxalap, ADX‑629,
ADX‑246, ADX‑248, ADX‑631, ADX‑743, and other novel compounds. As of December 31, 2024, we owned thirty-seven United States patents and
sixteen pending United States non-provisional patent applications, as well as numerous foreign counterparts to these patents and patent applications relating
to reproxalap and other RASP modulators. Additionally, we retain an exclusive license to certain patents and applications covering the formulation of
ADX‑2191 and uses thereof in preventing and treating retinal indications, including retinitis pigmentosa, primary vitreoretinal lymphoma, and proliferative
vitreoretinal disease. As of December 31, 2024, there are three granted United States Patents, two pending U.S. non-provisional patent applications, and
approximately five pending foreign counterparts to the patent applications relating to ADX‑2191.
We expect the issued reproxalap composition of matter patent in the United States, if the appropriate maintenance, renewal, annuity or other
governmental fees are paid, to expire in 2028. It is possible that the term of the composition of matter patent in the United States may be extended up to
five additional years under the provisions of the Hatch-Waxman Act. We expect the foreign reproxalap composition of matter patents, if the appropriate
maintenance, renewal, annuity or other governmental fees are paid, to expire in 2026. We expect other patent applications in the portfolio, if issued and if
the appropriate maintenance, renewal, annuity or other governmental fees are paid, to expire from 2026 to 2041. Reproxalap composition of matter patents
have been issued in Australia, Canada, China, Europe (validated in approximately 14 member countries), Hong Kong, India, Japan, Mexico, Russia and
South Korea. Reproxalap composition of matter patent claims are pending in Brazil.
Licenses and Agreements
AbbVie Option Agreement
On October 31, 2023 (the Option Agreement Effective Date), we entered into an exclusive option agreement (the Option Agreement) with AbbVie
Inc. (AbbVie), pursuant to which we granted AbbVie an exclusive option (the
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Option) to obtain (a) a co-exclusive license in the United States to facilitate a collaboration with us to develop, manufacture and commercialize reproxalap
in the United States, (b) an exclusive license to develop, manufacture and commercialize reproxalap outside the United States, (c) a right of first negotiation
for compounds that are owned or otherwise controlled by us in the field of ophthalmology relating to treating conditions of the ocular surface, and (d) a
right to review data for any other compounds that are owned or otherwise controlled by us in the fields of ophthalmology and immunology before such data
is shared with any other third party (the Collaboration Agreement). AbbVie has paid us a non-refundable payment of $1.0 million in consideration of the
Option (the Option Payment).
On December 21, 2023, pursuant to the Option Agreement, AbbVie extended the period during which it may exercise the Option (the Exercise
Period Extension) by paying us a non-refundable payment of $5.0 million (the Option Extension Fee). If the Collaboration Agreement is entered into, the
Option Payment and the Option Extension Fee will be credited against the upfront cash payment payable by AbbVie.
On November 15, 2024, we entered into the Expansion Side Letter (the Expansion Letter) with AbbVie, which amended certain terms of the Option
Agreement. The Expansion Letter makes certain changes to the Option Agreement, among other things, providing that we will conduct certain launch
activities, which costs shall not exceed mid-single-digit millions of dollars without AbbVie’s approval, and which costs will be considered allowable
expenses pursuant to the Collaboration Agreement upon the delivery of AbbVie’s written notice of exercising the Option and entry into the Collaboration
Agreement, such that 60% of our allowable expenses will be reimbursed by AbbVie in the event of exercise. If AbbVie does not deliver a written notice of
exercising the Option and we do not execute the Collaboration Agreement, we will remain solely responsible for such launch activities costs. AbbVie has
also independently initiated pre-commercialization planning activities. In addition, the Exercise Period (as defined in the Option Agreement) was further
modified to ten (10) business days following the date, if any, that we receive approval from the U.S. Food and Drug Administration of the NDA for
reproxalap in dry eye disease (the FDA Decision), provided that AbbVie shall provide us notice in case AbbVie determines that it will not exercise the
Option.
Upon AbbVie’s delivery of the agreement execution notice and the parties entering into the Collaboration Agreement, AbbVie would pay us a $100
million upfront cash payment, less the Option Payment and the Option Extension Fee. In addition, we would be eligible to receive up to approximately
$300 million in regulatory and commercial milestone payments, inclusive of a $100 million milestone payment payable if the FDA Decision is received
prior to or after the execution of the Collaboration Agreement. In the United States, we would share profits and losses with AbbVie from the
commercialization of reproxalap according to a split of 60% for AbbVie and 40% for us. Outside of the United States, we would be eligible to receive
tiered royalties on net sales of reproxalap. As of February 28, 2025, AbbVie has not exercised the Option.
MEEI Agreement
We previously developed ADX‑2191 for the treatment of proliferative vitreoretinopathy pursuant to an Exclusive License Agreement with
Massachusetts Eye and Ear Infirmary (MEEI) originally entered into in July 2016 between MEEI and Helio Vision, Inc.(Helio), as amended, (MEEI
Agreement). We assumed the MEEI Agreement in connection with our 2019 acquisition of Helio.
Pursuant to the MEEI Agreement, we obtained an exclusive, worldwide license from MEEI to develop and commercialize ADX‑2191 under certain
patents and patent applications, in addition to other licenses to intellectual property (the MEEI Patent Rights). We have agreed to use our commercially
reasonable efforts to develop ADX‑2191 and to meet certain specified effort and achievement benchmarks by certain dates.
In consideration for the rights licensed under the MEEI Agreement, Helio issued MEEI a number of shares of preferred stock and Helio agreed,
during the term of the MEEI Agreement, to pay non-creditable non-refundable license maintenance fees to MEEI of $15,000 on each of the second and
third anniversary of the MEEI Agreement, $25,000 on each of the fourth and fifth anniversary of the MEEI Agreement and $35,000 on the sixth and each
subsequent anniversary of the MEEI Agreement. In addition, Helio was obligated to make future sales-dependent milestone payments to MEEI of up to
low seven figures in the aggregate, as well as royalty payments to MEEI at a rate which, as a percentage of net sales, is in the low single digits for products
that incorporate or use the MEEI
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Patent Rights. Helio is also obligated under the MEEI Agreement to pay MEEI a percentage of certain sublicense revenue at a percentage rate that descends
from low-double digits to mid-single digits based on the date of the sublicense. Following our acquisition of Helio, we became obligated to make any
future payments previously owed by Helio under the MEEI Agreement. There is no additional equity consideration issuable under the MEEI Agreement.
The MEEI Agreement will remain in effect until the expiration date of the last to expire patent licensed under the MEEI Agreement. We may
terminate the MEEI Agreement with timely written notice to MEEI. MEEI has the right to terminate the MEEI Agreement, subject to certain specified cure
periods, in the event of our insolvency or bankruptcy or if we cease all business operations with respect to licensed products, fail to pay amounts due under
the MEEI Agreement, fail to comply with certain due diligence obligations, do not maintain specific levels of insurance, one of our officers is convicted of
a felony relating to the manufacture, use, sale or importation of licensed products, or we materially breach any provisions of the MEEI Agreement or in the
event of our insolvency or bankruptcy.
In the event of an early termination of the MEEI Agreement, all rights licensed and developed by us under the MEEI Agreement will revert to
MEEI. We have agreed to indemnify MEEI for certain claims that may arise under the MEEI Agreement.
Other Intellectual Property Rights
Our marks ALDEYRA THERAPEUTICS and our logo are registered with the United States Patent and Trademark Office.
Confidential Information and Inventions Assignment Agreements
We currently require and will continue to require each of our employees and consultants to execute confidentiality agreements upon the
commencement of employment, consulting, or collaborative relationships with us. The agreements provide that all confidential information developed or
made known during the course of the relationship with us be kept confidential and not disclosed to third parties except in specific circumstances. In the case
of employees, the agreements provide that all inventions resulting from work performed for us, utilizing our property or relating to our business and
conceived or completed by the individual during employment shall be our exclusive property to the extent permitted by applicable law. Our consulting
agreements also provide for assignment to us of any intellectual property resulting from services performed by a consultant for us.
Sales and Marketing
We have retained worldwide commercial rights for our product candidates, provided, however, that on October 31, 2023, we entered into the Option
Agreement with AbbVie, pursuant to which we granted AbbVie the Option to obtain (a) a co-exclusive license in the United States to facilitate a
collaboration with us to develop, manufacture and commercialize reproxalap in the United States, (b) an exclusive license to develop, manufacture and
commercialize reproxalap outside the United States, (c) a right of first negotiation for compounds that are owned or otherwise controlled by us in the field
of ophthalmology relating to treating conditions of the ocular surface, and (d) a right to review data for any other compounds that are owned or otherwise
controlled by us in the fields of ophthalmology and immunology before such data is shared with any other third party, in each case for clauses (a) to (d), on
the terms and conditions set forth in the form of Co-Development, Co-Commercialization and License Agreement filed as an exhibit hereto (the
Collaboration Agreement). As of February 28, 2025, AbbVie has not exercised the Option. If we obtain marketing approval for reproxalap or any other
product candidate that we develop, we intend to partner with other companies, including AbbVie, for commercialization, though there can be no guarantee
that such partnership will be available.
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Manufacturing
We do not own or operate manufacturing facilities for the production of our product candidates, nor do we have plans to develop our own
manufacturing operations in the foreseeable future. We currently depend on third-party contract manufacturers for all of our required raw materials, drug
substance and finished drug product for our preclinical research and clinical trials. We have no immediate plans to purchase, erect, or otherwise create any
manufacturing facilities to be owned by us for any of these purposes, and intend to continue to depend on third-party contract manufacturers for the
foreseeable future. Other than for the purposes of regulatory approval and pursuant to the Expansion Letter, we do not have any current contractual
relationships for the manufacture of commercial supplies of our product candidates. If our product candidates are approved by any regulatory agency, we
intend to enter into agreements with third-party contract manufacturers for commercial production at such time. We may utilize third-party consultants to
manage our manufacturing contractors. We believe that the active pharmaceutical ingredient and other materials needed for the formulation of our product
candidates are relatively easy to manufacture, and that multiple suppliers and formulators could be employed for this purpose. Further, we believe the raw
materials needed for manufacture of our product candidates, as well as other components of our formulations, are generally readily available currently from
multiple sources.
Employees
As of December 31, 2024, we had 9 full-time employees and had engaged a number of consultants. We expect that a number of consultants
previously engaged in development of our product candidates will participate in ongoing clinical and manufacturing activities. None of our employees is
represented by a labor union. We have not experienced any work stoppages, and we consider our relations with our employees to be good.
Human Capital
We recognize that attracting, motivating, and retaining talent at all levels is vital to our continued success. Our employees are a significant asset and
we aim to create an equitable, inclusive, and empowering environment in which our employees can grow and advance their careers, with the overall goal of
developing, expanding and retaining our workforce to support our current pipeline and future business goals. By focusing on employee retention and
engagement, we also improve our ability to successfully commercialize our products following approval, if any; support our clinical trials, pipeline,
platform technologies, business, and operations; and protect the long-term interests of our stockholders. Our success also depends on our ability to attract,
engage, and retain a diverse group of employees. Our efforts to recruit and retain a diverse and passionate workforce include, among other things,
providing competitive compensation and benefits packages.
We value innovation, passion, data-driven decision making, persistence and honesty, and are building a diverse environment where we believe that
our employees thrive and are inspired to contribute to the development of novel therapies. We recognize and appreciate the importance of creating an
environment where all team members feel valued, included, and empowered. We recognize that unique experiences, perspectives, and viewpoints add value
to our ability to develop and deliver innovative therapeutic products that may meaningfully improve patient care. We aim to foster and maintain a work
culture that facilitates fair and respectful treatment of all employees, promotes inclusivity, and provides equal opportunities for professional growth and
advancement based on merit. Our Code of Business Conduct and Ethics prohibits discrimination on the basis of race, color, religion, national origin, sex
(including pregnancy), sexual orientation, age, disability, veteran status, or other characteristics protected by law.
Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, motivating, and integrating our existing and future
employees. The principal purpose of our incentive plans is to increase shareholder value by attracting, retaining, and motivating employees, consultants,
and directors through grants of stock-based compensation awards and payments of cash-based performance bonus awards. We are committed to providing
a competitive and comprehensive benefits package to our employees. Our benefits package is designed to meet the individual health and wellness needs of
our employees. We plan to continue to refine our efforts related to optimizing our use of human capital as we grow, including improvements in the way we
hire, develop, motivate, and retain employees.
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Government Regulation
FDA Approval Process
In the United States, pharmaceutical products are subject to extensive regulation by the FDA. The Food Drug and Cosmetic Act (FDCA) and other
federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, approval,
labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling, and import and export of pharmaceutical products.
Failure to comply with applicable FDA or other requirements may subject a company to a variety of administrative or judicial sanctions, such as the FDA’s
refusal to approve pending applications, a clinical hold, warning letters, recall or seizure of products, partial or total suspension of production, withdrawal
of the product from the market, injunctions, fines, civil penalties, or criminal prosecution.
FDA approval is required before any new drug, new dosage form, new therapeutic use, or new route of administration of a previously approved
product can be marketed in the United States. The process required by the FDA before a new drug product may be marketed in the United States generally
involves:
•
completion of preclinical laboratory and animal testing and formulation studies in compliance with the FDA’s good laboratory practice
(GLP) regulation;
•
submission to the FDA of an IND for human clinical testing which must become effective before human clinical trials may begin in the
United States;
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approval by an independent institutional review board (IRB) at each site where a clinical trial will be performed before the trial may be
initiated at that site;
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performance of adequate and well-controlled human clinical trials in accordance with current good clinical practices (cGCP) to establish the
safety and efficacy of the proposed product candidate for each intended use;
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submission to the FDA of an NDA which must be accepted for filing by the FDA;
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satisfactory completion of an FDA pre-approval inspection(s) of our office and the facility or facilities at which the product is manufactured
to assess compliance with the FDA’s current Good Manufacturing Practices (cGMP) regulations;
•
satisfactory completion of an FDA advisory committee review, if applicable;
•
payment of user fees, if applicable;
•
FDA may also inspect sponsor facilities to determine if nonclinical and clinical studies were conducted in compliance with applicable
regulations and guidelines; and
•
FDA review and approval of the NDA.
The preclinical and clinical testing and approval process requires substantial time, effort, and financial resources. Preclinical tests include laboratory
evaluation of product chemistry, formulation, manufacturing and control procedures, and stability, as well as animal studies to assess the toxicity and other
safety characteristics of the product. The results of preclinical tests, together with manufacturing information, analytical data, and a proposed clinical trial
protocol and other information, are submitted as part of an IND to the FDA. Preclinical testing may continue even after the IND is submitted. The IND
becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises concerns or questions and places the clinical trial
on a partial or complete clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can
begin. As a result, our submission of an IND may not result in FDA authorization to commence a clinical trial. A separate submission to an existing IND
must also be made for each successive clinical trial conducted during product development. Even if the IND becomes effective and the trial proceeds
without initial FDA objection, the FDA may stop the trial at a later time if, among other reasons, the potential for unacceptable safety risks arises.
Further, an independent IRB, covering each site proposing to conduct the clinical trial must review and approve the plan for any clinical trial and
informed consent information for subjects before the trial commences at that site and it must monitor the study until completed. The FDA, the IRB, or the
sponsor may suspend a clinical trial at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable
health risk or for failure to comply with the FDA’s or IRB’s requirements. Other conditions may also be imposed.
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Clinical trials involve the administration of the investigational new product to human subjects under the supervision of qualified investigators in
accordance with GCP requirements, which include the requirement that all research subjects provide informed consent in writing for participation in the
clinical trial. Sponsors of clinical trials generally must register and report, at the NIH-maintained website ClinicalTrials.gov, key parameters and results of
certain clinical trials. For purposes of an NDA submission and approval, human clinical trials are typically conducted in the following sequential phases,
which may overlap or be combined:
•
Phase 1: The investigational drug product is initially introduced into healthy human subjects or patients and tested for safety, dose tolerance,
absorption, metabolism, distribution, and excretion.
•
Phase 2: The investigational drug product is administered to a limited patient population to identify possible adverse effects and safety risks,
to preliminarily evaluate the efficacy of the product for specific targeted indications, and to determine dose tolerance and optimal dosage.
Multiple Phase 2 clinical trials may be conducted by the sponsor to obtain information prior to beginning larger and more extensive clinical
trials.
•
Phase 3: When Phase 2 evaluations suggest that certain dosing regimens may be efficacious and may have an acceptable safety profile, Phase
3 trials may be undertaken in larger patient populations to further evaluate dosage and to obtain evidence of potential clinical efficacy and
safety. Phase 3 trials may include multiple, geographically-dispersed clinical trial sites. Data generated from these studies may be used to
establish the overall risk-benefit profile of the investigational drug product and to provide adequate information for the labeling of the
product, if approved.
•
Phase 4: In some cases, the FDA may condition approval of an NDA for a product candidate on the sponsor’s commitment to conduct
additional clinical trials to further assess the product’s safety and/or effectiveness after NDA approval. Such post-approval trials are typically
referred to as Phase 4 trials.
The results of product development, preclinical studies and clinical trials are submitted to the FDA as part of an NDA. NDAs must also contain
extensive information relating to the product’s pharmacology, chemistry, manufacturing and controls, and proposed labeling, among other things.
A sponsor may be able to request a SPA the purpose of which is to reach concurrence with the FDA on the adequacy and acceptability of specific
critical elements of overall protocol design (e.g., entry criteria, dose selection, endpoints, and planned analyses) for a trial intended to support a future
marketing application. If such an agreement is reached, it will be documented and made part of the administrative record, and will be binding on the FDA
unless the sponsor fails to follow the agreed-upon protocol or makes substantive changes to the protocol without agreement with the FDA, data supporting
the request are found to be false or incomplete, or the FDA determines that a substantial scientific issue essential to determining the safety or effectiveness
of the drug was identified after the testing began. Even if an SPA is agreed to, approval of the NDA is not guaranteed because a final determination that an
agreed-upon protocol satisfies a specific objective, such as the demonstration of efficacy, or supports an approval decision will be based on a complete
review of all the data in the NDA.
For some products, the FDA may require a risk evaluation and mitigation strategy (REMS) which could include measures imposed by the FDA such
as prescribing restrictions, requirements for post-marketing studies, and reporting or certain restrictions on distribution and use. Under federal law, the
submission of most NDAs is additionally subject to a substantial application user fee, and the manufacturer and/or sponsor under an approved NDA are
also subject to prescription drug program fees. In accordance with the FDAs guidance, the agency has 60 days from receipt of an NDA to determine
whether the application will be accepted for filing to permit substantive review. The FDA may request additional information rather than accept an NDA
for filing. In this event, the NDA must be resubmitted with the additional information and is subject to payment of additional user fees. The resubmitted
application is also subject to review before the FDA accepts it for filing.
The FDA has various programs, including fast track designation, breakthrough therapy designation, accelerated approval, and priority review, which
are intended to expedite or simplify the process for the development and FDA review of drugs that are intended for the treatment of serious or life
threatening diseases or conditions and demonstrate the potential to address unmet medical needs. The purpose of these programs is to provide important
new drugs to patients earlier than under standard FDA review procedures.
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Under the fast track program, the sponsor of a new product candidate may request that the FDA designate the product candidate for a specific
indication as a fast track drug concurrent with, or after, the filing of the IND for the product candidate. To be eligible for a fast track designation, the FDA
must determine, based on the request of a sponsor, that a product is intended to treat patients with a serious or life threatening disease or condition and
demonstrates the potential to address an unmet medical need. The FDA will determine that a product will fill an unmet medical need if it will provide a
therapy where none exists or provide a therapy that may be potentially superior to existing therapy based on efficacy or safety factors. Fast track
designation provides additional opportunities for interaction with the FDA’s review team and may allow for rolling review of NDA components before the
completed application is submitted, if the sponsor provides a schedule for the submission of the sections of the NDA, the FDA agrees to accept sections of
the NDA and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the NDA.
However, the FDA’s time period goal for reviewing an application does not begin until the last section of the NDA is submitted. The FDA may decide to
rescind the fast track designation if it determines that the qualifying criteria no longer apply.
In addition, a sponsor can request breakthrough therapy designation for a drug if it is intended, alone or in combination with one or more other
drugs, to treat patients with a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate
substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in
clinical development. Drugs designated as breakthrough therapies are eligible for intensive guidance from the FDA on an efficient drug development
program, organizational commitment to the development and review of the product including involvement of senior managers, and, like fast track products,
are also eligible for rolling review of the NDA. Both fast track and breakthrough product candidates may be eligible for accelerated approval and/or priority
review, if relevant criteria are met.
Once the submission has been accepted for filing, the FDA begins an in-depth substantive review. Under the PDUFA, the FDA agrees to specific
performance goals for NDA review time through a two-tiered classification system, Standard Review and Priority Review. Standard Review NDAs have a
goal of being completed within a ten-month timeframe after acceptance of filing. A Priority Review designation is given to products that offer major
advances in treatment or provide a treatment where no adequate therapy exists. The goal for completing a Priority Review is six months after acceptance of
filing.
It is likely that our product candidates will be granted a Standard Review. The review process may be extended by the FDA for three additional
months to consider certain information or obtain clarification regarding information already provided in the submission. The FDA may refer applications
for novel products or products which present difficult questions of safety or efficacy to an advisory committee for review, evaluation, and recommendation
as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendation of an advisory committee, but
it considers such recommendations carefully when making decisions. In addition, for combination products, the FDA’s review may include the
participation of both the FDA’s Center for Drug Evaluation and Research, the Center for Biologics Evaluation and Research, and the FDA’s Center for
Devices and Radiological Health. The participation of multiple distinct groups within the FDA has the potential to complicate or prolong review of the
application. If the product is deemed a combination product, additional supporting studies may be required, and may delay an NDA submission.
Before approving an NDA, the FDA may inspect our offices and the facility or facilities where the drug substance or drug product is manufactured.
The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP. FDA may also
inspect sponsor facilities to determine if nonclinical and clinical studies were conducted in compliance with applicable regulations and guidelines.
After the FDA evaluates the NDA and, in some cases, the related manufacturing facilities, it may issue an approval letter or a Complete Response
Letter (CRL) to indicate that the review cycle for an application is complete and that the application is not ready for approval. CRLs generally outline the
deficiencies in the submission and may require substantial additional testing or information in order for the FDA to reconsider the application. Even with
submission of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. If and
when the deficiencies have been addressed to the FDA’s satisfaction, the FDA may issue an approval letter. An approval letter authorizes commercial
marketing of the product with specific prescribing information for specific indications.
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Once issued, the FDA may withdraw product approval if ongoing regulatory requirements are not met or if potential adverse safety findings are
identified after the product reaches the market. In addition, the FDA may require post-approval testing, including Phase 4 studies, and surveillance
programs to monitor the effect of approved products which have been commercialized, and the FDA has the power to prevent or limit further marketing of
a product based on the results of post-marketing programs.
Products may be promoted only for the approved labeled indications and in accordance with the provisions of the approved label, and, even if the
FDA approves a product, the FDA may limit the approved indications for use for the product or impose other conditions, including labeling or distribution
restrictions or other risk-management mechanisms, such as a Black Box Warning, which highlights a specific warning. Further, if there are any
modifications to the product, including changes in indications, labeling, or manufacturing processes or facilities, a company may be required to submit and
obtain FDA approval of a new or supplemental NDA, which may require the company to develop additional data or conduct additional preclinical studies
and clinical trials.
Post-Approval Requirements
Once an NDA is approved, a product will be subject to pervasive and continuing regulation by the FDA, including, among other things,
requirements relating to product/facility listing, recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion, and
reporting of adverse experiences with the product.
In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their
establishments with the FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and state agencies for compliance with
cGMP requirements. Changes to the manufacturing process are strictly regulated and may require prior FDA approval before being implemented. FDA
regulations may also require investigation and correction of any deviations from cGMP and may impose reporting and documentation requirements upon
us and any third-party manufacturers. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality
control to maintain cGMP compliance.
Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if
problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of
unanticipated seriousness, severity, or frequency; with manufacturing processes; or with failure to comply with regulatory requirements, may result in,
among other things:
•
restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls;
•
fines, warning letters or holds on post-approval clinical trials;
•
refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of product license
approvals;
•
product seizure or detention, or refusal to permit the import or export of products; or
•
injunctions or the imposition of civil or criminal penalties.
The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. The FDA does not regulate the
practice of medicine. Physicians may prescribe for off‑label uses; manufacturers may only promote for the approved indications and in accordance with the
provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off‑label uses, and a
company that is found to have improperly promoted off‑label uses may be subject to significant liability, both at the federal and state levels.
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The Food and Drug Administration Amendments Act of 2007 gave the FDA the authority to require a REMS from manufacturers to ensure that the
benefits of a drug or biological product outweigh its risks. In determining whether a REMS is necessary, FDA must consider the size of the population
likely to use the drug, the seriousness of the disease or condition to be treated, the expected benefit of the drug, the duration of treatment, the seriousness of
known or potential adverse events, and whether the drug is a new molecular entity. If the FDA determines a REMS is necessary, the drug sponsor must
agree to the REMS plan at the time of approval. A REMS may be required to include various elements, such as a medication guide or patient package
insert, a communication plan to educate health care providers of the drug’s risks, limitations on who may prescribe or dispense the drug, or other measures
that the FDA deems necessary to assure the safe use of the drug. In addition, the REMS must include a timetable to assess the strategy at 18 months, three
years, and seven years after the approval of the strategy. The FDA may also impose a REMS requirement on a drug already on the market if the FDA
determines, based on new safety information, that a REMS is necessary to ensure that the benefits outweigh the risks of the drug.
Healthcare Reform
The United States and some foreign jurisdictions are considering or have enacted a number of legislative and regulatory proposals to change the
healthcare system in ways that could affect our ability to sell our products profitably. Among policy makers and payors in the United States and elsewhere,
there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality or expanding
access. In the United States, the biopharmaceutical industry has been a particular focus of these efforts and has been significantly affected by federal and
state legislative initiatives, including those designed to limit the pricing, coverage, and reimbursement of pharmaceutical and biopharmaceutical products,
especially under government-funded health care programs, and increased governmental control of drug pricing.
By way of example, in March 2010, the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education
Reconciliation Act of 2010, or collectively the ACA, was signed into law, intended to broaden access to health insurance, reduce or constrain the growth of
healthcare spending, enhance remedies against fraud and abuse, add transparency requirements for the healthcare and health insurance industries, impose
taxes and fees on the healthcare industry, and impose additional health policy reforms.
There have been executive, judicial and Congressional challenges to certain aspects of the ACA. For example, on June 17, 2021 the U.S. Supreme
Court dismissed a challenge on procedural grounds that argued the ACA is unconstitutional in its entirety because the “individual mandate” was repealed
by Congress. Thus, the ACA will remain in effect in its current form.
Other legislative changes have been proposed and adopted in the United States since the ACA. For example, through the process created by the
Budget Control Act of 2011, there are automatic reductions of Medicare payments to providers up to 2% per fiscal year, which went into effect in April
2013 and, following passage of the BBA and the Infrastructure Investment and Jobs Act, will remain in effect until 2031 unless additional Congressional
action is taken. However, COVID-19 relief support legislation suspended the 2% Medicare sequester from May 1, 2020 through March 31, 2022. Under
current legislation the actual reduction in Medicare payments will vary from 1% in 2022 to up to 4% in the final fiscal year of the sequester. In January
2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several types of
providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover
overpayments to providers from three to five years.
Further, prior to the U.S. Supreme Court ruling, on January 28, 2021, President Biden issued an executive order that initiated a special enrollment period
for purposes of obtaining health insurance coverage through the ACA marketplace. The executive order also instructed certain governmental agencies to
review and reconsider their existing policies and rules that limit access to healthcare, including among others, re-examining Medicaid demonstration
projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage
through Medicaid or the ACA. In addition, in August 2022, President Biden signed the Inflation Reduction Act of 2022, or the IRA, into law, which among
other things, extends enhanced subsidies for individuals purchasing coverage in ACA marketplaces through plan year 2025. The IRA also
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eliminates the “donut hole” under the Medicare Part D program beginning in 2025 by significantly lowering the beneficiary maximum out-of-pocket cost
through a newly established manufacturer discount program.
The heightened governmental scrutiny in the United States of pharmaceutical pricing practices in light of the rising cost of prescription drugs and
biologics, also has resulted in executive orders, congressional inquiries, and proposed and enacted federal and state legislation designed to, among other
things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government
program reimbursement methodologies for products. For example, in July 2021, the Biden administration released an executive order, “Promoting
Competition in the American Economy,” with multiple provisions aimed at prescription drugs. In response to Biden’s executive order, on September 9,
2021, HHS released a Comprehensive Plan for Addressing High Drug Prices that outlines principles for drug pricing reform and sets out a variety of
potential legislative policies that Congress could pursue as well as potential administrative actions HHS can take to advance these principles. Additionally,
on March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 into law, which eliminates the statutory Medicaid drug rebate cap,
currently set at 100% of a drug’s average manufacturer price, for single source and innovator multiple source drugs, which began on January 1, 2024.
Further, on August 16, 2022, the IRA was signed into law. Among other things, the IRA requires manufacturers of certain drugs to engage in price
negotiations with Medicare (beginning in 2026), imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace
inflation (first due in 2023), and replaces the Part D coverage gap discount program with a new discounting program (beginning in 2025). The IRA permits
the Secretary of the Department of HHS to implement many of the provisions through guidance, as opposed to regulation, for the initial years. The
provisions began to take effect progressively in fiscal year 2023. On August 29, 2023, HHS announced the list of the first ten drugs that will be subject to
price negotiations, although the Medicare drug price negotiation program is currently subject to legal challenges. Subsequently, the HHS has announced
additional drugs selected for the Medicare drug price negotiation program. For that and other reasons, it is currently unclear how the IRA will be
effectuated but it is likely to have a significant impact on the pharmaceutical industry. Further, in response to the Biden administration’s October 2022
executive order, on February 14, 2023, HHS released a report outlining three new models for testing by the Centers for Medicare and Medicaid Services
Innovation Center that will be evaluated on the ability to lower the cost of drugs, promote accessibility, and improve quality of care. It is unclear whether
the models will be utilized in any health reform measures in the future. In the coming years, additional legislative and regulatory changes could be made to
governmental health programs that could significantly impact pharmaceutical companies and the success of our product candidates.
In the coming years, additional legislative and regulatory changes could be made to governmental health programs that could significantly impact
pharmaceutical companies and the success of our product candidates. At the state level, individual states in the United States have increasingly passed
legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement
constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to
encourage importation from other countries and bulk purchasing. Some third-party payors also require pre-approval of coverage for new or innovative
devices or therapies before they will reimburse healthcare providers that use such therapies.
We expect that current and other healthcare reform measures that may be adopted in the future, as well as the trend toward managed healthcare and
increasing influence of managed care organizations, may result in more rigorous coverage criteria and lower reimbursement, and in additional downward
pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or other government-funded programs may
result in a similar reduction in payments from private payors. The implementation of current and future cost containment measures or other healthcare
reforms may adversely affect our operations and prevent us from being able to generate revenue, attain profitability or commercialize our product
candidate.
Orphan Drug Designation
The FDA may grant orphan drug designation to a drug intended to treat a rare disease or condition, which is defined as a disease or condition that
affects fewer than 200,000 individuals in the United States or more than 200,000 individuals where there is no reasonable expectation that the product
development cost will be recovered
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from product sales in the United States. Orphan drug designation must be requested before submitting an NDA and does not convey any advantage in, or
shorten the duration of, the regulatory review or approval process. ADX‑2191 has received orphan designation for the treatment of retinitis pigmentosa.
If an orphan drug-designated product subsequently receives the first FDA approval for the disease specified in the orphan drug designation, the
sponsor will be entitled to seven years of product marketing exclusivity, which means that the FDA may not approve any other applications to market the
same drug for the same indication, except in very limited and rare circumstances, for seven years. Orphan drug exclusivity does not prevent the FDA from
approving a different drug or biologic for the same disease or condition, or the same drug or biologic for a different disease or condition. Among the other
benefits of Orphan Drug Designation are tax credits for certain research and a waiver of the NDA application fee. If a competitor obtains approval of the
same drug, as defined by the Orphan Drug Act, before we do or if our product candidate is determined to be contained within the competitor’s product for
the same indication or disease, the competitor’s exclusivity could block the approval of our product candidate in the designated orphan indication for seven
years, unless superior safety or efficacy of our drug is demonstrated.
A designated orphan drug may lose orphan drug exclusivity if subsequently approved for a use that is broader than the indication received for
orphan designation. In addition, exclusive marketing rights in the United States may be lost if the FDA later determines that the request for designation was
materially defective or if the manufacturer is unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or
condition.
Patent Term Restoration and Marketing Exclusivity
Depending upon the timing, duration, and specifics of FDA approval of the use of our drug candidates, some of our United States patents may be
eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman
Act. The Hatch-Waxman Act permits a patent restoration term of up to five years as compensation for patent term lost during product development and the
FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the
product’s approval date. The patent term restoration period is generally one-half the time between the effective date of an IND, and the submission date of
an NDA, plus the time between the submission date of an NDA and the approval of that application. Only one patent applicable to an approved drug is
eligible for the extension and the application for extension must be made prior to expiration of the patent. The United States Patent and Trademark Office,
in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In the future, we intend to apply for
restorations of patent term for some of our currently owned or licensed patents to add patent life beyond the current expiration date, depending on the
expected length of clinical trials and other factors involved in the submission of the relevant NDA.
Market exclusivity provisions under the FDCA also can delay the submission or the approval of certain applications. The FDCA provides a five-
year period of non-patent marketing exclusivity within the United States to the first applicant to gain approval of an NDA for a new chemical entity. A drug
is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule responsible
for the action of the drug substance. During the exclusivity period, the FDA may not accept for review an abbreviated new drug application (ANDA) or a
505(b)(2) NDA submitted by another company for another version of such drug where the applicant does not own or have a legal right of reference to all
the data required for approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-
infringement. The FDCA also provides three years of marketing exclusivity for a 505(b)(1) NDA, 505(b)(2) NDA, or supplement to an approved NDA if
new clinical investigations other than bioavailability studies (e.g., investigations that support new indications, dosages, or strengths of an existing drug)
were conducted or sponsored by the applicant and are deemed by the FDA to be essential to the approval of the application. The three-year exclusivity
covers only the conditions associated with the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing the
original active agent. Five-year and three-year exclusivity will not delay the submission or approval of a full 505(b)(1) NDA.
Manufacturing Requirements
We and our third-party manufacturers must comply with applicable FDA regulations relating to cGMP regulations and, if applicable, quality system
regulation requirements for medical devices. The cGMP regulations include requirements relating to, among other things, organization of personnel,
buildings and facilities, equipment,
29
control of components and drug product containers and closures, production and process controls, packaging and labeling controls, holding and
distribution, laboratory controls, records and reports, and returned or salvaged products. The manufacturing of the drug product requires multiple starting
raw materials and excipients of a specified purity level to obtain the required product quality. Failure of any of the raw materials or excipients to meet
specification could impact product quality and may impact regulatory review by the FDA. The manufacturing facilities for our products must meet cGMP
requirements to the satisfaction of the FDA and may be subject to a pre-approval inspection before we can use them to manufacture our products. We and
our third-party manufacturers are also subject to periodic unannounced inspections of facilities by the FDA and other authorities, including procedures and
operations used in the testing and manufacture of our products to assess our compliance with applicable regulations. Failure to comply with statutory and
regulatory requirements subjects a manufacturer to possible legal or regulatory action, including, among other things, warning letters, voluntary corrective
action, the seizure of products, injunctions, consent decrees placing significant restrictions on or suspending manufacturing operations and civil and
criminal penalties.
Other Regulatory Requirements
We are also subject to various laws and regulations regarding laboratory practices, the experimental use of animals, and the use and disposal of
hazardous or potentially hazardous substances in connection with our research. In each of these areas, as above, the FDA has broad regulatory and
enforcement powers, including, among other things, the ability to levy fines and civil penalties, suspend or delay issuance of approvals, seize or recall
products, and withdraw approvals, any one or more of which could have an adverse effect on our ability to operate our business and generate revenues.
Compliance with applicable environmental laws and regulations is expensive, and current or future environmental regulations may impair our research,
development, and production efforts, which could harm our business, operating results and financial condition. There are evolving legal requirements and
other statutory and regulatory regimes that will continue to affect our business.
Research and Development Expenses
Substantially all of our research and development expenses incurred to date have been related to the development of reproxalap and ADX‑2191, as
well as proof of concept trials with ADX‑629. Our research and development expenses totaled $48.2 million for the year ended December 31, 2024 and
$29.5 million for the year ended December 31, 2023.
We anticipate that we will incur additional research and development expenses in the future as we evaluate and possibly pursue the development of
our product candidates for additional indications, or develop additional product candidates.
We recognize research and development expenses as incurred. Our research and development expenses consist primarily of:
•
salaries and related expenses for personnel;
•
fees paid to consultants and contract research organizations in conjunction with independently monitoring clinical trials and acquiring and
evaluating data in conjunction with clinical trials, including all related fees such as investigator grants, patient screening, laboratory work,
data compilation, and statistical analysis;
•
costs incurred with third parties related to the establishment of a commercially viable manufacturing process for our product candidates;
•
costs related to production of clinical materials, including fees paid to contract manufacturers;
•
costs related to upfront and milestone payments under in-licensing agreements as well as costs for unapproved inventory for which there is
no future alternative use;
•
costs related to compliance with FDA regulatory requirements;
•
consulting fees paid to third-parties involved in research and development activities; and
30
•
costs related to stock options or other stock-based compensation granted to personnel in development functions.
We expect that a large percentage of our research and development expenses in the future will be incurred in support of our current and future non-
clinical, preclinical and clinical development programs. Expenditures are subject to numerous uncertainties in terms of timing and cost to completion. We
expect to continue to develop stable formulations of our product candidates; test such formulations in preclinical studies for toxicology, safety and efficacy
and conduct clinical trials for each product candidate. We anticipate funding clinical trials for our product candidates ourselves, but we may engage
collaboration partners at certain stages of clinical development. As we obtain results from clinical trials, we may elect to discontinue or delay clinical trials
for certain product candidates or programs in order to focus our resources on more promising product candidates or programs. Completion of clinical trials
by us or our future collaborators may take several years or more, the length of time generally varying with the type, complexity, novelty and intended use
of a product candidate. The costs of clinical trials may vary significantly over the life of a project owing to but not limited to the following:
•
the number of sites included in the trials;
•
the length of time required to enroll eligible patients;
•
the number of patients that participate in the trials;
•
the number of doses that patients receive;
•
the drop-out or discontinuation rates of patients;
•
the duration of patient follow-up;
•
the phase of development the product candidate is in; and
•
the efficacy and safety profile of the product candidate.
Our expenses related to clinical trials are based on estimates of the services received and efforts expended pursuant to contracts with multiple
research institutions and contract research organizations that conduct and manage clinical trials on our behalf. The financial terms of agreements are subject
to negotiation and vary from contract to contract and may result in uneven payment flows. Generally, agreements set forth the scope of work to be
performed at a fixed fee or unit price. Payments under the contracts depend on factors such as the successful enrollment of patients or the completion of
clinical trial milestones. Expenses related to clinical trials generally are accrued based on contracted amounts applied to the level of patient enrollment and
activity according to the protocol. If timelines or contracts are modified based upon changes in the clinical trial protocol or scope of work to be performed,
we modify our estimates of accrued expenses accordingly on a prospective basis.
None of our product candidates have received FDA or foreign regulatory marketing approval. In order to grant marketing approval, a health
authority such as the FDA or foreign regulatory agencies must conclude that clinical and preclinical data establish the safety and efficacy of our product
candidates with an appropriate benefit to risk profile relevant to a particular indication, and that the product can be manufactured under cGMP in a
reproducible manner to deliver intended performance in terms of stability, quality, purity and potency. Until a health authority has completed review of our
submission, there is no way to predict the outcome of the review. Even if the clinical studies meet predetermined primary endpoints, and a registration
dossier is accepted for filing, a health authority could still determine that an appropriate benefit to risk relationship does not exist for the indication that we
are seeking.
We cannot forecast with any degree of certainty which of our product candidates will be subject to future collaborations or how such arrangements
would affect our development plan or capital requirements.
As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our development projects or when
and to what extent we will receive cash inflows from the commercialization and sale of an approved product candidate.
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Corporate Information
We were incorporated in the state of Delaware on August 13, 2004 as Neuron Systems, Inc. On December 20, 2012, we changed our name to
Aldexa Therapeutics, Inc. and on March 17, 2014, we changed our name to Aldeyra Therapeutics, Inc. Our principal executive offices are located at 131
Hartwell Avenue, Suite 320, Lexington, Massachusetts 02421. Our telephone number is (781) 761-4904. Our website address is www.aldeyra.com.
Information contained on our website is not incorporated by reference into this annual report on Form 10-K, and you should not consider information
contained on our website to be part of this annual report on Form 10-K or in deciding whether to purchase shares of our common stock. Our annual reports
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8‑K, and amendments to reports filed or furnished pursuant to Sections 13(a) and
15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on the Investors portion of our website at http://ir.aldeyra.com/ as
soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
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ITEM 1A. Risk Factors.
Our business is subject to numerous risks. You should carefully consider the risks described below together with the other information set forth in
this annual report on Form 10-K, which could materially affect our business, financial condition, and future results. The risks described below are not the
only risks facing our company. Risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely
affect our business, prospects, financial condition, and operating results.
Summary of Risks Related to our Business
Below is a summary of the principal factors that make an investment in our common stock speculative or risky. The risk factor summary does not address
all of the risks that we face. Additional discussion of the risks summarized in the risk factor summary, and other risks that we face, can be found below and
should be carefully considered, together with other information in this annual report on Form 10-K and our other filings with the Securities and Exchange
Commission before making investment decisions regarding our common stock.
•
Our business is dependent in large part on the successful commercialization of reproxalap. If we are unable to successfully obtain marketing
approval for reproxalap, or experience significant delays in doing so, or if, after obtaining marketing approval, we or our strategic partners
fail to successfully commercialize reproxalap, our business will be materially harmed.
•
To generate revenue, we will depend on FDA approval and successful commercialization of reproxalap. Our success in obtaining regulatory
approval of reproxalap from the FDA depends on whether we successfully addressed the issues raised by the FDA in the reproxalap
Complete Response Letter, and our ability to address any issues the FDA may raise in the future. If we are unable to successfully obtain FDA
approval, or FDA approval is delayed or limited, our ability to generate revenue will be significantly delayed.
•
If we remain responsible for funding further development and commercialization of reproxalap, we may be unable to raise the additional
capital required to further develop and commercialize reproxalap or enter into a collaboration agreement with another pharmaceutical
company with equivalent or comparable terms, or at all.
•
If we fail to develop and commercialize other product candidates, we may be unable to grow our business.
•
Reproxalap and our other product candidates are subject to extensive regulation, compliance with which is costly and time consuming, and
such regulation may cause unanticipated delays, or prevent the receipt of the required approvals to commercialize our product candidates.
•
If our competitors develop treatments for the target indications of our product candidates that are approved more quickly than ours, marketed
more successfully, or demonstrated to be safer or more effective than our product candidates, our commercial opportunity will be reduced or
eliminated.
•
We have incurred significant operating losses since inception and we expect to incur significant losses over the next several years. We may
never become profitable or, if achieved, be able to sustain profitability.
•
We will require substantial additional financing, and a failure to obtain this necessary capital when needed on acceptable terms, or at all,
could force us to delay, limit, reduce, or terminate our product development, other operations or commercialization efforts.
•
We rely on third parties to conduct our clinical trials. If any third party does not meet our deadlines or otherwise conduct the trials as required
and in accordance with regulations, our clinical development programs could be delayed or unsuccessful and we may not be able to obtain
regulatory approval for or successfully commercialize our product candidates when expected, or at all.
•
Public health emergencies, epidemics or pandemics may impact our business.
•
Adverse developments affecting the financial services industry, which could adversely affect our current and projected business operations,
our financial condition, and our results of operations.
33
Risks Related to the Potential Development and Commercialization of Reproxalap and our Product Candidates
Our business is dependent in large part on the successful commercialization of reproxalap, if approved. If we are unable to successfully obtain
marketing approval for reproxalap or experience significant delays in doing so, or if, after obtaining marketing approvals, we or our strategic partners
fail to successfully commercialize these product candidates, our business will be materially harmed.
We are dependent in large part on regulatory approval and successful commercialization of reproxalap for our future business success. There is a
significant risk that we will fail to successfully obtain marketing approval and/or we or our partners will fail to successfully commercialize reproxalap. Of
the large number of drugs in development in the pharmaceutical industry, only a small percentage result in the submission of an NDA to the FDA, and even
fewer are approved for commercialization.
Prior to and following potential NDA approval, we will invest a significant portion of our time and financial resources on the commercialization of
reproxalap. We cannot accurately predict when or if reproxalap will receive marketing approval. Our ability to generate product revenue will depend on our
obtaining marketing approval for, and commercializing reproxalap alone or with others. The future regulatory and commercial success of reproxalap and
our other product candidates is subject to a number of risks, including the following:
•
obtaining marketing approval for reproxalap or any other product candidates;
•
our ability to negotiate and enter into a collaboration agreement with a suitable third party on acceptable terms for the commercialization of
reproxalap;
•
manufacturing at commercial scale, marketing, selling, and distributing those products for which we obtain marketing approval;
•
achieving an adequate level of market acceptance of and obtaining and maintaining coverage and adequate reimbursement from third‑party
payors for any products we commercialize;
•
obtaining, maintaining, and protecting our intellectual property rights;
•
we may not be able to provide sufficient evidence of safety and efficacy to obtain regulatory approval;
•
the FDA, or comparable foreign regulatory bodies, may implement new standards, or change the interpretation of existing standards or
requirements for regulatory approval, in general or with respect to the indications for which we seek approval;
•
the FDA, or comparable foreign bodies, may require additional clinical data, as was the case with the reproxalap Complete Response Letter;
•
we may not have sufficient financial and other resources to pursue our business plans, complete necessary clinical trials of our product
candidates, and commercialize our approved products, if any;
•
if approved, reproxalap and our other product candidates will compete with well-established or other products or therapeutic options already
approved for marketing by the FDA or comparable foreign regulatory bodies;
•
competitive products may be more effectively or comprehensively marketed to physicians or patients, or may be contracted with payors more
successfully;
•
the results of our clinical trials may not meet the endpoints or level of statistical or clinical significance required by the FDA or comparable
foreign regulatory bodies for marketing approval;
•
the safety and efficacy results of our later phase or larger clinical trials may not confirm the results of our earlier trials;
•
patients in our clinical trials may demonstrate greater response rates or improvements from vehicle or in the non-treatment arm then was
expected when designing and powering our clinical trials;
•
there may be variability in patients, adjustments to clinical trial procedures, and inclusion of additional clinical trial sites;
34
•
the initial parts of adaptive clinical trials are not designed to be pivotal or definitive, and as such we may not satisfy the designated endpoints
and may need to revise the design or endpoints to achieve success in later parts of the trial or potentially abandon the trial;
•
we may not be able to timely or adequately finalize the design or formulation of any product candidate or demonstrate that a formulation of
our product candidate will be stable for commercially reasonable time periods;
•
we may be adversely affected by legislative or regulatory reform of the health care system in the United States or other jurisdictions in which
we may do business; and
•
we may not be able to obtain, maintain, or enforce our patents and other intellectual property rights .
Furthermore, even if we do receive regulatory approval to market reproxalap or any of our other product candidates, any such approval may be
subject to limitations on the indicated uses for which we may market the product. Accordingly, even if we are able to obtain the requisite financing to
commercialize our product candidates or continue to fund our development programs, we cannot assure that reproxalap will be successfully
commercialized, or our other product candidates will be successfully developed or commercialized. If we are unable to obtain regulatory approval for or, if
approved, we or any of our future partners are unable to successfully commercialize reproxalap or our other product candidates, we may not be able to
generate sufficient revenue to continue our business.
To generate revenue, we will depend on FDA approval and successful commercialization of reproxalap. Our success in obtaining regulatory approval
of reproxalap from the FDA depends on whether we successfully addressed the issues raised by the FDA in the reproxalap Complete Response Letter,
and our ability to address any issues the FDA may raise in the future. If we are unable to successfully obtain FDA approval, or FDA approval is
delayed or limited, our ability to generate revenue will be significantly delayed.
Our ability to generate revenue will depend on the successful development, regulatory approval and commercialization of reproxalap. We submitted
an NDA for reproxalap for the treatment of the signs and symptoms of dry eye disease in December 2022. In February 2023, the FDA accepted the
reproxalap NDA for filing and set a PDUFA date of November 23, 2023. On November 27, 2023, we announced that we had received a Complete
Response Letter from the FDA (the reproxalap Complete Response Letter). In the reproxalap Complete Response Letter, the FDA stated that the NDA did
not demonstrate “efficacy in treating ocular symptoms associated with dry eyes” and that “at least one additional adequate and well-controlled study to
demonstrate a positive effect on the treatment of ocular symptoms of dry eye” should be conducted. On November 16, 2023, prior to receiving the
reproxalap Complete Response Letter, we submitted to the FDA a Special Protocol Assessment (SPA) for a proposed Phase 3 dry eye disease chamber
crossover clinical trial (the chamber crossover trial). A SPA is an advanced declaration from the FDA that a planned trial’s design, clinical endpoints, and
statistical analyses could potentially result in data acceptable for FDA review towards approval for the proposed indication. In response to the SPA, the
FDA issued a SPA - No Agreement letter which provided feedback to us on the proposed chamber crossover trial. Based on the feedback, we amended the
design and protocol of the chamber crossover trial and, per FDA SPA Guidance, held a Type A meeting with the FDA. The chamber crossover trial, as
announced on August 8, 2024, achieved the primary endpoint (P=0.004) of reducing patient-reported ocular discomfort in a dry eye chamber. In October
2024, we filed the Resubmitted NDA, which included results from the completed chamber crossover trial. On November 18, 2024, we announced that the
FDA had accepted for review the Resubmitted NDA and assigned a PDUFA date of April 2, 2025.
Notwithstanding that we believe that the FDA concurred with the principal aspects of the chamber crossover trial design based on the minutes of the
Type A meeting, we did not obtain SPA approval from the FDA and we cannot be certain that the design, conduct, and analysis of the results of the
submitted chamber crossover trial will be sufficient to establish the effectiveness of reproxalap for treatment of dry eye disease to the FDA’s satisfaction,
and therefore allow us to receive approval of the Resubmitted NDA. The FDA could require additional studies or clinical trials, which would require us to
expend more resources than we planned or that are available to us, and could substantially delay approval, if any, of the Resubmitted NDA. Any such
requirement would increase our costs and delay approval and commercialization of reproxalap for the treatment of dry eye disease and would have a
material adverse effect on our business and financial condition. Additionally, the FDA has substantial discretion in
35
the approval process and may disagree with our interpretation of, or the sufficiency of, the data from our clinical trials. Clinical trial results frequently are
susceptible to varying interpretations, and regulatory authorities may disagree on what are appropriate methods for analyzing data, which may delay, limit,
or prevent regulatory approvals. There can be no assurance that the Resubmitted NDA to the FDA will be approved in a timely manner or at all. If
marketing approval for reproxalap is delayed, limited, or denied, our ability to market reproxalap, and our ability to generate product sales, would be
adversely affected. Even if reproxalap is approved for the treatment of dry eye disease, the FDA may limit use to certain patient populations, include
extensive warnings on the product labeling, or require costly ongoing requirements for post-marketing clinical studies and surveillance or other risk
management measures to monitor the safety or efficacy of reproxalap.
