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Alexza Upgraded to Outperform – Analyst Blog

Zacks Market Commentaries — Thu, 18 Feb 2010 20:11:01 +0000

In a research report posted today by Senior Biotechnology Analyst, Jason Napodano, CFA, the recommendation on Alexza Pharmaceuticals (ALXA) was upgraded from Neutral to Outperform.

In the report, Napodano writes, “We believe the odds favor approval for AZ-004 in October 2010. The device has the potential to create a significant market for the rapid and non-invasive treatment of acute agitation. We believe Alexza has an ideal partnership with Biovail for the commercialization of AZ-004, and at $2.70/share the market is undervaluing this opportunity. We have established a near-term target of $4."

For frequent readers of Napodano’s work, the upgrade in recommendation on Alexza should not come as a surprise. In the past, Mr. Napodano has called the company’s Staccato inhalation system, “The best inhaled technology in the market" and stated that, “AZ-004 (Staccato loxapine) device has $400 to $500 million potential."

He further states, “Over the long-term, which is how we base our recommendation on Alexza, we really like the story. Approval of AZ-004 in October 2010 will be a transformation event for the company. ...We would encourage investors to...focus more on the market potential opportunity for AZ-004."

We encourage investors to view the full research report on Alexza Pharmaceuticals posted on the Zacks website, or to contact Mr. Napodano or their Zacks Institutional Sales professional for a copy of the report.

For additional information on the differences between the Zacks Rank and the Zacks Recommendation, please see the following article: http://www.zacks.com/education/zacks_rank_education
Read the full analyst report on "ALXA"
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Alexza Takes Big Step Forward – Analyst Blog

Zacks Market Commentaries — Thu, 17 Dec 2009 21:20:51 +0000

On December 14, 2009, roughly a month ahead of our forecast, Alexza Pharmaceuticals (ALXA) announced it had filed the new drug application (NDA) on AZ-004. The news follows the completion of the five non-pivotal safety and supporting studies earlier in the year, and the pre-NDA meeting held with the U.S. FDA in June 2009. In total, AZ-004 has been tested in over 1,600 patients in 13 clinical programs, including the two pivotal phase III trials that both met their primary endpoint.

We expect the U.S. FDA will respond accepting the application around early February 2010. Assuming a standard 10-month PDUFA review, Alexza should have a response letter from the FDA by the middle of October 2010.

Next up for Alexza will be securing a commercialization partnership for AZ-004. Management has said on several occasions that they are in discussions with multiple parties on both a U.S. and ex-U.S. partnership, and that negotiations have progressed to the term-sheet stage. Management’s corporate goal is to have a partnership in place by the end of the first quarter 2010. This will allow the company to focus on manufacturing scale for the commercial launch in 2011 and the pre-approval inspection (PAI) scheduled with the FDA for later in 2010.

Alexza and its partner expect to launch AZ-004 with a commercial supply, produced in Alexza’s Mountain View facility, with approximately 6 to 7 million units. This should be enough to supply the market for 2011 and into 2012.

Episodes of acute agitation occur often in the 2.4 million schizophrenia and 5.7 million bipolar disorder patients in the U.S. Management estimates that 90% of these patients will experience an episode of acute agitation during their lifetime. Well-treated (on medication) schizophrenia patients often do not experience significant agitation, but the well-treated schizophrenia patient is not the norm.

Bipolar patients often go untreated and experience acute agitation during the mania phase of the disease. These episodes are often treated with conventional antipsychotics and benzodiazepines. Intramuscular (IM) haloperidol, lorazepam, olanzapine and ziprasidone are among the most common agents used. However, administering an invasive intramuscular injection during a state of acute agitation is a difficult task for a caregiver, and often leads to increased anxiety for the patient.

Oral medications are preferred mode of administration, but offer delayed onset of action and far less predictable outcomes. Currently, the market is split pretty evenly between oral and injectable drugs, with most caregivers starting on oral medications and then moving to IM injections if necessary.

