Big Swing Trade Potential For Alexza Pharma With Two December Catalysts Print E-mail
By Scott Matusow, @scottmatusow   
Thursday, 29 November 2012 07:09

icon_tradecatalystAlexza Pharma (NASDAQ: ALXA) engages in the research, development, and commercialization of novel proprietary products for the acute treatment of central nervous system conditions.

Its product candidates are based on a proprietary technology, the Staccato system, which vaporizes an excipient-free drug to form a condensation aerosol that, when inhaled, allows for rapid systemic drug delivery. The company's lead product candidate includes Adasuve for the acute treatment of agitation in adults with schizophrenia or bipolar disorder. Its other product candidates under development comprise AZ-007 (Staccato zaleplon), which has completed Phase I clinical trials for the treatment of insomnia; and Staccato nicotine that is in pre-Phase 1 clinical trials to help smokers quit by addressing both the chemical and behavioral components of nicotine addiction by delivering nicotine replacement through inhalation. Alexza Pharmaceuticals, Inc. was founded in 2000 and is headquartered in Mountain View, California.

It appears Alexza has been through a lot with the FDA trying to get Adasuve, its lead product, approved. This December, the company has another chance to not only be approved by the FDA, but also in Europe. So, let's look at this drug and hopefully provide some due diligence for investors to make an informed decision regarding trading the stock.

The nice thing for Alexza is that the most recent communication with the FDA returned no new clinical or safety issues identified. Obviously, this is clear and the company feels it has satisfied the other issues brought forth by the FDA when the complete response letter (CRL) was received this past May.

During this CRL, the language went like this, "During a recent inspection of the Mountain View, CA manufacturing facility for this application, our field investigator conveyed deficiencies to the representative of the facility. Satisfactory resolution of these deficiencies is required before this application may be approved."

During the most recent quarterly conference call, CEO Tom King said in the United States, the company feels they are on track for the December PDUFA date. His opinion is that there is agreement between the company and the FDA on the content of the package insert language as well as the scope and content of Adasuve. In addition, re-inspection of the Mountain View, CA facility appears to confirm they have appropriately responded to any concerns the FDA previously had.

In addition, Tom King provided further detail when asked about the advantages and opportunities for Adasuve. In the U.S., the company expects the drug to be approved to help agitation in adult patients with schizophrenia and bipolar 1 in a hospital setting. Mr. King feels it is an unmet medical which will provide significant improvement in patient care. The three improvements noted are speed, consistency, and non-invasiveness. I thought his ten-minute-or-less guideline for the medicine to kick in was impressive as it would be quicker than even an injection and way faster and more predictable than any oral dose available today.

Also, in December, a big decision will be unveiled for the company in Europe. The Committee for Medicinal Products for Human Use (CHMP) is the European Medicines Agency's committee responsible for elaborating the agency's opinions on all issues regarding medicinal products for human use. In September 2012, the company received the Day 180 List of Outstanding Issues from the CHMP regarding our ADASUVE Marketing Authorization Application (MAA). The Day 180 List of Outstanding Issues included two "major objections," which preclude a recommendation for marketing authorization at the present time.

The first major objection states that the CHMP does not believe that the data supports the broad indication as submitted, and that it should justify that the benefit/risk is positive in this group or identify a group of patients in whom the benefit/risk would be positive.

The second major objection is in regards to bronchospasm and an effect on cardiac rhythms, or QT time. King said in the third quarter conference call that there was no negative data related to this issue in trials. However, EU authorities proposed to limit the use of ADASUVE to a single dose per 24 hours to prevent any problems with this. The problem here is that EU authorities feel, a "considerable proportion" of patients in the efficacy studies did not respond to a single dose at the four hour time point and needed subsequent doses. Therefore, it remains uncertain whether in clinical practice it will be feasible to avoid dose-repetition.

During the fourth quarter of 2012, the company has submitted additional analyses and responses to the EMA in response to the Day 180 List of Outstanding Issues. In addition, the company will meet directly with the EMA in mid-December which should happen right before the decision.

So, it looks like Alexza has been making a label change for the EU authorities to take care of the labeling concern related to the range of symptoms the medicine is indicated for. In the trials, mild to moderate symptoms were treated. The label now reads this versus the company looking to treat everything from mild to severe symptoms. Now, I feel the main concern is the potential second dosing issue. In trials, the company did not treat patients in multiple doses which the EU authorities feel may be necessary. So, the question of how to gather this data post-approval is now the big one that needs to be resolved for this approval.

As far as cash is concerned, the company is pretty stable for the time being. In its third quarter conference call, it said they will not sell stock prior to the PDUFA date in December. In addition, the company said the current cash would be sufficient for operations at least until the middle of next year. In July, Alexza announced a new committed equity financing facility with Azimuth Opportunity which replaced a similar agreement that expired in June. This is a $20 million facility that the company has used to finance about $13.6 million. Azimuth can immediately flip the shares they buy in the financing on the open market.

I think a strong case is being made here for approval. The potential downside is if the EU would reject the submission, things could snowball heavily in the wrong direction as the FDA is typically more difficult to get the go-ahead from. I still like this as a catalyst trade since there is quite a bit of anticipation leading up to a huge moment for the company. Depending on the amount of risk an investor wants to take on, it's possible to either sell prior to the anticipated announcements or at least put in a stop loss order. The only issue on the stop loss order in this scenario is that if any news is announced after-hours which is typical for these decisions, you wouldn't get your price filled before the next market open when the price would probably open significantly lower. I think trading in and out prior to the decision and potentially letting profits (hopefully) ride on the decision would be a reasonable play. Additionally, an options play expecting a lot of movement in one direction or the other would make sense to me especially when considering decisions by both the FDA and CHMP in such a close time frame.

My price target opinion here is $6.25 before the PDUFA date, and $12 if the FDA approves the drug this time around.

Disclosure: Long ALXA


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