Any regulatory approval of reproxalap, once obtained, may be withdrawn. Ultimately, the failure to obtain and maintain regulatory approvals would
prevent reproxalap from being marketed and would have a material adverse effect on our business.
If the Option is not exercised by AbbVie and we remain responsible for funding further development and commercialization of reproxalap, we may be
unable to raise the additional capital required to further develop and commercialize reproxalap or enter into a collaboration agreement with another
pharmaceutical company with equivalent or comparable terms, or at all.
If the exclusive option (the Option) to enter into the Co-Development, Co-Commercialization and License Agreement (the Collaboration
Agreement) is not exercised by AbbVie Inc. (AbbVie), pursuant to the exclusive option agreement with AbbVie, we will be responsible for funding further
development and commercialization of reproxalap, and may be unable to raise the additional capital required to further develop and commercialize
reproxalap or enter into a collaboration agreement with another pharmaceutical company with equivalent or comparable terms, or at all. If we are unable to
raise capital when needed or on attractive terms, we could be forced to delay, reduce, or eliminate our research and development programs and reproxalap
commercialization efforts.
If we are required to continue the development and commercialization of reproxalap on our own, we may need to build marketing, sales,
distribution, managerial, and other non-technical capabilities to commercialize reproxalap or make arrangements with third parties to perform certain
services. The establishment and development of our own sales force or the establishment of a contract sales force to market reproxalap would be expensive
and time-consuming and could delay any commercial launch. Moreover, we cannot be certain that we will be able to successfully develop commercial
capabilities. We would have to compete with other pharmaceutical and biotechnology companies to recruit, hire, train and retain marketing and sales
personnel. We would also face competition in the search for third parties to assist with the sales and marketing efforts of reproxalap.
If the Option is exercised and the Collaboration Agreement is executed, then pursuant to the terms of the Collaboration Agreement, we would work
closely with AbbVie to execute a commercialization plan for reproxalap in the United States, and the commercialization plan may never achieve desired
outcomes.
Pursuant to the terms of the Collaboration Agreement, we would work with AbbVie to execute a joint commercialization plan for reproxalap in the
United States and execute upon the commercialization plan with the intention to optimize the commercial potential of reproxalap. If the collaboration is not
successful, then our business, financial condition, and results of operations could be adversely affected.
If we fail to develop and commercialize other product candidates, we may be unable to grow our business.
As part of our growth strategy, we plan to evaluate the development and commercialization of other therapies related to immune-mediated and
metabolic diseases. We will evaluate internal opportunities from our compound libraries, and also may choose to continue to in-license or acquire other
product candidates, as well as commercial products, to treat patients suffering from immune-mediated and metabolic disorders with high unmet medical
needs and limited treatment options. New product candidates will require additional, time-consuming development efforts prior to commercial sale,
including preclinical studies, clinical trials, and approval by the FDA and/or applicable foreign regulatory authorities. In-licensed product candidates may
have been unsuccessfully developed by others in indications similar to those that we may pursue. All product candidates are prone to the risks of failure
that are inherent in pharmaceutical product development, including the possibility that the product candidate will not be
36
shown to be sufficiently safe and/or effective for approval by regulatory authorities. For example, in June 2023, we received a Complete Response Letter
from the FDA regarding our NDA for ADX‑2191 for the treatment of primary vitreoretinal lymphoma (the ADX‑2191 Complete Response Letter). The
ADX‑2191 Complete Response Letter stated that there was a “lack of substantial evidence of effectiveness” due to “a lack of adequate and well-controlled
investigations” in the literature-based NDA submission. In light of the FDA’s ADX‑2191 Complete Response Letter, we halted pre-commercial activities
related to ADX‑2191 for the treatment of primary vitreoretinal lymphoma. In January 2024 we de-prioritized the previously announced programs of
ADX‑629 in chronic cough and idiopathic nephrotic syndrome due to regulatory and trial feasibility challenges, respectively. Additionally, in the year
ended December 31, 2024, we deprioritized and subsequently ceased development of ADX‑2191 for the treatment of proliferative vitreoretinopathy due to
the requirement from the FDA to run clinical trials that we did not deem to be feasible. If marketing approval for our other product candidates is delayed,
limited or denied, our ability to market the product candidate, and our ability to generate product sales, would be adversely affected. Such a delay could
occur because a competitor product is approved before our product and secures patent protection, market exclusivity, or both, and thereby precludes our
product approval for a number of years. It is also possible that additional studies or clinical trials may not suffice to make our application approvable. In
addition, we cannot assure you that any such products that are approved will be manufactured or produced economically, adequately priced, successfully
commercialized, or widely accepted in the marketplace, or will be more effective than other commercially available alternatives.
Any termination or suspension of, or delays in the commencement or completion of, our clinical trials could result in increased costs to us, delay or
limit our ability to generate revenue, and adversely affect our commercial prospects.
Delays in the commencement or completion of our ongoing or planned clinical trials for our product candidates could significantly affect our
product development costs and timeline. We do not know whether future trials will begin on time or be completed on schedule, if at all. The
commencement and completion of clinical trials can be delayed for a number of reasons, including delays related to:
•
public health epidemics or pandemics or responses thereto;
•
the FDA, or an institutional review board, or IRB, failing to grant permission to proceed or placing a clinical trial on hold;
•
subjects failing to enroll or remain in our clinical trials at the rate we expect;
•
subjects choosing an alternative treatment for the indication for which we are developing our product candidates, or participating in
competing clinical trials;
•
lack of adequate funding to continue the clinical trial;
•
subjects experiencing severe, serious, or unexpected drug-related adverse effects, whether drug-related or otherwise;
•
a facility manufacturing our product candidates or drug product components being ordered by the FDA or other government or regulatory
authorities to temporarily or permanently shut down due to violations of cGMP or other applicable requirements, or due to infections or
cross-contaminations of product candidates in the manufacturing process;
•
any changes to our manufacturing process that may be necessary or desired;
•
inability to timely manufacture sufficient quantities of the applicable product candidate for a clinical trial or expiration of materials intended
for use in a clinical trial;
•
third-party clinical investigators losing the licenses or permits necessary to perform our clinical trials, or not performing our clinical trials on
our anticipated schedule or consistent with the clinical trial protocol, cGMP, or regulatory requirements, or other third parties not performing
data collection or analysis in a timely or accurate manner;
37
•
inspections of clinical trial sites by the FDA or the finding of regulatory violations by the FDA or IRB, that require us or others to undertake
corrective action, result in suspension or termination of one or more sites or the imposition of a clinical hold in part or on the entire trial, or
prohibit us from using some or all of the data in support of our marketing applications;
•
delays in shipment of clinical trial material reaching clinical sites;
•
third-party contractors becoming debarred or suspended or otherwise penalized by the FDA or other government or regulatory authorities for
violations of regulatory requirements, in which case we may need to find a substitute contractor, and we may not be able to use some or all of
the data produced by such contractors in support of our marketing applications; or
•
one or more IRBs refusing to approve, suspending, or terminating a clinical trial at an investigational site, precluding enrollment of additional
subjects, or withdrawing approval of the trial.
Product development costs will increase if we have delays in testing or approval of our product candidates or if we need to perform more, larger, or
longer clinical trials than planned. Additionally, changes in regulatory requirements and policies may occur and we or our partners may need to amend
clinical trial protocols to reflect these changes. Amendments may require us to resubmit our clinical trial protocols to IRBs for reexamination, which may
impact the costs, timing, or successful completion of a clinical trial. If we experience delays in completion of, or, if we, the FDA, or other regulatory
authorities, the IRB, other reviewing entities, or any of our clinical trial sites suspend or terminate any of, our clinical trials, the commercial prospects for a
product candidate may be harmed and our ability to generate product revenue, if any, will be delayed. In addition, many of the factors that cause or lead to
termination or suspension of, or a delay in the commencement or completion of, clinical trials may also ultimately lead to the denial of regulatory approval
of a product candidate. Further, if one or more clinical trials are delayed, our competitors may be able to bring products to market before we do, and the
commercial viability of our product candidates could be significantly reduced.
Reproxalap and our other product candidates are subject to extensive regulation, compliance with which is costly and time consuming, and such
regulation may cause unanticipated delays, or prevent the receipt of the required approvals to commercialize our product candidates.
The clinical development, manufacturing, labeling, storage, record-keeping, advertising, promotion, import, export, marketing, and distribution of
our product candidates are subject to extensive regulation by the FDA in the United States and by comparable authorities in foreign markets. In the United
States, we are not permitted to market our product candidates until we receive regulatory approval from the FDA. The process of obtaining regulatory
approval is expensive and time-consuming, and can vary substantially based upon the type, complexity, and novelty of the products involved, as well as the
target indication, and patient population. Approval policies or regulations may change, and the FDA has substantial discretion in the drug approval process,
including the ability to delay, limit, or deny approval of a product candidate for many reasons. Despite the time and expense invested in clinical
development of product candidates, regulatory approval, and subsequent commercial success is uncertain and not guaranteed.
Reproxalap and our other product candidates, and the activities associated with development and commercialization, including testing, manufacture,
safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale, and distribution, are subject to extensive regulation by the FDA
and other regulatory agencies in the United States and by comparable authorities in other jurisdictions.
Our ongoing research and development activities and planned clinical development and commercialization for our product candidates may be
delayed, modified, or ceased for a variety of reasons, including:
•
determining that a product candidate is ineffective or potentially causes harmful side effects during preclinical studies or clinical trials;
•
adverse events which had initially been considered unrelated to the product candidate may later, even following approval and/or
commercialization, be found to be caused by the product candidate;
38
•
difficulty establishing predictive preclinical models for demonstration of safety and efficacy of a product candidate in one or more potential
therapeutic areas for clinical development;
•
patients in our clinical trials may demonstrate greater response rates or improvements from vehicle or standard of care than was expected
when designing and powering our clinical trials;
•
lack of availability of, or difficulty recruiting and retaining, a sufficient number of patients to adequately power our clinical trials;
•
difficulties in manufacturing a product candidate, including the inability to manufacture a product candidate in a sufficient quantity, suitable
form, or in a cost-effective manner, or under processes acceptable to the FDA for marketing approval or commercial sale;
•
the proprietary rights of third parties, which may preclude us from developing or commercializing a product candidate;
•
determining that a product candidate may be uneconomical for us to develop or commercialize, or may fail to achieve market acceptance or
adequate pricing or reimbursement;
•
determining that one or more clinical trials that may be required for approval of a product candidate is not feasible;
•
our expectations regarding our expenses and revenue, the sufficiency or use of our cash resources, and needs for additional financing;
•
a safety concern or signal may arise that triggers a clinical hold;
•
any negative results or perceived negative results in clinical trials for one indication may have an adverse effect on our ability to develop and
potentially commercialize reproxalap or our other product candidates for the treatment of another indication;
•
our inability to secure strategic partners which may be necessary for advancement of a product candidate into clinical development or
commercialization; or
•
our prioritization of other indications or product candidates for advancement.
The FDA or comparable foreign regulatory authorities can delay, limit, or deny approval of a product candidate for many reasons, including but not
limited to:
•
such authorities may disagree with the design, conduct, or implementation of our or any of our future development partners’ clinical trials,
including the endpoints of our clinical trials;
•
such authorities may require clinical data in addition to clinical trial programs we expect, or may require changes to the designs and
endpoints of subsequent clinical trials;
•
a competitor product may have patent protection or another type of market exclusivity that delays approval of our product;
•
we or any of our future development partners may be unable to demonstrate to the satisfaction of the FDA or other regulatory authorities that
a product candidate is safe and effective for any indication;
•
such authorities may not accept clinical data from trials if conducted at clinical facilities or in countries where the standard of care is
potentially different from the United States;
•
the results of clinical trials may not demonstrate the safety or efficacy required by such authorities for approval;
•
we or any of our future development partners may be unable to demonstrate that the clinical or other benefits of a product candidate outweigh
safety risks;
•
such authorities may disagree with our interpretation of data from preclinical studies or clinical trials or the design of studies or trials, or
require additional trials and data;
39
•
changes in the leadership or operation of such authorities, which may result in, among other things, the implementation of new standards, or
changes to the interpretation or enforcement of existing regulatory standards and requirements;
•
such authorities may find deficiencies in the manufacturing processes or facilities of third-party manufacturers with which we or any of our
future development partners contract for clinical and commercial supplies; or
•
the approval policies, standards, or regulations of such authorities may significantly change in a manner rendering our or any of our future
development partners’ clinical data insufficient for approval.
With respect to foreign markets, approval procedures vary among countries and, in addition to the aforementioned risks, can involve additional
product testing, administrative review periods, and agreements with pricing authorities. In addition, events raising questions about the safety of certain
marketed pharmaceuticals may result in increased cautiousness by the FDA and comparable foreign regulatory authorities in reviewing new drugs based on
safety, efficacy, or other regulatory considerations and may result in significant delays in obtaining regulatory approvals. Any delay in obtaining, or
inability to obtain, applicable regulatory approvals would prevent us or any of our future development partners from commercializing our product
candidates. Moreover, we cannot predict healthcare reform initiatives, including potential reductions in federal funding or insurance coverage, that may be
adopted in the future and whether or not any such reforms would have an adverse effect on our business and our ability to obtain regulatory approval for
our current or future product candidates. There are evolving legal requirements that will continue to affect our business.
Because the Company has no experience in commercializing pharmaceutical products, there is a limited amount of information about us upon which
to evaluate our product candidates and business prospects.
We have not yet demonstrated an ability to successfully overcome many of the pre-commercial and commercial risks and uncertainties frequently
encountered by companies in new and rapidly evolving fields, particularly in the biopharmaceutical area. For example, to execute our business plan we will
need to successfully:
•
execute our product candidate development activities, including successfully designing and completing our clinical trial programs and
product design and formulation of future product candidates, in a cost- effective manner;
•
file for and obtain required regulatory approvals for our product candidates;
•
enter into a collaboration agreement with a suitable third party on acceptable terms for the commercialization of reproxalap;
•
manage our spending as costs and expenses increase due to the performance and completion of clinical trials, attempting to obtain regulatory
approvals, manufacturing, and commercialization;
•
secure substantial additional funding;
•
develop and maintain successful strategic relationships;
•
build and maintain a strong intellectual property portfolio;
•
build and maintain appropriate clinical, regulatory, quality, manufacturing, compliance, sales, distribution, and marketing capabilities on our
own or through third parties;
•
implement and maintain operational, financial, and management systems;
•
price our product candidates, if approved, at expected levels and obtain and maintain sufficient insurance and reimbursement from insurers
and other payors; and
•
gain broad market acceptance for our product candidates.
If we are unsuccessful in accomplishing these objectives, we may not be able to develop product candidates, raise capital, expand our business, or
continue our operations. Further, even if we are successful in clinical trials of
40
product candidates, we may choose to place further development or commercialization on hold given perceived marketing challenges or the relative
differences in commercial attractiveness within our portfolio.
The results of preclinical studies and earlier clinical trials are not always predictive of future results. Any product candidate we or any of our future
development partners advance into clinical trials may not have favorable results in later clinical trials, if any, or receive regulatory approval.
Drug development has inherent risk. We or any of our future development partners will be required to demonstrate through adequate and well-
controlled clinical trials that our product candidates are safe and effective, with a favorable benefit-risk profile, for use in clinical indications before we can
seek regulatory approvals for commercial sale. Drug development is a long, expensive, and uncertain process, and delay or failure can occur at any stage of
development, including after commencement of any of our clinical trials. Any negative results or perceived negative results in clinical trials for one
indication may have an adverse effect on our ability to develop and potentially commercialize reproxalap or our other product candidates for the treatment
of another indication. In addition, as product candidates proceed through development, the trial designs may often be different and may need to evolve and
change from phase to phase or within the same phase or same trial, as is the case for adaptive trials; the vehicles or controls may be modified from trial to
trial; and the product formulations or manufacturing process may differ due to the need to test product candidate samples that can be manufactured on a
commercial scale. Success in run-in cohorts, earlier clinical trials, or clinical trials focused on a different indication does not mean that later clinical trials
will be successful because product candidates in later-stage clinical trials may fail to demonstrate sufficient safety or efficacy despite having progressed
through other phases of clinical testing. In addition, discussions with regulatory bodies, such as the FDA, may lead to changes in trial designs or programs.
Companies frequently suffer significant setbacks in advanced clinical trials, even after run-in cohorts or earlier clinical trials have shown promising results.
For example, the results of the TRANQUILITY Trial of reproxalap in dry eye disease did not reflect the results of the TRANQUILITY run-in cohort.
Moreover, only a small percentage of drugs under development result in the submission of an NDA to the FDA and even fewer are approved for
commercialization.
Because we are developing novel product candidates for the treatment of diseases in a manner which there is little clinical drug development
experience and, in some cases, are designing adaptive trials or using new endpoints or methodologies, the regulatory pathways for approval are not
well defined, and, as a result, there is greater risk that our clinical trials will not result in our desired outcomes or require additional trials.
Our clinical focus is on the development of new products for immune-mediated and metabolic diseases. We performed an adaptive trial in
proliferative vitreoretinopathy, the GUARD trial, and may do so with other indications in the future. In an adaptive trial, the initial parts of the trial are not
designed to be pivotal or definitive. Rather, the initial parts of adaptive trials are expected to provide data to guide subsequent parts of the trial, which could
require design changes, including but not limited to, different endpoints. In addition, following the initial parts of adaptive trials, we may, among other
things, decide to continue to the subsequent parts of the trial, conclude the trial based on the success or failure in such initial parts, or discuss the trial
results and regulatory pathway with regulatory authorities prior to determining next steps with respect to the trial and development program. As such, the
likelihood of success in our late-stage clinical programs cannot necessarily be predicted.
We could also face challenges in designing clinical trials and obtaining regulatory approval of our product candidates due to the lack of historical
clinical trial experience for novel classes of therapeutics. Thus, it is difficult to determine whether regulatory agencies will be receptive to the approval of
our product candidates, and to predict the time and costs associated with obtaining regulatory approvals. The clinical trial requirements of the FDA and
other regulatory agencies and the criteria regulators use to determine the safety and efficacy of a product candidate vary substantially according to the type,
complexity, novelty, and intended use and market of the potential products. The regulatory approval process for novel product candidates such as ours can
be more expensive and require more time and trial data than for other, better known, or more extensively studied classes of product candidates. In addition,
it is possible that, as regulatory bodies gain more familiarity with our type of product candidates by reviewing competitor candidates, those agencies could
impose new conditions on our product candidates that we did not expect. Any inability to design clinical trials with protocols, methodology, and endpoints
acceptable to applicable regulatory authorities, and to obtain regulatory approvals for our product candidates, would have an adverse impact on our
business, prospects, financial condition, and results of operations.
41
Because some of our product candidates are, to our knowledge, new chemical entities, it is difficult to predict the time and cost of development and our
ability to successfully complete clinical development of these product candidates and obtain the necessary regulatory approvals for commercialization.
Some of our product candidates are, to our knowledge, new chemical entities, and unexpected problems related to new technologies may arise that
can cause us to delay, suspend, or terminate our development efforts. As a result, short and long-term safety, as well as prospects for efficacy, are not fully
understood and are difficult to predict. Regulatory approvals of new product candidates can be more expensive and take longer than approvals for well-
characterized or more extensively studied pharmaceutical product candidates. Following discussions with the FDA and experts in the field, we may
determine that it is not cost effective for us to develop one or more of our products in certain indications or we may decide to cease development in that
area or seek a strategic partner.
We may not be able to qualify for or obtain various designations from regulators that would have the potential to expedite the review process of one or
more of our product candidates, and even if we do receive one or more of such designations there is no guarantee that they will ultimately expedite the
process, or aid in our obtaining marketing approval or provide market exclusivity.
There exist several designations that we can apply for from the FDA and other regulators that would provide us with various combinations of the
potential for expedited regulatory review, certain financial incentives as well as the potential for post-approval exclusivity for a period of time. FDA
designations include but are not limited to orphan drug designation, breakthrough therapy designation, accelerated approval, fast track status, and priority
review for our product candidates. We may seek one or more of these designations for our current and future product candidates. For example, ADX‑2191
has received orphan designation for the treatment of retinitis pigmentosa. There can be no assurance that any of our other product candidates will qualify
for any of these designations. There can also be no assurance that any of our product candidates that do qualify for FDA designations will be granted such
designations or that the FDA will not revoke such a designation. Further, there can be no assurance that any of our product candidates that are granted such
designations will ever benefit from such designations or that the FDA would not withdraw such designations once granted. Were we to receive a
designation that promised a period of market exclusivity, such as orphan drug exclusivity, such exclusivity may not effectively protect the product from
competition because different drugs can be approved for the same condition. Further, with respect to orphan drug status, even after an orphan drug is
approved, the FDA can subsequently approve the same drug for the same condition if the FDA concludes that the later drug is clinically superior if it is
shown to be safer, more effective, or makes a major contribution to patient care.
To preserve trial integrity, clinical data from the initial parts of adaptive clinical trials may not be disclosed.
Adaptive clinical trials are often performed such that the initial parts of the trial are used to determine sample size and endpoints for subsequent,
possibly pivotal parts of the trial. Results from the initial parts of adaptive trials are therefore not designed to be pivotal or definitive, and, in some cases,
detailed trial data may not be disclosed so as not to positively or negatively bias investigators or patients involved in subsequent parts of the trial. Further,
the initial parts of adaptive trials may be performed in part to assess biomarkers or surrogate markers that may require substantial time to generate, analyze,
and interpret. Thus, disclosure of clinical results from the initial parts of adaptive trials may also be delayed due to the time required for biomarker or
surrogate marker assessment.
We may find it difficult to enroll patients in our clinical trials or identify patients during commercialization (if our products are approved by regulatory
agencies) for product candidates addressing orphan or rare diseases.
As part of our business strategy, we have and continue to evaluate the development and commercialization of product candidates for the treatment of
orphan and other rare diseases, including Sjögren-Larsson and retinitis pigmentosa. We may not be able to initiate or continue clinical trials if we are
unable to locate a sufficient number of eligible patients willing and able to participate in the clinical trials required by the FDA or other non-United States
regulatory agencies. In addition, if others develop products for the treatment of similar diseases, we would potentially compete for the enrollment in rare
patient populations, which may adversely impact the rate of patient enrollment in and the timely completion of our current and planned clinical trials. Any
negative results or perceived negative results in clinical trials of our product candidates may make it difficult or impossible to recruit or retain patients in
other clinical trials of the same product candidate. Insufficient patient enrollment may be a function of
42
other factors, including the size and nature of the patient population, the nature of the protocol, the proximity of patients to clinical sites, the timing and
magnitude of disease symptom presentation, the availability of effective treatments for the relevant disease, and the eligibility criteria for the clinical trial.
Our inability to identify and enroll a sufficient number of eligible patients for any of our current or future clinical trials would result in significant delays or
may require us to abandon one or more clinical trials or development program. Public health epidemics or pandemics and the response thereto may have an
impact on our ability to enroll and retain patients in our clinical trials. For instance, patient enrollment in our GUARD trial of ADX‑2191 in proliferative
vitreoretinopathy was negatively impacted as a result of limited clinical trial staffing at trial sites and some patients electing to delay surgery. Delays in
patient enrollment in the future as a result of these and other factors may result in increased costs or may affect the timing or outcome of our clinical trials,
which could prevent us from completing these trials and adversely affect our ability to advance the development of our product candidates. For instance, in
rare diseases such as proliferative vitreoretinopathy and idiopathic nephrotic syndrome, lack of availability of, or difficulty recruiting or retaining a
sufficient number of, patients may make it difficult or cost-prohibitive to sufficiently power our clinical trials, which may not enable us to continue
development and seek regulatory approval for the applicable product candidate. Further, if our products are approved by regulatory agencies, we may not
be able to identify sufficient number of patients to generate significant revenue.
Any product candidate we or any of our future development partners advance into clinical trials may cause unacceptable adverse events or have other
properties that may delay or prevent regulatory approval or commercialization or limit commercial potential.
Unacceptable adverse events caused by any of our product candidates that we or others advance into clinical trials could cause us or regulatory
authorities to interrupt, delay, or halt clinical trials, or impose a clinical hold, potentially resulting in the denial of regulatory approval by the FDA or other
regulatory authorities for any or all targeted indications and markets, which in turn could prevent us from completing development or commercializing the
affected product candidate.
We continue to develop our product candidates for the treatment of the indications for which we intend to seek approval, and we currently do not
know the full extent of adverse events that will be observed in subjects that receive any of our product candidates. If any of our product candidates cause
unacceptable adverse events in clinical trials, which may be larger or longer than those previously conducted, we may not be able to obtain regulatory
approval or commercialize such product candidate.
Even if we obtain marketing approval for reproxalap or any other product candidate, approved product candidates could be subject to restrictions or
withdrawal from the market and we may be subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated
problems with our product candidates, when and if any are approved.
Even if United States regulatory approval is obtained, the FDA may still impose significant restrictions on indicated uses or marketing or impose
ongoing requirements for potentially costly and time-consuming post-approval studies or clinical trials, post-market surveillance, or other potential
additional clinical trials. Following approval, if any, of reproxalap or any other product candidate, such candidate will also be subject to ongoing FDA
requirements governing the labeling, packaging, storage, distribution, safety surveillance, advertising, promotion, recordkeeping, and reporting of safety
and other post-market information. In addition, manufacturers of drug products are subject to continual review and periodic inspections by the FDA and
other regulatory authorities for compliance with cGMP requirements, including those relating to quality control, quality assurance, and corresponding
maintenance of records and documents. If we or a regulatory agency discovers previously unknown problems with a product, such as adverse events of
unanticipated seriousness, severity, or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose
restrictions on that product, the manufacturing facility, or us, including requesting recall or withdrawal of the product from the market or suspension of
manufacturing.
If we or the manufacturing facilities for reproxalap or any other product candidate that may receive regulatory approval, if any, fail to comply with
applicable regulatory requirements, a regulatory agency may:
•
issue warning letters or untitled letters;
43
•
seek an injunction or impose civil or criminal penalties or monetary fines;
•
suspend or withdraw regulatory approval;
•
suspend any ongoing clinical trials;
•
refuse to approve pending applications or supplements or applications filed by us;
•
suspend or impose restrictions on operations, including costly new manufacturing requirements; or
•
seize or detain products, refuse to permit the import or export of product, or request us to initiate a product recall.
The occurrence of any event or penalty described above may inhibit our ability to commercialize our product candidates and generate revenue.
The FDA has the authority to require a risk evaluation and mitigation strategy (REMS) plan as part of an NDA or after approval, which may impose
further requirements or restrictions on the distribution or use of an approved drug, such as limiting prescribing to certain physicians or medical centers that
have undergone specialized training, limiting treatment to patients who meet certain safe-use criteria, and requiring treated patients to enroll in a registry.
In addition, if reproxalap or any of our other product candidates is approved, the product labeling, advertising, and promotion would be subject to
regulatory requirements and continuing regulatory review. The FDA strictly regulates the promotional claims that may be made about prescription
products. In particular, a product may not be promoted for uses that are not approved by the FDA as reflected in approved labeling. If we receive marketing
approval for a product candidate, physicians may nevertheless prescribe the product candidate to patients in a manner that is inconsistent with the approved
label. If we are found to have promoted such off‑label uses, we may become subject to significant liability. The FDA and other agencies actively enforce
the laws and regulations prohibiting the promotion of off‑label uses, and a company that is found to have improperly promoted off‑label uses may be
subject to significant sanctions. The federal government has levied large civil and criminal fines against companies for alleged improper promotion and has
enjoined several companies from engaging in off‑label promotion. The government has also entered into consent decrees and Corporate Integrity
Agreements under which specified promotional conduct is changed or curtailed.
Even if we receive regulatory approval for reproxalap or any other product candidate, we or are partners, if any, still may not be able to successfully
commercialize, and the revenue that we generate from its sales, if any, could be limited.
Even if our product candidates receive regulatory approval, they may not gain market acceptance among physicians, patients, healthcare payors, or
the medical community. Coverage and reimbursement of our product candidates by third-party payors, including government payors, is also generally
necessary for commercial success. In addition, we or are partners, if any, may not be able to secure advantageous contracts with payors or price our
products at the expected level or at levels that make successful commercialization viable. The pricing of our products will be subject to numerous factors,
many of which are outside of our control, including the pricing of similar products. The degree of market acceptance of our product candidates will depend
on a number of factors, including but not limited to:
•
demonstration of clinical efficacy and safety compared to other more-established products;
•
the limitation of our targeted patient populations and other limitations or warnings contained in any FDA-approved labeling;
•
acceptance of a new formulations by health care providers and their patients;
•
the prevalence, seriousness, and severity of any adverse effects;
•
new procedures or methods of treatment that may be more effective in treating conditions for which our products are intended to treat;
•
the safety of product candidates in a broader patient group, including use outside the approved indications;
44
•
pricing and cost-effectiveness, including the cost of treatment in relation to alternative treatments;
•
the effectiveness of our or any future collaborators’ sales and marketing strategies;
•
our ability to obtain and maintain sufficient, commercially advantageous, and timely third-party coverage or reimbursement from government
health care programs, including Medicare and Medicaid, private health insurers and other third-party payors;
•
relative convenience and ease of administration;
•
the prevalence and severity of adverse events;
•
the effectiveness of our sales and marketing efforts;
•
unfavorable publicity; and
•
the willingness of patients to pay out-of-pocket in the absence of third-party coverage.
In addition, because the active ingredient of ADX‑2191 (methotrexate) is a generic drug, a generic manufacturer may be able to develop and market
a competitive intravitreal formulation of methotrexate following expiration of commercial exclusivity mandated via certain orphan drug designations.
Generic drug competition would have a material and adverse effect on the commercial potential of ADX‑2191. Further, our ability to successfully
commercialize ADX‑2191, if approved, depends on a number of additional factors, including but not limited to, the level of enforcement by the FDA to
ensure that compounded copies of commercially available FDA-approved products manufactured by compounding pharmacies, including compounded
copies of ADX‑2191, that may be in violation of the federal Drug Quality and Security Act (DQSA) and other relevant provisions of the United States
Federal Food, Drug, and Cosmetic Act (FDCA), are not produced and dispensed to patients.
Moreover, we cannot predict what healthcare reform initiatives may be adopted in the future. Further federal and state legislative and regulatory
developments are likely, and we expect that ongoing initiatives in the United States will increase pressure on drug pricing. Such reforms could have an
adverse effect on the pricing of and anticipated revenue from our current or future product candidates for which we may obtain regulatory approval and
may affect our overall financial condition and ability to develop product candidates.
If any product candidate is approved but does not achieve an adequate level of acceptance by physicians, hospitals, healthcare payors, or patients,
we may not generate sufficient revenue from that product candidate and may not become or remain profitable. Our or our partners’ efforts to educate the
medical community and third-party payors on the benefits of reproxalap or any of our other product candidates may require significant resources and may
never be successful. In addition, our or our partners’ ability to successfully commercialize our product candidate will depend on our ability to manufacture
our products, differentiate our products from competing products and defend the intellectual property of our products. Competitors with numerous
approved products may be able to negotiate pricing and reimbursement that is substantially more advantageous than that which we will be able to negotiate.
Additionally, if any of our competitors’ products are approved and are unable to gain market acceptance for any reason, there could be a market
perception that products such as reproxalap are not able to adequately meet an unmet medical need. If we or our partners, if any, are unable to demonstrate
to physicians, hospitals, third-party payors, or patients that our products are better alternatives than competitive products or lack of intervention, we or our
partners, if any, may not be able to gain market acceptance for our products at the levels we anticipate and our business may be materially harmed as a
result.
If the market opportunities for reproxalap and our other product candidates are smaller than we believe they are, and if we are not able to successfully
identify patients and achieve significant market share, our revenue may be adversely affected, and our business may suffer.
We focus our research and product development on treatments for immune-mediated and metabolic diseases. Our estimated addressable markets and
market opportunities for our product candidates are based on a variety of inputs, including data published by third parties, our own market insights and
internal market intelligence, and internally generated data and assumptions. We have not independently verified any third-party information and cannot be
assured of its accuracy or completeness. Our projections of both the number of people who have diseases in our target markets, as well as the subset of
people with diseases who have the potential to benefit from treatment
45
with our product candidates, are based on estimates that have been derived from a variety of sources, including scientific literature, surveys of clinics, or
market research, and may prove to be incorrect. Further, new studies may change the estimated incidence or prevalence of diseases in our target markets.
The number of patients may turn out to be lower or more difficult to identify than expected. In addition, our product candidates may not achieve
commercial success due to market conditions or regulatory challenges.
Any of these factors may negatively affect our ability to generate revenue from sales of our product and our ability to achieve and maintain
profitability, and as a consequence, our business may suffer. In addition, inaccuracies or errors may cause us to misallocate capital and other critical
business resources, which could harm our business.
Reimbursement may be limited or unavailable in certain market segments for our product candidates, which could make it difficult for us to sell our
product candidates profitably.
Market acceptance and sales of our product candidates will depend significantly on the availability of adequate insurance coverage and
reimbursement from third-party payors for any of our product candidates and may be affected by existing and future health care reform measures.
Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which drugs will be
reimbursed and establish reimbursement levels. The reimbursement levels may be significantly less than the currently anticipated pricing of our product
candidates. As a result of negative trends in the general economy in the United States or other jurisdictions in which we may do business, government
authorities or third-party payors may be unable to satisfy reimbursement obligations or may delay payment. Reimbursement by a third-party payor may
depend upon a number of factors including the third-party payor’s determination that use of a product candidate is:
•
a covered benefit under its health plan;
•
safe, effective, and medically necessary;
•
appropriate for the specific patient;
•
cost-effective, including cost effectiveness relative to existing contracts with other pharmaceutical companies; and
•
neither experimental nor investigational.
Obtaining coverage and reimbursement approval for a product candidate from a government or other third-party payor is a time-consuming and
costly process that could require us to provide supporting scientific, clinical, and cost effectiveness data for the use of the applicable product candidate to
the payor. We may not be able to provide data sufficient to gain acceptance with respect to coverage and reimbursement. We cannot be sure that coverage
or adequate reimbursement will be available for any of our product candidates. Further, we cannot be sure that reimbursement amounts will not reduce the
demand for, or the price of, our product candidates. If reimbursement is not available or is available only at limited levels, we may not be able to
commercialize certain of our product candidates profitably, or at all, even if approved. In recent years, through legislative and regulatory actions, the
federal government has made substantial changes to the United States healthcare system, including changes to the methods for, and amounts of, Medicare
reimbursement. Many members of the United States Congress have attempted to repeal and replace the Patient Protection and Affordable Care Act
(PPACA), but they have been unsuccessful in doing so as of the date of the filing of this report. We cannot predict the ultimate form or timing of any repeal
or replacement of PPACA or the effect such repeal or replacement would have on our business. Regardless of the impact of repeal or replacement of
PPACA on us, the government has shown significant interest in pursuing healthcare reform and reducing healthcare costs. These reforms could
significantly reduce payments from Medicare and Medicaid over the next ten years. Reforms or other changes to these payment systems, including
modifications to the conditions on qualification for payment, bundling of payments, or the imposition of enrollment limitations on new providers, may
change the availability, methods, and rates of reimbursements from Medicare, private insurers, and other third-party payers for our current and future
product candidates, if any, for which we are able to obtain regulatory approval. Some of these changes and proposed changes could result in reduced
reimbursement rates for such product candidates, if approved, which would adversely affect our business strategy, operations, and financial results.
46
As a result of legislative proposals and the trend toward managed health care in the United States, third-party payors are increasingly attempting to
contain health care costs by limiting both coverage and the level of reimbursement of new drugs. Payors may also refuse to provide coverage of approved
product candidates for medical indications other than those for which the FDA has granted market approvals. As a result, significant uncertainty exists as to
whether and how much third-party payors will reimburse patients for use of newly approved drugs, which in turn could lower drug pricing. We expect to
experience pricing pressures in connection with the sale of our product candidates due to the trend toward managed health care, the increasing influence of
health maintenance organizations, larger companies contracting with payors to diminish reimbursement for competitive products, and additional legislative
proposals, in addition to country, regional, or local healthcare budget limitations.
We are subject to a multitude of manufacturing risks, any of which could substantially increase our costs and limit supply of our products.
The process of manufacturing our products is complex, highly regulated, and subject to several risks, including:
•
The manufacturing of compounds is extremely susceptible to product loss due to contamination, equipment failure, improper installation or
operation of equipment, and vendor or operator error. Even minor deviations from normal manufacturing processes could result in reduced
production yields, product defects, and other supply disruptions. If microbial, viral, or other contaminations are discovered in our products or
in the manufacturing facilities in which our products are made, such manufacturing facilities may need to be closed for an extended period of
time to investigate and remedy the contamination.
•
The manufacturing facilities in which our products are made could be adversely affected by equipment failures, labor shortages, natural
disasters, power failures, or numerous other factors.
•
We and our contract manufacturers must comply with the cGMP regulations and guidelines. We and our contract manufacturers may
encounter difficulties in achieving quality control and quality assurance and may experience shortages in qualified personnel. We and our
contract manufacturers are subject to inspections by the FDA and comparable agencies in other jurisdictions to confirm compliance with
applicable regulatory requirements. Any failure to follow cGMP or other regulatory requirements or any delay, interruption, or other issues
that arise in the manufacture, fill-finish, packaging, or storage of our products as a result of a failure of our facilities or the facilities or
operations of third parties to comply with regulatory requirements or pass any regulatory authority inspection could significantly impair our
ability to develop and commercialize our products, including leading to significant delays in the availability of products for our clinical trials,
the termination or hold on a clinical trial, or the delay or prevention of a filing or approval of marketing applications for our product
candidates. Significant noncompliance could also result in the imposition of sanctions, including fines, injunctions, civil penalties, failure of
regulatory authorities to grant marketing approvals for our product candidates, delays, suspension or withdrawal of approvals, license
revocation, seizures or recalls of products, operating restrictions, and criminal prosecutions, any of which could damage our reputation or
impair our ability to develop and commercialize our products. If we are not able to maintain regulatory compliance, we may not be permitted
to market our products and/or may be subject to product recalls, seizures, injunctions, or criminal prosecution.
In order to conduct clinical trials, we will need to manufacture product candidates in large quantities. Quality issues may arise during scale-up
activities. Our reliance on a limited number of Contract Manufacturing Organizations (CMOs), as well as the complexity of drug manufacturing and the
difficulty of scaling a manufacturing process, could cause the delay of clinical trials, regulatory submissions, required approvals, or commercialization of
our product candidates, and cause us to incur higher costs and prevent us from commercializing our product candidates successfully. Furthermore, if our
CMOs fail to deliver the required commercial quality and quantities of materials on a timely basis and at commercially reasonable prices, and we are
unable to secure one or more replacement CMOs capable of production in a timely manner at a substantially equivalent cost, then testing and clinical trials
of that product candidate may be delayed or infeasible, and regulatory approval or commercial launch of any resulting product may be delayed or not
obtained, which could significantly
47
harm our business. In addition, failure of CMOs to comply with regulatory and quality requirements could delay manufacturing or the review of our
marketing applications.
Any adverse developments affecting manufacturing operations for our products, including public health epidemics or pandemics or responses taken
thereto, may result in shipment delays; inventory shortages; lot failures; product withdrawals, recalls, approvals; or other interruptions in the supply of our
products. We may also have to account for inventory write-offs and incur other charges and expenses for products that fail to meet specifications, undertake
costly remediation efforts, or seek more costly manufacturing alternatives.
Issues with product quality could have a material adverse effect upon our business, subject us to regulatory actions and cause a loss of customer
confidence in us or our products.
Our success depends upon the quality of our products. Quality controls, assurance, and management plays an essential role in meeting customer
requirements, preventing defects, improving our product candidates and services, and assuring the safety and efficacy of our product candidates. Our future
success depends on our ability to maintain and continuously improve our quality management program. A quality or safety issue may result in adverse
inspection reports, warning letters, product recalls or seizures, monetary sanctions, injunctions to halt manufacture and distribution of products, civil or
criminal sanctions, costly litigation, refusal of a government to grant approvals and licenses, restrictions on operations, or withdrawal of existing approvals
and licenses. An inability to address a quality or safety issue in an effective and timely manner may also cause negative publicity and a loss of customer
confidence in us or our future products, which may result in difficulty in successfully launching product candidates, and the loss of sales, which could have
a material adverse effect on our business, financial condition, and results of operations.
If our competitors develop treatments for the target indications of our product candidates that are approved more quickly than ours, marketed more
successfully, or demonstrated to be safer or more effective than our product candidates, our commercial opportunity will be reduced or eliminated.
We operate in highly competitive segments of the biotechnology market. We face competition from many different sources, including commercial
pharmaceutical and biotechnology enterprises, academic institutions, government agencies, and private and public research institutions. Our product
candidates, if successfully developed and approved, will compete with established therapies (including generic and over-the-counter drugs) as well as with
new treatments that may be introduced by our competitors. With the exception of proliferative vitreoretinopathy and retinitis pigmentosa, there are a variety
of approved drugs and drug candidates in development for the indications that we intend to test. Current pharmaceutical treatments that are used in the
United States for dry eye disease include over the counter artificial tears, Restasis®, Xiidra®, Cequa®, Eysuvis®, Tyrvaya®, MieboTM, and Vevye®. In
February 2022, the FDA approved the first generic version of Restasis®, which is now available for sale in the U.S. Many of our competitors have
significantly greater financial, product candidate development, manufacturing, and marketing resources than we do. Large pharmaceutical and
biotechnology companies have extensive experience in clinical testing and obtaining regulatory approval for drugs. In addition, universities and private and
public research institutes could be in direct competition with us. We also may compete with these organizations to recruit management, scientists, and
commercial and clinical development personnel. We will also face competition from these third parties in establishing clinical trial sites, registering
subjects for clinical trials, and identifying and in-licensing new product candidates. Smaller or early-stage companies may also prove to be significant
competitors, particularly through collaborative arrangements with large and established companies.
New developments, including the development of other pharmaceutical technologies and methods of treating disease, occur in the pharmaceutical
and life sciences industries at a rapid pace. Developments by competitors may render our product candidates obsolete or noncompetitive. Other parties may
discover and patent treatment approaches and compositions that are similar to or different from ours. Competition in drug development is intense. We
anticipate that we will face intense and increasing competition as new treatments enter the market and advanced technologies become available.
Our future success depends on our or our partners’ ability to demonstrate and maintain a competitive advantage with respect to the design,
development, and commercialization of reproxalap or our other product
48
candidates. Immune-mediated and metabolic diseases may be treated with a variety drugs, some of which are generic. Our potential competitors may be
developing novel therapies that may be safer or more effective than our product candidates.
If we are unable to enter into agreements with third parties to market, sell, and distribute our product candidates, we may be unable to generate any
revenue.
We have no experience as a Company in the sale, marketing, or distribution of biopharmaceutical products. Although we currently plan to
commercialize reproxalap through a collaboration with a third party, if reproxalap or any of our other product candidates ultimately receives regulatory
approval and we remain responsible for the commercialization of such approved product, we may not be able to effectively market and distribute the
product candidate. We will have to invest significant amounts of financial and management resources to develop and maintain internal sales, distribution,
and marketing capabilities, some of which will be committed prior to any confirmation that the applicable product candidates will be approved.
We may not be successful in entering into arrangements with third parties to market and sell our product candidates or may be unable to do so on
terms that are acceptable to us. Any third party may fail to devote the necessary resources and attention to sell and market our products effectively. If we do
not establish sales and marketing capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in
commercializing our product candidates.
If the FDA or comparable foreign regulatory authorities approve generic versions of any of our product candidates that receive marketing approval, or
such authorities do not grant our product candidates appropriate periods of data or market exclusivity before approving generic versions of our product
candidates, the sales of our product candidates could be adversely affected.
Once an NDA is approved, the drug covered thereby becomes a “reference-listed drug” in the FDA’s publication, “Approved Drug Products with
Therapeutic Equivalence Evaluations.” Manufacturers may seek marketing approval of generic versions of reference-listed drugs through submission of
abbreviated new drug applications (ANDAs) in the United States. In support of an ANDA, a generic manufacturer need not conduct clinical trials
demonstrating safety and efficacy. Rather, the applicant generally must show that its drug is pharmaceutically equivalent to the reference listed drug, in that
it has the same active ingredient(s), dosage form, strength, route of administration and conditions of use or labeling as the reference-listed drug, and that the
generic version is bioequivalent to the reference-listed drug, meaning it is absorbed in the body at the same rate and to the same extent. Generic drugs may
be significantly less costly to bring to market than the reference-listed drug and companies that produce generic drugs are generally able to offer drug
products at lower prices. Thus, following the introduction of a generic drug, a significant percentage of the sales of any branded product or reference-listed
drug is typically lost to the generic drug.
The FDA may not approve an ANDA for a generic drug until any applicable period of non-patent exclusivity for the reference-listed drug has
expired. The FDCA provides a period of five years of non-patent exclusivity for a new drug containing a new chemical entity. During the exclusivity
period, the FDA may not accept for review an ANDA or a 505(b)(2) NDA submitted by another company for another version of such product candidate
where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after
four years if it contains a certification of patent invalidity, enforceability or non-infringement. The FDCA also provides three years of marketing
exclusivity for a 505(b)(1) NDA, 505(b)(2) NDA or supplement to an approved NDA if new clinical investigations other than bioavailability studies (e.g.,
investigations that support new indications, dosages, or strengths of an existing drug) were conducted or sponsored by the applicant and are deemed by the
FDA to be essential to the approval of the application. The three-year exclusivity covers only the conditions associated with the new clinical investigations
and does not prohibit the FDA from approving competitor products for product candidates containing the original active agent for other conditions of use.
Five-year and three-year exclusivity will not delay the submission or approval of a full 505(b)(1) NDA. Manufacturers may seek to launch these generic
drugs following the expiration of the marketing exclusivity period, even if we still have patent protection for our drug.
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In the EU and the UK, innovative medicinal products are authorized based on a full marketing authorization application (as opposed to an
application for marketing authorization that relies on data in the marketing authorization dossier for another, previously approved medicinal product).
Applications for marketing authorization for innovative medicinal products must contain the results of pharmaceutical tests, preclinical tests, and clinical
trials conducted with the medicinal product for which marketing authorization is sought (and where applicable the result of the pediatric studies unless a
waiver or a deferral has been obtained - as described further below). In the EU, these applications must be made pursuant to either Directive 2001/83/EC
(for the decentralized procedure or the mutual recognition procedure) or Regulation 726/2004 (for the centralized procedure). In the UK, there are various
procedures available under the new regulatory legal framework to pharmaceutical products, including the possibility of a recognized assessment conducted
by the European authorities under certain circumstance or by applying directly to the UK regulatory authority (MHRA).
Where an applicant for a marketing authorization submits a full dossier containing its own pharmaceutical, pre-clinical tests and clinical trials data,
and where the application does not fall within the "global marketing authorization" of an existing medicinal product, the applicant is entitled to eight years
of regulatory data protection upon grant of the marketing authorization (the period starts to run from the first marketing authorization in the EU/ European
Economic Area [EEA]). During the period, applicants for approval of generics or biosimilars cannot rely on data contained in the marketing authorization
dossier submitted for the already authorized, or reference, medicinal product to support their application. After the expiration of the eight-year period of
regulatory data protection, the reference medicinal product benefits from a further two-year period of marketing protection. During these two years of
marketing protection, no generic or biosimilar medicinal product that relies upon the reference medicinal product’s dossier may be placed on the EU
market, but a generic or biosimilar marketing authorization application can be submitted to the competent regulatory authorities in the EU Member States
during this time. The two-year period of marketing protection can further be extended by one year if, during the first eight years of the grant of the first
marketing authorization, the marketing authorization holder obtains an authorization for one or more new therapeutic indications which, during the
scientific evaluation prior to their authorization, are held to bring a significant clinical benefit in comparison with existing therapies. However, even if a
compound is considered to be a new active substance and the innovator is able to gain the period of regulatory data protection and marketing protection,
provided that no other IP or regulatory exclusivities applied, another unrelated company could also apply for a marketing authorization and market another
competing medicinal product for the same therapeutic indication if such company obtained its own marketing authorization based on a separate marketing
authorization application based on a full self-standing scientific data package supporting the application. The period of regulatory data protection and
marketing protection applies in the UK (running from the date of the first authorization in Great Britain).
In the EU, pursuant to Regulation 1901/2006, and in the UK pursuant to the Human Medicines Regulations 2012 (as amended), marketing
authorization applications must include pediatric data based on pediatric investigation plans agreed with the EMA if the MAA concerns (i) a new active
substance, or (ii) a new indication, pharmacological form, or route of administration (where the product is protected by a supplementary protection
certificate or a patent qualifying for a supplementary certificate). Applicants may obtain waivers or deferrals to these requirements in certain circumstances
(for example a waiver may be obtained if the condition only occurs in adult populations). Where required, pediatric studies must cover all sub-sets of the
pediatric population for both existing and new indications, pharmacological forms and route of administrations. Limited further exclusions apply, including
in relation to generic or biosimilar applications. Certain rewards may be available for completion of pediatric studies. For example, where MAAs include
the results of all studies conducted in compliance with an agreed pediatric investigation plan, the holder of the patent or supplementary protection
certificate may be entitled to a six-month extension to the supplementary protection certificate.
In order to obtain orphan designation in the EEA, the product must fulfill certain challenging criteria. Under Article 3 of Regulation (EC) 141/2000,
a medicinal product may be designated as an orphan medicinal product if it meets the following criteria: (1) is intended for the diagnosis, prevention or
treatment of a life-threatening or chronically debilitating condition; and (2) either the prevalence of such condition must not be more than five in 10,000
persons in the EU when the application is made, or without the benefits derived from orphan status, it must be unlikely that the marketing of the medicine
would generate sufficient return in the EU to justify the investment needed for its development; and (3) there exists no satisfactory method of diagnosis,
prevention or treatment of such
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condition authorized for marketing in the EU or if such a method exists, the product will be of significant benefit to those affected by the condition, as
defined in Regulation (EC) 847/2000.
Products receiving orphan designation in the EU may receive 10 years of orphan market exclusivity, which can be further extended by two years if
pediatric studies have been conducted in accordance with an agreed pediatric investigational plan. Applications must first satisfy the orphan designation
criteria and apply for orphan designation before making the application for marketing authorization. The applicant must then successfully maintain the
orphan designation at the time of the marketing authorization application in order to qualify for 10 years of orphan market exclusivity. During this 10-year
period, the competent authorities of the EU Member States and European Commission may not accept applications or grant marketing authorization for
other similar medicinal products for the same orphan therapeutic indication. The protection afforded by orphan market exclusivity in the EU may, in some
circumstances, be circumvented by competitor products which are demonstrated not to be "similar" or which are authorized for different therapeutic
indications. There may be a risk that products may be prescribed "off‑label" for the orphan therapeutic indication by healthcare professions in some EU
Member States.
