Delaware


~~Delaware~~		20-1968197
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

131 Hartwell Avenue, Suite 320
Lexington, MA		02421
(Address of principal executive offices)		(Zip Code)

(781)761-4904

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☒ No ☐

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes ☐ No ☒

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

Title of Class	Trading Symbol	Name of exchange on which registered
Common Stock, $0.001 par value per share	ALDX	The Nasdaq Stock Market LLC

As of November ~~9, 2017,~~3, 2020, there were ~~19,117,676~~38,820,347 shares of the registrant’s common stock issued and outstanding.

Aldeyra Therapeutics, Inc.

Quarterly Report on Form10-Q

For the Quarter Ended September 30, ~~2017~~2020

INDEX


			Page
PART I – FINANCIAL INFORMATION
ITEM 1.	Condensed Consolidated Financial Statements:	3
	~~Condensed Financial Statements:~~			3
		Consolidated Balance Sheets at September 30, ~~2017~~2020 (Unaudited) and December 31, ~~2016~~2019			3
		Consolidated Statements of Operations for the three and nine months ended September 30, ~~2017~~2020 and ~~2016~~2019 (Unaudited)			4
		Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, ~~2017~~2020 and ~~2016~~2019 (Unaudited)			5
		Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2020 and 2019 (Unaudited)	6
	Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2017~~2020 and ~~2016~~2019 (Unaudited)			6	8
		Notes to Condensed Consolidated Financial Statements			7	9
ITEM 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			14	18
ITEM 3.		Quantitative and Qualitative Disclosures about Market Risk			20	26
ITEM 4.		Controls and Procedures			20	26
PART II – OTHER INFORMATION
ITEM 1.		Legal Proceedings			21	27
ITEM 1A.		Risk Factors			21	27
ITEM 2.		Unregistered Sales of Equity Securities and Use of Proceeds			47	65
ITEM 3.		Defaults Upon Senior Securities			47	65
ITEM 4.		Mine Safety Disclosures			47	65
ITEM 5.		Other Information			47	65
ITEM 6.		Exhibits			48	65
Signatures				49	66

Part I – FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements

ALDEYRA THERAPEUTICS, INC.

CONSOLIDATED BALANCE SHEETS

   September 30,
2017
(unaudited) December 31,
2016
ASSETS

Current assets:

Cash and cash equivalents
   $ 33,103,849 $ 12,015,061
Marketable securities
   14,807,166 12,897,584
Prepaid expenses and other current assets
   1,141,727 218,682


Total current assets
   49,052,742 25,131,327
Deferred offering costs
   138,661 —
Fixed assets, net
   38,017 56,352


Total assets
   $ 49,229,420 $ 25,187,679


LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable
   $ 485,267 $ 275,441
Accrued expenses
   1,507,458 1,946,251
Current portion of credit facility
   426,505 77,546


Total current liabilities
   2,419,230 2,299,238
Credit facility, net of current portion and debt discount
   905,253 1,238,624


Total liabilities
   3,324,483 3,537,862


Commitments and contingencies (Note 11)

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 19,117,676 and 12,576,325 shares issued and outstanding, respectively
   19,118 12,576
Additionalpaid-in capital
   138,574,234 98,938,446
Accumulated other comprehensive income (loss)
   (1,002 ) 129
Accumulated deficit
   (92,687,413 ) (77,301,334 )


Total stockholders’ equity
   45,904,937 21,649,817


Total liabilities and stockholders’ equity
   $ 49,229,420 $ 25,187,679

	September 30,
	2020		December 31,
	(unaudited)		2019
ASSETS
Current assets:
Cash and cash equivalents	$	71,175,507	$	16,425,830
Cash equivalent - reverse repurchase agreements		15,000,000		28,000,000
Marketable securities		—		28,938,545
Prepaid expenses and other current assets		2,017,273		1,804,450
Total current assets		88,192,780		75,168,825
Right-of-use assets		52,195		201,007
Fixed assets, net		79,455		148,449
Total assets	$	88,324,430	$	75,518,281

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	123,900	$	808,302
Accrued expenses		4,018,635		11,873,122

Current portion of credit facility		2,259,417			—
Current portion of operating lease liabilities		58,720			226,328
Total current liabilities		6,460,672			12,907,752
Long-term debt		12,693,311			14,528,212
Total liabilities		19,153,983			27,435,964
Commitments and contingencies (Notes 13 and 14)
Stockholders' equity:
Common stock, voting, $0.001 par value; 150,000,000 authorized and 38,631,709 and 28,656,832 shares issued and outstanding, respectively		38,632			28,657
Additional paid-in capital		294,755,363			247,409,793
Accumulated other comprehensive income		—			5,866
Accumulated deficit		(225,623,548	)		(199,361,999	)
Total stockholders’ equity		69,170,447			48,082,317
Total liabilities and stockholders’ equity	$	88,324,430		$	75,518,281

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

ALDEYRA THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)


	Three Months ended September 30,						Nine Months ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016			2020			2019			2020			2019
Operating expenses:
Research and development	$	3,539,368		$	3,379,711		$	10,757,279		$	9,728,494		$	6,133,580		$	16,223,972		$	17,653,058		$	34,737,420
Acquired in-process research and development														—			(47,102	)		—			6,500,602
General and administrative		1,475,904			1,396,734			4,684,574			4,314,483			2,255,617			2,839,319			7,480,461			8,940,771

Loss from operations		(5,015,272	)		(4,776,445	)		(15,441,853	)		(14,042,977	)		(8,389,197	)		(19,016,189	)		(25,133,519	)		(50,178,793	)


Other income (expense):
Interest income		56,651			27,792			136,652			74,463			5,215			330,329			287,025			1,262,378
Interest expense		(27,578	)		(26,654	)		(80,878	)		(79,507	)		(489,191	)		(29,154	)		(1,415,055	)		(59,766	)


Total other income (expense), net		29,073			1,138			55,774			(5,044	)		(483,976	)		301,175			(1,128,030	)		1,202,612


Loss before income taxes														(8,873,173	)		(18,715,014	)		(26,261,549	)		(48,976,181	)
Income tax benefit														—			—			—			1,309,973
Net loss	$	(4,986,199	)	$	(4,775,307	)	$	(15,386,079	)	$	(14,048,021	)	$	(8,873,173	)	$	(18,715,014	)	$	(26,261,549	)	$	(47,666,208	)


Net loss per share - basic and diluted	$	(0.32	)	$	(0.38	)	$	(1.04	)	$	(1.28	)	$	(0.23	)	$	(0.69	)	$	(0.81	)	$	(1.77	)


Weighted average common shares outstanding - basic and diluted		15,581,426			12,474,609			14,844,914			10,942,127			37,796,946			27,111,600			32,395,217			26,928,725

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

ALDEYRA THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited)

   Three Months ended September 30, Nine Months ended September 30,
   2017 2016 2017 2016
Net loss
   $ (4,986,199 ) $ (4,775,307 ) $ (15,386,079 ) $ (14,048,021 )
Other comprehensive income/(loss):

Unrealized gain/(loss) on marketable securities
   3,638 1,825 (1,131 ) 14,889


Total other comprehensive income/(loss)
   $ 3,638 $ 1,825 $ (1,131 ) $ 14,889


Comprehensive loss
   $ (4,982,561 ) $ (4,773,482 ) $ (15,387,218 ) $ (14,033,132 )

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Net loss	$	(8,873,173	)	$	(18,715,014	)	$	(26,261,549	)	$	(47,666,208	)
Other comprehensive (loss) income:
Unrealized gain (loss) on marketable securities, net of tax		(4,754	)		(7,687	)		(5,866	)		14,990
Total other comprehensive (loss) income	$	(4,754	)	$	(7,687	)	$	(5,866	)	$	14,990
Comprehensive loss	$	(8,877,927	)	$	(18,722,701	)	$	(26,267,415	)	$	(47,651,218	)

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

ALDEYRA THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~STOCKHOLDERS' EQUITY (Unaudited)

   Nine Months ended September 30,
   2017 2016
CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss
   $ (15,386,079 ) $ (14,048,021 )
Adjustments to reconcile net loss to net cash used in operating activities:

Stock-based compensation
   2,122,669 2,159,714
Amortization of debt discount –non-cash interest expense
   15,588 20,931
Net amortization of premium on debt securities available for sale
   165,562 182,963
Depreciation
   29,927 26,454
Change in assets and liabilities:

Prepaid expenses and other current assets
   (923,045 ) 247,346
Accounts payable
   209,826 (117,600 )
Accrued expenses
   (438,793 ) 290,163


Net cash used in operating activities
   (14,204,345 ) (11,238,050 )


CASH FLOWS FROM INVESTING ACTIVITIES:

Acquisitions of property and equipment
   (11,592 ) (11,810 )
Purchases of marketable securities
   (20,198,275 ) (15,378,371 )
Sales of marketable securities
   18,122,000 13,845,000


Net cash used in investing activities
   (2,087,867 ) (1,545,181 )


CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of common stock
   37,474,106 12,702,873
Proceeds from issuance of common stock in Employee Stock Purchase Plan
   45,555 —
Deferred offering costs paid in cash
   (138,661 ) —


Net cash provided by financing activities
   37,381,000 12,702,873


NET (DECREASE)/INCREASE IN CASH
   21,088,788 (80,358 )
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
   12,015,061 14,648,866


CASH AND CASH EQUIVALENTS, END OF PERIOD
   $ 33,103,849 $ 14,568,508


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid during the period for:

Interest
   $ 64,024 $ 58,722


Income taxes
   $ —   $ —

	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, 2019		28,656,832	$	28,657	$	247,409,793		$	5,866		$	(199,361,999	)	$	48,082,317
Stock-based compensation		—		—		5,453,520			—			—			5,453,520
Release of restrictions on Helio founders’ shares		237,834		238		(238	)		—			—			—
Issuance of common stock, net of issuance costs		9,351,749		9,352		40,707,191			—			—			40,716,543
Issuance of common stock, exercise of stock options		219,244		219		1,058,297			—			—			1,058,516
Issuance of common stock, employee stock purchase plan		30,254		30		126,936			—			—			126,966
Issuance of common stock, vested restricted stock awards		135,796		136		(136	)		—			—			—
Other comprehensive loss		—		—		—			(5,866	)		—			(5,866	)
Net loss		—		—		—			—			(26,261,549	)		(26,261,549	)
Balance, September 30, 2020		38,631,709	$	38,632	$	294,755,363		$	—		$	(225,623,548	)	$	69,170,447

Balance, December 31, 2018		26,244,435	$	26,244	$	225,136,127		$	(9,224	)	$	(138,535,168	)	$	86,617,979
Stock-based compensation		—		—		6,133,990			—			—			6,133,990
Issuance of common stock, acquisition of Helio Vision, Inc.		724,518		724		4,862,007			—			—			4,862,731
Issuance of common stock, net of issuance costs		83,557		84		720,880			—			—			720,964
Issuance of common stock, employee stock purchase plan		34,253		35		194,813			—			—			194,848
Issuance of common stock, vested restricted stock awards		65,012		65		(65	)		—			—			—
Other comprehensive income		—		—		—			14,990			—			14,990
Net loss		—		—		—			—			(47,666,208	)		(47,666,208	)
Balance, September 30, 2019		27,151,775	$	27,152	$	237,047,752		$	5,766		$	(186,201,376	)	$	50,879,294

ALDEYRA THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)

	Stockholders' Equity
	Common Voting Stock							Accumulated Other
	Shares		Amount		Additional Paid-in Capital			Comprehensive Income/(Loss), net of tax			Accumulated Deficit			Total Stockholders' Equity
Balance, June 30, 2020		32,997,346	$	32,997	$	269,502,290		$	4,754		$	(216,750,375	)	$	52,789,666
Stock-based compensation		—		—		1,757,479			—			—			1,757,479
Release of restrictions on Helio founders’ shares		35,783		36		(36	)		—			—			—
Issuance of common stock, net of issuance costs		5,377,681		5,378		22,440,677			—			—			22,446,055
Issuance of common stock, exercise of stock options		204,796		205		997,892			—			—			998,097
Issuance of common stock, employee stock purchase plan		16,103		16		57,061			—			—			57,077
Other comprehensive loss		—		—		—			(4,754	)		—			(4,754	)
Net loss		—		—		—			—			(8,873,173	)		(8,873,173	)
Balance, September 30, 2020		38,631,709	$	38,632	$	294,755,363		$	—		$	(225,623,548	)	$	69,170,447

Balance, June 30, 2019		26,986,936	$	26,987	$	234,779,291		$	13,453		$	(167,486,361	)	$	67,333,370
Stock-based compensation		—		—		2,152,938			—			—			2,152,938
Issuance of common stock, acquisition of Helio Vision, Inc.		142,155		142		(142	)		—			—			—
Issuance of common stock, employee stock purchase plan		22,684		23		115,665			—			—			115,688
Other comprehensive loss		—		—		—			(7,687	)		—			(7,687	)
Net loss		—		—		—			—			(18,715,015	)		(18,715,015	)
Balance, September 30, 2019		27,151,775	$	27,152	$	237,047,752		$	5,766		$	(186,201,376	)	$	50,879,294

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

ALDEYRA THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

Nine Months Ended September 30,

2020

2019

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss

$
(26,261,549
)

$
(47,666,208
)
Adjustments to reconcile net loss to net cash used in operating activities:

Acquired in-process research and development

—

6,500,602

Deferred taxes

—

(1,309,973
)
Stock-based compensation

5,453,520

6,133,990

Non-cash interest expense

424,516

59,766

Accretion on debt securities available for sale, net

(91,231
)

(474,771
)
Depreciation and amortization expense

217,806

72,284

Change in assets and liabilities:

Prepaid expenses and other current assets

(212,823
)

404,264

Accounts payable

(684,402
)

(3,082,081
)
Accrued expenses

(8,022,095
)

5,604,224

Net cash used in operating activities

(29,176,258
)

(33,757,903
)
CASH FLOWS FROM INVESTING ACTIVITIES:

Acquisitions of fixed assets

—

(9,529
)
Cash acquired in Helio asset acquisition

—

632,090

Purchases of marketable securities

(5,776,090
)

(36,860,554
)
Sales and maturities of marketable securities

34,800,000

59,000,000

Net cash provided by investing activities

29,023,910

22,762,007

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of common stock, net of issuance costs

40,716,543

720,964

Proceeds from exercise of stock options

1,058,516

—

Proceeds from employee stock purchase plan

126,966

194,849

Proceeds from long-term debt

—

14,450,000

Debt issuance costs paid in cash

—

(123,186
)
Net cash provided by financing activities

41,902,025

15,242,627

NET INCREASE IN CASH AND CASH EQUIVALENTS

41,749,677

4,246,731

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

44,425,830

47,357,472

CASH AND CASH EQUIVALENTS, END OF PERIOD

$
86,175,507

$
51,604,203

SUPPLEMENTAL INFORMATION AND DISCLOSURES OF NONCASH ACTIVITIES:

Helio acquisition:

Assets acquired

$
—

$
75,632

Liabilities acquired

$
—

$
637,994

Fair value of securities issued

$
—

$
4,862,731

Right-of-use assets acquired through operating leases

$
—

$
386,060

Cash paid during the period for interest

$
1,042,708

$
—

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

ALDEYRA THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1.	NATURE OF BUSINESS

Aldeyra Therapeutics, Inc., together with its wholly-owned subsidiaries (the ~~Company~~“Company” or ~~Aldeyra)~~“Aldeyra”), a Delaware corporation, is ~~developing new products for inflammation, inborn errors~~a clinical-stage biotechnology company focused on the development of ~~metabolism, and other diseases that are thought~~novel therapies with the potential to ~~be related to endogenously generated toxic andpro-inflammatory~~ ~~mediators known as aldehydes.~~improve the lives of patients with immune-mediated diseases.

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

2.	BASIS OF PRESENTATION

The accompanying interim ~~unaudited~~ condensed consolidated financial statements and related disclosures are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles ~~(GAAP)~~(“GAAP”) for interim financial information and the instructions to Form10-Q and ~~Article 10 of~~ RegulationS-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company’s audited consolidated financial statements and related ~~footnotes for the year ended December 31, 2016~~notes included in the Company’s Annual Report on Form10-K for the year ended December 31, ~~2016,~~2019, which was filed with the Securities and Exchange Commission on March ~~30, 2017.~~ 12, 2020 (the “2019 Form 10-K”).

The financial information as of September 30, ~~2017,~~2020, and the three and nine months ended September 30, ~~2017~~2020 and ~~2016~~2019, respectively, is ~~unaudited, but in~~unaudited. In the opinion of management all adjustments, consisting only of normal recurring adjustments considered necessary for athe fair presentation of ~~the~~ financial position, results of operations, and cash flows at the dates and for the periods presented, ~~of the results of these interim periods~~ have been included. The balance sheet data as of December 31, ~~2016~~2019 was derived from audited consolidated financial statements. The results of the Company’s operations for any interim ~~period~~periods are not necessarily indicative of the results that may be expected for any other interim period or for a full fiscal year.

~~In February 2017,~~

Based on its current operating plan, and not including additional access to capital that may become available under the Company’s credit facility, the Company closed an underwritten public offering in which it sold, an aggregate of 2,555,555 shares of common stock, including 333,333 shares sold in connection with the exercise in full by the underwriters of their option to purchase additional shares. The net proceeds of the offering, including the full exercise of the option, were approximately $10.6 million, after deducting underwriting discounts, commissions,believes that its cash, cash equivalents, and ~~other offering expenses payable by Aldeyra.~~

In June 2017, the Company entered into a Controlled Equity Offering SM sales agreement (Sales Agreement) with Cantor Fitzgerald & Co. (Cantor), as sales agent, pursuant to which the Company may offer and sell, from time to time through Cantor, shares of the Company’s common stock, par value $0.001 per share, providing for aggregate sales proceeds of up to $20,000,000. Under the Sales Agreement, Cantor may sell such shares of common stock in sales deemed to be an “at the market offering” (ATM) as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended, with the Company setting the parameters for the sale of shares thereunder, including the number of shares to be issued, the time period during which sales are requested to be made, any limits on the number of shares that may be sold in any one trading day and any minimum price below which sales may not be made. The Sales Agreement provides that Cantor will be entitled to compensation for its services equal to 3.0% of the gross proceeds from the sale of shares sold pursuant to the Sales Agreement. The Company has no obligation to sell any shares under the Sales Agreement, and may at any time suspend solicitations and offers under the Sales Agreement. No shares have been sold under the Sales Agreementmarketable securities as of September 30, ~~2017.~~

~~In September 2017,~~2020, will be sufficient to fund currently anticipated operating expenses through the ~~Company closed an underwritten public offering~~end of 2022, including potential new drug application (NDA) submissions for reproxalap in ~~which it sold, an aggregate~~dry eye disease and allergic conjunctivitis, assuming positive clinical trial results and regulatory review; the Phase 2 clinical trials of ~~3,967,500 shares~~ADX-629 in COVID-19, atopic asthma, and psoriasis; and the continuation of ~~common stock, including 517,500 shares sold in connection with the exercise in full by the underwriters of their option to purchase additional shares. The net proceeds~~Part 1 of the ~~offering, including the full exercise~~adaptive Phase 3 GUARD trial in proliferative vitreoretinopathy, contingent on patient enrollment. As a result of the ~~option, were approximately $26.9 million, after deducting underwriting discounts, commissions,~~COVID-19 pandemic, clinical site availability, staffing, and ~~other offering expenses payable by Aldeyra.~~

patient recruitment have been negatively affected and the timelines to complete the Company’s clinical trials may be delayed. The Company’s ~~management believes that~~assessment of its ~~currently available~~liquidity and capital resources ~~including amounts potentially available under its credit facility (Note 7),~~includes an estimate of the financial impacts of these changes. The Company will ~~provide sufficient funds~~need to ~~enable~~secure additional funding in the ~~Company~~future, from one or more equity or debt financings, collaborations, or other sources, in order to ~~meet its expected obligations for at least the next 24 months based on~~carry out all of the Company’s ~~current business plan. However, these amounts will not be sufficient for the Company to develop~~planned research and development activities and regulatory activities; commercialize ~~its~~ product ~~candidates~~candidates; or conduct any substantial, additional development requirements requested by the ~~U.S. Food and Drug Administration (FDA).~~FDA. Additional funding may not be available to the Company on acceptable terms, or at all. If the Company is unable to secure additional capital, ~~or meet financial covenants that could be implemented under the Company’s term loans in certain circumstances,~~ it will be required to significantly decrease the amount of planned expenditures and may be required to cease operations. In addition, the disruption in the capital markets caused by the COVID-19 outbreak could make any financing more challenging, and there can be no assurance that Aldeyra will be able to obtain such financing on commercially reasonable terms or at all.

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

Use of ~~estimates~~Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions, including fair value estimates for investments that affect the reported amounts of assets and liabilities atand the ~~date of the financial statements,~~ disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of ~~revenue and~~ expenses during the reporting ~~period. Actual~~periods. The Company’s management evaluates its estimates and assumptions on an ongoing basis. Management’s most significant estimates in the Company’s consolidated financial statements include, but are not limited to, estimates related to clinical trial accruals, estimates related to prepaid and accrued research and development costs, acquired in-process research and development (“IPR&D”) expense, contingent liabilities, 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 ~~could~~may ultimately materially differ from ~~those~~these estimates and assumptions.

Summary of Significant Accounting Policies

There were no changes to significant accounting policies during the nine months ended September 30, 2020, as compared to the those identified in the 2019 Form 10-K.

