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Alexza Pharmaceuticals (NASDAQ:ALXA)

Q4 2012 Earnings Call

March 26, 2013 5:00 pm ET

Executives

Mark K. Oki - Chief Financial Officer, Principal Accounting Officer and Senior Vice President of Finance

Thomas B. King - Chief Executive Officer, President, Director and Chairman of Finance Committee

Analysts

Stephen G. Brozak - WBB Securities, LLC, Research Division

Scott R. Henry - Roth Capital Partners, LLC, Research Division

Charles C. Duncan - Piper Jaffray Companies, Research Division

Operator

Good afternoon, everyone, and welcome to the Alexza Pharmaceuticals 2012 Fourth Quarter and Year-End Financial Results Conference Call. [Operator Instructions] Today's conference is also being recorded. If you have any objections, you may disconnect at this time.

I would now like to turn today's conference over to Mr. Mark Oki, Senior Vice President, Finance, and Chief Financial Officer at Alexza. Mr. Oki, you may begin.

Mark K. Oki

Thank you. Good afternoon, and thank you for joining us today. On the phone with me is Tom King, Alexza's Chief Executive. In addition to reviewing the company's financial results, which I will walk through in a moment, management will discuss Alexza's recent accomplishments and ongoing activities. Following, we will open the line for investor questions.

Before we get started, I would like to remind you that the matters discussed on this call contain forward-looking statements that involve risks and uncertainties, including our ability to support operations based on existing cash resources, our ability to commercialize products, the timing of the commercialization of products and our projected revenues and expenses. Actual results may differ materially from the results predicted, and recorded results should not be considered an indication of future performance.

These and other risk factors are more fully discussed in our annual report on Form 10-K that was filed with the SEC earlier today, most particularly, under the caption Risk Factors. Alexza disclaims any obligation to update or revise any forward-looking statement made on this call as a result of new information or future developments.

As a reminder, Alexza's policy is to only provide guidance on product, product candidates and corporate goals for the next 1 to 2 fiscal quarters and to provide, update or reconfirm its guidance only by issuing a press release or filing updated guidance with the SEC in a publicly accessible document.

Clinical and corporate milestone guidance is as of today, March 26, 2013, and financial guidance relating to the company's current cash, cash equivalents, marketable securities and restricted cash is based upon balances as of December 31, 2012. With that, I would now like to summarize the financial information for the fourth quarter and full year of 2012.

We recorded $0.7 million and $4.1 million of revenue in the quarter and year ended December 31, 2012, respectively, compared to $1.9 million and $5.7 million in the same period in 2011. In 2012, we recorded a full year revenue earned under the Grupo Ferrer license and 1 quarter of revenue from the license agreement with Cypress. In comparison, in 2011, we recognized a full year of revenue under the Cypress license agreement and 1 quarter of revenue under the Grupo Ferrer license agreement.

GAAP operating expenses were $11.6 million in the fourth quarter and $32.9 million for the year ended December 31, 2012, compared to $10.4 million and $40 million in the same periods in 2011. Broken down, R&D expenses were $7 million and $21.8 million in the quarter and year ended December 31, 2012, respectively. This compared to R&D expenses of $7.3 million and $28.3 million in the same period in 2011.

During 2012, we reduced costs through reductions in our workforce, completion of our outlined work on Staccato nicotine and the suspension of the spending on AZ-007, Staccato zaleplon. These reductions were partially offset by approximately $1.1 million and $0.9 million of cash bonuses and share-based compensation expense incurred in the fourth quarter of 2012 that were not incurred in 2011. These were the results of achieving certain specific corporate goals related to the ADASUVE marketing approvals, as specified in the company's bonus plans.

G&A expenses were $4.6 million for the fourth quarter and $11.1 million for the year ended December 31, 2012. This compares to G&A expenses of $3.1 million and $11.8 million in the same period in 2011.

In March of 2012, we recorded a nonrecurring, noncash, net contra expense of $1.4 million related to the termination of one of our building leases and associated subleases. Alexza incurred approximately $0.9 million and $1.0 million of cash bonuses and share-based compensation expense in the fourth quarter of 2012 that, again, were not incurred in 2011, the result of meeting certain corporate goals related to the ADASUVE marketing approvals, as specified in the company's bonus plans.