There are also three exceptions to the orphan market exclusivity principle. Marketing authorization may be granted to a similar medicinal product
for the same orphan therapeutic indication if:
•
The second applicant can establish in its application that its medicinal product, although similar to the orphan medicinal product already
authorized, is safer, more effective, or otherwise clinically superior;
•
The holder of the marketing authorization for the original orphan medicinal product consents to a second orphan medicinal product
application; or
•
The holder of the marketing authorization for the original orphan medicinal product cannot supply sufficient quantities of orphan medicinal
product.
An orphan product can also obtain an additional two years of orphan market exclusivity in the EU if the marketing authorization application
contains the results of all pediatric studies conducted in accordance with and agreed pediatric investigation plan. The 10-year market exclusivity may be
reduced to six years if, at the end of the fifth year, it is established that the product no longer meets the criteria for orphan designation (e.g., the product is
sufficiently profitable not to justify maintenance of market exclusivity).
The UK’s regulatory legal framework provides for similar periods of protection, namely regulatory data protection, marketing protection and market
exclusivity.
It is important to note that the regulatory protection afforded to medicinal product such as data exclusivity, marketing protection, market exclusivity
for orphan indications, and pediatric extension are currently under review at EU level. It is expected that the protection currently afforded in the EU will be
reduced in the years to come.
Competition that our product candidates may face from generic versions of our product candidates could materially and adversely impact our future
revenue, profitability, and cash flows and could substantially limit our ability to obtain a return on the investments we have made in those product
candidates. Our future revenue, profitability, and cash flows could also be materially and adversely affected and our ability to obtain a return on the
investments we have made in those product candidates may be substantially limited if our product candidates, if and when approved, are not afforded the
appropriate periods of non-patent exclusivity.
The FDA’s ability to review and approve new products may be hindered by a variety of factors, including budget and funding levels; ability to hire and
retain key personnel; and statutory, regulatory, and policy changes.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including budget and funding levels; ability to
hire and retain key personnel; shifting policy priorities as a result of changes in the U.S. presidential administration and political appointees tasked to
oversee the agency; and statutory, regulatory, and policy changes. Average review times at the agency have fluctuated in recent years as a result. In
addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is
inherently fluid and unpredictable.
51
The ability of the FDA and other government agencies to properly administer their functions is highly dependent on the levels of government
funding and the ability to fill key leadership appointments, among various factors. Delays in filling or replacing key positions could significantly impact the
ability of the FDA and other agencies to fulfill their functions and could greatly impact healthcare and the pharmaceutical industry.
In December 2016, the 21st Century Cures Act was signed into law, and was designed to advance medical innovation and empower the FDA with
the authority to directly hire positions related to drug and device development and review. In the past, the FDA was often unable to offer key leadership
candidates (including scientists) competitive compensation packages as compared to those offered by private industry. The 21st Century Cures Act was
designed to streamline the agency’s hiring process and enable the FDA to compete for leadership talent by expanding the narrow ranges that are provided
in the existing compensation structures.
Disruptions at the FDA and other governmental agencies may also slow the time necessary for new drugs to be reviewed and/or approved by
necessary government agencies, which would adversely affect our operating results and business. For example, over the last several years, the U.S.
government has shut down several times and certain regulatory agencies, such as the FDA and the SEC, have had to furlough critical employees from the
FDA, SEC, and other government offices, halting critical activities. If a prolonged government shutdown occurs, it could significantly impact the FDA's
ability to review and process our regulatory submissions in a timely manner, which could have a material adverse effect on our business. Furthermore, in
our operations as a public company, future government shutdowns could impact our ability to access the public markets and obtain necessary capital in
order to properly capitalize and continue our operations.
Due to the recent change in presidential administration, we face uncertainty regarding potential regulatory developments that may adversely affect our
business.
We face uncertainty regarding the potential for changes in the regulatory environment following the change in presidential administration in January
2025. While many of the Trump administration's proposed policies appear to be focused on deregulation, the new administration and federal government
could adopt legislation, regulation, or policy that adversely affects our business or creates a more challenging and costly environment to pursue the
development and commercialization of our product candidates. For example, the federal government, including the HHS, and the FDA, may implement
legislative, regulatory, or policy changes regarding the standards for approving new product candidates. Additionally, because one objective of the current
Trump administration appears to be to decrease spending in the federal government, the FDA could face staff reductions, which could impact the FDA's
ability to engage in routine regulatory and oversight activities and result in delays or limitations on our ability to proceed with clinical development
programs and obtain regulatory approvals. It is difficult to predict how executive actions that may be taken under the current Trump administration may
affect the FDA's ability to exercise its regulatory authority. If such executive actions impose constraints on the FDA's ability to engage in routine oversight
and product review activities in the normal course, our business may be negatively impacted.
Failure to obtain regulatory approval in foreign jurisdictions would prevent us from marketing and commercializing our products abroad and may
limit our ability to generate revenue from product sales.
We intend to market and commercialize our product candidates internationally. To market and sell our product candidates in jurisdictions outside
the United States, we must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The approval procedure
varies among countries and can involve additional testing. The time required to obtain approval may differ substantially from that required to obtain FDA
approval. The regulatory approval process outside the United States generally includes all of the risks associated with obtaining FDA approval. In addition,
in many countries outside the United States, we must secure product reimbursement approvals before regulatory authorities will approve the product for
sale in that country. Failure to obtain foreign regulatory approvals on a timely basis or non-compliance with foreign regulatory requirements could result in
significant delays, difficulties, and costs for us, and could delay or prevent the introduction of our product candidates in certain countries. Approval by the
FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the United
States does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. We may not be able to file for marketing
approvals and may not receive necessary approvals to commercialize our products in any jurisdiction, which would materially impair our ability to generate
revenue.
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The UK's exit from the EU continues to create political and economic uncertainty, particularly in the UK and the EU. The UK is now being treated
as a "third country" by the EU and new UK legislation has taken effect. This means that some regulatory activities, such as batch testing and Qualified
Person certification conducted in Great Britain is no longer recognized in the EU. However, the UK and EU have concluded a Trade and Cooperation
Agreement (TCA), which has been approved by the UK Parliament, European Council and European Parliament and has limited the disruption to the
supply of medicines, particularly by enabling tariff and quota-free trade between the UK and the EU (provided that the rules of origin requirements are
met), and has streamlined some issues, for example by enabling mutual recognition of cGMP inspections and certificates. The regulatory framework for
medicines that existed before the end of the transition period has also effectively been preserved in UK domestic legislation as "retained EU law." By
retaining a snapshot of EU legislation at its core, the UK has prevented substantial divergence to the regulation of medicines (although divergence has
appeared in some areas). However, some changes to the UK legislation have been immediately necessary, including the implementation of the Northern
Ireland Protocol (NIP), pursuant to which, the EU pharmaceutical legal framework acquis continues to apply in Northern Ireland (subject to periodic
consent of the Northern Ireland Legislative Assembly), and only products compliant with EU law can be placed in the Northern Ireland market - adding an
extra layer of regulatory complexity. As companies now need to comply with a separate UK regulatory legal framework in order to commercialize
medicinal products in Great Britain (namely, England, Wales and Scotland, as EU law continues to apply in Northern Ireland). The UK government is
currently trying to renegotiate fundamental aspects of the NIP so this is an unpredictable area for companies in the near future. The TCA allows for future
deviation from the current regulatory framework and it is not known if and/or when any deviations may occur, which may have an impact on development,
manufacture, marketing authorization, commercial sales and distribution of pharmaceutical products. It is also important to note that obtaining a marketing
authorization is not sufficient to gain effective access to the market in the EU and in the UK; companies still need to agree to a reimbursement price for the
products and in some jurisdictions, such as the UK and Germany, a further positive recommendation from health technology on cost-effectiveness is
required for the products to be actually prescribed and reimbursed by the respective national health systems (see below). If we fail to comply with the
regulatory requirements in international markets and thus receive applicable marketing approvals, our target market will be reduced, our ability to realize
the full market potential of our product candidates will be harmed, and our business will be adversely affected. We may not obtain foreign regulatory
approvals on a timely basis, if at all. Our failure to obtain approval of any of our product candidates by regulatory authorities in another country may
significantly diminish the commercial prospects of that product candidate and our business prospects could decline.
Risks Related to our Financial Position and Capital Requirements
We have incurred significant operating losses since inception, and we expect to incur significant losses over the next several years. We may never
become profitable or, if achieved, be able to sustain profitability.
We have incurred significant operating losses since we were founded in 2004 and expect to incur significant losses for the next several years as we
continue our clinical trial, development programs, and commercial activities for reproxalap and our other product candidates. Net loss for the year ended
December 31, 2024 and 2023 was approximately $55.9 million and $37.5 million, respectively. As of December 31, 2024, we had total stockholders’
equity of $71.0 million and an accumulated deficit of $450.1 million. Losses have resulted principally from costs incurred in our clinical trials and research
and development programs, and from general and administrative expenses. In the future, we intend to continue to conduct research and development,
clinical testing, regulatory compliance activities, pre-commercial activities, and, if reproxalap or any of our other product candidates is approved and we do
not enter into collaboration agreements with third parties, commercialization efforts, including sales and marketing activities, that, together with anticipated
general and administrative expenses, will likely result in our incurring further significant losses for the next several years. Our net losses may fluctuate
significantly from quarter to quarter and year to year.
We anticipate that our expenses will increase substantially as compared to prior periods as we prepare for commercializing of reproxalap alone or
with others, if approved, and continue development of ADX‑2191, ADX‑248, ADX‑743, ADX‑631, ADX‑246, and other product candidates, and as a
result of increased headcount, including management personnel to support our clinical, manufacturing, and commercialization activities, expanded
infrastructure, increased legal, compliance, accounting and investor and public relations expenses associated with being a public company, and increased
insurance premiums, among other factors. We have in the past entered and
53
may in the future enter into licensing and funding arrangements with third parties that may impose milestone payment, royalty, insurance, or other
obligations on us.
Our expenses will also increase if and as we:
•
seek marketing approval for reproxalap and establish our sales, marketing and distribution capabilities for reproxalap in advance of and upon
any such approval;
•
are unable to enter into a collaboration agreement with a suitable third party on acceptable terms for the commercialization of reproxalap;
•
conduct any necessary clinical trials and other development activities and/or seek marketing approvals for ADX‑2191, ADX‑248, ADX‑743,
ADX‑631, ADX‑246, or any other product candidates;
•
pursue the clinical development of reproxalap for the treatment of other additional indications or for use in other patient populations or, if
approved, seek to broaden the label of reproxalap;
•
scale up our manufacturing processes and capabilities to support commercialization of reproxalap and any of our other product candidates for
which we seek and/or obtain marketing approval and for which we remain responsible for commercialization;
•
leverage our RASP-modulator discovery platform to advance additional therapeutics into preclinical and clinical development;
•
in‑license or acquire the rights to other products, product candidates or technologies;
•
maintain, expand and protect our intellectual property portfolio;
•
hire additional clinical, quality control, scientific, manufacturing, commercial, and management personnel;
•
expand our operational, financial and management systems and increase personnel, including personnel to support our clinical development,
manufacturing, and commercialization efforts, and our operations as a public company;
•
increase our product liability insurance coverage as we initiate and expand our commercialization efforts; and
•
expand our sales, marketing and distribution capabilities for our other product candidates, prior to or upon receiving marketing approval;
Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing
or amount of increased expenses or when, or if, we will be able to achieve profitability. Our expenses will increase from what we anticipate if:
•
we are required by the FDA or non‑U.S. regulatory agencies to perform clinical trials or studies in addition to those expected;
•
there are any delays in enrollment of patients in or completing our clinical trials or the development of our product candidates; or
•
there are any third‑party challenges to our intellectual property portfolio, or the need arises to defend against intellectual property‑related
claims.
Our ability to become and remain profitable depends on our ability to generate revenue. We currently generate no revenue from sales, and we may
never be able to commercialize reproxalap or our other product candidates. We do not currently have the required approvals to market any of our product
candidates and we may never receive them. We do not expect to generate revenue from sales of our product candidates that is sufficient to achieve
profitability, excluding any upfront licensing fees we may receive, unless and until we obtain marketing approval for and commercialize one or more of our
product candidates. We do not expect to commercialize reproxalap alone or with others or any of our other product candidates before at least the first half
of 2025, if ever. Achieving profitability will require us or our partners, if any, to be successful in a range of challenging activities, including:
•
obtaining marketing approval for reproxalap or any other product candidates;
54
•
manufacturing at commercial scale, marketing, selling, and distributing those products for which we obtain marketing approval;
•
entering into a collaboration agreement with a suitable third party on acceptable terms for the commercialization of reproxalap;
•
hiring and building a full commercial organization required for the marketing, selling, and distributing for those products which we obtain
marketing approval and for which we are responsible for commercializing;
•
achieving an adequate level of market acceptance of and obtaining and maintaining coverage and adequate reimbursement from third‑party
payors for any products we commercialize; and
•
obtaining, maintaining, and protecting our intellectual property rights.
We may never succeed in these activities and may never generate revenue that is sufficient to achieve profitability. Because of the numerous risks
and uncertainties associated with developing and commercializing our product candidates, we are unable to predict the extent of any future losses or when
we will become profitable, if at all. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual
basis. Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital, expand our
business, maintain our research and development efforts, diversify our product offerings, or continue our operations.
We will require substantial additional financing, and a failure to obtain the necessary capital when needed on acceptable terms, or at all, could force us
to delay, limit, reduce or terminate our product development, other operations or commercialization efforts.
The development and commercialization of biopharmaceutical products is capital intensive. We expect to devote substantial financial resources to
our ongoing and planned activities, particularly as we seek marketing approval and prepare for commercialization of reproxalap alone or with others, and
continue the development of our product candidates through preclinical and clinical development, including multiple ongoing and planned clinical trials for
our product candidates. We expect our expenses to increase in connection with our ongoing activities, particularly as we prepare for commercializing
reproxalap, if approved, alone or with others, and we continue the research and development of, and, if successful, seek marketing approval for, our product
candidates.
We currently plan to commercialize reproxalap through a collaboration with a third party. If we do obtain marketing approval for reproxalap and are
not able to establish a suitable collaboration for the commercialization of reproxalap, or any other product candidate that we develop, we expect to incur
significant additional commercialization expenses related to product sales, marketing, distribution and manufacturing. We may also need to raise additional
funds sooner if we choose to pursue additional indications for our product candidates or otherwise expand more rapidly than we presently anticipate.
Furthermore, we expect to continue to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial
additional funding in connection with our continuing operations. If we are unable to raise capital when needed on attractive terms, if at all, we will be
forced to delay, reduce, or eliminate certain of our clinical development plans, research and development programs, or future commercialization efforts. In
addition, there can be no assurance that we will be able to obtain such financing on commercially reasonable terms or at all. The development process for
our product candidates is highly uncertain, and we cannot estimate with certainty the actual amounts necessary to successfully complete the development,
regulatory approval, and commercialization of our product candidates for which we are responsible for commercialization. Our operating plans may change
as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than expected, through public or private equity, debt
financings, or other sources. The amount and timing of any expenditure needed to implement our development and commercialization programs will
depend on numerous factors, including:
•
the costs, timing, and outcome of regulatory review of reproxalap, including any additional trials the FDA or other regulatory agencies may
require for approval or label expansion;
•
the progress, costs, and results of any clinical activities for regulatory review of reproxalap outside of the United States;
55
•
the exercise, if any, of the Option;
•
the costs and timing of process development and manufacturing scale‑up activities associated with reproxalap;
•
the costs of commercialization activities for reproxalap if we receive marketing approval and if we are unable to enter into a collaboration
agreement with a suitable third party on acceptable terms for the commercialization of reproxalap, and pre‑commercialization costs for
reproxalap or any other product candidates incurred prior to receiving any such marketing approval, including the costs and timing of
establishing product sales, marketing, distribution, and outsourced manufacturing capabilities;
•
assuming receipt of marketing approval, the amount of revenue received from commercial sales of reproxalap or any other product
candidates;
•
the terms and timing of establishing collaborations, license agreements, and other partnerships on terms favorable to us;
•
the type, number, scope, progress, expansion costs, results, and timing of our clinical trials of any product candidates that we are pursuing or
may choose to pursue in the future;
•
costs associated with any other product candidates that we may develop, in-license, or acquire, including potential milestone or royalty
payments; and
•
the costs of obtaining, maintaining, and enforcing our patents and other intellectual property rights.
Some of these factors are outside of our control. Our existing capital resources are not sufficient to enable us to fund the commercialization of
reproxalap and completion of our clinical trials and remaining development through commercial introduction for our product candidates. We expect that we
will need to raise substantial additional funds in the near future.
We have not sold any products, and we do not expect to sell or derive revenue from any product sales for the foreseeable future. We may seek
additional funding through collaboration agreements and public or private financings, including debt financings. The state of the global economy and
market instability has made the business climate volatile and more costly. Uncertain economic conditions, uncertainty as to the general direction of the
macroeconomic environment, and the price of our common stock, are beyond our control and may make any necessary debt or equity financing more
difficult, more costly, and more dilutive. For example, the capital and credit markets may be adversely affected by the ongoing conflicts in Ukraine and
Israel and the surrounding areas, the possibility of wider regional or global conflicts, and global sanctions imposed in response thereto. A severe or
prolonged economic downturn, such as a global financial crisis, could affect our ability to raise additional capital. Additional funding may not be available
to us on acceptable terms, or at all. In addition, the terms of any financing may adversely affect the holdings or the rights of our stockholders or be
excessively dilutive. In addition, the issuance of additional shares by us, or the possibility of such issuance, may cause the market price of our shares to
decline.
If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay, reduce or discontinue our establishment of
sales and marketing capabilities or other activities that may be necessary to commercialize our product candidates or curtail, delay, or discontinue one or
more of our preclinical studies, clinical trials or other research or development programs. We may also be unable to expand our operations or otherwise
capitalize on our business opportunities, may need to restructure our organization, or may be required to relinquish rights to our product candidates or other
technologies, or otherwise agree to terms unfavorable to us. Any of these occurrences could materially affect our business, financial condition, and results
of operations.
Our quarterly operating results may fluctuate significantly.
We expect our operating results to be subject to quarterly fluctuations. Our net loss and other operating results will be affected by numerous factors,
including:
•
regulatory developments affecting reproxalap and our other product candidates;
56
•
our establishment and maintenance of a sales, marketing and distribution infrastructure and outsourced manufacturing capabilities to
commercialize any product candidate for which we may obtain marketing approval and for which we remain responsible for
commercialization;
•
variations in the level of expenses related to our clinical trial and development programs;
•
addition or termination of clinical trials or development programs;
•
any intellectual property infringement lawsuit in which we may become involved;
•
the exercise, if any, of the Option;
•
our ability to negotiate and enter into a collaboration agreement with a suitable third party on acceptable terms for the commercialization of
reproxalap;
•
our execution of any collaborative, licensing, or similar arrangements, and the timing of payments we may make or receive under these
arrangements;
•
the number of administrative, clinical, regulatory, and scientific personnel we engage;
•
nature and terms of stock-based compensation grants; and
•
derivative instruments recorded at fair value.
If our quarterly operating results fall below the expectations of investors or securities analysts, the price of our common stock could decline
substantially. Furthermore, any quarterly fluctuations in our operating results may, in turn, cause the price of our stock to fluctuate substantially. We
believe that quarterly comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of our future
performance.
Raising additional capital may cause dilution to stockholders, restrict our operations, or require us to relinquish rights to its technologies or product
candidates.
Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity
offerings, debt financings, collaborations, strategic alliances, licensing arrangements, and marketing and distribution arrangements. To the extent that we
raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities
may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if
available, may involve agreements that include covenants limiting or restricting its ability to take specific actions, such as incurring additional debt, making
capital expenditures, or declaring dividends.
If we raise additional funds through collaborations, strategic alliances, licensing arrangements, or marketing and distribution arrangements, we may
have to relinquish valuable rights to our technologies, future revenue streams, research programs, or product candidates, or grant licenses on terms that may
not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce,
or terminate product development or future commercialization efforts or grant rights to develop and market products or product candidates that we would
otherwise prefer to develop and market on our own.
We may allocate our cash, cash equivalents, and marketable securities in ways that you or other stockholders may not approve.
Our management has broad discretion in the application of our cash, cash equivalents, and marketable securities. Because of the number and
variability of factors that will determine our use of our cash, cash equivalents, and marketable securities, the ultimate use of cash, cash equivalents, and
marketable securities may vary substantially from the currently intended use. Our management might not apply our cash, cash equivalents, or marketable
securities in ways that ultimately increase the value of your investment. We expect to use our cash, cash equivalents, and marketable securities to: fund our
planned clinical trials of a number of product candidates; continue to fund the approval process for reproxalap, including conducting any additional clinical
trials or other activities that the FDA may require for approval of reproxalap; develop other molecules that relate to
57
immune-mediated disease; pursue regulatory approval for our product candidates; service our debt obligations; and provide working capital and capital for
other general corporate purposes. The failure by our management to apply these funds effectively could harm our business. We may invest our cash, cash
equivalents, or marketable securities in short-term investment-grade interest-bearing securities, which may not yield a favorable return to our stockholders.
If we do not invest or apply our cash, cash equivalents, or marketable securities in ways that enhance stockholder value, we may fail to achieve expected
financial results, which could cause our stock price to decline.
The terms of our secured debt facility require us to meet certain operating covenants and place restrictions on our operating and financial flexibility. If
we raise additional capital through debt financing, the terms of any new debt could further restrict our ability to operate our business.
We are a party to a credit facility with Hercules Capital that is secured by a lien covering all of our assets, other than our intellectual property. The
loan agreement contains customary affirmative and negative covenants and events of default. Affirmative covenants include, among others, covenants
requiring us to maintain our legal existence and governmental approvals, deliver certain financial reports, and maintain insurance coverage. Negative
covenants include, among others: restrictions on transferring any part of our business or intellectual property; incurring additional indebtedness; engaging
in mergers or acquisitions; paying dividends or making other distributions; making investments; and creating other liens on our assets, in each case subject
to customary exceptions. If we raise any additional debt financing, the terms of such additional debt could further restrict our operating and financial
flexibility. Restrictions may include, among other things, limitations on borrowing and specific restrictions on the use of our assets, as well as prohibitions
on our ability to create liens, pay dividends, redeem capital stock, or make investments. If we default under the terms of the Hercules Credit Facility or any
future debt facility, the lender may accelerate all of our repayment obligations and take control of our pledged assets, potentially requiring us to renegotiate
our agreement on terms less favorable to us or to immediately cease operations. Further, if we are liquidated, the lender’s right to repayment would be
senior to the rights of the holders of our common stock. The lender could declare a default upon the occurrence of any event that they interpret as a material
adverse effect as defined under the loan agreement. Any declaration by the lender of an event of default could significantly harm our business and
prospects and could cause the price of our common stock to decline. If we raise any additional debt financing, the terms of such additional debt could
further restrict our operating and financial flexibility.
Our ability to use net operating loss carryforwards and tax credit carryforwards to offset future taxable income may be limited as a result of
transactions involving our common stock.
In general, under Sections 382 and 383 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 or tax due. 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 our common stock
within the testing period, even those outside our control, such as purchases or sales by investors, could result in an ownership change. A limitation on our
ability to utilize some or all of our NOLs or credits could have a material adverse effect on our results of operations and cash flows. We believe, prior to
December 31, 2021, that four ownership changes occurred since inception. Management believes that the aggregate Section 382 and 383 limitation
(including the additional limitation for recognized "built-in gains") is sufficient so that no current impairment of pre-ownership change tax attributes is
required. We believe there were no ownership changes from December 31, 2021 through December 31, 2024, based on a review of our equity history
during that period. Any future ownership changes, including those resulting from our recent or future financing activities, may cause our existing tax
attributes to have additional limitations. However, subject to annual limitations, Federal NOLs generated in years 2018 and beyond will have an indefinite
carryforward period and will not expire. Future changes in federal and state tax laws pertaining to NOL carryforwards may also cause limitations or
restrictions from us claiming such NOLs. If the NOL carryforwards become unavailable to us or are fully utilized, our future taxable income will not be
shielded from federal and state income taxation absent certain U.S. federal and state tax credits, and the funds otherwise available for general corporate
purposes would be reduced.
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Governments may impose price controls, which may adversely affect our future profitability.
We intend to seek approval to market our product candidates in both the United States and in foreign jurisdictions. If we obtain approval to market
our product candidates in the United States, we will be subject to the Inflation Reduction Act of 2022 (IRA), which, among other things, will allow
Department of Health and Human Services (HHS) to negotiate the selling price of certain drugs and biologics that Centers for Medicare & Medicaid
Services (CMS) reimburses under Medicare Part B and Part D. If we obtain approval in one or more foreign jurisdictions, we will be subject to rules and
regulations in those jurisdictions relating to our product candidates. In some foreign countries, particularly in the EU, the pricing of prescription
pharmaceuticals is subject to governmental control. In such countries, pricing negotiations with governmental authorities can take considerable time after
the receipt of marketing approval for a product candidate. To obtain reimbursement or pricing approval in some countries, we, or our collaborators, may be
required to conduct a clinical trial that compares the cost-effectiveness of our drug to other available therapies. Furthermore, in some European countries,
the authorities conduct a Health Technology Appraisal to assess the cost-effectiveness of the product, which may significantly impact effective access to
the market. If reimbursement of our future products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, we may be
unable to achieve or sustain profitability.
Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.
Our operations could be subject to business disruptions such as earthquakes, power shortages, telecommunications failures, water shortages, floods,
hurricanes, typhoons, fires, extreme weather conditions, public health epidemics, regional or larger scale conflicts or geo-political actions, war or other
military conflict (including an escalation of the conflicts in Ukraine and Israel and the surrounding areas), trade policies, sanctions, treaties and tariffs and
other natural or man-made disasters or other business interruptions, for which we are predominantly self-insured. The occurrence of any of these business
disruptions could seriously harm our operations and financial condition, and increase our costs and expenses. We rely on third-party manufacturers to
produce reproxalap and our other product candidates. Our ability to obtain clinical and commercial supplies of reproxalap or our other product candidates
could be disrupted, if the operations of suppliers are affected by business disruptions.
Global economic conditions may have an adverse effect on our business.
Financial instability or a general decline in economic conditions in the U.S. and other countries, caused by political instability, conflict, and
economic challenges resulting from general health crises, has led to market disruptions, including significant volatility in commodity prices, credit and
capital market instability, and supply chain interruptions. Such volatility, instability, and interruptions have contributed to record inflation globally and
could adversely affect our operations. Increased inflation may result in higher operating costs (including labor costs), reduced liquidity, and limitations on
our ability to access credit or raise capital on acceptable terms, if at all. Existing free trade laws and regulations, such as the United States-Mexico-Canada
Agreement, provide certain beneficial duties and tariffs for qualifying imports and exports, subject to compliance with applicable classification and other
requirements. However, changes in trade laws or policies, particularly increased trade restrictions, tariffs, or taxes on imports from countries where we
manufacture products, such as Canada, China, and Mexico, could have a material adverse effect on our business and financial results. For example, in
February 2025, the U.S. government imposed or threatened to impose new tariffs on imported products from Mexico, Canada, and China. The impact of
tariffs depends on several factors, including the effective date and duration, potential changes in the amount, scope, and nature, any retaliatory actions taken
by the affected countries, and any mitigating measures that may become available. Despite recent trade negotiations between the U.S. and the Mexican,
Canadian, and Chinese governments, the uncertainty surrounding the scope and duration of new tariffs, as well as the potential for additional tariffs or trade
barriers by the U.S., Mexico, Canada, China, or other countries, precludes the ability to accurately predict the long-term impact of tariffs. Consequently, we
cannot assure that any strategies we implement to mitigate the effects of such tariffs or trade actions will be successful. In addition, the U.S. Federal
Reserve has raised, and may continue to raise, interest rates in response to concerns about inflation. Inflation, combined with reduced government spending
and volatility in financial markets, may further increase economic uncertainty and heighten associated risks. Economic conditions and uncertainty
regarding the broader macroeconomic environment are beyond our control and may make obtaining necessary debt or equity financing more difficult,
costly, and dilutive. While we believe we have adequate capital resources to meet current working capital and capital expenditure requirements, an
economic downturn or a significant increase in expenses could necessitate additional financing under less favorable conditions, including unattractive
interest rates or excessively dilutive terms for existing stockholders. Failure to
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secure necessary financing in a timely manner and on favorable terms could materially and adversely affect our stock price and force us to delay or
abandon clinical development plans.
We maintain our cash at financial institutions, often in balances that exceed federally-insured limits. Adverse developments affecting financial
institutions, companies in the financial services industry or the financial services industry generally, such as actual events or concerns involving
liquidity, defaults or non-performance, could adversely affect our operations and liquidity.
The majority of our cash is held in accounts at U.S. banking institutions that we believe are of high quality. Cash held in depository accounts may
exceed the $250,000 Federal Deposit Insurance Corporation (FDIC) insurance limits. Actual events involving limited liquidity, defaults, non-performance,
or other adverse developments that affect financial institutions or other companies in the financial services industry or the financial services industry
generally, or concerns or rumors about related events, have in the past and may in the future lead to market-wide liquidity problems. A failure of a
depository institution to return these deposits, or if a depository institution is subject to other adverse conditions in the financial or credit markets, could
further impact access to our invested cash or cash equivalents and could adversely impact our operating liquidity and financial performance. Concerns
regarding the U.S. or international financial systems, including bank failures and bailouts, and the potential broader effects and potential systemic risk on
the banking sector generally, may adversely affect our access to capital. Any decline in available funding or access to our cash and liquidity resources
could, among other risks, limit our ability to meet our capital needs and fund future growth or fulfill our other obligations, or result in breaches of our
financial and/or contractual obligations. Any of such impacts, or any other impacts resulting from the factors described above or other related or similar
factors not described above, could have material adverse impacts on our business, financial condition, and results of operations.
If we engage in an acquisition, reorganization, or business combination, we will incur a variety of risks that could adversely affect our business
operations or our stockholders.
From time to time, we have entered into, and we will continue to consider in the future, strategic business initiatives intended to further the
development of our business. These initiatives may include acquiring businesses, technologies, or products, or entering into a business combination with
another company. Any acquisitions we undertake will likely be accompanied by business risks that could harm our business, results of operations, or
financial condition, and that may include, among other things:
•
the effect of the acquisition on our financial and strategic position and reputation;
•
the failure of an acquisition to result in expected benefits, which may include benefits relating to new product candidates, human resources,
costs savings, operating efficiencies, goodwill, and other synergies;
•
the difficulty, cost, and management effort required to integrate the acquired businesses, including costs and delays in implementing common
systems and procedures, and costs and delays caused by communication difficulties;
•
the assumption of certain known or unknown liabilities of the acquired business, including litigation-related liabilities;
•
the reduction of our cash available for operations and other uses, the increase in amortization expense related to identifiable assets acquired,
potentially dilutive issuances of equity securities, or the incurrence of debt;
•
the possibility that we will pay more than the value we derive from the acquisition;
•
the impairment of relationships with our partners, consultants, or suppliers, or the relationships of acquired businesses; and
•
the potential loss of key employees of acquired businesses.
In January 2019, we acquired Helio Vision, Inc. and obtained the rights to ADX‑2191 for the treatment of proliferative vitreoretinopathy (the Helio
Product Candidate). During the year ended December 31, 2024, we ceased
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development of the Helio Product Candidate for the prevention and/or treatment of proliferative vitreoretinopathy. As a result, subject to the terms and
conditions of the Merger Agreement, the Helio Product Candidate and related intellectual property rights may revert to an entity designated by the
representative of the former Helio stockholders.
In addition to the risks commonly encountered in the acquisition of a business or assets as described above, we may also experience risks relating to
the challenges and costs of closing a transaction. The risks described above may be exacerbated as a result of managing multiple acquisitions at once.
Risks Related to our Reliance on Third Parties
We rely and will continue to rely on outsourcing arrangements for many of our activities, including clinical development, commercial readiness
preparations, and supply of reproxalap and our other product candidates.
As of December 31, 2024, we had only 9 full-time employees and, as a result, we rely, and expect to continue to rely, on outsourcing arrangements
for a significant portion of our activities, including clinical research, data collection and analysis, manufacturing, commercial readiness preparations,
financial reporting and accounting, and human resources, as well as for certain functions required of publicly traded companies. We may have limited
control over third parties and we cannot guarantee that any third-party will perform its obligations in an effective and timely manner.
In addition, during challenging and uncertain economic environments, in tight credit markets and during public health epidemics, and with the
continued hostilities in Ukraine and Israel and the surrounding areas, there may be a disruption or delay in the performance of our third-party contractors,
suppliers, or partners. If such third parties are unable to satisfy their commitments to us, our business and results of operations would be adversely affected.
We rely on third parties to conduct our clinical trials. If any third-party does not meet our deadlines or otherwise conduct the trials as required and in
accordance with regulations, our clinical development programs could be delayed or unsuccessful and we may not be able to obtain regulatory
approval for or successfully commercialize our product candidates when expected, or at all.
We do not have the ability to conduct all aspects of our preclinical testing or clinical trials ourselves. We are dependent on third parties to conduct
the clinical trials for our product candidates and, therefore, the timing of the initiation and completion of these trials is controlled by such third parties and
may occur on substantially different timing from our estimates. Specifically, we use CROs to conduct our clinical trials and we also rely on medical
institutions, clinical investigators, and consultants to conduct our trials in accordance with our clinical protocols and regulatory requirements. Our CROs,
investigators, and other third parties play a significant role in the conduct of these trials and subsequent collection and analysis of data.
There is no guarantee that CROs, investigators, or other third parties on which we rely for administration and conduct of our clinical trials will
devote adequate time and resources to such trials or perform as contractually required. If any third party fails to meet expected deadlines, fails to adhere to
our clinical protocols, or otherwise performs in a substandard manner, our clinical trials may be extended, delayed, or terminated. If any of our clinical trial
sites terminates for any reason, we may experience the loss of follow-up information on subjects enrolled in our ongoing clinical trials unless we are able to
transfer those subjects to another qualified clinical trial site. In addition, principal investigators for our clinical trials may serve as scientific advisors or
consultants to us from time to time, and may receive cash or equity compensation in connection with such services. Any worsening of the global business
and economic environment may have the effect of heightening or exacerbating risks associated with third parties.
Some of our product candidates may be studied in clinical trials co-sponsored by organizations or agencies other than us, or in investigator-initiated
clinical trials, which means we have minimal or no control over the conduct of such trials.
We currently anticipate that part of our strategy for pursuing the wide range of indications potentially addressed by our product candidates will
involve investigator-initiated clinical trials. Investigator-initiated clinical
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trials pose similar risks as those set forth elsewhere in this “Risk Factor” section relating to our internal clinical trials. While investigator-initiated trials
may provide us with clinical data that can inform our future development strategy, we generally have less control over the conduct and design of the trials.
Because we are not the sponsors of investigator-initiated trials, we do not control the protocols, administration, or conduct of the trials, including follow-up
with patients and ongoing collection of data after treatment. As a result, we are subject to risks associated with the way investigator-initiated trials are
conducted. In particular, we may be named in lawsuits that would lead to increased costs associated with legal defense. Additional risks include difficulties
or delays in communicating with investigators or administrators, procedural delays and other timing issues, and difficulties or differences in interpreting
data. Third-party investigators may design clinical trials with clinical endpoints that are more difficult to achieve, or in other ways that increase the risk of
negative clinical trial results compared to clinical trials that we may design on our own. Negative results in investigator-initiated clinical trials could have a
material adverse effect on our prospects and the perception of our product candidates. As a result, our lack of control over the conduct and timing of, and
communications with the FDA regarding, investigator-sponsored trials expose us to additional risks and uncertainties, many of which are outside our
control, and the occurrence of which could adversely affect the commercial prospects for our product candidates.
We rely completely on third parties to supply drug substance and manufacture drug product for our clinical trials and preclinical studies. We intend to
rely on other third parties to produce commercial supplies of product candidates, and our dependence on third parties could adversely impact our
business.
We are completely dependent on third-party suppliers of the drug substance and drug product for our product candidates. If third-party suppliers do
not supply sufficient quantities of materials to us on a timely basis and in accordance with applicable specifications and other regulatory requirements,
there could be a significant interruption of our supplies, which would adversely affect clinical development and commercialization. Furthermore, if any of
our contract manufacturers cannot successfully manufacture material that conforms to our specifications within regulatory requirements, we will not be
able to secure and/or maintain regulatory approval, if any, for our product candidates.
We also rely on our contract manufacturers to purchase from third-party suppliers the materials necessary to produce our product candidates for our
anticipated clinical trials. We do not have any control over the process or timing of the acquisition of raw materials by our contract manufacturers.
Moreover, we currently do not have agreements in place for the commercial production of these raw materials. Any significant delay in the supply of a
product candidate or the raw material components thereof for an ongoing clinical trial, including as a result of the continued hostilities in Ukraine and Israel
and the surrounding areas, could considerably delay completion of that clinical trial, product candidate testing, and potential regulatory approval of that
product candidate.
We do not expect to have the resources or capacity to commercially manufacture any of our proposed product candidates if approved and will likely
continue to be dependent on third-party manufacturers. Our dependence on third parties to manufacture and supply clinical trial materials and any approved
product candidates may adversely affect our ability to develop and commercialize our product candidates on a timely basis.
We may not be successful in establishing and maintaining development, commercial, or other strategic partnerships, which could adversely affect our
ability to develop and commercialize product candidates.
We have in the past chosen, and may in the future choose, to enter into development or other strategic partnerships, including collaborations with
major biotechnology or pharmaceutical companies. For example, we currently plan to commercialize reproxalap through a collaboration with a third party.
We face significant competition in seeking appropriate partners and the negotiation process is time consuming and complex. Moreover, we may not be
successful in our efforts to establish other development partnerships or other alternative arrangements for any of our product candidates or programs
because our research and development pipeline may be insufficient, our product candidates or programs may be deemed to be at too early a stage of
development for collaborative effort, and/or third parties may not view our product candidates or programs as having the requisite commercial or technical
potential. Even if we are successful in our efforts to establish development or commercial partnerships, the terms that we agree upon may not be favorable
to us and we may not be able to maintain such partnerships if, for example, development or approval of a product candidate is delayed or sales of an
approved
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product candidate are below expectations. Any delay in entering into development partnership agreements or collaborations related to our product
candidates could delay the development and commercialization of our product candidates and reduce competitiveness, if approved.
Moreover, if we fail to maintain partnerships related to our product candidates:
•
the development and/or commercialization of certain of our current or future product candidates may be terminated or delayed;
•
our cash expenditures related to development and commercialization of certain of our current or future product candidates would increase
significantly and we may need to seek additional financing;
•
we may be required to hire additional employees or otherwise develop expertise, such as sales and marketing expertise, for which we have
not budgeted; and
•
we will bear all of the risk related to the development and commercialization of any such product candidates.
We may not realize the benefits of our current or future strategic alliances.
We have in the past, and may in the future, form strategic alliances, create joint ventures or collaborations, or enter into licensing arrangements with
third parties that we believe will complement or augment our existing business, including the continued development or commercialization of reproxalap or
our other product candidates. We currently plan to commercialize reproxalap through a collaboration with a third party. Research, development, regulatory
and commercialization activities undertaken by our partners, if any, pose similar risks as those set forth elsewhere in this “Risk Factor” section relating to
our research, development, regulatory and commercialization activities. Strategic alliances may require us to incur non-recurring and other charges,
increase our near- and long-term expenditures, issue securities that dilute our existing stockholders, or disrupt our management and business. In addition,
we face significant competition in seeking appropriate strategic partners, and the negotiation process is time-consuming and complex. Moreover, we may
not be successful in our efforts to establish a strategic partnership or other alternative arrangements for reproxalap or our other product candidates because
third parties may view the risk of development failure as too significant or the commercial opportunity for our product candidate as too limited. We cannot
be certain that, following a strategic transaction or license, we will achieve the revenue or specific net income that justifies such transaction.
Our internal computer systems, or those of our development partners, third-party clinical research organizations, or other contractors or consultants,
may fail or suffer security breaches, which could result in a material disruption of our product development programs.
Despite the implementation of security measures, our internal computer systems and those of our current and any future CROs and other contractors,
consultants, and collaborators are vulnerable to damage from computer viruses; unauthorized access; natural disasters; terrorism; war or other military
conflict; including as a result of the continued hostilities in Ukraine and Israel and the surrounding areas; and telecommunication and electrical failures.
While to our knowledge we have not experienced any such material system failure, accident, or security breach to date, such an event could cause
interruptions in our operations, and could result in a material disruption of our development programs. For example, the loss of clinical trial data from
completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the
data. Likewise, we rely on third parties to manufacture our product candidates and conduct clinical trials, and similar events relating to their computer
systems could also have a material adverse effect on our business. To the extent that any disruption or security breach were to result in a loss of, or damage
to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development and
commercialization of our product candidate could be delayed.
We rely on email and other messaging services in connection with our operations. We may be targeted by parties using fraudulent spoofing and
phishing emails to misappropriate passwords, payment information, or other personal information, or to introduce viruses through Trojan horse programs
or otherwise through our networks, computers, smartphones, tablets, or other devices. Despite our efforts to mitigate the effectiveness of such malicious
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email campaigns through a variety of control and non-electronic checks, spoofing and phishing may damage our business and increase our costs. Security
risks may be heightened as a result of remote working arrangements. In addition, due to the political uncertainty involving the continued hostilities in
Ukraine and Israel and the surrounding areas, there is an increased likelihood that escalation of tensions could result in cyberattacks that could either
directly or indirectly impact our operations. Any of these events or circumstances could materially adversely affect our business, financial condition, and
operating results.
Risks Relating to Our Intellectual Property
Our success depends on our and our licensors' ability to protect our intellectual property and our proprietary technologies.
Our commercial success depends in part on our ability to obtain and maintain patent protection and trade secret protection for our product
candidates, proprietary technologies, and the use of our product candidates or proprietary technologies as well as our ability to operate without infringing
upon the proprietary rights of others. There can be no assurance that our patent applications or those of our licensors will result in additional patents being
issued or that issued patents will afford sufficient protection against competitors with similar technology, nor can there be any assurance that the patents
issued will not be infringed, designed around, or invalidated by third parties. Even issued patents may later be found unenforceable or may be modified or
revoked in proceedings instituted by third parties before various patent offices or in courts. The degree of future protection for our proprietary rights is
uncertain. Only limited protection may be available and may not adequately protect our rights or permit us to gain or keep any competitive advantage. This
failure to properly protect the intellectual property rights relating to these product candidates could have a material adverse effect on our financial condition
and results of operations.
Composition-of-matter patents on the active pharmaceutical ingredient are generally considered to be the strongest form of intellectual property
protection for pharmaceutical products, as such patents provide protection without regard to any method of use. While we have issued composition-of-
matter patents in the United States and other countries for reproxalap, and other product candidates, we cannot be certain that the claims in our patent
applications covering composition-of-matter of early stage candidates will be considered patentable by the United States Patent and Trademark Office
(USPTO) and courts in the United States or by the patent offices and courts in foreign countries, nor can we be certain that the claims in our issued
composition-of-matter patents will not be found invalid or unenforceable if challenged. Method-of-use patents protect the use of a product for the specified
method. This type of patent does not prevent a competitor from making and marketing a product that is identical to our product for an indication that is
outside the scope of the patented method. Moreover, even if competitors do not actively promote their product for our targeted indications, physicians may
prescribe competitive products off‑label. Although off‑label prescriptions may infringe or contribute to the infringement of method-of-use patents, the
practice is common and such infringement is difficult to prevent or prosecute. In addition, there are possibly treatment compositions and methods that we
have not conceived of or attempted to patent, and other parties may discover and patent approaches and compositions that are similar to or different from
ours.
The patent application process is subject to numerous risks and uncertainties, and there can be no assurance that we or any of our future
development partners will be successful in protecting our product candidates by obtaining and defending patents. Intellectual property risks and
uncertainties include the following:
•
the USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment,
and other provisions during the patent process. There are situations in which noncompliance can result in abandonment or lapse of a patent or
patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be
able to enter the market earlier than would otherwise have been the case;
•
patent applications may not result in any patents being issued;
•
patents that may be issued or in-licensed may be challenged, invalidated, modified, revoked, circumvented, found to be unenforceable, or
otherwise may not provide any competitive advantage;
•
our competitors, many of whom have substantially greater resources than we do and many of whom have made significant investments in
competing technologies, may seek or may have already obtained
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patents that will limit, interfere with, or eliminate our ability to make, use, and sell our potential product candidates;
•
there may be significant pressure on the United States government and international governmental bodies to limit the scope of patent
protection both inside and outside the United States for disease treatments that prove successful, as a matter of public policy regarding
worldwide health concerns; and
•
countries other than the United States may have patent laws less favorable to patentees than those upheld by United States courts, allowing
foreign competitors a better opportunity to create, develop, and market competing product candidates.
In addition, we rely on the protection of our trade secrets and proprietary know-how. Although we have taken steps to protect our trade secrets and
unpatented know-how, including entering into confidentiality agreements with third parties, and confidential information and inventions agreements with
employees, consultants, and advisors, third parties may still obtain this information or may come upon this or similar information independently. If any of
these events occurs or if we otherwise lose protection for our trade secrets or proprietary know-how, the value of our trade secrets or proprietary know-how
may be greatly reduced.
Claims by third parties that we infringe their proprietary rights may result in liability for damages or prevent or delay our developmental and
commercialization efforts.
The biotechnology industry has been characterized by frequent litigation regarding patent and other intellectual property rights. Because patent
applications are maintained in secrecy until the application is published, we may be unaware of third-party patents that may be infringed by
commercialization of reproxalap or our other product candidates. In addition, identification of third-party patent rights that may be relevant to our
technology is difficult because patent searching is imperfect due to differences in terminology among patents, incomplete databases, and the difficulty in
assessing the meaning of patent claims. Any claims of patent infringement asserted by third parties would be time consuming and could:
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result in costly litigation;
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divert the time and attention of our technical personnel and management;
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cause development or commercialization delays;
•
prevent us from commercializing reproxalap or our other product candidates until the asserted patent expires or is held finally invalid or not
infringed in a court of law;
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require us to develop non-infringing technology; or
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require us to enter into royalty or licensing agreements.
Although no third-party has asserted a claim of patent infringement against us, others may hold proprietary rights that could prevent reproxalap or
our other product candidates from being marketed. Any patent-related legal action against us claiming damages and seeking to enjoin commercial activities
relating to our product candidate or processes could subject us to potential liability for damages and require us to obtain a license to continue to
manufacture or market reproxalap or our other product candidates. We cannot predict whether we would prevail in any such actions or that any license
required under any of these patents would be made available on commercially acceptable terms, if at all. In addition, we cannot be sure that we could
redesign our product candidate or processes to avoid infringement, if necessary. Accordingly, an adverse determination in a judicial or administrative
proceeding, or the failure to obtain necessary licenses, could prevent us from developing and commercializing reproxalap or our other product candidates,
which could harm our business, financial condition, and operating results.
Any such claims against us could also be deemed to constitute an event of default under the loan and security agreement. In the case of a continuing
event of default under the loan, Hercules could, among other remedies, elect to declare all amounts outstanding to be immediately due and payable and
terminate all commitments to extend further credit. In the event we do not or are not able to repay the obligations at the time a default occurred, Hercules
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may elect to commence and prosecute bankruptcy and/or other insolvency proceedings, or proceed against the collateral granted to Hercules under the loan.
Our issued patents could be found invalid or unenforceable if challenged in court.
If we or any of our future development partners were to initiate legal proceedings against a third-party to enforce a patent covering one of our
product candidates, or one of our future product candidates, the defendant could counterclaim that our patent is invalid and/or unenforceable. In patent
litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could
be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, or non-enablement. Grounds for an
unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or
made a misleading statement during prosecution. Third parties may also raise similar claims before the USPTO, even outside the context of litigation. The
outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to validity, for example, we cannot be certain that there
is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of
invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on such product candidate. Such a loss of patent
protection would have a material adverse impact on our business.
We may fail to comply with any of our obligations under existing or future agreements pursuant to which we license or acquire rights or technology,
which could result in the loss of rights or technology that are material to our business.
We are a party to technology licenses, including an in-license agreement for ADX‑2191, and we may enter into additional licenses in the future.
Such licenses do, and may in the future, impose commercial, contingent payment, royalty, insurance, indemnification, and other obligations on us. If we
fail to comply with these obligations, the licensor may have the right to terminate the license, in which event we could lose valuable rights under our
collaboration agreements and our ability to develop product candidates could be impaired. Additionally, should such a license agreement be terminated for
any reason, there may be a limited number of replacement licensors, and a significant amount of time may be required to transition to a replacement
licensor.
Our rights to develop and commercialize our in-license program are each subject in part to the terms and conditions of a third-party license, pursuant
to which we have acquired exclusive rights and other intellectual property. Our rights with respect to the intellectual property to develop and commercialize
the in-license program may terminate, in whole or in part, if we fail to meet certain milestones contained in each of our license agreements relating to their
development and commercialization. We may also lose our rights to develop and commercialize either in-license agreement if we fail to pay required
milestones or royalties. In the event of an early termination of our license agreement, all rights licensed and developed by us under this agreement may be
extinguished, which may have an adverse effect on our business and results of operations.
On January 28, 2019, we acquired Helio and thereby acquired rights to develop ADX‑2191 for the treatment of proliferative vitreoretinopathy (the
Helio Product Candidate) pursuant to the Merger Agreement. We agreed to use commercially reasonably efforts to develop and obtain regulatory approval
for the Helio Product Candidate. During the year ended December 31, 2024, we deprioritized and subsequently ceased development of the Helio Product
Candidate for the prevention and/or treatment of proliferative vitreoretinopathy due to the requirement from the FDA to run clinical trials that we did not
deem to be feasible. As a result of our ceasing development of the Helio Product Candidate for the treatment of proliferative vitreoretinopathy, subject to
the terms and conditions of the Merger Agreement, our rights to develop the Helio Product Candidate and related intellectual property rights may revert to
an entity designated by the representative of the former Helio stockholders.
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We may be subject to claims that we have wrongfully hired an employee from a competitor or that we or our employees, consultants, or agents have
wrongfully used or disclosed alleged confidential information or trade secrets of their former employers.
As is common in the biotechnology and pharmaceutical industry, we engage the services of consultants to assist us in the development of our
product candidates. Many of these consultants and our employees were previously employed at, or may have previously provided or may be currently
providing consulting services to, other biotechnology or pharmaceutical companies including our competitors or potential competitors. We may become
subject to claims that our company or an employee, consultant, or agent inadvertently or otherwise used or disclosed trade secrets or other information
proprietary to their former employers or their former or current clients. Litigation may be necessary to defend against these claims. Even if we are
successful in defending against these claims, litigation could result in substantial costs and be a distraction to our management team.
If we do not obtain protection under the Hatch-Waxman Amendments by extending the patent terms and obtaining data exclusivity for our product
candidate, our business may be materially harmed.
