What happened

Shares of Aldeyra Therapeutics (ALDX 3.18%) skyrocketed 79% today after the company announced positive results from a phase 3 trial investigating its lead drug candidate, reproxalap, as a potential treatment for allergic conjunctivitis. That's the clinical term for itchy eyes caused by allergens such as mold or pollen.

In the late-stage trial, two different concentrations of reproxalap delivered a statistically significant improvement compared to the standard of care in a subjective itch score metric measured on a scale from 0 to 4 (the primary endpoint). The drug candidate also reported a statistically significant advantage over the standard of care in the number of individuals who achieved a 2-point improvement on the scale (the secondary endpoint). 

Aldeyra Therapeutics also secured a $60 million loan facility for a significant amount of non-dilutive capital. As of 12:48 p.m. EDT, the stock had settled to a 39.5% gain.

A man sitting on the floor with his laptop open in his lap as cash falls around him

Image source: Getty Images.

So what

Wall Street didn't pay much attention to Aldeyra Therapeutics before today, as evidenced by the fact the business is valued at less than $300 million -- even after the surge in stock price. Reuters reports that Cantor Fitzgerald analyst Elemer Piros had estimated the phase 3 trial had only a 30% chance of a successful outcome, but that reproxalap could generate as much as $1.6 billion in annual revenue by 2025.

Whether or not that materializes depends on a few factors. First, Aldeyra Therapeutics must earn marketing approval from the U.S. Food and Drug Administration. It plans to meet with regulators in the second half of 2019 to determine the best course of action for submitting its marketing application. Second, reproxalap has to deliver on its purported potential to be used with existing treatments and its unique mechanism of action. Third, the small-cap pharma has to commercialize and market the drug without encountering any delays -- a risk that can't be overlooked for an unproven pharma company.

Check out the latest earnings call transcript for Aldeyra Therapeutics.

Now what

Aldeyra Therapeutics should be flush with cash now. It exited 2018 with over $49 million in cash, cash equivalents, and marketable securities. It had another $44 million in reverse repurchase agreements, which are generally counted as cash equivalents despite being listed on a separate line on the balance sheet. When all of that is combined with the $60 million loan facility announced today, the small-cap pharma would have a pro forma cash balance of over $153 million. 

That will help to de-risk the regulatory work ahead, as well as potential commercialization and marketing activities. Plus, Aldeyra Therapeutics has a relatively busy pipeline that will require a lot of capital to develop. If the company can land a partner for reproxalap, then investors could have a lot more confidence in its ability to maximize the drug's lofty potential.