Recent Accounting Pronouncements

In ~~March~~June 2016, the Financial Accounting Standards Board ~~(FASB)~~(“FASB”) issued Accounting Standards Update ~~(ASU)~~(“ASU”) No. ~~2016-09~~ ~~Improvements~~2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires that credit losses be reported as an allowance using an expected losses model, representing the entity’s current estimate of credit losses expected to ~~Employee Share-Based Payment Accounting (ASU2016-09),~~be incurred. The accounting guidance currently in effect is based on an incurred loss model. For available-for-sale debt securities with unrealized losses, this standard now requires allowances to ~~simplify~~be recorded instead of reducing the ~~accounting for stock compensation. This update focuses on income tax accounting, award classification, estimating forfeitures, and cash flow presentation.~~amortized cost of the investment. The ~~Company adopted~~amendments under ASU ~~2016-09~~ ~~in the quarter ended March 31, 2017, and it did not have a material impact on the Company’s financial statements.~~

~~In February 2016, the FASB issued ASUNo. 2016-02~~ ~~(ASU2016-02),~~ ~~Leases. ASU2016-02~~ ~~requires lessees to recognize on the balance sheet aright-of-use~~ asset, representing its right to use the underlying asset for the lease term, and a lease liability for all leases with terms greater than 12 months. The guidance also requires qualitative and quantitative disclosures designed to assess the amount, timing, and uncertainty of cash flows arising from leases. The standard requires the use of a modified retrospective transition approach, which includes a number of optional practical expedients that entities may elect to apply.~~ASU 2016-02~~ is2016-13 are effective for interim and annual fiscal ~~years~~periods beginning after December 15, ~~2018.~~2022. The Company is continuing to evaluate the impact of ASU 2016-13 but does not expect the adoption of this ~~standard~~ASU to have a material impact on its consolidated financial statements.

3.	Helio Vision Acquisition

~~In November 2015,~~On January 28, 2019 (the “Closing Date”), the Company acquired Helio Vision, Inc. (“Helio”). As a result of the acquisition, the Company initially issued an aggregate of 1,160,444 shares of common stock to the former securityholders and an advisor of Helio. The founders of Helio were issued 568,627 shares and non-founders were issued 591,817 shares. The Helio founders’ shares are subject to vesting based on continued service to the Company over three years from the Closing Date, of which, 67% are vested as of September 30, 2020. The Company recognizes the expense associated with the founders’ restricted shares as research and development compensation expense on a straight-line basis as the shares vest over the three-year period.

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

The Company determined that liability accounting is not required for the Milestone Shares under FASB ASC Topic 480, Distinguishing Liabilities from Equity (“ASC 480”). The Company also determined that the Milestone Shares meet the scope exception as a derivative under FASB ASC Topic 815, Derivatives and Hedging (“ASC 815”), from inception of the Milestone Shares through September 30, 2020. Accordingly, the Milestone Shares are evaluated under FASB ASC Topic 450, Contingencies (“ASC 450”) and the Company will record a liability related to the Milestone Shares if the milestones are achieved, and the obligation to make additional payment(s) becomes probable. At that time, the Company will record the cost of the Milestone Shares issued to the founders as compensation expense and to the Helio non-founders as IPR&D expense if there is no alternative future use. No milestones related to the Milestone Shares are probable of being achieved as of September 30, 2020.

The Company assessed the acquisition of Helio under the FASB ~~issued ASUNo. 2015-17,~~ASC Topic 805, Business Combinations (“ASC 805”). Under ASC 805, the Company determined that the acquired assets did not constitute a business since substantially all the assets acquired were related to ADX-2191 and that the transaction would be accounted for as an asset acquisition. The asset and development program acquired from Helio are at an early stage of development and will require a significant investment of time and capital for development. There is no assurance that the Company will be successful in developing such asset, and a failure to successfully develop such asset could diminish the Company’s prospects. Under ASC 805, the asset acquired is considered to have no alternative future uses, since the future economic benefit of the acquired asset at the date of acquisition is highly uncertain. The fair value of the assets was determined using the quoted market price of the Company’s common stock on the Closing Date and was fully expensed as IPR&D. Additionally, the Company assessed the Helio acquisition under ASC Topic 740, Income Taxes ~~(ASU2015-17)~~ (“ASC 740”). ~~ASU2015-17~~ ~~simplifies~~ The acquisition resulted in an income tax benefit of $1.3 million and a corresponding increase to acquired IPR&D expense. The expense resulted from the ~~presentation of deferred income taxes by requiring that~~reduction in the Company’s valuation allowance due to the deferred tax ~~liabilities and assets be classified as noncurrent in a classified statement of financial position. The requirement that deferred tax liabilities and assets of atax-paying~~ ~~component of an entity be offset and presented~~liability created as a ~~single amount is not affected by~~result of the ~~amendments in ASU2015-17.~~ ~~The Company adoptedASU 2015-17~~ inbook and tax basis difference during the quarter ended March 31, ~~2017, and it did not have a material impact on~~2019. During the ~~Company’s financial statements.~~

~~In April 2015, the FASB issued ASUNo. 2015-03,~~ ~~Simplifying the Presentation of Debt Issuance Costs (ASU2015-03).~~ ~~The amendments in ASU2015-03~~ require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The Company adopted~~ASU 2015-03~~ ~~in the quarter ended March 31, 2017, and it did not have a material impact on the Company’s financial statements.~~

~~In May 2014, the FASB issued ASUNo. 2014-09,~~ Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.~~ASU 2014-09~~ ~~is effective for fiscal years beginning after December 15, 2017. The Company does not expect the adoption of this standard to have a material impact on its financial statements.~~

3.	~~NET LOSS PER SHARE~~

~~For the three and~~ nine months ended September 30, ~~2017~~2019, the Company recorded $6.5 million of IPR&D expense related to the fair value of consideration given which includes transaction costs and ~~2016,~~the deferred tax impact of the Helio acquisition.

4.	NET LOSS PER SHARE

As of September 30, 2020 and 2019, diluted weighted average common shares outstanding is equal to basic weighted average common shares due to the Company’s net loss position.

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


	Three Months ended September 30,				Nine Months ended September 30,				Three and Nine Months Ended September 30,
	2017		2016		2017		2016		2020		2019
Options to purchase common stock		2,236,857		1,654,482		2,236,857		1,654,482		4,889,685		4,539,279
Warrants to purchase common stock		1,384,608		1,384,608		1,384,608		1,384,608
Restricted stock units		157,128		27,096		157,128		27,096		929,817		430,425

Nonvested founder shares ⁽¹⁾										188,638		426,472
Total of common stock equivalents		3,778,593		3,066,186		3,778,593		3,066,186		6,008,140		5,396,176

(1)

Represents 188,638 shares of common stock that are issued and outstanding but that were subject to vesting based on service requirements at September 30, 2020 and are not included in stockholders’ equity pursuant to GAAP.

5.	CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES

~~At September 30, 2017, cash,~~Cash, cash equivalents, and marketable securities were comprised of:

														September 30, 2020
	Carrying Amount		Unrecognized Gain		Unrecognized Loss			Estimated Fair Value		Cash Equivalents		Current Marketable Securities		Carrying Amount		Unrecognized Gain		Unrecognized Loss		Estimated Fair Value		Cash and Cash Equivalents		Current Marketable Securities
Cash	$	1,044,417	$	—	$	—		$	1,044,417	$	1,044,417	$	—	$	31,815,216	$	—	$	—	$	31,815,216	$	31,815,216	$	—
Money market funds		12,056,919		—		—			12,056,919		12,056,919		—		39,360,291		—		—		39,360,291		39,360,291		—
Reverse repurchase agreements															15,000,000		—		—		15,000,000		15,000,000		—
Total Cash and cash equivalents															86,175,507		—		—		86,175,507		86,175,507		—
Total Cash, cash equivalents, and current marketable securities																						$	86,175,507	$	—

														December 31, 2019
														Carrying Amount		Unrecognized Gain		Unrecognized Loss		Estimated Fair Value		Cash and Cash Equivalents		Current Marketable Securities
Cash														$	15,363,462	$	—	$	—	$	15,363,462	$	15,363,462	$	—
Money market funds															1,062,368		—		—		1,062,368		1,062,368		—
Reverse repurchase agreements		19,500,000		—		—			19,500,000		19,500,000		—		28,000,000		—		—		28,000,000		28,000,000		—
Total Cash and cash equivalents															44,425,830		—		—		44,425,830		44,425,830		—

U.S. government agency securities		15,310,681		166		(1,168	)		15,309,679		502,513		14,807,166		28,932,679		5,866		—		28,938,545		—		28,938,545

Available for Sale(1)		34,810,681		166		(1,168	)		34,809,679		20,002,513		14,807,166

Total cash, cash equivalents and current marketable securities										$	33,103,849	$	14,807,166

Available for Sale ⁽¹⁾															28,932,679		5,866		—		28,938,545		—		28,938,545
Total Cash, cash equivalents and current marketable securities																						$	44,425,830	$	28,938,545

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

~~Fair value of government securities and obligations and corporate debt securities were estimated using quoted broker prices and significant other observable inputs.~~

~~The contractual maturities of all available for sale securities were less than one year at September 30, 2017.~~

FAIR VALUE MEASUREMENTS

Financial instruments, including cash and accounts payable, are carried in the 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 loans under its credit facility approximates market rates currently available to the Company.

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

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

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

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

There were no0 liabilities measured at fair value at September 30, ~~2017~~2020 or December 31, ~~2016. The following table presents information about~~2019.

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

Reverse repurchase agreements and U.S. government agency securities are recorded at ~~September 30, 2017~~fair market value and ~~December 31, 2016:~~considered as Level 2 inputs under the fair value hierarchy.

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

   September 30, 2017
   Level 1    Level 2    Level 3    Total
Assets:

Money market funds
   $ 12,056,919    $ —      $ —      $ 12,056,919
Reverse repurchase agreements
   —      19,500,000    —      19,500,000
U.S. government agency securities
   —      15,309,679    —      15,309,679








Total assets at fair value
   $ 12,056,919    $ 34,809,679    $ —      $ 46,866,598

   December 31, 2016
   Level 1    Level 2    Level 3    Total
Assets:

Money market funds
   $ 70,212    $ —      $ —      $ 70,212
Reverse repurchase agreements
   —      11,550,000    —      11,550,000
U.S. government agency securities
   —      12,897,584    —      12,897,584








Total assets at fair value
   $ 70,212    $ 24,447,584    $ —      $ 24,517,796

ACCRUED EXPENSES

Accrued expenses ~~at September 30, 2017 and December 31, 2016 were:~~were comprised of:


	September 30,		December 31,		September 30,		December 31,
	2017		2016		2020		2019
Accrued compensation	$	645,871	$	983,449	$	1,328,475	$	1,489,475
Accrued research and development		680,637		913,838		1,960,150		9,493,093
Accrued general & administrative		180,950		48,964

Accrued general and administrative						730,010		890,554
Accrued expenses	$	1,507,458	$	1,946,251	$	4,018,635	$	11,873,122

CREDIT FACILITY

The Company’s long-term debt obligation consists of amounts the Company is obligated to repay under its credit facility with ~~Pacific Western (Credit Facility), of which $1.4 million was outstanding as of September 30, 2017. The~~Hercules Capital, Inc. (“Hercules”). In March 2019, the Company entered into a Loan and Security Agreement with Hercules and several banks and other financial institutions or entities, from time-to-time parties thereto (collectively, referred to as “Lender”), providing for a term loan of up to $60.0 million, subject to the satisfaction of certain conditions contained therein, that is secured by a lien covering all of the Company’s assets, other than the Company’s intellectual property (the “Loan and Security Agreement” or the “Hercules Credit ~~Facility in April 2012~~Facility”). The Loan and ~~it has been subsequently amended to make~~Security Agreement provided for (i) an initial term ~~loans in a principal amount~~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 ~~with proceeds~~upon the occurrence of certain funding conditions prior to ~~be used first~~September 30, 2019 (the “2019 Tranche”), March 31, 2020 (the “2020 Tranche”), and March 31, 2021 (the “2021 Tranche”); and (iii) a final additional term loan advance of up to ~~refinance outstanding loans from Pacific Western, second~~$10.0 million prior to ~~fund expenses related~~December 31, 2021, at the Company’s option, subject to ~~its clinical trials,~~approval by the Lender’s investment committee. The 2019 Tranche was drawn down in full by the Company in September 2019 and the remainder for general working capital purposes. The term loans are to be made available upon the following terms: (i) $2.0 million was made available on November 10, 2014; and (ii) $3.0 million (the2020 Tranche ~~B Loan) which was made available~~expired unutilized prior to the Company satisfying the funding conditions for such tranche. As of September 30, 2020, the Company had not satisfied the funding conditions for the 2021 Tranche. As of September 30, 2020, $15.0 million was outstanding under the Hercules Credit Facility and 0 additional amounts were available for borrowing. As of September 30, 2020, the Company was in ~~May 2016 following~~material compliance with all covenants of the ~~satisfaction of certain conditions, including receipt of positive phase 2 data in noninfectious anterior uveitis. Each~~Hercules Credit Facility.

The term loan ~~accrues~~bears interest ~~from its date of issue~~ at ~~a variable~~an annual ~~interest~~ rate equal to the greater of ~~2.0%~~(i) 9.10% and (ii) the prime rate (as reported in the Wall Street Journal or any successor publication thereto) plus ~~prime or 5.25% per annum. In November 2016, we amended our Credit Facility such that any~~3.10%. The Loan and Security Agreement provides for interest-only payments until May 1, 2021, with an option to extend the interest-only period to May 1, 2022 based upon the achievement of certain milestones. Repayment of the aggregate outstanding principal balance of the term loan, ~~the Company draws is payable as interest-only prior to November 2017 and thereafter is payable~~ in monthly installments, ~~of principal plus accrued interest over 36 months.~~

~~The Credit Facility is collateralized by substantially all~~starts upon expiration of the ~~Company’s assets, including its intellectual property.~~

~~In conjunction~~interest-only period and continues through October 1, 2023 (the “Maturity Date”). Associated with ~~obtaining and amending the Credit Facility,~~this debt facility, the Company ~~issued warrants~~incurred a commitment charge of $25,000, transaction costs of $273,186, a fee of $375,000 upon closing, and is required to pay a fee (the “End of Term Charge”) of 6.95% multiplied by the ~~bank with an~~ aggregate ~~fair value~~amount of ~~$266,000, which were recorded as a debt discount. These discounts~~advances under the Loan and Security Agreement at maturity. The fees, transaction costs, and the End of Term Charge are ~~being~~ amortized to interest expense through the Maturity Date using the effective interest ~~method through~~method. The effective interest rate was 12.9% at September 30, 2020. At the ~~current maturity date~~Company’s option, the Company may elect to prepay all, but not less than all, of the ~~Credit Facility in November 2018. All amendments~~outstanding term loan by paying the entire principal balance and all accrued and unpaid interest thereon plus all fees and other amounts due under the Loan and Security Agreement, including a prepayment charge equal to the ~~credit facility were determined~~following percentage of the principal amount being prepaid: 3% if the term loan is prepaid prior to ~~be modifications~~March 25, 2021 and 1.5% if the term loan is prepaid any time thereafter, but prior to March 25, 2022.

Long-term debt consisted of the following:

	September 30,			December 31,
	2020			2019
Term loan payable	$	15,000,000		$	15,000,000
End of term charge		356,372			89,094
Unamortized debt issuance costs		(403,644	)		(560,881	)
Less: current portion		(2,259,417	)		—
Total long-term debt	$	12,693,311		$	14,528,212

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

	Years Ending
	December 31,
2020	$	—
2021		3,659,776
2022		5,931,718
2023		6,451,006
Total	$	16,042,500

The Loan and Security Agreement also contains certain events of default, representations, warranties and non-financial covenants of the Company. In addition, subject to the terms of the 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 ~~accordance~~financings upon the same terms and conditions afforded to such other investors.

9.	STOCKHOLDERS’ EQUITY

In December 2018, the Company entered into an Open Market Sales Agreement^SM (“Jefferies Sales Agreement”) with ~~ASC 470,~~~~Debt~~Jefferies LLC (“Jefferies”), as sales agent, pursuant to which the Company could offer and ~~did not result in extinguishment.~~

Atsell, from time to time through Jefferies, shares of common stock providing for aggregate sales proceeds of up to $50.0 million. The Company had no obligation to sell any shares under the Jefferies Sales Agreement, and could at any time suspend solicitations and offers under the Jefferies Sales Agreement. During the nine months ended September 30, ~~2017~~2020, the Company sold, at a volume-weighted average price of $4.62 per share, an aggregate of 9,351,749 shares of common stock with net proceeds of $40.7 million after deducting commissions related to the Jefferies Sales Agreement and ~~December 31, 2016,~~other offering costs. As of September 30, 2020, the ~~Credit Facility is shown net of a remaining debt discount of $64,000~~Company had sold the maximum allowable amount and ~~$80,000, respectively.~~no further sales may be made under the Jefferies Sales Agreement.

10.

INCOME TAXES

NoNaN provision for federal and state income taxes has been recorded as the Company has incurred losses since inception for tax purposes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

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

Under Section 382 of the Internal Revenue Code of 1986, as amended, ~~(Code),~~ a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize itspre-change net operating losses ~~(NOLs)~~(“NOLs”) and certain other tax assets (tax attributes) to offset future taxable income. In general, an ownership change occurs if the aggregate stock ownership of

certain stockholders increases by more than 50 percentage points over such stockholders’ lowest percentage ownership during the testing period (generally three years). Transactions involving the Company’s common stock, within the testing period, even those outside the Company’s control, such as purchases or sales by investors, within the testing period could result in an

ownership change. A limitation on the Company’s ability to utilize some or all of its NOLs or credits could have a material adverse effect on the Company’s results of operations and cash flows. ~~Prior to 2016, Aldeyra has undergone two ownership changes and it is possible that additional~~As of September 30, 2020, the Company believes four ownership changes have occurred ~~since. However,~~since inception. The Company believes “Built-In Gains” will offset the ~~Company’s management believes that it had sufficient“Built-In-Gain”~~ ~~to offset~~majority of the Section 382 limitations generated by these ownership changes, including the most recent ownership change occurring in July 2020. However, the Company estimates that approximately $9 million of deferred tax assets related to NOLs and tax credits will be permanently limited as a result of the ~~Code limitation generated by such~~July 2020 ownership ~~changes.~~change. As a result of the Company’s full valuation allowance, there is no current period impact to the income statement. Any future ownership changes, including those resulting from ~~Aldeyra’s~~the Company’s recent or future financing activities, may cause the Company’s existing tax attributes to ~~have~~incur additional limitations.

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

The Company accounts for uncertain tax positions pursuant to ASC 740 which prescribes a recognition threshold and measurement process for financial statement recognition of uncertain tax positions taken or expected to be taken in a tax return. If the tax position meets this threshold, the benefit to be recognized is measured as the tax benefit having the highest likelihood of being realized upon ultimate settlement with the taxing authority. ~~The~~Accordingly, in the provision for income taxes, the Company recognizes interest accrued related to unrecognized tax benefits and ~~penalties in the provision for income taxes. Management~~penalties; however, management is ~~not aware~~currently unaware of any uncertain tax positions.

The Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted in the United States on March 27, 2020. CARES includes several income tax provisions such as NOL carryback and carryforward benefits and other tax deduction benefits. As noted previously, the Company’s U.S. deferred tax asset has a full valuation, accordingly these NOL and other benefit provisions have no impact on the Company’s financial statements for the period ended September 30, 2020.

11.

~~STOCK INCENTIVE PLAN~~

STOCK-BASED COMPENSATION

The Company has ~~three equity~~2equity incentive plans. One was adopted in 2004 (2004 Plan) and provided for the granting of stock options and restricted stock awards and generally prescribed a contractual term of seven years. The 2004 Plan terminated in August 2010. However, grants made under the 2004 Plan are still governed byplans that ~~plan. As of September 30, 2017, options to purchase 23,954 shares of common stock at a weighted average exercise price of $3.24 per share remained outstanding under the 2004 Plan.~~

The Company approved the 2010 Employee, Director and Consultant Equity Incentive Plan (2010 Plan) in September 2010 to replace the 2004 Plan. The 2010 Plan provided for the granting of stock options and restricted stock awards. The 2010 Plan terminated in May 2014 upon the initial public offering (Initial Public Offering). However, grants made under the 2010 Plan are still governed by that plan. As of September 30, 2017, options to purchase 413,130 shares of common stock at a weighted average exercise price of $1.58 per share remained outstanding under the 2010 Plan.

The Company approved the 2013 Equity Incentive Plan (2013 Plan) in October 2013. The 2013 Plan became effective immediately on adoption although no awards were to be made under it until the effective date of the Registration Statement for the Initial Public Offering. The 2013 Plan providesprovide for the granting of stock options, restricted stock, stock appreciation rights, stock units, and performance cash awards to certain employees, members of the board of directors, and consultants of the ~~Company.~~ Company with a generally prescribed contractual term of ten years. As of September 30, 2017, the number of shares of common stock authorized for issuance in connection with the 2013 Plan was 2,761,293. On January 1 of each year the aggregate number of common shares that may be issued under the 2013 Plan shall automatically increase by such a number of shares equal to the least of (a) 7% of the total number of common shares outstanding on the last calendar day of the prior fiscal year, (b) subject to adjustment for certain corporate transactions, 1,000,000 common shares, or (c) a number of common shares determined by the Company’s board of directors. As of September 30, 2017, options to purchase 1,799,773 shares of common stock at a weighted average exercise price of $5.64 per share and restricted stock units representing 157,128 shares of common stock remained outstanding under the 2013 Plan. As of September 30, 2017,2020, there were ~~789,856~~940,863 shares of common stock available for grant under the ~~2013 Plan.~~

~~Terms of stock award agreements, including vesting requirements, are determined by the~~ Company’s board of directors or its compensation committee, subject to the provisions of the respective plan they were granted. Awards granted by the Company typically vest over a four year period. Certain of the awards are subject to acceleration of vesting in the event of certain change of control transactions and certain terminations of service. The awards may be granted for a term of up to ten years from the date of grant. The exercise price for options granted under the 2013 Plan must be at a price no less than 100% of the fair market value of a common share on the date of grant.equity incentive plans.