Alexza ended the year with cash, cash equivalents, marketable securities and restricted cash of $22.8 million. We believe that with our cash, current cash, cash equivalents, marketable securities and restricted cash and our current expected cash usage, we have sufficient capital resources to meet our anticipated cash needs into the second quarter of 2013. Changing circumstances may cause us to use capital at a faster or slower rate than currently anticipated or to alter our operations.

We're managing our resources very carefully and driving our commercial strategy partnering negotiations for ADASUVE hard, which Tom will discuss later in our call. Our expectation is that a commercial arrangement for ADASUVE will include near-term cash in the form of an upfront payment, as well as a longer-term revenue stream. At the same time, we are aware of multiple options to extend this runway, only if absolutely necessary, which we will hold in reserve.

I will now turn the call over to Tom for a review of Alexza's accomplishments and business update.

Thomas B. King

Thanks, Mark, for your comments. Good afternoon, and thanks to all of you for joining our conference call today. 2012 was a year of significant and long-anticipated achievements for Alexza. This past year is the culmination of considerable effort to bring our technology, which we believe can transform the treatment of certain CNS disorders to patients who can benefit most from our Staccato technology.

Of course, the big news for Alexza is the approval of ADASUVE by the U.S. Food and Drug Administration in December. This product was approved as ADASUVE (loxapine) Inhalation Powder 10 milligram and is indicated for the acute treatment of agitation associated with schizophrenia and bipolar I disorder in adults. The week before our U.S. approval, the Committee for the Medicinal Products for Human Use at the EMA published a positive opinion, recommending ADASUVE to be granted European Union centralized marketing authorization. That authorization has since been received.

In February 2013, we were pleased to announce that the European Commission granted marketing authorization for our Staccato loxapine as ADASUVE 4.5 milligram and 9.1 milligram inhalation powder, loxapine, pre-dispensed and is indicated for the rapid control of mild to moderate agitation in adult patients with schizophrenia or bipolar disorder.

This approval covers all 27 member states of the EU plus Iceland, Liechtenstein and Norway, which is a substantial portion of the Ferrer territory for this product. Taken together, the U.S. and EU approvals position ADASUVE as a new global brand that we are projecting will be available in the third quarter of this year to patients domestically and abroad.

These approvals are a result of a focused and committed effort with much hard work and many milestones met along the way. Over the course of 2012 included were: rapid responses and close coordination with both regulatory agencies to resolve any and all questions and the pre-approval GMP inspections by both regulatory authorities of our manufacturing facility and processes, culminating in positive outcomes and certifications.

The past few months have been nothing less than remarkable in the history of this company. With these 2 approvals, we have accomplished something that few small pharmaceutical companies do, taking a proprietary therapeutic program from concept to approval in combination with a new and novel device. And moreover, we achieved this simultaneously in the U.S. and the EU. That said, we fully understand the exciting and significant work still ahead for us, and we look forward to 2013 being a transforming year for Alexza with a commercial product and a pipeline prime for reinvigoration, which will lead to the advancement of new Staccato-based product candidates.

One key question that lies in front of us is the finalization of our U.S. commercial strategy. Our overarching goal for the U.S. commercialization is that we use the embedded value of ADASUVE as an approved product to finance and pay for the U.S. product launch. We have conducted intensive market research and analysis, along with significant inputs from many experienced experts and consultants, to gain an accurate and robust understanding of the resources required for the product launch and commercialization of ADASUVE. We have also established a competitive and parallel process in which 2 commercial strategies are being vetted by our executive team, outside advisors and our Board of Directors.

As a reminder, these 2 strategies are: a traditional partnership with a pharmaceutical partner, which would include a typical upfront payment, milestones, royalties and transfer price for the product, or a royalty-based transaction, which will include upfront cash and a revenue stream based on top line ADASUVE sales combined with a partnership of a highly qualified contract sales organization encompassing the field presence, key infrastructure and back office functions that are needed to secure a successful product launch.

This is a competitive process. We are driving current negotiations toward the best commercial arrangement for ADASUVE in which we will build near- and long-term value for Alexza and its stockholders through the commercial success of this product. Based on significant analysis and input from our executive team, advisors and our board, we feel confident that both strategies are extremely viable. Our original goal was to complete this competitive process and to be in a position to announce our decision on a commercial strategy by the end of the first quarter 2013. However, our discussions with interested parties are ongoing. Today, I can report that we have made substantial progress. We are in active negotiations with multiple parties who we believe possess excellent capabilities, the resources and an enthusiasm for the potential for ADASUVE. Given Alexza's ongoing prelaunch work, which I will describe in a moment, and where we are with these discussions, I remain confident that we are on track for the U.S. launch of ADASUVE in the third quarter of this year.