Alexza’s AZ-004 will offer a new alternative to the caregiver. AZ-004 is designed to provide rapid and predictable onset in a non-invasive delivery. The American Association of Emergency Psychiatrists’ Expert Consensus Guidelines for the Treatment of Behavioral Emergencies lists three key attributes for an effective medication: speed of onset, reliability of medication delivery and patient preference. AZ-004 meets all three, in our view.

Still, commercializing AZ-004 will be no easy task. While the acute agitation market is one that is vastly under-served, the market has not been previously developed by larger pharmaceutical organizations. Instead, entering the acute agitation market with AZ-004 will require Alexza’s partner to build and create the market through a staged roll-out focusing on increasing awareness and pharmacoeconomic benefits of the drug.

The market for launching the drug is also fragmented. We expect that the initial roll-out will employ a salesforce of roughly 75 to 100 representatives at Alexza’s partner focusing on medically supervised use in the long-term care facilities / psychiatric hospitals. This is where only about 35% of acute agitation patients are treated, but a typical patient in a long-term care facility can experience as many as 4 to 5 episodes while committed.

Alexza and its partner will also roll-out the drug to the emergency-room setting. This is where approximately 50% of the agitation episodes are treated, but it is more on a one-and-done basis. Eventually, Alexza would like to file a supplement to the NDA to allow for home-use of the drug, and even expand the label to include agitation caused by additional psychological disorders including Alzheimer’s dementia, Parkinson’s disease, ALS, or social or general anxiety disorder.

The out-patient setting offers sizable upside to the first phase of the rollout. Management will most likely need to conduct some additional clinical work before the FDA will expand the label to include home use, but we do not believe this will be a terribly expensive or time-consuming venture.

With a fully-expanded label, the sale force could approach 200+ representatives and offer a $500 million opportunity to Alexza’s yet unnamed partner. We are assuming a price of around $50 per dose. Management has done some primary market research and found little formulary resistance at this level.

We believe the drug has very favorable pharmacoeconomics when you consider the alternative to treating a non-responsive patient with acute agitation. Hospital stays, use of restraints, ambulances, multiple doses of oral and then injectable drugs -- these all can be avoided with AZ-004. In Alexza’s phase III clinical program, the response rate (defined as relief from agitation at 2-hours) was 67% of schizophrenia patients and 74% for bipolar patients. We think there is clear benefit to the drug, and that pricing even above $50 per unit is doable.

In the meantime, we expect approval in October 2010, with 2011 U.S. sales in the area of $40 to $50 million. We expect that Alexza will seek to capture a 20% royalty on sales from its partner, as well as manufacturing transfer payments, regulatory, sales and commercialization-related milestones.
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Alexza’s Delicate Balance – Analyst Blog

Zacks Market Commentaries — Thu, 06 Aug 2009 15:49:14 +0000

AZ-004 (Staccato loxapine) is a pre-NDA candidate for the treatment of acute agitation in patients with schizophrenia and/or bipolar disorder. Management at Alexza Pharmaceuticals (ALXA) is focused on completing the necessary non-pivotal safety and supportive work, as well as the chemical and manufacturing scale-up, on AZ-004 in preparation of the planned NDA [new drug application] filing in early 2010.

Besides the preparation that is being done for the AZ-004 NDA, management is focusing on partnering opportunities for the drug. There are currently no real effective treatment options for patients with schizophrenia or bipolar disorder with acute agitation. In most instances, anti-psychotic drugs are used with varying degrees of success.

Care-givers are looking for three key attributes in a treatment options: speed of onset, predictability of response and convenience and non-invasiveness of delivery. Injectable drugs provide rapid onset and predictability, but the invasiveness of an intramuscular injection during an acute attack only adds to the agitated state of the patients. Oral drugs are less invasive, but do not provide rapid onset delivery.

AZ-004 looks to have all three desirable traits. Plus, the phase III data looks very good. We expect that signing a commercialization partner will get done in the next few months. This is a rather large and under-served market, but it is a market where the marketing partner will need to build and grow the business from the ground up. Thus, finding the right partner is extremely important for Alexza.

The company exited the second quarter with $26.0 million in cash. Based on our financial model, this is enough cash to fund operations into the first quarter of 2010. Thus, management is now working through the delicate balance of keeping burn low while keeping AZ-004 moving forward.