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


	Three Months ended September 30,				Nine Months ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016		2020		2019		2020		2019
Research and development expenses	$	224,341	$	475,026	$	691,747	$	972,237	$	1,236,902	$	1,247,655	$	3,429,592	$	3,528,750
General and administrative expenses		434,998		401,999		1,430,922		1,187,477		520,577		905,283	$	2,023,928	$	2,605,240

Total stock-based compensation expense	$	659,339	$	877,025	$	2,122,669	$	2,159,714	$	1,757,479	$	2,152,938	$	5,453,520	$	6,133,990

Stock Options

The table below summarizes activity relating to stock options under the incentive plans for the nine months ended September 30, ~~2017:~~2020:

   Number of
Shares    Weighted
Average
Exercise Price    Weighted
Average
Contractual
Term    Aggregate
Intrinsic
Value^(a)
Outstanding at December 31, 2016
   1,498,585    $ 4.63    7.86    $ 2,186,398
Granted
   889,337    5.12
Cancelled/Forfeited
   (151,065 )    4.02
Exercised
   —      —



Outstanding at September 30, 2017
   2,236,857    $ 4.87 �� 8.05    $ 5,438,617





Exercisable at September 30, 2017
   1,072,576    $ 4.37    7.00    $ 3,205,195

	Number of Shares			Weighted Average Exercise Price		Weighted Average Contractual Term		Aggregate Intrinsic Value(a)
Outstanding at December 31, 2019		4,193,814		$	6.62
Granted		1,669,023		$	3.91
Exercised		(219,244	)	$	4.83
Expired		(75,838	)	$	6.72
Forfeitures		(678,070	)	$	6.53
Outstanding at September 30, 2020		4,889,685		$	5.79		7.49	$	9,439,040
Exercisable at September 30, 2020		2,745,371		$	5.95		6.38	$	4,924,800

(a)	The aggregate intrinsic value in this table was calculated on the positive difference, if any, between the closing ~~market~~ price per share of the Company’s common stock on September 30, ~~2017~~2020 of ~~$7.20~~$7.41 and the per share exercise price of the underlying options.

As of September 30, ~~2017,~~2020, unamortized stock-based compensation for all stock options outstanding was ~~$4,206,251~~$7,478,325 and ~~will~~is expected to be recognized over a weighted average period of ~~2.61~~2.30 years. Total unrecognized compensation cost will be adjusted for future forfeitures, if necessary.

Restricted Stock Units

~~Restricted stock units are not included in issued and outstanding common stock until the underlying shares are vested and released.~~ The table below summarizes activity relating to ~~restricted stock units~~RSUs for the nine months ended September 30, ~~2017:~~2020:

   Number of
Shares Underlying
Restricted Stock Units –
Time-Based Awards
Outstanding at December 31, 2016
   27,096
Granted
   136,806
Earned/released
   (6,774 )


Outstanding at September 30, 2017
   157,128


Weighted average remaining recognition period of outstanding restricted stock units

3.30
years

Unearned stock-based compensation expense of outstanding restricted stock units
   $ 700,588
Aggregate intrinsic value of outstanding restricted stock units^(a)
   $ 1,131,322

	Number of Shares
~~(a)~~ Outstanding at December 31, 2019	~~The aggregate intrinsic value in this table was calculated on the positive difference, if any, between the closing market price per share of the Company’s common stock on~~	430,425
Granted		635,188
Vested/released		(135,796	)
Outstanding at September 30, ~~2017 of $7.20 and the price of the underlying restricted stock unit.~~2020		929,817

The ~~aggregate intrinsic~~weighted-average fair value of ~~restricted stock units vested during~~RSUs granted was $3.78 per share for the nine months ended September 30, ~~2017 was $27,943. The~~2020. As of September 30, 2020, the outstanding RSUs had unamortized stock-based compensation of $3.6 million with a weighted-average ~~grant-date fair~~remaining recognition period of 2.69 years and an aggregate intrinsic value of ~~restricted stock units granted during the nine months ended September 30, 2017 was $5.10 per share.~~

$4.5 million.

Employee Stock Purchase Plan

~~Our~~At September 30, 2020, the Company had 857,446 shares available for issuance under the 2016 Employee Stock Purchase Plan (2016 ESPP) authorizes the issuance of up to a total of 223,263 shares of the Company’s common stock in semi-annual offerings to participating employees 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 number of shares reserved for issuance under the (“2016 ESPP automatically increases on the first business day of each fiscal year by a number equal to the lesser 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. Stock-based compensation expense for the 2016 ESPP is recognized for the benefit accorded to the participating employees. At September 30, 2017, we have reserved 211,741 shares for future issuance under the 2016 ESPP.ESPP”). A summary of the weighted-average grant-date fair value, ~~shares issued~~ and total stock-based compensation expense recognized related to the 2016 ESPP ~~as of September 30, 2017 and 2016~~ are as follows:

					Nine Months Ended September 30,
	2017		2016		2020		2019
Weighted-average grant-date fair value per share	$	0.70	$	—	$	1.58	$	2.92
Total shares issued		11,522		—
Total stock-based compensation expense	$	8,037	$	—	$	37,604	$	76,507

~~10.~~

12.

~~STOCK PURCHASE WARRANTS~~

LEASES

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

As of September 30, ~~2017, there were 1,384,608 warrants to purchase shares~~2020, the Company maintained an unamortized Right-Of-Use asset with a corresponding operating lease liability of ~~common stock~~approximately $58.7 thousand based on the present value of the ~~Company outstanding with~~minimum rental payments as a ~~weighted-average exercise price~~result of ~~$9.52 per share and weighted-average remaining life~~adoption of ~~0.3~~ASC Topic 842, Leases. The weighted average discount rate used for leases as of September 30, 2020 is 9.1%. The weighted average lease term as of September 30, 2020 is 0.25 years. ~~During~~The operating lease expense for the nine months ended September 30, ~~2017, there were no exercises, issuances or expirations~~2020 was $0.2 million. Maturities and balance sheet presentation of ~~warrants to purchase shares~~our lease liabilities for all operating leases as of ~~common stock of the Company. A summary of the common share purchase warrants outstanding and exercisable at~~ September 30, ~~2017~~2020 is as follows:

Exercise
Price    Number
Outstanding    Expiry Date
$ 10.00    60,000    May 1, 2019
9.50    1,113,080    January 14, 2018
9.50    211,528    January 21, 2018



   1,384,608

2020 remaining total lease payments	$	59,613
Less: effect of discounting		(893	)
Present value of lease liabilities	$	58,720

Current operating lease liabilities	$	58,720
Non-current operating lease liabilities		0
Total	$	58,720

The Company’s gross future minimum payments under all non-cancelable operating leases as of September 30, 2020, are:

		Total				2020				2021				2022				2023
Operating lease obligations		$	59,613			$	59,613			$	—			$	—			$	—

In October 2020, the Company entered into a lease amendment extending the lease by 1 year through December 31, 2021 with rent payments totaling $243,126 during that 12-month period.

~~11.~~

13.

~~COMMITMENTS AND CONTINGENCIES~~

LEGAL PROCEEDINGS

In the ordinary course of its business, the Company may be involved in various legal proceedings involving contractual and employment relationships, patent or other intellectual property rights, and a variety of other matters. The Company is not aware of any pending legal proceedings that would reasonably be expected to have a material impact on the Company’s financial position or results of ~~operations.~~operations

14.	COMMITMENTS AND CONTINGENCIES

There have been no material changes to the Company’s commitments and contingencies from the information provided in Note 13, Commitments and Contingencies, of the Notes to the Consolidated Financial Statements, included in the Company’s 2019 Form 10-K.

Item 2.

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

Cautionary 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:

•

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;

•

delay in or failure to obtain regulatory approval of our product candidates, including as a result of the FDA not accepting the Company’s regulatory filings or requiring additional clinical trials or data prior to review or approval of such filings;

•

the ability to maintain regulatory approval of our product candidates, and the labeling for any approved products;

•

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;

•

the current and potential future impact of the COVID-19 pandemic on our business, results of operations and financial position;

•

uncertainty as to our ability to commercialize (alone or with others) our product candidates following regulatory approval, if any;

•

the size and growth of the potential markets and pricing for our product candidates and the ability to serve those markets;

•

our expectations regarding our expenses and revenue, the sufficiency or use of our cash resources and needs for additional financing;

•

the rate and degree of market acceptance of any of our product candidates;

•

our expectations regarding competition;

•

our anticipated growth strategies;

•

our ability to attract or retain key personnel;

•

our limited sales and marketing infrastructure;

•

our ability to establish and maintain development 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, including the recent COVID-19 pandemic and subsequent public health measures, that may affect our business 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.

~~the timing and success of preclinical studies and clinical trials conducted by us and our development partners;~~

~~the ability to obtain and maintain regulatory approval of our product candidates, and the labeling for any approved products;~~

~~the scope, progress, expansion, and costs of developing and commercializing our product candidates;~~

~~the size and growth of the potential markets and pricing for our product candidates and the ability to serve those markets;~~

~~our expectations regarding our expenses and revenue, the sufficiency or use of our cash resources and needs for additional financing;~~

~~the rate and degree of market acceptance of any of our product candidates;~~

~~our expectations regarding competition;~~

~~our anticipated growth strategies;~~

~~our ability to attract or retain key personnel;~~

~~our ability to establish and maintain development partnerships;~~

~~our expectations regarding federal, state and foreign regulatory requirements;~~

~~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)~~(“SEC”).

We encourage you to read “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors,” as well as our unaudited consolidated financial statements contained in this quarterly report on Form10-Q. We also encourage you to read our Annual Report on Form10-K for the year ended December 31, ~~2016,~~2019, which was filed with the SEC on March ~~30, 2017 (Annual Report)~~12, 2020 (“2019 Annual Report”), which contains a more complete discussion of the risks and uncertainties associated with our business. In addition to the risks described above and in our 2019 Annual 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~~ 10-Q, 8-K and10-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 ~~they~~our results will ~~have~~lead to the expected consequences ~~to,~~ or ~~effects on, us. Therefore~~effects. Accordingly, no assurance can be given that the outcomes stated in such forward-looking statements and estimates will be achieved.

Overview

~~We are~~Aldeyra Therapeutics, including its wholly-owned subsidiaries (we, us, or the Company), is a clinical-stage biotechnology company focused ~~primarily~~ on the development of ~~new products for inflammation, inborn errors~~novel therapies with the potential to improve the lives of ~~metabolism, and other diseases that are thought to be related to endogenously generated toxic andpro-inflammatory~~ ~~mediators known as aldehydes.~~ patients with immune-mediated diseases.

Our lead product candidate, reproxalap, is ~~reproxalap (formerly known asADX-102)~~a first-in-class treatment in Phase 3 clinical development for dry eye disease (“DED”) and allergic conjunctivitis (“AC”).

We ~~are developing reproxalap, as well as other novel~~have additional product candidates ~~that are designed specifically~~in development for systemic immune-mediated diseases, proliferative vitreoretinopathy (“PVR”) and other retinal diseases, autoimmune disease, and cancer. We currently intend to ~~sequester aldehydes,~~commercialize our products directly or through collaborations. None of our product candidates have been approved for ~~the treatment of:~~

~~Dry eye disease, a common inflammatory disease estimated to affect approximately 20 million people~~sale in the United States or elsewhere.

Reproxalap is a RASP (reactive aldehyde species) inhibitor that ~~is characterized by insufficient moisture and lubrication associated with the anterior surface of the eye, leading to ocular irritation, burning, stinging, and, in severe cases, loss of vision;~~

Allergic conjunctivitis, a common disease that affects more than 20% of the population worldwide, and related rare allergic ocular diseases that are characterized by inflammation of the conjunctiva (a membrane covering part of the front of the eye), resulting in ocular itching, excessive tear production, swelling, and redness;

~~Noninfectious anterior uveitis, a rare severe inflammatory eye disease estimated to affect approximately 150,000 patients in the United States that can lead to blindness;~~

~~Sjögren-Larsson Syndrome (SLS), a rare inborn error of metabolism caused by mutations in an enzyme that metabolizes fatty aldehydes, resulting in severe skin and neurological disorders; and~~

~~Succinic Semi-Aldehyde Dehydrogenase (SSADH) Deficiency, a rare inborn error of metabolism caused by genetic mutations in an aldehyde-metabolizing enzyme, leading to severe neurological disease.~~

In February 2016, we announced that the results of a randomized, parallel-group, double-masked, vehicle-controlled Phase 2a clinical trial of reproxalap ophthalmic solution in patients with allergic conjunctivitishas demonstrated statistically significant ~~activity~~and clinically relevant improvements across an aggregate of ~~reproxalap over vehicle in reducing ocular itching and tearing.~~

~~In May 2016, we announced that the results of our randomized, parallel-group, investigator-masked, multi-center, active-controlled~~seven Phase 2 clinical ~~trial of reproxalap ophthalmic solution~~trials in ~~patients with noninfectious anterior uveitis demonstrated that reproxalap reduced inflammatory cell count in the anterior chamber of the eye to a degree similar to that ofstandard-of-care~~ ~~corticosteroid therapy (which may lead to cataracts~~DED and ~~glaucoma in some patients), but without the intraocular pressure elevations that were observed in subjects treated with corticosteroids.~~

In August 2016, we announced that the results of a randomized, parallel-group, double-blind, multi-center, vehicle-controlled clinical trial of a dermatologic formulation of reproxalap for the treatment of the skin manifestations of SLS demonstrated clinically relevant activity of reproxalap in diminishing the severity of ichthyosis, a serious dermatologic disease characteristic of SLS, that was statistically superior to the results found in vehicle-treated patients.

In April 2017, the United States Food and Drug Administration (FDA) granted reproxalap orphan drug designation for the treatment of congenital ichthyosis, the severe skin condition characteristic of SLS.

In June 2017, we announced that the results of a randomized, parallel-group, double-masked, multi-center, saline-controlled Phase 2b clinical trial of topical ocular reproxalap in patients with allergic conjunctivitis demonstrated statistically significant activity of reproxalap over vehicle in reducing ocular itching.

In August of 2017, the generic name reproxalap was adopted by the United States Adopted Names Council and the International Nonproprietary Names Expert Group for our lead product and first-in-class aldehyde trap (formerly known as ADX-102). The name incorporates a new stem for aldehyde traps, “-alap”, and recognizes aldehyde traps as a novel class of drug.

In September 2017, we announced that the results of a randomized, dose-ranging, parallel-group, double-masked Phase 2a clinical trial of 0.1% reproxalap ophthalmic solution, 0.5% reproxalap ophthalmic solution, and 0.5% reproxalap lipid ophthalmic solution in 51 patients (17 per arm) with dry eye disease for 28 days demonstrated statistically significant improvement of pooled change from baseline in Symptom Assessment in Dry Eye (SANDE) Score (p=0.003), Ocular Discomfort Score (p=0.00002), Overall Four-Symptom Score (p=0.0004), Schirmer (Tear Volume) Test (p=0.008), tear osmolarity (p=0.003), and Lissamine Green ocular surface staining score (p=0.002). A modest dose-response was observed, and activity increased over time from Day 8 to Day 28, supporting the effect of drug. Levels of malondialdehyde, a pro-inflammatory aldehyde mediator sequestered by reproxalap, were significantly reduced in the tears of patients (p=0.009), supporting the differentiated mechanism of action relative to other therapies in dry eye disease.

~~In all clinical trials completed to date, reproxalap was well tolerated, and no serious adverse events have been reported.~~

~~We have commenced~~AC, a Phase 3 clinical trial ~~of reproxalap ophthalmic solution compared to vehicle for the treatment of noninfectious anterior uveitis,~~in AC, and ~~expect to report results from the trial in the second half~~Part 1 of ~~2018.~~

~~In the first half of 2018, we expect to commence~~ a Phase 3 clinical trial in DED, when administered topically to the eye as an ophthalmic solution. Administered to the skin as a topical dermatologic formulation in a Phase 2 clinical trial and in Part 1 of a Phase 3 clinical trial, reproxalap ~~ophthalmic solution~~demonstrated statistically significant and clinically relevant improvements in ichthyosis (a severe skin disorder) caused by Sjögren-Larsson Syndrome (“SLS”), a rare RASP-mediated disease with no approved therapy. Additionally, in a Phase 1 clinical trial, ADX-629, a first-in-class orally available RASP inhibitor, was well-tolerated and no treatment-related adverse events were observed. Relative to subjects treated with placebo, reduction in the commonly described pro-inflammatory RASP malondialdehyde was observed in ADX-629 treated subjects. A growing body of clinical evidence supports the potential and relevance of RASP inhibition as a new and differentiated mechanism of action. We have discovered and are developing one additional RASP inhibitor, ADX-103, for the treatment of ~~allergic conjunctivitis,~~retinal disease.

As we continue to execute on our strategy of expanding our product candidate pipeline, we may license or acquire new immune-modulating approaches with novel therapeutic potential. In January 2019, we acquired Helio Vision, Inc. (“Helio”) and ~~expect~~thereby obtained rights to ~~report results from~~ADX-2191, an intravitreal DHFR inhibitor (methotrexate) for the ~~trial~~prevention of PVR, a serious sight-threatening retinal disease with no approved treatment. In addition, in December 2016, we in-licensed ADX-1612, which inhibits the ~~second half~~protein chaperome, a mechanistically differentiated approach for the potential treatment of ~~2018.~~

a number of inflammatory diseases. In the ~~first half~~future, we may enter into additional partnerships that facilitate the development and commercialization of ~~2018, we expect~~our product candidates.

All of our development plans and timelines are subject to ~~commence a Phase 2b~~adjustment depending on recruitment rate, regulatory review, preclinical and clinical ~~trial~~results, funding, and other factors that could delay the initiation, completion, or reporting of ~~reproxalap ophthalmic solution for the treatment dry eye disease, and expect to report results from the trial in the second half of 2018.~~

~~In the first half of 2018, we expect to begin part one of a two-part Phase 3~~ clinical ~~trial of topical dermatologic reproxalap for the treatment of the skin manifestations of SLS, and expect to report results from part one of the trial in the second half of 2018.~~trials.

In the second half of 2018, we expect to begin a planned Phase 1 clinical trial of a systemically administered aldehyde trap that may subsequently be developed for the treatment of SLS, SSADH Deficiency, or a systemic inflammatory disorder.

We have no products approved for sale. We will not receive any revenue from any product candidates that we develop until we obtain regulatory approval and commercialize such products or until we potentially enter into agreements with third parties for the development and commercialization of product candidates. If our development efforts for any of our product candidates result in regulatory approval or we enter into collaboration agreements with third parties, we may generate revenue from product sales or from such third parties. We have primarily funded our operations through the sale of our convertible preferred stock, common stock, convertible promissory notes, warrants, and borrowings under ~~our loan and security agreements.~~debt facilities.

In ~~February 2017,~~December 2018, we ~~closed~~entered into an ~~underwritten public offering in~~Open Market Sale Agreement ^SM (“Jefferies Sales Agreement”) with Jefferies LLC (“Jefferies”), as sales agent, pursuant to which we offered and sold, ~~2,555,555~~ shares of our common stock, ~~including 333,333 shares sold in connection with the exercise in full by the underwriters of their option to purchase additional shares. The net~~for aggregate sales proceeds of ~~the offering, including the full exercise~~$50.0

million from time to time through Jefferies. From January 1, 2020 through September 30, 2020, we sold, at a volume-weighted average price of ~~the option, were approximately $10.6 million after deducting underwriting discounts, commissions, and other estimated offering expenses payable by Aldeyra.~~

~~In September 2017, the Company closed an underwritten public offering in which it sold~~$4.62, an aggregate of ~~3,967,500~~9,351,749 shares of common stock ~~including 517,500 shares sold in connection~~ with ~~the exercise in full by the underwriters of their option to purchase additional shares. The~~ net proceeds of ~~the offering, including the full exercise of the option, were approximately $26.9~~$40.7 million after deducting ~~underwriting discounts,~~ commissions related to the Jefferies Sales Agreement and other offering ~~expenses payable~~costs. As of September 30, 2020, we had sold the maximum allowable amount and no further sales may be made under the Jefferies Sales Agreement.

On January 28, 2019, we acquired Helio. As a result of the acquisition, we issued an aggregate of 1,160,444 shares of common stock to the former securityholders and an advisor of Helio. We, subject to the conditions of the acquisition agreement, will be obligated to make additional payments to the former securityholders of Helio as follows: (a) $2.5 million of common stock on the date that is 24 months following the closing date; (b) $10.0 million of common stock following approval by ~~Aldeyra.~~the FDA of a new drug approval application for the prevention and/or treatment of PVR or a substantially similar label prior to the 10th anniversary of the closing date; and (c) $2.5 million of common stock following FDA of a new drug approval application for an indication (other than PVR 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. 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.

In March 2019, we entered into the Hercules Credit Facility, which provided for a term loan of up to $60.0 million, $25.0 million of which may become available for draw-down in the future, subject to the satisfaction of certain conditions contained therein. 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. The Hercules Credit Facility is described in Note 8 to the notes to the condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q.As of September 30, 2020, $15.0 million was outstanding under the Hercules Credit Facility, and no additional amounts were available for borrowing.

We will need to raise additional capital in the form of debt or equity or through partnerships to fund additional development of ~~reproxalap~~our product candidates and, ~~other aldehyde traps,~~subject to regulatory approval, if any, the commercialization of our product candidates, and we mayin-license, acquire, or invest in complementary businesses or products. In addition, ~~contingent on~~as capital resources permit, we may augment ~~diminish,~~ or otherwise modify the clinical development ~~plan~~plans described herein. However, the disruption in the capital markets caused by the COVID-19 outbreak could make any financing more challenging, and there can be no assurance that we will be able to raise capital on commercially reasonable terms or at all.

Research and development expenses

We expense all of our research and development expenses as they are 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;

•

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.

~~expenses incurred under agreements with sites and consultants that conduct our clinical trials;~~

~~expenses related to generating, filing, and maintaining intellectual property; and~~

~~employee-related expenses, including salaries, benefits, travel, and stock-based compensation expense.~~

~~Substantially all~~The majority of our research and development expenses to date have been incurred in connection with reproxalap. We expect our research and development expenses to increase for the foreseeable future as we advance reproxalap and other compounds through preclinical and clinical development. The process of conducting clinical trials necessary to obtain regulatory approval is costly and ~~time-consuming.~~time consuming. We are unable to estimate with any certainty the costs we will incur in the continued development of reproxalap and our other 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.

