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Alexza Pharmaceuticals, Inc. (NASDAQ:ALXA)

Piper Jaffray Healthcare Conference

December 3, 2013 2:30 PM ET

Executives

Tom King - President, CEO, Director

Analysts

Charles Duncan - Piper Jaffray

Question-and-Answer Session

Charles Duncan - Piper Jaffray

We’ll get started. This afternoon, welcome. Welcome to Day 1, the afternoon of 25th, annual Piper Jaffray Healthcare Conference. It is a pleasure to introduce the next presenting Company, Alexza Pharmaceuticals and with me is Tom King, the Company’s CEO. I am Charles Duncan. I am a Senior Biotech Analyst and Managing Director for the firm, and I have known Tom for a long time. I was actually involved in helping with Company become public at a previous firm and have covered the stat for a long time.

We rated overweight rating with a $10 price target and it’s really, I think, going to be a very transformational year for Alexza this next year, not that last year wasn’t there they had their first products approved and now they are going to have their first products launched very shortly in the states. So congratulations Tom to the success. Thank you for joining me. So first of all, let’s talk a little bit about Alexza and the platform. What do you do? Why do you do it? What’s the opportunity?

Tom King

Well if you turn back the clock to 2000 and 2003 when the Company was founded. It was based on the Staccato technology. ADASUVE was not even something that we thought about. But the concept of being able to create aerosols using energy was what the Company was founded on.

And today we have a validated technology because we have an approved product, but the foundation of the intellectual property around the aerosols I think it’s still what is core to the Company. In 2008 we had to slow that down and put a lot of ideas on the shelf, it doesn’t mean just kind of wasn’t a great idea, it’s just that we couldn’t afford to do that in 2009, ’10, and ’11. But now we are excited about having AZ-002 coming back in the pipeline, and we look forward at announcing some other things in 2014 as we’ve transformed back into a development Company.

Charles Duncan - Piper Jaffray

So really is it very broadly applicable platform?

Tom King

Yes, we believe though. When I joined the Company, it was under the promise of 400 drugs screened and 200 drugs worked. And we know things that can't be done, but we also have a large list of compounds that can be vaporized beautifully to treat acute and intermittent conditions.

One of the side-projects we have been running for the last 90 days or so, is looking at not typically going to key accumulators, but going out and looking at crowd sourcing and social media as ways to look at ideas and what we might be able to do with Staccato.

Charles Duncan - Piper Jaffray

Interesting, I hadn’t heard of that program. You will have to tell us. I should have mentioned if you have a question, just raise your hand or yell at me, if I am not paying attention. Let’s make this interactive and low key informal. But that said, crowd sourcing for ideas, I don’t understand that?

Tom King

I think typically what we’ve done in our industry is we hire two to three really smart key team leaders. You invite them in for a day or two. And then you ask them about what things do they need to have solved. And you walk away from those meetings with good ideas.

Charles Duncan - Piper Jaffray

From two or three guys?

Tom King

Right. And I think that has served our industry well. But I do think we have a technology that, there’s lots of ideas, but what are the better ones to chose. And so through different techniques that are available today that weren’t available five years ago, it allows us to go out and talk to physicians and the patients and to interact with them and shape the ideas that they might have. And through their early work we have had two or three ideas that we thought of that was corroborated, which is in place. Well with that two or three ideas, and then say wow, we hadn’t thought about it. And so I think part of going to the process is now, sitting down, writing down and analyzing them for a regulatory process and that sort of thing. But I do think that AZ-008, 9 or 10 will come as a result of some of this traditional work as we think about 2014.

Charles Duncan - Piper Jaffray

That’s interesting. I mean some people have accused me of using energy to blow hot air all the time and so to need a new way to use that.

Tom King

Of course ours is just an air, right, we don’t blow.

Charles Duncan - Piper Jaffray

Right. You don’t even have to blow, right. No coordinated breaths required as they say. So you’re thinking that in the next three, four, five years you may have a bevy of clinical development programs or opportunities?

Tom King

Right, in 2008 we had five programs in clinic. We had studied about 3,000 patients in five different therapeutic areas, and we actually always felt that the platform was broadly applicable to a lot of compounds where you want rapid onset -- we have this reproducible T-max of less than 2 minutes with our technology. But we also know there are increasing types of modalities where you want to get fast in, that may be the gut doesn’t work, or maybe the oral absorption is poor, a significant first-pass effect, and too certainly we get passed all of that by putting the drug in through our technology.

Charles Duncan - Piper Jaffray

So, do you think you get any credit in your stock price for the broad applicability of the platform or is this absolutely an ADASUVE play and should we just talk about that?

Tom King

Well, I think we get little credit for the Staccato platform, but…

Charles Duncan - Piper Jaffray

I would say it’s zero.

Tom King

Or negative.

Charles Duncan - Piper Jaffray

It shouldn’t be.

Tom King

And I think part of it is -- I mean we haven’t done anything in development for a while. So I think it’s sort of out of site out of mind has been a sum of what and where we have been in the last two or three years. I could argue as the CEO that our stock is always underpriced. And I am not for sure, why. Actually we will be stronger than that. I am confident that we don’t get all the value from ADASUVE into our share price either. But it’s part of the evolution and the transformation, I mean, just basically a year ago we stood here with an inspection of the FDA, we’re not completed a U.S. approval, not completed a SAAG, not completed, I mean, and you turn the clock 12 months to today and all of that work has been done. We have European approval, we have the Teva deal and the products launch. So it has been an incredible 12 to 14 months.