Depending upon the timing, duration, and specifics of FDA marketing approval of reproxalap or other product candidates, one or more of our
United States patents may be eligible for limited patent term restoration under the Drug Price Competition and Patent Term Restoration Act of 1984,
referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years as compensation for
patent term lost during product development and the FDA regulatory review process. However, we may not be granted an extension because of, for
example, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents, or otherwise failing to satisfy applicable
requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than we request. If we are unable to obtain
patent term extension or restoration or the term of any such extension is less than we request, our competitors may obtain approval of competing products
following our patent expiration, and our revenue could be reduced, possibly materially.
If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our
business may be adversely affected.
If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest, and
our business may be adversely affected. Our registered or unregistered trademarks or trade names may be challenged, infringed, circumvented, declared
generic, or determined to be infringing on other marks. We may not be able to protect our rights to these trademarks and trade names, which we need to
build name recognition among potential partners or customers in our markets of interest. At times, competitors may adopt trade names or trademarks
similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade
name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of our registered or
unregistered trademarks or trade names. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then
we may not be able to compete effectively, and our business may be adversely affected. Our efforts to enforce or protect our proprietary rights related to
trademarks, trade secrets, domain names, copyrights, or other intellectual property may be ineffective and could result in substantial costs and diversion of
resources, and could adversely impact our financial condition or results of operations.
Changes in United States patent law could diminish the value of patents in general, thereby impairing our ability to protect our product candidates.
As is the case with other biotechnology companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and
enforcing patents in the biopharmaceutical industry involves technological and legal complexity. Therefore, obtaining and enforcing biotechnology patents
is costly, time consuming, and inherently uncertain. In addition, Congress may pass patent reform legislation. The Supreme Court has ruled on several
patent cases in recent years, either narrowing the scope of patent protection available or weakening the rights of patent owners. In addition to increasing
uncertainty with regard to our ability to obtain patents in the future, there is also increasing uncertainty with respect to the value of patents, once obtained.
Depending on decisions by the United States Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in
unpredictable ways that would weaken our ability to obtain new patents, or to enforce our existing patents and patents we might obtain in the future.
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We may not be able to protect our intellectual property rights throughout the world.
While we have issued composition-of-matter patents covering reproxalap and certain of our other product candidates in the United States and other
countries, filing, prosecuting, and defending patents on reproxalap and our other product candidates in all countries throughout the world would be
prohibitively expensive, and our intellectual property rights in some countries outside the United States may be less extensive and of significantly shorter
duration than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as
federal and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside
the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use
our technologies in jurisdictions where we have not obtained patent protection to develop their own products, and, further, may export otherwise infringing
products to territories where we have patent protection, but where enforcement is not as strong as that in the United States.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal
systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection,
particularly those relating to pharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing of competing
products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and
divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly, could put our
patent applications at risk of not issuing, and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and
the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights
around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license. Furthermore,
the growing use of generative AI presents an increased risk of unintentional and/or unauthorized disclosure or use of our intellectual property rights.
We and the third parties with whom we work are increasingly utilizing social media tools as a means of communication both internally and externally,
and noncompliance with applicable requirements, policies, or contracts due to social media use or negative posts or comments could have an adverse
effect on our business.
Social media is increasingly being used to communicate about our product candidates and clinical development programs, and we may intend to
utilize appropriate social media in connection with our commercialization efforts following approval of any product candidates. Social media practices in
the biopharmaceutical industry continue to evolve and regulations and regulatory guidance relating to such use are evolving and not always clear. In
addition, our employees or third parties with whom we contract or may contract, such as CROs, may knowingly or inadvertently make use of social media
in ways that may not comply with legal or contractual requirements, which may give rise to liability and lead to the loss of trade secrets or other intellectual
property. Additionally, such use of social media by our employees or third parties with whom we contract or may contract may result in public exposure of
personal information of our employees, clinical trial patients, and others, or exposure of information regarding product candidates or clinical trials, which
could result in litigation related to off‑label marketing or other prohibited activities. For example, clinical trial patients may use social media channels to
comment on experience in an ongoing blinded clinical trial or to report an alleged adverse event. When such disclosures occur, there is a risk that trial
enrollment may be adversely impacted, that we may fail to monitor and comply with applicable adverse event reporting obligations, or that we may not be
able to defend our business in the face of the political and market pressures generated by social media due to restrictions on what we may say about any
product candidate.
There is also a risk of inappropriate disclosure of sensitive information or negative or inaccurate posts or comments about us on any social
networking website. Furthermore, negative posts or comments about us or any of our product candidates on social media could seriously damage our
reputation, brand image, or goodwill. As a result of inappropriate, negative, or sensitive information disclosed about us on social media, we could face
regulatory sanctions, incur liability, or other harm to our business.
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Risks Related to Employee Matters and Managing Growth
We are highly dependent on the services of our senior management team and certain key consultants.
As a company with a limited number of personnel, we are highly dependent on the development, regulatory, commercial, and financial expertise of
our senior management team comprised of: Todd C. Brady, M.D., Ph.D., our President and Chief Executive Officer, and Stephen G. Machatha, Ph.D., our
Chief Development Officer, as well as certain other employees. In addition, we rely on the services of a number of key consultants, including IP,
pharmacokinetic, chemistry, toxicology, drug development, and financial and accounting consultants. Leadership transitions can be inherently difficult to
manage and may cause disruption within our company. The loss of key individuals or the services of future members of our management team could delay
or prevent the further development of our product candidates and, if we are not successful in finding suitable replacements, could harm our business.
If we fail to attract and retain senior management, we may be unable to successfully develop or commercialize our product candidates.
Our success depends on our continued ability to attract, retain, and motivate highly qualified management and scientific personnel, and we may not
be able to do so in the future due to intense competition among biotechnology and pharmaceutical companies, universities, and research organizations for
qualified personnel. If we are unable to attract and retain the necessary personnel, we may experience significant impediments to our ability to implement
our business strategy.
Changes in our senior management may be disruptive to our business, and, if we are unable to manage an orderly transition, our business may be
adversely affected. Following the departure of our former Interim Chief Financial Officer in August 2024, we outsourced the principal financial and
principal accounting officer roles through the engagement of Danforth Global, Inc., a third-party provider of strategic and operational finance and
accounting services.
Our future performance will depend, in part, on our ability to successfully integrate newly hired executive officers into our management team and
our ability to develop an effective working relationship among senior management. Our failure to integrate newly hired individuals and create effective
working relationships with other members of management could result in inefficiencies in the development and commercialization of our product
candidates, adversely affecting future regulatory approvals, sales of our product candidates, and results of our operations.
In order to commercialize the product candidates not subject to existing partnership agreements, we will need to substantially grow the size of our
organization. We may encounter difficulties in managing our growth and expanding our operations successfully.
As of December 31, 2024, we only had 9 full-time employees. We currently plan to commercialize reproxalap through a collaboration with AbbVie,
should AbbVie choose to exercise the option. However, if AbbVie elects not to exercise the Option, we may need to grow our organization to continue
development and pursue the potential commercialization of reproxalap, either alone or with another third party. In addition, we expect that we will need to
grow our organization to continue development and pursue the potential commercialization of our other product candidates, as well as function as a public
company. As we seek to advance reproxalap, alone or with others, and other product candidates towards potential commercialization, increase the number
of ongoing product development programs, and advance our future product candidates through preclinical studies and clinical trials, we will need to expand
our financial, development, regulatory, manufacturing, marketing, and sales capabilities, or contract with third parties to provide these capabilities for us.
As our operations expand, we expect that we will need to manage additional relationships with various strategic partners, suppliers, and other third parties.
Future growth will impose significant added responsibilities on members of management and require us to retain additional internal capabilities. Our future
financial performance and our ability to commercialize our product candidates and to compete effectively will depend, in part, on our ability to manage any
future growth effectively. To that end, we must be able to manage our development efforts and clinical trials effectively, and hire, train, and integrate
additional clinical and regulatory, financial, administrative and sales, and marketing personnel. We may not be able to identify, recruit, or integrate
additional personnel, and our failure to do so could prevent us from successfully growing our company.
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Risks Related to Other Legal or Regulatory Matters
Our business is subject to political, economic, legal, and social risks, which could adversely affect our business.
There are significant regulatory, economic and legal barriers in markets in the United States and outside the United States that we must overcome.
We may be subject to the burden of complying with a wide variety of national and local laws, including multiple and possibly overlapping and conflicting
laws. We also may experience difficulties adapting to new cultures, business customs, and legal systems. Any sales and operations would be subject to
political, economic, and social uncertainties including, among others:
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changes and limits in import and export controls;
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increases in custom duties and tariffs;
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changes in currency exchange rates;
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economic weakness, including inflation, and political instability, including effects of adverse developments affecting the financial services
industry, the ongoing conflicts in Ukraine and Israel and the surrounding areas, and the possibility of a wider regional or global conflict, and
global sanctions imposed in response thereto;
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the impact on employees, suppliers, customers, and the global economy related to public health epidemics or pandemics, and actions taken in
response to such events;
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compliance with multiple complex, potentially conflicting and changing governmental regulations and laws;
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absence in some jurisdictions of effective laws to protect our intellectual property rights; and
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currency transfer and other restrictions and regulations that may limit our ability to sell certain products or repatriate profits to the United
States.
Changes in United States social, political, regulatory, and economic conditions or in laws and policies governing foreign trade, manufacturing,
development, and investment, and any negative sentiments towards the United States as a result of such changes, could adversely affect our business.
Concerns over economic recession, elevated interest rates and inflation, tariffs, supply chain delays and disruptions, priorities of the U.S. presidential
administration and related changes in laws, regulations or policies, trade wars, unemployment, or prolonged government shutdown may contribute to
increased volatility and diminished expectations for the economy and markets. Recent and upcoming presidential and congressional elections in the United
States could also result in significant changes in, and uncertainty with respect to, legislation, regulation, and government policy that may impact the
biopharmaceutical industry in the United States. Any such impacts may have a negative impact on the United States economies and on our business,
financial condition, and results of operations. Additionally, concern over geopolitical issues may also contribute to prolonged market volatility and
instability. For example, continued hostilities in Ukraine and Israel and the surrounding areas could lead to disruption, instability, and volatility in global
markets and industries. The U.S. government and other governments and jurisdictions have imposed severe economic sanctions and export controls against
Russia and Russian interests, have removed Russia from the Society for Worldwide Interbank Financial Telecommunication payment (SWIFT) system, and
have threatened additional sanctions and controls. The impact of sanctions, control, and other measures, as well as potential responses by Russia, is
unknown.
Any changes related to political, economic, legal, and social factors could adversely affect any business operations that we conduct outside the
United States.
Security breaches, cyberattacks, loss of data, and other disruptions impacting our information technology systems or those of our third-party
collaborators, service providers, contractors or consultants could compromise the privacy, security, integrity or confidentiality of sensitive information
related to our business or prevent us from accessing critical information and expose us to adverse consequences, including but not limited to regulatory
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investigations or actions, litigation, and significant fines and penalties, which could adversely affect our business, financial condition, and reputation.
In the ordinary course of our business, we and our current or future third-party collaborators, service providers, contractors, and consultants collect,
store, and transmit sensitive data, including legally protected health information, personal data (also referred to as personal information or personally
identifiable information under certain data privacy laws) about patients and employees, intellectual property, and our proprietary business and financial
information (collectively, sensitive information). We manage and maintain data, including sensitive information, utilizing a combination of on-site systems,
managed data center systems, and cloud-based data center systems. We face a number of risks related to our protection of, and our third-party
collaborators’, service providers’, contractors’, and consultants’ protection of, sensitive information, including loss of access, inappropriate disclosure and
inappropriate or unauthorized access, as well as risks associated with our ability to identify and audit such events.
The secure processing, storage, maintenance, and transmission of sensitive information is vital to our operations and business strategy, and we
devote significant resources to protecting such information. Although we take measures to protect sensitive information from unauthorized access or
disclosure, our information technology and infrastructure, and those of our third-party collaborators, service providers, contractors, and consultants, may be
vulnerable to breakdown or other damage or interruption from service interruptions, system malfunctions, natural disasters, terrorism, war, and
telecommunications and electrical failures, as well as from cyberattacks by malicious third parties (including the deployment of harmful malware,
ransomware, denial-of-service attacks, social engineering, and other means to affect service reliability and threaten the confidentiality, integrity, and
availability of information) or viruses, or may be otherwise breached due to employee or third-party error, malfeasance, or other activities. Additionally, the
development and implementation of AI technologies may further increase our exposure to or exacerbate the risks of cyberattacks or other security
incidents, particularly where such technologies are exploited by third parties to breach our or other parties’ systems, including when such technologies are
used to target our employees or impersonate members of senior management in order to gain unauthorized access to our systems. Risks associated with AI,
security breaches, cyberattacks, loss of data, and other disruptions impacting our information technology systems may be heightened as a result of remote
working arrangements.
While we are not aware of any such attack, breach, or system failure, we cannot guarantee that our data protection efforts and our investment in
information technology, or those of our third-party collaborators, service providers, contractors, and consultants will prevent significant breakdowns, data
leakages, and breaches in the relevant systems or other cyber incidents. If such event were to occur and cause interruptions in our operations, our networks
could be compromised and the sensitive information we store on those networks could be accessed by unauthorized parties, publicly disclosed, lost, or
stolen. Any such unauthorized access, or disclosure, other loss of information, or the perception that inappropriate access, disclosure, or loss of information
has occurred, could result in legal claims or proceedings, liability under federal, state, and international laws that protect the privacy of personal data,
including but not limited to private lawsuits or class actions under the California Consumer Privacy Act, as amended by the California Privacy Rights Act
of 2020 (CPRA), and regulatory penalties, which could result in significant legal or financial exposure. In addition, we may be subject to state laws
requiring notification of affected individuals and state regulators in the event of a breach of personal data, which is a broader class of information than the
health information protected by the Health Insurance Portability and Accountability Act (HIPAA). Unauthorized access, loss, or dissemination of sensitive
information could also disrupt our ability to conduct research and development activities; collect, process, and prepare company financial information;
provide information about our product candidates and other patient and physician education or outreach efforts through our website; manage the
administrative aspects of our business; or prevent damage to our reputation, any of which could adversely affect our business.
We are subject to stringent and evolving U.S. and foreign laws, regulations, rules, contractual obligations, policies, and other obligations related to
data privacy and security. Our actual or perceived failure to comply with such obligations could lead to regulatory investigations or actions, litigation,
significant fines and penalties, disruptions of our business operations, reputational harm, loss of revenue or profits, loss of customers or sales, and
other adverse business consequences.
In the ordinary course of our business, we process, generate, use, transfer, disclose, make accessible, protect, secure, dispose of, transmit, and share
(collectively, process) personal data (also referred to as personal information or personally identifiable information under certain data privacy laws) and
other sensitive information, including proprietary and confidential business data, trade secrets, intellectual property, sensitive third-party data, and patient
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information. Our data processing activities may subject us to numerous data privacy and security obligations, such as various federal, state, and foreign
laws, regulations, guidance, industry standards, external and internal privacy and security policies, contracts, and other obligations that govern the
processing of personal data by us and on our behalf. We strive to comply with applicable data privacy and security obligations to the extent possible.
However, it is possible that these obligations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may
conflict with other rules and/or our practices. Any failure or perceived failure by us to comply with applicable privacy and data security laws and
regulations, our privacy policies, or our privacy-related obligations to third parties, or any compromise of security that results in the unauthorized access,
release or transfer of personal data or other sensitive information, may result in governmental enforcement actions and fines or orders requiring that we
change our practices, private litigation (including class action lawsuits), or public statements against us by consumer advocacy groups or others and could
cause a loss of trust in us, which could result in significant legal or financial exposure and reputational damage that could potentially have an adverse effect
on our business.
In the United States, federal, state, and local governments have enacted numerous data privacy and security laws, including data breach notification
laws, personal data privacy laws, and consumer protection laws (e.g., Section 5 of the Federal Trade Commission Act). For example, HIPAA, as amended
by the Health Information Technology for Economic and Clinical Health Act (HITECH), imposes specific requirements relating to the privacy, security,
and transmission of individually identifiable health information. In addition, we may be subject to various state data privacy and security laws and
regulations, including the California Consumer Privacy Act, as amended by the CPRA, which, among other things, requires covered “businesses” to
provide specific disclosures to California consumers concerning the collection, sale, and sharing of their personal data, and gives such consumers the right
to opt-out of certain sales of personal information. The CPRA provides for civil penalties for violations, as well as a private right of action for certain
security breaches that may increase the likelihood of, and the risks associated with, security breach litigation. Additionally, the CPRA created a new state
agency to oversee implementation and enforcement efforts, potentially resulting in further uncertainty and requiring us to incur additional costs and
expenses in an effort to comply. Many of the CPRA’s provisions became effective on January 1, 2023. Several states in the U.S. have proposed or enacted
laws that contain obligations similar to the CPRA that have taken effect or will take effect in coming years. The U.S. federal government also is
contemplating federal privacy legislation. The effects of recently proposed or enacted legislation potentially are far-reaching and could increase our
potential liability, increase our compliance costs, and adversely affect our business.
Developments in Europe have created compliance uncertainty regarding the processing of personal data from Europe. For example, the European
Union’s General Data Protection Regulation (EU GDPR), the United Kingdom’s GDPR (UK GDPR), and the Swiss Federal Act on Data Protection extend
the geographical scope of European data protection laws to non-European entities and impose strict requirements for processing personal data. For
example, under the EU GDPR and/or the UK GDPR, government regulators may impose temporary or definitive bans on data processing, as well as
possible fines of up to 4% of global annual turnover for the preceding financial year or €20 million, whichever is higher, for the most serious
infringements, exposing us to two parallel sets of regulations, each of which potentially authorizes similar fines and other potentially divergent enforcement
actions for certain violations. Further, individuals or consumer protection organizations authorized at law to represent their interests may initiate litigation
related to the processing of personal data.
In the ordinary course of our business, we may transfer personal data from Europe and other jurisdictions to the United States or other countries. The
EU GDPR and UK GDPR prohibit the transfer of personal data to countries outside of the EEA, or the UK including the United States, that have not been
deemed adequate by the European Commission or by the UK data protection regulator, respectively. Switzerland has adopted similar restrictions. Although
there are legal mechanisms that allow for the transfer of personal data from the EEA, UK, and Switzerland to the United States, such mechanisms are
subject to legal challenges, and there is no assurance that we can satisfy or rely on these measures to lawfully transfer personal data to the United States.
For example, legal developments in the EU have created complexity and uncertainty regarding such transfers and data protection authorities from the
different EU Member States may interpret the EU GDPR differently. Additionally, guidance on implementation and compliance practices are often updated
or otherwise revised, which adds to the complexity of processing personal data in the EU. Transfer mechanisms have also been subject to various legal
challenges. In particular, on July 16, 2020, the Court of Justice of the European Union, in the case of Data Protection Commissioner v. Facebook Ireland
Limited, Maximillian Schrems (Case C-311/18) (Schrems II), invalidated the EU-U.S. Privacy Shield Program for
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transfers of personal data from the EU to the U.S., and added further uncertainty and complexity to the use of standard contractual clauses as a compliance
mechanism for transfers of personal data outside the EU.
If there is no lawful manner for us to transfer personal data from the EEA, UK, or Switzerland to the United States, or if the requirements for a
legally-compliant transfer are too onerous, we could face significant adverse consequences, including the interruption or degradation of our operations, the
need to relocate part or all of our business or data processing activities to other jurisdictions at significant expense, increased exposure to regulatory
actions, substantial fines and penalties, the inability to transfer data and work with partners, vendors and other third-parties, which could limit our ability to
conduct clinical trial activities in Europe or elsewhere, and injunctions against our processing or transferring of personal data necessary to operate our
business.
In addition to the EU, UK, and Switzerland, a growing number of other global jurisdictions are considering or have passed legislation implementing
data protection requirements or requiring local storage and processing of data or similar requirements that could increase the cost and complexity of our
business. Some of these laws, such as the General Data Protection Law in Brazil, or the Act on the Protection of Personal Information in Japan, impose
similar obligations as those under the EU GDPR and UK GDPR. Others, such as those in Russia, India, and China, could potentially impose more stringent
obligations, including data localization requirements. If we are unable to meet these evolving legal requirements or if we violate or are perceived to violate
any laws, regulations, or other obligations relating to privacy, data protection, or information security, we may experience harm to our reputation and
become subject to investigations, claims, and other remedies, which could expose us to significant fines, penalties, and other damages, all of which would
harm our business.
Current and future legislation may increase the difficulty and cost for us to obtain regulatory and marketing approval of and commercialize our
product candidates, alone or with others, and may affect the prices we may obtain.
In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding
healthcare systems that could prevent or delay marketing approval for our product candidates, restrict or regulate post-approval activities, and affect our
ability to profitably sell any product candidates for which we obtain marketing approval. The pharmaceutical industry has been a particular focus of these
efforts and has been significantly affected by legislative initiatives. Current laws, as well as other healthcare reform measures that may be adopted in the
future, may result in more rigorous coverage criteria and additional downward pressure on our pricing and reimbursement for any FDA approved product.
Healthcare reform measures that may be adopted in the future may result in reductions in Medicare and other healthcare funding, more rigorous
coverage criteria, new payment methodologies, and additional downward pressure pricing and reimbursement for any approved product and/or the level of
reimbursement physicians receive for administering any approved product we might bring to market. Reductions in reimbursement levels may negatively
impact the frequency with which our products are prescribed or administered. Any reduction in reimbursement from Medicare or other government
programs may result in a similar reduction in payments from private payors.
To date, there have been several recent U.S. congressional inquiries and proposed and enacted state and federal legislation and regulation designed
to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient support programs,
reduce the costs of drugs under Medicare, and reform government program reimbursement methodologies for drug products. For example, included in the
Consolidated Appropriations Act of 2021 were several drug price reporting and transparency measures, such as a new requirement for certain Medicare
plans to develop tools to display Medicare Part D prescription drug benefit information in real time and for group and health insurance issuers to report
information on pharmacy benefit and drug costs to the Secretaries of the HHS, the Department of Labor, and the Treasury.
Drug pricing reduction and transparency initiatives recently culminated in the enactment of the IRA, in August 2022, which, among other things,
will allow HHS to negotiate the selling price of certain drugs and biologics that CMS reimburses under Medicare Part B and Part D, although this will only
apply to high-expenditure single-source drugs that have been approved for at least 7 years (11 years for biologics). The negotiated prices, which will first
become effective in 2026, will be capped at a statutory ceiling price representing a significant discount from
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average prices to wholesalers and direct purchasers. The law will also, beginning in October 2023, penalize drug manufacturers that increase prices of
Medicare Part B and Part D drugs at a rate greater than the rate of inflation. In addition, the law eliminates the “donut hole” under Medicare Part D
beginning in 2025 by significantly lowering the beneficiary maximum out-of-pocket cost through a newly established manufacturer discount program. The
IRA also extends enhanced subsidies for individuals purchasing health insurance coverage in ACA marketplaces through plan year 2025. The IRA permits
the Secretary of HHS to implement many of these provisions through guidance, as opposed to regulation, for the initial years. Manufacturers that fail to
comply with the IRA may be subject to various penalties, including civil monetary penalties. These provisions will take effect progressively starting in
2023. Several manufacturers and industry groups have challenged the drug price negotiation program for Medicare Parts B and D in federal court. These
lawsuits are ongoing, and additional lawsuits may be filed in the future related to provisions of the IRA. It is unknown whether such litigation or other
litigation, if brought, will be successful, or whether there will be future changes to the IRA. Moreover, the recent change in presidential administration in
the U.S. may introduce additional unpredictability regarding the future of the IRA. Thus, although it is unclear how the IRA will be implemented, the IRA
will likely have a significant impact on our business and the pharmaceutical industry as a whole.
At the state level, individual states are increasingly aggressive in passing legislation and implementing regulations designed to control
pharmaceutical and biological product pricing, including legislation and regulations regarding price or patient reimbursement constraints, discounts,
restrictions on certain product access, and marketing cost disclosure and transparency measures, and, in some cases, legislative action designed to
encourage importation from other countries and bulk purchasing. In addition, regional health care authorities and individual hospitals are increasingly using
bidding procedures to determine what pharmaceutical products and which suppliers will be included in prescription drug and other health care programs.
Such measures could reduce the ultimate demand for our products, if approved, or reduce our pricing and reimbursement.
Legislative and regulatory proposals have also been made to expand post-approval requirements and restrict sales and promotional activities for
pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance, or
interpretations will be changed, or what the impact of such changes on the potential approval and marketing approvals of our product candidates, if any,
may be. Increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject
us to more stringent product labeling and post-marketing testing and other requirements.
The continuing efforts of the government, insurance companies, managed care organizations, and other payors of healthcare services to contain or
reduce costs of health care may adversely affect:
•
the demand for any product candidates for which we may obtain regulatory approval;
•
our ability to set a price that we believe is fair for our product candidates;
•
our ability to generate revenue and achieve or maintain profitability;
•
our ability to identify and establish strategic partnerships;
•
the level of taxes that we are required to pay;
•
the availability of capital.
Our operations and relationships with actual and potential customers, providers, and third-party payors will be subject to applicable anti-kickback,
fraud and abuse, and other healthcare laws and regulations, which could expose us to penalties including criminal sanctions, civil penalties, exclusions
from government programs, contractual damages, and reputational harm, and could diminish our future profits and earnings.
Our arrangements with third-party payors, physicians, and other potential customers will subject us to broadly applicable fraud and abuse and other
healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute
any product candidates for which we obtain marketing approval.
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Applicable U.S. federal and state healthcare laws and regulations include the following:
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the federal Anti-Kickback Statute, a criminal law, which prohibits, among other things, persons and entities from knowingly and willfully
offering, paying, soliciting, or receiving any remuneration, directly or indirectly, in cash or in kind, to induce or reward purchasing, leasing,
ordering, or arranging for, referring, or recommending the purchase, lease, or order of any good or service for which payment may be made,
in whole or in part, under federal healthcare programs such as Medicare and Medicaid. A person or entity does not need to have actual
knowledge of the statute or specific intent to violate it in order to have committed a violation. Violations of the federal Anti-Kickback Statute
can result in significant civil monetary penalties and criminal fines, as well as imprisonment and exclusion from participation in federal
healthcare programs;
•
the federal civil False Claims Act, which may be enforced through civil whistleblower or qui tam actions and imposes significant civil
penalties, treble damages, and potential exclusion from federal healthcare programs against individuals or entities for, among other things,
knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or for making a
false record or statement material to an obligation to pay the federal government or for knowingly and improperly avoiding, decreasing, or
concealing an obligation to pay money to the federal government. Further, a violation of the federal Anti-Kickback Statute can serve as a
basis for liability under the federal civil False Claims Act. The federal Criminal False Claims Act, which is similar to the federal Civil False
Claims Act, imposes criminal liability on individuals or entities that make or present a false, fictitious, or fraudulent claim to the federal
government;
•
the federal Civil Monetary Penalties Law, which authorizes the imposition of substantial civil monetary penalties against an entity that
engages in activities including, among others (1) knowingly presenting, or causing to be presented, a claim for services not provided as
claimed or that is otherwise false or fraudulent in any way; (2) arranging for or contracting with an individual or entity that is excluded from
participation in federal health care programs to provide items or services reimbursable by a federal health care program; (3) violations of the
federal Anti-Kickback Statute; or (4) failing to report and return a known overpayment;
•
federal criminal statutes created by the Health Insurance Portability and Accountability Act (HIPAA), which impose criminal liability for,
among other things, knowingly and willfully executing or attempting to execute a scheme to defraud any healthcare benefit program,
including private insurance plans, or, in any matter involving a healthcare benefit program, for knowingly and willfully making materially
false, fictitious, or fraudulent statements in connection with the delivery of or payment for health care benefits;
•
HIPAA, as amended by HITECH, and implementing regulations, which also impose obligations, including mandatory contractual terms, on
certain types of people and entities with respect to safeguarding the privacy, security, and transmission of individually identifiable health
information;
•
the FDCA which, among other things, strictly regulates drug marketing, prohibits manufacturers from marketing such products for off‑label
use or misbranding or adulterating products, and regulates the distribution of samples;
•
federal and state laws that require pharmaceutical manufacturers to report certain calculated product pricing metrics to the government or
provide certain discounts or rebates to government authorities or private entities, often as a condition of product coverage and reimbursement
under federal healthcare programs;
•
the federal Physician Payment Sunshine Act, which requires applicable manufacturers of covered drugs, devices, biologics, and medical
supplies for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program, among others, to annually
track and report payments and other transfers of value provided to U.S.-licensed physicians and teaching hospitals, and for reports submitted
on or after January 1, 2022, physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, anesthesiologist
assistants, and certified nurse-midwives, as well as certain ownership and investment interests held by physicians and their immediate
families;
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•
analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, that may apply to our business practices,
including sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party
payors, including private insurers;
•
state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and relevant
compliance guidance promulgated by the federal government;
•
state laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other
healthcare providers or marketing expenditures;
•
other state laws that prohibit various marketing-related activities, such as the provision of certain kinds of gifts or meals; require the reporting
of certain pricing information, including information pertaining to and justifying price increases, or prohibit prescription drug price gouging;
and certain state and local laws that require the registration of pharmaceutical sales representatives; and
•
state and foreign laws that govern the privacy and security of health information in some circumstances, many of which differ from each
other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve
substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes,
regulations, or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any
of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties;
damages; fines; imprisonment; exclusion of product candidates from government-funded healthcare programs, such as Medicare and Medicaid;
disgorgement; contractual damages; reputational harm; diminished profits and future earnings; and the curtailment or restructuring of our operations.
Physicians or other healthcare providers or entities with whom we expect to do business found not to be in compliance with applicable law mays also be
subject to criminal, civil, or administrative sanctions, including exclusions from government-funded healthcare programs. Although effective compliance
programs can mitigate the risk of investigation and prosecution for violations, such risks cannot be entirely eliminated. Any action for an alleged or
suspected violation can cause us to incur significant legal expenses and divert management’s attention from the operation of the business, even if such
action is successfully defended.
Providing benefits or advantages to induce or reward improper performance generally to induce or encourage the prescription, recommendation,
endorsement, purchase, supply, order, or use of medicinal products is prohibited in the EU. The provision of benefits or advantages to induce or reward
improper performance is governed by the national anti-bribery laws of EU Member States, and in respect of the U.K., the Bribery Act 2010. Infringement
of these laws may result in substantial fines and imprisonment. EU Directive 2001/83/EC, which is the EU Directive governing medicinal products for
human use, provides that, where medicinal products are being promoted to healthcare professionals, no gifts, pecuniary advantages, or benefits in kind may
be supplied, offered or promised to such individuals unless such gifts or benefits are inexpensive and relevant to the practice of medicine or pharmacy. This
provision was transposed into the Human Medicines Regulations 2012 and as such remains applicable in the UK.
Payments made to physicians in certain EU Member States must be publicly disclosed. In addition, agreements with healthcare professionals must
often be the subject of prior notification and approval by the healthcare professional’s employer, his or her competent professional organization, and/or the
regulatory authorities of individual EU Member States. Specific requirements are set out in national laws, industry codes, or professional codes of conduct,
applicable in the EU Member States and in the UK. Failure to comply with these requirements could result in reputational risk, public reprimands,
administrative penalties, fines, or imprisonment.
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If we market products in a manner that violates healthcare fraud and abuse laws, or if we violate government price reporting laws, we may be subject to
civil or criminal penalties.
In addition to FDA restrictions on the marketing of pharmaceutical products, several other types of state and federal healthcare fraud and abuse
laws, including false claim statutes and anti-kickback statutes, have been applied in recent years to restrict certain marketing practices in the pharmaceutical
industry. Because of the breadth of fraud and abuse laws and the narrowness of the safe harbors, some of our business activities could be subject to
challenge under one or more of these laws.
Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal
government or knowingly making, or causing to be made, a false statement to get a false claim paid. The federal healthcare program anti-kickback statute
prohibits, among other things, knowingly and willfully offering, paying, soliciting, or receiving remuneration to induce, or in return for, purchasing,
leasing, ordering, or arranging for the purchase, lease, or order of any healthcare item or service reimbursable under Medicare, Medicaid, or other federally
financed healthcare programs. The anti-kickback statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one
hand, and prescribers, purchasers, and formula managers on the other. Although there are several statutory exemptions and regulatory safe harbors
protecting certain common activities from prosecution, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration
intended to induce prescribing, purchasing, or recommending may be subject to scrutiny if they do not qualify for an exemption or safe harbor. Our
practices may not in all cases meet all of the criteria for safe harbor protection from anti-kickback liability.
Over the past few years, several pharmaceutical and other healthcare companies have been prosecuted under fraud and abuse laws for a variety of
alleged promotional and marketing activities, such as: allegedly providing free trips, free goods, sham consulting fees and grants, and other monetary
benefits to prescribers; reporting to pricing services inflated average wholesale prices that were then used by federal programs to set reimbursement rates;
engaging in off‑label promotion that caused claims to be submitted to Medicaid for non-covered, off‑label uses; and submitting inflated best price
information to the Medicaid Rebate Program to reduce liability for Medicaid rebates. Most states also have statutes or regulations similar to the federal
anti-kickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply
regardless of the payor. Sanctions under these federal and state laws may include civil monetary penalties, exclusion of a manufacturer’s products from
reimbursement under government programs, criminal fines, and imprisonment.
If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of reproxalap or
our other product candidates.
We face an inherent risk of product liability as a result of the clinical testing of our product candidates and will face an even greater risk if we
commercialize our product candidates. For example, we may be sued if reproxalap or our other product candidates allegedly cause injury or are found to be
otherwise unsuitable during product testing, manufacturing, marketing, or sale. Any such product liability claims may include allegations of defects in
manufacturing, defects in design, a failure to warn of dangers inherent in the product candidate, negligence, strict liability, and a breach of warranties.
Claims could also be asserted under state consumer protection acts.
If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit
commercialization of our product candidates. Even successful defense would require significant financial and management resources. Regardless of the
merits or eventual outcome, liability claims may result in:
•
decreased demand for reproxalap or our other product candidates;
•
injury to our reputation;
•
withdrawal of clinical trial participants;
•
costs to defend the related litigation;
•
a diversion of management’s time and our resources;
•
substantial monetary awards to trial participants or patients;
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•
product recalls, withdrawals or labeling, marketing or promotional restrictions;
•
loss of revenue;
•
the inability to continue to develop or commercialize reproxalap or our other product candidates; or
•
a decline in our stock price.
We maintain product liability insurance with $5.0 million in coverage. We anticipate that we will need to increase our insurance coverage if we
commercialize any product candidate. Our inability to obtain and retain sufficient product liability insurance at an acceptable cost to protect against
potential product liability claims could prevent or inhibit the commercialization of reproxalap or our other product candidates. Although we will maintain
such insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in
part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies will also have various exclusions, and we may be
subject to a product liability claim for which we have no coverage. We may have to pay any amounts awarded by a court or negotiated in a settlement that
exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts.
We and our development partners, third-party manufacturers, and suppliers use biological materials and may use hazardous materials, and any claims
relating to improper handling, storage, or disposal of these materials could be time consuming or costly.
We and our development partners, third-party manufacturers, and suppliers may use hazardous materials, including chemicals and biological agents
and compounds that could be dangerous to human health and safety or the environment. Our operations and the operations of our development partner,
third-party manufacturers, and suppliers also produce hazardous waste products. Federal, state, and local laws and regulations govern the use, generation,
manufacture, storage, handling, and disposal of these materials and wastes. Compliance with applicable environmental laws and regulations may be
expensive, and current or future environmental laws and regulations may impair our product development efforts. In addition, we cannot entirely eliminate
the risk of accidental injury or contamination from these materials or wastes. We do not carry specific biological or hazardous waste insurance coverage
and our property, casualty, and general liability insurance policies specifically exclude coverage for damages and fines arising from biological or hazardous
waste exposure or contamination. Accordingly, in the event of contamination or injury we could be held liable for damages or be penalized with fines in an
amount exceeding our resources, and our clinical trials or regulatory approvals could be suspended.
We and any of our future development partners will be required to report to regulatory authorities if any of our approved products cause or contribute
to adverse medical events, and any failure to do so would result in sanctions that would materially harm our business.
If we and any of our future development partners are successful in commercializing our products, the FDA and foreign regulatory authorities will
require that we and any of our future development partners report certain information about adverse medical events if those products may have caused or
contributed to those adverse events. The timing of our obligation to report would be triggered by the date we become aware of the adverse event as well as
the nature of the event. We and any of our future development partners may fail to report adverse events we become aware of within the prescribed
timeframe or to perform inadequate investigations of their causes. We and any of our future development partners may also fail to appreciate that we have
become aware of a reportable adverse event, especially if it is not reported to us as an adverse event or if it is an adverse event that is unexpected or
removed in time from the use of our products. If we and any of our future development partners fail to comply with our reporting obligations, the FDA or a
foreign regulatory authority could take enforcement action including the issuance of a Warning Letter, the requirement of a labeling change, the initiation
of a criminal prosecution, the imposition of civil monetary penalties, the seizure of our products, or delay in approval or clearance of future products.
We are subject to anti-corruption laws, as well as export control laws, customs laws, sanctions laws, and other laws governing our operations. If we fail
to comply with these laws, we could be subject to civil or criminal
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penalties, or other remedial measures and legal expenses, any of which could adversely affect our business, results of operations and financial
condition.
Our operations are subject to anti-corruption laws, including the Foreign Corrupt Practices Act (FCPA), the Bribery Act and other anticorruption
laws that apply in countries where we do business and may do business in the future. The FCPA, the Bribery Act, and other laws generally prohibit us, our
officers, and our employees, and intermediaries from bribing, being bribed, or making other prohibited payments to government officials or other persons
to obtain or retain business or gain some other business advantage. We may in the future operate in jurisdictions that pose a high risk of potential FCPA or
Bribery Act violations, and we may participate in collaborations and relationships with third parties whose actions could potentially subject us to liability
under the FCPA, the Bribery Act, or local anti-corruption laws. In addition, we cannot predict the nature, scope or effect of future regulatory requirements
to which our international operations might be subject or the manner in which existing laws might be administered or interpreted.
We also are subject to other laws and regulations governing our international operations, including regulations administered by the governments of
the United States, UK, and authorities in the EU, including applicable export control regulations, economic sanctions on countries and persons, customs
requirements, and currency exchange regulations, which we collectively refer to as Trade Control Laws.
There is no assurance that we will be completely effective in ensuring our compliance with all applicable anti-corruption laws, including the FCPA,
the Bribery Act, or other legal requirements including Trade Control Laws. If we are not in compliance with the FCPA, the Bribery Act, and other anti-
corruption laws or Trade Control Laws, we may be subject to criminal and civil penalties, legal expenses, disgorgement, and other sanctions and remedial
measures, which could have an adverse impact on our business, financial condition, results of operations, or liquidity. The SEC also may suspend or bar
issuers from trading securities on U.S. exchanges for violations of the FCPA’s accounting provisions. Likewise, any investigation of any potential
violations of the FCPA; the Bribery Act; or other anti-corruption laws or Trade Control Laws by U.S., U.K., or other authorities also could have an adverse
impact on our reputation, our business, results of operations, or financial condition.
Our employees, independent contractors, vendors, principal investigators, contract research organizations (CROs), and consultants may engage in
misconduct or other improper activities, including noncompliance with regulatory standards, regulatory requirements, and insider trading.
We are exposed to the risk that our employees, independent contractors, vendors, principal investigators, CROs and consultants may engage in
fraudulent conduct or other illegal activity. Misconduct by these parties could include:
•
intentional, reckless, or negligent conduct or disclosure to us of unauthorized activities that violate the regulations of the FDA or similar
foreign regulatory authorities;
•
healthcare fraud and abuse in violation of U.S. and foreign laws and regulations;
•
violations of U.S. federal securities laws relating to trading in our common stock; and
•
failures to report financial information or data accurately.
In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent
fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations govern a wide range of pricing, discounting, marketing
and promotion, sales commission, customer incentive programs and other business arrangements. While we have adopted a code of conduct and
implemented other internal controls applicable to all our employees, it is not always possible to identify and deter misconduct by employees and other third
parties, and the precautions we take to detect and prevent this activity may not be effective. Additionally, we are subject to the risk that a person could
allege fraud or other misconduct, even if none occurred. Any such actions instituted against us, assuming we are not successful in defending ourselves or
asserting our rights, could have a significant impact on our business or cause reputational harm, including the imposition of civil, criminal and
administrative penalties, and damages; possible exclusion from participation in Medicare, Medicaid, and other federal healthcare programs; and diminished
profits and future earnings.
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In addition, during the course of our operations, our directors, executives, employees, consultants, and other third parties may have access to
material nonpublic information regarding our business, our results of operations, or potential transactions we are considering. We may not be able to
prevent trading in our common stock on the basis of, or while having access to, material nonpublic information. If any such person was to be investigated
or an action were to be brought against them for insider trading, it could have a negative impact on our reputation and our stock price. Such a claim, with or
without merit, could also result in substantial expenditures of time and money, and divert attention of our management team from other tasks important to
the success of our business.
We are subject to litigation risks.
From time to time, we may become involved in various litigation matters and claims, including regulatory proceedings, administrative proceedings,
governmental investigations, and contract disputes. We may face potential claims or liability for, among other things, breach of contract, defamation, libel,
fraud, or negligence. We may also face employment-related litigation, including claims of age discrimination; sexual harassment; gender discrimination;
immigration violations; or other local, state, and federal labor law violations. Because of the uncertain nature of litigation and insurance coverage decisions,
the outcome of such actions and proceedings cannot be predicted with certainty and an unfavorable resolution of one or more of them could have a material
adverse effect on our business, financial condition, results of operations, cash flows, and the trading price of our securities. In addition, legal fees and costs
associated with prosecuting and defending litigation matters could have a material adverse effect on our business, financial condition, results of operations,
and the trading price of our securities.
We are, and could in the future be, subject to securities class action litigation.
In the past, securities class action litigation has often been brought against companies, including us, following a decline in the market price of its
securities. The risk of securities class action litigation is especially relevant for us because biotechnology and pharmaceutical companies have experienced
significant stock price volatility in recent years. Such litigation could cause us to incur substantial costs and a diversion of management’s attention and
resources, which could harm our business. For further information about specific litigation and proceedings, see the section titled “Legal Proceedings”
contained in Part II, Item 1, and Note 14 of our Notes to Consolidated Financial Statements (unaudited) of this annual report on Form 10-K.
Our insurance policies are expensive and protect us only from some business risks, which leaves us exposed to significant uninsured liabilities.
We do not carry insurance for all categories of risk that our business may encounter. Some of the policies we currently maintain include general
liability, product and clinical trial liability, workers’ compensation, and directors’ and officers’ insurance. We do not know, however, if we will be able to
maintain existing insurance with adequate levels of coverage. Any significant, uninsured liability may require us to pay substantial amounts, which would
adversely affect our working capital and results of operations.
U.S. federal and state income tax reform could adversely affect us.
New legislation or regulation which could affect our tax burden could be enacted by any governmental authority. We cannot predict the timing or
extent of such tax-related developments which could have a negative impact on our financial results. Additionally, we use our best judgment in attempting
to quantify and reserve for these tax obligations. However, a challenge by a taxing authority, our ability to utilize tax benefits such as carryforwards or tax
credits, or a deviation from other tax-related assumptions could have a material adverse effect on our business, results of operations, or financial conditions.
Risks Related to Our Common Stock
In the absence of an active trading market for our common stock, investors may not be able to resell their shares at or above the price at which the
shares were purchased.
In the absence of an active trading market for our common stock, investors may not be able to sell common stock at or above the price paid. In
addition, an inactive market may impair our ability to raise capital by selling shares and may impair our ability to acquire other companies or technologies
by using our shares as consideration, which, in turn, could harm our business.
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The trading price of the shares of our common stock has been and is likely to continue to be highly volatile, and purchasers of our common stock could
incur substantial losses.
Our stock price has been and will likely continue to be volatile for the foreseeable future. The stock market in general and the market for
biotechnology companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular
companies. As a result of volatility, investors may not be able to sell common stock at or above the price paid. The market price for our common stock may
be influenced by many factors, including:
•
the results of FDA regulatory review processes and other regulatory actions with respect to our product candidates;
•
results of clinical trials, and the results of trials of our competitors or those of other companies in our market sector;
•
the results and status of our research and development and regulatory plans for our product candidates;
•
the exercise, if any, of the Option;
•
the expectations of investors or securities analysts regarding our business and clinical development program, including interim or final top-
line results that we may announce;
•
regulatory developments in the United States and foreign countries;
•
our ability to enroll and retain patients in our clinical trials;
•
variations in our financial results or those of companies that are perceived to be similar to us;
•
changes in the structure of healthcare payment systems, especially in light of current reforms to the United States healthcare system;
•
announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures, or capital commitments;
•
market conditions in the pharmaceutical and biotechnology sectors and issuance of securities analysts’ reports or recommendations;
•
sales of our stock by insiders and 5% stockholders;
•
trading volume of our common stock;
•
general economic, industry, regional or larger scale conflicts or geo-political actions, and market conditions other events or factors, many of
which are beyond our control, including frequent and dramatic fluctuations in industry indexes that may contain or influence our stock;
•
additions or departures of key personnel; and
•
intellectual property, product liability, or other litigation against us.
Concerns over economic recession, elevated interest rates and inflation, adverse developments affecting financial services industry, supply chain
delays and disruptions, priorities of the U.S. presidential administration and related changes in laws, regulations, and policies, trade wars, unemployment,
or prolonged government shutdown may contribute to increased volatility and diminished expectations for the economy and markets. Additionally, concern
over geopolitical issues may also contribute to prolonged market volatility and instability. For example, the continued hostilities in Ukraine and Israel and
the surrounding areas, could lead to disruption, instability, and volatility in global markets and industries. In connection with the hostilities between Russia
and Ukraine, the U.S. government and other governments and jurisdictions have imposed severe economic sanctions and export controls against Russia and
Russian interests, have removed Russia from the SWIFT system, and have threatened additional sanctions and controls. The impact of such measures, as
well as potential responses to them by Russia, is unknown.
In addition, in the past, stockholders have initiated class action lawsuits against biotechnology and pharmaceutical companies following periods of
volatility in stock market prices. Such litigation, if instituted against
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us, could cause us to incur substantial costs and divert management’s attention and resources, which could have a material adverse effect on our business,
financial condition, and results of operations.
Our failure to meet the continued listing requirements of The Nasdaq Capital Market could result in a delisting of our common stock.
If we fail to satisfy the continued listing requirements of The Nasdaq Capital Market (Nasdaq), such as the corporate governance requirements or the
minimum closing bid price requirement, Nasdaq may take steps to de-list our common stock. Such a delisting would likely have a negative effect on the
price of our common stock and would impair your ability to sell or purchase our common stock when you wish to do so. In the event of a delisting, we
would expect to take actions to restore our compliance with Nasdaq’s listing requirements, but we can provide no assurance that any such action taken by
us would allow our common stock to become listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common
stock from dropping below the Nasdaq minimum bid price requirement, or prevent future non-compliance with Nasdaq’s listing requirements.
Because a small number of our existing stockholders own a substantial percentage of our outstanding common stock, your ability to influence
corporate matters will be limited.
As of December 31, 2024, our executive officers, directors, and greater than 5% stockholders, in the aggregate, own approximately 39% of our
outstanding common stock. As a result, such persons, acting together, may have the ability to control our management and business affairs and
substantially all matters submitted to our stockholders for approval, including the election and removal of directors and approval of any significant
transaction. Concentration of ownership may have the effect of delaying, deferring, or preventing a change in control, impeding a merger, consolidation,
takeover, or other business combination involving us, or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain
control of our business, even if such a transaction would benefit other stockholders.
If our shares become subject to the penny stock rules, it would become more difficult to trade our shares.
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity
securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or authorized for quotation on certain
automated quotation systems, provided that current price and volume information with respect to transactions in such securities is provided by the
exchange or system. If we do not retain a listing on Nasdaq and if the price of our common stock is less than $5.00, our common stock will be deemed a
penny stock. The penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from those rules, to deliver a
standardized risk disclosure document containing specified information. In addition, the penny stock rules require that before effecting any transaction in a
penny stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that the penny stock is a suitable investment
for the purchaser and receive (i) the purchaser’s written acknowledgment of the receipt of a risk disclosure statement; (ii) a written agreement to
transactions involving penny stocks; and (iii) a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect
of reducing the trading activity in the secondary market for our common stock, and therefore stockholders may have difficulty selling shares.
We do not intend to pay dividends on our common stock and, consequently, your ability to achieve a return on your investment will depend on
appreciation in the price of our common stock.
We have never declared or paid any cash dividend on our common stock, and do not currently intend to do so for the foreseeable future. We
currently anticipate that we will retain future earnings for the development, operation, and expansion of our business and do not anticipate declaring or
paying any cash dividends for the foreseeable future. In addition, the Hercules Credit Facility currently prohibits, and any future debt financing
arrangements may contain terms prohibiting or limiting the amount of, dividends that may be declared or paid on our common stock. Any return to
stockholders will therefore be limited to the appreciation of their stock. Therefore, the success of an investment in shares of our common stock will depend
upon any future appreciation in the value of our common
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stock. There is no guarantee that shares of our common stock will appreciate in value or even maintain the price at which our stockholders have purchased
shares.
A substantial number of shares of our common stock could be sold into the public market in the near future, which could depress our stock price.
Sales of substantial amounts of our common stock in the public market could reduce the prevailing market prices for our common stock.
Substantially all of our outstanding common stock is eligible for sale as is common stock issuable under vested and exercisable stock options and upon
settlement of vested RSUs. If our existing stockholders sell a large number of shares of our common stock, or the public market perceives that existing
stockholders might sell shares of common stock, the market price of our common stock could decline significantly. Existing stockholder sales might also
make it more difficult for us to sell additional equity securities at a time and price that we deem appropriate.
We are a smaller reporting company, and we cannot be certain if the reduced reporting requirements applicable to smaller reporting companies will
make our common stock less attractive to investors.
We are a smaller reporting company under Rule 12b-2 of the Securities Exchange Act of 1934. For as long as we continue to be a smaller reporting
company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not smaller
reporting companies, including reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We cannot
predict if investors will find our common stock less attractive because we may rely on smaller reporting company exemptions. If some investors find our
common stock less attractive as a result, there may be a less active trading market for our common stock, and our stock price may be more volatile.
We are incurring significant increased costs and demands upon management as a result of operating as a public company.
As a public company, and particularly if and after we cease to be a “smaller reporting company,” we incur significant legal, accounting, and other
expenses that we did not incur as a private company. We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or
the Exchange Act, which require, among other things, that we file with the Securities and Exchange Commission, or the SEC, annual, quarterly and current
reports with respect to our business and financial condition. In addition, the Sarbanes-Oxley Act, as well as rules subsequently adopted by the SEC and
Nasdaq to implement provisions of the Sarbanes-Oxley Act, imposes significant requirements on public companies, including requiring establishment and
maintenance of effective disclosure and financial controls and changes in corporate governance practices. Further, in 2010, the Dodd-Frank Wall Street
Reform and Consumer Protection Act, or the Dodd-Frank Act, was enacted. There are significant corporate governance and executive compensation related
provisions in the Dodd-Frank Act that require the SEC to adopt additional rules and regulations in these areas such as “say on pay” and proxy access.