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. Our research and development expenditures are subject to numerous uncertainties in terms of both their timing and total 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 to 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:

•

per patient trial costs;

•

the number of sites included in clinical trials;

•

the countries in which clinical trials are conducted;

•

delays of, or other effects on, clinical trials resulting from the ongoing COVID-19 pandemic or for other reasons;

•

the length of time required to enroll eligible patients;

•

the design of clinical trials;

•

the cost of drug manufacturing;

•

the number of patients that participate in clinical 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 of our product candidates; 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 ~~number of sites included in~~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 ~~trials;~~

~~the countries in which the trials~~asset acquisition are ~~conducted;~~

expensed as incurred.

~~the length of time required to enroll eligible patients;~~

~~the design of the trials;~~

~~the number of patients that participate in the trials;~~

~~the cost to manufacture drug and the number of doses that patients receive;~~

~~the cost of vehicle or active comparative agents used in trials;~~

~~thedrop-out~~ ~~or discontinuation rates of patients;~~

~~potential additional safety monitoring or other studies requested by regulatory agencies;~~

~~the duration of patientfollow-up;~~ ~~and~~

~~the efficacy and safety profile of the product candidate.~~

We do not expect reproxalap and our other product candidates to be commercially available, if at all, ~~for the next several years.~~

before at least 2023.

General and administrative expenses

~~Our~~During the nine months ended September 30, 2020 and 2019 our general and administrative expenses consisted primarily of ~~payroll~~employee-related expenses, including benefits and stock-based compensation for our full-time ~~employees during the three and nine months ended September 30, 2017 and 2016.~~employees. Other general and administrative expenses include professional fees for auditing, tax, and legal ~~services.~~services, including patent-related costs. We expect that general and administrative expenses will increase in the future as we expand our operating activities, and 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, legal fees, accounting fees, directors’ and officers’ liability insurance premiums, and fees associated with investor relations.

~~Total~~ Other ~~Income (Expense)~~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 fromnon-owner sources. For the ~~three~~nine months ended September 30, ~~2017,~~2020, comprehensive loss is equal to our net loss of ~~$5.0~~$26.3 million and an unrealized ~~gain~~loss on marketable securities of ~~$4,000.~~approximately $5.9 thousand. For the nine months ended September 30, ~~2017,~~2019, comprehensive loss is equal to our net loss of $15.4 million and an unrealized loss on marketable securities of $1,000. For the three months ended September 30, 2016, comprehensive loss is equal to our net loss of $4.8 million and an unrealized gain of $2,000. For the nine months ended September 30, 2016, comprehensive loss is equal to our net loss of $14.0$47.7 million and an unrealized gain on marketable securities of ~~$15,000.~~approximately $15.0 thousand.

Critical Accounting Policies

The preparation of our 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 our financial statements, as well as the reported revenues and expenses during the reported periods. We evaluate these estimates and judgements 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 apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions. While our significant accounting policies are more fully described in the notes to our unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q and our audited financials in our 2019 Annual Report, not all of these significant accounting policies require that we make estimates and assumptions that we believe are critical accounting policies.

There ~~have been~~were no ~~significant~~ changes into our critical accounting policies during the nine months ended September 30, 2020, including estimates, assumptions, and judgments as compared to those described in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2019 Annual Report.It is important that the discussion of our operating results that follow be read in conjunction with the critical accounting policies disclosed in our 2019 Annual Report.

COVID-19

We are closely monitoring the impact of the outbreak of COVID-19 on all aspects of our business, including how the pandemic will impact our employees, clinical trials, development programs, supply chain, and other aspects of our operations. For example, patient enrollment in our GUARD trial was negatively impacted as a result of limited clinical trial staffing at study sites and some patients electing to delay surgery. While COVID-19 did not have a material adverse effect on our reported results for the nine months ended September 30, 2020, we are unable to predict the ultimate impact that the pandemic may have on our business, future results of operations, financial position, or cash flows. The extent to which our operations may be impacted by the COVID-19 pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including new information which may emerge concerning the severity of the outbreak and actions by government authorities to contain the outbreak. Furthermore, the impact of a potential worsening of global economic conditions and the continued disruptions to and volatility in the financial markets remains unknown.

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, and regulatory requirements. Our limited operating history makes predictions of future operations difficult or impossible. Since our inception, we have incurred significant losses.

Three ~~months ended~~Months Ended September 30, ~~2017~~2020 compared to three months ended September 30, ~~2016~~2019

Research and development expenses. Research and development expenses were ~~$3.5~~$6.1 million for the three months ended September 30, ~~2017,~~2020, compared to ~~$3.4~~$16.2 million for the three months ended September 30, ~~2016.~~2019. The ~~increase~~decrease of ~~$0.1~~$10.1 million is primarily related to the decreases in our external clinical research and development expenditures and lower personnel related costs, offset by increases in our manufacturing and preclinical research activities.

General and administrative expenses. General and administrative expenses were $2.3 million for the three months ended September 30, 2020, compared to $2.8 million for the three months ended September 30, 2019. The decrease of $0.5 million is primarily due to a decrease in personnel related costs and other miscellaneous administrative costs.

Other income (expense). Total other income (expense), net, was $(0.5) million and $0.3 million for the three months ended September 30, 2020 and 2019, respectively. The decrease was primarily due to interest expense related to the Hercules Credit Facility and lower interest income during the three months ended September 30, 2020.

Nine Months Ended September 30, 2020 compared to nine months ended September 30, 2019

Research and development expenses. Research and development expenses were $17.7 million for the nine months ended September 30, 2020 compared to $34.7 million for the nine months ended September 30, 2019. The decrease of $17.0 million is primarily related to the decreases in our external research and development expenditures, including clinical ~~preclinical,~~ and manufacturing ~~activities.~~activities, and lower personnel related costs.

General and administrative expenses.General and administrative expenses were ~~$1.5 million for the three months ended September 30, 2017, compared to $1.4 million for the three months ended September 30, 2016.~~

~~Other income (expense).~~Total other income (expense), net was $29,000 and $1,000 for the three months ended September 30, 2017 and 2016, respectively. For the three months ended September 30, 2017 and 2016, respectively, other income (expense) primarily consisted of interest income, which was partially offset by interest expense related to our Credit Facility.

~~Nine months ended September 30, 2017 compared to nine months ended September 30, 2016~~

~~Research and development expenses.~~ ~~Research and development expenses were $10.8~~$7.5 million for the nine months ended September 30, ~~2017,~~2020, compared to ~~$9.7~~$8.9 million for the nine months ended September 30, ~~2016.~~2019. The ~~increase~~decrease of ~~$1.1~~$1.4 million is primarily related to ~~increases~~decreases in ~~our external~~personnel related costs and other legal and miscellaneous administrative costs.

Acquired in-process research and development ~~expenditures, partially offset by a reduction in manufacturing~~expenses. We did not have acquired in-process research and ~~pre-clinicial expenses.~~

~~General~~development expense for the nine months ended September 30, 2020. Acquired in-process research and ~~administrative expenses.~~~~General and administrative~~development expenses were ~~$4.7~~$6.5 million for the nine months ended September 30, ~~2017, compared~~2019 which were associated with the January 2019 acquisition of Helio. We determined that the assets acquired from Helio did not constitute a business since substantially all of the assets acquired were related to ~~$4.3~~ADX-2191, and that the transaction would be accounted for as an asset acquisition. As the asset and development program acquired from Helio are at an early stage of development and determining the future economic benefit of the acquired assets at the date of acquisition is highly uncertain, the fair value of the assets was fully expensed as in-process research and development. During the nine months ended September 30, 2019, we recorded $6.5 million of acquired in-process research and development expense related to the fair value of consideration given, which includes transaction costs and income tax benefit of $1.3 million and a corresponding increase to acquired in-process research and development expense.

Other income (expense). Total other income (expense), net was $(1.1) million and $1.2 million for the nine months ended September 30, ~~2016.~~2020 and 2019, respectively. The ~~increase of $0.4 million is~~decrease was primarily due to interest expense related to ~~an increase in personnel costs, including stock-based compensation costs.~~

~~Other~~the Hercules Credit Facility and lower interest income ~~(expense).~~~~Total other income (expense), net was $56,000 and $(5,000) for~~during the nine months ended September 30, 2017 and 2016, respectively. For the nine months ended September 30, 2017, other income (expense) primarily consisted of interest income, which was partially offset by interest expense related to our Credit Facility. For the nine months ended September 30, 2016, other income (expense) consisted of interest expense related to our Credit Facility, which was partially offset by interest income.2020.

Liquidity and Capital Resources

We have funded our operations primarily from the sale of equity securities and convertible equity securities and borrowings under ~~our Credit Facility discussed below.~~credit facilities. Since inception, we have incurred operating losses and negative cash flows from operating activities and have devoted substantially all of our efforts ~~towards~~to research and development. At September 30, ~~2017,~~2020, we had total stockholders’ equity of approximately ~~$45.9~~$69.2 million, and cash, cash equivalents, and marketable securities of ~~$47.9~~$86.2 million. During the nine months ended September 30, ~~2017,~~2020, we had a net loss of approximately ~~$15.4~~$26.3 million. We expect to generate operating losses for the foreseeable future.

~~Our long-term debt obligation consists of amounts we are obligated to repay under our Credit Facility with Pacific Western, of which $1.4 million was outstanding as of September 30, 2017.~~

In ~~April 2012,~~December 2018, we entered into the Credit Facility which was subsequently amended to include term loans in a principal amount of up to $5.0 million. Proceeds were used to refinance outstanding loans from Pacific Western, to fund expenses related to our clinical trials, and for general working capital purposes. Per the terms of the Credit Facility, $2.0 million was made available in November 2014, and $3.0 million was made available to us in May 2016 following the satisfaction of certain conditions, including receipt of positive Phase 2 clinical trial results in noninfectious anterior uveitis. Each term loan accrues interest from its date of issue at a variable annual interest rate equal to the greater of 2.0% plus prime or 5.25% per annum. In November 2016, we amended our Credit Facility such that any term loan we draw is payable as interest-only prior to November 2017, and thereafter is payable in monthly installments of principal plus accrued interest over 36 months.

~~At September 30, 2017 and December 31, 2016, the Credit Facility is shown net of a remaining debt discount of $64,000 and $80,000, respectively.~~

~~In June 2016, we closed~~ an ~~underwritten public offering in which we sold an aggregate of 2,760,000 shares of common stock, including 360,000 shares sold in connection~~Open Market Sale Agreement ^SM (“Jefferies Sales Agreement”) with the exercise in full by the underwriter of its option to purchase additional shares. The net proceeds of the offering, including the full exercise of the option, were approximately $12.6 million after deducting underwriting discounts, commissions, and other offering expenses payable by us. In February 2017, we closed an underwritten public offering in which we sold 2,555,555 shares of our common stock, including 333,333 shares sold in connection with the exercise in full by the underwriters of their option to purchase additional shares. The net proceeds of the offering, including the full exercise of the option, were approximately $10.6 million after deducting underwriting discounts, commissions, and other estimated offering expenses payable by Aldeyra.

~~In June 2017, we entered into a Controlled Equity Offering SM sales agreement (Sales Agreement) with Cantor Fitzgerald & Co. (Cantor)~~Jefferies LLC (“Jefferies”), as sales agent, pursuant to which ~~the Company may offer~~we offered and ~~sell,~~sold, shares of our common stock for aggregate sales proceeds of $50.0 million from time to time through ~~Cantor, shares~~Jefferies. From January 1, 2020 through September 30, 2020, we sold, at a volume-weighted average price of ~~our common stock, par value $0.001~~$4.62 per share, ~~providing for~~ an aggregate ~~sales proceeds~~ of ~~up to $20,000,000. Under the Sales Agreement, Cantor may sell such~~9,351,749 shares of common stock ~~in sales deemed to be an “at the market offering” (ATM) as defined in Rule 415(a)(4) promulgated under the Securities Act~~with net proceeds of 1933, as amended, and we will set the parameters for the sale of shares, including the number of shares to be issued, the time period during which sales are requested to be made, any limits on the number of shares that may be sold in any one trading day, and any minimum price below which sales may not be made. The Sales Agreement provides that Cantor will be entitled to compensation for its services equal to 3.0% of the gross proceeds from the sale of shares sold pursuant$40.7 million after deducting commissions related to the ~~Sales Agreement. We have no obligation to sell any shares under the~~Jefferies Sales Agreement and ~~may at any time suspend solicitations and offers under the Sales Agreement.~~ other offering costs. As of September 30, ~~2017,~~2020, we had sold the maximum allowable amount and no ~~shares had been sold~~further sales may be made under the Jefferies Sales Agreement.

In ~~September 2017,~~March 2019, we ~~closed an underwritten public offering in~~entered into the Hercules Credit Facility, pursuant to which ~~we sold~~a term loan of up to an aggregate principal amount of ~~approximately 3,967,500 shares~~$60.0 million may be made available to us. The Loan Agreement provides for (i) an initial term loan advance of ~~common stock, including 517,500 shares sold in connection with~~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 ~~exercise~~occurrence of certain funding conditions prior to September 30, 2019 (the “2019 Tranche”), March 31, 2020 (the “2020 Tranche”), and March 31, 2021 (the “2021 Tranche”); and (iii) a final additional term loan advance of up to $10.0 million prior to December 31, 2021, at our option, subject to approval by Lender’s investment committee. We drew down the 2019 Tranche in full byin September 2019 and the ~~underwriters~~2020 Tranche expired unutilized prior to us satisfying the funding conditions for such tranche. As of ~~their option~~September 30, 2020, we had not satisfied the funding conditions for the 2021 Tranche. The loan agreement contains customary affirmative and negative covenants and events of default. Affirmative covenants include, among others, covenants requiring us to ~~purchase~~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 ~~shares. The net proceeds~~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 September 30, 2020, $15.0 million was outstanding under the ~~offering,~~Hercules Credit Facility, and no additional amounts were available for borrowing.

Based on our current operating plan, and not including access to additional capital that may become available under the ~~full exercise of the option, were approximately $26.9 million, after deducting the underwriting discounts, commissions, and other offering expenses payable by Aldeyra.~~

WeHercules Credit Facility, we believe that our cash, cash equivalents, and marketable securities as of September 30, ~~2017, together with the amounts available under the Credit Facility,~~2020, will be ~~adequate~~sufficient to fund ~~operations~~currently anticipated operating expenses through the end of 2022, including potential NDA submissions for ~~at least~~reproxalap in dry eye disease and allergic conjunctivitis, assuming positive clinical trial results and regulatory review; the ~~next 24 months based~~Phase 2 clinical trials of ADX-629 in COVID-19, atopic asthma, and psoriasis; and the continuation of Part 1 of the adaptive Phase 3 GUARD trial in proliferative vitreoretinopathy, contingent on patient enrollment. As a result of the COVID-19 pandemic, clinical site availability, staffing, and patient recruitment have been negatively affected and the timelines to complete our ~~current business plan. However,~~clinical trials may be delayed. Our assessment of our liquidity and capital resources includes an estimate of the financial impacts of these ~~amounts~~changes. We will ~~not be sufficient for us~~need to ~~develop~~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 and regulatory activities; commercialize our product ~~candidates~~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, ~~than~~depending on the results of our prior clinical ~~trials.~~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 progress, costs, results, ~~of,~~ and timing of our clinical development program for reproxalap and our other product candidates, including our current and planned clinical trials;

~~the need for, and the progress, costs, and results of any additional clinical trials of reproxalap, including oral or other systemic formulations,~~

•

the need for, and the progress, costs, and results of, any additional clinical trials of reproxalap or our other product candidates that we may initiate based on the results of our planned clinical trials or discussions with the FDA, including any additional trials the FDA or other regulatory agencies may require evaluating the efficacy and safety of reproxalap and our other product candidates;

~~the outcome, costs, and timing of seeking and obtaining regulatory approvals from the FDA, and any similar regulatory agencies;~~

•

the impact of the COVID-19 pandemic on clinical trial initiation and enrollment and other aspects of our business, results of operations, and financial position;

~~the timing and costs associated with manufacturing reproxalap and our other product candidates for clinical trials and other studies and, if approved, for commercial sale;~~

•

the outcome, costs, and timing of seeking and obtaining regulatory approvals from the FDA, and any similar regulatory agencies;

~~our need and ability to hire additional management, development, and scientific personnel;~~

•

the timing and costs associated with manufacturing reproxalap and our other product candidates for clinical trials and other studies and, if approved, for commercial sale;

the cost to maintain, expand, and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with licensing, filing, prosecuting, defending, and enforcing of any patents or other intellectual property rights;

•

our need and ability to hire additional management, development, and scientific personnel;

~~the timing and costs associated with establishing sales and marketing capabilities;~~

•

~~market acceptance of reproxalap and our other product candidates;~~

•

the timing and costs associated with establishing sales and marketing infrastructure;

~~the costs of acquiring, licensing, or investing in additional businesses, products, product candidates, and technologies;~~

•

market acceptance of reproxalap and our other product candidates;

•

the costs of acquiring, licensing, or investing in additional businesses, products, product candidates, and technologies; and

•

our need to ~~remediate any material weaknesses and~~ implement additional internal systems and infrastructure, including financial and reporting systems.

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 for these financings may be much more favorable to the new investors than the terms obtained by our existing stockholders. These financings also may significantly dilute the ownership of our existing stockholders. In addition, the disruption in the capital markets caused by the COVID-19 pandemic 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.

The following table summarizes our cash flows for the nine months ended September 30, ~~2017~~2020 and ~~2016:~~2019:


	Nine months ended September 30,						For the Nine Months Ended September 30,
	2017			2016			2020			2019
Net cash used in operating activities	$	(14,204,345	)	$	(11,238,050	)	$	(29,176,258	)	$	(33,757,903	)
Net cash used in investing activities		(2,087,867	)		(1,545,181	)
Net cash provided by investing activities								29,023,910			22,762,007
Net cash provided by financing activities		37,381,000			12,702,873			41,902,025			15,242,627

Net increase (decrease) in cash and cash equivalents	$	21,088,788		$	(80,358	)

Net increase in cash and cash equivalents							$	41,749,677		$	4,246,731

Operating Activities. Net cash used in operating activities was ~~$14.2~~$29.2 million for the nine months ended September 30, ~~2017,~~2020, compared to net cash used in operating activities of ~~$11.2~~$33.8 million for the same period in ~~2016.~~2019. The primary use of cash was to fund our operations. The ~~increase~~decrease in the amount of cash used in operating activities for the nine months ended September 30, ~~2017~~2020 as compared to ~~2016~~2019 was ~~primarily~~ due to ~~an increase in~~the timing of payments for research and development expenses and ~~general~~lower research and ~~administrative expenses.~~development expenses, including clinical, manufacturing, and preclinical activities.

Investing Activities. Net cash ~~used in~~provided by investing activities was ~~$2.1~~$29.0 million for the nine months ended September 30, ~~2017, compared to $1.5~~2020, and $22.8 million ~~used in~~provided by investing activities for the nine months ended September 30, ~~2016. For~~2019. The primary source of net cash provided by investing activities was the sales and maturities, and purchases of marketable securities for the nine months ended September 30, ~~2017 and 2016, respectively, the~~2020. The primary ~~use~~source of net cash ~~for~~provided by investing activities was ~~for the net purchase~~sales and maturities, and purchases of marketable securities, and cash acquired from the Helio asset acquisition of $0.6 million, for the ~~purchase of computers and related equipment.~~nine months ended September 30, 2019.

Financing Activities. Net cash provided by financing activities was ~~$37.4~~$41.9 million for the nine months ended September 30, ~~2017,~~2020, compared to ~~net cash provided by financing activities of $12.7~~$15.2 million for the nine months ended September 30, ~~2016.~~2019. The net cash provided by financing activities for the nine months ended September 30, ~~2017~~2020 was primarily related to the Jefferies Sales Agreement, under which we sold an aggregate of 9,351,749 shares of our ~~February~~common stock with net proceeds of $40.7 million after deducting commissions and ~~September 2017 offerings.~~other offering costs. The net cash provided by financing activities for the nine months ended September 30, ~~2016~~2019 was primarily related to our ~~June 2016 public offering.~~Hercules Credit Facility, under which $15.0 million was advanced, and our Jefferies Sales Agreement, under which we sold an aggregate of 83,557 shares of our common stock resulting in $0.7 million in proceeds after deducting commissions and other offering costs.

Off-Balance Sheet Arrangements

Through September 30, ~~2017,~~2020, 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 facilitatingoff-balance sheet arrangements or other contractually narrow or limited purpose.

Contractual Obligations

~~Other than~~We are a smaller reporting company as ~~set forth below, there have been no material changes since December 31, 2016~~defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to ~~our contractual obligations from~~provide the information ~~provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, included in our Annual Report on Form10-K~~ ~~for the fiscal year ended December 31, 2016, other than payments made or received in the ordinary course of business.~~

In September, 2017, we executed a Lease Agreement (the “Office Lease”) for approximately 6,924 square feet of office space located in Lexington, Massachusetts (the “Premises”). We intend to continue to use the Premises as our corporate headquarters. The term of the Office Lease is through December 31, 2020, or as extended under our option to extend in the Office Lease. The Office Lease provides for a monthly base rent of $13,559, commencing on December 1, 2017. In addition to the base rent, we are required to pay the landlord certain operating expenses, taxes and other fees in accordance with the terms of the Office Lease.this item.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Interest rates

Our exposure to market risk is currently confined to our cash, ~~and~~our cash equivalents, our marketable securities, and our Hercules Credit Facility. We have not used derivative financial instruments for speculation or trading purposes. Because of the short-term maturities of our cash, cash equivalents, and marketable securities, we do not believe that an increase in market rates would have any significant impact on the realized value of our investments. Our Hercules Credit Facility accrues interest from its date of issue at a variable annual interest rate equal to the greater of ~~2.0%~~(i) 9.10% and (ii) the prime rate (as reported in the Wall Street Journal or any successor publication thereto) plus ~~prime or 5.25% per annum.~~3.10%. As of September 30, 2020, $15.0 million was outstanding under the Hercules Credit Facility.

Effects of inflation

Inflation has not had a material impact on our results of operations.

Item 4.