In parallel with our commercial strategy negotiations, we have been hard at work laying a strong foundation for the rollout of the U.S. and EU product launches. In the fall, we turned on our Global Supply Chain to allow us to commercially manufacture ADASUVE and to maintain a timeline that would allow for a Q3 2013 launch. Also in the fourth quarter, we began making incremental and smart strategic investments in pre-commercialization specifically targeted to the U.S. market knowledge and prelaunch activities. These ongoing activities include product pricing, product positioning, reimbursement, market segmentation, as well as the planning for the execution and rollout of the ADASUVE REMS program and our post-approval clinical studies.

In January 2013, Kevin Buchi joined our Board of Directors. Kevin brings more than 30 years of pharmaceutical industry experience, most recently as corporate VP, Global Branded Products at Teva Pharmaceutical Industries. Prior to the Teva acquisition of Cephalon, Kevin had served as CEO, Chief Operating Officer and Chief Financial Officer, successively, during his tenure at Cephalon.

In March 2013, Peter Schineller joined us as Senior Vice President and Chief Commercial Officer. Peter brings more than 20 years of pharmaceutical industry experience, directing commercial efforts at multinational pharmaceutical and specialty pharmaceutical companies for numerous diagnostic and therapeutic products. In this newly created role at Alexza, Peter is responsible for overseeing Alexza's global commercialization efforts and strategies for ADASUVE and for managing ADASUVE as a global brand and product.

Importantly in March, we commenced the commercial manufacturing of ADASUVE in our facilities here at Mountain View, California. It was very exciting to see finished ADASUVE product rolling off of our packaging machine, knowing that this is now a product intended for patients. Products manufactured at this facility will supply the U.S. and the EU markets.

In the EU, our partner Grupo Ferrer is making excellent strides toward the initial launch of ADASUVE, also projected for the third quarter. Ferrer has already announced their plans to initially introduce ADASUVE in Germany and Austria during 2013, followed by planned launches in the remaining EU countries in 2014. Also during 2013, they will be submitting registration dossiers for ADASUVE in these countries that are not part of the EU approval. Under the terms of our agreement, Alexza will receive future milestone payments based on first country sales in certain countries and also with cumulative sales in the Ferrer territory broadly defined.

While we celebrate our successes, I would like to take a moment to talk about what the launch of ADASUVE will mean to patients and the clinicians who treat these patients. We firmly believe that ADASUVE represents a significant improvement in patient care for a group of patients who have few advocates and few approved therapeutic options. Moderate to severe agitation is experienced by nearly all patients with schizophrenia and bipolar disease. For these patients, agitation is characterized by feelings of being out of control, including panic, cold sweats, poor impulse control, shaking and escalating severity of their symptoms. In fact, agitation can escalate rapidly and predictably, creating an unstable and potentially dangerous situation for these patients, their caregivers and the treating physicians and hospital staff.

Our market research indicates that patients average 11 to 12 agitation episodes per year with approximately 50% of those episodes being treated in a hospital setting, which includes the emergency department, the psychiatric emergency department and the inpatient psychiatric unit. This is the market we will be addressing with the U.S. launch of ADASUVE.

Further, we continue to be encouraged by the feedback we receive from the physicians and nurses who treat these patients. Both clinical thought leaders and hospital-based physicians are excited by the potential of ADASUVE to provide a new treatment option for patients in the midst of an agitation episode.

Alexza was founded on a visionary idea by Dr. Alex Zaffaroni of an ingenious drug delivery technology that would make possible new products such as ADASUVE. Today, we are poised to place this technology into the hands of clinicians. And now that we have achieved this, we look forward to advancing additional product candidates based on our Staccato platform to address areas of important unmet medical needs such as acute repetitive seizures, which is the patient population we plan to study with AZ-002, which is Staccato alprazolam.

I am extremely proud of our achievements and what they mean for our business, for our patients, for our future and for our stockholders. I'd like to recognize all of our dedicated employees who have all made the essential contributions to our achievements from technology concept to clinical development into regulatory submissions and scaling up manufacturing for the launch and now into product commercialization. Without their incredible commitment, we would not be standing here today with our first drug approval in both the U.S. and the EU.

