Aldexa Therapeutics (NASDAQ:ALDX)

At first glance, Aldeyra is a very uninspiring stock. The company raised only 11M from a below range IPO at 8 a year ago, and the share price has remained weak since then. A breakout to 12 in January eventually lead to a steep decline which is continuing as I write, and the stock is now well below the IPO price. The IPO was underwritten by Aegis, a horrendous brokerage with a reputation for trading promotion for the banking business of weak biotechs and outright scams. The stock has attracted almost no analyst coverage and little institutional ownership. On the last conference call, one analyst from a third tier outfit had the floor to himself in the Q & A. Seeking Alpha and even the grotesque YMB have left the stock untouched.

Why had Aldeyra been such an object of disdain from the moment of inception as a public company? It's difficult for me to tell, due to the lack of commentary both positive and negative. The science is not obviously faulty. Aldeyra is developing NS2, a small molecule "trap" of aldehyde, which the company claims is a mediator of inflammation in numerous diseases such as autoimmune conditions, atherosclerosis, and diabetic nephropathy. That's an uh-oh. If they're going to claim such a broad spectrum of activity, they should back it up with a little science but the company website is exceptionally devoid of science. Are they just keeping their cards close to their chest? Perhaps, but first they need to come to the poker table.

I'm skeptical about the aldehyde hypothesis for inflammatory diseases but what captured my attention is that NS2 is being evaluated in a phase II trial for Sjogren-Larsson Syndrome (SLS), a rare genetic enzyme deficiency that results in accumulation of aldehyde. There is no effective treatment for the disease itself, but only palliative therapies for the complications. Could an aldehyde trap be a game changer for an incurable disease caused by accumulation of aldehyde? Doesn't seem too farfetched. Unfortunately, there's a dearth of information regarding anti-aldehyde therapy for SLS in the literature, or on Aldeyra's website. There's been a knockout mouse model of SLS since 2006. Has NS2 been tested on it? I don't know.

SLS is a rare disease whose worldwide prevalence is unknown, but may be as high as 1 in 200000. That's a total prevalence of about 10000 in what's known as the reimbursable world. Far from being a number to scoff at, it's comparable to the number of patients estimated to have CESD. That's the disease being addressed by Synageva, which is now valued at eight billion dollars after agreeing to be bought out by Alexion. Alexion's market cap is over thirty-three billion thanks to their treatment for the ultrarare disease PNH.

There's no question that if NS2 doesn't work for SLS, and no one really pays attention to the stock before they report failure in the trial, that Aldeyra will probably end up being worthless. On the other hand, IF anyone with some pull starts flogging this stock before phase II data OR the drug actually works, don't expect the market cap to stay under 50M.