Controls and Procedures.

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Financial Officer and Chief Executive Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934 ~~(Exchange Act)~~(“Exchange Act”)) as of ~~September 30, 2017.~~the end of the period covered by this report. Based on our management’s evaluation (with the participation of our Chief Executive Officer ~~and President~~ and our Chief Financial Officer), as of the end of the period covered by this report, our Chief Executive Officer ~~and President~~ and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rules13a-15(f) and15d-15(f) of the Exchange Act) during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings.

~~None.~~From time to time, we may become subject to legal proceedings, claims and litigation arising in the ordinary course of business. We currently are not a party to any threatened or pending material litigation and do not have contingency reserves established for any litigation liabilities. However, third parties might allege that we are infringing their patent rights or that we are otherwise violating their intellectual property rights, including trade names and trademarks. Such third parties may resort to litigation. We accrue contingent liabilities when it is probable that future expenditures will be made, and such expenditures can be reasonably estimated.

~~Item~~

ITEM 1A.

~~Risk Factors.~~

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 ~~Quarterly Report~~quarterly report on Form10-Q, ~~and in our Annual Report on Form10-K~~ ~~for the year ended December 31, 2016 filed with the SEC on March 30, 2017,~~ 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.

Risks Related to our Business, Financial Position and Capital Requirements

We have incurred significant operating losses since inception and we expect to incur significant losses for the foreseeable future. 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 and development programs for reproxalap ~~(formerlyADX-102)~~and our other product candidates. Net loss for the nine months ended September 30, ~~2017~~2020 and ~~2016~~2019 was approximately ~~$15.4~~$26.3 million and ~~$14.0~~$47.7 million, respectively. As of September 30, ~~2017,~~2020, we had total stockholders’ equity of ~~$45.9~~$69.2 million and an accumulated deficit of $225.6 million. Losses have resulted principally from costs incurred in our clinical trials, research and development programs and from our general and administrative expenses. In the future, we intend to continue to conduct research and development, clinical testing, regulatory compliance activities, and, if reproxalap or any of our other product candidates is approved, 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.

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 may not be profitable even if we or any of our future development partners succeed in obtaining regulatory approval and commercializing any of our product candidates. 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.

Our business is dependent in large part on the success of a single product candidate, ~~reproxalap.~~reproxalap, for which we are researching multiple indications. We cannot be certain that we will be able to obtain regulatory approval for, or successfully commercialize, reproxalap.

Our product candidates, ~~are in the early stage of development and~~including reproxalap, will require additional preclinical studies, substantial clinical development and testing, and regulatory approval prior to commercialization. We have not yet completed development of any ~~product.~~product candidate. We have only one product candidate that has been the focus of significant clinical development: reproxalap, a novel small molecule chemical entity that is believed ~~to trap and allow for the degradation of aldehydes,~~inhibit RASP, toxic chemical species suspected to cause and exacerbate numerous diseases in humans and animals. We are ~~largely~~ dependent in large part on successful continued development and ultimate regulatory approval of ~~this product candidate~~reproxalap for our future business success. 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 for the treatment of another indication. We have invested, and will continue to invest, a significant portion of our time and financial resources in the development of reproxalap. We will need to raise sufficient funds for, and successfully enroll and complete, our current and planned clinical trials of ~~reproxalap.~~reproxalap and our other product candidates. The future regulatory and commercial success of ~~this~~our product ~~candidate~~candidates is subject to a number of risks, including the following:

~~we may not have sufficient financial and other resources to complete the necessary clinical trials for reproxalap and our other product candidates;~~

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we may not have sufficient financial and other resources to pursue our business plans and complete necessary clinical trials;

~~we may not be able to provide evidence of safety and efficacy for reproxalap and our other product candidates;~~

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we may not be able to provide sufficient evidence of safety and efficacy to continue a development program or obtain regulatory approval;

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;

~~the safety and efficacy results of our later phase or larger clinical trials may not confirm the results of our earlier trials;~~

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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;

~~there may be variability in patients, adjustments to clinical trial procedures and inclusion of additional clinical trial sites;~~

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the safety and efficacy results of our later phase or larger clinical trials may not confirm the results of our earlier trials;

~~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;~~

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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;

~~patients in our clinical trials may suffer other adverse effects or die for reasons that may or may not be related to reproxalap and our other product candidates;~~

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there may be variability in patients, adjustments to clinical trial procedures and inclusion of additional clinical trial sites;

if approved for certain diseases, reproxalap and our other product candidates will compete with well-established products already approved for marketing by the FDA, including corticosteroids and other agents that have demonstrated varying levels of efficacy in some of the diseases for which we may attempt to develop reproxalap and our other product candidates;

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the initial parts of adaptive clinical trials are not designed to be pivotal or definitive, as such we may not satisfy the designated endpoints and also may need to revise the design or endpoints to achieve success in later parts of the trial or potentially abandon the trial;

~~the effects of legislative or regulatory reform of the health care system in the U.S. or other jurisdictions in which we may do business; and~~

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the FDA, or comparable foreign regulatory bodies, may implement new standards, or change the interpretation of existing standards or requirements for the regulatory approval, in general or with respect to the indications our product candidates are being developed to treat;

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the FDA, or comparable foreign bodies, may require clinical data in addition to the clinical trial programs we expect or may require changes to the designs and endpoints of the subsequent clinical trials;

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patients in clinical trials for our product candidates may suffer adverse effects or die for reasons that may or may not be related to our product candidates;

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if approved for certain diseases, our product candidates will compete with well-established and other products or therapeutic options already approved for marketing by the FDA, or comparable foreign regulatory bodies;

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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

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we may not be able to obtain, maintain, or enforce our patents and other intellectual property rights.

Of the large number of drugs in development in the pharmaceutical industry, only a small percentage result in the submission of a NDA to the FDA, and even fewer are approved for commercialization. We are currently planning to submit a new drug application (NDA) to the FDA for reproxalap in dry eye disease by the end of 2021, assuming positive clinical trial results, based on our interpretation of the feedback received from the FDA in the written minutes from our June 2020 meeting. We can provide no assurances that the FDA will accept this NDA for review. Moreover, even if FDA does accept our NDA, there can be no assurance that FDA will agree with our interpretation of the data, that FDA will not require us to conduct additional clinical trials or provide additional data, or that FDA will approve our NDA in a timely fashion, or at all.

Furthermore, even if we do receive regulatory approval to market reproxalap and 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 continue to fund our development programs, we cannot assure ~~you~~ that reproxalap and our other product candidates will be successfully developed or commercialized. If we or any of our future development partners are unable to develop, or obtain regulatory approval for or, if approved, successfully commercialize, reproxalap and or our other product candidates, we may not be able to generate sufficient revenue to continue our business.

~~Because~~To generate revenue, we ~~have limited experience developing clinical-stage compounds, there is~~will depend on FDA approval of our lead product candidate, reproxalap for the potential treatment of dry eye disease. If we are unable to prepare and timely file the planned NDA for this product candidate and obtain FDA approval, 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. Based on our discussions with and our interpretation of feedback from the FDA, we currently plan to submit a ~~limited amount~~NDA to the FDA for reproxalap for the potential treatment of ~~information about us upon which you can evaluate our product candidates and business prospects.~~

~~We commenced our first~~dry eye disease by the end of 2021, subject to positive clinical trial results. There can be no assurance that we can prepare and submit an NDA in ~~2010, and we have limited experience developing clinical-stage compounds upon which you can evaluate our business and prospects. In addition, as an early-stage clinical development company, we~~a timely manner or at all. We have limited experience in ~~conducting~~preparing, filing, and pursuing applications necessary to gain regulatory approvals. The preparation of an NDA requires a great deal of effort and expertise, and if we do not secure the necessary resources and hire and retain personnel having the requisite expertise to prepare and submit the NDA, the filing of the NDA would be delayed. Further, if an NDA is submitted by the company, there can be no assurance that it will be accepted for filing by the FDA. If the FDA determines after an initial review of the NDA that the data included in the application is insufficient and not ready for formal consideration, we could receive a "refuse to file" notice. The FDA has substantial

discretion in the approval process and may disagree with our interpretation of or the sufficiency of the data from our clinical trials. The FDA could also require that we conduct additional studies and submit that data before it will reconsider our application, which would require us to expend more resources than we planned or that are available to us, and could substantially delay any approval of our application. If the FDA is not satisfied with data included in our NDA, we may need to expend additional resources or conduct additional studies, including clinical trials, to obtain data that the FDA believes is sufficient. It is also possible that additional studies may not suffice to make our application approvable. Even if the NDA is accepted for filing by the FDA, there can be no assurance that it would be approved in a timely manner or at all.

Our quarterly operating results may fluctuate significantly.

We expect our operating results to be subject to quarterly fluctuations. Our net loss and ~~we have never conducted~~other operating results will be affected by numerous factors, including:

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variations in the level of expenses related to our clinical trial and development programs;

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addition or termination of clinical trials or development programs;

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any intellectual property infringement lawsuit in which we may become involved;

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regulatory developments affecting reproxalap and our other product candidates;

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the impact of the COVID-19 pandemic on our business, results of operations and financial position;

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our establishment of a sales, marketing and distribution infrastructure to commercialize any product candidate for which we may obtain marketing approval;

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our execution of any collaborative, licensing, or similar arrangements, and the timing of payments we may make or receive under these arrangements;

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the number of administrative, clinical, regulatory and scientific personnel we engage;

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nature and terms of stock-based compensation grants; and

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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.

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.

The development and commercialization of biopharmaceutical products is capital intensive. We are advancing reproxalap and our other product candidates through preclinical and clinical development, including our multiple ongoing and planned clinical trials for our product candidates. We expect our expenses to increase in connection with our ongoing activities as we continue the research and development of, and, if successful, seek marketing approval for, our product candidates. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to manufacturing, product sales, marketing and distribution. 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 size required for regulatory approvals. Further, we have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the biopharmaceutical area. For example, to execute our business planpublic company. Accordingly, we will need to ~~successfully:~~

~~execute~~obtain substantial additional funding in connection with our ~~product candidate development activities, including successfully designing and completing~~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 ~~trial~~development plans, research and development programs or future commercialization efforts. In addition, the disruption in the capital markets caused by the COVID-19 outbreak could make any financing more challenging, and ~~product design and formulation of future product candidates;~~

there can be no assurance that we will be able to obtain ~~required regulatory approvals~~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 process and commercialization of our product candidates. 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:

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the type, number, scope, progress, expansion costs, results of, and timing of our clinical trials of reproxalap or any our other product candidates that we are pursuing or may choose to pursue in the future;

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the need for, and the progress, costs, and results of, any additional clinical trials of reproxalap and our other product candidates we may initiate based on the results of our planned clinical trials or discussions with the FDA, including any additional trials the FDA or other regulatory agencies may require evaluating the safety or efficacy of reproxalap and our other product candidates;

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the costs of obtaining, maintaining, and enforcing our patents and other intellectual property rights;

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the costs and timing of obtaining or maintaining manufacturing for reproxalap and our other product candidates, including commercial manufacturing if any product candidate is approved;

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the costs and timing of establishing sales and marketing capabilities and enhanced internal controls over financial reporting;

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the terms and timing of establishing collaborations, license agreements, and other partnerships on terms favorable to us;

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costs associated with any other product candidates that we may develop, in-license, or acquire, including potential milestone or royalty payments;

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the effect of competing technological and market developments;

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our ability to establish and maintain partnering arrangements for development; and

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the costs associated with being a public company.

~~manage~~Some of these factors are outside of our ~~spending~~control. Our existing capital resources are not sufficient to enable us to fund the completion of our clinical trials and remaining development through commercial introduction. 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 ~~costs and expenses increase due~~ to the ~~performance~~general direction of the macroeconomic environment and ~~completion~~the price of ~~clinical trials, attempting~~our common stock, are beyond our control and may make any necessary debt or equity financing more difficult, more costly, and more dilutive. Additional funding may not be available to ~~obtain regulatory approvals, manufacturing and commercialization;~~

~~secure substantial~~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 ~~funding;~~

~~develop and maintain successful strategic relationships;~~

~~build and maintain a strong intellectual property portfolio;~~

~~build and maintain appropriate clinical, sales, distribution, and marketing capabilities on~~shares by us, or the possibility of such issuance, may cause the market price of our ~~own or through third parties; and~~

shares to decline.

~~gain broad market acceptance for our product candidates.~~

If we are ~~unsuccessful in accomplishing these objectives,~~unable to obtain funding on a timely basis, we ~~may not~~will be ~~able~~unable to ~~develop product candidates, raise capital, expand our business, or continue our operations.~~

~~The results of preclinical studies and early~~complete the planned clinical trials ~~are not always predictive of future results. Any product candidate we or any of our future development partners advance into clinical trials, including~~for reproxalap ~~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 their target indications before we can seek regulatory approvals for their 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. In addition, as product candidates proceed through development, the trial designs may often be different from phase to phase, 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 early clinical trials 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 initial clinical testing. Furthermore, our clinical trials will need to demonstrate sufficient safety and efficacy for approval by regulatory authorities in larger patient populations. Companies frequently suffer significant setbacks in advanced clinical trials, even after earlier clinical trials have shown promising results. In addition, 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.

In addition, the presumed mechanisms of aldehyde-mediated inflammation are distinct from the presumed aldehyde-mediated pathology in inborn errors of metabolism, and the efficacy and safety of reproxalap or our other product candidates and we may be required to significantly curtail, delay or discontinue one or more of our preclinical studies, clinical trials or other research or development programs, or the commercialization of any product candidate. 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 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.

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 revenues, 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 its 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 and cash equivalents in ~~one indication does~~ways that you and other stockholders may not ~~predict~~approve.

Our management has broad discretion in the ~~safety~~application of our cash and ~~efficacy~~cash equivalents. Because of the number and variability of factors that will determine our use of our cash and cash equivalents, management’s ultimate use of cash and cash equivalents may vary substantially from the currently intended use. Our management might not apply our cash and cash equivalents in ways that ultimately increase the value of your investment. We expect to use our cash and cash equivalents to: fund our planned clinical trials of reproxalap and our other product candidates, indevelop other ~~indications.~~

~~Because we are developing novel~~molecules that relate to 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 and cash equivalents in short-term, investment-grade, interest-bearing securities. These investments may not yield a favorable return to our stockholders. If we do not invest or apply our cash and cash equivalents in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause our stock price to decline.

Our business has been and will continue to be adversely affected by the ~~treatment~~COVID-19 pandemic.

The global spread of ~~diseases~~COVID-19 has created significant volatility, uncertainty, and economic disruption. The extent to which the COVID-19 pandemic impacts our business, operations, and financial results will depend on numerous evolving factors that we may not be able to accurately predict, including: the duration and scope of the pandemic; governmental, business and individuals’ actions that have been and continue to be taken in ~~a manner which there is little~~response to the pandemic; the impact of the pandemic on economic activity and actions taken in response; the effect on our ongoing or planned clinical ~~drug~~trials; and any closures of our offices or clinical trial facilities. Any of these events could cause or contribute to the risks and uncertainties enumerated in this quarterly report on Form 10-Q and could materially adversely affect our business, financial condition, results of operations and/or stock price.

We are closely monitoring the impact of the outbreak of COVID-19 on all aspects of our business, including how it will impact our employees, clinical trials, development ~~experience~~programs, supply chain, and other aspects of our operations. For example, patient enrollment, in ~~some cases, are using new endpoints or methodologies, the regulatory pathways for approval are not well defined, and,~~our GUARD trial, was negatively impacted as a result of limited clinical trial staffing at study sites and some patients electing to delay surgery. While COVID-19 did not have a material adverse effect on our reported results of the three or nine months ended September 30, 2020, we are unable to predict the ultimate impact that it may have on our business, future results of operations, financial position or cash flows. The extent to which our operations may be impacted by the COVID-19 pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including new information which may emerge concerning the severity of the outbreak and actions by government authorities to contain the outbreak or treat its impact.

We have experienced operational interruptions as a result of COVID-19, with many of our employees electing to work remotely to avoid spread of the disease. A prolonged pandemic, or the threat thereof, could result in lower productivity, voluntary closure of our office, and other disruptions to our business. We may also incur additional costs to remedy damages caused by business disruptions, including clinical trial delays or interruptions. Any of these could have a material adverse effect on our business, financial condition or results of operations.

The impacts of a potential worsening of global economic conditions and the continued disruptions to and volatility in the financial markets remain unknown. Furthermore, the COVID-19 pandemic has resulted in market volatility which has caused a precipitous decline in our stock price subjecting us to increased takeover risk.

Due to the evolving and highly uncertain nature of this event, we cannot predict at this time the full extent to which the COVID-19 pandemic will adversely impact our business, results and financial condition, which will depend on many factors that are not known at this time. These include, among others, the extent of harm to public health, the continued disruption to clinical trials, and the impact of the global business and economic environment on liquidity and the availability of capital. We are staying in close communication with our employees, CROs, and suppliers, and acting to mitigate the impact of this dynamic and evolving situation, but there is ~~greater risk~~no guarantee that we will be able to do so.

To the extent the COVID-19 pandemic or any worsening of the global business and economic environment as a result thereof adversely affects our business and financial results, it may also have the effect of heightening or exacerbating many of the other risks described in this section of this quarterly report on Form 10-Q.

COVID-19 has and is expected to continue to affect our ability to recruit or retain patients for our clinical trials, ~~will not result~~disrupt our supply chains, or have other adverse effects on our business and operations.

In addition to those who have been directly affected by COVID-19, millions more have been affected by government efforts around the world to slow the spread of the outbreak through quarantines, travel restrictions, heightened border scrutiny and other measures. The outbreak and government measures taken in response to the COVID-19 pandemic have also had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; facilities and production have been suspended; the capital markets and the economy in general has been volatile; and demand for certain goods and services, such as medical services and supplies, has spiked, while demand for other goods and services, such as travel, has fallen. The future progression of the outbreak and its effects on our business and operations are uncertain. We have and expect to continue to face difficulties recruiting or retaining patients in our ~~desired outcomes.~~ongoing and planned clinical trials due to actions taken by governments and individuals in response to the COVID-19 pandemic. Patient enrollment in our GUARD trial was negatively impacted as a result of limited clinical trial staffing at study sites and some patients electing to delay surgery. We and our third-party contract manufacturers, contract research organizations and clinical sites may also face disruptions in procuring items that are essential for our research and development activities, including, for example, medical and laboratory supplies used in our clinical trials or preclinical studies, in each case, that are sourced from abroad or for which there are shortages because of ongoing efforts to address the outbreak

~~Our clinical focus is on~~Inadequate funding for the ~~development of~~FDA, the SEC and other government agencies could hinder their ability to hire and retain key leadership and other personnel, prevent new products ~~for inflammation, inborn errors~~and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal business functions on which the operation of ~~metabolism,~~our business may rely, which could negatively impact our business.

The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, 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 the SEC and other ~~diseases~~government agencies on which our operations may rely, including those that ~~are thought to be related to naturally occurring toxic~~fund research and~~pro-inflammatory~~ chemical species known as aldehydes. Our Phase 3 vehicle-controlled clinical program in noninfectious anterior uveitis and our planned Phase 3 clinical program in SLS represent the first such clinical trials performed, and thus the comparative effects of vehicle and drug are unpredictable.

~~We could also face challenges in designing clinical trials and obtaining regulatory approval of aldehyde sequestering agents due~~ development activities is subject to the ~~small number of historical clinical trial experience for this novel class of therapeutics. Because no aldehyde sequestering agents have received regulatory approval anywhere in the world, it~~political process, which is ~~difficult to determine whether regulatory agencies will be receptive to the approval of our product candidates~~inherently fluid and ~~to predict the time and cost associated with obtaining regulatory approval. The clinical trial requirements of~~unpredictable.

Disruptions at the FDA and other agencies, including as a result of or in response to the COVID-19 pandemic, may also slow the time necessary for new drugs to be reviewed and/or approved by necessary government agencies, which would adversely affect our 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 ~~criteria these regulators use~~SEC, have had to ~~determine~~furlough critical FDA, SEC and other government employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ~~safety and efficacy of a product candidate vary substantially according to the type, complexity, novelty and intended use and market~~ability of the ~~potential products. The~~FDA to timely review and process our regulatory approval process for novel product candidates such as ours can be more expensive and take longer than for other, better known or more extensively studied classes of product candidates. Any inability to design clinical trials with protocols and endpoints acceptable to applicable regulatory authorities, and to obtain regulatory approvals for our product candidates, wouldsubmissions, which could have ana material adverse ~~impact~~effect on our ~~business, prospects, financial condition and results of operations.~~

~~Because reproxalap and~~business. Further, in our ~~other product candidates are, to our knowledge, new chemical entities, it is difficult to predict the time and cost of development and~~operations as a public company, future government shutdowns could impact our ability to ~~successfully complete clinical development of these product candidates~~access the public markets and obtain ~~the~~ necessary ~~regulatory approvals for commercialization.~~capital in order to properly capitalize and continue our operations.

~~Our product candidates are, to~~The terms of our ~~knowledge, new chemical entities, and unexpected problems related to such new technology may arise that can cause~~secured debt facility require us to ~~delay, suspend~~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.