To raise cash in the next few months management can sign a commercialization partner for AZ-004. However, Alexza wants to secure the best possible terms for shareholders, so management may look to raise cash prior to finalizing a deal so that the company can negotiate from a position of strength. Unfortunately, raising cash will probably mean issuing shares, and management is already planning on issuing 10 million shares and 5 million warrants to Symphony Allegro in late August 2009 to reacquire the full rights to AZ-004, AZ-104, and AZ-002. Therefore, dilution is a major concern over the next few quarters.

Nevertheless, we are very pleased to see Alexza buy-out Symphony Allegro because it removes a significant impediment to partnering and allows management to regain full control to the pipeline. Migraine headache drug AZ-104 is currently in a phase IIb program with data expected later in the third quarter 2009.

We are big fans of the Staccato platform. The delivery system fits well with key products under development, including AZ-004 for acute agitation, AZ-001 and AZ-104 for migraine headaches, and AZ-007 for insomnia. We expect the NDA filing on AZ-004 during the first quarter of 2010.

In the meantime, we are waiting for a partnership on the drug and/or an improvement in the financial position before we get aggressive in recommending the name. At this point, we believe investors can be patient and establish a position on pull-backs. Our price target is $3 per share.
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Zacks Analyst Blog Highlights: Nabors, Patterson-UTI, Schlumberger, Baker Hughes and Alexza Pharmaceuticals. – Press Releases

Zacks Market Commentaries — Wed, 17 Jun 2009 13:53:33 +0000

For Immediate Release

Chicago, IL - June 17, 2009 - Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Nabors (NBR), Patterson-UTI (PTEN), Schlumberger (SLB), Baker Hughes (BHI) and Alexza Pharmaceuticals (ALXA).

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Here are highlights from Tuesday's Analyst Blog:

Land Driller Gains Unsustainable

We are scratching our heads to justify the impressive recent gains made by land drillers such as Nabors (NBR) and Patterson-UTI (PTEN). We are of the view that these gains lack fundamental support and remain unsustainable.

Shares of land drillers have been star performers lately. In the last 12 weeks, land drillers are up an average 41%, compared to a little over-12% gain for the S&P 500. During the same time period, the deepwater offshore drillers gained roughly 25%, while the large-cap oilfield service companies, such as Schlumberger (SLB) and Baker Hughes (BHI) went up by about 32%. Year-to-date, the land drillers are up 31%, while the deepwater offshore and the oilfield service groups are up 56% and 53%, respectively.

Oilfield service activities outside the U.S. are largely centered on looking for, developing and maintaining oil production. Offshore drilling, particularly the deepwater end of it, is similarly oil-centered. As such, it makes perfect sense for the stock prices of the large global oilfield serve players and the deepwater offshore drillers to be making handsome gains given the roughly doubling of oil prices from their Feb'09 lows.

But land drilling in the U.S. is primarily for natural gas. And natural gas prices have not moved much, if any, in recent days. In the last 12 weeks, natural gas prices are flat to modestly down, basically stuck around $4. A massive storage overhang, still growing domestic production, fears of increased LNG imports, and recession-hit demand, particularly in the industrial sector, continues weighing on natural gas prices.

Alexza Buying Symphony-Allegro

In what we consider to be a fantastic transaction for both management and shareholders, Alexza Pharmaceuticals (ALXA) announced on June 16, 2009 that it has entered into an agreement with Symphony-Allegro to require the rights to all product candidates subject to the December 2006 agreement with Symphony Capital Partners Inc. et al.

The formation of Symphony-Allegro, initially funded with $50 million in capital to facilitate the development activities for AZ-002, AZ-004, and AZ-104, has been a substantial impediment to partnering discussions on these three candidates, and a significant overhang on the stock. Our May 8, 2009 report, entitled "The Symphony-Allegro Squeeze," outlined our belief that the stock would remain under pressure until this overhang was lifted.