Stockholder activism, the current political environment, and the current high level of government intervention and regulatory reform may result in
substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in which we operate our
business in ways we cannot currently anticipate.
We expect the rules and regulations applicable to public companies to continue to substantially increase our legal and financial compliance costs and
to make some activities more time-consuming and costly. If public company rules and regulations divert the attention of our management and personnel
from other business concerns, our business, financial condition, and results of operations could be adversely affected. Increased costs associated with public
company expenses will increase our net loss. For example, public company rules and regulations make it more difficult and more expensive for us to obtain
director and officer liability insurance, the cost of which has continued to rise in recent years, and thus we may be required to incur substantial costs to
maintain the same or similar coverage. We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these
requirements, the impact of which could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our
board committees, or as executive officers.
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If we fail to maintain proper and effective internal control over financial reporting in the future, our ability to produce accurate and timely financial
statements could be impaired, which could harm our operating results, investors’ views of us and, as a result, the value of our common stock.
Pursuant to Section 404 of the Sarbanes-Oxley Act, our management is required to report upon the effectiveness of our internal control over
financial reporting. The rules governing the standards that must be met for management to assess our internal control over financial reporting are complex
and require significant documentation, testing, and possible remediation. To continue to comply with the requirements of being a reporting company under
the Exchange Act, we will be required to continue to upgrade and maintain our systems including information technology; implement and maintain
additional financial and management controls, reporting systems, and procedures; and hire additional accounting and finance staff. Furthermore, we rely on
third-parties, including software and system providers, for ensuring our reporting obligations and effective internal controls, and to the extent these third
parties fail to provide adequate service including as a result of any inability to scale to handle our growth and the imposition of increased reporting and
internal controls and procedures, we could incur material costs for upgrading or switching systems and our business could be materially affected.
However, as a smaller reporting company and a non-accelerated filer, our independent registered public accounting firm will not be required to
attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 for as long as we are not deemed an “accelerated filer” or
“large accelerated filer.”
If we are unable to establish and maintain effective internal controls it could have a material adverse effect on our business, financial condition,
results of operations, or cash flows.
As we grow, we plan to hire additional personnel and engage in external temporary resources and may implement, document, and modify policies
and procedures to maintain effective internal controls. However, we may identify deficiencies and weaknesses or fail to remediate previously identified
deficiencies in our internal controls. If material weaknesses or deficiencies in our internal controls exist and go undetected or unremediated, our financial
statements could contain material misstatements that, when discovered in the future, could cause us to fail to meet our future reporting obligations and
cause the price of our common stock to decline. In addition, we could be subject to sanctions or investigations by the SEC or other regulatory authorities,
which would require additional financial and management resources.
If securities or industry analysts do not continue to publish research or reports or publish unfavorable research or reports about our business, our
stock price and trading volume could decline.
The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us, our
business, our market, or our competitors. If one or more analysts downgrade our stock or publish unfavorable research or reports about our business, our
stock price would likely decline. If one or more analysts cease to cover us or fail to regularly publish reports on us, interest in our stock could decrease,
which could cause our stock price or trading volume to decline.
Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our
stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.
Provisions in our amended and restated certificate of incorporation and amended and restated bylaws may delay or prevent an acquisition of us or a
change in our management. These provisions include:
•
authorizing the issuance of “blank check” preferred stock, the terms of which may be established and shares of which may be issued without
stockholder approval;
•
limiting the removal of directors by the stockholders;
•
creating a staggered board of directors;
•
prohibiting stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders;
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•
eliminating the ability of stockholders to call a special meeting of stockholders;
•
permitting our board of directors to accelerate the vesting of outstanding option grants and other awards upon certain transactions that result
in a change of control; and
•
establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted
upon at stockholder meetings.
In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law,
which limits the ability of stockholders owning in excess of 15% of our outstanding voting stock to merge or combine with us. Although we believe these
provisions collectively provide for an opportunity to obtain greater value for stockholders by requiring potential acquirors to negotiate with our board of
directors, the provisions would apply even if an offer rejected by our board were considered beneficial by some stockholders. In addition, these provisions
may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to
replace members of our board of directors, which is responsible for appointing the members of our management.
Our restated certificate of incorporation and amended and restated bylaws provide that the Court of Chancery of the State of Delaware and the federal
district courts of the United States will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our
stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.
Our restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative
action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the
Delaware General Corporation Law, our certificate of incorporation, or our bylaws; or any action asserting a claim against us that is governed by the
internal affairs doctrine. Exceptions to the Delaware forum include claims brought to enforce a duty or liability created by the Exchange Act or any other
claim for which the federal courts have exclusive jurisdiction. Our amended and restated bylaws further provide that the federal district courts of the United
States will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. Choices of forum provisions may
limit a stockholder’s ability to bring a claim in a judicial forum that the stockholder finds favorable for disputes with us or our directors, officers, or other
employees, and may discourage stockholder and related lawsuits. Furthermore, the enforceability of similar choice of forum provisions in other companies’
certificates of incorporation or bylaws has been challenged in legal proceedings, and it is possible that a court could find such provisions to be inapplicable
or unenforceable. While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek
to bring a claim in a venue other than those designated in the exclusive-forum provisions, and there can be no assurance that such provisions will be
enforced by a court in those other jurisdictions. If a court were to find the exclusive-forum provision contained in our amended and restated certificate of
incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions,
which could harm our business.
Our business could be negatively affected as a result of the actions of activist stockholders.
Proxy contests have been waged against many companies in the biotechnology industry over the last few years. We may be particularly vulnerable
to activist stockholders due to fluctuations in our stock price. If faced with a proxy contest or other type of stockholder activism, we may not be able to
respond successfully to the contest or dispute, which would be disruptive to our business. Even if we are successful, our business could be adversely
affected by a proxy contest or stockholder dispute involving us or our partners because:
•
responding to proxy contests and other actions by activist stockholders can be costly and time-consuming, disrupting operations and diverting
the attention of management and employees;
•
perceived uncertainties as to future direction may result in the loss of potential acquisitions, collaborations, or in-licensing opportunities, and
may make it more difficult to attract and retain qualified personnel and business partners; and
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•
individuals elected to our board of directors may adversely affect our ability to effectively and timely implement our strategic plan and create
additional value for our stockholders.
The actions of activist shareholders could cause our stock price to experience periods of volatility.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 1C. CYBERSECURITY
All companies utilizing technology are subject to threats of breaches of cybersecurity. To mitigate the threat to our business and address regulatory
requirements, we take a comprehensive approach to cybersecurity risk management and have developed and implemented a cybersecurity risk management
program intended to protect the confidentiality, integrity, and availability of our critical systems and information. We continue to make proactive and
strategic investments to augment the capabilities of our people, processes, and technologies in order to address our cybersecurity risks. Our cybersecurity
risks, and the controls designed to mitigate those risks, are imbedded into our overall risk management governance and are reviewed at least annually by
the Audit Committee of our board of directors.
Risk Management and Strategy
We have implemented a set of comprehensive cybersecurity and data protection policies and procedures. Our employees and contractors receive
regular cybersecurity awareness trainings, including specific topics related to social engineering and email fraud. We have engaged consultants with
significant expertise and certifications in cybersecurity related to our industry. For continuous cybersecurity monitoring across our information technology
environment, we have invested in advanced technologies that are designed to prevent, detect, and minimize cybersecurity attacks, as well as alert
management of such attacks.
Our information security policy is based on recognized industry standards and cover areas such as risk management, data backup, and data recovery.
We engage consultants and IT managed service providers (IT MSP), to help us design and implement our cybersecurity policies and procedures. IT MSP
assist us with monitoring security threats and vulnerabilities and responding to identified cybersecurity incidents, including prompt escalation and timely
communication of major security incidents to senior business leadership and the Audit Committee. We conduct cybersecurity penetration testing as
warranted to identify and remediate cybersecurity gaps.
Primary responsibility for assessing, monitoring, and managing our cybersecurity risks rests with our current IT consultants and IT MSP, who report
to our Chief Development Officer.
We evaluate each third-party service provider to verify the ability to implement and maintain appropriate security measures, consistent with all
applicable laws, to implement and maintain reasonable security measures, and to promptly report any suspected breach of security measures that may affect
the Company.
Governance
Our Board of Directors and Audit Committee are responsible for overseeing our cybersecurity risk management and strategy.
Our Chief Development Officer periodically meets with our IT consultants and IT MSP about ongoing compliance and risk management, and our
Chief Executive Officer provides periodic briefings to the Audit Committee regarding our cybersecurity risks and activities, including any recent
cybersecurity incidents and related responses, cybersecurity systems testing, activities of third parties, and the like.
Cybersecurity Threat Disclosure
There can be no guarantee that our policies and procedures will be properly followed in every instance or that those policies and procedures will be
effective. Although our “Risk Factors” in Item 1A include further detail about the material cybersecurity risks we face, to date, we are not aware of any
cybersecurity threats that have materially affected our business. We can provide no assurance that there will not be incidents in the future or that they will
not materially affect us, including our business strategy, results of operations, or financial condition.
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ITEM 2. PROPERTIES
Our offices are located in Lexington, Massachusetts. As of December 31, 2024, we lease approximately 9,351 square feet of office space pursuant to
a lease that expires in December 2025, with the option to extend through December 2026. Management believes that this office space is suitable and
adequate to meet our anticipated near-term needs. We anticipate that following the expiration of the lease, additional or alternative space will be available
at commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS
On July 31, 2023, a purported stockholder filed a putative class action lawsuit (the Securities Class Action) in the U.S. District Court for the District
of Massachusetts, against us and certain current and former officers, captioned Juliana Paice v. Aldeyra Therapeutics, Inc., et al. (No. 23-cv-11737). On
January 2, 2024, the lead plaintiff filed an amended complaint. The lawsuit alleges violations by the defendants of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 and SEC Rule 10b-5. The plaintiff alleges that the defendants made false or misleading statements or failed to disclose
certain information concerning (i) the NDA for and the prospects of ADX‑2191 for the treatment of primary vitreoretinal lymphoma and (ii) the NDA for
and the prospects of reproxalap for the treatment of dry eye disease. The lawsuit seeks, among other things, compensatory damages on behalf of herself and
all persons and entities that purchased or otherwise acquired our securities between January 7, 2021, and October 16, 2023, as well as attorneys’ fees and
costs. On March 4, 2024, defendants filed a motion to dismiss the amended complaint, which was fully briefed as of May 20, 2024. Oral argument on the
motion to dismiss was heard on July 24, 2024. We dispute the plaintiffs' claims and intend to vigorously defend the suit. At this time, we cannot reasonably
predict the outcome or estimate potential losses, if any, that could result from this matter.
In addition, from time to time, we are subject to litigation and claims arising in the ordinary course of business but, except as stated above, we are
not currently a party to any material legal proceedings and we are not aware of any pending or threatened legal proceedings against us that we believe could
have a material adverse effect on our business, operating results, cash flows or financial condition.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
Market Information
Our common stock has been publicly traded on the Nasdaq Capital Market under the symbol “ALDX” since our initial public offering in May of
2014. Prior to our initial public offering, there was no public market for our common stock.
Holders of Record
As of December 31, 2024, there were 18 holders of record of our common stock. The actual number of stockholders is greater than this number of
record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees. This number
of holders of record also does not include stockholders whose shares may be held in trust by other entities.
Dividends
We have not declared or paid any cash dividends on our common stock since our inception. We do not plan to pay dividends in the foreseeable
future. Under our credit facility, we have agreed not to pay any dividends so long as it has any outstanding obligations thereunder. We currently intend to
retain all available funds and any future earnings, if any, for use in the operation of our business. Any future determination to declare cash dividends will be
made at the discretion of our board of directors, subject to applicable laws, and will depend on our financial condition, results of operations, capital
requirements, general business conditions and other factors that our board of directors may deem relevant, and subject to the restrictions contained in future
financing instruments. Consequently, stockholders will need to sell shares of our common stock to realize a return on their investment, if any.
Securities Authorized for Issuance under Equity Compensation Plans
The information required by Item 5 of Form 10-K regarding equity compensation plans is incorporated herein by reference to Item 12 of Part III of
this annual report on Form 10-K.
Recent Sales of Unregistered Securities
None.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
ITEM 6. [RESERVED]
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements
and the related notes appearing at the end of this annual report on Form 10-K. Some of the information contained in this discussion and analysis,
including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks, uncertainties and
assumptions. You should read the “Risk Factors” and “Special Note Regarding Forward-Looking Statements” sections of this annual report on Form 10-
K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking
statements contained in the following discussion and analysis.
Overview
We are a biotechnology company devoted to discovering and developing innovative therapies designed to treat immune-mediated and metabolic
diseases. Our approach is to develop pharmaceuticals that modulate protein systems, instead of directly inhibiting or activating single protein targets, with
the goal of optimizing multiple pathways at once while minimizing toxicity. Our late-stage product candidates are reproxalap, a RASP modulator for the
potential treatment of dry eye disease and allergic conjunctivitis, and ADX‑2191, a novel formulation of intravitreal methotrexate for the potential
treatment of retinitis pigmentosa. Our preclinical RASP platform includes ADX‑248, ADX‑743, ADX‑631, ADX‑246, and other product candidates in
development for inflammatory and metabolic diseases.
Since our incorporation, we have devoted substantially all of our resources to the preclinical and clinical development of our product candidates.
Our ability to generate revenue largely depends upon our ability, alone or with others, to complete development of our product candidates to obtain
regulatory approvals for and to manufacture, market, and sell our product candidates. The results of our operations will vary significantly from year-to-year
and quarter-to-quarter, and depend on a number of factors, including risks related to our business and industry, risks relating to intellectual property and
other legal matters, risks related to our common stock, and other risks that are detailed in the section of this annual report on Form 10-K entitled “Risk
Factors".
In March 2019, we entered into the Hercules Credit Facility, which provided for a term loan of up to $60.0 million, $15.0 million of which has been
funded as of September 30, 2024. In April 2021, the Hercules Credit Facility was amended to, among other things, increase the amount which may become
available for draw-down prior to May 2023, subject to the satisfaction of certain conditions contained therein, from $10.0 million to $20.0 million. In
December 2022, the Hercules Credit Facility was amended to, among other things, (i) extend the expiration of the period in which interest-only payments
on borrowings from May 1, 2023 to May 1, 2024; (ii) extend the Maturity Date from October 1, 2023 to October 1, 2024; and (iii) extend the availability of
the $20.0 million draw-down from May 2023 to May 2024, subject to the satisfaction of certain conditions contained therein. In April 2024, the Hercules
Credit Facility was amended to, among other things, extend the expiration of the period in which interest-only payments on borrowings under the Hercules
Credit Facility were to be made from May 1, 2024 to October 1, 2024. In September 2024, the Hercules Credit Facility was amended to, among other
things, (i) extend the expiration of the period in which interest-only payments on borrowings under the Loan and Security Agreement are made from
October 1, 2024 to April 1, 2026; (ii) extend the Maturity Date from October 1, 2024 to April 1, 2026; and (iii) amend the term loan interest rate to be the
greater of (a) the Prime Rate (as defined in the Hercules Credit Facility) plus 3.10%, or (b) 11.10%. The Hercules Credit Facility contains customary
affirmative and negative covenants and events of default. Affirmative covenants include, among others, covenants requiring us to maintain our legal
existence and governmental approvals, deliver certain financial reports, and maintain insurance coverage. Negative covenants include, among others:
restrictions on transferring any part of our business or intellectual property; incurring additional indebtedness; engaging in mergers or acquisitions; paying
dividends or making other distributions; making investments; and creating other liens on our assets, in each case subject to customary exceptions. The
Hercules Credit Facility, as amended, is described in Note 9 to the notes to the consolidated financial statements contained in this annual report on Form
10-K. As of December 31, 2024, $15.0 million was outstanding under the Hercules Credit Facility, and no amounts remained available for borrowing.
In August 2024, we entered into an Open Market Sales Agreement SM with Jefferies, as sales agent (the 2024 Jefferies Sales Agreement), under
which we have the ability to offer and sell, from time to time through Jefferies,
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shares of common stock providing for aggregate sales proceeds of up to $75.0 million. No sales had been made pursuant to the 2024 Jefferies Sales
Agreement as of December 31, 2024.
We will need to raise additional capital in the form of debt or equity or through partnerships to fund additional development of our product
candidates and, subject to regulatory approval, if any, the commercialization of our product candidates, and we may in-license, acquire, or invest in
complementary businesses or products. In addition, as capital resources permit, we may augment or otherwise modify the clinical development plans
described herein. However, any disruption in the capital markets could make any financing more challenging, and there can be no assurance that we will be
able to raise capital on commercially reasonable terms or at all.
Our Agreement with AbbVie
On October 31, 2023 (the Option Agreement Effective Date), we entered into an exclusive option agreement (the Option Agreement) with AbbVie
Inc. (AbbVie), pursuant to which we granted AbbVie an exclusive option (the Option) to obtain (a) a co-exclusive license in the United States to facilitate a
collaboration with us to develop, manufacture and commercialize reproxalap in the United States, (b) an exclusive license to develop, manufacture and
commercialize reproxalap outside the United States, (c) a right of first negotiation for compounds that are owned or otherwise controlled by us in the field
of ophthalmology relating to treating conditions of the ocular surface, and (d) a right to review data for any other compounds that are owned or otherwise
controlled by us in the fields of ophthalmology and immunology before such data is shared with any other third party (the Collaboration Agreement).
AbbVie has paid us a non-refundable payment of $1.0 million in consideration of the Option (the Option Payment).
On December 21, 2023, pursuant to the Option Agreement, AbbVie extended the period during which it may exercise the Option (the Exercise
Period Extension) by paying us a non-refundable payment of $5.0 million (the Option Extension Fee). If the Collaboration Agreement is entered into, the
Option Payment and the Option Extension Fee will be credited against the upfront cash payment payable by AbbVie.
On November 15, 2024, we entered into the Expansion Side Letter (the Expansion Letter) with AbbVie, which amended certain terms of the Option
Agreement. The Expansion Letter makes certain changes to the Option Agreement, among other things, providing that we will conduct certain launch
activities, which costs shall not exceed mid-single-digit millions of dollars without AbbVie’s approval, and which costs will be considered allowable
expenses pursuant to the Collaboration Agreement upon the delivery of AbbVie’s written notice of exercising the Option and entry into the Collaboration
Agreement, such that 60% of our allowable expenses will be reimbursed by AbbVie in the event of exercise. If AbbVie does not deliver a written notice of
exercising the Option and we do not execute the Collaboration Agreement, we will remain solely responsible for such launch activities costs. AbbVie has
also independently initiated pre-commercialization planning activities. In addition, the Exercise Period (as defined in the Option Agreement) was further
modified to ten (10) business days following the date, if any, that we receive approval from the U.S. Food and Drug Administration of the new drug
application (NDA) for reproxalap in dry eye disease (the FDA Decision), provided that AbbVie shall provide us notice in case AbbVie determines that it
will not exercise the Option.
Upon AbbVie’s delivery of the agreement execution notice and the parties entering into the Collaboration Agreement, AbbVie would pay us a $100
million upfront cash payment, less the Option Payment and the Option Extension Fee. In addition, we would be eligible to receive up to approximately
$300 million in regulatory, and commercial milestone payments, inclusive of a $100 million milestone payment payable if the FDA Decision is received
prior to or after the execution of the Collaboration Agreement. In the United States, we would share profits and losses with AbbVie from the
commercialization of reproxalap according to a split of 60% for AbbVie and 40% for us. Outside of the United States, we would be eligible to receive
tiered royalties on net sales of reproxalap. As of February 28, 2025, AbbVie has not exercised the Option.
Our Agreement with MEEI
We previously developed ADX‑2191 for the treatment of proliferative vitreoretinopathy pursuant to an Exclusive License Agreement with
Massachusetts Eye and Ear Infirmary (MEEI), originally entered into in
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July 2016 between MEEI and Helio Vision, Inc. (Helio), as amended, (the MEEI Agreement). We assumed the MEEI Agreement in connection with our
2019 acquisition of Helio.
Pursuant to the MEEI Agreement, we obtained an exclusive, worldwide license from MEEI to develop and commercialize ADX‑2191 under certain
patents and patent applications, in addition to other licenses to intellectual property (the MEEI Patent Rights). We have agreed to use our commercially
reasonable efforts to develop ADX‑2191 and to meet certain specified effort and achievement benchmarks by certain dates.
In consideration for the rights licensed under the MEEI Agreement, Helio issued MEEI a number of shares of its preferred stock and Helio agreed,
during the term of the MEEI Agreement, to pay non-creditable non-refundable license maintenance fees to MEEI of $15,000 on each of the second and
third anniversary of the MEEI Agreement, $25,000 on each of the fourth and fifth anniversary of the MEEI Agreement and $35,000 on the sixth and each
subsequent anniversary of the MEEI Agreement. In addition, Helio was obligated to make future sales-dependent milestone payments to MEEI of up to the
low seven figures in the aggregate, as well as royalty payments to MEEI at a rate which, as a percentage of net sales, is in the low single digits for products
that incorporate or use the MEEI Patent Rights. Helio is also obligated under the MEEI Agreement to pay MEEI a percentage of certain sublicense revenue
at a percentage rate that descends from low-double digits to mid-single digits based on the date of the sublicense. Following our acquisition of Helio, we
became obligated to make any future payments previously owed by Helio under the MEEI Agreement. There is no additional equity consideration issuable
under the MEEI Agreement.
The MEEI Agreement will remain in effect until the expiration date of the last to expire patent licensed under the MEEI Agreement. We may
terminate the MEEI Agreement with timely written notice to MEEI. MEEI has the right to terminate the MEEI Agreement, subject to certain specified cure
periods, in the event of our insolvency or bankruptcy or if we cease all business operations with respect to licensed products, fail to pay amounts due under
the MEEI Agreement, fail to comply with certain due diligence obligations, do not maintain specific levels of insurance, one of our officers is convicted of
a felony relating to the manufacture, use, sale or importation of licensed products, or we materially breach any provisions of the MEEI Agreement or in the
event of our insolvency or bankruptcy.
In the event of an early termination of the MEEI Agreement, all rights licensed and developed by us under the MEEI Agreement will revert to
MEEI. We have agreed to indemnify MEEI for certain claims that may arise under the MEEI Agreement.
Our Acquisition of Helio Vision, Inc.
On January 28, 2019, we acquired Helio. Upon the closing of the acquisition, we issued an aggregate of 1,160,444 shares of common stock to the
former securityholders and an advisor of Helio. In January 2021, pursuant to the terms of the acquisition agreement, we issued an additional 246,562 shares
of common stock to the former securityholders of Helio. Subject to the conditions of the acquisition agreement, we are contingently obligated to make
additional payments to the former securityholders of Helio as follows: (a) $10.0 million of common stock following approval by the FDA of a NDA for the
prevention and/or treatment of proliferative vitreoretinopathy or a substantially similar label prior to the 10th anniversary of the closing date; and (b) $2.5
million of common stock following FDA of a NDA for an indication (other than proliferative vitreoretinopathy or a substantially similar label) prior to the
12th anniversary of the closing date, provided that in no event shall we be obligated to issue more than 5,248,885 shares of common stock in the aggregate.
Additionally, in the event of certain change of control or divestitures by us, certain former convertible noteholders of Helio will be entitled to a tax gross-up
payment in an amount not to exceed $1.0 million.
Research and Development Expenses
We expense all of our research and development expenses as incurred. Research and development costs that are paid in advance of performance are
capitalized as a prepaid expense until incurred. Research and development expenses primarily include:
•
non-clinical development, preclinical research, and clinical trial and regulatory-related costs;
92
•
expenses incurred under agreements with sites and consultants that conduct our clinical trials; and
•
employee-related expenses, including salaries, benefits, travel, and stock-based compensation expense.
Substantially all of our research and development expenses to date have been incurred in connection with reproxalap and ADX‑2191, as well as
proof of concept trials with ADX‑629. We expect our research and development expenses to increase for the foreseeable future as we advance other
compounds through preclinical and clinical development. The process of conducting clinical trials necessary to obtain regulatory approval is costly and
time consuming. We are unable to estimate with any certainty the costs we will incur in the continued development of our product candidates. Clinical
development timelines, the probability of success, and development costs can differ materially from expectations. We may never succeed in achieving
marketing approval for our product candidates.
The costs of clinical trials may vary significantly over the life of a project owing to, but not limited to, the following:
•
per patient trial costs;
•
the number of sites included in the trials;
•
the countries in which the trials are conducted;
•
delays of, or other effects on, clinical trials resulting from public health measures, and war or other military actions, or for other reasons;
•
the length of time required to enroll eligible patients;
•
the design of the trials;
•
the cost of drug manufacturing;
•
the number of patients that participate in the trials;
•
the number of doses that patients receive;
•
the costs of assay development, assays, or other assessment of clinical trial endpoints;
•
the cost of vehicle or active comparative agents used in trials;
•
the drop-out or discontinuation rates of patients;
•
potential additional safety monitoring or other studies requested by regulatory agencies;
•
the duration of patient follow-up;
•
the phase of development the product candidate is in; and
•
the efficacy and safety profile of our product candidates.
Included in research and development are expenses associated with asset acquisitions. Assets purchased in an asset acquisition transaction are
expensed as in-process research and development unless the assets acquired are deemed to have an alternative future use. Acquired in-process research and
development payments are immediately expensed, and include upfront payments, as well as transaction fees and subsequent milestone payments.
Development costs incurred after the asset acquisition are expensed as incurred.
We do not expect reproxalap or any of our other product candidates to be commercially available, if at all, before at least the first half of 2025.
General and Administrative Expenses
Our general and administrative expenses consisted primarily of employee-related expenses, including benefits and stock-based compensation for our
full-time employees during the years ended December 31, 2024 and 2023. Other general and administrative expenses include insurance premiums;
consulting including pre-commercial costs;
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and professional fees for auditing, tax, investor relations, and legal services, including patent-related costs. We expect that general and administrative
expenses will increase in the future as we expand our operating activities, continue to incur additional costs associated with being a publicly-traded
company, and maintaining compliance with exchange listing and SEC requirements. These increases will likely include higher consulting costs, fees for
commercializing our product candidates, legal fees, accounting fees, insurance premiums, and fees associated with investor relations.
Other Income (Expense)
Total other income (expense) consists primarily of interest income we earn on interest-bearing accounts, and interest expense incurred on our
outstanding debt.
Comprehensive Loss
Comprehensive loss is defined as the change in equity during a period from transactions and other events and/or circumstances from non-owner
sources. For the year ended December 31, 2024, comprehensive loss is equal to our net loss of $55.9 million and our net unrealized gain on marketable
securities of approximately $0.1 million. For the year ended December 31, 2023, comprehensive loss is equal to our net loss of $37.5 million and $0.1
million of losses on marketable securities reclassified to net loss.
Critical Accounting Estimates
Our discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in
accordance with generally accepted accounting principles in the United States (US GAAP). The preparation of financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the
financial statements, as well as the expenses during the reported periods. We evaluate estimates and judgments on an ongoing basis. We base our estimates
on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may differ materially from
estimates under different assumptions or conditions.
While our significant accounting policies are more fully described in Note 2 to our financial statements appearing elsewhere in this annual report on
Form 10-K, we believe that the following accounting estimates are the most critical in order to fully understand and evaluate our financial condition and
results of operations.
Accrued and Deferred Research and Development Expenses
As part of the process of preparing financial statements, we are required to estimate our accrual for and any remaining deferred balances pertaining
to our research and development expenses. Our estimates involve the following:
•
communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the level of service
performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost;
•
estimating and accruing or deferring expenses in our financial statements as of each balance sheet date based on facts and circumstances
known to us at the time; and
•
periodically confirming the accuracy of our estimates with selected service providers and making adjustments, if necessary.
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Examples of estimated research and development expenses that we accrue or deferred include:
•
fees paid to investigative sites in connection with clinical studies;
•
fees paid to contract manufacturing organizations in connection with non-clinical development, preclinical research, and the production of
clinical study materials; and
•
professional service fees for consulting and related services.
We base our expense accruals and deferrals related to non-clinical development, preclinical studies, and clinical trials on our estimates of the
services received and efforts expended pursuant to contracts with organizations/consultants that conduct and manage clinical studies on our behalf. The
financial terms of these agreements vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts may
depend on many factors, such as the successful enrollment of patients, site initiation, and the completion of clinical study milestones. Our service providers
generally invoice us monthly in arrears for services performed. In accruing service fees, we estimate the time period over which services will be performed
and the level of effort to be expended in each period. If we do not identify costs that we have begun to incur, or if we underestimate or overestimate the
level of services performed or the costs of these services, our actual expenses could differ from our estimates. To date, we have not experienced significant
changes in our estimates of accrued or deferred research and development expenses after a reporting period. However, due to the nature of estimates, we
cannot assure you that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of
our clinical trials and other research activities.
Other Information
Net Operating Loss Carryforwards
As of December 31, 2024, we had federal and state income tax net operating loss (NOL) carryforwards of approximately $272.0 million and $262.9
million, respectively. Federal NOL carryforwards generated through December 31, 2017 and state NOL carryforwards will expire at various dates through
2044. Federal NOLs generated during the years ended December 31, 2018 and thereafter will carry forward indefinitely. As of December 31, 2024, we had
federal and state research and development tax credit carryforwards of approximately $12.1 million and $2.8 million, respectively, which will expire at
various dates through 2044. Additionally, as of December 31, 2024, we had a federal orphan drug tax credit carryforward of approximately $2.4 million
which expires at various dates throughout 2044.
Future changes in federal and state tax laws pertaining to net operating loss carryforwards may also cause limitations or restrictions from us
claiming such net operating losses. If the net operating loss carryforwards become unavailable to us or are fully utilized, our future taxable income will not
be shielded from federal and state income taxation absent certain U.S. federal and state tax credits, and the funds otherwise available for general corporate
purposes would be reduced.
Under Sections 382 and 383 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 NOLs and certain other tax assets (tax attributes) to offset future taxable income or tax due. 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 our common stock within the testing period, even
those outside our control such as purchases or sales by investors, could result in an ownership change. A limitation on our ability to utilize some or all our
NOLs or credits could have a material adverse effect on our results of operations and cash flows. We believe, prior to December 31, 2021 that four
ownership changes occurred since inception. Management believes that the aggregate Section 382 and 383 limitation (including the additional limitation
for recognized "built-in gains") is sufficient so that no current impairment of pre-ownership change tax attributes is required. We believe there were no
ownership changes from December 31, 2021 through December 31, 2024, based on a review of our equity history during that period. Any future ownership
changes, including those resulting from our recent or future financing activities, may cause our existing tax attributes to have additional limitations.
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Recent Accounting Pronouncements
Recent accounting pronouncements that may be applicable to us are described in Note 2 to our Consolidated Financial Statements included herein.
Results of Operations
We anticipate that our results of operations will fluctuate for the foreseeable future due to several factors, including the progress of our research and
development efforts, the timing and outcome of clinical trials, regulatory requirements, and the exercise, if any, of the Option, including any related
commercialization costs. Our limited operating history makes predictions of future operations difficult or impossible. Since our inception, we have incurred
significant losses.
Comparison of Years Ended December 31, 2024 and 2023
Years ended December 31,
Increase (Decrease)
2024
2023
Amount
Percent
Research and development
$
48,224,793 $
29,458,719 $
18,766,074
63.7%
General and administrative
11,892,239
13,335,364
(1,443,125)
(10.8%)
Loss from operations
(60,117,032)
(42,794,083)
(17,322,949)
40.5%
Other income (expense):
Interest income
6,191,829
7,323,008
(1,131,179)
(15.4%)
Interest expense
(1,926,241)
(2,071,435)
145,194
(7.0%)
Total other income, net
4,265,588
5,251,573
(985,985)
(18.8%)
Net loss
$
(55,851,444) $
(37,542,510) $
(18,308,934)
48.8%
Net Loss. Net loss for the years ended December 31, 2024 and 2023 was approximately $55.9 million and $37.5 million, respectively. As of
December 31, 2024, we had total stockholders’ equity of $71.0 million. Losses have resulted primarily from costs incurred in our clinical trials, drug
manufacturing costs, and other research and development programs, and from our general and administrative expenses.
Research and Development Expenses. Research and development expenses were $48.2 million for the year ended December 31, 2024 compared to
$29.5 million for the same period in 2023. The increase of $18.7 million is primarily related to an increase in $10.1 million in external clinical development
costs, $8.3 million in drug product manufacturing costs, and $1.2 million in personnel costs, partially offset by an decrease in $0.6 million in external
preclinical development costs and $0.3 million in consulting expenditures.
For the year ended December 31, 2024, approximately 48% of the total research and development expenses related to the advancement of late-stage
product candidates. Of the total late-stage product candidate spend during the year ended December 31, 2024, approximately 45% was attributable to
reproxalap and 3% to ADX‑2191. We do not track labor associated with each program and have allocated headcount costs on a pro-rated basis.
Management believes the pro rata allocation results is a reasonable estimate of the headcount costs associated with each of the programs noted above.
General and Administrative Expenses. General and administrative expenses were $11.9 million for the year ended December 31, 2024, compared to
$13.3 million for the year ended December 31, 2023. The decrease of approximately $1.4 million is primarily related to decreases in consulting and legal
expenditures.
Other Income (Expense). Total other income (expense), net, was approximately $4.3 million and $5.3 million for the year ended December 31, 2024
and 2023, respectively, was principally due to a decrease in interest income as a result of decreased interest rates on our investments.
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Liquidity and Capital Resources
We have funded our operations primarily from the sale of equity securities and convertible equity securities and borrowings under credit facilities.
Since inception, we have incurred operating losses and negative cash flows from operating activities and have devoted substantially all our efforts to
research and development. At December 31, 2024, we had total stockholders’ equity of approximately $71.0 million and cash, cash equivalents, and
marketable securities of $101.2 million. During the year ended December 31, 2024, we had net loss of approximately $55.9 million. We expect to generate
operating losses for the foreseeable future.
In August 2024, we entered into the 2024 Jefferies Sales Agreement under which we have the ability to offer and sell, from time to time through
Jefferies, shares of common stock providing for aggregate sales proceeds of up to $75.0 million. As of December 31, 2024, no shares of common stock
were sold under the 2024 Jefferies Sales Agreement.
In March 2019, we entered into the Hercules Credit Facility (the Loan and Security Agreement), pursuant to which a term loan of up to an aggregate
principal amount of $60.0 million may be made available to us. The Loan and Security Agreement provides for (i) an initial term loan advance of up to
$5.0 million at our option, which expired unutilized on April 15, 2019; (ii) three additional term loan advances of up to $15.0 million each, at our option,
available to us upon the occurrence of certain funding conditions prior to September 30, 2019 (2019 Tranche), March 31, 2020 (2020 Tranche), and March
31, 2021 (2021 Tranche); and (iii) a final additional term loan advance (Fourth Loan Tranche) of up to $10.0 million prior to December 31, 2021, at our
option, subject to approval by Lender’s investment committee. We drew down the 2019 Tranche in full in September 2019 and the 2020 Tranche and the
2021 Tranche expired unutilized prior to us satisfying the funding conditions for such tranche. On April 20, 2021, we entered into the First Amendment
(First Amendment) to Loan and Security Agreement with Hercules. The First Amendment, among other things, (i) increased the Fourth Loan Tranche from
$10.0 million to $20.0 million and extended the deadline for drawing down the Fourth Loan Tranche to July 1, 2022; (ii) lowered the variable per annum
rate of interest on borrowings under the Loan and Security Agreement to the greater of (a) the Prime Rate plus 3.10% or (b) 8.60%; (iii) extended the
expiration of the period in which interest-only payments on borrowings under the Loan and Security Agreement are required from May 1, 2021 to July 1,
2022; and (iv) following the satisfaction of certain conditions, which conditions were satisfied in April 2021, further extended the expiration of the interest-
only period and the deadline for drawing down the Fourth Loan Tranche to May 1, 2023. On December 22, 2022, we entered into the Second Amendment
(Second Amendment) to the Loan and Security Agreement with Hercules, which became effective as of December 31, 2022 (Second Amendment Effective
Date). The Second Amendment, among other things, (i) extended the expiration of the period in which interest-only payments on borrowings under the
Loan and Security Agreement are made from May 1, 2023 to May 1, 2024; (ii) extended the Maturity Date from October 1, 2023 to October 1, 2024
(Maturity Date); (iii) extended the availability of the Fourth Loan Tranche commitment of $20 million from May 1, 2023 to May 1, 2024; and (iv) amended
the Prepayment Charge (as defined therein) to equal 0.75% of the amount prepaid during the 12-month period following the Second Amendment Effective
Date, and 0% thereafter. The ability to draw the Fourth Loan Tranche remains conditioned on approval by the Lenders’ investment committee. In addition,
a supplemental end of term charge of $292,500 (Supplemental End of Term Charge) shall be due on the earlier of (A) the Maturity Date, as amended, or
(B) repayment of the aggregate amount of advances under the Loan and Security Agreement. The existing end of term charge of $1,042,500 (End of Term
Charge) was paid on October 2, 2023. On April 29, 2024, we entered into the Third Amendment (Third Amendment) to the Loan and Security Agreement
with Hercules. The Third Amendment, among other things, extended the expiration of the period in which interest-only payments on borrowings under the
Loan and Security Agreement are made from May 1, 2024 to October 1, 2024. On May 1, 2024, the Fourth Loan Tranche commitment expired unutilized.
On September 30, 2024, we entered into the Fourth Amendment (Fourth Amendment) to the Loan and Security Agreement with Hercules. The Fourth
Amendment, among other things, (i) extended the expiration of the period in which interest-only payments on borrowings under the Loan and Security
Agreement are made from October 1, 2024 to April 1, 2026; (ii) extended the Maturity Date from October 1, 2024 to April 1, 2026; and (iii) amended the
term loan interest rate to be the greater of (a) the Prime Rate (as defined in the Loan and Security Agreement) plus 3.10%, or (b) 11.10%. In addition, a
supplemental end of term charge of $300,000 (Second Supplemental End of Term Charge) shall be due on the earlier of (A) the Maturity Date, as amended,
or (B) repayment of the aggregate amount of advances under the Loan and Security Agreement. The Supplemental End of Term Charge of $292,500 was
paid on October 1, 2024.
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The Loan and Security Agreement contains customary affirmative and negative covenants and events of default. Affirmative covenants include,
among others, covenants requiring us to maintain our legal existence and governmental approvals, deliver certain financial reports, and maintain insurance
coverage. Negative covenants include, among others: restrictions on transferring any part of our business or intellectual property; incurring additional
indebtedness; engaging in mergers or acquisitions; paying dividends or making other distributions; making investments; and creating other liens on our
assets, in each case subject to customary exceptions. As of December 31, 2024, $15.0 million was outstanding under the Hercules Credit Facility and no
amounts remained available for borrowing.
On October 31, 2023 (the Option Agreement Effective Date), we entered into an exclusive option agreement (the Option Agreement) with AbbVie
Inc. (AbbVie), pursuant to which we granted AbbVie an exclusive option (the Option) to obtain (a) a co-exclusive license in the United States to facilitate a
collaboration with us to develop, manufacture and commercialize reproxalap in the United States, (b) an exclusive license to develop, manufacture and
commercialize reproxalap outside the United States, (c) a right of first negotiation for compounds that are owned or otherwise controlled by us in the field
of ophthalmology relating to treating conditions of the ocular surface, and (d) a right to review data for any other compounds that are owned or otherwise
controlled by us in the fields of ophthalmology and immunology before such data is shared with any other third party (the Collaboration Agreement).
AbbVie has paid us a non-refundable payment of $1.0 million in consideration of the Option (the Option Payment).
On December 21, 2023, pursuant to the Option Agreement, AbbVie extended the period during which it may exercise the Option (the Exercise
Period Extension) by paying us a non-refundable payment of $5.0 million (the Option Extension Fee). If the Collaboration Agreement is entered into, the
Option Payment and the Option Extension Fee will be credited against the upfront cash payment payable by AbbVie.
On November 15, 2024, we entered into the Expansion Side Letter (the Expansion Letter) with AbbVie, which amended certain terms of the Option
Agreement. The Expansion Letter makes certain changes to the Option Agreement, among other things, providing that we will conduct certain launch
activities, which costs shall not exceed mid-single-digit millions of dollars without AbbVie’s approval, and which costs will be considered allowable
expenses pursuant to the Collaboration Agreement upon the delivery of AbbVie’s written notice of exercising the Option and entry into the Collaboration
Agreement, such that 60% of our allowable expenses will be reimbursed by AbbVie in the event of exercise. If AbbVie does not deliver a written notice of
exercising the Option and we do not execute the Collaboration Agreement, we will remain solely responsible for such launch activities costs. AbbVie has
also independently initiated pre-commercialization planning activities. In addition, the Exercise Period (as defined in the Option Agreement) was further
modified to ten (10) business days following the date, if any, that we receive approval from the U.S. Food and Drug Administration of the NDA for
reproxalap in dry eye disease (the FDA Decision), provided that AbbVie shall provide us notice in case AbbVie determines that it will not exercise the
Option.
Upon AbbVie’s delivery of the agreement execution notice and the parties entering into the Collaboration Agreement, AbbVie would pay us a $100
million upfront cash payment, less the Option Payment and the Option Extension Fee. In addition, we would be eligible to receive up to approximately
$300 million in regulatory, and commercial milestone payments, inclusive of a $100 million milestone payment payable if the FDA Decision is received
prior to or after the execution of the Collaboration Agreement. In the United States, we would share profits and losses with AbbVie from the
commercialization of reproxalap according to a split of 60% for AbbVie and 40% for us. Outside of the United States, we would be eligible to receive
tiered royalties on net sales of reproxalap.
Based on our current operating plan, we believe that our cash and cash equivalents, as of December 31, 2024, will be sufficient to fund our currently
projected operating expenses and debt obligations into 2027, including continued early and late-stage development of our product candidates in ocular and
systemic immune-mediated and metabolic diseases. We base our projections of operating capital requirements on our current operating plan, which
includes several assumptions that may prove to be incorrect, and we may use all of our available capital resources sooner than we expect. Because of the
numerous risks and uncertainties associated with research, development, and commercialization (as applicable) of product candidates, we are unable to
estimate the exact amount of our working capital requirements. We 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 our planned research and development
98
activities and regulatory activities, commence or continue ongoing commercialization, including manufacturing, sales, marketing and distribution for our
product candidates, or conduct any substantial additional development requirements requested by the FDA. At this time, due to the risks inherent in the
drug development process, we are unable to estimate with any certainty the costs we will incur in the continued clinical development of reproxalap, and our
other product candidates. Subsequent trials initiated at a later date will cost considerably more, depending on the results of our prior clinical trials, and
feedback from the FDA or other third parties. Accordingly, we will continue to require substantial additional capital to continue our clinical development
and potential commercialization activities. The amount and timing of our future funding requirements will depend on many factors, including but not
limited to:
•
the costs, timing, and outcome of regulatory review of reproxalap, including any additional trials the FDA or other regulatory agencies may
require for approval or label expansion;
•
the progress, costs, and results of any clinical activities for regulatory review of reproxalap outside of the United States;
•
the exercise, if any, of the Option;
•
the costs and timing of process development and manufacturing scale up activities associated with reproxalap;
•
the costs of commercialization activities for reproxalap if we receive marketing approval and pre commercialization costs for reproxalap
incurred prior to receiving, any such marketing approval, including the costs and timing of establishing product sales, marketing, distribution
and outsourced manufacturing capabilities;
•
assuming receipt of marketing approval, the amount of revenue received from commercial sales of reproxalap or any other product
candidates;
•
the terms and timing of establishing collaborations, license agreements, and other partnerships on terms favorable to us;
•
the type, number, scope, progress, expansion costs, results, and timing of our clinical trials of any product candidates that we are pursuing or
may choose to pursue in the future;
•
costs associated with any other product candidates that we may develop, in-license, or acquire, including potential milestone or royalty
payments; and
•
costs of obtaining, maintaining, and enforcing our patents and other intellectual property rights.
We may need or desire to obtain additional capital to finance our operations through debt, equity, or alternative financing arrangements. We may
also seek capital through collaborations or partnerships with other companies. The issuance of debt could require us to grant additional liens on certain of
our assets that may limit our flexibility. If we raise additional capital by issuing equity securities, the terms and prices may be much more favorable to the
new investors than the terms obtained by our existing stockholders. Subsequent financings also may significantly dilute the ownership of our existing
stockholders. We are in a period of economic uncertainty, inflation, and capital markets disruption, which has been significantly impacted by adverse
developments affecting the financial services industry, geopolitical instability due to, among other things, the continued hostilities between Russia and
Ukraine and Hamas’ attack against Israel and the ensuing conflict. In addition, the disruption in the capital markets could make any financing more
challenging, and there can be no assurance that we will be able to obtain such financing on commercially reasonable terms or at all. If we are unable to
obtain additional financing, we may be required to reduce the scope of our future activities, which could harm our business, financial condition, and
operating results. There can be no assurance that any additional financing required in the future will be available on acceptable terms, if at all.
We will continue to incur costs as a public company, including, but not limited to, costs and expenses for directors' fees; increased directors' and
officers' insurance; investor relations fees; expenses for compliance with the Sarbanes-Oxley Act of 2002 and related to rules implemented by the SEC and
Nasdaq, on which our common stock is listed; and various other costs. The Sarbanes-Oxley Act of 2002 requires that we maintain effective disclosure
controls and procedures and internal controls.
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Cash Flows. The following table summarizes our cash flows for the years ended December 31, 2024 and 2023:
Years Ended December 31,
2024
2023
Net cash used in operating activities
$
(43,208,747) $
(30,326,128)
Net cash (used in) provided by investing activities
(44,915,755)
30,000,000
Net cash used in financing activities
(171,422)
(1,270,220)
Net decrease in cash and cash equivalents
$
(88,295,924) $
(1,596,348)
Operating Activities. Net cash used in operating activities was $43.2 million in 2024, compared to net cash used in operating activities of $30.3
million in 2023. The primary use of cash was to fund our operations. The increase in the amount of cash used in operating activities for 2024 as compared
to 2023 was primarily due to increases in research and development activities, increases in accrued expenses due to the amount and timing of payments for
research and development activities, and increases in prepayments, due to changes in working capital needs.
Investing Activities. Net cash used in investing activities in 2024 was $44.9 million compared to net cash provided by investing activities in 2023 of
$30.0 million. Net cash used in investing activities related to purchases of marketable securities in 2024. Net cash provided by investing activities primarily
related to maturities of marketable securities in 2023.
Financing Activities. Net cash used in financing activities was $0.2 million for the year ended December 31, 2024 and consisted of offering costs
offset by stock purchases under the employee stock purchase plan. Net cash used in financing activities of $1.3 million for year ended 2023 consisted of
stock withheld for tax obligations on option settlement proceeds and repayment of the end of term fee on our long-term debt, offset by proceeds from stock
option exercises and stock purchases under the employee stock purchase plan.
Off-Balance Sheet Arrangements. Through December 31, 2024, we have not entered into and did not have any relationships with unconsolidated
entities or financial collaborations, such as entities often referred to as structured finance or special purpose entities, which would have been established for
the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purpose.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Because we are allowed to comply with the disclosure obligations applicable to a "smaller reporting company," as defined by Rule 12b-2 of the
Exchange Act, with respect to this Annual Report on Form 10-K, we are not required to provide the information required by this Item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item 8 is contained on pages 109 through 135 of this annual report on Form 10-K and is incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
As of the end of the period covered by this annual report on Form 10-K, we carried out an evaluation under the supervision and with the
participation of our Disclosure Committee and our management, including our Chief Executive Officer and our Head of Finance, of the effectiveness of the
design and operation of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e). Disclosure controls are
procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, or the
Exchange Act, such as this annual report on Form 10-K, is recorded, processed, summarized, and reported within the time periods specified by the United
States Securities and Exchange Commission. Disclosure controls are also designed to ensure that such information is accumulated and communicated to
our management, including our Chief Executive Officer and our Head of Finance, as appropriate to allow timely decisions regarding required disclosure.
Our quarterly evaluation of disclosure controls includes an evaluation of some components of our internal control over financial reporting. We also perform
a separate annual evaluation of internal control over financial reporting for the purpose of providing the management report below.
The evaluation of our disclosure controls included a review of objectives and design, our implementation of the controls and the effect of the
controls on the information generated for use in this annual report on Form 10-K. In the course of the control evaluations, we reviewed data errors or
control problems identified and sought to confirm that appropriate corrective actions, including process improvements, were being undertaken. Evaluation
of controls is performed on a quarterly basis so that the conclusions of management, including our Chief Executive Officer and our Head of Finance,
concerning the effectiveness of the disclosure controls can be reported in our periodic reports on Form 10-Q and Form 10-K. The overall goal of our
evaluation activities is to monitor our disclosure controls and to modify controls as necessary. We intend to maintain our disclosure controls as dynamic
processes and procedures that we adjust as circumstances merit.
Based on our management’s evaluation (with the participation of our Chief Executive Officer and our Head of Finance), as of the end of the period
covered by this report, our Chief Executive Officer and our Head of Finance have concluded that our disclosure controls and procedures were effective.
101
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Our management utilized the criteria established in the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) to conduct an assessment of the effectiveness of our internal control over financial reporting as of
December 31, 2024. Based on the assessment, our management has concluded that, as of December 31, 2024, our internal control over financial reporting
was effective.
Attestation Report on Internal Control over Financial Reporting
This annual report on Form 10-K does not include an attestation report of our independent registered public accounting firm because we qualified as
a “smaller reporting company and non-accelerated filer.”
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during
the fourth quarter of 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
Trading Arrangements
During the three months ended December 31, 2024, neither we nor any of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act)
adopted, modified or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the
affirmative defense conditions of Rule 10b5-1(c) of the Exchange Act or any non-Rule 10b5-1 trading arrangement (as defined in the Securities and
Exchange Commission’s rules).
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
102
PART III
ITEM 10. Directors, Executive Officers, and Corporate Governance
Except as set forth below, the information required by this item will be contained in our definitive proxy statement to be filed with the SEC in
connection with our 2025 Annual Meeting of Stockholders within 120 days after the conclusion of our fiscal year ended December 31, 2024 (Proxy
Statement), and is incorporated in this annual report on Form 10-K by reference.
Code of Ethics and Business Conduct
Our board of directors adopted a code of ethics and business conduct that applies to each of our directors, officers and employees. The full text of
our code of business conduct is posted on the Corporate Governance portion of our website at http://ir.aldeyra.com/corporate-governance. Any waiver of
the code of ethics and business conduct for an executive officer or director may be granted only by our board of directors or a committee thereof and must
be timely disclosed as required by applicable law. We have implemented whistleblower procedures that establish format protocols for receiving and
handling complaints from employees. Any concerns regarding accounting or auditing matters reported under these procedures will be communicated
promptly to the Audit Committee.