In March 2019, we entered into 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 ~~terminate~~intellectual property; incurring additional indebtedness; engaging in mergers or acquisitions; paying dividends or making other distributions; making investments; and creating other liens on our ~~development efforts. Although~~assets, in each case subject to customary exceptions. If we ~~have seen signs~~raise any additional debt financing, the terms of ~~efficacy~~such additional debt could further restrict our operating and ~~observed reproxalap to be well tolerated in~~financial flexibility. These restrictions may include, among other things, limitations on borrowing and specific restrictions on the use of our ~~clinical trials to date, because reproxalap is a novel chemical entity with limited use in humans, short and long-term safety,~~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 ~~for efficacy, are poorly understood~~ and ~~difficult~~could cause the price of our common stock to ~~predict due~~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 Section 382 of the Internal Revenue Code of 1986, as amended, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating losses (“NOLs”) and ~~regulatory agencies’ lack~~certain other tax assets (“tax attributes”) to offset future taxable income. In general, an ownership change occurs if the aggregate stock ownership of ~~experience with them. Regulatory approval of new product candidates~~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 ~~reproxalap can be more expensive and take longer than approval for other more well-known~~purchases or ~~extensively studied pharmaceutical~~sales by investors, could result in an ownership change. A limitation on our ability to utilize some or ~~biopharmaceutical product candidates.~~

~~Our dermatologic topical formulation~~all of ~~reproxalap is unlikely to affect other clinical manifestations of Sjögren-Larsson Syndrome, which may decrease the likelihood of regulatory and commercial acceptance.~~

~~While the primaryday-to-day~~ complaint of SLS patients and their caregivers are symptoms associated with severe skin disease, SLS patients also manifest varying degrees of delay in mental development, spasticity, seizures and retinal disease. In August 2016, we announced that theour NOLs or credits could have a material adverse effect on our results of ~~our randomized, parallel-group, double-masked, vehicle-controlled clinical trial~~operations and cash flows. As of ~~a dermatologic formulation of reproxalap for~~September 30, 2020, we believe four ownership changes have occurred since inception. Management believes significant “Built-In Gains” will offset the ~~treatment~~majority of the ~~skin manifestations~~Section 382 limitations generated by these ownership changes. However, the Company estimates that approximately $9 million of ~~SLS demonstrated clinically relevant activity~~deferred tax assets related to NOLs and tax credits will be permanently limited as a result of ~~reproxalap~~an ownership change that occurred in ~~diminishing~~July 2020. 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, 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 NOLs carryforwards may also cause limitations or restrictions from us claiming such NOLs. If the ~~severity of ichthyosis, a serious dermatologic disease characteristic of SLS. There were no serious adverse events reported in any of these trials. However, due~~NOLs carryforwards become unavailable to ~~expected low systemic exposure of reproxalap when administered topically~~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.

Risks Related to the ~~skin, it is unlikely that reproxalap will significantly affect thenon-dermatologic~~ ~~conditions~~Development and Commercialization of SLS. Lack of effect in neurologic and ocular manifestations of SLS may negatively impact the potential market for reproxalap in SLS and may also negatively impact reimbursement, pricing and commercial acceptance of reproxalap, if it is approved.

our Product Candidates

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 ~~often takes many years,~~and time-consuming, and can vary substantially based upon the type, complexity, and novelty of the products involved, as well as the target ~~indications,~~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 ~~never~~uncertain and not guaranteed.

Reproxalap and our other product candidates, and the activities associated with development and potential 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 for our product candidates may be delayed, modified, or ceased for a variety of reasons, including:

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determining that a product candidate is ineffective or potentially causes harmful side effects during preclinical studies or clinical trials;

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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;

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;

•

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, such as was observed in the SOLACE Trial;

~~the proprietary rights of third parties, which may preclude us from developing or commercializing a product candidate;~~

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delays resulting from or additional protocols being required as result of the COVID-19 pandemic;

~~determining that a product candidate may be uneconomical to develop or commercialize, or may fail to achieve market acceptance or adequate reimbursement;~~

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lack of availability of, or difficulty recruiting, a sufficient number of patients to adequately power our clinical trials;

~~our inability to secure strategic partners which may be necessary for advancement of a product candidate into clinical development or commercialization;~~

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the proprietary rights of third parties, which may preclude us from developing or commercializing a product candidate;

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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;

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our expectations regarding our expenses and revenue, the sufficiency or use of our cash resources and needs for additional financing;

•

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:~~

including but not limited to:

~~such authorities may disagree with the design or implementation of our or any of our future development partners’ clinical trials, including the end points~~

•

such authorities may disagree with the design 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;

•

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 which are~~

•

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;

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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 a product candidate’s clinical and other benefits outweigh its safety risks;

~~such authorities may disagree with our interpretation of data from preclinical studies or clinical trials or the design of such trials;~~

•

such authorities may disagree with our interpretation of data from preclinical studies or clinical trials or the design of such trials or require additional trials and data;

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;

•

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;

•

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 and other statutory and regulatory regimes 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:

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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;

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file for and obtain required regulatory approvals for our product candidates;

•

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;

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secure substantial additional funding;

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develop and maintain successful strategic relationships;

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build and maintain a strong intellectual property portfolio;

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build and maintain appropriate clinical, regulatory, quality, manufacturing, compliance, sales, distribution, and marketing capabilities on our own or through third parties;

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implement and maintain operational, financial and management systems;

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price our product candidates, if approved, at expected levels and obtain and maintain sufficient insurance and reimbursement from insurers and other programs; and

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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 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, including reproxalap, 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 their target indications before we can seek regulatory approvals for their 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. 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, in the case of an adaptive trial design; 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 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. Companies frequently suffer significant setbacks in advanced clinical trials, even after earlier clinical trials have shown promising results. For instance, in June 2019, we discontinued our noninfectious anterior uveitis program following the announcement of results from the SOLACE Trial. 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 inflammation and an inborn error of metabolism. Our Phase 3 vehicle-controlled clinical program in noninfectious anterior uveitis and our Phase 3 clinical program in SLS represent the first such clinical trials performed. In June 2019, we announced that statistical significance was not achieved for the primary or secondary endpoints in our SOLACE Trial in noninfectious anterior uveitis, due to high rates of disease resolution in vehicle-treated patients. We are performing an adaptive trial in proliferative vitreoretinopathy (“GUARD”), 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, determine to continue to the subsequent parts of the trial, conclude the trial based on its success or failure in such initial parts, or to discuss the trial results and regulatory pathway with regulatory authorities prior to determining next steps with respect to the trial and development program. For example, in August 2019, we announced that statistically significant improvement from baseline was observed in Part 1 of the Phase 3 RESET trial in SLS. However, due to the novel nature of reproxalap, the limited population of SLS patients, and the uncertain regulatory pathway in SLS, in connection with the strategic prioritization of late-stage ophthalmology programs announced in March 2020, further development in SLS was placed on hold. 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. Any inability to design clinical trials with protocols 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.

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.

We are performing adaptive trials in dry eye disease and proliferative vitreoretinopathy. For the reasons stated above, detailed results from RENEW Part 1 have not, and from the initial part of GUARD may not, be disclosed until the completion of subsequent parts of the trials, or until the entire adaptive trial has completed. 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.

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 product in certain indications and we may decide to cease development in that area or seek a strategic partner.

Because RASP is a new objective sign for the treatment of dry eye disease, there is no precedent in measuring and validating the results of studies of RASP in tears, which could impact the timing and cost of development of our trials and delay or prevent the filing of an NDA in dry eye disease.

Written meeting minutes with the FDA confirmed the use of RASP as an objective sign for the treatment of dry eye disease. However, to our knowledge, a validated assay to measure RASP in tears has not been developed and the FDA has not established guidelines for the design of trials in which RASP is measured. We are working with CROs to develop and test multiple assays to measure RASP. There is risk that these approaches will not accurately measure RASP or be accepted by the FDA or other regulatory bodies as validated assays. In addition, The FDA could change its view on clinical trial design and the method for assaying RASP and require a change in clinical trial design, additional data or even further clinical trials before granting approval of our product candidates. As a result, further development of reproxalap in dry eye disease may be negatively impacted or delayed, which would have an adverse impact on our business, prospects, financial condition, and results of operations.

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 planned clinical trials for reproxalap or other product candidates could significantly affect our product development ~~costs.~~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:

~~the FDA failing to grant permission to proceed or placing the clinical trial on hold;~~

•

the COVID-19 pandemic or responses thereto;

~~subjects failing to enroll or remain in our clinical trials at the rate we expect;~~

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the FDA, or an institutional review board, or IRB, failing to grant permission to proceed or placing a clinical trial on hold;

~~subjects choosing an alternative treatment for the indication for which we are developing reproxalap or other product candidates, or participating in competing clinical trials;~~

~~lack of adequate funding to continue the clinical trial;~~

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subjects failing to enroll or remain in our clinical trials at the rate we expect;

~~subjects experiencing severe or unexpected drug-related adverse effects;~~

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subjects choosing an alternative treatment for the indication for which we are developing reproxalap or other product candidates, or participating in competing clinical trials;

a facility manufacturing reproxalap, any of our other product candidates or any of their components being ordered by the FDA or other government or regulatory authorities, to temporarily or permanently shut down due to violations of current Good Manufacturing Practices, or cGMP, or other applicable requirements, or infections or cross-contaminations of product candidates in the manufacturing process;

•

lack of adequate funding to continue the clinical trial;

~~any changes to our manufacturing process that may be necessary or desired;~~

•

subjects experiencing severe, serious, or unexpected drug-related adverse effects, whether drug-related or otherwise;

~~inability to timely manufacture sufficient quantities of the applicable product candidate for the clinical trial or expiration of materials intended for use in the clinical trial;~~

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third-party clinical investigators losing the licenses or permits necessary to perform our clinical trials, not performing our clinical trials on our anticipated schedule or consistent with the clinical trial protocol, Good Clinical Practice or regulatory requirements, or other third parties not performing data collection or analysis in a timely or accurate manner;

•

any changes to our manufacturing process that may be necessary or desired;

inspections of clinical trial sites by the FDA or the finding of regulatory violations by the FDA or an institutional review board, or IRB, that require us to undertake corrective action, result in suspension or termination of one or more sites or the imposition of a clinical hold on the entire trial, or that prohibit us from using some or all of the data in support of our marketing applications;

•

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 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;

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third-party clinical investigators losing the licenses or permits necessary to perform our clinical trials, not performing our clinical trials on our anticipated schedule or consistent with the clinical trial protocol, current Good Clinical Practice or regulatory requirements, or other third parties not performing data collection or analysis in a timely or accurate manner;

•

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 that prohibit us from using some or all of the data in support of our marketing applications;

•

one or more IRBs refusing to approve, suspending or terminating the trial at an investigational site, precluding enrollment of additional subjects, or withdrawing its approval of the trial.

Product development costs will increase if we have delays in testing or approval of reproxalap ~~and~~or our other product candidates or if we need to perform more, larger, or ~~larger~~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 revenues, 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 reproxalap or other product candidates could be significantly reduced.

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 ~~plan~~have and continue to evaluate the development and commercialization of product candidates for the treatment of orphan and other rare ~~diseases. Given that we are in the early stages of clinical trials for reproxalap, we~~diseases, including PVR. 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 othernon-United States regulatory agencies. In addition, if others develop ~~product candidates~~products for the treatment of similar diseases, we would potentially compete with them for the enrollment in ~~these~~ rare patient populations, which may adversely impact the rate of patient enrollment in and the timely completion of our current and planned clinical trials. ~~Additionally, insufficient~~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 ~~many~~ 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 ~~altogether.~~or development program. The ongoing COVID-19

pandemic has and is expected to continue to have an impact on our ability to enroll and retain patients in our clinical trials. For instance, patient enrollment in our GUARD trial was negatively impacted as a result of limited clinical trial staffing at study 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 PVR and SLS, lack of availability of, or difficulty recruiting 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 revenues.

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 its regulatory approval or commercialization or limit its 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 and could result in the denial of regulatory approval by the FDA or other regulatory authorities for any or all targeted indications and markets. This in turn could prevent us from completing development or commercializing the affected product candidate and generating revenue from its sale.

We have not yet completed testing of any of our product candidates in humans 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 ~~if any,~~ that will be observed in ~~patients who~~subjects that receive any of our product candidates. ~~Reproxalap, for example, has been observed to be toxic at high concentrations in~~ ~~in vitro~~ human dermal tissue. In addition, there was transient and generally mild to moderate stinging noted in the reproxalap treatment arm of our Phase 2 clinical trials in allergic conjunctivitis, noninfectious anterior uveitis and dry eye disease. However, there were no serious adverse events in such trials. In preparation for clinical testing of systemically administered reproxalap, we believe that we have identified a preliminary No Adverse Effect Level in preclinical toxicology studies where reproxalap is administrated intravenously. 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.

Final marketing approval for reproxalap or our other product candidates by the FDA or other regulatory authorities ~~for commercial use~~ may be delayed, limited, or denied, any of which would adversely affect our ability to generate operating revenues.

After the completion of our clinical trials, ~~and,~~ assuming the results of the trials are successful, and the submission of an NDA, we cannot predict whether or when we will obtain regulatory approval to commercialize reproxalap or our other product candidates and we cannot, therefore, predict the timing of any future revenue. We cannot commercialize reproxalap or our other product candidates until the appropriate regulatory authorities have reviewed and approved the applicable applications. We cannot assure you that the regulatory agencies will complete their review processes in a timely manner or that we will obtain regulatory approval for reproxalap or our other product candidates. In addition, we may experience delays or rejections based upon additional government regulation from future legislation or administrative action or changes in FDA policy during the period of product development, clinical trials, and FDA regulatory review. If marketing approval for reproxalap or 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.

Even if we obtain marketing approval for reproxalap or any other product candidate, it 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 ~~candidate,~~candidates, when and if any ~~of them~~ are approved.

Even if United States regulatory approval is obtained, the FDA may still impose significant restrictions on a product’s indicated uses or marketing or impose ongoing requirements for potentially costly and time consuming post-approval studies, post-market surveillance, or other potential additional clinical trials. Following approval, if any, of reproxalap or any other product ~~candidates,~~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 and their facilities 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:

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issue warning letters or untitled letters;

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seek an injunction or impose civil or criminal penalties or monetary fines;

~~suspend or withdraw regulatory approval;~~

~~suspend any ongoing clinical trials;~~

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suspend or withdraw regulatory approval;

~~refuse to approve pending applications or supplements or applications filed by us;~~

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suspend any ongoing clinical trials;

~~suspend or impose restrictions on operations, including costly new manufacturing requirements;~~

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refuse to approve pending applications or supplements or applications filed by us;

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suspend or impose restrictions on operations, including costly new manufacturing requirements; or

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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 a 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 certainsafe-use criteria, and requiring treated patients to enroll in a registry.

In addition, if reproxalap or any of our other product candidates is approved, our 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 the product’s approved labeling. If we receive marketing approval for a product candidate, physicians may nevertheless prescribe it to ~~their~~ patients in a manner that is inconsistent with the approved label. If we are found to have promoted suchoff-label uses, we may become subject to significant liability. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion ofoff-label uses, and a company that is found to have improperly promotedoff-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 inoff-label promotion. The FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed.

Even if we receive regulatory approval for reproxalap or any other product candidate, we still may not be able to successfully commercialize, it 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, and 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 may not be able to 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:~~

including but not limited to:

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demonstration of clinical efficacy and safety compared to other more-established products;

~~the limitation of our targeted patient population and other limitations or warnings contained in any~~

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the limitation of our targeted patient populations and other limitations or warnings contained in any FDA-approved labeling;

~~acceptance of a new formulation~~

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acceptance of a new formulations by health care providers and their patients;

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the prevalence, seriousness, and severity of any adverse effects;

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new procedures or methods of treatment that may be more effective in treating conditions for which our products are intended to treat;

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the safety of product candidates seen in a broader patient group, including their use outside the approved indications;

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pricing and cost-effectiveness, including the cost of treatment in relation to alternative treatments;

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the effectiveness of our or any future collaborators’ sales and marketing strategies;

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our ability to obtain and maintain sufficient and timely third-party coverage or reimbursement from government health care programs, including Medicare and Medicaid, private health insurers and other third-party payors;

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relative convenience and ease of administration;

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the prevalence and severity of adverse events;

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the effectiveness of our sales and marketing efforts;

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unfavorable publicity; and

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the willingness of patients to pay out-of-pocket in the absence of third-party coverage.

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 ~~more effective~~ in ~~treating or may reduce~~violation of the ~~incidences of SLS or other conditions for which our products are intended to treat;~~

~~pricing~~federal Drug Quality and ~~cost-effectiveness;~~

~~the effectiveness of our or any future collaborators’ sales and marketing strategies;~~

~~our ability to obtain and maintain sufficient third-party coverage or reimbursement from government health care programs, including Medicare and Medicaid, private health insurers~~Security Act (“DQSA”) and other ~~third-party payors;~~

~~unfavorable publicity relating~~relevant provisions of the United States Federal Food, Drug, and Cosmetic Act, are not produced and dispensed to ~~the product candidate; and~~

patients.

~~the willingness of patients to payout-of-pocket~~ ~~in the absence of third-party coverage.~~

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 ongoing initiatives in the ~~U.S.~~United States to increase pressure on drug pricing. Such reforms could have an adverse effect on the pricing of and anticipated revenues 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 drug 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 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 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.

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 like reproxalap are not able to adequately meet an unmet medical need. If we are unable to demonstrate to physicians, hospitals, third-party payors, and patients that our products are better alternatives, we 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 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 revenues may be adversely affected and our business may suffer.

We focus our research and product development on treatments for immune-mediated diseases. Our projections of both the number of people who have these diseases, as well as the subset of people with these diseases who have the potential to benefit from treatment with our product candidates, are based on estimates. These estimates 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 these diseases. 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 revenues from sales of our product and our ability to achieve and maintain profitability, and as a consequence, our business may suffer.

The United Kingdom’s withdrawal from the European Union could result in increased regulatory and legal complexity, which may make it more difficult to for us to do business in Europe and impose additional challenges in securing regulatory approval of our product candidates in Europe.

The United Kingdom’s exit from the European Union, or Brexit, and the related negotiations have caused political and economic uncertainty, including in the regulatory framework applicable to our operations and vaccine candidates in the United Kingdom and the European Union, and this uncertainty may persist for years. Brexit could, among other outcomes, disrupt the free movement of goods, services and people between the United Kingdom and the EU, and result in increased legal and regulatory complexities, as well as potential higher costs of conducting business in Europe. For instance, preparations for Brexit have resulted in the decision to move the European Medicines Agency from the United Kingdom to the Netherlands. This transition may cause disruption or delays in granting clinical trial authorization or opinions for marketing authorization, disruption of importation and export of active substance and other components of new drug formulations, and disruption of the supple chain for clinical trial product and final authorized formulations.

The cumulative effects of the disruption to the regulatory framework may add considerably to the development lead time to marketing authorization and commercialization of products in the European Union and/or the United Kingdom. It is possible that there will be increased regulatory complexities, which can disrupt the timing of our clinical trials and regulatory approvals. In addition, changes in, and legal uncertainty with regard to, national and international laws and regulations may present difficulties for our

clinical and regulatory strategy. Any delay in obtaining, or an inability to obtain, any marketing approvals, as a result of Brexit or otherwise, would prevent us from commercializing our product candidates in the United Kingdom and/or the European Union and restrict our ability to generate revenues and achieve and sustain profitability.

In addition, as a result of Brexit, other European countries may seek to conduct referenda with respect to their continuing membership with the European Union. Given these possibilities and others we may not anticipate, as well as the absence of comparable precedent, it is unclear what financial, regulatory and legal implications the withdrawal of the United Kingdom from the European Union will have and how such withdrawal will affect us, and the full extent to which our business could be adversely affected.

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 they will pay for 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 ~~U.S.~~United States or other jurisdictions in which we may do business, these organizations may be unable to satisfy their 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; 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 in 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 various payment systems under the Medicare program. Comprehensive reforms to the ~~U.S.~~United States healthcare system were recently enacted, including changes to the methods for, and amounts of, Medicare reimbursement. ~~The new~~More recently, the current presidential administration and many members of the United States Congress have ~~indicated~~attempted to repeal and replace the Patient Protection and Affordable Care Act (“PPACA”), but they ~~may further reform~~have been unsuccessful in doing so as of the ~~Medicare program and~~date of the ~~U.S. healthcare system, but~~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 ~~not made any definitive proposals which allow us to gauge~~on our business. Regardless of the impact of ~~such potential reforms, if any,~~repeal or replacement of PPACA on ~~our business~~us, the government has shown significant interest in pursuing healthcare reform and ~~operations.~~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.

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. They 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 ~~their~~ use of newly approved drugs, which in turn ~~will put pressure on the pricing of drugs.~~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, and additional legislative proposals as well as country, regional, or local healthcare budget limitations.

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 ~~inflammatory, orphan and other~~ 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 ~~or orphan or other~~ disorders with high unmet medical needs and limited treatment options. These other 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 shown to be sufficiently safe and/or effective for approval by regulatory authorities. 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 be more effective than other commercially available 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, 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.

Orphan drug designation, breakthrough therapy designation, or ~~Breakthrough Therapy Designation~~fast-track designation from the FDA may be difficult or ~~not possible~~impossible to obtain, and if we are unable to obtain ~~one or both~~ such designations for reproxalap or our other product candidates, regulatory and commercial prospects may be negatively impacted.

The FDA designates orphan drug designation status to drugs that are intended to treat rare diseases with fewer than 200,000 patients in the United States or that affect more than 200,000 persons but are not expected to recover the costs of developing and marketing a treatment drug. ~~Orphan status drugs~~Drugs that receive an orphan drug designation do not require prescription drug user fees ~~with a~~at the time of marketing application, may qualify the drug development sponsor for certain tax credits, and can be marketed without generic competition for seven years. In April ~~2017, we announced that~~2018, ADX-2191 received orphan drug designation from the FDA ~~granted reproxalap~~for the prevention of proliferative vitreoretinopathy and, in June 2020, ADX-2191 was designated an orphan ~~drug designation~~medicinal product by the European Commission for the treatment of ~~congenital ichthyosis,~~retinal detachment. In addition, it may be difficult or impossible to obtain from the FDA orphan drug designation or a ~~severe skin disease characteristic~~designation that facilitates and expedites development and review of ~~SLS. We believe~~certain new drugs, including breakthrough therapy designation, fast track designation, or any other expedited status that we may apply for in the future, for reproxalap ~~and~~or our other product ~~candidates may qualify as an orphan drug for noninfectious anterior uveitis, and possibly other diseases that we may test. However, we~~candidates. We cannot guarantee that we will be able to receive ~~orphan drug status for indications other than treatment of ichthyosis~~breakthrough therapy or ~~Breakthrough Therapy Designation~~fast-track designation from the FDA for ~~reproxalap.~~reproxalap or our other product candidates. If we are unable to secure ~~orphan drug status~~breakthrough therapy designation or fast-track designation for reproxalap or our other product candidates, our regulatory and commercial prospects may be negatively impacted.

