Alexza: Maybe A Little Speculation Is Warranted

| About: Alexza Pharmaceuticals, (ALXA)

A decision is expected on December 21, 2012 by the FDA on new treatment for agitation in schizophrenic patients and bipolar patients. Loxapine, a typical antipsychotic drug has been formulated in a rapid acting inhalable version with demonstrated efficacy, trade name Adusive from Alexza (NASDAQ:ALXA). With an onset of action in as little as 10 minutes in a clinical trial with bipolar disorder, this non-invasive antipsychotic may have a distinct advantage over current sublingual and injectable formulations of antipsychotic drugs. Alexza has traded higher recently, perhaps in anticipation of approval.

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Although the advisory panel was split, reading the briefing document for the advisory meeting could suggest the chances of approval are good. Moreover, the Company and other Seeking Alpha authors have already noted that the company and the FDA see to have common ground on a REMS to mitigate risk, which bodes well for approval. This drug will likely be approved as the rapid onset of action is a plus according to some Psychiatrists and the adverse effects for short term use should be minimal in most patients and there is safety data from trials with patients with lung problems. The bigger question is market share and revenue. Then there is the evaluation of the rest of the pipeline for the Stacatto delivered drugs to come, which is not that positive.

Revenue? A Seeking Alpha article has made projections, based on percentages of Schizophrenic patients and estimated agitation episodes, coming up with $160 million US swales and $300 million worldwide. A valiant effort, but fraught with assumption. Another approach has proven elusive, discussions with pharmaceutical companies have not led to a concrete estimate of the percentage of Abilify's $7 billion plus sales (NYSE:BMY) or Zyprexa's $4 billion plus sales (NYSE:LLY) actually are derived from immediate treatment of agitation. It is, however, a slim percentage, that much was clear. There is not enough information to make a meaningful projection for revenue and earnings for Adusive. Moreover, the Alexza's product pipeline is weak, with other products either dropped or just beginning clinical trials. The bottom line for me, it's about shares outstanding. I have no opinion on potential revenues. I suspect the drug will be approved, but the odds of that are better than fifty-fifty, but nowhere near a probability of 1.0. But there are only 15.6 million shares outstanding. If this company did achieve just $100 million in sales with earnings of $10-20 million, that could give it a reasonable PE ratio. There of course would likely be share dilution to achieve marketing, but that will be post-approval at a better share price (assuming approval). Alexza, is at best, a speculative buy fraught with uncertainty for no more than a slim portion of a portfolio.

In summary, the reason to buy or hold Alexza is there are a relatively small number of shares outstanding, the reason to sell is it has risen and it is very difficult to predict the revenue. On the flip side, one more analyst (see Seeking Alpha) has indicated a 75% probability of approval.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.