ITEM 11. Executive Compensation
Other than with respect to the Securities Authorized for Issuance under Equity Incentive Plans contained in Item 12 below, the information required
by this item will be contained in the Proxy Statement and is incorporated in this annual report on Form 10-K by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Securities Authorized for Issuance under Equity Incentive Plans
The following table provides information as of December 31, 2024, with respect to shares of our common stock that may be issued, subject to
certain vesting requirements, under our existing equity compensation plans, including our 2023 Equity Incentive Plan (2023 Equity Plan), 2013 Equity
Incentive Plan (Amended 2013 Plan), and our 2016 Employee Stock Purchase Plan (2016 ESPP).
A
B
C
Plan Category
Number of
Securities to
be Issued
Upon Exercise
of Outstanding
Options, Warrants,
and Rights
Weighted-
Average
Exercise Price of
Outstanding
Options,
Warrants, and
Rights
Number of
Securities
Remaining
Available
for Future
Issuance
Under Equity
Compensation
Plans (Excluding
Securities
Reflected in
Column (A)
Equity compensation plans
approved by security holders
8,162,545
$
5.64
6,840,494
Equity compensation plans not
approved by security holders
—
—
—
Total
8,162,545
$
5.64
6,840,494
(1)
Of these shares, 540,965 were underlying then outstanding restricted stock unit awards, 5,308,080 were subject to options then outstanding under
the Amended 2013 Plan, and 2,313,500 were subject to options then outstanding under the 2023 Equity Plan.
(1)
(2)
(3)
(1)
(2)
(3)
103
(2)
Does not take into account restricted stock units, which have no exercise price.
(3)
Represents 3,919,330 shares of common stock available for issuance under our 2023 Equity Plan and 2,921,164 shares of common stock available
for issuance under our 2016 ESPP. No shares are available for future issuance under the Amended 2013 Plan. Our 2016 ESPP provides for annual
increases in the number of shares available for issuance thereunder on the first business day of each fiscal year equal to the lesser of: (1) 1% of the
shares of common stock outstanding at that time; and (2) such other amount as our board of directors may determine. On January 2, 2025, an
additional 596,483 shares became available for future issuance under the 2016 ESPP. The additional shares from the annual increase on January 2,
2025 are not included in the table above.
ITEM 13. Certain Relationships and Related Party Transactions, and Director Independence
The information required by this item will be contained in the Proxy Statement and is incorporated in this annual report on Form 10-K by reference.
ITEM 14. Principal Accounting Fees and Services
The information required by this item will be contained in the Proxy Statement and is incorporated in this annual report on Form 10-K by reference.
104
PART IV
ITEM 15. Exhibits and Financial Statements Schedules
The financial statements filed as part of this annual report on Form 10-K are listed in the Index to Financial Statements. Certain schedules are
omitted because they are not applicable, or not required, or because the required information is included in the financial statements or notes thereto. The
Exhibits are listed in the Exhibit Index below.
EXHIBIT INDEX
Exhibit
Number
Exhibit Title
3.1
Restated Certificate of Incorporation of Registrant, (filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8‑K as filed on May
7, 2014, and incorporated herein by reference)
3.2
Amended and Restated Bylaws of the Registrant (filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8‑K as filed on May
1, 2020, and incorporated herein by reference)
4.1
Specimen stock certificate evidencing the shares of common stock (filed as Exhibit 4.1 to Amendment No. 2 to the Registrant’s
Registration Statement on Form S-1 (SEC File No. 333-193204), as filed on March 17, 2014, and incorporated herein by reference)
4.2
Description of Securities (filed as Exhibit 4.6 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31,
2019 (as filed on March 12, 2020, and incorporated herein by reference))
10.1
Form of Indemnity Agreement for Directors and Officers (filed as Exhibit 10.1 to Amendment No. 2 to the Registrant’s Registration
Statement on Form S-1 (SEC File No. 333-193204), as filed on March 17, 2014, and incorporated herein by reference)
10.2†
Offer Letter, effective as of August 1, 2013, between the Registrant and Todd C. Brady, M.D., Ph.D. (filed as Exhibit 10.2 to the
Registrant’s Registration Statement on Form S-1 (SEC File No. 333-193204), as filed on January 6, 2014, and incorporated herein by
reference)
10.3†
Offer Letter, effective November 29, 2013 between the Registrant and Todd C. Brady, M.D., Ph.D. (filed as Exhibit 10.4 to the
Registrant’s Registration Statement on Form S-1 (SEC File No. 333-193204), as filed on January 6, 2014, and incorporated herein by
reference)
10.3(a)†
Offer Letter Amendment, effective February 19, 2014 between the Registrant and Todd C. Brady, M.D., Ph.D. (filed as Exhibit 10.4(a)
to Amendment No. 2 to the Registrant’s Registration Statement on Form S-1 (SEC File No. 333-193204), as filed on March 17, 2014,
and incorporated herein by reference)
10.4†
2010 Employee, Director and Consultant Equity Incentive Plan, as amended, and form of option agreement thereunder (filed as Exhibit
10.7 to the Registrant’s Registration Statement on Form S-1 (SEC File No. 333-193204), as filed on January 6, 2014, and incorporated
herein by reference)
10.5†
2013 Equity Incentive Plan and form of option agreement thereunder (filed as Exhibit 10.8 to Amendment No. 2 to the Registrant’s
Registration Statement on Form S-1 (SEC File No. 333-193204), as filed on March 17, 2014, and incorporated herein by reference)
10.5(a)†
Form Notice of Stock Option Grant under the 2013 Equity Incentive Plan (filed as Exhibit 10.8(a) to Amendment No. 2 to the
Registrant’s Registration Statement on Form S-1 (SEC File No. 333-193204), as filed on March 17, 2014, and incorporated herein by
reference)
10.5(b)†
Form Notice of Stock Unit Award under the 2013 Equity Incentive Plan (filed as Exhibit 10.8(b) to Amendment No. 2 to the
Registrant’s Registration Statement on Form S-1 (SEC File No. 333-193204), as filed on March 17, 2014, and incorporated herein by
reference)
105
10.6
Sublease dated September 12, 2014 between the Registrant and MacLean Power L.L.C. (filed as Exhibit 10.15 to the Registrant’s
Quarterly Report on Form 10-Q for the quarter ended September 30, 2014 (as filed on November 12, 2014, and incorporated herein by
reference))
10.7
Sublease dated as of March 7, 2016 between Planck, LLC and the Registrant and Master Lease dated June 3, 2014 between WLC Three
VI, L.L.C. and Plank, LLC (filed as Exhibit 10.24 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December
31, 2015 (as filed on March 30, 2016, and incorporated herein by reference))
10.8†
Aldeyra Management Cash Incentive Plan (filed as Exhibit 10.25 to the Registrant’s Current Report on Form 8‑K as filed on March 18,
2016, and incorporated herein by reference)
10.9†
Aldeyra Therapeutics, Inc. Amended and Restated Change in Control Plan (filed as Exhibit 10.2 to the Registrant’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2021 (as filed on August 5, 2021, and incorporated herein by reference))
10.10
Lease Agreement by and between WLC Three VI, L.L.C. and the Registrant, dated as of September 11, 2017 (filed as Exhibit 10.27 to
the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 (as filed on November 9, 2017, and
incorporated herein by reference))
10.11
First Amendment to Lease between WLC Three VI, L.L.C. and the Registrant, dated as of November 27, 2017 (filed as Exhibit 10.28
to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (as filed on March 29, 2018, and
incorporated herein by reference))
10.12
Second Amendment to Lease between WLC Three VI, L.L.C. and the Registrant, dated as of October 7, 2020 (filed as Exhibit 10.33 to
the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 (as filed on November 5, 2020 and
incorporated herein by reference))
10.13
Third Amendment to Lease between WLC Three VI, L.L.C. and the Registrant, dated as of August 12, 2021 (filed as Exhibit 10.1 to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 (as filed on October 26, 2021 and
incorporated herein by reference))
10.14
Fourth Amendment to Lease between WLC Three VI, L.L.C. and the Registrant, dated as of November 22, 2023 (filed as Exhibit 10.14
to the Registrant’s Annual Report on Form 10-K (as filed on March 7, 2024, and incorporated herein by reference))
10.15†
Amendment No. 1 to the Aldeyra Therapeutics, Inc. 2013 Equity Incentive Plan (filed as Exhibit 10.26 to the Registrant’s Quarterly
Report on Form 10-Q (as filed on August 10, 2016, and incorporated herein by reference))
10.16†
Amendment No. 2 to the Aldeyra Therapeutics, Inc. 2013 Equity Incentive Plan (filed as Exhibit 10.29 to the Registrant’s Quarterly
Form 10-Q (as filed on August 9, 2018, and incorporated herein by reference))
10.17†
Aldeyra Therapeutics, Inc. 2016 Employee Stock Purchase Plan (filed as Exhibit 10.27 to the Registrant’s Quarterly Report on Form
10-Q (as filed on August 10, 2016, and incorporated herein by reference))
10.18
Agreement and Plan of Merger, dated as of January 24, 2019, by and among Aldeyra Therapeutics, Inc., Helio Vision, Inc., Halo
Merger Sub, Inc., Halo Merger Sub, LLC and Josef von Rickenbach, as the Securityholder Representative (filed as Exhibit 2.1 to the
Registrant’s Current Report on Form 8‑K (as filed on January 29, 2019, and incorporated herein by reference))
10.19†
Offer Letter, effective as of October 21, 2015, between the Registrant and Stephen Machatha, Ph.D.(filed as Exhibit 10.19 to the
Registrant’s Annual Report on Form 10-K (as filed on March 17, 2022, and incorporated herein by reference))
106
10.19(a)†
Offer Letter Amendment No. 1, effective as of January 1, 2018, between the Registrant and Stephen Machatha, Ph.D. (filed as Exhibit
10.19(a) to the Registrant’s Annual Report on Form 10-K (as filed on March 17, 2022, and incorporated herein by reference))
10.19(b)†
Offer Letter Amendment No. 2, effective as of March 23, 2021, between the Registrant and Stephen Machatha, Ph.D. (filed as Exhibit
10.19(b) to the Registrant’s Annual Report on Form 10-K (as filed on March 17, 2022, and incorporated herein by reference))
10.20
Loan and Security Agreement, dated as of March 25, 2019, by and among the Registrant, certain subsidiaries of the Registrant from
time to time party thereto, the several banks and other financial institutions or entities from time to time parties thereto and Hercules
Capital, Inc. (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8‑K (as filed on March 26, 2019, and incorporated herein
by reference))
10.21
First Amendment to Loan and Security Agreement, dated April 20, 2021, by and among the Registrant, Helio Vision, LLC, the several
banks and other financial institutions or entities from time to time parties thereto and Hercules Capital, Inc. (filed as Exhibit 10.1 to the
Registrant’s Current Report on Form 8‑K as filed on April 21, 2021, and incorporated herein by reference)
10.22
Second Amendment to Loan and Security Agreement, dated December 22, 2022 and effective as of December 31, 2022, by and among
the Registrant, Helio Vision, LLC, the several banks and other financial institutions or entities from time to time parties thereto and
Hercules Capital, Inc. (filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8‑K as filed on December 27, 2022, and
incorporated herein by reference).
10.23
Third Amendment to Loan and Security Agreement, dated April 29, 2024, by and among the Registrant, Helio Vision, LLC, the
several banks and other financial institutions or entities from time to time parties thereto and Hercules Capital, Inc. (filed as Exhibit
10.1 to the Registrant’s Current Report on Form 8‑K as filed on December 27, 2022, and incorporated herein by reference).
10.24
Fourth Amendment to Loan and Security Agreement, dated September 30, 2024, by and among the Registrant, Helio Vision, LLC, the
several banks and other financial institutions or entities from time to time parties thereto and Hercules Capital, Inc. (filed as Exhibit
10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2024 (as filed on August 1, 2024, and
incorporated herein by reference)).
10.25*
Fifth Amendment to Loan and Security Agreement, dated October 28, 2024, by and among the Registrant, Helio Vision, LLC, the
several banks and other financial institutions or entities from time to time parties thereto and Hercules Capital, Inc.
10.26+
Exclusive Option Agreement, between the Registrant and AbbVie Inc., dated as of October 31, 2023 (filed as Exhibit 10.26 to the
Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (as filed on March 7, 2024, and incorporated
herein by reference))
10.27+
Expansion Side Letter Agreement: Aldeyra & AbbVie Collaboration Update
10.28†
Aldeyra Therapeutics, Inc. 2023 Equity Incentive Plan, form of option agreement, and form of RSU agreement thereunder (filed as
Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 (as filed on August 3, 2023, and
incorporated herein by reference))
19.1
Aldeyra Therapeutics, Inc. Amended and Restated Insider Trading Policy
21.1*
Subsidiaries of Aldeyra Therapeutics, Inc.
23.1*
Consent of BDO USA, P.C. independent registered public accounting firm
31.1*
Certification of the Chief Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002
31.2*
Certification of the Chief Financial Officer as required by Section 302 of the Sarbanes-Oxley Act of 2002
107
32.1*
Certifications of the Chief Executive Officer and Chief Financial Officer as required by 18 U.S.C. 1350
97
Aldeyra Therapeutics, Inc. Policy for the Recovery of Erroneously Awarded Compensation
101.INS*
Inline XBRL Instance Document
101.SCH*
Inline XBRL Taxonomy Extension Schema Document
101.CAL*
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Interactive Data File (embedded within the Inline XBRL document)
†
Compensation Arrangement.
‡
Confidential treatment has been granted with respect to certain portions of this document.
*
Filed herewith.
** Certain information (indicated by “*****”) has been excluded from this exhibit because it is both not material and would likely cause competitive
harm to the Company if publicly disclosed.
+
In accordance with Item 601(b)(10)(iv) certain information (indicated by “[****]”) has been excluded from this exhibit because it is both not material
and is the type that the Company treats as private or confidential.
The Exhibits listed in the Exhibit Index are filed as part of this annual report on Form 10-K.
ITEM 16. Form 10-K Summary
None.
108
Signatures
Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this annual report on
Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in the Commonwealth of Massachusetts, on February 28, 2025.
ALDEYRA THERAPEUTICS, INC.
By:
/s/ Todd C. Brady, M.D., Ph.D.
Todd C. Brady, M.D., Ph.D.
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Todd C. Brady and
Michael Alfieri, and each of them, as his or her true and lawful attorneys-in-fact, proxies, and agents, each with full power of substitution, for him in any
and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, proxies, and agents full power and authority to
do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact, proxies, and agents, or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1934, this annual report on Form 10-K has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Todd C. Brady, M.D., Ph.D.
Chief Executive Officer and Director
February 28, 2025
Todd C. Brady, M.D., Ph.D.
(principal executive officer)
/s/ Michael Alfieri
Head of Finance
February 28, 2025
Michael Alfieri
(principal financial and accounting officer)
/s/ Richard H. Douglas, Ph. D.
Chairman of the Board of Directors
February 28, 2025
Richard H. Douglas, Ph.D.
/s/ Ben Bronstein, M.D.
Director
February 28, 2025
Ben Bronstein, M.D.
/s/ Martin J. Joyce
Director
February 28, 2025
Martin J. Joyce
/s/ Nancy Miller-Rich
Director
February 28, 2025
Nancy Miller-Rich
/s/ Gary Phillips, M.D.
Director
February 28, 2025
Gary Phillips, M.D.
/s/ Neal Walker, D.O.
Director
February 28, 2025
Neal Walker, D.O.
109
ALDEYRA THERAPEUTICS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
ITEM 1.
Reports of Independent Registered Public Accounting Firm (BDO USA, P.C. Boston, Massachusetts, PCAOB #243)
110
Consolidated Balance Sheets at December 31, 2024 and 2023
112
Consolidated Statements of Operations for the years ended December 31, 2024 and 2023
113
Consolidated Statements of Comprehensive Loss for the years ended December 31, 2024 and 2023
114
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2024 and 2023
115
Consolidated Statements of Cash Flows for the years ended December 31, 2024 and 2023
116
Notes to Consolidated Financial Statements
117
110
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Stockholders and Board of Directors
Aldeyra Therapeutics, Inc.
Lexington, Massachusetts
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Aldeyra Therapeutics, Inc. (the “Company”) as of December 31, 2024 and 2023,
the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the years then ended, and the related
notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for the years then ended,
in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is
not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to
obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error
or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis
for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated
financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not
alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
111
Estimation of Accrued or Deferred Research & Development Clinical Trial Expenses
As described in Notes 2, 7, and 8 to the consolidated financial statements, the Company’s deferred research and development expenses and accrued
research and development expenses totaled approximately $2.2 million and $7.2 million, respectively, as of December 31, 2024. A portion of the accrued
research and development expenses and the deferred research and development expenses relate to clinical trial activities. Clinical trial activities pertain to
third-party services, including subject-related fees at the sites where the Company’s clinical trials are being conducted and investigator fees, amongst other
costs. Costs associated with these clinical trial expenses are generally payable on the passage of time or when certain milestones are achieved. Accrued
liabilities are recorded related to those clinical trial expenses for which vendors have not yet billed the Company with respect to services provided that the
Company has received. The accrual for these clinical trial expenses is based on such assumptions as total costs incurred to date, the number of subjects and
clinical trial sites and length of the study. Payments made by the Company in advance for clinical trial services not yet provided and/or for materials not yet
received are recorded as deferred research and development expenses. Actual results may differ from these estimates.
We identified the determination of accrued clinical trial expenses for certain contracts and deferred clinical trial expenses for certain contracts as a
critical audit matter. Estimating accrued and deferred clinical trial expenses for certain contracts requires significant judgment due to the use of subjective
assumptions related to total costs incurred to date, the number of subjects and clinical trial sites and length of the study. Auditing these elements involved
especially challenging and subjective auditor judgment due to the nature and extent of auditor effort required to address the matter.
The primary procedures we performed to address this critical audit matter included:
•
Evaluating the reasonableness of certain assumptions related to total costs incurred to date, the number of subjects, and length of the study
for certain contracts, by: i) confirming total clinical costs incurred to date, contracted fees and total amounts billed with the clinical vendors
to evaluate the completeness of costs in the estimates, ii) interviewing respective clinical operations personnel to obtain information related to
the progress of the projects, iii) assessing original clinical vendor contract terms and change orders for the certain contracts, including the
expected timeline for the related study, iv) evaluating the consistency of those assumptions for certain contracts with the Company’s press
releases and other public information and v) evaluating patient enrollment progress.
•
Testing the completeness and accuracy of the clinical costs and total amounts billed with the clinical vendors used in the estimate of accrued
and deferred clinical trial expenses for certain contracts by inspecting on a sample basis invoices received from and payments made by the
Company to clinical vendors throughout the year and comparing invoice and payment amounts to the related contract details.
/s/ BDO USA, P.C.
We have served as the Company’s auditor since 2013.
Boston, Massachusetts
February 28, 2025
112
ALDEYRA THERAPEUTICS, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
December 31,
2024
2023
ASSETS
Current assets:
Cash and cash equivalents
$
54,527,092 $
142,823,016
Marketable securities
46,624,180
—
Prepaid expenses and other current assets
2,921,206
4,987,317
Total current assets
104,072,478
147,810,333
Deferred offering costs
267,261
—
Fixed assets, net
—
5,764
Right-of-use assets
266,955
510,814
Total assets
$
104,606,694 $
148,326,911
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
$
180,453 $
1,338,057
Accrued expenses
12,118,367
5,536,464
Current portion of debt
31,372
15,146,546
Operating lease liabilities
271,631
239,183
Deferred collaboration revenue
6,000,000
—
Total current liabilities
18,601,823
22,260,250
Deferred collaboration revenue, long-term
—
6,000,000
Operating lease liabilities, long-term
—
271,631
Long-term debt, net of current portion
15,000,000
—
Total liabilities
33,601,823
28,531,881
Commitments and contingencies (Notes 3, 9, & 13)
Stockholders' equity:
Preferred stock, $0.001 par value, 15,000,000 shares authorized, none
issued and outstanding
—
—
Common stock, voting, $0.001 par value; 150,000,000 authorized and
59,648,278 and 59,195,951 shares issued and outstanding, respectively
59,648
59,196
Additional paid-in capital
521,018,373
513,994,982
Accumulated other comprehensive income
37,442
—
Accumulated deficit
(450,110,592)
(394,259,148)
Total stockholders’ equity
71,004,871
119,795,030
Total liabilities and stockholders’ equity
$
104,606,694 $
148,326,911
The accompanying notes are an integral part of these consolidated financial statements.
113
ALDEYRA THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31,
2024
2023
Operating expenses:
Research and development
$
48,224,793 $
29,458,719
General and administrative
11,892,239
13,335,364
Loss from operations
(60,117,032)
(42,794,083)
Other income (expense):
Interest income
6,191,829
7,323,008
Interest expense
(1,926,241)
(2,071,435)
Total other income, net
4,265,588
5,251,573
Net loss
$
(55,851,444) $
(37,542,510)
Net loss per share - basic and diluted
$
(0.94) $
(0.64)
Weighted average common shares outstanding - basic and diluted
59,484,794
58,943,205
The accompanying notes are an integral part of these consolidated financial statements.
114
ALDEYRA THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Years ended December 31,
2024
2023
Net loss
$
(55,851,444) $
(37,542,510)
Other comprehensive income:
Net unrealized gain on marketable securities, net of tax
37,442
—
Reclassification of losses to net loss
—
103,938
Total other comprehensive income
$
37,442
$
103,938
Comprehensive loss
$
(55,814,002) $
(37,438,572)
The accompanying notes are an integral part of these consolidated financial statements.
115
ALDEYRA THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Stockholders' Equity
Common Voting Stock
Accumulated
Shares
Amount
Additional
Paid-in Capital
Other
Comprehensive
Income/(Loss),
net of tax
Accumulated
Deficit
Total
Stockholders'
Equity
Balance, December 31, 2022
58,560,078 $
58,560 $ 507,770,045 $
(103,938) $
(356,716,63
8) $ 151,008,029
Stock-based compensation
—
—
6,453,293
—
—
6,453,293
Issuance of common stock, exercise
of stock options
306,328
307
193,822
—
—
194,129
Issuance of common stock, employee
stock purchase plan
26,168
26
111,076
—
—
111,102
Issuance of common stock, vested
restricted stock awards
377,184
377
(377)
—
—
—
Common stock withheld for tax obligations on
option exercise
(73,807)
(74)
(532,877)
—
—
(532,951)
Other comprehensive income
—
—
—
103,938
—
103,938
Net loss
—
—
—
— (37,542,510) (37,542,510)
Balance, December 31, 2023
59,195,951
59,196 513,994,982
—
(394,259,14
8) 119,795,030
Stock-based compensation
—
—
6,635,504
—
—
6,635,504
Issuance of common stock, exercise
of stock options
98,680
98
350,181
—
—
350,279
Issuance of common stock, employee
stock purchase plan
13,159
14
38,046
—
—
38,060
Issuance of common stock, vested
restricted stock awards
340,488
340
(340)
—
—
—
Other comprehensive income
—
—
—
37,442
—
37,442
Net loss
—
—
—
— (55,851,444) (55,851,444)
Balance, December 31, 2024
59,648,278 $
59,648 $ 521,018,373 $
37,442 $
(450,110,59
2) $ 71,004,871
The accompanying notes are an integral part of these consolidated financial statements.
116
ALDEYRA THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
2024
2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
$
(55,851,444) $
(37,542,510)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation
7,973,499
5,752,771
Non-cash interest expense
177,326
354,193
Net amortization of premium on marketable securities
(1,670,983)
(14,542)
Depreciation and amortization expense
249,623
262,780
Change in operating assets and liabilities:
Prepaid expenses and other current assets
2,066,111
1,734,912
Accounts payable
(1,157,604)
1,204,432
Accrued expenses and other liabilities
5,004,725
(8,078,164)
Deferred collaboration revenue
—
6,000,000
Net cash used in operating activities
(43,208,747)
(30,326,128)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities
(96,915,755)
—
Maturities of marketable securities
52,000,000
30,000,000
Net cash (used in) provided by investing activities
(44,915,755)
30,000,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance costs
(267,261)
—
Proceeds from exercise of stock options
350,279
194,129
Tax withholding payments for net share-settled equity awards
—
(532,951)
Proceeds from employee stock purchase plan
38,060
111,102
Debt end of term charge paid in cash
(292,500)
(1,042,500)
Net cash used in financing activities
(171,422)
(1,270,220)
NET DECREASE IN CASH AND CASH EQUIVALENTS
(88,295,924)
(1,596,348)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
142,823,016
144,419,364
CASH AND CASH EQUIVALENTS, END OF PERIOD
$
54,527,092 $
142,823,016
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest
$
1,753,792 $
1,702,188
The accompanying notes are an integral part of these consolidated financial statements.
117
ALDEYRA THERAPEUTICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.
NATURE OF BUSINESS
Aldeyra Therapeutics, Inc. (Aldeyra, Company, we, us and our) was incorporated in the state of Delaware on August 13, 2004 as Neuron Systems,
Inc. On December 20, 2012, the Company changed its name to Aldexa Therapeutics, Inc. and, on March 17, 2014, the Company changed its name to
Aldeyra Therapeutics, Inc. Aldeyra, together with its wholly-owned subsidiaries, is a clinical-stage biotechnology company devoted to discovering
innovative therapies designed to treat immune-mediated and metabolic diseases.
The Company’s principal activities to date include research and development activities along with related general business planning, including
raising capital.
2.
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation – The accompanying consolidated financial statements were prepared in conformity with accounting
principles generally accepted in the United States of America (US GAAP) and pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC). The Company’s consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All
intercompany balances and transactions have been eliminated.
Risks and Uncertainties –The ongoing research and development activities will be subject to extensive regulation by numerous governmental
authorities in the United States. Prior to marketing in the United States, any drug developed by the Company must undergo rigorous preclinical and clinical
testing and an extensive regulatory approval process implemented by the United States Food and Drug Administration (FDA) under the Food, Drug and
Cosmetic Act. The Company has limited experience in conducting and managing the preclinical and clinical testing necessary to obtain regulatory
approval. There can be no assurance that the Company will not encounter problems in the clinical trials that will cause the Company or the FDA to delay or
suspend clinical trials.
The Company’s success will depend in part on its ability to obtain patents and product license rights, maintain trade secrets, and operate without
infringing on the property rights of others, both in the United States and other countries. There can be no assurance that patents issued to or licensed by the
Company will not be challenged, invalidated, circumvented, or that the rights granted thereunder will provide proprietary protection or competitive
advantages to the Company.
Based on the Company's current operating plan, the Company believes that its cash and cash equivalents will be sufficient to fund the Company’s
currently projected operating expenses and debt obligations for at least the next 12 months from the date the financial statements are issued. The
Company’s assessment of its liquidity and capital resources includes an estimate of the financial impacts of these changes. The Company has based its
projections of operating capital requirements on its current operating plan, which includes several assumptions that may prove to be incorrect, and the
Company may use all of its available capital resources sooner than the Company expects. 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 and regulatory activities; commence or continue ongoing commercialization activities, including manufacturing, sales, marketing
and distribution, for any of its product candidates for which the Company may receive marketing approval; 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 funding, it could be forced to delay, reduce or eliminate its research and development programs and its reproxalap
commercialization efforts.
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.
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Use of Estimates – The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and
assumptions, including fair value estimates for investments, that affect the reported amounts of assets, 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 period. The Company evaluates its
estimates and assumptions on an ongoing basis. The most significant estimates in the Company’s consolidated financial statements include, but are not
limited to, clinical trial accruals, deferred and accrued research and development costs, stock-based compensation, 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.
Loss Contingencies – The outcome of loss contingencies, legal proceedings, indemnification matters, and claims brought against us is subject to
uncertainty. An estimated loss contingency is accrued by a charge to earnings if it is probable that an asset has been impaired or a liability has been
incurred and the amount can be reasonably estimated. Determination of whether to accrue a loss requires evaluation of the probability of an unfavorable
outcome and the ability to make a reasonable estimate. Changes in these estimates could affect the timing and amount of accrual of loss contingencies and
could be material to the financial statements.
Segment Information – Operating segments are defined as components of an enterprise about which separate discrete information is available for
evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The
Company views its operations and manages its business in one segment, which is the identification and development of next-generation medicines to
improve the lives of patients with immune-mediated and metabolic diseases. See Note 16 for more information on the effects of the adoption of segment
reporting.
Cash and Cash Equivalents – The Company classifies all highly liquid investments with original maturities of three months or less as cash
equivalents and all highly liquid investments with original maturities of greater than three months but less than 12 months as current marketable securities.
The Company has a policy of making investments only with commercial institutions that have at least an investment grade credit rating. The Company
invests its cash primarily in government securities and obligations and money market funds.
Marketable Securities – Marketable securities consist of government securities and obligations with original maturities of more than 90 days. Debt
investments are classified as available-for-sale and are recorded on the balance sheet at fair value with unrealized gains or losses reported as a separate
component of other comprehensive income/(loss). Management determines the appropriate classification of its investments at the time of purchase and re-
evaluates such determination at each balance sheet date.
At each balance sheet date, the Company assesses available-for-sale securities in an unrealized loss position to determine whether the decline in fair
value below amortized cost is a result of credit losses or other factors, whether the Company expects to recover the amortized cost of the security, the
Company’s intent to sell and if it is more likely than not that the Company will be required to sell the securities before the recovery of amortized cost. The
Company records changes in allowance for expected credit loss in other income (expense). There has been no allowance for expected credit losses recorded
during any of the periods presented.
Fair Value of Financial Instruments – Financial instruments including cash equivalents and accounts payable are carried in the financial
statements at amounts that approximate their fair value based on the short maturities of those instruments. Marketable securities are carried at fair value and
are more fully described in Note 6. The carrying amount of the Company’s credit facility with Hercules Capital, Inc. approximates fair value since the
effective interest rate approximates market rates currently available to the Company.
Concentration of Credit Risk – Financial instruments that potentially subject the Company to significant concentrations of credit risk principally
consist of cash, cash equivalents and marketable securities, if any. The Company places its cash and cash equivalents and marketable securities with
financial institutions which management believes have high credit ratings and may hold some amounts exceeding federally insured limits. As part of its
cash and investment management processes, the Company performs periodic evaluations of the credit standing of the financial institutions with whom it
maintains deposits.
119
Intellectual Property – The legal and professional costs incurred by the Company to acquire its patent rights are expensed as incurred and included
in general and administrative expenses. At December 31, 2024 and 2023, the Company has determined that these expenses have not met the criteria to be
capitalized since the future benefits to be derived from the patents is uncertain. Intellectual property related expenses for the years ended December 31,
2024 and 2023 were $1.0 million and $1.2 million, respectively.
Collaborative Arrangements – The Company analyzes its collaboration arrangements to assess whether such arrangements involve joint operating
activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial
success of such activities and therefore within the scope of ASC 808, Collaborative Arrangements (ASC 808). The ASC 808 assessment is performed
throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement. For collaboration arrangements within the
scope of ASC 808 that contain units of account, the Company first determines which units of account of the collaboration are more reflective of a vendor-
customer relationship and therefore within the scope of ASC 606, Revenue from Contracts with Customers (ASC 606), if any, and which units of may be
subject to other specific recognition guidance, if any. For units of account of collaboration arrangements that are accounted for pursuant to ASC 808, and
not subject to other specific recognition guidance, an appropriate recognition method is determined and applied consistently, either by analogy to
authoritative accounting literature or by applying a reasonable and rational policy election.
For collaboration arrangements that are within the scope of ASC 808, the Company evaluates the income statement classification for presentation of
amounts due from or owed to other participants associated with multiple activities in a collaboration arrangement based on the nature of each separate
activity. Payments or reimbursements that are the result of a collaborative relationship instead of a customer relationship, such as co-development and co-
commercialization activities, are recorded as research and development expense or selling, general and administrative expense, in the event of a payment to
the collaborative partner in a period, or a reduction to these expense line items in the event of a reimbursement from the collaboration partner in a period, as
appropriate.
Income Taxes – The Company follows the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC)
740, Income Taxes (ASC 740), in reporting deferred income taxes. ASC 740 requires a company to recognize deferred tax liabilities and assets for expected
future income tax consequences of events that have been recognized in the Company’s financial statements. Under the ASC 740 method, deferred tax
assets and liabilities are determined based on temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities
using enacted tax rates in the years in which the temporary differences are expected to reverse. Valuation allowances are provided if based on the weight of
available evidence, it is more likely than not that some or all the deferred tax assets will not be realized.
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 the 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. The
Company recognizes interest accrued related to unrecognized tax benefits and penalties in the provision for income taxes. Management is not aware of any
uncertain tax positions.
Research and Development Costs – Research and development (R&D) costs are charged to expense as incurred and relate to salaries, employee
benefits, stock-based compensation related to employees, consulting services, other operating costs and expenses associated with preclinical and clinical
trial activities. Payments made by the Company in advance for research and development services not yet provided and/or for materials not yet received are
recorded as deferred research and development expenses. Accrued liabilities are recorded related to those expenses for which vendors have not yet billed us
with respect to services provided and/or materials that we have received.
Preclinical and clinical trial expenses relate to third-party services, subject-related fees at the sites where the Company’s clinical trials are being
conducted, laboratory costs, analysis costs, toxicology studies and investigator fees. Costs associated with these expenses are generally payable on the
passage of time or when certain milestones are achieved. Expense is recorded during the period incurred or in the period in which a milestone is achieved.
In order to ensure that the Company has adequately provided for preclinical and clinical expenses during the proper
120
period, the Company maintains an accrual for these expenses. These accruals are assessed on a quarterly basis and are based on such assumptions as total
costs incurred to date, the number of subjects and clinical trial sites and length of the study. Actual results may differ from these estimates and could have a
material impact on the Company’s reported results. The Company’s historical accrual estimates have not been materially different from actual costs.
Stock-Based Compensation – Stock-based payments are accounted for in accordance with the provisions of ASC 718, Compensation – Stock
Compensation. For options, the fair value of stock-based payments is estimated, on the date of grant, using the Black-Scholes option pricing model. For
restricted stock units, fair value is based on the fair value of the underlying stock on the date of grant. The resulting fair value for restricted stock units and
options expected to vest is recognized on a straight-line basis over the requisite service period, which is generally the vesting period of the applicable
restricted stock units or options. The Company records the effect of forfeitures and cancellations when they occur.
For performance-based awards, at each reporting period we assess the probability that the performance condition(s) will be achieved. We use the
accelerated attribution method to expense the awards over the continuous service period based on the probability of achieving the performance conditions.
We estimate the continuous service period based on our best estimate of the period over which an award’s vesting condition(s) will be achieved. We review
and evaluate these estimates on a quarterly basis.
The Company has cash awards and performance cash settled bonus awards, which are awards that will be settled in cash on their vesting dates
(Liability Awards), rather than in equity units. The fair value of Liability Awards is updated at each balance sheet date and changes in the fair value of the
vested portions of the Liability Awards are recorded as increases or decreases to compensation expense. The Company recognizes forfeitures as they occur.
Comprehensive Loss – Comprehensive loss is defined as the change in equity during a period from transactions and other events and/or
circumstances from non-owner sources. For December 31, 2024, comprehensive loss is equal to the Company’s net loss of $55.9 million and an unrealized
gain on marketable securities to net loss of $0.1 million. For December 31, 2023, comprehensive loss is equal to the Company's net loss of $37.5 million
and reclassification of losses on marketable securities to net loss of $0.1 million.
Net Loss Per Share – Basic earnings per share is calculated by dividing net loss allocable to common stockholders by the weighted average number
of common stock outstanding during the period, excluding the effects of any potentially dilutive instruments.
Diluted net loss per share is computed using the more dilutive of (a) the two-class method, or (b) treasury stock method, as applicable, to the
potentially dilutive instruments. The weighted-average number of common shares outstanding gives effect to all potentially dilutive common equivalent
shares, including outstanding stock options and restricted stock units, warrants, if any, and nonvested shares.
Recent Accounting Pronouncements – In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to
Reportable Segment Disclosures (ASU 2023-07). ASU 2023-07 is intended to improve reportable segment disclosure requirements, primarily through
additional disclosures about significant segment expenses, including for single reportable segment entities. The standard is effective for fiscal years
beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The
amendments should be applied retrospectively to all prior periods presented in the financial statements. The Company adopted ASU 2023-07, which did
not have a material impact on the Company's consolidated financial statements. See Note 16 for more information on the effects of the adoption of ASU
2023-07.
In December 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures (ASU 2023-09). ASU 2023-09 requires more
detailed income tax disclosures. The guidance requires entities to disclose disaggregated information about their effective tax rate reconciliation as well as
expanded information on income taxes paid by jurisdiction. The disclosure requirements will be applied on a prospective basis, with the option to
121
apply them retrospectively. The standard is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is
currently evaluating the disclosure requirements related to the new standard.
In November 2024, the FASB issued ASU No. 2024-03, Disaggregation of Income Statement Expenses (ASU 2024-03). ASU 2024-03 requires
public business entities to disclose in the notes to the financial statements, among other things, specific information about certain costs and expenses
including purchases of inventory; employee compensation; and depreciation, amortization and depletion expenses for each caption on the income statement
where such expenses are included. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods
beginning after December 15, 2027. Early adoption is permitted, and the amendments may be applied prospectively to reporting periods after the effective
date or retrospectively to all periods presented in the financial statements. The Company is evaluating the disclosure requirements related to the new
standard.
3.
HELIO VISION ACQUISITION
On January 28, 2019 (Closing Date), the Company acquired Helio Vision, Inc. (Helio) and thereby obtained rights to develop ADX‑2191 for the
treatment of proliferative vitreoretinopathy (the Helio Product Candidate) pursuant to an Agreement and Plan of Merger dated as of January 24, 2019 (the
Merger Agreement). As a result of the acquisition, the Company issued an aggregate of 1,407,006 shares of common stock to the former securityholders
and an advisor of Helio, including 246,562 shares issued in January 2021, pursuant to the terms of the acquisition agreement. In addition, the Company,
subject to the conditions of the acquisition agreement, was contingently obligated to make additional payments to the former securityholders of Helio as
follows: (a) $10.0 million of common stock following approval by the FDA of a new drug application (NDA) for the prevention and/or treatment of
proliferative vitreoretinopathy or a substantially similar label prior to the 10th anniversary of the Closing Date; and (b) $2.5 million of common stock
following FDA approval of an NDA for an indication (other than proliferative vitreoretinopathy or a substantially similar label) prior to the 12th
anniversary of the Closing Date (the shares of common stock issuable pursuant to the preceding clauses (a) and (b) 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 in connection with
the Helio acquisition. During the year ended December 31, 2024, the Company ceased development of the Helio Product Candidate for the treatment of
proliferative vitreoretinopathy. As a result, subject to the terms and conditions of the Merger Agreement, the Helio Product Candidate and related
intellectual property rights may revert to an entity designated by the representative of the former Helio stockholders. 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 in the aggregate.
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 December 31, 2024. 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 issue the Milestone Shares becomes probable. At such time, the Company will record the cost of the Milestone Shares
issued to the Helio founders as a compensation expense and to the other former securityholders of Helio as an in-process research and development
expense if there is no alternative future use. No milestones related to the remaining Milestone Shares are considered probable of being achieved as of
December 31, 2024.
122
4.
NET LOSS PER SHARE
For the years ended December 31, 2024 and 2023, 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:
Years ended December 31,
2024
2023
Options to purchase common stock
7,621,580
5,868,816
Nonvested restricted stock units
540,965
944,497
Total of common stock equivalents
8,162,545
6,813,313
5.
CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES
At December 31, 2024, cash, cash equivalents, and marketable securities were comprised of:
Carrying
Amount
Unrecognized
Gain
Estimated Fair
Value
Cash and Cash
Equivalents
Current
Marketable
Securities
Cash
$
23,734,013 $
— $
23,734,013 $
23,734,013 $
—
Money market funds
30,793,079
—
30,793,079
30,793,079
—
Total cash and cash equivalents
$
54,527,092 $
— $
54,527,092 $
54,527,092 $
—
U.S. government agency securities
$
46,586,738 $
37,442 $
46,624,180 $
— $
46,624,180
Available for sale marketable securities
46,586,738
—
—
46,624,180
Total cash, cash equivalents, and current marketable
securities
$
54,527,092 $
46,624,180
(1)
Available for sale debt securities are reported at fair value with unrealized gains and losses reported net of taxes, if material, in other comprehensive
loss.
The contractual maturities of all cash equivalents and available for sale securities were less than one year at December 31, 2024.
At December 31, 2023, cash, cash equivalents, and marketable securities were comprised of:
Carrying
Amount
Estimated Fair
Value
Cash
$
128,510,451
$
128,510,451
Money market funds
14,312,565
$
14,312,565
Total cash and cash equivalents
$
142,823,016
$
142,823,016
There were no marketable securities held at December 31, 2023.
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
(1)
123
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.
The following table presents information about the Company’s assets measured at fair value at December 31, 2024 and December 31, 2023:
December 31, 2024
Level 1
Level 2
Level 3
Total
Assets:
Money market funds (a)
$
30,793,079 $
— $
— $
30,793,079
U.S government agency securities (b)
46,624,180
—
—
46,624,180
Total assets at fair value
$
77,417,259 $
— $
— $
77,417,259
December 31, 2023
Level 1
Level 2
Level 3
Total
Assets:
Money market funds (a)
$
14,312,565 $
— $
— $
14,312,565
Total assets at fair value
$
14,312,565 $
— $
— $
14,312,565
(a)
Money market funds included in cash and cash equivalents in the consolidated balance sheets, are valued at quoted market prices in active markets.
(b)
U.S. government agency securities are recorded at fair market value, which are determined based on the most recent observable inputs for similar
instruments in active markets or quoted prices for identical or similar instruments in markets that are not active or are directly or indirectly
observable.
There were no liabilities measured at fair value at December 31, 2024 or December 31, 2023.
Financial instruments including 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 the Hercules Credit Facility (as defined in Note 9) approximates market rates currently available to the Company.
7.
PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets at December 31, 2024 and 2023 were:
December 31,
December 31,
2024
2023
Deferred research and development expenses
$
2,211,963
$
4,463,783
Prepaid insurance expenses
408,091
340,388
Miscellaneous prepaid expenses and other current assets
301,152
183,146
Total prepaid expenses and other current assets
$
2,921,206
$
4,987,317
124
8.
ACCRUED EXPENSES
Accrued expenses at December 31, 2024 and 2023 were:
December 31,
December 31,
2024
2023
Accrued compensation
$
4,333,216
$
3,087,937
Accrued research and development expenses
7,228,922
1,687,327
Accrued other expenses
556,229
761,200
Total accrued expenses
$
12,118,367
$
5,536,464
9.
CREDIT FACILITY
The Company’s current and 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 (Loan and Security Agreement or Hercules Credit
Facility) with Hercules and several banks and other financial institutions or entities, from time-to-time parties thereto (collectively, referred to herein 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 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 pre-specified funding conditions prior to September
30, 2019 (2019 Tranche), March 31, 2020 (2020 Tranche), and March 31, 2021 (2021 Tranche); and (iii) a final additional term loan advance (Fourth Loan
Tranche) 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 and 2021 Tranche expired unutilized prior to the Company
satisfying the funding conditions for such tranche. On April 20, 2021, the Company entered into the First Amendment to the Loan and Security Agreement
(First Amendment). The First Amendment, among other things, (i) increased the Fourth Loan Tranche from $10.0 million to $20.0 million and extended
the deadline for drawing down the Fourth Loan Tranche to July 1, 2022; (ii) lowered the variable per annum rate of interest on borrowings under the Loan
and Security Agreement from the greater of (a) 9.10% and (b) the prime rate (as reported in the Wall Street Journal or any successor publication thereto)
plus 3.10% to the greater of (x) the Prime Rate (as defined therein) plus 3.10% or (y) 8.60%; (iii) extended the expiration of the period in which interest-
only payments on borrowings under the Loan and Security Agreement are required from May 1, 2021 to July 1, 2022; and (iv) following the satisfaction of
certain conditions, which conditions were satisfied in April 2021, further extended the expiration of the interest-only period and the deadline for drawing
down the Fourth Loan Tranche to May 1, 2023. Repayment of the aggregate outstanding principal balance of the term loan, in monthly installments, was to
commence upon expiration of the interest-only period and continue through October 1, 2023 (Maturity Date). The First Amendment was determined to be a
modification in accordance with FASB ASC Topic 470 Debt, and did not result in extinguishment.
On December 22, 2022, the Company entered into the Second Amendment to the Loan and Security Agreement (Second Amendment), which
became effective as of December 31, 2022 (Second Amendment Effective Date). The Second Amendment, among other things, (i) extended the expiration
of the period in which interest-only payments on borrowings under the Loan and Security Agreement were to be made from May 1, 2023 to May 1, 2024;
(ii) extended the Maturity Date from October 1, 2023 to October 1, 2024; (iii) extended the availability of the Fourth Loan Tranche commitment of $20
million, which remained conditioned on approval by the Lenders’ investment committee, from May 1, 2023 to May 1, 2024; and (iv) amended the
Prepayment Charge (as defined therein) to equal 0.75% of the amount prepaid during the 12-month period following the Second Amendment Effective
Date, and 0% thereafter. In addition, a supplemental end of term charge of $292,500 (Supplemental End of Term Charge) shall be due on the earlier of (a)
the Maturity Date, as amended, or (b) repayment of the aggregate amount of advances under the Loan and Security Agreement. The initial end of term
charge of $1,042,500 (End of Term Charge) was paid on October 2, 2023.
125
On April 29, 2024, the Company entered into the Third Amendment to the Loan and Security Agreement (Third Amendment). The Third
Amendment, among other things, extended the expiration of the period in which interest-only payments on borrowings under the Loan and Security
Agreement were to be made from May 1, 2024 to October 1, 2024. On May 1, 2024, the Fourth Loan Tranche commitment expired unutilized. The Second
and Third Amendments were determined to be modifications in accordance with FASB ASC Topic 470 Debt, and did not result in extinguishment.
On September 30, 2024, the Company entered into the Fourth Amendment to the Loan and Security Agreement (Fourth Amendment). The Fourth
Amendment, among other things, (i) extended the expiration of the period in which interest-only payments on borrowings under the Loan and Security
Agreement are made from October 1, 2024 to April 1, 2026; (ii) extended the Maturity Date from October 1, 2024 to April 1, 2026; and (iii) amended the
term loan interest rate to be the greater of (a) the Prime Rate (as defined in the Loan and Security Agreement) plus 3.10%, or (b) 11.10%. In addition, a
supplemental end of term charge of $300,000 (Second Supplemental End of Term Charge) shall be due on the earlier of (a) the Maturity Date, as amended,
or (b) repayment of the aggregate amount of advances under the Loan and Security Agreement. The Supplemental End of Term Charge of $292,500 was
paid on October 1, 2024. The Fourth Amendment was determined to be a modification in accordance with FASB ASC Topic 470 Debt, and did not result
in extinguishment.
On October 28, 2024, the Company entered into the Fifth Amendment to the Loan and Security Agreement (Fifth Amendment). The Fifth
Amendment introduces, among other things, new definitions to include holding investments in a wholly owned subsidiary structured as a Massachusetts
Security Corporation.
In connection with the Hercules Credit Facility, the Company has incurred; a commitment charge of $25,000, transaction costs of $273,186, a fee of
$375,000 upon closing, the End of Term Charge, which was paid in October 2023, and the Supplemental End of Term Charge, which was paid in October
2024. In addition, the Company will be required to pay the Second Supplemental End of Term Charge. The fees and transaction costs are amortized to
interest expense from 2019 through the Maturity Date using the effective interest method. Using the effective interest method, the End of Term Charge was
amortized to interest expense from 2019 through October 2023, the Supplemental End of Term Charge was amortized to interest expense from December
2022 through October 2024, and the Second Supplemental End of Term Charge is amortized to interest expense from September 2024 through the Maturity
Date. The effective interest rate was 12.4% at December 31, 2024. 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 as of the date of such prepayment.
As of December 31, 2024, $15 million has been funded under the Loan and Security Agreement and no additional amounts were available to the
Company for borrowing.
Long-term debt consisted of the following:
December 31,
December 31,
2024
2023
Term loan payable
$
15,000,000
$
15,000,000
Supplemental end of term charge
33,333
173,646
Unamortized debt issuance costs
(1,961)
(27,100)
Less: current portion
(31,372)
(15,146,546)
Total long-term debt
$
15,000,000
$
—
126
Future principal payments, including the Supplemental End of Term Charge, are as follows for the years ending December 31:
Years Ending
December 31,
2025
$
—
2026
15,300,000
Total
$
15,300,000
The Loan and Security Agreement also contains certain events of default, representations, warranties and non-financial covenants of the Company.
As of December 31, 2024, the Company was in compliance with all covenants of the Hercules Credit Facility in all material respects. In addition, subject to
the terms of the Loan and Security Agreement, 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.
10.
STOCKHOLDERS’ EQUITY
Common Stock
Each share of common stock is entitled to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally
available and when declared by the board of directors, subject to the prior rights of holders of all classes of stock outstanding. As of December 31, 2024, a
total of 7,621,580, 3,919,330, and 2,921,164, shares of common stock were reserved for issuance upon (i) the exercise of outstanding stock options, (ii) the
issuance of stock awards under the Company’s 2023 Equity Plan, and (iii) the issuance of shares under the 2016 ESPP, respectively.
2024 Jefferies Sales Agreement
In August 2024, the Company entered into an Open Market Sales Agreement SM with Jefferies LLC (Jefferies), as sales agent (the 2024 Jefferies
Sales Agreement), under which the Company has the ability to offer and sell, from time to time through Jefferies, shares of common stock providing for
aggregate sales proceeds of up to $75.0 million. As of December 31, 2024, no shares of common stock were sold under the 2024 Jefferies Sales
Agreement.
11.
INCOME TAXES
No current or deferred tax provision expense has been recorded for federal income taxes as the Company has incurred losses since inception for tax
purposes and maintains a full valuation allowance against net deferred tax assets. During 2024, the Company recorded a $1,000 state current tax provision
for liability due from the Company's Massachusetts Security Corporation. There is no deferred tax provision expense recorded for state income taxes
because the Company has a full valuation allowance against net deferred tax assets. 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.
The components of the income tax benefit for the years ended December 31, 2024 and 2023, are as follows:
Years ended December 31,
2024
2023
Deferred Taxes
Federal
$
— $
—
State
1,000
—
Total income tax benefit
$
1,000 $
—
127
A reconciliation of the federal statutory tax rate of 21% to the Company’s effective income tax rates are as follows:
Years ended December 31,
2024
2023
Statutory tax rate
21.00 %
21.00 %
State taxes, net of federal benefits
6.65 %
5.20 %
Federal research and development credits
4.32 %
4.50 %
Change in valuation allowance
(29.86) %
(27.21) %
Stock-based compensation
(2.10) %
(3.45) %
Other
(0.01) %
(0.04) %
Effective tax rate
0.00 %
0.00 %
Significant components of the Company’s deferred tax assets and liabilities at December 31, 2024 and 2023 are as follows:
Years ended December 31,
2024
2023
Deferred Tax Assets
Federal & state NOL carryforward
$
73,738,480 $
67,953,701
Federal & state R&D credit
carryforward
16,803,144
13,794,138
Deferred costs
1,139,165
1,012,032
Intangibles – net
78,378
78,378
Accounts payable and accrued
expenses
4,203,111
2,135,899
Reserves
—
28,396
Stock options
3,575,996
3,323,000
Capitalized R&D expenses
21,929,898
16,489,741
Other items
99,098
167,126
Gross deferred tax assets
121,567,270
104,982,411
Valuation allowance
(121,486,475)
(104,842,857)
Deferred tax assets, net
$
80,795 $
139,554
Deferred Tax Liabilities
Right of use asset
(72,932)
(139,554)
Unrealized gain
(7,863)
—
TOTAL
$
— $
—
The change in valuation allowance of $16.6 million from December 31, 2023 to December 31, 2024 was primarily the result of an increase in
capitalized R&D expenses, net operating losses, and tax credits.