To re-acquire the full rights to these three candidates, Alexza will issue Symphony-Allegro 10 million shares of newly registered common stock, plus 5 million warrants to acquire additional shares (at 1:1) at an exercise price of $2.26/share. Symphony-Capital's new total ownership in Alexza Pharmaceuticals will stand around 23% once the deal closes in the third quarter 2009. Symphony-Capital will also nominate one member to the board of directors.

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Alexza Buying Symphony-Allegro – Analyst Blog

Zacks Market Commentaries — Tue, 16 Jun 2009 21:31:21 +0000

In what we consider to be a fantastic transaction for both management and shareholders, Alexza Pharmaceuticals (ALXA) announced on June 16, 2009 that it has entered into an agreement with Symphony-Allegro to require the rights to all product candidates subject to the December 2006 agreement with Symphony Capital Partners Inc. et al.

The formation of Symphony-Allegro, initially funded with $50 million in capital to facilitate the development activities for AZ-002, AZ-004, and AZ-104, has been a substantial impediment to partnering discussions on these three candidates, and a significant overhang on the stock. Our May 8, 2009 report, entitled "The Symphony-Allegro Squeeze," outlined our belief that the stock would remain under pressure until this overhang was lifted.

To re-acquire the full rights to these three candidates, Alexza will issue Symphony-Allegro 10 million shares of newly registered common stock, plus 5 million warrants to acquire additional shares (at 1:1) at an exercise price of $2.26/share. Symphony-Capital's new total ownership in Alexza Pharmaceuticals will stand around 23% once the deal closes in the third quarter 2009. Symphony-Capital will also nominate one member to the board of directors.

Alexza has also agreed to pay Symphony-Capital a cash payment / royalty fee based on any upfront cash received from the partnering opportunities with AZ-002, AZ-004, and AZ-104. On the conference call, management noted that this cash payment rate on the upfront fee was 25% on the first $100 million, and correlated closely thereafter with Symphony-Capital's overall ownership position of around 23%.

Considering the current value of the Symphony Allegro buy-out price at the end of the first quarter 2009 stood at $92 million, we view this as a very favorable transaction for management. Current shareholders are diluted by about 1/3rd (33.1 million shares outstanding as of June 2009 + 10 million new shares to be issued in the third quarter), but this is far less than what management would have had to come up with to raise $92 million.

Plus, we remind investors that the buy-out price was increasing by a rate of 27% per annum. So settling on the deal today saves an estimated $25 million a year from now.

With this significant overhang out of the way, we believe that management can now move forward with partnering discussions on each individual product, instead of having to worry about raising enough upfront cash to buy-out Symphony Allegro in cash. Plus, Alexza gets to keep the existing cash balance in the Symphony Allegro account, which stood at $17.6 million at the end of the first quarter.

The stock is reacting favorably to the news. We are raising our price target to $3 per share. Investors can now -- finally! -- focus on the pipeline, and more specifically the new drug application for AZ-004. Upside to our target comes with the signing of a partnership for AZ-004 perhaps later this year.
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Zacks Analyst Blog Highlights: Lloyds Banking Group plc, CBS Corporation, Somaxon Pharmaceuticals, Alexza Pharmaceuticals and NeurogesX, Inc. – Press Releases

Zacks Market Commentaries — Mon, 11 May 2009 13:19:54 +0000

For Immediate Release

Chicago, IL - May 11, 2009 - Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Lloyds Banking Group plc (LYG), CBS Corporation (CBS), Somaxon Pharmaceuticals (SOMX), Alexza Pharmaceuticals (ALXA) and NeurogesX, Inc. (NGSX).

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Here are highlights from Friday's Analyst Blog:

Lloyds Still Expects a Loss

Today in its first quarter trading update, Lloyds Banking Group plc (LYG, or Lloyds) announced that it still expects to post a loss for full-year 2009 (excluding an accounting gain from negative goodwill) on the back of rising loan impairment charges due to continued economic deterioration.

Lloyds now expects a 50%-plus increase in corporate impairments, largely from commercial real estate losses in the UK and Ireland, in addition to significantly higher impairments in the retail secured and unsecured loan portfolios.