We look forward to updating you as we continue to make progress with ADASUVE and our pipeline, and as always, we fully appreciate your support of Alexza. Operator, we would like to now open up today's conference call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Steve Brozak with WBB Securities.

Stephen G. Brozak - WBB Securities, LLC, Research Division

I'll keep this simple because I know that you're in the middle of a lot of different negotiations, and obviously, it probably limits you in terms of giving us the "Wall Street" granularity that everybody's looking for. But can you tell us, having launched a product like Actiq, and actually, now that you've got more people that have launched products and probably a lot of large pharmaceutical companies, what do you think the major drivers are going to be in terms of the launch of this product that will be an advantage to you? And what are you going to focus on? And what can you give us in terms of details on that? And then I have one follow-up question after that.

Thomas B. King

Thank you, Steve, and thanks for the compliments. It goes to the employees who have worked for a long time to bring the technology forward. And it is exciting. Pretty unique position to be on the back of the approval both in the United States and Europe. We see 3 drivers of success for the product. One is gaining acceptance in the hospital, gaining trial in the hospital. Our clinical data in our Phase III studies were very, very strong. We believe this would be a strongly effective product. Speed is important. The density of response is important, which this product has. The second piece, I do believe that help in drive that into the hospitals will be our Phase IV program. We have a post-approval commitment with the FDA to study this product, and what they would like to see is a real world situation outside of the clinical area. And as a result, we can utilize clinicians, nurses and their study -- I'm sorry, physicians and their study nurses to be able to help study this product in patients and also help them gain entry into the hospitals as a result of the way this study is designed. And lastly, I believe, will be word of mouth. We're fully convinced that because the onset you're going to see literally in front of your eyes in a way that I think clinicians have not seen before because we know the speed of onset that there's going to be a strong discussion about how this product can impact patients in a way they haven't seen before. We do know the challenge of a new technology. We know the challenge of innovation sometimes, but we think the strongest piece is because this is an acute care product that has a very rapid onset of action, that clinicians will see it do its work right in front of their eyes and then be able to relate that to other clinicians about the potential clinical benefits that would come with ADASUVE.

Stephen G. Brozak - WBB Securities, LLC, Research Division

Actually, you just hit into my follow-up question on the last part. Given the fact that it's rapid onset and the fact that because you can see it distinct and clear on difference in the patient and how they present themselves, how much of a driver is that going to be? Because obviously, we're seeing significant cutbacks in the hospital -- in the clinician setting in its entirety. So what kind of a benefit do you see that these clinicians are going to come back with and say, "Listen, I have to normally sit down or we have to have someone sit down with a patient for a period of time and this is going to drastically reduce that." So what major cost driver do you present there? And I'll hop back in the queue after that.

Thomas B. King

Okay, thanks. Well, I think the major driver is looking at what is currently available and what choice that the physicians have. I mean, we know that both oral medications and intra-muscular injections are currently used, and they both have benefits and they both have drawbacks. The consensus guideline suggests that you should choose a product that has these 3 characteristics as an ideal product to treat agitation: speed, predictability and density of response and ease of use. And as we currently see the landscape, we see that every time a clinician makes a decision, that there is a compromise that has to be made, they can get speed and they can get density of response with an IM. I don't think it's as fast as they see with ADASUVE, but they certainly have the invasiveness of being able to administer that product through an intra-muscular injections many times against the patient's will and also with restraints. At the other end of the spectrum, you have oral tablets. And oral tablets are easy to take, at least if the patient is cooperative. But then you have a very variable onset of action depending on if they've eaten or not, depending on the type of drug that they take. And now you've got the situation you may have a rapidly escalating, unstable patient who's agitation may escalate faster than the drug can have an effect and then you've got a very difficult situation. So I think the attributes that ADASUVE brings that bring cost effectiveness and clinical utility is the speed, faster than it's ever been reported from clinical research perspective, a density of response using our responder analysis that looks very impressive, at the same time, in a very simple one breath, easy-to-use device. And I think that the intuitive aspect of overall health economics is going to be very strong by using that. So next question then, I think it's Scott Henry?

Operator

You may proceed.

Scott R. Henry - Roth Capital Partners, LLC, Research Division

Just a couple of questions. I guess for starters, when we look out to 2013, any thoughts on how we should think about R&D and SG&A, at least directionally? I think they were both certainly a little elevated in fourth quarter, but should R&D look more like the prior quarters or the recent quarter?