In assessing the realizability of net deferred taxes in accordance with Accounting Standards Codification (ASC) 740, Income Taxes (ASC 740), the
Company considers whether some portion or all the deferred tax assets are more likely than not to be unrealized. 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 some or all net deferred taxes more likely than not to be realized. Accordingly, a 100%
valuation allowance has been applied against net deferred tax assets.
As of December 31, 2024, the Company had federal and state income tax net operating loss (NOL) carryforwards of approximately $272.0 million
and $262.9 million, respectively. Federal NOL carryforwards generated through December 31, 2017 and state NOL carryforwards will expire at various
dates through 2044. The federal NOL carryforwards generated during the year ended December 31, 2018 and thereafter will carryforward
128
indefinitely. As of December 31, 2024, the Company had federal and state research and development tax credit carryforwards of approximately $12.1
million and $2.8 million, respectively, which will expire at various dates through 2044. Additionally, as of December 31, 2024, the Company had a federal
orphan drug tax credit carryforward of approximately $2.4 million which expire at various dates through 2044.
Under Sections 382 and 383 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 NOLs and certain other tax assets to offset future taxable income or tax due. 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, 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. The Company
believes, prior to December 31, 2021 that four ownership changes occurred since inception. Management believes that its aggregate Section 382 and 383
limitation (including the additional limitation for recognized "built-in gains") is sufficient so that no current impairment of its pre-ownership change tax
attributes is required. Management believes there were no ownership changes from December 31, 2021 through December 31, 2024, based on a review of
the Company's equity history during that period. Any future ownership changes, including those resulting from any recent or future financing activities,
may cause our existing tax attributes to have additional limitations.
Future changes in federal and state tax laws pertaining to net operating loss carryforwards may also impose limitations or restrictions on claiming
such net operating losses. If the net operating loss carryforwards become unavailable to the Company or are fully utilized, the Company's future taxable
income will not be shielded from federal and state income taxation, absent certain U.S. federal and state tax credits, and the funds otherwise available for
general corporate purposes would be reduced.
On August 16, 2022 President Biden signed into law the Inflation Reduction Act (IRA). From a tax perspective, the IRA provisions includes a new
corporate alternative minimum tax (CAMT) of 15% on adjusted financial statement income (AFSI) for corporations with over $1 billion in profits, a new
excise tax on corporate stock buybacks, and increased funding for IRS enforcement. A company’s AFSI can be reduced by net operating losses, foreign tax
credits, general business credits, and depreciation for property under Section 197. To determine US federal income tax liability, a company will need to
compute taxes under both systems — the regular tax system and the CAMT system. The company then will pay the larger amount as its tax liability in any
given year. The Company does not expect to fall into the CAMT system. The IRA provisions have no impact on the Company’s financial statements for the
period ended December 31, 2024 and 2023.
As of December 31, 2024, the Company is subject to tax in the U.S. (Federal and Massachusetts). The Company is open to examination for the tax
years ended December 31, 2023, 2022, and 2021. In addition, any years remain open to the extent that losses or tax credits are available for carryover to
future years.
12.
STOCK INCENTIVE PLAN
The Company approved the 2013 Equity Incentive Plan in October 2013, which was amended in June 2016 and June 2018 (the Amended 2013
Plan). The Amended 2013 Plan provided for the granting of stock options, restricted stock units (RSU), stock appreciation rights, and stock units to certain
employees, members of the board of directors and consultants of the Company.
In May 2023, the Company's board of directors approved the 2023 Equity Incentive Plan (the 2023 Equity Plan) to replace the Amended 2013 Plan.
On June 30, 2023, the Company's stockholders approved the 2023 Equity Plan at the Company's 2023 annual meeting of stockholders. Pursuant to the 2023
Equity Plan, the Company will not make any further grants under the Amended 2013 Plan following June 30, 2023, though awards previously granted
under the Amended 2013 Plan will remain outstanding. The 2023 Equity Plan is effective for a period of ten years after June 30, 2023, and a total of
5,450,000 shares of the Company’s common stock, in addition to shares of the Company’s common stock that are subject to awards granted under the
Amended 2013 Plan that are outstanding as of such date and that are subsequently forfeited, cancelled, or expire before being exercised or settled in full,
are authorized for issuance under the 2023 Equity Plan. As of December 31, 2024, options to purchase 2,313,500 shares of common stock at a weighted
average exercise price of $3.97 per share remained outstanding under the 2023
129
Equity Plan. As of December 31, 2024, there were 3,919,330 shares of common stock available for grant under the 2023 Equity Plan.
In 2022, the Company granted cash awards under the Management Cash Incentive Plan, as amended (the Management Cash Incentive Plan). The
Management Cash Incentive Plan, which was adopted in 2016, provides participants with the opportunity to earn cash incentive awards for the achievement
of goals relating to the performance of the Company. The cash awards, which are equal in value to the amount by which the then value of the Company’s
common stock on the Nasdaq Capital Market (Nasdaq) exceeds the base values, vest in four annual installments from the date of grant based on continued
service and entitle employees to receive a cash payment on the earlier of (i) four years from the date of grant, or (ii) a change of control. As of December
31, 2024, $0.3 million was accrued as compensation expense for vested cash awards. There was no unrecognized expense as of December 31, 2024.
In 2022, the Company granted performance cash settled bonus awards (CSBUs) under the Management Cash Incentive Plan. As the performance
criteria had been met, the awards, which are equal in value to the closing price per share of the Company's common stock on Nasdaq on the payment date,
will vest in four annual installments from the date of grant based on continued service, and entitle employees to receive cash payments for each vested
CSBU, on the earlier of (i) four years from the date of grant or (ii) a change of control. As of December 31, 2024, $2.9 million was accrued as
compensation expense for CSBUs as the Performance Criteria was met in February 2023. There was no unrecognized expense as of December 31, 2024.
The Company recognizes stock-based compensation expense over the requisite service period. The Company’s share-based awards are accounted
for as equity instruments, except for cash awards and CSBUs, which are accounted for as liabilities. The amounts included in the consolidated statements
of operations relating to stock-based compensation associated with the two equity incentive plans, cash awards, and CSBUs are as follows:
Years ended December 31,
2024
2023
Research and development expenses
$
4,470,890
$
3,076,048
General and administrative expenses
3,502,609
2,676,723
Total stock-based compensation expense
$
7,973,499
$
5,752,771
Stock Options
Terms of stock option agreements, including vesting requirements, are determined by the board of directors or its compensation committee, subject
to the provisions of the respective plan from which they were granted. Options granted by the Company typically vest over a four-year period. The options
are subject to acceleration of vesting in the event of certain change of control transactions. The options may be granted for a term of up to ten years from
the date of grant. The exercise price for options granted under the Amended 2013 Plan and the 2023 Equity Plan must be at a price no less than 100% of the
fair market value of a common share on the date of grant.
130
The table below summarizes activity relating to stock options under the incentive plans for the year ended December 31, 2024:
Number of
Shares
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value(a)
Outstanding at December 31, 2023
5,868,816 $
6.40
6.44 $
3,996
Granted
2,376,328
3.67
—
Forfeited
(344,987)
4.38
304,586
Exercised
(98,680)
3.55
132,962
Expired
(179,897)
7.90
—
Outstanding at December 31, 2024
7,621,580 $
5.64
6.34 $
4,885,683
Exercisable at December 31, 2024
5,292,330 $
6.23
5.24 $
2,502,089
(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 December 31, 2024 of $4.99 and the per share exercise price of the underlying options. The total intrinsic value of stock options
exercised was $0.1 million and $2.0 million for the years ended December 31, 2024 and 2023, respectively.
The Company records stock-based compensation related to stock options granted at fair value. During the years ended December 31, 2024 and 2023,
the Company used the Black-Scholes option-pricing model to estimate the fair value of stock option grants and to determine the related compensation
expense. The assumptions used in calculating the fair value of stock-based payment awards represent management’s best estimates. The weighted-average
grant date fair value of options granted was $2.81 and $5.07 for the years ended December 31, 2024 and 2023, respectively. The assumptions used in
determining fair value of the employee stock options for the years ended December 31, 2024 and 2023, are as follows:
December 31,
2024
December 31,
2023
Expected dividend yield
0%
0%
Anticipated volatility
90.56% - 90.94%
83.58% - 83.63%
Stock price
$3.62 - $4.09
$6.76 - $8.39
Exercise price
$3.62 - $4.09
$6.76 - $8.39
Expected life (years)
5.50 - 6.02
5.50 - 6.02
Risk free interest rate
4.07% - 4.35%
4.09% - 4.12%
The dividend yield of zero is based on the fact that the Company has never paid cash dividends and have no present intention to pay cash dividends.
Expected volatility is estimated using the historical volatility of the Company. The Company has estimated the expected life of its employee stock options
using the “simplified” method, whereby, the expected life equals the average of the vesting term and the original contractual term of the option for service-
based awards since the Company does not have sufficient historical or implied data of its own. The risk-free interest rates for periods within the expected
life of the option are based on the yields of zero-coupon United States Treasury securities.
At December 31, 2024, there is approximately $6.7 million of unrecognized compensation cost relating to stock options outstanding, which the
Company expects to recognize over a weighted average period of 2.38 years. Total unrecognized compensation cost will be adjusted for future forfeitures,
if necessary.
Restricted Stock Units
Terms of RSUs agreements, including vesting requirements, are determined by the board of directors or its compensation committee, subject to the
provisions of the Amended 2013 Plan and the 2023 Equity Plan. RSUs
131
granted by the Company typically vest over a four year period and are based on the stock share price on the date of grant to estimated fair value. In the
event that the employees’ employment with the Company terminates any unvested shares are forfeited and revert to the Company. RSUs are not included
in issued and outstanding common stock until the shares are vested and released. The table below summarizes activity relating to RSUs for the year ended
December 31, 2024:
Number
of Shares
Weighted-
Average Grant
Date Fair
Value
Outstanding at December 31, 2023
944,497 $
5.30
Forfeited
(63,044)
4.72
Settled in common stock
(340,488)
5.10
Outstanding at December 31, 2024
540,965 $
5.49
There were no RSUs granted during the year ended December 31, 2024. The weighted-average fair value of RSUs granted was $6.76 per share for
the year ended December 31, 2023. The total fair value of RSUs vested was $1.7 million and $2.0 million for the years ended December 31, 2024 and
2023, respectively. As of December 31, 2024, the outstanding RSUs had unamortized stock-based compensation expense of $1.9 million with a weighted-
average remaining recognition period of 1.63 years and an aggregate intrinsic value of $2.7 million.
Employee Stock Purchase Plan
In March 2016, the Company’s board of directors approved the 2016 Employee Stock Purchase Plan (2016 ESPP), which became effective in June
2016 following the approval of the Company’s stockholders. The 2016 ESPP initially authorized the issuance of up to a total of 414,639 shares of the
Company’s common stock to participating employees. The number of shares reserved for issuance under the 2016 ESPP automatically increases on the
first business day of each fiscal year, commencing in 2017, by a number equal to the lower of (i) 1% of the shares of common stock outstanding on the last
business day of the prior fiscal year; or (ii) the number of shares determined by the Company’s board of directors. Unless otherwise determined by the
administrator of the 2016 ESPP, two offering periods of six months’ duration will begin each year on January 1 and July 1. Participating employees
purchase stock under the 2016 ESPP at a price equal to the lower of 85% of the closing price on the applicable offering commencement date or 85% of the
closing price on the applicable offering termination date. The fair value of the purchase rights granted under the 2016 ESPP plan was estimated on the date
of grant using the Black-Scholes option-pricing model using assumptions as shown below:
December 31,
2024
December 31,
2023
Expected dividend yield
0%
0%
Anticipated volatility
90.36 - 90.37%
83.61% - 91.33%
Stock price
$3.25 - $3.54
$6.96 - $7.98
Exercise price
$2.76 - $3.01
$5.92 - $6.78
Expected life (years)
0.50
0.50
Risk free interest rate
5.24% - 5.37%
4.77% - 5.26%
132
At December 31, 2024, the Company has 2,921,164 shares available for issuance under the 2016 ESPP. The number of shares available for issuance
under the 2016 ESPP was increased as of January 2, 2025 by 596,483 shares. A summary of the weighted-average grant-date fair value, shares issued and
total stock-based compensation expense recognized related to the 2016 ESPP for the years ended December 31, 2024 and 2023 are as follows:
December 31,
2024
December 31,
2023
Weighted-average grant-date fair value
per share
$
1.38 $
2.90
Total shares issued
13,159
26,168
Total stock-based compensation expense
$
18,894 $
44,022
13.
COMMITMENTS AND CONTINGENCIES
Guarantees and Indemnifications
As permitted under Delaware law, the Company indemnifies its officers and directors for certain events or occurrences while the officer or director
is, or was, serving at the Company’s request in such capacity. The term of the indemnification is for the officer’s or director’s lifetime. Through December
31, 2024, the Company had not experienced any losses related to these indemnification obligations and no material claims were outstanding. The Company
currently does not expect significant claims related to these indemnification obligations, consequently concluded that the fair value of these obligations is
negligible, and no related reserves were established.
In-License Agreements
MEEI Agreement
The Company was developing ADX‑2191 for the treatment of proliferative vitreoretinopathy pursuant to an Exclusive License Agreement with
Massachusetts Eye and Ear Infirmary (MEEI), originally entered into in July 2016 between MEEI and Helio Vision, Inc., as amended, (the MEEI
Agreement). The Company assumed the MEEI Agreement in connection with the 2019 acquisition of Helio Vision.
Pursuant to the MEEI Agreement, the Company obtained an exclusive worldwide license from MEEI to develop and commercialize ADX‑2191
under certain patents and patent applications, in addition to other licenses to intellectual property (the MEEI Patent Rights). The Company has agreed to
use commercially reasonable efforts to develop ADX‑2191, and to meet certain specified effort and achievement benchmarks by certain dates.
In consideration for the rights licensed under the MEEI Agreement, Helio Vision issued MEEI a number of shares of preferred stock and Helio
Vision agreed, during the term of the agreement, to pay non-creditable non-refundable license maintenance fees to MEEI of $15,000 on each of the second
and third anniversary of the agreement, $25,000 on each of the fourth and fifth anniversary of the agreement, and $35,000 on the sixth and each subsequent
anniversary of the agreement. In addition, Helio Vision was obligated to make future sales-dependent milestone payments to MEEI of up to low seven
figures in the aggregate, as well as royalty payments to MEEI at a rate which, as a percentage of net sales, is in the low single digits for products that
incorporate or use the MEEI Patent Rights. Helio is also obligated under the MEEI Agreement to pay MEEI a percentage of certain sublicense revenue at a
percentage rate that descends from low-double digits to mid-single digits based on the date of the sublicense. Following the Company’s acquisition of
Helio Vision, the Company became obligated to make any future payments previously owed by Helio under the MEEI Agreement. There is no additional
equity consideration issuable under the MEEI Agreement.
133
The MEEI Agreement will remain in effect until the expiration date of the last to expire patent licensed under the MEEI Agreement. The Company
may terminate the MEEI Agreement with timely written notice to MEEI. MEEI has the right to terminate the MEEI Agreement, subject to certain specified
cure periods, in the event of the Company’s insolvency or bankruptcy or if the Company ceases all business operations with respect to licensed products;
the Company fails to pay amounts due under the MEEI Agreement; the Company fails to comply with certain due diligence obligations; the Company does
not maintain specific levels of insurance; one of the Company's officers is convicted of a felony relating to the manufacture, use, sale or importation of
licensed products; or the Company materially breaches any provisions of the MEEI Agreement or in the event of insolvency or bankruptcy.
In the event of an early termination of the MEEI Agreement, all rights licensed and developed by the Company under the MEEI Agreement will
revert to MEEI. The Company has agreed to indemnify MEEI for certain claims that may arise under the MEEI Agreement.
Legal Proceedings
On July 31, 2023, a purported stockholder filed a putative class action lawsuit (the Securities Class Action) in the U.S. District Court for the District
of Massachusetts, against the Company and certain current and former officers, captioned Juliana Paice v. Aldeyra Therapeutics, Inc., et al. (No. 23-cv-
11737). On January 2, 2024, the lead plaintiff filed an amended complaint. The lawsuit alleges violations by the defendants of Sections 10(b) and 20(a) of
the Securities Exchange Act of 1934 and SEC Rule 10b-5. The plaintiff alleges that the defendants made false or misleading statements or failed to disclose
certain information concerning (i) the New Drug Application (NDA) for and the prospects of ADX‑2191 for the treatment of primary vitreoretinal
lymphoma, and (ii) the NDA for and the prospects of reproxalap for the treatment of dry eye disease. The lawsuit seeks, among other things, compensatory
damages on behalf of herself and all persons and entities that purchased or otherwise acquired the Company's securities between January 7, 2021 and
October 16, 2023, as well as attorneys’ fees and costs. On March 4, 2024, defendants filed a motion to dismiss the amended complaint, which was fully
briefed as of May 20, 2024. Oral argument on the motion to dismiss was heard on July 24, 2024. The Company disputes the plaintiff's claims and intends to
vigorously defend the suit. At this time, the Company cannot reasonably predict the outcome or estimate potential losses, if any, that could result from this
matter.
In addition, from time to time, the Company is subject to litigation and claims arising in the ordinary course of business but, except as stated above,
the Company is not currently a party to any material legal proceedings and the Company is not aware of any pending or threatened legal proceedings
against them that the Company believes could have a material adverse effect on the Company's business, operating results, cash flows, or financial
condition.
14.
LEASES
The Company currently leases an office used to conduct business. 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, in determining the present value of the lease payments, uses an incremental borrowing rate based on the information available at the lease
commencement date. In November 2023, the Company entered into a lease amendment that extended the lease by 12 months through December 31, 2024
and contained two options to extend the term of the lease for an additional 12 months each. Each option shall be exercisable, if at all, by giving a nine-
month written notice to the landlord. In April 2024, the Company extended the option to extend the term of the lease for an additional 12 months (into
December 2025). The extension was included in the December 31, 2023 financials. For the years ended December 31, 2024 and 2023, right of use assets
obtained in exchange for lease obligations were $0.3 million and $0.5 million, respectively.
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As of December 31, 2024, the Company maintained an unamortized Right-Of-Use asset with a corresponding operating lease liability of
approximately $0.3 million based on the present value of the minimum rental payments in accordance with ASC Topic 842, Leases. The weighted average
discount rate used for leases as of December 31, 2024 is 9.1%. The weighted average lease term as of December 31, 2024 is 1.0 year. The operating lease
expense for the year ended December 31, 2024 was $0.3 million. Maturities and balance sheet presentation of our lease liabilities for all operating leases as
of December 31, 2024 is as follows:
Remaining total lease payments
$
285,206
Less: effect of discounting
(13,575)
Present value of lease liabilities
$
271,631
Current operating lease liabilities
$
271,631
Non-current operating lease liabilities
—
Total
$
271,631
The Company’s gross future minimum payments under all non-cancellable operating leases as of December 31, 2024 are:
Total
2025
2026
2027
2028
Operating Lease Obligations
$
285,206 $
285,206 $
— $
— $
—
15.
OPTION AGREEMENT
AbbVie Option Agreement
On October 31, 2023 (the Option Agreement Effective Date), the Company entered into an exclusive option agreement (the Option Agreement) with
AbbVie Inc. (AbbVie), pursuant to which the Company granted AbbVie an exclusive option (the Option) to obtain (a) a co-exclusive license in the United
States to facilitate a collaboration with the Company to develop, manufacture, and commercialize reproxalap in the United States, (b) an exclusive license
to develop, manufacture and commercialize reproxalap outside the United States, (c) a right of first negotiation for compounds that are owned or otherwise
controlled by the Company in the field of ophthalmology relating to treating conditions of the ocular surface, and (d) a right to review data for any other
compounds that are owned or otherwise controlled by the Company in the fields of ophthalmology and immunology before such data is shared with any
other third party (the Collaboration Agreement). AbbVie has paid the Company a non-refundable payment of $1.0 million in consideration of the Option
(the Option Payment).
On December 21, 2023, pursuant to the Option Agreement, AbbVie extended the period during which it may exercise the Option (the Exercise
Period Extension) by paying the Company a non-refundable payment of $5.0 million (the Option Extension Fee). If the Collaboration Agreement is entered
into, the Option Payment and the Option Extension Fee will be credited against the upfront cash payment payable by AbbVie.
On November 15, 2024, the Company entered into the Expansion Side Letter (the Expansion Letter) with AbbVie, which amended certain terms of
the Option Agreement. The Expansion Letter makes certain changes to the Option Agreement, among other things, providing that the Company will
conduct certain launch activities, which costs shall not exceed mid-single-digit millions of dollars without AbbVie’s approval, and which costs will be
considered allowable expenses pursuant to the Collaboration Agreement upon the delivery of AbbVie’s written notice of exercising the Option and entry
into the Collaboration Agreement, such that 60% of our allowable expenses will be reimbursed by AbbVie in the event of exercise. If AbbVie does not
deliver a written notice of exercising the Option and the Company and AbbVie do not execute the Collaboration Agreement, the Company will remain
solely responsible for such launch activities costs. AbbVie has also independently initiated pre-commercialization planning activities. In addition, the
Exercise Period (as defined in the Option Agreement) was further modified to ten (10) business days following the date, if any, that the Company receives
approval from the U.S. Food and Drug Administration of the NDA for reproxalap in dry eye disease (the FDA Decision), provided that AbbVie shall
provide the Company notice in case AbbVie determines that it will not exercise the Option.
135
Upon AbbVie’s delivery of the agreement execution notice and the parties entering into the Collaboration Agreement, AbbVie would pay the
Company a $100 million upfront cash payment, less the Option Payment and the Option Extension Fee. In addition, the Company would be eligible to
receive up to approximately $300 million in regulatory and commercial milestone payments, inclusive of a $100 million milestone payment payable if the
FDA Decision is received prior to or after the execution. In the United States, the Company would share profits and losses with AbbVie from the
commercialization of reproxalap according to a split of 60% for AbbVie and 40% for the Company. Outside of the United States, the Company would be
eligible to receive tiered royalties on net sales of reproxalap. As of February 28, 2025, AbbVie has not exercised the Option.
As of December 31, 2023, the Company had recognized no collaboration revenue and had $6.0 million of deferred long-term collaboration revenue
related to the Option Agreement and Exercise Period Extension. During the three months ended September 30, 2024, the deferred collaboration revenue
was reclassified from a long-term liability to a current liability due to the Option expiring pursuant to the terms of the Option Agreement in less than one
year. Although the Option Agreement was not considered to be a vendor-customer relationship, the Company used FASB ASC Topic 606, Revenue from
Contracts with Customers, to conclude that the $6.0 million liability would be considered a transaction price (the Transaction Price), and all other amounts
due to the Company under the Collaboration Agreement would be excluded from the Transaction Price, since such amounts relate to fees that can only be
achieved subsequent to the exercise of the Option. Because the Option Extension Fee and the Option Payment are creditable against the Collaboration
Agreement payments due to the Company, the Transaction Price was allocated to a single unit of account, specifically, the Option to enter into a future
Collaboration Agreement which is considered a material right. The Company concluded that all other performance obligations were immaterial promises in
the context of the Option Agreement and did not represent additional units of account. The Company will begin to recognize revenue if and when the
Option is exercised or when the Option expires.
16.
SEGMENT REPORTING
The Company operates through a single operating and reportable segment focused on the discovery and development of innovative therapies
designed to treat immune-mediated and metabolic diseases. The segment's approach is to develop pharmaceuticals that modulate protein systems, instead of
directly inhibiting or activating single protein targets, with the goal of optimizing multiple pathways at once while minimizing toxicity. The Company's
late-stage product candidates are reproxalap, a RASP modulator for the potential treatment of dry eye disease and allergic conjunctivitis, and ADX‑2191, a
novel formulation of intravitreal methotrexate for the potential treatment of retinitis pigmentosa. The Company's preclinical RASP platform includes
ADX‑248, ADX‑743, ADX‑631, ADX‑246, and other product candidates in development for inflammatory and metabolic diseases. The Company's
tangible assets are held in the United States. The Company manages all business activities on a consolidated basis. The Company's chief operating decision
maker is the Chief Executive Officer.
The accounting policies of the operating segment are the same as those described in Note 2, Summary of Significant Accounting Policies. The chief
operating decision maker evaluates the performance of the operating segment and allocates resources based on net income (loss) that also is reported on the
consolidated income statement as net loss. The measure of the operating segment assets is reported on the consolidated balance sheet as total assets.
The chief operating decision maker uses net income (loss) to monitor budget versus actual results and to analyze cash flows in assessing
performance of the segment and allocating resources. The significant expenses are presented on the Company’s Consolidated Statements of Operations.
Exhibit 10.25
Execution Version
FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (this “Amendment”), dated as of October 28, 2024 (the “Fifth
Amendment Effective Date”), is entered into by and among ALDEYRA THERAPEUTICS INC., a Delaware corporation (“Aldeyra”), Helio Vision, LLC,
a Delaware limited liability company, and each of Aldeyra’s Qualified Subsidiaries (hereinafter collectively referred to as the “Borrower”), the several
banks and other financial institutions or entities from time to time parties to the Loan Agreement (as defined below) (collectively, referred to as “Lender”)
and HERCULES CAPITAL, INC., a Maryland corporation, in its capacity as administrative agent and collateral agent for itself and Lender (in such
capacity, “Agent”).
Borrower, Lender and Agent are parties to that certain Loan and Security Agreement, dated as of March 25, 2019 (the “Original Loan
Agreement”; the Original Loan Agreement, as amended by the First Amendment to Loan and Security Agreement dated April 20, 2021, the Second
Amendment to Loan and Security Agreement dated December 22, 2022, the Third Amendment to Loan and Security Agreement dated April 29, 2024, and
the Fourth Amendment to Loan and Security Agreement dated September 30, 2024, the “Existing Loan Agreement”; and the Existing Loan Agreement, as
amended by this Amendment and as further amended, restated, supplemented or otherwise modified from time to time, the “Loan Agreement”). As of the
Fifth Amendment Effective Date, the Term Loan principal balance outstanding is Fifteen Million Dollars ($15,000,000). Borrower has requested that
Agent and Lender agree to certain amendments to the Loan Agreement. Agent and Lender have agreed to such request, subject to the terms and conditions
hereof.
Accordingly, the parties hereto agree as follows:
SECTION 1 Definitions; Interpretation.
(a) Terms Defined in Loan Agreement. All capitalized terms used in this Amendment (including in the recitals hereof) and not otherwise
defined herein shall have the meanings assigned to them in the Loan Agreement.
(b) Rules of Construction. The rules of construction that appear in Section 1.1 of the Loan Agreement shall be applicable to this Amendment
and are incorporated herein by this reference.
SECTION 2 Amendments to the Loan Agreement.
(a) Upon satisfaction of the conditions set forth in Section 3 hereof, the Existing Loan Agreement is hereby amended as follows:
(i)
New Definitions. The following definitions are added to Section 1.1 in their proper alphabetical order:
“MSC Investment Conditions” means that Borrower maintains Qualified Cash in an amount equal to or greater than the
lesser of (i) 150% of the aggregate outstanding Secured Obligations (inclusive of any Prepayment Charge and End of Term Charge
that would be due and owing if the outstanding Term Loan Advances were prepaid at the time of measurement) or (ii) 100% of the
consolidated Cash of Borrower and its Subsidiaries, unless compliance with the foregoing conditions are waived in writing from time
to time by Agent (in its sole discretion) with respect to specified periods.
“MSC Subsidiary” means a wholly-owned Subsidiary of Aldeyra, incorporated in the Commonwealth of Massachusetts or
the State of Delaware for the purpose of holding Investments as a Massachusetts security corporation under 830 CMR 63.38B.1 of the
Massachusetts tax code and applicable regulations (as the same may be amended, modified or replaced from time to time).
“Qualified Cash” means the amount of Borrower’s cash and cash equivalents held in accounts subject to an Account Control
Agreement in favor of Agent.
2
(ii)
Amended and Restated Definition. The following definition in Section 1.1 is hereby amended and restated as follows:
“Qualified Subsidiary” means any direct or indirect Domestic Subsidiary (other than the MSC Subsidiary) or any Eligible
Foreign Subsidiary.
(iii)
Permitted Investments: The defined term “Permitted Investments” as set forth in Section 1.1 is hereby amended by:
(1) (i) deleting the text “and” immediately before subclause (xiii) and (ii) adding the following new subclause (xiii)
immediately following subclause (xii) to read as follows:
“(xiii) Investments in the MSC Subsidiary, so long as an Event of Default does not exist at the time of such Investment and
would not exist after giving effect to such Investment and provided that Borrower is at all times, in compliance with the MSC
Investment Conditions; and”
(2) renumbering existing subclause (xiii) as subclause (xiv).
(iv)
Section 7.14. Section 7.14 is hereby amended and restated as follows:
“7.14 MSC Investment Conditions. At any time that the MSC Subsidiary has any assets or liabilities, Borrower shall
satisfy the MSC Investment Conditions at all times.”
(v)
Section 9.2. Section 9.2 is hereby amended and restated as follows:
“9.2 Covenants. Borrower breaches or defaults in the performance of any covenant or Secured Obligation under this
Agreement, or any of the other Loan Documents or any other agreement among Borrower, Agent and Lender, and (a) with respect to a
default under any covenant under this Agreement (other than under Sections 6.1, 6.3, 7.5, 7.6, 7.7, 7.8, 7.9, 7.14, 7.15, 7.17, 7.18, 7.20,
7.21, and 7.22), any other Loan Document or any other agreement among Borrower, Agent and Lender, such default continues for
more than ten (10) days after the earlier of the date on which (i) Agent or Lender has given notice of such default to Borrower and (ii)
Borrower has actual knowledge of such default or (b) with respect to a default under any of Sections 6.1, 6.3, 7.5, 7.6, 7.7, 7.8, 7.9,
7.14, 7.15, 7.17 7.18, 7.20, 7.21, and 7.22 the occurrence of such default; or”
(vi)
Exhibit F (Compliance Certificate). Exhibit F is hereby amended and replaced with Exhibit F attached hereto.
(b) References Within Existing Loan Agreement. Each reference in the Existing Loan Agreement to “this Agreement” and the words “hereof,”
“herein,” “hereunder,” or words of like import, shall mean and be a reference to the Existing Loan Agreement as amended by this Amendment.
SECTION 3 Conditions of Effectiveness. The effectiveness of Section 2 of this Amendment shall be subject to the satisfaction of each of the
following conditions precedent:
(a) Borrower shall have paid (i) all invoiced costs and expenses then due in accordance with Section 5(e) of this Amendment, and (ii) all other
fees, costs and expenses, if any, due and payable as of the date hereof under the Loan Agreement.
(b) Agent shall have received:
(i)
this Amendment, executed by Agent, Lender and Borrower; and
(ii)
such other documents as Agent may reasonably request.
(c) On the date hereof, after giving effect to the amendment of the Existing Loan Agreement contemplated hereby, there exist no Events of
Default or events that with the passage of time would result in an Event of Default.
SECTION 4 Representations and Warranties. To induce Agent and Lender to enter into this Amendment, each Borrower hereby confirms, as of the
date hereof, that (a) the representations and warranties made by it in Section 5 of the Loan Agreement and in the other Loan Documents are true and correct
in all material respects; provided, however, that such
3
materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof
provided, further, that to the extent such representations and warranties by their terms expressly relate only to a prior date such representations and
warranties shall be true and correct as of such prior date; (b) there has not been and there does not exist a Material Adverse Effect; (c) [reserved];
(d) Agent has and shall continue to have valid, enforceable and perfected first-priority liens, subject only to Permitted Liens, on and security
interests in the Collateral and all other collateral heretofore granted by Borrower to Agent, pursuant to the Loan Documents or otherwise granted to or held
by Agent; (e) the agreements and obligations of Borrower contained in the Loan Documents and in this Amendment constitute the legal, valid and binding
obligations of Borrower, enforceable against Borrower in accordance with their respective terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency or other similar laws of general application affecting the enforcement of creditors’ rights or by the application of general principles
of equity; (f) the execution, delivery and performance of this Amendment by Borrower will not violate any law, rule, regulation, order, contractual
obligation or organizational document of Borrower and will not result in, or require, the creation or imposition of any lien, claim or encumbrance of any
kind on any of its properties or revenues; and (g) no Event of Default has occurred and is continuing.
SECTION 5 Miscellaneous.
(a) Loan Documents Otherwise Not Affected; Reaffirmation; No Novation.
(i)
Except as expressly amended pursuant hereto or referenced herein, the Existing Loan Agreement and the other Loan
Documents shall remain unchanged and in full force and effect and are hereby ratified and confirmed in all respects. Lender’s and Agent’s execution and
delivery of, or acceptance of, this Amendment shall not be deemed to create a course of dealing or otherwise create any express or implied duty by any of
them to provide any other or further amendments, consents or waivers in the future.
(ii)
Each Borrower hereby expressly (1) reaffirms, ratifies and confirms its Secured Obligations under the Existing Loan
Agreement and the other Loan Documents, (2) reaffirms, ratifies and confirms the grant of security under Section 3.1 of the Existing Loan Agreement, (3)
reaffirms that such grant of security in the Collateral secures all Secured Obligations under the Existing Loan Agreement, including without limitation any
Term Loans funded on or after the date hereof, as of the date hereof, and with effect from (and including) the date hereof, such grant of security in the
Collateral: (x) remains in full force and effect notwithstanding the amendments expressly referenced herein; and (y) secures all Secured Obligations under
the Existing Loan Agreement, as amended by this Amendment, and the other Loan Documents, and (4) agrees that the Existing Loan Agreement and each
other Loan Document shall remain in full force and effect following any action contemplated in connection herewith.
(iii)
This Amendment is not a novation and the terms and conditions of this Amendment shall be in addition to and supplemental to
all terms and conditions set forth in the Loan Documents. Nothing in this Amendment is intended, or shall be construed, to constitute an accord and
satisfaction of Borrower’s Secured Obligations under or in connection with the Existing Loan Agreement and any other Loan Document or to modify,
affect or impair the perfection or continuity of Agent’s security interest in, (on behalf of itself and Lender) security titles to or other liens on any Collateral
for the Secured Obligations.
(b) Conditions. For purposes of determining compliance with the conditions specified in Section 3, each Lender that has signed this Amendment
shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or
approved by or acceptable or satisfactory to Lender unless Agent shall have received notice from Lender prior to the Fifth Amendment Effective Date
specifying its objection thereto.
(c) Release. In consideration of the agreements of Agent and Lender contained herein and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, each Borrower, on behalf of itself and its successors, assigns, and other legal representatives, hereby
fully, absolutely, unconditionally and irrevocably releases, remises and forever discharges Agent and Lender, and each of their successors and assigns, and
their present and former shareholders, affiliates, subsidiaries, divisions, predecessors, directors, officers, attorneys, employees, agents and other
representatives (Agent, Lender and all such other persons being hereinafter referred to collectively as the “Releasees” and individually as a “Releasee”), of
and from all demands, actions, causes of action, suits, covenants, contracts, controversies, agreements, promises, sums of money, accounts, bills,
reckonings, damages and any and all other claims, counterclaims, defenses, rights of set-off, demands and liabilities whatsoever of every name and nature,
known or unknown, suspected or unsuspected, both at law and in equity, which Borrower, or any of its successors, assigns, or other legal
4
representatives may now or hereafter own, hold, have or claim to have against the Releasees or any of them for, upon, or by reason of any circumstance,
action, cause or thing whatsoever which arises at any time on or prior to the Fifth Amendment Effective Date for or on account of, or in relation to, or in
any way in connection with the Loan Agreement, or any of the other Loan Documents or the transactions thereunder or related thereto. Each Borrower
understands, acknowledges and agrees that the release set forth above may be pleaded as a full and complete defense and may be used as a basis for an
injunction against any action, suit or other proceeding which may be instituted, prosecuted or attempted in breach of the provisions of such release. Each
Borrower agrees that no fact, event, circumstance, evidence or transaction which could now be asserted or which may hereafter be discovered shall affect in
any manner the final, absolute and unconditional nature of the release set forth above. The provisions of this section shall survive payment in full of the
Secured Obligations, full performance of all the terms of this Amendment and the other Loan Documents.
(d) No Reliance. Borrower hereby acknowledges and confirms to Agent and Lender that each such Borrower is executing this Amendment on
the basis of its own investigation and for its own reasons without reliance upon any agreement, representation, understanding or communication by or on
behalf of any other Person.
(e) Costs and Expenses. Borrower agrees to pay to Agent on the date hereof the reasonable and documented out-of-pocket costs and expenses
of Agent and Lender party hereto, and the reasonable and documented fees and disbursements of counsel to Agent and Lender party hereto in connection
with the negotiation, preparation, execution and delivery of this Amendment and any other documents to be delivered in connection herewith on the date
hereof.
(f) Binding Effect. This Amendment binds and is for the benefit of the successors and permitted assigns of each party.
(g) Governing Law. This Amendment and the other Loan Documents shall be governed by, and construed and enforced in accordance with, the
laws of the State of New York, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction.
(h) Complete Agreement; Amendments. This Amendment and the Loan Documents represent the entire agreement about this subject matter
and supersede prior negotiations or agreements with respect to such subject matter. All prior agreements, understandings, representations, warranties, and
negotiations between the parties about the subject matter of this Amendment and the Loan Documents merge into this Amendment and the Loan
Documents.
(i) Severability of Provisions. Each provision of this Amendment is severable from every other provision in determining the enforceability of
any provision.
(j) Counterparts. This Amendment may be executed in any number of counterparts and by different parties on separate counterparts, each of
which, when executed and delivered, is an original, and all taken together, constitute one Amendment. Delivery of an executed counterpart of a signature
page of this Amendment by facsimile, portable document format (.pdf) or other electronic transmission will be as effective as delivery of a manually
executed counterpart hereof.
(k) Loan Documents. This Amendment and the documents related thereto shall constitute Loan Documents.
(l) Electronic Execution of Certain Other Documents. The words “execution,” “execute”, “signed,” “signature,” and words of like import in
or related to any document to be signed in connection with this Amendment and the transactions contemplated hereby (including without limitation
assignments, assumptions, amendments, waivers and consents) shall be deemed to include electronic signatures, the electronic matching of assignment
terms and contract formations on electronic platforms approved by Agent, or the keeping of records in electronic form, each of which shall be of the same
legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent
and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act or any other similar state laws
based on the Uniform Electronic Transactions Act.
5
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment, as of the date first above
written.
BORROWER:
ALDEYRA THERAPEUTICS, INC.
Signature: /s/ Todd Brady
Print Name: Todd Brady
Title: Chief Executive Officer
HELIO VISION, LLC
Signature: /s/ Todd Brady
Print Name: Todd Brady
Title: Chief Executive Officer
[SIGNATURES CONTINUE ON THE NEXT PAGE]
AGENT:
HERCULES CAPITAL, INC.
Signature: /s/ Jennifer Choe
Print Name: Jennifer Choe
Title: Deputy General Counsel, Portfolio Transactions
LENDER:
HERCULES CAPITAL, INC.
Signature: /s/ Jennifer Choe
Print Name: Jennifer Choe
Title: Deputy General Counsel, Portfolio Transactions
Exhibit F
COMPLIANCE CERTIFICATE
Hercules Capital, Inc. (as “Agent”)
1 North B Street, Suite 2000
San Mateo, CA 94401
Reference is made to that certain Loan and Security Agreement dated March 25, 2019 and the Loan Documents (as
defined therein) entered into in connection with such Loan and Security Agreement all as may be amended from time to time
(hereinafter referred to collectively as the “Loan Agreement”) by and among the several banks and other financial institutions or
entities from time to time party thereto (collectively, “Lender”), Hercules Capital, Inc., as agent for Lender (the “Agent”),
Aldeyra Therapeutics, Inc. (“Aldeyra”) and Helio Vision, LLC, each as borrower (collectively, the “Borrower”). All capitalized
terms not defined herein shall have the same meaning as defined in the Loan Agreement.
The undersigned is an Officer of Aldeyra, knowledgeable of all Borrower financial matters, and is authorized to provide
certification of information regarding Borrower; hereby certifies, in such capacity, that in accordance with the terms and
conditions of the Loan Agreement, Borrower is in compliance for the period ending of all covenants, conditions and terms
and hereby reaffirms that all representations and warranties contained therein are true and correct on and as of the date of this
Compliance Certificate with the same effect as though made on and as of such date, except to the extent such representations and
warranties expressly relate to an earlier date, after giving effect in all cases to any standard(s) of materiality contained in the Loan
Agreement as to such representations and warranties. Attached are the required documents supporting the above certification.
The undersigned further certifies that these are prepared in accordance with GAAP (except for the absence of footnotes with
respect to unaudited financial statement and subject to normal year-end adjustments) and are consistent from one period to the
next except as explained below.
REPORTING REQUIREMENT
REQUIRED
CHECK IF
ATTACHED
Interim Financial Statements
Monthly within 30 days
Interim Financial Statements
Quarterly within 30 days
Audited Financial Statements
FYE within 90 days
The undersigned hereby also confirms the below disclosed accounts represent all depository accounts and securities accounts
presently open in the name of each Borrower or Borrower Subsidiary/Affiliate, as applicable.
BORROWER Name and Address:
Account
Number
Financial
Institution
Account
Type
(Depository
/Securities)
Last Month
Ending
Account
Balance
Purpose of
Account
Disclosed
on last
Compliance
Certificate?
1.
2.
3.
4.
5.
SUBISIDIARY/AFFILIATE Name and Address:
Account
Number
Financial
Institution
Account
Type
(Depository
/Securities)
Last Month
Ending
Account
Balance
Purpose of
Account
Disclosed
on last
Compliance
Certificate?
1.
2.
3.
4.
5.
MSC SUBSIDIARY AND MSC INVESTMENT CONDITIONS
Does the MSC Subsidiary have any assets or liabilities?
Yes (please complete below chart)
No
MSC INVESTMENT CONDITIONS
(1) Aggregate amount of Borrower’s Cash
and cash equivalents held in accounts subject to an
Account Control Agreement:
$
(2)
Aggregate
amount
of
outstanding
Secured
Obligations (including any Prepayment Charge and End
of Term Charge if outstanding Term Loan Advances
were prepaid at this time) multiplied by 1.5:
$
(3) Aggregate amount of the consolidated Cash of
Borrower and its Subsidiaries:
$
(4) Amount of the lesser of line (2) and line (3):
Is line (1) equal to or greater than line (4)?
$
Yes (in compliance)
No (not in compliance)
Exhibit 10.27
CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [****], HAS BEEN OMITTED BECAUSE IT IS (I) NOT MATERIAL AND (II) OF THE TYPE THAT THE
REGISTRANT TREATS AS PRIVATE OR CONFIDENTIAL.
November 15, 2024 Aldeyra Therapeutics, Inc.
131 Hartwell Avenue, Suite 320
Lexington, MA 02421
Re: Aldeyra and Reproxalap commercialization funding and option period extension
To Whom It May Concern:
This letter seeks to amend certain terms of the Exclusive Option Agreement (the “Option Agreement”) entered into by Aldeyra
Therapeutics, Inc. (“Aldeyra”) and AbbVie, Inc. (“AbbVie”) on October 31, 2023, related to the Option Period and the Parties’ respective
actions during the Option Period to prepare for the commercialization of reproxalap. Capitalized terms used in this letter but not defined
herein have the meanings provided in the Option Agreement and, unless otherwise set forth herein, cross references to Sections are to
Sections of the Option Agreement.
Notwithstanding anything to the contrary under Section 1.3, AbbVie and Aldeyra hereby extend the Exercise Period to ten (10) business
days after FDA Approval; provided that if at any time during the Option Period AbbVie internal governance determines that it will not
exercise the Option, AbbVie shall provide Aldeyra with written notice thereof no more than thirty (30) days after making such
determination but in all cases prior to making a public disclosure thereof. The Parties acknowledge that AbbVie has paid the Option
Extension Fee pursuant to Section 2.3 and as described in Section 1.3.
Following the date of Aldeyra’s countersignature below and during the remainder of the Option Period, Aldeyra agrees to conduct certain
activities to prepare for the launch of the Initial Licensed Compound (as defined in the License Agreement) (the “Launch Activities”).
Aldeyra shall maintain an accounting of the costs it incurs to perform the Launch Activities (“Launch Activities Costs”); provided that
Aldeyra shall not incur Launch Activity Costs in excess of $****, without AbbVie’s approval. Upon delivery of the Option Exercise Notice
and entry into the License Agreement, the Parties agree that the Launch Activities Costs will be deemed Allowable Expenses (as defined
in the License Agreement) and included in the first calculation of Net Profits and Net Losses (each as defined in the License Agreement)
in accordance with Sections 6.3 and 6.4 of the License Agreement. In the event that AbbVie does not deliver an Option Exercise Notice
prior to the expiration of the Exercise Period and the Parties do not execute the License Agreement, Aldeyra will remain solely responsible
for the Launch Activities Costs.
Aldeyra also hereby authorizes AbbVie to apply for the National Drug Code in the United States for Initial Licensed Compound during the
Option Period.
Except as explicitly stated herein, nothing in this letter modifies any Party’s rights or obligations pursuant to the Option Agreement. The
Parties agree that disputes related to this letter will be governed by the provisions of Section 8.1. This letter will not take effect until signed
by AbbVie and Aldeyra.
If Aldeyra agrees to the terms and conditions set forth in this letter, please return a countersigned copy to AbbVie. If you have any
questions regarding this letter, please contact ****, at ****.
Sincerely,
Agreed:
AbbVie Inc.
Aldeyra Therapeutics, Inc.
Name: Jonathan Kern
Name: Todd Brady
Signature: /s/ Jonathan Kern
Signature: /s/ Todd Brady
Title: VP, Global Alliances
Title: Chief Executive Officer
Exhibit 19.1
Aldeyra Therapeutics, Inc.
Amended and Restated Insider Trading Policy
(Effective as of February 28, 2023)
i
Table of Contents
Page
Introduction
1
A.
Legal Prohibitions on Insider Trading
1
B.
Detection and Prosecution of Insider Trading
1
C.
Penalties for Violation of Insider Trading Laws and This Policy
2
D.
Compliance Officer
3
E.
Reporting Violations
3
F.
Personal responsibility
3
Persons and Transactions Covered by This Policy
4
A.
Persons Covered by This Policy
4
B.
Types of Transactions Covered by This Policy
4
C.
Responsibilities Regarding the Non-Public Information of Other Companies
4
D.
Applicability of This Policy after Your Departure
4
E.
No Exceptions Based on Personal Circumstances
5
Material Non-Public Information
6
A.
“Material” Information
6
B.
“Non-Public” Information
7
Policies Regarding Material Non-Public Information
8
A.
Confidentiality of Non-Public Information
8
B.
No Trading on Material Non-Public Information
8
C.
No Disclosing Material Non-Public Information
8
D.
Responding to Outside Inquiries for Information
9
Trading Blackout Periods
10
A.
Quarterly Blackout Periods
10
B.
Special Blackout Periods
10
C.
No “Safe Harbors”
11
Pre-Clearance of Trades
12
Additional Restrictions and Guidance
13
A.
Short Sales
13
B.
Derivative Securities and Hedging Transactions
13
C.
Using Company Securities as Collateral for Loans
13
D.
Holding Company Securities in Margin Accounts
14
E.
Placing Open Orders with Brokers
14
Limited Exceptions
15
A.
Transactions Pursuant to a Trading Plan that Complies with SEC Rules
15
Table of Contents
(Continued)
Page
ii
B.
Receipt and Vesting of Stock Options, Restricted Stock Units, Restricted Stock and Stock Appreciation
Rights
16
C.
Cash or Cashless Net Exercise of Stock Options
16
D.
Purchases from the Employee Stock Purchase Plan
16
E.
Stock Splits, Stock Dividends and Similar Transactions
16
F.
Bona Fide Gifts and Inheritance
16
G.
Change in Form of Ownership
17
H.
Other Exceptions
17
Compliance with Section 16 of the Securities Exchange Act
18
A.
Obligations under Section 16
18
B.
Notification Requirements to Facilitate Section 16 Reporting
18
C.
Personal Responsibility
18
Additional Information
19
A.
Availability of Policy
19
B.
Amendments
19
Schedule I (Individuals Subject to Quarterly Blackout Periods)
Schedule II (Individuals Subject to Pre-Clearance Requirements)
Schedule III (Individuals Subject to Section 16 Reporting and Liability Provisions)
Appendix A (Requirements for Rule 10b5-1 Trading Plans)
Appendix B (Pre-Clearance Stock Trading Form)
1
Introduction
Aldeyra Therapeutics, Inc. (the “Company”) opposes the unauthorized disclosure of any non-public information you obtain in
the course of your service with the Company and the misuse of material non-public information in securities trading. This
Amended and Restated Insider Trading Policy (the “Policy”) prohibits the unauthorized disclosure and misuse of any non-public
information.
A.
Legal Prohibitions on Insider Trading
The antifraud provisions of U.S. federal securities laws prohibit directors, officers, employees and other individuals who possess
material non-public information from trading on the basis of that information. Your transactions will be considered “on the
basis of” material non-public information if you are aware of the material non-public information at the time of the transaction.
It is not a defense that you did not “use” the information for purposes of the transaction.
Disclosing material non-public information directly or indirectly to others who then trade based on that information or making
recommendations or expressing opinions as to transactions in securities while aware of material non-public information (which
is sometime referred to as “tipping”) is also illegal. Both the “tipper” who provides the information, recommendation or
opinion and the “tippee” who trades based on it may be liable.
These illegal activities are commonly referred to as “insider trading.” State securities laws and securities laws of other
jurisdictions also impose restrictions on insider trading.
In addition, the Company, as well as individual directors, officers and other supervisory personnel, may be subject to liability as
“controlling persons” for failure to take appropriate steps to prevent insider trading by those under their supervision, influence
or control.
B.
Detection and Prosecution of Insider Trading
The U.S. Securities and Exchange Commission (the “SEC”), the Financial Industry Regulatory Authority (“FINRA”) and the
Nasdaq Stock Market use sophisticated electronic surveillance techniques to investigate and detect insider trading, and the SEC
and the U.S. Department of Justice pursue insider trading violations vigorously. Regulators have successfully prosecuted cases
involving trading through foreign accounts, trading by family members and friends and trading involving only a small number of
shares.
C.
Penalties for Violation of Insider Trading Laws and This Policy
1.
Civil and Criminal Penalties
As of the effective date of this Policy, potential penalties for insider trading violations under U.S. federal securities laws
include:
•
damages in a private lawsuit;
2
•
disgorging any profits made or losses avoided;
•
imprisonment for up to 20 years;
•
criminal fines of up to $5 million for individuals and $25 million for entities;
•
civil fines of up to three times the profit gained or loss avoided;
•
a bar against serving as an officer or director of a public company; and
•
an injunction against future violations.