We rely and will continue to rely on outsourcing arrangements for many of our activities, including clinical development and supply of reproxalap and our other product candidates.

As of September 30, ~~2017,~~2020, we had only ~~eleven~~11 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, financial reporting and accounting, and human resources, as well as for certain functions ~~as a public company.~~required of publicly traded

companies. We may have limited control over ~~these~~ third parties and we cannot guarantee that ~~they~~any third party will perform ~~their~~its obligations in an effective and timely manner.

In addition, during challenging and uncertain economic ~~times and~~environments, in tight credit markets and during public health epidemics, such as the COVID-19 pandemic, 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 ~~these~~any third ~~parties do~~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 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 reproxalap and ~~clinical trials~~ for our other ~~future~~ 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~~Contract Research Organizations (“CRO”) 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 ~~any~~ 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 of these third parties 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 offollow-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. ~~If these relationships and~~The COVID-19 pandemic or any ~~related compensation result in perceived or actual conflicts of interest, the integrity~~worsening of the global business and economic environment may have the effect of heightening or exacerbating these risks.

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, including ADX-1612, will involve investigator-initiated clinical trials. Investigator-initiated clinical 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 ~~generated at~~that can inform our future development strategy, we generally have less control over the ~~applicable~~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 ~~site~~results compared to clinical trials that we may ~~be jeopardized.~~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 ~~these~~ 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 of the product candidate.~~development. Furthermore, if any of our contract manufacturers cannot successfully manufacture material that conforms to our specifications ~~and~~ within regulatory requirements, we will not be able to secure and/or maintain regulatory approval, if any, for our product candidates.

We ~~will~~ 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 COVID-19 pandemic or actions taken in response to it, 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 ~~us with~~ 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 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:

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The manufacturing of compounds is extremely susceptible to product loss due to contamination, equipment failure, improper installation or operation of equipment, or 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.

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The manufacturing facilities in which our products are made could be adversely affected by equipment failures, labor shortages, natural disasters, power failures, and numerous other factors.

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We and our contract manufacturers must comply with the FDA’s cGMP regulations and guidelines. We and our contract manufacturers may encounter difficulties in achieving quality control and quality assurance, and 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 and numerous other factors.~~

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 studies, or the termination or hold on a clinical study, 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. 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.

Any adverse developments affecting manufacturing operations for our products, including as a result of the COVID-19 pandemic or responses taken thereto, may result in shipment delays, inventory shortages, lot failures, product withdrawals or recalls, or other interruptions in the supply of our products. We may also have to ~~take~~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.

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, and may in the future, choose to enter into development or other strategic partnerships, ~~in the future,~~ including collaborations with major biotechnology or pharmaceutical companies. 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 aother development ~~partnership~~partnerships or other alternative arrangements for any of our ~~other existing or future~~ product candidates ~~and~~or programs because our research and development pipeline may be insufficient, our product candidates ~~and~~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 ~~and~~or programs as having the requisite ~~potential to demonstrate safety and efficacy.~~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 ~~development~~ partnerships if, for example, development or approval of a product candidate is delayed or sales of an approved product candidate are ~~disappointing.~~below expectations. Any delay in entering into development partnership agreements related to our product candidates could delay the development and commercialization of our product candidates and reduce ~~their~~ competitiveness, if ~~they reach the market.~~approved.

Moreover, if we fail to maintain ~~development or other strategic~~ partnerships related to our product ~~candidates that we may choose to enter into:~~

candidates:

•

the development of certain of our current or future product candidates may be terminated or delayed;

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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 of any such product candidates.~~

~~We may form strategic alliances in the future,~~ 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

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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 ~~such~~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 ~~for~~ the continued development or commercialization of reproxalap or our other product candidates. ~~These relationships or those like them~~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 ~~success in our planned clinical trial~~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 revenues or specific net income that justifies such transaction.

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 ~~and biopharmaceutical markets.~~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 SLS and PVR, there are a variety of approved drugs and drug candidates in development for the indications that we intend to test. ~~There~~While there are no drugs currently ~~two products~~ approved ~~for marketing~~ in the United States for the ~~treatment~~temporary relief of the signs and symptoms of dry eye disease, ~~Allergan’s Restasis~~^®~~(cyclosporine) and Shire’s Xiidra~~^® ~~(lifitegrast). However, numerous drug candidates~~current treatments that are used in ~~various stages of clinical development~~the United States for dry eye disease ~~including Shire’s P-321, an investigational epithelial sodium channel inhibitor,~~include over the counter artificial tears, Restasis®, Xiidra®, Cequa TM and ~~Novartis’ ECF843, a recombinant human lubricin protein.~~off label use of corticosteroids. Generic versions of Restasis® are also expected to become available in the U.S. in the near future. 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 ~~may be active in aldehyde research, and some~~ could be in direct competition with us. We also may compete with these organizations to recruit management, scientists, and clinical development personnel. We will also face competition from these third parties in establishing clinical trial sites, registering subjects for clinical trials, and in identifying andin-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. ~~There are methods that can potentially be employed to trap aldehydes that we have not conceived of or attempted to patent, and other~~Other parties may discover and patent ~~aldehyde trapping~~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 ability to demonstrate and maintain a competitive advantage with respect to the design, development, and commercialization of reproxalap or our other product candidates. ~~Noninfectious anterior uveitis and other inflammatory~~Inflammatory diseases may be treated with general immune suppressing therapies, including corticosteroids, some of which are generic. Our potential competitors in ~~these~~inflammatory diseases may be developing novel immune modulating therapies that may be safer or more effective than ~~reproxalap or~~ our ~~other~~ product candidates.

We may not be successful in executing our sales and marketing strategy for the commercialization of our product candidates. We have no sales, marketing, or distribution capabilities and ~~we will have~~expect to invest significant financial and management resources to develop these capabilities. If we are unable to establish sales, distribution, and marketing capabilities or enter into agreements with third parties to market, sell, and distribute our product candidates, we may be unable to generate any revenues.

We have no internal sales, marketing, or distribution capabilities. If reproxalap or any of our other product candidates ultimately receives regulatory approval, 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 internal sales, distribution, and marketing capabilities, some of which will be committed prior to any confirmation that reproxalap or any of our other product candidates will be approved. We may not be able to hire consultants or external service providers to assist us in sales, marketing, and distribution functions on acceptable financial terms or at all. We will be competing with many companies that currently have extensive and well-funded marketing and sales operations. Without a significant internal team or the support of a third party to perform marketing and sales functions, we may be unable to compete successfully against these more established companies. Even if we determine to perform sales, marketing, and distribution functions ourselves, we could face a number of additional related risks, including:

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we may not be able to attract and build an effective marketing department or sales force;

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the cost of establishing a marketing department or sales force may exceed our available financial resources and the revenues generated by reproxalap or any other product candidates that we may develop, in-license, or acquire; and

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our direct sales and marketing efforts may not be successful.

If we are unable to successfully implement our commercialization plans and drive adoption by patients of our approved product candidates, if any, through our sales, marketing, and commercialization efforts, then we will not be able to ~~attract~~generate significant revenue, which will have a material adverse effect on our business, results of operations, financial condition, and ~~build an effective marketing department or sales force;~~prospects.

~~our direct sales and marketing efforts may not be successful.~~

We are highly dependent on the services of our ~~employees~~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 composed of ~~three~~five individuals and certain other employees: Todd C. Brady, M.D., Ph.D., our President and Chief Executive Officer; ~~Stephen J. Tulipano,~~Joshua Reed, M.B.A., our Chief Financial Officer; ~~and~~ David ~~J. Clark,~~B. McMullin, M.B.A., our Chief Business Officer; James A. Gow, M.D., our ~~Chief Medical Officer.~~Senior Vice President, Clinical Development; and Stephen G. Machatha, Ph.D., our Senior Vice President, Technical Operations. Our current management team has only been working together for a relatively short period of time. Our future performance will depend significantly on our ability to successfully integrate our management team, and on those officers’ ability to develop and maintain an effective working relationship. Our failure to integrate these recently hired executive officers with other members of management could result in inefficiencies in the development and commercialization of our product candidates, harming future regulatory approvals, sales of our product candidates, and our results of operations. In addition, we rely on the services of a number of key consultants, including IP, pharmacokinetic, chemistry, toxicology, ~~dermatologic drug development~~ and ~~ocular~~ drug development consultants. The loss of such individuals or the services of future members of our management team could delay or prevent the further development and potential commercialization 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 and key commercial personnel, we may be unable to successfully develop or commercialize our product candidates.

We will need to expand and effectively manage our managerial, operational, financial, and other resources in order to successfully pursue our clinical development and commercialization efforts. Our success also 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.

We expect to expand our management team. 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 these individuals and create effective working relationships among them and other members of management could result in inefficiencies in the development and commercialization of our product candidates, ~~harming~~adversely affecting future regulatory approvals, sales of our product candidates, and our results of operations.

In order to commercialize our product candidates, we will need to substantially grow the size of our organization. We may encounter difficulties in managing our growth and expanding our operations successfully.

Because, as of September 30, ~~2017,~~2020, we only had ~~eleven~~11 full-time employees, we will need to grow our organization to continue development and pursue the potential commercialization of reproxalap and our other product candidates, as well as function as a public company. As we seek to advance reproxalap 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 management, clinical and regulatory, financial, administrative and sales, and marketing personnel. We may not be able to accomplish these tasks, and our failure to so accomplish could prevent us from successfully growing our company.

Recently enacted and future legislation may increase the difficulty and cost for us to obtain regulatory and marketing approval of and commercialize our product candidates, 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 our product candidates.

Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We are not 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 marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by the United States 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. Any new regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times of reproxalap or any future product candidates. We are not sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance, or interpretations will be changed, or what effect changes in regulations, statutes, legal interpretation, or policies, when and if promulgated, enacted, or adopted may have on our business in the future. Such changes could, among other things, require:

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changes to manufacturing methods;

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additional studies, including clinical studies;

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recall, replacement, or discontinuance of one or more of our products;

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the payment of additional taxes; or

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additional record keeping.

Each of these requirements would likely entail substantial time and cost and could adversely harm our business and our financial results. In addition, delays in receipt of or failure to receive regulatory approvals for any future products would harm our business, financial condition, and results of operations. We intend to seek approval to market our product candidates in both the United States and in foreign jurisdictions. If we obtain approval in one or more foreign jurisdictions, we will be subject to rules and regulations in those jurisdictions relating to such product candidate. 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.

In the United States, the Medical Modernization Act of 2003 ~~or MMA,~~(“MMA”) changed the way Medicare covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases by the elderly and introduced a new reimbursement methodology based on average sales prices for drugs. In addition, this legislation authorized Medicare Part D prescription drug plans to use formulas where they can limit the number of drugs that will be covered in any therapeutic class. As a result of this legislation and the expansion of federal coverage of drug products, we expect that there will be additional pressure to contain and reduce costs. These cost reduction initiatives and other provisions of this legislation could decrease the coverage and price that we receive for any approved products and could seriously harm our business. While the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates, and any reduction in reimbursement that results from the MMA may result in a similar reduction in payments from private payors.

In early 2010, President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (together, ~~PPACA)~~“PPACA”), a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for healthcare and health insurance industries, impose new taxes and fees on the health industry, and ~~imposed~~impose additional health policy

reforms. Effective October 1, 2010, the PPACA’s definition of “average manufacturer price” was revised for reporting purposes, which could increase the amount of Medicaid drug rebates to states. Further, beginning in 2011, the PPACA ~~imposes~~imposed a significant annual fee on companies that manufacture or import branded prescription drug products. Substantial new provisions affecting compliance have also been enacted, which may require us to modify our business practices with healthcare practitioners. ~~Although it is too early to determine the effect of the PPACA on our business, the new~~The law appears likely to continue the pressure on pharmaceutical pricing, especially under Medicare, and may also increase our regulatory burdens and operating costs.

More recently, the ~~new~~current presidential administration and many members of the ~~U.S.~~United States Congress have ~~indicated they may seek~~attempted to repeal and replace PPACA, ~~and related legislation with new healthcare legislation. There is uncertainty with respect to~~but 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 ~~these potential changes may have, if any,~~of repeal or replacement of PPACA on us, the government has shown significant interest in pursuing healthcare reform and ~~any changes will likely take time to unfold,~~reducing healthcare costs.

In addition, a federal court in Texas ruled in December 2018 that the PPACA is unconstitutional. That decision currently is being appealed and ~~could have~~in March 2020, the Supreme Court of the United States announced it would hear an ~~impact~~appeal on ~~coverage and reimbursement for healthcare items and services covered by plans that were authorized by PPACA. However, we~~the constitutionality of the Affordable Care Act. We cannot predict the ultimate content, timing, or effect of any ~~healthcare~~such reform ~~legislation~~activities, litigation, or court decisions on our operations. Additionally, the pricing and reimbursement of pharmaceutical products continues to receive significant attention from U.S. policymakers, the Trump Administration, and others. For example, on January 31, 2019, the Department of Health and Human Services issued a proposed rule that removes from existing anti-kickback statute safe harbor protection certain reductions in price paid by pharmaceutical manufacturers to Medicare Part D plan sponsors, Medicaid MCOs, and those entities’ pharmacy benefit managers (“PBMs”), and adds two new safe harbors that protect certain point-of-sale price reductions by pharmaceutical manufacturers as well as certain service fee payments from pharmaceutical manufacturer to PBMs. At this time, we cannot predict the impact of ~~potential legislation~~this increased scrutiny would have on ~~us.~~our business.

We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our products once approved or additional pricing pressures, and may adversely affect our operating results.

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:

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the demand for any product candidates for which we may obtain regulatory approval;

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our ability to set a price that we believe is fair for our product candidates;

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our ability to generate revenue and achieve or maintain profitability;

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our ability to identify and establish strategic partnerships;

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the level of taxes that we are required to pay; and

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the availability of capital.

~~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;~~

~~the level of taxes that we are required to pay; and~~

~~the availability of capital.~~

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 have been applied in recent years to restrict certain marketing practices in the pharmaceutical industry. These laws include false claims statutes and anti-kickback statutes. Because of the breadth of these laws and the narrowness of the safe harbors, it is possible that 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. This 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 these 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 inoff-label promotion that caused claims to be submitted to Medicaid fornon-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.

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 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 European Union, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product candidate. 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.

~~Changes in government~~The FDA’s ability to review and approve new products may be hindered by a variety of factors, including budget and funding ~~for the FDA and other government agencies could hinder their~~levels, ability to hire and retain key ~~leadership~~personnel, and ~~other personnel, properly administer drug innovation, or prevent new products~~statutory, regulatory, and ~~services from being developed or commercialized by our life science tenants, which could negatively impact our business.~~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, 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.

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. Currently, the FDA Commissioner position is vacant, pending the appointment of a new Commissioner by the new presidential administration. The confirmation process for a new commissioner may not occur efficiently. 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 ~~biologics~~pharmaceutical industry.

In December 2016, the 21^st Century Cures Act was signed into ~~law. This new legislation is~~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 21^st Century Cures Act is 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.

In the first week of the new presidential administration, it issued executive orders to freeze government hiring of new employees with the exception of military, national security and public safety personnel. This hiring freeze could impede current or future operationsDisruptions at the FDA and other ~~agencies. It is unknown at this time what the impact of the hiring freeze will have on the FDA and on programs such as the 21~~^st Century Cures Act. Furthermore, future government proposals to reduce or eliminate budgetary deficits may include reduced allocations to the FDA and other related government agencies. These budgetary pressures may result in a reduced ability by the FDA to perform their respective roles; including the related impact to academic institutions and research laboratories whose funding is fully or partially dependent on both the level and timing of funding from government sources.

~~Disruptions at the FDA and other~~governmental agencies may also slow the time necessary for new drugs ~~biologics and devices~~ to be reviewed and/or approved by necessary government agencies, ~~and the healthcare and drug industries’ ability to deliver new products to the market in a timely manner,~~ which would adversely affect our ~~tenants’~~ operating results and business. ~~Interruptions to the function of the FDA and other government agencies~~

U.S. federal income tax reform could adversely affect us.

In December 2017, U.S. federal tax legislation, commonly referred to as the ~~demand~~Tax Cuts and Jobs Act (“TCJA”), was signed into law, significantly reforming the Internal Revenue Code of 1986, as amended (“IRC”). The TCJA, among other things, includes changes to U.S. federal tax rates, imposes significant additional limitations on the deductibility of interest, allows for ~~office/laboratory space~~the expensing of capital expenditures, puts into effect the migration from a “worldwide” system of taxation to a territorial system, and ~~significantly~~modifies or repeals many business deductions and credits.

We continue to examine the impact the TCJA may have on our business. The TCJA is a far-reaching and complex revision to the U.S. federal income tax laws with disparate and, in some cases, countervailing impacts on different categories of taxpayers and industries, and will require subsequent rulemaking and interpretation in a number of areas. The long-term impact of the TCJA on the overall economy, the industries in which we operate, and our and our partners’ businesses cannot be reliably predicted at this early stage of the new law’s implementation. There can be no assurance that the TCJA will not negatively impact our operating results, financial condition, and future business operations. The estimated impact of the TCJA is based on our management’s current knowledge and assumptions, following consultation with our tax advisors. Because of our valuation allowance in the U.S., ongoing tax effects of the Act are not expected to materially change our effective tax rate in future periods. The impact of the TCJA on holders of common stock is uncertain and could be materially adverse. This report does not discuss any such tax legislation or the manner in which it might affect investors in common stock. Investors should consult with their own tax advisors with respect to such legislation and the potential tax consequences of investing in common stock.

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.

Failure to obtain regulatory approval in foreign jurisdictions would prevent us from marketing our products abroad.

We intend to market our product candidates internationally. In order to market our products in foreign jurisdictions, we will be required to obtain separate regulatory approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and jurisdictions and can involve additional testing, and the time required to obtain approval may differ from that required to obtain FDA approval. Additionally, the foreign regulatory approval process may include all of the risks associated with obtaining FDA approval. For all of these reasons, we may not obtain foreign regulatory approvals on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or jurisdictions or by the FDA. We may not be able to file for regulatory approvals and may not receive necessary approvals to commercialize our products in any market. The failure to obtain these approvals could harm our business materially.

Our business is subject to political, economic, legal, and social risks in those markets, 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 and political instability, such as Brexit in the United Kingdom or “trade wars”;

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the impact of public health epidemics and actions taken in response to it on employees, suppliers, customers and the global economy, such as the COVID-19 pandemic;

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changes in government 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.

The current presidential administration has expressed antipathy towards existing trade agreements such as the North American Free Trade Agreement, greater restrictions on free trade generally, and significant increases on tariffs on goods imported into the United States, particularly from China and Mexico. 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.

Any changes related to these and other factors could adversely affect any business operations that we conduct outside the United States.

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 reproxalap and our other 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:

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decreased demand for reproxalap or our other product candidates;

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injury to our reputation;

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withdrawal of clinical trial participants;

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costs to defend the related litigation;

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a diversion of management’s time and our resources;

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substantial monetary awards to trial participants or patients;

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product recalls, withdrawals or labeling, marketing or promotional restrictions;

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loss of revenue;

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the inability to continue to develop or commercialize reproxalap or our other product candidates; and

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a decline in our stock price.

We maintain product liability insurance with $5.0 million in coverage. 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 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 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 action including criminal prosecution, the imposition of civil monetary penalties, seizure of our products, or delay in approval or clearance of future products.

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.

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 ~~considered,~~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. IfFor example, in January 2019 we ~~do pursue such a strategy,~~acquired Helio Vision, Inc. and obtained the rights to ADX-2191, an intravitreal DHFR inhibitor (methotrexate) for the prevention of proliferative vitreoretinopathy. Any acquisitions we ~~could,~~undertake or have recently completed will likely be accompanied by business risks which may include, among other things:

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the effect of the acquisition on our financial and strategic position and reputation;

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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;

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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;

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the assumption of certain known or unknown liabilities of the acquired business, including litigation-related liabilities;

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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;

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the possibility that we will pay more than the value we derive from the acquisition;

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the impairment of relationships with our partners, consultants, or suppliers, or those of the acquired business; and

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the potential loss of key employees of the acquired business.

These factors could harm our business, results of operations, or financial condition.

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.

Security breaches, loss of data and other disruptions to us or our third-party service providers could compromise sensitive information related to our business or prevent us from accessing critical information and expose us to liability, which could adversely affect our business and our reputation.

In the ordinary course of our business, we and our third-party service providers collect and store sensitive data, including legally protected health information, personally identifiable information about patients, intellectual property, and our proprietary business and

~~issue equity securities~~

financial information. We manage and maintain our applications and data 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 service providers’ protection of, this critical information, including loss of access, inappropriate disclosure and inappropriate access, as well as risks associated with our ability to identify and audit such events.

The secure processing, storage, maintenance and transmission of this critical 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 may be vulnerable to attacks by hackers or viruses or otherwise breached due to employee error, malfeasance or other activities. These risks may be heightened during the ongoing COVID-19 pandemic as result of many of our employees voluntarily working remotely. While we are not aware of any such attack or breach, if such event would occur and cause interruptions in our operations, our networks would be compromised and the information we store on those networks could be accessed by unauthorized parties, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under federal, state, and international laws that ~~would dilute~~protect the privacy of personal information, such as HIPAA, and regulatory penalties. Unauthorized access, loss or dissemination could also disrupt our ~~current stockholders’ percentage ownership;~~ability to conduct our clinical trials, conduct research and development activities, collect, process and prepare company financial information, provide information about our product candidates and other patient and physician education and outreach efforts through our website, manage the administrative aspects of our business and damage our reputation, any of which could adversely affect our business.

In addition, the interpretation and application of consumer, health-related and data protection laws in the United States, Europe and elsewhere are often uncertain, contradictory and in flux. It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our practices. If so, this could result in government-imposed fines or orders requiring that we change our practices, which could adversely affect our business. In addition, we are subject to various state laws, including the California Consumer Privacy Act, or CCPA, which was enacted in California in 2018 and components of which were scheduled to go into effect on January 1, 2020. The CCPA will, among other things, require covered companies to provide disclosures to California consumers concerning the collection and sale of personal information, and will give such consumers the right to opt-out of certain sales of personal information. Amendments to the CCPA have been made since its enactment, and it remains unclear what, if any, further amendments will be made to this legislation or how it will be interpreted. We cannot yet predict the impact of the CCPA on our business or operations, but it may require us to modify our data processing practices and policies and to incur substantial ~~debt~~costs and expenses in an effort to comply.