Thomas B. King

I think in terms of R&D and probably G&A, too, the best way is to look at the most recent quarter as being indicative of sort of the cost of commercialization. And I say that only with the caveat, Scott, that the 2 commercial strategies that we're pursuing, obviously, would have significantly different impacts on our P&L. And so that's the only aspect in terms of looking and thinking about what our forward-looking expenses will be. There's one other parenthetical that I would add, is that as we start making commercial product and then into the third and fourth quarter, as that product rolls up in the cost of goods, some of our R&D expenses which are now that quality, quality control supply chain and bill of materials for commercial or for making ADASUVE as we start selling the product, that will actually roll up into the P&L and will not be an R&D expense anymore. So I think it's hard to forecast because we have a couple of strategies that are alive and I don't have a way of giving you a strong direction one way or the other. Plus, in the third and fourth quarter and probably early 2014, we'll see some of the historical expenses being rolled up in the cost of goods as we're making commercial product. So I think we'll see a lot of transition in our P&L and the way that we account for expenses below and above the gross profit line.

Scott R. Henry - Roth Capital Partners, LLC, Research Division

Okay. And shifting gears, I guess when would we expect to have a pricing decision for ADASUVE? I imagine that might come after the commercialization strategy?

Thomas B. King

Yes. I think the pricing work is nearly completed. I think we're within a handful weeks of finishing that definitive work. With that, we actually will start building the formulary work in a way that we presented. And also, the strategy will dictate a little bit about how that would be presented in different mindsets toward rebates that might be available beyond the federally mandated rebates way of positioning the product in the hospital. But certainly, within the next several months, I think we would know what the WACC [ph] is for this product.

Scott R. Henry - Roth Capital Partners, LLC, Research Division

Okay. And then I hate to get too granular, but originally, your target for a decision on commercialization was first quarter '13. I mean, should we be thinking about kind of April timeline? I mean, I guess it could happen any day now. I just wanted to get your thoughts on how we should think about that. I mean, obviously, it's a launch in the third quarter, it would have to happen in the second quarter. But I don't know if you want to add any specifics to that.

Thomas B. King

Yes. We don't have any additional specifics that we would like to provide guidance on. It's a very busy time. I appreciate the complement from Steve Brozak about that. We're a small team managing multiple negotiations simultaneously. And as a result of that, we will get it done as quickly as we can. Mark mentioned that we're working very hard, and that is exactly the case. And our goal is to get it done as quickly as we can and not impact the third quarter launch.

Scott R. Henry - Roth Capital Partners, LLC, Research Division

Okay. And then related to ADASUVE, and obviously, no one knows with certainty the future, but how do you think about the trajectory for this launch? Is it -- how should we think about the curve?

Thomas B. King

Yes. The way we've modeled the curve is we took as an exemplar of the uptake the last 4, 5 hospital-based products and looked at how they were launched and the amount of time it took for them to achieve sort of maximum penetration into the hospitals by formulary and that sort of aspect. We get to our peak sales. The way we model it is 5 years after launch, which is a little bit slower than the acute care product, but I think it takes it into consideration the evolution of formulary process, the fact that we do have innovation here. We've said previously, we believe we are at a breakeven state in 2015 on the way to the peak year sales, which we've given guidance as $225 million. And so we actually, I think, have a good model, of which we have forecast the uptake of this product over the next several years.

Scott R. Henry - Roth Capital Partners, LLC, Research Division

Okay. And how should we think about -- or should we think about it as the same in Europe as the U.S.? I just want to know if there's any way we should think about Europe in a different way. I mean, there are certainly some pricing hurdles that one has to adjust there as well.

Thomas B. King

Yes, it's a great question. Europe is completely different because each country has its own mechanism for approval, if you will. And in some cases, that weren't covered by the EU approval. We have to submit additional initial registration dossiers. And then you have pricing and reimbursement. And so that's why -- and Ferrer has a very strong strategy working with its consultants and its own experience about how you start in the higher-priced countries and then -- who either have free pricing or a less restrictive pricing, then work your way around to the rest of the countries as the overall average price across Europe starts to come down a little bit. And so it's less about hospital formulary acceptance, if you will. It's less about use of an innovative product that may be the more limiting factors in the United States. It's more about the regulatory process of pricing and reimbursement on a country-by-country basis, and some of those cases are specific negotiations and sometimes take a while. And so that's why our guidance is that we expect to see the rollout of product in 2014 as they complete these processes. But I think the uptake will look significantly different than it will in the United States because of these other pressures on uptake, including pricing and reimbursement.