Civil and criminal penalties also apply to tipping. The SEC has imposed large penalties in tipping cases even when the tipper
did not trade or gain any benefit from the tippee’s trading.
2.
Penalties for Controlling Persons
As of the effective date of this Policy, the penalty for insider trading violations of controlling persons is a civil fine of up to
the greater of $2.479 million or three times the profit gained or loss avoided as a result of the insider trading violations, as
well as potential criminal fines and imprisonment.
3.
Disciplinary Actions
If the Company has a reasonable basis to conclude that you have failed to comply with this Policy, you may be subject to
disciplinary action, up to and including dismissal for cause, whether or not your failure to comply with this Policy results in a
violation of law. It is not necessary for the Company to wait for the filing or conclusion of any civil or criminal action against
you before taking disciplinary action. In addition, the Company may give stop transfer and other instructions to the
Company’s transfer agent to enforce compliance with this Policy.
D.
Compliance Officer
You should direct any questions, requests or reports to the Company’s Chief Financial Officer, General Counsel (if any) or their
appointed designee (each, a “Compliance Officer”). A Compliance Officer is generally responsible for the administration of this
Policy. A Compliance Officer may select others to assist with the execution of his or her duties.
3
E.
Reporting Violations
It is your responsibility to help enforce this Policy. You should be alert to possible violations and promptly report violations or
suspected violations of this Policy to a Compliance Officer. If your situation requires that your identity be kept secret, your
anonymity will be preserved to the greatest extent reasonably possible. If you wish to remain anonymous, you may: send a
letter addressed to a Compliance Officer at Aldeyra Therapeutics, Inc., 131 Hartwell Avenue, Suite 320, Lexington, MA 02421; or
leave an anonymous message at 781-761-4904. If you make an anonymous report, please provide as much detail as possible,
including any evidence that you have.
F.
Personal responsibility
You are responsible for complying with this Policy and applicable laws and regulations. You should use your best judgment at all
times and consult with your personal legal and financial advisors, as needed. You should seek assistance from a Compliance
Officer if you have any questions at all. The rules relating to insider trading can be complex, and a violation of insider trading
laws can carry severe consequences.
4
Persons and Transactions Covered by This Policy
A.
Persons Covered by This Policy
This Policy applies to all directors, officers, employees, and agents (such as consultants and independent contractors) of the
Company and others designated by the Compliance Officer from time to time. References to the Company include subsidiaries
of the Company. References in this Policy to “you” (as well as general references to directors, officers, employees and agents of
the Company) should also be understood to include members of your immediate family, persons with whom you share a
household, persons who are your economic dependents and any other individuals or entities whose transactions in securities
you direct or control (including, for example, a trust or a venture or other investment fund, if you direct or control transactions
by the entity); provided, however, that this Policy shall not apply to any such entity, including any such venture or other
investment fund, that engages in the investment of securities in the ordinary course of its business (e.g., an investment fund or
partnership) if such entity has established its own insider trading controls and procedures in compliance with applicable
securities laws. You are responsible for making sure that these other individuals and entities comply with this Policy.
B.
Types of Transactions Covered by This Policy
Except as discussed in “Limited Exceptions” below, this Policy applies to all transactions involving the securities of the
Company. It also applies to all transactions involving the securities of other companies about which you possess material non-
public information obtained in the course of your service with the Company. This Policy therefore applies to purchases, sales
and other transfers of common stock, options, warrants, preferred stock, debt securities (such as debentures, bonds and notes)
and other securities (including distributions of securities by a venture or other investment fund to its constituent equity
holders). This Policy also applies to any arrangements that affect economic exposure from changes in the prices of these
securities (e.g., transactions in derivative securities (such as exchange‑traded put or call options), hedging transactions, short
sales and certain decisions with respect to participation in benefit plans). This Policy also applies to any offers by you with
respect to the transactions discussed above. There are no exceptions from insider trading laws or this Policy based on the size
of the transaction.
C.
Responsibilities Regarding the Non-Public Information of Other Companies
This Policy prohibits the unauthorized disclosure or other misuse of any non-public information of other companies, such as the
Company’s partners, distributors, vendors, customers, collaborators, suppliers and competitors. This Policy also prohibits
insider trading and tipping based on the material non-public information of other companies.
D.
Applicability of This Policy after Your Departure
You are expected to comply with this Policy until such time as (i) you are no longer affiliated with the Company, (ii) you no
longer possess any material non-public information subject to this Policy
5
and (iii) if your transactions in Company securities are subject to a blackout period at the time you cease to be affiliated with
the Company, the end of such blackout period.
E.
No Exceptions Based on Personal Circumstances
There may be instances where you suffer financial harm or other hardship or are otherwise required to forego a planned
transaction because of the restrictions imposed by this Policy. Personal financial emergency or other personal circumstances
will not limit your liability under securities laws and will not excuse a failure to comply with this Policy.
6
Material Non-Public Information
A.
“Material” Information
Information is material if there is a substantial likelihood that a reasonable investor would consider it important in deciding
whether to buy, hold or sell securities or would view the information as significantly altering the total mix of information in the
marketplace. In general, any information that could reasonably be expected to affect the market price of a security is likely to
be material. Both positive and negative information may be material.
It is not possible to define all categories of “material” information. However, some examples of information that could be
regarded as material include information with respect to:
•
Financial results, financial condition, earnings pre-announcements, guidance, projections or forecasts; note that
information about the results of the Company’s operations for even a portion of a quarter might be material in helping
predict the Company’s financial results for the quarter;
•
Restatements of financial results, or material impairments, write-offs or restructurings;
•
Changes in independent auditors, or notification that the Company may no longer rely on an audit report;
•
Business plans or budgets;
•
Creation of significant financial obligations, or any significant default under or acceleration of the payment of any
financial obligation;
•
Impending bankruptcy or financial liquidity problems;
•
Significant developments involving business relationships, including entering into, modifying, or terminating significant
agreements or orders with customers, suppliers, distributors, manufacturers or other business partners;
•
Product introductions, modifications, defects or recalls or significant pricing changes or other announcements of a
significant nature;
•
Significant developments in research and development or relating to intellectual property;
•
A significant cybersecurity incident, such as a data breach, or any other significant disruption, loss, potential loss,
breach or unauthorized access of the Company’s property or assets, whether at the Company’s facilities or through the
Company’s information technology infrastructure;
•
Significant legal or regulatory developments, whether actual or threatened;
7
•
Major events involving the Company’s securities, including calls of securities for redemption, adoption of stock
repurchase programs, option repricings, stock splits, changes in dividend policies, public or private securities offerings,
modification to the rights of security holders, or notice of delisting of our securities from trading on a securities
exchange;
•
The existence of a special blackout period in which you may not trade securities;
•
Significant corporate events, such as a pending or proposed merger, joint venture or tender offer, a significant
investment, the acquisition or disposition of a significant business or asset or a change in control of the Company; and
•
Major personnel changes, such as changes in senior management or lay-offs.
If you have any questions as to whether information should be considered “material,” you should consult with a Compliance
Officer. In general, it is advisable to resolve any close questions as to the materiality of any information by assuming that the
information is material.
B.
“Non-Public” Information
Information is considered non-public until it has been broadly disseminated to the public for long enough to be reflected in the
price of the security. Unless you have seen material information publicly disseminated, you should assume the information is
non-public. As a general rule, you should consider information to be non-public until the beginning of the second trading day
after the information has been broadly disseminated to the public in a press release, a public filing with the SEC, a pre-
announced public webcast or another broad, non-exclusionary form of public communication. If, for example, the Company
were to make an announcement prior to the start of the trading day on a Monday morning, you should not trade in the
Company’s securities until the beginning of the trading day on Tuesday. However, depending upon the form of the
announcement and the nature of the information, it is possible that information may not be fully absorbed by the marketplace
until later. Any questions as to whether information is non-public should be directed to a Compliance Officer.
The term “trading day” means a day on which national stock exchanges are open for trading.
8
Policies Regarding Material Non-Public Information
A.
Confidentiality of Non-Public Information
This Policy prohibits the unauthorized use or disclosure of non-public information relating to the Company or other companies.
All non-public information you obtain in the course of your service with the Company may only be used for legitimate the
Company business purposes. In addition, you should handle others’ non-public information in accordance with the terms of any
relevant nondisclosure agreements, and the use of any such non-public information should be limited to the purpose for which
it was disclosed.
You must use all reasonable efforts to safeguard non-public information in the Company’s possession.
All officers, employees and agents (such as consultants and independent contractors) of the Company are required to sign and
comply with an agreement addressing confidential information and invention assignment.
B.
No Trading on Material Non-Public Information
Except as discussed in “Limited Exceptions” below, you may not, directly or indirectly through others, engage in any transaction
involving the Company’s securities while aware of material non-public information relating to the Company. It does not matter
that you did not “use” the information in your transaction.
Similarly, you may not engage in transactions involving the securities of any other company if you are aware of material non-
public information about that company (except if the transactions are similar to those presented in “Limited Exceptions”
below). For example, you may be aware of a proposed transaction involving a prospective business relationship or transaction
with another company. If information about that transaction constitutes material non-public information for that other
company, you would be prohibited from engaging in transactions involving the securities of that other company (as well as
transactions involving the Company securities, if that information is material to the Company). “Materiality” is company-specific
—information that is not material to the Company may be material to another company.
C.
No Disclosing Material Non-Public Information
You may not disclose non-public information about the Company or any other company, unless required by law, or unless (i)
disclosure is required for legitimate Company business purposes, (ii) you are authorized to disclose the information and (iii)
appropriate steps have been taken to prevent misuse of that information (including entering an appropriate nondisclosure
agreement that restricts the disclosure and use of the information, if applicable). This restriction also applies to internal
Company communications and to communications with agents (such as consultants and independent contractors) of the
Company. In cases where disclosing non-public information to third parties is required, you should coordinate with the Legal
Department.
9
In addition, you may not make recommendations or express opinions on the basis of material non-public information as to
trading in the securities of companies to which such information relates. You are prohibited from engaging in these actions
whether or not you derive any profit or personal benefit from doing so. This prohibition against disclosure of material non-
public information includes disclosure (even anonymous disclosure) via the Internet, blogs, investor forums, chat rooms, social
media, or the like.
D.
Responding to Outside Inquiries for Information
In the event you receive an inquiry from someone outside of the Company, such as a stock analyst or news reporter, for
information, you should refer the inquiry to the Chief Financial Officer or the Investor Relations Department. Your disclosure of
information could result in SEC enforcement actions against the Company, including injunctions and severe monetary penalties.
Please consult the Company’s investor relations and communications policy for more details.
10
Trading Blackout Periods
To limit the likelihood of trading at times when there is a significant risk of insider trading exposure, the Company has instituted
quarterly trading blackout periods and may institute special trading blackout periods from time to time.
It is important to note that whether or not you are subject to blackout periods, you remain subject to the prohibitions on
trading on the basis of material non-public information and any other applicable restrictions in this Policy.
A.
Quarterly Blackout Periods
Except as discussed in “Limited Exceptions” below, all Company directors, executive officers and other employees and agents
(such as consultants and independent contractors) identified by the Company or a Compliance Officer as set forth on Schedule
I must refrain from conducting transactions involving the Company’s securities during quarterly blackout periods. From time to
time, the Company or a Compliance Officer may identify other persons who should be subject to quarterly blackout periods,
and may update and revise Schedule I as appropriate.
Even if you are not specifically identified as being subject to quarterly blackout periods, you should exercise caution when
engaging in transactions during quarterly blackout periods because of the heightened risk of insider trading exposure. This
period is a particularly sensitive time for transactions involving the Company’s securities from the perspective of compliance
with applicable securities laws due to the fact that, during these periods, individuals may often possess or have access to
material non-public information relevant to the expected financial results for the quarter.
Quarterly blackout periods start at the beginning of the 2nd to last calendar day of the last month of each fiscal quarter and end
at the beginning of the second trading day following the date of public disclosure of the financial results for that fiscal quarter.
If, for example, the Company were to release results for a completed fiscal quarter prior to the start of the trading day on a
Monday morning, you should not trade in the Company’s securities until the beginning of the trading day on Tuesday.
The Company will notify you when each quarterly blackout period starts and ends so that you will know when you may and may
not engage in any transaction involving the Company’s securities. You are responsible for complying with the blackout period
described in this Policy regardless of whether you receive notification from the Company about the period.
B.
Special Blackout Periods
From time to time, the Company or a Compliance Officer may also prohibit directors, officers, employees and agents (such as
consultants and independent contractors) from engaging in transactions involving the Company’s securities when, in the
judgment of a Compliance Officer, a trading blackout is warranted. The Company will generally impose special blackout periods
when there are material developments known to the Company that have not yet been disclosed
11
to the public. For example, the Company or a Compliance Officer may impose a special blackout period in anticipation of
announcing interim earnings guidance or a significant transaction or business development. Special blackout periods may be
declared for any reason.
The Company will notify you if you are subject to a special blackout period, in which case you may not engage in any transaction
involving the Company’s securities until instructed that it is permissible, and you should not disclose the existence of the special
blackout period to others.
C.
No “Safe Harbors”
There are no unconditional “safe harbors” for trades made at particular times, and you should exercise good judgment at all
times. Even when a quarterly blackout period is not in effect, you may be prohibited from engaging in transactions involving the
Company’s securities because you possess material non-public information, are subject to a special blackout period or are
otherwise restricted under this Policy.
12
Pre-Clearance of Trades
Except as discussed in “Limited Exceptions” below, directors and executive officers must refrain from engaging in any
transaction involving the Company’s securities without first obtaining pre-clearance of the transaction from a Compliance
Officer. In addition, as listed on Schedule II, the Company has determined that certain other employees and agents (such as
consultants and independent contractors) of the Company that may have regular or special access to material non-public
information must refrain from engaging in any transaction involving the Company’s securities without first obtaining
pre‑clearance of the transaction from a Compliance Officer. A Compliance Officer may not engage in a transaction involving the
Company’s securities unless another Compliance Officer or the Chief Executive Officer has pre-cleared the transaction.
Individuals subject to pre‑clearance requirements are listed on Schedule II. From time to time, the Company or a Compliance
Officer may identify other persons who should be subject to the pre-clearance requirements set forth above, and a Compliance
Officer may update and revise Schedule II as appropriate.
These pre-clearance procedures are intended to decrease insider trading risks associated with transactions by individuals with
regular or special access to material non-public information. In addition, requiring pre‑clearance of transactions by directors
and officers facilitates compliance with Rule 144 resale restrictions under the Securities Act of 1933, as amended, and the
liability and reporting provisions of Section 16 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Pre-clearance of a trade, however, is not a defense to a claim of insider trading and does not excuse you from otherwise
complying with insider trading laws or this Policy. Further, pre-clearance of a transaction does not constitute an affirmation by
the Company or a Compliance Officer that you are not in possession of material non-public information.
A Compliance Officer is under no obligation to approve a transaction submitted for pre-clearance, and may determine not to
permit the transaction. A form of pre-clearance request has been included as Appendix B. Before executing any transaction, the
pre-clearance form should be completed and submitted to the Compliance Officer for pre-clearance.
13
Additional Restrictions and Guidance
This section addresses certain types of transactions that may expose you and the Company to significant risks. You should
understand that, even though a transaction may not be expressly prohibited by this section, you are responsible for ensuring
that the transaction otherwise complies with this Policy, including the general prohibition against insider trading as well as pre-
clearance procedures and blackout periods, if applicable.
A.
Short Sales
This Policy prohibits short sales (i.e., the sale of a security that must be borrowed to make delivery) and “selling short against
the box” (i.e., a sale with a delayed delivery) with respect to Company securities. Short sales may signal to the market possible
bad news about the Company or a general lack of confidence in the Company’s prospects, and an expectation that the value of
the Company’s securities will decline. In addition, short sales are effectively a bet against the Company’s success and may
reduce the seller’s incentive to improve the Company’s performance. Short sales may also create a suspicion that the seller is
engaged in insider trading.
B.
Derivative Securities and Hedging Transactions
This Policy prohibits transactions in publicly-traded options, such as puts and calls, and other derivative securities with respect
to the Company’s securities. This prohibition extends to any hedging or similar transaction designed to decrease the risks
associated with holding the Company securities. Stock options, restricted stock units, restricted stock, stock appreciation rights
and other securities issued pursuant to the Company benefit plans or other compensatory arrangements with the Company are
not subject to this prohibition.
Transactions in derivative securities may reflect a short-term and speculative interest in the Company’s securities and may
create the appearance of impropriety, even where a transaction does not involve trading on material non-public information.
Trading in derivatives may also focus attention on short-term performance at the expense of the Company’s long-term
objectives. In addition, the application of securities laws to derivatives transactions can be complex, and persons engaging in
derivatives transactions run an increased risk of violating securities laws.
C.
Using Company Securities as Collateral for Loans
You may not pledge the Company securities as collateral for loans without the approval of a Compliance Officer. If you default
on the loan, the lender may sell the pledged securities as collateral in a foreclosure sale. The sale, even though not initiated at
your request, is still considered a sale for your benefit. If made at a time when you are aware of material non-public
information or otherwise are not permitted to trade in the Company securities, the sale may result in inadvertent insider
trading violations, Section 16 violations (for officers and directors), violations of this Policy and unfavorable publicity for you and
the Company. For these reasons,
14
even if you are permitted to pledge the Company securities as collateral for loans, you should exercise caution when doing so.
D.
Holding Company Securities in Margin Accounts
You may not hold the Company securities in margin accounts without the approval of a Compliance Officer. Under typical
margin arrangements, if you fail to meet a margin call, the broker may be entitled to sell securities held in the margin account
without your consent. The sale, even though not initiated at your request, is still considered a sale for your benefit. If made at a
time when you are aware of material non-public information or are otherwise not permitted to trade in the Company securities,
the sale may result in inadvertent insider trading violations, Section 16 violations (for officers and directors), violations of this
Policy and unfavorable publicity for you and the Company. For these reasons, even if you are permitted to hold the Company
securities in margin accounts, you should exercise caution when doing so.
E.
Placing Open Orders with Brokers
Except in accordance with an approved trading plan (as discussed below), you should exercise caution when placing open
orders, such as limit orders or stop orders, with brokers, particularly where the order is likely to remain outstanding for an
extended period of time. Open orders may result in the execution of a trade at a time when you are aware of material non-
public information or otherwise are not permitted to trade in the Company securities, which may result in inadvertent insider
trading violations, Section 16 violations (for officers and directors), violations of this Policy and unfavorable publicity for you and
the Company. If you are subject to blackout periods or pre-clearance requirements, you should inform your broker when you
place any open order at the time the order is placed.
15
Limited Exceptions
The following are certain limited exceptions to the restrictions imposed by the Company under this Policy. Please be aware that
even if a transaction is subject to an exception to this Policy, you will need to separately assess whether the transaction
complies with applicable law. For example, even if a transaction is indicated as exempt from this Policy, you may need to
comply with the “short-swing” trading restrictions under Section 16 of the Exchange Act, if applicable. You are responsible for
complying with applicable law at all times.
A.
Transactions Pursuant to a Trading Plan that Complies with SEC Rules
The SEC has enacted rules that provide an affirmative defense against alleged violations of U.S. federal insider trading laws for
transactions pursuant to trading plans that meet certain requirements. In general, these rules, as set forth in Rule 10b5-1 under
the Exchange Act, provide for an affirmative defense if you enter into a contract, provide instructions or adopt a written plan for
trading securities when you are not aware of material non-public information. The contract, instructions or plan must (i) specify
the amount, price and date of the transaction, (ii) specify an objective method for determining the amount, price and date of
the transaction and/or (iii) place any subsequent discretion for determining the amount, price and date of the transaction in
another person who is not, at the time of the transaction, aware of material non-public information.
Transactions made pursuant to a written trading plan that (i) complies with the affirmative defense set forth in Rule 10b5-1, (ii)
complies with the requirements set forth in Appendix A hereto and (iii) is approved by a Compliance Officer, are not subject to
the restrictions in this Policy against trades made while aware of material non-public information or to the pre-clearance
procedures or blackout periods established under this Policy. In approving a trading plan, a Compliance Officer may, in
furtherance of the objectives expressed in this Policy, impose criteria in addition to those set forth in Rule 10b5-1. You should
therefore confer with a Compliance Officer prior to entering into any trading plan.
The SEC rules regarding trading plans are complex, and you must comply with them completely for your trading plan to be
effective. The description provided above is only a summary, and the Company strongly advises that you consult with your
personal legal advisor if you intend to adopt a trading plan. While trading plans are subject to the Company review and
approval, you are ultimately responsible for compliance with Rule 10b5-1 and this Policy.
A Compliance Officer must keep a copy of each adopted trading plan. The Company may publicly disclose information regarding
trading plans that you may enter (including but not limited to the information required by Regulation S-K Item 408), and you, or
the Company on your behalf, will identify any Rule 10b5-1 transactions as such on Forms 4 and 5, if applicable.
16
B.
Receipt and Vesting of Stock Options, Restricted Stock Units, Restricted Stock and Stock Appreciation Rights
The trading restrictions under this Policy do not apply to the grant or award of stock options, restricted stock units, restricted
stock or stock appreciation rights issued or offered by the Company. The trading restrictions under this Policy also do not apply
to the vesting, cancellation or forfeiture of stock options, restricted stock units, restricted stock or stock appreciation rights in
accordance with applicable plans and agreements. The trading restrictions do apply, however, to any subsequent sales of any
such securities or the common stock underlying such securities and any other market sale for the purpose of generating the
cash needed to pay withholding taxes related to the settlement of restricted stock units or stock option exercises.
C.
Cash or Cashless Net Exercise of Stock Options
The trading restrictions under this Policy do not apply to the exercise of stock options for cash under the Company’s stock
option plans. Likewise, the trading restrictions under this Policy do not apply to the exercise of stock options in a stock‑for‑stock
exercise with the Company or an election to have the Company withhold securities to cover tax obligations in connection with
an option exercise. However, the trading restrictions under this Policy do apply to (i) the sale of any securities issued upon the
exercise of a stock option, (ii) a cashless exercise of a stock option through a broker, because this involves selling a portion of
the underlying shares to cover the costs of exercise, and (iii) any other market sale for the purpose of generating the cash
needed to pay the exercise price of an option or to pay withholding taxes related to the settlement of restricted stock units or
stock option exercises.
D.
Purchases from the Employee Stock Purchase Plan
The trading restrictions in this Policy do not apply to elections with respect to participation in the Company’s employee stock
purchase plan or to purchases of securities under the plan. However, the trading restrictions do apply to any subsequent sales
of any such securities acquired therefrom.
E.
Stock Splits, Stock Dividends and Similar Transactions
The trading restrictions under this Policy do not apply to a change in the number of securities held as a result of a stock split or
stock dividend applying equally to all securities of a class, or similar transactions.
F.
Bona Fide Gifts and Inheritance
The trading restrictions under this Policy do not apply to bona fide gifts involving Company securities or transfers by will or the
laws of descent and distribution. However, the trading restrictions apply if (i) you have reason to believe that the recipient
intends to sell Company securities while you are aware of material nonpublic information or, (ii) (A) you are subject to the
trading restrictions specified above under the heading “Trading Blackout Periods,” and (B) you have reason to believe that the
recipient intends to sell the Company securities during a blackout
17
period. In other words, you cannot use a gift to conduct a transaction that otherwise would be prohibited under this Policy.
In addition, the trading restrictions under this Policy apply to any gifted or inherited securities if the recipient, for example, an
immediate family member, is subject to this Policy. See “Persons and Transactions Covered by this Policy” above. Please also
note that under the Company’s stock option plans, a stock option or other equity award may not be gifted or transferred except
under very limited circumstances.
G.
Change in Form of Ownership
Transactions that involve merely a change in the form in which you own securities are not subject to the trading restrictions
under this Policy. For example, you may transfer shares to an inter vivos trust of which you are the sole beneficiary during your
lifetime.
H.
Other Exceptions
Any other exception from this Policy must be approved by a Compliance Officer, in consultation with the Board of Directors or
an independent committee of the Board of Directors.
18
Compliance with Section 16 of the Securities Exchange Act
A.
Obligations under Section 16
Section 16 of the Exchange Act, and the related rules and regulations, set forth (i) reporting obligations, (ii) limitations on
“short‑swing” transactions and (iii) limitations on short sales and other transactions applicable to directors, officers, large
shareholders and certain other persons.
The Company’s Board of Directors has determined that those persons listed on Schedule III are required to comply with Section
16 of the Exchange Act, and the related rules and regulations, because of their positions with the Company. A Compliance
Officer may amend Schedule III from time to time as appropriate to reflect the election of new officers or directors, any change
in the responsibilities of officers or other employees and any promotions, demotions, resignations or departures.
Schedule III is not necessarily an exhaustive list of persons subject to Section 16 requirements at any given time. Even if you are
not listed on Schedule III, you may be subject to Section 16 reporting obligations because of your shareholdings, for example.
B.
Notification Requirements to Facilitate Section 16 Reporting
To facilitate timely reporting of transactions pursuant to Section 16 requirements, if you are subject to Section 16 reporting
requirements you must provide, or must ensure that your broker provides, the Company with detailed information (e.g., trade
date, number of shares, exact price, etc.) regarding your transactions involving the Company’s securities, including gifts,
transfers, pledges and transactions pursuant to a trading plan, both prior to the transaction (to confirm compliance with pre-
clearance procedures, if applicable) and on the date of the transaction.
C.
Personal Responsibility
The obligation to file Section 16 reports, and to otherwise comply with Section 16, is personal. The Company is not responsible
for the failure to comply with Section 16 requirements.
19
Additional Information
A.
Availability of Policy
This Policy will be made available to all the Company directors, officers, employees and agents when they commence service
with the Company. You are required to acknowledge that you understand, and agree to comply with, this Policy. A copy of the
certification that employees must sign is enclosed with this Policy.
B.
Amendments
The Company is committed to continuously reviewing and updating this Policy and any other Company policies and procedures.
The Company therefore reserves the right to amend, alter or terminate this Policy at any time and for any reason, subject to
applicable law. A current copy of the Company’s policies regarding insider trading may be obtained by contacting a Compliance
Officer.
* * *
Nothing in this Policy creates or implies an employment contract or term of employment.
The policies in this Policy do not constitute a complete list of the Company policies or a complete list of the types of conduct
that can result in discipline, up to and including discharge.
Certification
Aldeyra Therapeutics, Inc.
Amended and Restated Insider Trading Policy
Certification
To :
I have received and read a copy of the Aldeyra Therapeutics, Inc. Amended and Restated Insider Trading Policy dated February
28, 2023. I hereby agree to comply with the specific requirements of the Policy in all respects during my employment or other
service relationship with Aldeyra Therapeutics, Inc., and for such period of time after cessation of my service as provided in the
policy. I understand that my failure to comply in all respects with the Policy is a basis for termination of my employment or
other service relationship with Aldeyra Therapeutics, Inc.
(Please print name)
(Signature)
(Date)
Schedule I
Schedule I
Individuals Subject to Quarterly Blackout Periods
All directors, officers, and other employees and agents (such as consultants and independent contractors) of the Company.
Schedule II
Schedule II
Individuals Subject to Pre-Clearance Requirements
All directors, officers and other employees of the Company and other persons identified, from time to time, by the Company or
a Compliance Officer.
Schedule III
Schedule III
Individuals Subject to Section 16 Reporting and Liability Provisions
All members of the Company’s Board of Directors and all Section 16 Officers as designated by the Board of Directors from time
to time.
Appendix A
Appendix A
Requirements for Rule 10b5-1 Trading Plans
A Rule 10b5-1 “trading plan” involving purchases or sales of Company securities must comply with the requirements of Rule
10b5-1 and must meet the following requirements:
1.
The trading plan must be in writing and signed by the person adopting the trading plan.
2.
The trading plan must be adopted at a time when:
•
the person adopting the trading plan is not aware of any material non-public information (“MNPI”); and
•
there is no quarterly, special or other trading blackout in effect with respect to the person adopting the trading
plan.
3.
The trading plan must be entered in good faith and not as part of a plan or scheme to evade the prohibitions of Rule
10b5‑1 and the individual adopting the trading plan must act in good faith with respect to the plan through its
duration.
4.
In addition, directors and Section 16 officers of the Company (i.e., all persons listed on Schedule III of this Policy) must
represent in a trading plan at the time of its adoption (or modification) that (a) they are not aware of any MNPI about
the Company or its securities, and (b) they are adopting (or modifying) the trading plan in good faith and not as part of
a plan or scheme to evade the prohibitions of Rule 10b5-1.
5.
The individual adopting the trading plan may not have entered into or altered a corresponding or hedging transaction
or position with respect to the securities subject to the trading plan and must agree not to enter into any such
transaction while the trading plan is in effect.
6.
The first trade under the trading plan may not occur until:
•
For directors and Section 16 officers of the Company (i.e., all persons listed on Schedule III of this Policy), the
later of (a) 90 calendar days after adoption of the trading plan or (b) two business days following the filing of
the Form 10-Q or Form 10-K for the fiscal quarter in which the plan was adopted (but in any event, no more
than 120 calendar days after the adoption of the trading plan).
•
For all other persons, 30 calendar days after adoption of the trading plan.
7.
The trading plan must have a minimum term of one year and a maximum term of two years (measured from the
date the plan is effective). There is a limitation of one single-trade plan during any consecutive 12-month period.
Appendix A
8.
All transactions during the term of the trading plan (except for the other “Limited Exceptions” identified in the
Company’s insider trading policy) must be conducted through the trading plan.
9.
The trading plan cannot overlap with another Rule 10b5-1 trading plan, unless one of the following exceptions
applies:
•
Eligible “sell-to-cover” transactions (i.e., authorizing the sale of securities as necessary to satisfy tax
withholding obligations arising exclusively from the vesting of a compensatory award where the insider
doesn’t otherwise exercise control over the timing of such sales) are not considered separate plans that count
against this prohibition.
•
A series of separate contracts with different broker-dealers that effectively function as a single trading plan are
not considered overlapping plans.
•
Trades under an existing trading plan can continue to run during the cooling-off period for a new trading plan
if the following conditions are met: (i) trading under the new trading plan may not begin until after all trades
under the existing trading plan are completed or expire without execution, and (ii) the applicable cooling off
period under the new trading plan, running from the date of its adoption, has been met; provided, however, if
the existing trading plan is terminated early (i.e., before its scheduled completion date), then the applicable
cooling-off period for the new trading plan must run from the date of the termination of the existing trading
plan.
10. Regarding material modifications (where such modifications change the amount, price or timing of the purchase or sale
of securities pursuant to the plan, but does not include immaterial modifications):
•
The trading plan may only be modified when the person modifying the trading plan is not aware of MNPI.
•
The trading plan may only be modified when there is no quarterly, special or other blackout in effect with
respect to the person modifying the plan.
•
The first trade under the modified trading plan may only occur in accordance with the cooling off periods
noted in item 6 above. The existing plan would remain in effect until the modified plan comes into effect.
•
The modified trading plan must have a minimum duration of one year and a maximum term of two years
(measured from the date the plan is effective).
11. A person may only modify a trading plan once in a one-year period.
Appendix A
12. If the person that adopted the trading plan terminates the plan prior to its stated duration, he or she may not trade in
the Company’s securities until the cooling off periods noted in item 6 above have been met.
13. The Company must be promptly notified of any modification or termination of the trading plan, including any
suspension of trading under the plan.
14. If the trading plan grants discretion to a stockbroker or other person with respect to the execution of trades under the
plan:
•
trades made under the trading plan must be executed by someone other than the stockbroker or other person
that executes trades in other securities for the person adopting the trading plan;
•
the person adopting the trading plan may not confer with the person administering the trading plan regarding
the Company or its securities; and
•
the person administering the trading plan must provide prompt notice to the Company of the execution of a
transaction pursuant to the plan.
15. All transactions under the trading plan must be in accordance with applicable law.
16. The trading plan (including any modified trading plan) must meet such other requirements as a Compliance Officer may
determine.
17. A Compliance Officer must approve and keep a copy of each adopted trading plan.
Appendix B
Appendix B
Aldeyra Therapeutics
Pre-Clearance Stock Trading Form
.
How It Works:
Once you complete and submit the form below, your request will be reviewed, and you will be
notified whether the proposed transaction has been approved.
Name of Individual:
Proposed type of transaction:
Proposed amount of securities:
Manner of transaction:
Proposed transaction date:
With regard to the above referenced proposed transaction (the “Transaction”) I represent to Aldeyra Therapeutics, Inc. (the
“Company”) as follows:
1.
I propose to execute the Transaction above and hereby request pre-clearance of the Transaction. I understand that I
must execute the Transaction within three (3) trading days beginning on the proposed transaction date above, but
understand that I cannot execute the proposed transaction until I have received pre-clearance. By signing below, I
understand that I am not obligated to execute the Transaction.
2.
I will not execute the Transaction during a quarterly or special blackout period. I am not in possession of any material
nonpublic information regarding the Company as described in the Company’s Amended and Restated Insider Trading
Policy (“Material Nonpublic Information”), and I will not execute the Transaction in the event that I become aware of
any Material Nonpublic Information.
3.
If I am a Section 16 officer or director of the Company, I have checked and confirm that the Transaction will not give
rise to any potential liability for recovery of profits under Section 16 of the Securities Exchange Act of 1934 as a result
of matched past (or intended future) transactions within six months before or after the Transaction and will complete
and timely file a Form 4 with the SEC.
4.
I acknowledge that the pre-clearance of the Transaction does not constitute a waiver of my duties and responsibilities
under the Company’s Amended and Restated Insider Trading Policy.
5.
I acknowledge that the pre-clearance of the Transaction does not constitute a waiver of the requirements under the
Company’s Stock Ownership Policy, if any.
6.
I acknowledge that pre-clearance of the Transaction does not constitute an affirmation by the Company or the
Compliance Officer that I am not in possession of any Material Nonpublic Information.
Appendix B
Date:
Signature:
Approved:
Denied:
Reviewer Name:
Date:
Comments:
Exhibit 21.1
SUBSIDIARIES OF ALDEYRA THERAPEUTICS, INC.
Name of Subsidiary
Jurisdiction of Organization
Helio Vision, LLC
United States of America
Helio Vision Germany GmbH
Germany
Aldeyra Securities Corporation
United States of America
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-254175) and Form S-8 (Nos. 333-
196674, 333-203076, 333-210492, 333-213045, 333-217043, 333-224019, 333-230161, 333-237129, 333-254144, 333-263660, 333-270401, 333-275315
and 333-277752) of Aldeyra Therapeutics, Inc. of our report dated February 28, 2025, relating to the consolidated financial statements, which appears in
this Annual Report on Form 10-K.
/s/ BDO USA, P.C.
Boston, Massachusetts
February 28, 2025
Exhibit 31.1
CERTIFICATION
I, Todd C. Brady, certify that:
1.
I have reviewed this annual report on Form 10-K of Aldeyra Therapeutics, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3.
Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a.
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b.
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c.
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting.
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: February 28, 2025
/s/ Todd C. Brady, M.D., Ph.D.
Todd C. Brady, M.D., Ph.D.
Chief Executive Officer and Director
(Principal Executive Officer)
Exhibit 31.2
CERTIFICATION
I, Michael Alfieri, certify that:
1.
I have reviewed this annual report on Form 10-K of Aldeyra Therapeutics, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3.
Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a.
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b.
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c.
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting.
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: February 28, 2025
/s/ Michael Alfieri
Michael Alfieri
Head of Finance
(Principal Financial and Accounting Officer)
Exhibit 32.1
CERTIFICATION
In connection with the Annual Report of Aldeyra Therapeutics, Inc. (the “Registrant”) on Form 10-K for the annual period ended December 31, 2024 as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Todd C. Brady, M.D., Ph.D., Chief Executive
Officer and Director of the Registrant, and Michael Alfieri, Head of Finance, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that to their respective knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Registrant.
Date: February 28, 2025
/s/ Todd C. Brady, M.D., Ph.D.
Todd C. Brady, M.D., Ph.D.
Chief Executive Officer and Director
(Principal Executive Officer)
Date: February 28, 2025
/s/ Michael Alfieri
Michael Alfieri
Head of Finance
(Principal Financial and Accounting Officer)
This certification is made solely for the purposes of 18 U.S.C. Section 1350, subject to the knowledge standard contained therein, and not for any other
purpose. A signed original of this written statement required by Section 906 has been provided to the Registrant and will be retained by the Registrant and
furnished to the United States Securities and Exchange Commission or its staff upon request.
This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be
incorporated by reference into any filing of the Registrant under the Securities Act of 1933 or the Securities Exchange Act of 1934 (whether made before or
after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing.
Exhibit 97
ALDEYRA THERAPEUTICS, INC. POLICY FOR THE
RECOVERY OF ERRONEOUSLY AWARDED COMPENSATION
1. Purpose. The purpose of this Policy is to describe the circumstances in which Executive Officers will be required to repay or return Erroneously
Awarded Compensation to members of the Company Group. This Policy is designed to comply with, and shall be interpreted to be consistent with, Section
10D of the Securities Exchange Act of 1934, as amended, Rule 10D-1 promulgated thereunder and the Listing Standards. Each Executive Officer shall be
required to sign and return to the Company the Acknowledgment Form attached hereto as Exhibit A pursuant to which such Executive Officer will agree to
be bound by the terms of and comply with this Policy.
2. Administration. This Policy shall be administered by the Committee. The Committee is authorized to interpret and construe this Policy and to make all
determinations, and take all actions, necessary, appropriate or advisable for the administration of this Policy. Any determinations and interpretations made
by the Committee shall be final and binding on all affected individuals, and need not be uniform with respect to each individual covered by this Policy.
3. Definitions. As used in this Policy, the following capitalized terms shall have the meanings set forth below.
(a) “Accounting Restatement” shall mean an accounting restatement of the Company’s financial statements due to the Company’s material
noncompliance with any financial reporting requirement under U.S. securities laws, including any required accounting restatement (i) that corrects an error
in previously issued financial statements that is material to the previously issued financial statements (a “Big R” restatement), or (ii) that corrects an error
that is not material to previously issued financial statements, but would result in a material misstatement if the error were corrected in the current period or
left uncorrected in the current period (a “little r” restatement). An Accounting Restatement does not include situations in which financial statement
changes did not result from material noncompliance with financial reporting requirements, such as, but not limited to, retrospective: (i) application of a
change in accounting principles; (ii) revision to reportable segment information due to a change in the structure of the Company’s internal organization;
(iii) reclassification due to a discontinued operation; (iv) application of a change in reporting entity, such as from a reorganization of entities under common
control; (v) adjustment to provisional amounts in connection with a prior business combination; and (vi) revision for stock splits, reverse stock splits, stock
dividends or other changes in capital structure.
(b) “Board” shall mean the Board of Directors of the Company.
(c) “Clawback Eligible Incentive Compensation” shall mean, in connection with an Accounting Restatement and with respect to each individual
who served as an Executive Officer at any time during the applicable performance period for any Incentive-Based Compensation (whether or not such
Executive Officer is serving at the time the Erroneously Awarded Compensation is required to be repaid to the Company Group), all Incentive-Based
Compensation Received by such Executive Officer (i) on or after the Effective Date (even if such Incentive-Based Compensation was approved, awarded,
granted or paid prior to the effective date of the Listing Standards), (ii) after beginning service as an Executive Officer, (iii) while the Company has a class
of securities listed on a national securities exchange or a national securities association, and (iv) during the applicable Clawback Period.
(d) “Clawback Period” shall mean, with respect to any Accounting Restatement, the three completed fiscal years of the Company immediately
preceding the Restatement Date and any transition period (that results from a change in the Company’s fiscal year) of less than nine months within or
immediately following those three completed fiscal years.
(e) “Committee” shall mean the Compensation Committee of the Board.
(f) “Company” shall mean Aldeyra Therapeutics, Inc., a Delaware corporation.
2
(g) “Company Group” shall mean the Company, together with each of its direct and indirect subsidiaries.
(h) “Effective Date” shall mean the effective date of this Policy, which date is October 2, 2023.
(i) “Erroneously Awarded Compensation” shall mean, with respect to each Executive Officer in connection with an Accounting Restatement,
the amount of Clawback Eligible Incentive Compensation that exceeds the amount of Incentive-Based Compensation that otherwise would have been
Received had it been determined based on the restated amounts as reflected in the Accounting Restatement, computed without regard to any taxes paid.
For Incentive-Based Compensation based on (or derived from) stock price or total shareholder return, where the amount of Erroneously Awarded
Compensation is not subject to mathematical recalculation directly from the information in the applicable Accounting Restatement, the amount shall be
determined by the Committee based on a reasonable estimate of the effect of the Accounting Restatement on the stock price or total shareholder return
upon which the Incentive-Based Compensation was Received (in which case, the Company shall maintain documentation of such determination of that
reasonable estimate and provide such documentation to Nasdaq).
(j) “Executive Officer” shall mean each individual who is or was designated as an “officer” of the Company in accordance with 17 C.F.R.
240.16a-1(f). Identification of an executive officer for purposes of this Policy would include, at a minimum, executive officers identified pursuant to 17
C.F.R. 229.401(b). As of the Effective Date (and subject to later amendments to the above-referenced rules), Executive Officer covers the Company’s
president, principal financial officer, principal accounting officer (or if there is no such accounting officer, the controller), any vice-president of the
Company in charge of a principal business unit, division or function (such as sales, administration or finance), any other officer who performs a significant
policy-making function, or any other person (including any executive officer of the Company’s affiliates including a parent or subsidiary of the Company)
who performs similar policy-making functions for the Company.
(k) “Financial Reporting Measures” shall mean measures that are determined and presented in accordance with the accounting principles used
in preparing the Company’s financial statements (including “non-GAAP financial measures,” such as those appearing in earnings releases), and any
measures that are derived wholly or in part from such measures. For the avoidance of doubt, a Financial Reporting Measure need not be presented within
the Company’s financial statements or included in a filing with the SEC. Stock price and total shareholder return shall for purposes of this Policy also be
considered Financial Reporting Measures.
(l) “Incentive-Based Compensation” shall mean any compensation that is granted, earned or vested based wholly or in part upon the attainment
of a Financial Reporting Measure. For the sake of clarity, examples of compensation that is not Incentive-Based Compensation include, but are not limited
to: (i) base salaries; (ii) discretionary cash bonuses; (iii) awards (either of cash or equity) that are based solely upon subjective, strategic or operational
metrics or measures; and (iv) equity awards that vest solely upon continued service or the passage of time.
(m) “Listing Standards” shall mean Nasdaq Listing Rule 5608.
(n) “Nasdaq” shall mean The Nasdaq Stock Market.
(o) “Policy” shall mean this Policy for the Recovery of Erroneously Awarded Compensation, as the same may be amended, restated,
supplemented or otherwise modified from time to time.
(p) “Received” shall, with respect to any Incentive-Based Compensation, mean actual or deemed receipt, and Incentive-Based Compensation
shall be deemed received in the Company’s fiscal period during which the Financial Reporting Measure specified in the Incentive-Based Compensation
award is attained, even if grant or payment of the Incentive-Based Compensation occurs after the end of that period.
(q) “Restatement Date” shall mean the earlier to occur of (i) the date the Board, a committee of the Board or the officers of the Company
authorized to take such action if Board action is not required, concludes, or reasonably should have concluded, that the Company is required to prepare an
Accounting Restatement, or (ii) the date a court, regulator or other legally authorized body directs the Company to prepare an Accounting Restatement, in
each case regardless of if or when the restated financial statements are filed.
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(r) “SEC” shall mean the U.S. Securities and Exchange Commission.
4. Required Recovery of Erroneously Awarded Compensation.
(a) In the event the Company is required to prepare an Accounting Restatement, the Committee shall determine the amount of any Erroneously
Awarded Compensation for each Executive Officer in connection with such Accounting Restatement, shall thereafter provide each Executive Officer with a
written notice containing the amount of Erroneously Awarded Compensation and a demand for repayment or return, as applicable, and shall take all other
actions necessary and appropriate to recover such Erroneously Awarded Compensation from the applicable Executive Officers reasonably promptly.
(b) The Committee shall determine, in its sole discretion, the timing and method for recovering Erroneously Awarded Compensation reasonably
promptly based on all applicable facts and circumstances and taking into account the time value of money and the cost to shareholders of delaying
recovery. Such methods may include, without limitation, (i) seeking reimbursement of all or part of any cash or equity-based award, (ii) cancelling prior
cash or equity-based awards, whether vested or unvested or paid or unpaid, (iii) cancelling or offsetting against any planned future cash or equity-based
awards, (iv) forfeiture of deferred compensation, subject to compliance with Section 409A of the Internal Revenue Code and the regulations promulgated
thereunder, and (v) any other method authorized by applicable law or contract. Subject to compliance with any applicable law, the Committee may effect
recovery under this Policy (i) from any amount otherwise payable to the Executive Officer, including amounts payable to such individual under any
otherwise applicable Company plan or program, including base salary, bonuses or commissions, and compensation previously deferred by the Executive
Officer, and (ii) from any amount of compensation approved, awarded, granted, payable or paid to the Executive Officer prior to, on or after the effective
date of the Listing Standards. For the avoidance of doubt, except as set forth in Section 4(d) below, in no event may the Company Group accept an amount
that is less than the amount of Erroneously Awarded Compensation in satisfaction of an Executive Officer’s obligations hereunder.
(c) To the extent that an Executive Officer fails to repay all Erroneously Awarded Compensation to the Company Group when due, the Company
shall, or shall cause one or more other members of the Company Group to, take all actions reasonable and appropriate to recover such Erroneously
Awarded Compensation from the applicable Executive Officer. The applicable Executive Officer shall be required to reimburse the Company Group for
any and all expenses reasonably incurred (including legal fees) by the Company Group in recovering such Erroneously Awarded Compensation in
accordance with the immediately preceding sentence.
(d) Notwithstanding anything herein to the contrary, the Company shall not be required to recover Erroneously Awarded Compensation from any
Executive Officer if the following conditions are met and the Committee determines that recovery would be impracticable:
(i) The direct expenses paid to a third party to assist in enforcing this Policy against an Executive Officer would exceed the amount to
be recovered, after the Company has made a reasonable attempt to recover the applicable Erroneously Awarded Compensation, documented such
attempt(s) and provided such documentation to Nasdaq;
(ii) Recovery would violate home country law of the Company where that law was adopted prior to November 28, 2022, after the
Company has obtained an opinion of home country counsel, acceptable to Nasdaq, that recovery would result in such a violation and a copy of
the opinion is provided to Nasdaq; or
(iii) Recovery would likely cause an otherwise tax-qualified retirement plan, under which benefits are broadly available to employees
of the Company Group, to fail to meet the requirements of 26 U.S.C. 401(a)(13) or 26 U.S.C. 411(a) and regulations thereunder.
5. Reporting and Disclosure. The Company shall file all disclosures with respect to this Policy in accordance with the requirements of the federal
securities laws, including the disclosure required by the applicable SEC filings. The Company shall also file a copy of this Policy and any amendments
thereto as an exhibit to its annual report on Form 10-K.
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6. No Indemnification of Executive Officers. Notwithstanding the terms of any indemnification or insurance policy or any contractual arrangement with
any Executive Officer that may be interpreted to the contrary, no member of the Company Group shall be permitted to indemnify any Executive Officer
against, or pay or reimburse the premiums for an insurance policy to cover, (i) the loss of any Erroneously Awarded Compensation that is repaid, returned
or recovered pursuant to the terms of this Policy, or (ii) any claims relating to the Company Group’s enforcement of its rights under this Policy. Further, no
member of the Company Group shall enter into any agreement that exempts any Incentive-Based Compensation from the application of this Policy or that
waives the Company Group’s right to recovery of any Erroneously Awarded Compensation, and this Policy shall supersede any such agreement (whether
entered into before, on or after the Effective Date).
7. Committee Indemnification. Any members of the Committee, and any other members of the Board who assist in the administration of this Policy,
shall not be personally liable for any action, determination or interpretation made with respect to this Policy and shall be fully indemnified by the Company
to the fullest extent under applicable law and Company policy with respect to any such action, determination or interpretation. The foregoing sentence shall
not limit any other rights to indemnification of the members of the Board under applicable law or Company policy.
8. Effective Date. This Policy shall be effective as of the Effective Date.
9. Amendment; Termination. The Committee may amend, modify, supplement, rescind or replace all or any portion of this Policy at any time and from
time to time in its discretion and shall amend this Policy as it deems necessary, including as and when it determines that it is legally required by any federal
securities laws, SEC rule or the rules of any national securities exchange or national securities association on which the Company’s securities are listed.
The Committee may terminate this Policy at any time. Notwithstanding anything in this Section 9 to the contrary, no amendment or termination of this
Policy shall be effective if such amendment or termination would (after taking into account any actions taken by the Company contemporaneously with
such amendment or termination) cause the Company to violate any federal securities laws, SEC rule or the rules of any national securities exchange or
national securities association on which the Company’s securities are listed.
10. Other Recoupment Rights; Company Claims.
(a) The Committee intends that this Policy will be applied to the fullest extent of the law and with respect to all Incentive-Based Compensation
granted to an Executive Officer, whether pursuant to a pre-existing contract or arrangement, or one that is entered into after the Effective Date. Any right
of recoupment under this Policy is in addition to, and not in lieu of, any other remedies or rights of recoupment that may be available to the Company
Group under applicable law, regulation or rule or pursuant to the terms of any similar policy in any employment agreement, equity award agreement or
similar agreement and any other legal remedies available to the Company Group.
(b) Nothing contained in this Policy, and no recoupment or recovery as contemplated by this Policy, shall limit any claims, damages or other
legal remedies the Company or any of its affiliates may have against an Executive Officer arising out of or resulting from any actions or omissions by the
Executive Officer.
11. Successors. This Policy shall be binding and enforceable against all Executive Officers and their beneficiaries, heirs, executors, administrators or other
legal representatives.
* * *
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Exhibit A
ALDEYRA THERAPEUTICS, INC. POLICY FOR THE
RECOVERY OF ERRONEOUSLY AWARDED COMPENSATION
ACKNOWLEDGMENT FORM
By signing below, the undersigned acknowledges and confirms that the undersigned has received and reviewed a copy of the Aldeyra Therapeutics, Inc.
Policy for the Recovery of Erroneously Awarded Compensation (as may be amended, restated, supplemented or otherwise modified from time to time, the
“Policy”). Capitalized terms used but not otherwise defined in this Acknowledgment Form (this “Acknowledgment Form”) shall have the meanings
ascribed to such terms in the Policy.
By signing this Acknowledgment Form, the undersigned acknowledges and agrees that the undersigned is and will continue to be subject to the Policy and
that the Policy will apply both during and after the undersigned’s employment with the Company Group. Further, by signing below, the undersigned
agrees to abide by the terms of the Policy, including, without limitation, by promptly returning any Erroneously Awarded Compensation (as defined in the
Policy) to the Company Group to the extent required by, and in a manner permitted by, the Policy. In the event of any inconsistency between the Policy
and the terms of any employment agreement to which the undersigned is a party, or the terms of any compensation plan, program or agreement under
which any compensation has been granted, awarded, earned or paid, the terms of the Policy shall govern.
Signature
Print Name
Title
Date