Recent developments in Europe have created compliance uncertainty regarding the processing of personal data from Europe. For example, the General Data Protection Regulation, or GDPR, which became effective in the E.U. on May 25, 2018, applies to our activities conducted from an establishment in the EU or related to products and services that we offer to E.U. users. The GDPR creates new compliance obligations applicable to our business, which could cause us to change our business practices, and increases financial penalties for noncompliance (including 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). As a result, we may ~~place strains on our operations;~~

need to modify the way we treat such information.

~~spend substantial operational, financial and management resources in integrating new businesses, technologies and products; and~~

~~assume substantial actual or contingent liabilities.~~

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, and telecommunication and electrical failures. While to our knowledge we have not experienced any such material system failure, accident, or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations. 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 email campaigns through a variety of control and non-electronic checks, spoofing and phishing may damage our business and increase our costs. These risks may be heightened during the ongoing COVID-19 pandemic as result of many of our employees voluntarily working remotely. Any of these events or circumstances could materially adversely affect our business, financial condition, and operating results.

Business disruptions could seriously harm our future revenues and financial condition and increase our costs and expenses.

Our operations could be subject to earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics (including the COVID-19 pandemic), and other natural or manmade disasters or 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 supplies of reproxalap or our other product candidates could be disrupted, if the operations of these suppliers are affected by aman-made or natural disaster or other business interruption.

Our employees or others may engage in misconduct or other improper activities, including noncompliance with regulatory standards, ~~and~~regulatory requirements, and insider trading.

We are exposed to the risk of employee and non-employee, fraud or other misconduct. Misconduct by employees, consultants, or agents could include intentional failures to comply with FDA regulations, provide accurate information to regulatory authorities, comply with manufacturing standards we have established, comply with federal and state health care fraud and abuse laws and regulations, report financial information or data accurately, or disclose unauthorized activities to us. In particular, sales, marketing, and business arrangements in the health care industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing, and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs, and other business arrangements. Our current and former employees, consultants or sub-contractors may also become subject to allegations of sexual harassment, racial and gender discrimination, or other similar misconduct, which, regardless of the ultimate outcome, may result in adverse publicity that could significantly harm our company’s brand, reputation and operations. Employee misconduct could also involve improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation.

In addition, during the course of our operations, our directors, executives, employees, consultants, and ~~employees~~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 ~~a director, executive, or employee from~~ trading in our common stock on the basis of, or while having access to, material, nonpublic information. If ~~a director, executive, or employee~~any such person was to be investigated or an action were to be brought against ~~a director, executive, or employee~~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.

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 ~~their uses~~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 ~~biological or chemical~~ 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 issuedcomposition-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 coveringcomposition-of-matter of ~~our other product~~early stage candidates will be considered patentable by the United States Patent and Trademark Office ~~(USPTO)~~(“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 issuedcomposition-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 these products~~“off-label.~~ “off-label.” Althoughoff-label prescriptions may infringe or contribute to the infringement ofmethod-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 can be employed to trap aldehydes~~ that we have not conceived of or attempted to patent, and other parties may discover and patent ~~aldehyde trapping~~ 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. These risks and uncertainties include the following:

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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;

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patent applications may not result in any patents being issued;

~~patents that may be issued or~~

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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;

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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 patents that will limit, interfere with, or eliminate our ability to make, use, and sell our potential product candidates;

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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

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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 proprietaryknow-how. Although we have taken steps to protect our trade secrets and unpatentedknow-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 proprietaryknow-how, the value of ~~this information~~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 likely:

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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 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;~~

~~require us to developnon-infringing~~ ~~technology;~~

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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 our loan and security agreement with ~~Pacific Western Bank.~~Hercules Capital, Inc. (“Hercules”). In the case of a continuing event of default under the loan, ~~Pacific Western Bank,~~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. ~~Although as of September 30, 2017, we had sufficient cash and cash equivalents to repay all obligations owed to Pacific Western Bank if the debt was accelerated, in~~In the event we do not or are not able to repay the obligations at the time a default occurred, ~~Pacific Western Bank~~Hercules may elect to commence and prosecute bankruptcy and/or other insolvency proceedings, or proceed against the collateral granted to ~~Pacific Western Bank~~Hercules under the ~~loan, which includes our intellectual property.~~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, ornon-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 ~~the~~ validity, ~~question,~~ 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 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 the in-license agreement for ADX-1612 and 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 ~~various~~ commercial, contingent payment, royalty, insurance, indemnification, and or 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, ~~who would be suitable replacements~~ and ~~it may take~~ a significant amount of time may be required to transition to a replacement licensor.

Our rights to develop and commercialize ADX-1612 and ADX-2191 are each subject in part to the terms and conditions of a third party license, pursuant to which we have acquired exclusive rights to ADX-1612 and ADX-2191 and other intellectual property. Our rights with respect to the intellectual property to develop and commercialize ADX-1612 and ADX-2191 may terminate, in whole or in part, if we fail to meet certain milestones contained in each of our license agreements relating to the development and commercialization of ADX-1612 and ADX-2191. We may also lose our rights to develop and commercialize either of ADX-1612 or ADX-2191 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.

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 aan 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, or 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 ~~biopharmaceutical~~biotechnology companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry ~~involve~~involves technological and legal complexity. Therefore, obtaining and enforcing ~~biopharmaceutical~~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 ~~in certain circumstances~~ or weakening the rights of patent ~~owners in certain situations.~~owners. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created

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.

We may not be able to protect our intellectual property rights throughout the world.

While we have issuedcomposition-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 ~~can~~may be less extensive 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. These products may compete with our product candidates, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

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 ~~biopharmaceuticals,~~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, ~~and~~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.

Risks Related to Our ~~Financial Position and Need for Capital~~

~~If we fail to obtain the capital necessary to fund our operations, we will be unable to successfully develop and commercialize reproxalap and our other product candidates.~~

We will require substantial future capital in order to complete the remaining clinical development for reproxalap and our other product candidates and to potentially commercialize these product candidates. We expect our spending levels to increase in connection with our clinical trials of reproxalap and our other product candidates, as well as other corporate activities. The amount and timing of any expenditure needed to implement our development and commercialization programs will depend on numerous factors, including:

the type, number, scope, progress, expansion costs, results of and timing of our planned clinical trials of reproxalap or any our other product candidates which we are pursuing or may choose to pursue in the future;

the need for, and the progress, costs and results of, any additional clinical trials of reproxalap and our other product candidates we may initiate based on the results of our planned clinical trials or discussions with the FDA, including any additional trials the FDA or other regulatory agencies may require evaluating the safety of reproxalap and our other product candidates;

~~the costs of obtaining, maintaining and enforcing our patents and other intellectual property rights;~~

~~the costs and timing of obtaining or maintaining manufacturing for reproxalap and our other product candidates, including commercial manufacturing if any product candidate is approved;~~

~~the costs and timing of establishing sales and marketing capabilities and enhanced internal controls over financial reporting;~~

~~the terms and timing of establishing collaborations, license agreements and other partnerships on terms favorable to us;~~

~~costs associated with any other product candidates that we may develop,in-license~~ ~~or acquire;~~

~~the effect of competing technological and market developments;~~

~~our ability to establish and maintain partnering arrangements for development; and~~

~~the costs associated with being a public company.~~

Some of these factors are outside of our control. We do not expect our existing capital resources to be sufficient to enable us to fund the completion of our clinical trials and remaining development program through commercial introduction. We expect that we will need to raise 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 global economic downturn and market instability has made the business climate more volatile and more costly. Uncertain economic conditions, and uncertainty as to the general direction of the macroeconomic environment, are beyond our control and may make any necessary debt or equity financing more difficult, more costly, and more dilutive. 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 will be unable to complete the planned clinical trials for reproxalap and our other product candidates and we may be required to significantly curtail some or all of our activities. We also could be required to seek funds through arrangements with collaborative partners or otherwise that may require us to relinquish rights to our product candidates or some of our technologies or otherwise agree to terms unfavorable to us.

The terms of our secured debt facility require us to meet certain operating and financial 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 have a $5.0 million Credit Facility with Pacific Western that is secured by a lien covering all of our assets as of September 30, 2017. As of September 30, 2017 and December 31, 2016, the outstanding principal balance under the Credit Facility was approximately $1.4 million. 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 property, changing our business, including changing the composition of our executive team or board of directors, incurring additional indebtedness, engaging in mergers or acquisitions, paying dividends or making other distributions, making investments and creating other liens on our assets and other financial covenants, in each case subject to customary exceptions. If we default under the terms of the loan agreement, including failure to satisfy our operating covenants, 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 Section 382 of the Internal Revenue Code of 1986, as amended (Code), a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize itspre-change~~ net operating losses (NOLs) and certain other tax assets (tax attributes) to offset future taxable income. In general, an ownership change occurs if the aggregate stock ownership of certain stockholders increases by more than 50 percentage points over such stockholders’ lowest percentage ownership during the testing period (generally three years). Transactions involving our common stock, even those outside our control, such as purchases or sales by investors, within the testing period 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. Prior to 2016, Aldeyra has undergone two ownership changes and it is possible that additional ownership changes have occurred since. However, our management believes that we had sufficient~~“Built-In-Gain”~~ to offset the Section 382 of the Code limitation generated by such ownership changes. Any future ownership changes, including those resulting from our recent or future financing activities, may cause our existing tax attributes to have additional limitations.

~~Risks Related to Our~~ Common Stock

An active trading market for our common stock may not develop or be sustained and investors may not be able to resell their shares at or above the price at which they purchased them.

We have a limited history as a public company. An active trading market for our shares may never develop or be sustained. In the absence of an active trading market for our common stock, investors may not be able to sell their common stock at or above the price they paid or at the time that they would like to sell. 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.

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 this volatility, investors may not be able to sell their common stock at or above the price they paid. The market price for our common stock may be influenced by many factors, including:

~~our ability to enroll patients in our planned clinical trials;~~

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results of clinical trials, and the results of trials of our competitors or those of other companies in our market sector;

~~results of the clinical trials, and the results of trials of our competitors or those of other companies in our market sector;~~

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the results and status of our research and development and regulatory plans for our product candidates;

~~regulatory developments in the United States and foreign countries;~~

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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;

~~variations in our financial results or those of companies that are perceived to be similar to us;~~

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regulatory developments in the United States and foreign countries;

~~changes in the structure of healthcare payment systems, especially in light of current reforms to the United States healthcare system;~~

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our ability to enroll patients in our clinical trials;

~~announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;~~

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variations in our financial results or those of companies that are perceived to be similar to us;

~~market conditions in the pharmaceutical and biotechnology sectors and issuance of securities analysts’ reports or recommendations;~~

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changes in the structure of healthcare payment systems, especially in light of current reforms to the United States healthcare system;

~~sales of our stock by insiders and 5% stockholders;~~

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announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures, or capital commitments;

~~trading volume of our common stock;~~

~~general economic, industry and market conditions other events or factors, many of which are beyond our control;~~

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market conditions in the pharmaceutical and biotechnology sectors and issuance of securities analysts’ reports or recommendations;

~~additions or departures of key personnel;~~

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sales of our stock by insiders and 5% stockholders;

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trading volume of our common stock;

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general economic, industry, and market conditions other events or factors, many of which are beyond our control;

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additions or departures of key personnel; and

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intellectual property, product liability, or other litigation against us.

In addition, in the past, stockholders have initiated class action lawsuits against biotechnology and pharmaceutical companies following periods of volatility in the market prices of these companies’ stock. Such litigation, if instituted against 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 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:~~

~~variations in the level of expenses related to our clinical trial and development programs;~~

~~addition or termination of clinical trials;~~

~~any intellectual property infringement lawsuit in which we may become involved;~~

~~regulatory developments affecting reproxalap and our other product candidates;~~

~~our execution of any collaborative, licensing or similar arrangements, and the timing of payments we may make or receive under these arrangements;~~

~~nature and terms of stock-based compensation grants; and~~

~~derivative instruments recorded at fair value.~~

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 tode-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 futurenon-compliance with Nasdaq’s listing requirements.

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 The Nasdaq Capital Market 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 their shares.

~~We may allocate our cash and cash equivalents in ways that you and other stockholders may not approve.~~

Our management has broad discretion in the application of our cash and cash equivalents. Because of the number and variability of factors that will determine our use of our cash and cash equivalents, their ultimate use may vary substantially from their currently intended use. Our management might not apply our cash and cash equivalents in ways that ultimately increase the value of your investment. We expect to use of our cash and cash equivalents to fund our planned clinical trials of reproxalap and our other product candidates, development of other molecules that may relate to our aldehyde trapping platform, and the remainder for working capital and other general corporate purposes. The failure by our management to apply these funds effectively could harm our business. Pending their use, we may invest our cash and cash equivalents in short-term, investment-grade, interest-bearing securities. These investments may not yield a favorable return to our stockholders. If we do not invest or apply our cash and cash equivalents in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause our stock price to decline.

Because a small number of our existing stockholders own a majority of our voting stock, your ability to influence corporate matters will be limited.

As of September 30, ~~2017,~~2020, our executive officers, directors, and greater than 5% stockholders, in the aggregate, own approximately ~~46.0%~~27% of our outstanding common stock. As a result, such persons, acting together, will 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. This 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.

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;~~

~~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 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, they 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.

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, ~~our loan and security agreement with Pacific Western~~the Hercules Credit Facility currently prohibits, ~~us from paying dividends on our equity securities,~~ and any future debt financing ~~arrangement~~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 ~~their value.~~the value of our common 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 ~~their~~ 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 ~~are~~is eligible for sale as ~~are~~is common stock issuable under vested and exercisable stock options. 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. ~~These~~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 ~~an emerging growth~~a smaller reporting company, and we cannot be certain if the reduced reporting requirements applicable to ~~emerging growth~~smaller reporting companies will make our common stock less attractive to investors.

We are ~~an emerging growth~~a smaller reporting company ~~as defined in~~under Rule 12b-2 of the ~~Jumpstart Our Business Startups~~Securities Exchange Act of ~~2012, or the JOBS Act.~~1934. For as long as we continue to be ~~an emerging growth~~a smaller reporting company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not ~~emerging growth~~smaller reporting companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from

the requirements of holding nonbinding advisory votes on executive compensation and stockholder approval of any golden parachute payments not previously approved. We could be an emerging growth company until December 31, 2019, although circumstances could cause us to lose that status earlier, including if we become a large accelerated filer, if we have total annual gross revenue of $1.07 billion or more during any fiscal year before that time, in which cases we would no longer be an emerging growth company as of the following December 31 or, if we issue more than $1.0 billion in~~non-convertible~~ debt during any three year period before that time, we would cease to be an emerging growth company immediately. Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company” which would allow us to take advantage of many of the same exemptions from disclosure requirements including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and 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 ~~these~~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 ~~are incurring~~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 ceased to be an “emerging growth company,” as defined in the JOBS Act, on December 31, 2019. As a result, we expect to incur additional expenses and to devote increased management time toward ensuring compliance with those requirements applicable to companies that are not emerging growth companies. 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 The Nasdaq Capital Market to implement provisions of the Sarbanes-Oxley Act, ~~impose~~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. Recent legislation permits smaller “emerging growth companies” to implement many of these requirements over a longer period and up to five years from our Initial Public Offering. We intend to continue to take advantage of this new legislation but cannot guarantee that we will not be required to implement these requirements sooner than budgeted or planned and thereby incur unexpected expenses. Stockholder activism, the current political environment, and the current high level of government intervention and regulatory reform may ~~lead to~~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 ~~these requirements~~public company rules and regulations divert the attention of our management and personnel from other business concerns, ~~they could have a material adverse effect on~~ our business, financial condition, and results of ~~operations. The increased~~operations could be adversely affected. Increased costs associated with public company expenses will decrease our net income or increase our net loss, and may require us to reduce costs in other areas of our business or increase the prices of our products or services. For example, ~~these~~public company rules and regulations make it more difficult and more expensive for us to obtain director and officer liability insurance, and 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~~requirements, the impact of ~~these requirements~~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.

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. When and if we are a “large accelerated filer” or an “accelerated filer” and are no longer an “emerging growth company,” each as defined in the Exchange Act, our independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting. However, for so long as we remain an emerging growth company, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404. Once we are no longer an emerging growth company or, if prior to such date, we opt to no longer take advantage of the applicable exemption, we will be required to include an opinion from our independent registered public accounting firm on the effectiveness of our internal controls 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 comply with the requirements of being a reporting company under the Exchange Act, we ~~need~~will be required to continue to upgrade and maintain our systems including information technology; implement additional financial and management controls, reporting systems, and procedures; and hire additional accounting and finance staff.

~~Historically,~~Although required with respect to our annual report on Form 10-K for the year ended December 31, 2019, as a result of the SEC’s amendment to the definition of accelerated filer effective in the second quarter of 2020, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal controls over financial reporting in future years if we ~~have not had sufficient~~are deemed a non-accelerated filer as defined by Rule 12b-2 of the Securities Exchange Act of 1934, which we expect to be as of the year ended December 31, 2020. This lack of attestation by our independent registered accounting firm may increase the risk that we fail to detect and ~~supervisory personnel with~~remedy any weakness of deficiencies in our internal control over financial reporting. Additionally, at such time as we are subject to the ~~appropriate~~auditor attestation requirements, our independent registered public accounting firm may issue a report that is adverse in the event control deficiencies are identified, either in their design or operating effectiveness, which rise to the level of ~~technical accounting experience~~a material weakness.

If we are unable to establish and ~~training necessary or adequate formally documented accounting policies and procedures to support,~~maintain effective internal ~~controls.~~ controls it could have a material adverse effect on our business, financial condition, results of operations or cash flows.

As we grow, we ~~will~~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 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. We currently have limited research coverage by securities and industry analysts. If other securities or industry analysts do not commence coverage of our company, the trading price for our stock could be negatively impacted. If one or more of the analysts who covers us downgrades our stock, our stock price would likely decline. If one or more of these analysts ceases to cover us or fails to regularly publish reports on us, interest in our stock could decrease, which could cause our stock price or trading volume to decline.

We could be subject to securities class action litigation.

In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. ~~This~~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. If we face such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business.

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;

•

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 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 business could be negatively affected as a result of the actions of activist stockholders.

Proxy contests have been waged against many companies in the ~~biopharmaceutical~~biotechnology industry over the last few years. We may be particularly vulnerable to ~~these actions~~activist stockholders due to the highly concentrated ownership of our common stock. If faced with a proxy contest or other type of shareholder 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 shareholder 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~~

•

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

•

if individuals are elected to a board of directors with a specific agenda, it may adversely affect our ability to effectively and timely implement our strategic plan and create additional value for our stockholders.

These actions could cause our stock price to experience periods of volatility.

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. This provision would not apply to 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. These choices of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees and may discourage these types of 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

these types of 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.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3.

Defaults Upon Senior Securities.

None.

Item 4.

Mine Safety Disclosures.

Not applicable.

Item 5.

Other Information.

None.

Item 6.

Exhibits.


Exhibit Number		Description

3.1		Restated Certificate of Incorporation of Registrant, (filed as Exhibit 3.1 to the Registrant’s Current Report on Form8-K as filed on May 7, 2014, and incorporated herein by reference).

3.2		Amended and Restated Bylaws of the Registrant (filed as Exhibit ~~3.2 to the Registrant’s Current Report on Form8-K~~ ~~as filed on May 7, 2014, and incorporated herein by reference).~~

~~10.26~~		~~Controlled Equity Offering~~^SM ~~Sales Agreement by and between Cantor Fitzgerald & Co. and the Registrant (filed as Exhibit 10.1~~3.1 to the Registrant’s Current Report on Form 8-K as filed on ~~June 2, 2017~~May 1, 2020, and incorporated herein by reference).

~~10.27~~ 10.33		Second Amendment to Lease ~~Agreement by and~~ between WLC Three VI, L.L.C. and the Registrant, dated as of ~~September 11, 2017.~~October 7, 2020.

~~31.1~~
31.1		Certification of the Principal Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of the Principal Financial and Accounting Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of the Chief Executive Officer and Chief Financial Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002.

~~101~~ 101.INS		~~The following financial information from this quarterly report on Form10-Q~~ ~~for~~ Inline XBRL Instance Document - the ~~fiscal quarter ended September 30, 2017 formatted~~instance document does not appear in the Interactive Data File because its XBRL (eXtensible Business Reporting Language) and filed electronically herewith: (i) Balance Sheets as of September 30, 2017 and December 31, 2016; (ii) Statements of Operations and Comprehensive Income (Loss) fortags are embedded within the ~~three and nine months ended September 30, 2017 and 2016; (iii) Statements of Cash Flows for~~Inline XBRL 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 ~~nine months ended September 30, 2017 and 2016; and (iv) Notes to Financial Statements.~~Inline XBRL document)

The certification attached as Exhibit 32.1 that accompanies this quarterly report on Form10-Q is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Aldeyra Therapeutics, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this quarterly report on Form10-Q, irrespective of any general incorporation language contained in such filing.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


				Aldeyra Therapeutics, Inc.

November ~~9, 2017~~5, 2020				/s/ Todd C. Brady, M.D., Ph.D.
				Todd C. Brady, M.D., Ph.D.
				Chief Executive Officer
				(Principal Executive Officer)

				Aldeyra Therapeutics, Inc.

November ~~9, 2017~~5, 2020				/s/ ~~Stephen J. Tulipano~~ Joshua Reed
				~~Stephen J. Tulipano~~ Joshua Reed
				Chief Financial Officer
				(Principal Financial Officer and Principal Accounting Officer)

49 F

Large accelerated filer

Accelerated filer

Non-accelerated filer

~~☐ (Do not check if a smaller reporting company)~~

Smaller reporting company

Emerging growth company