CBS Ad Revs Tumble As Expected

CBS Corporation (CBS) reported that as expected it lost $0.08 per share in 1Q09, a sharp drop from the $0.36 per share it earned in the year-ago quarter.

Two-thirds of the company's revenues come from advertising, which has been falling sharply for several quarters in all medias, with the Internet providing the lone engine of growth -- and even that began to slide in 4Q08.

Revenue slumped 13% to $3.16 billion, as falling revenue in the company's TV, radio, outdoor and publishing businesses was partially offset by the acquisition of CNET Networks. EBITDA plunged disproportionately -- down 42% to $249 million-- eviscerated by heavy fixed costs.

Somaxon - Too Much Risk

Somaxon Pharmaceuticals (SOMX) is running dangerously low on cash. Management exited the second quarter with $4.4 million in cash and restricted cash. Based on our financial model, Somaxon will run out of cash in July 2009. Therefore, the company plans to enter into a financing in May or June 2009.

The company noted on its first quarter conference call that this financing will be enough to fund operations through the FDA review of Silenor. Therefore, we believe management will seek to raise roughly $10 million in new capital. Given the current market value of only $9 million, we see the upcoming financing as potentially 100% dilutive.

ALXA's Symphony Allegro Squeeze

Management at Alexza Pharmaceuticals (ALXA) is focused on completing the necessary non-pivotal safety and supportive work, as well as the chemical and manufacturing scale-up on AZ-004 in preparation of the planned NDA filing in early 2010.

The only clinical trial program that will run in 2009 is the recently initiated phase IIb program on AZ-104. No clinical work is being done on AZ-007 or AZ-001 at this point. Besides the preparation that is being done for the AZ-004 new drug application (NDA), management will also focus on partnering opportunities for AZ-004 and AZ-001.

NGSX's Qutenza Nearing Approval

NeurogesX, Inc. (NGSX) filed a new drug application (NDA) on Qutenza (formerly NGX-4010) for post-herpetic neuralgia (PHN) in October 2008. The filing includes data from 2,300 patients and two positive phase III trials, C116 and C117, discussed below.

The FDA accepted the application in December 2008 and established a PDUFA action date of August 16, 2009. However, in recent discussions with the FDA, NeurogesX was asked for additional information around the topical anesthetic used in the phase III program.

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ALXA’s Symphony Allegro Squeeze – Analyst Blog

Zacks Market Commentaries — Fri, 08 May 2009 17:25:35 +0000

Management at Alexza Pharmaceuticals (ALXA) is focused on completing the necessary non-pivotal safety and supportive work, as well as the chemical and manufacturing scale-up on AZ-004 in preparation of the planned NDA filing in early 2010.

The only clinical trial program that will run in 2009 is the recently initiated phase IIb program on AZ-104. No clinical work is being done on AZ-007 or AZ-001 at this point. Besides the preparation that is being done for the AZ-004 new drug application (NDA), management will also focus on partnering opportunities for AZ-004 and AZ-001.

The company exited 2008 with $23.1 million in cash and investments. Symphony Allegros held another $17.6 million in cash. Funding operations doesn't seem to be an issue for now. Alexza probably has enough cash to fund its development programs into the second quarter of 2010.

We are pleased that Alexza has retained exclusive rights to its products through collaboration with Symphony Capital Partners. However, Alexza will need to re-purchase the intellectual property for both candidates in the future from Symphony Allegro, Inc. Based on the end of the first quarter, this will cost the company $92 million. And the price is only going higher each quarter at a rate of 27% per annum. This remains the biggest concern to owning the stock.

Will Alexza get enough from a new development partner to pay off Symphony Allegro and fund its own operations?

At this time, we think investors can be patient with Alexza. We simply do not see how this stock trades higher, knowing that every quarter the Symphony Allegro buy-out price is going up and up. We think there is real value in AZ-004 and AZ-104, but Alexza will need somewhere around $120 million to repurchase all its assets from the joint venture by this time next year.

Meanwhile, the current market value is only $56 million. This is a Symphony Allegro squeeze, and it's killing the stock. Our rating is a nervous Hold.
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