Scott R. Henry - Roth Capital Partners, LLC, Research Division

Okay. And a final question. Just I know you had taken some of the earlier-stage products and moved them back into the clinic. What are you actively developing now beyond ADASUVE?

Thomas B. King

Yes, so ADASUVE though, the one product we have that's on track to go back to the clinic in the second half of this year is AZ-002. So Staccato alprazolam. It's a Phase II compound. The first clinical trial we would do with it as we reinvigorate it would be a Phase IIa proof of concept, studying this product against placebo to treat acute repetitive seizures, sometimes known as cluster seizures. And we expect to start that study in the second half of this year.

Scott R. Henry - Roth Capital Partners, LLC, Research Division

Okay. And what would be the expected duration before data there?

Thomas B. King

Dr. Casella is our CSO and Executive Vice President of Research and Development, figures that this is probably about a 60-patient study and that the in-life portion of that study is probably about 9 to 12 months.

Operator

Your next question comes from the line of Charles Duncan with Piper Jaffray.

Charles C. Duncan - Piper Jaffray Companies, Research Division

So my first question is regarding some diligence we've been doing and the REMS requirements. The physician experts that we've been talking to recently suggest that there's almost no adverse effect of the REMS, particularly the pulmonary function testing or concerns in terms of their interest in using the drug, at least trying it out on patients. Is that consistent with your diligence? And what do you think the impact could be of that REMS?

Thomas B. King

Yes, it's very consistent with we've talked to with clinicians that see these patients. But if you look back even to the advisory panel, when the leading expert of REMS from the FDA presented to one of our key opinion leaders, who was speaking about what the REMS might be and what it might entail. And that doctor lamented that, that's what they do on a typical basis. You make a positive decision about the patient, do they have any underlying diseases, what's going on with that patient. And then they treat them with -- lots of times a series of drugs, they have both good things and not, that can happen as a chance of utilizing that drug. And so while REMS is very important to us, REMS requires us to have a hospital that has attested to the fact that the clinicians have had access to the educational program, that albuterol is in the hospital and that the hospital has individuals that can manage advanced airway management up to and including intubation[ph]. When a physician sees the patient at that point in time, what they're faced with is very similar to what they see when patients present as an emergency patient anyway. They make a decision about what therapy could be used and the pros and cons of that. So for us, we view the REMS as being very tactically executional because we have to get it into the hospitals, obviously, to get us to be able to see a product. But from the physician perspective, once they've heard about ADASUVE, they gone through the training program. The way that they treat their patients on an ongoing basis is not any different than using ADASUVE from other products when you're making a decision about is this the right product given what it can do, what it can't do and the contraindications of this product.

Charles C. Duncan - Piper Jaffray Companies, Research Division

Okay. And I don't want to ask too far and get ahead of myself, but is it possible that there could be a modification of the REMS? And have you worked that into your thinking or plan?

Thomas B. King

Well, when we first saw the -- and had discussions with the FDA about the size of the post-approval study, the number of subjects or patients in that study, the 10,000-patient study seemed to be large. But the more we thought about it, if we're going to have data that will support us making a proposed change to the REMS, it would make sense to do it based on data. We have found the FDA responds very well to data, they make decisions based on data, and be able to go back to them with a large data set that we can actually then say what this product does or doesn't do in real life, I think, will be very compelling if the data are good. So I think actually, the study will take a couple of years to run, but I do think the data are strong from our Phase IV study and will provide the basis for us to make a proposal to change the REMS based on the data that come out of the Phase IV study.

Charles C. Duncan - Piper Jaffray Companies, Research Division

Tom, it seems like in terms of the early couple of quarters during launch, and we covered other hospital-based product companies, it seems like the Phase IV is interesting in that, that can help you really communicate some early in-market use beyond just, call it, P&T [ph] committee meeting and then formularies, et cetera. Do you plan to communicate progress with that Phase IV in terms of patients in and experience out throughout?

Thomas B. King

I think that the answer is probably not a blow by blow. I mean, we get weekly patients because to a certain degree, it's probably less important. The interesting thing is that products used in the Phase IV has to be just through the normal distribution pathway. So a hospital has to have it on formulary. It has to be the P&T. The REMS has to be in place, and the paper has to be in place for the physician to be able to use it for the Phase IV. And so there's not a separate drug distribution or clinical trial supply for this. And so to a certain degree, a proxy, I think, for the Phase IV will be just up on sales. I think we'll keep track of how many hospitals are involved with the Phase IV. I think certainly, local and regional key opinion leaders will talk about the product as a result of their experience with the Phase IV. But we do have the benefit because the FDA wants to test, if you will, all aspects of the system for ADASUVE in a real-life setting, that the product gets used in the Phase IV will be reported as top line sales for the product.

Charles C. Duncan - Piper Jaffray Companies, Research Division

Okay. And then my last question, I appreciate your patience with these is on the pipeline, if you could talk about, call it ballpark, the cost of that alprazolam Phase II that you talked about. And in addition to the timing, I think you said, call it 9 to 12 months to data, but what's the cost? And then secondarily, what's your sense of the agency's concerned generally about Staccato as a platform? Are there going to be as many fits and starts, if you will, with other products? Or do you think that there are some synergies in the process that may be useful with the next product candidate?

Thomas B. King

Yes, so let me answer your question in 2 pieces. So I think the general budget for this study is probably about $15,000 per patient. So the out-of-pocket expense money that we pay to the CRO is about $1 million. There's some data management and there's some statistics and things like that, that come on to that. So it's not a very expensive study. And we believe it's a perfect sort of definitive study to let us know whether our alprazolam works in our delivery system to treat acute repetitive seizures. I don't think there's a lot of ambiguity to what the data will show us. And simplistically speaking, if a patient has a seizure and then you have an intervention, you either give them a placebo dose, a low dose or a high dose of the product, and then for the next period of time, you count the number of sort of additional seizures they may have. And so it's very quantitative, and I think we'll get a clear answer whether the product is effective or not. In terms of the work that we may have to do moving forward, the device -- we did a pulmonary study as part of our work with ADASUVE. And then the pulmonary, the device itself showed no ill effects, if you will, on pulmonary function we saw with drug. So as a result, we don't know what this will be, we feel it's a drug effect, very clearly. We feel it's a loxapine specific effect. But we would -- certainly, in our conversations with the FDA as we move this program forward, we'll have conversations about the type of pulmonary safety study they would like us to run using alprazolam and we'd expect to run something probably very similar to what we ran with the loxapine in terms of doing challenge studies and subjects that have advanced asthma, advanced COPD.

Charles C. Duncan - Piper Jaffray Companies, Research Division

And then you should be able to do them in parallel?

Thomas B. King

Yes, yes, absolutely. We thought about it. Until we know we have a drug, we wouldn't take on the expense of doing that. But once we know we have a drug, we have a positive Phase IIa readout, then we would embark on the next aspects on both the efficacy safety in the intended patient population based on a discussion with the FDA. But we would also pick up whatever additional safety studies that might have to be done. In the past, we've done smoker, non-smoker PK, we've done QT studies, putting together the overall safety package as part of whatever the NDA package needs to be.

Charles C. Duncan - Piper Jaffray Companies, Research Division

Okay. And then just one additional quick one. On the partnering strategy for this stage, should that clear up in my mind, that is something that you claim to get done before you launch? Or could you -- is one of the strategies you're considering going ahead without a partner through launch?

Thomas B. King

No, we would not go forward without a partner to launch. Partnering brings 2 key success factors to us, and one is cash, obviously. And Mark talked about where we are with cash and why having a partnership is very important, whether that partnership is defined as a traditional pharmaceutical partnership or a royalty-based transaction where we would then hire a contact sales organization. But also, you just need that field presence, I think, to launch. While the Phase IV study could be run with a small group of -- help from the contract sales organization, maybe a medical science liaison small group, as well as a contract research organization, we don't. We at Alexza don't have the resources to do that, so we would unequivocally need those resources to be able to launch the product.

Operator

At this time, we have no additional questions in queue.

Thomas B. King

Great. Well, thank you, operator, and thank all of you for participating today. We look forward to seeing many of you at our presentation at the upcoming Future Leaders Conference in New York next Friday, a week from this coming Friday, which we'll also be webcasting. And have a good day. Thank you.

Operator

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect. Good day, everyone.

Mark K. Oki

Thank you.

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