Charles Duncan - Piper Jaffray

Yes it has been very, very productive and of course we have been talking about this all along and it’s need to see you have some success make some progress but I would argue it’s really the end of the beginning quarter now, this is a new chapter for Alexza. And why don't we talk a little bit about ADASUVE, this kind of stuff drives me crazy but I am wondering what you think the clinical opportunity is for ADASUVE?

Tom King

Well, the clinical opportunity for the approved aspect is for treating agitation in patients that have schizophrenia and bipolar disease. So we know that agitation is ubiquitous in the CNS world, there are many, many patients that have agitation. The approval that we have is for these two patient populations and only for treating them in the hospital. We think that that's probably in the United States about 5 million patients. They are probably about 30 million episodes of agitation in those 5 million patients of which about 20 would be targeted for our product. And that's the evoke set of opportunity that we have in the United States for the approved on label indication.

Europe is not that much different in terms of the size and scope, the treatments are different sometimes country-by-country, the treatment settings are somewhat different country-by-country. The total number of patients that are probably not much different, and I think episodes of agitation treated in the hospital are probably about the same.

Charles Duncan - Piper Jaffray

What about Asia?

Tom King

Asia is very difficult. We spend quite a bit of time in Asia and specifically China over the last six to nine months and the socialization of mental diseases is behind. And so I think there are going to be markets that are going to evolve slower just because the recognition of psychiatric diseases. Even in a hospital there might not be a psychiatry department they might be called a pharmacology department. And so I do think that this product obviously worked well in those patients, but the understanding of the medicine, where medicine is going in Asia is tracking a little bit behind Europe and the United States.

Charles Duncan - Piper Jaffray

Okay, even Japan?

Tom King

Yes even Japan.

Charles Duncan - Piper Jaffray

Really? Okay, so schizophrenia and bipolar disease, that's probably because those are the kind of patients that you have studied, right?

Tom King

Right. And they are prototypical that the FDA approved previous products on those patient populations. I know in our partnership with Teva Pharmaceuticals they have product lifecycle management who work on going, looking at what would be the next things to do. The immediate next thing to do with that is to, beyond the first approval is moving this in the adolescence. Part of our Phase 4 commitment and we're getting ready to start up PK study in adolescence early next year.

Beyond that and then you say okay well the question is would you stay in the hospital look at other patient populations that have agitation and there is a set of clinical and regulatory aspects to that. Do you consider moving it into the outpatient market and their set of clinical and regulatory aspects with regard to that, and lastly using loxapine and other indications certainly something. So I have been impressed so far with the work that Teva has done on its product lifecycle management evaluating ADASUVE and where it might go next. Obviously we have the long intellectual property; we expect this product to be protected for at least 10 years probably even longer with patent extension. And so it's a product that makes sense to invest in overall longer period.

Charles Duncan - Piper Jaffray

And Teva is responsible for that?

Tom King

100%.

Charles Duncan - Piper Jaffray

Are they committed to it they have had some changes there.

Tom King

Well I can't comment on what goes on in Israel because I am not proving to that obviously. The one thing I can say about the people that we deal with on a daily basis is I have been in lots of pharmaceutical partnerships in my career and I have never seen a group of individuals more enthusiastic and more dedicated to making this successful.

Charles Duncan - Piper Jaffray

Okay.

Tom King

The team is creative, energetic, leaving no stone unturned to ensure that this is a successful launch, because I don't know the dynamic on a day-to-day basis and how they may or may not get impacted from the more board room sort of antic but I can tell you the team that has been put together, there is more than 50 people on the team and that's already involved with getting the product ready to be launched early next year.

Charles Duncan - Piper Jaffray

Excellent, any questions at this point?

I don't mean to dominate the floor but I will keep going, because I am good at talking. So successful launch how would you define a successful launch? What do you think -- what are the key criteria that they are looking for in terms of launching the product?

Tom King

I think two things…

Charles Duncan - Piper Jaffray

Is it reach? Is it frequencies?

Tom King

Reach and frequency is, I mean it's a very focused group so we're talking about 800 hospitals or so that represents a lion share of the market opportunity. But each hospital is different, the person that's in charge of treating behavioral emergencies maybe different, the person that has the authority to make those decisions maybe different. So each hospital has to be individually evaluated and so it's not sort of one size fits all. It tend to have folks in the field already both medical science lays on and some of their top super sales reps doing target profiling looking at what is going to be required to get the product into the hospital, how to sell? Who are their decision makers, et cetera, et cetera?

So I think some of the initial indications I think will come in two things, one are anecdotes. It's always great to hear a feedback from the market, both good and bad, what you might hear from the initial product use, but ultimately it will be penetration. We have given guidance back in the days that we had the product ourselves that we thought this could be a product of $225 million to $250 million at least in terms of that. And had assumed the market penetration that was based on market research that we did, but at the end of the day I think the product will need to be very big or not very big because I mean if it dooms the clinical promise and what it has shown in our Phase III clinical trial, this is what I’ve changed in, in terms of how it’s going to change in essence.

I mean there is nothing out there that has this onset, nothing out there that has its ease of administration and I think truly in some of the feedback we’re starting to get out of Europe is when a clinician or nurse sees a patient going agitated to un-agitated right in front of their eyes, it’s transforming. That’s a practice change, it’s a fundamental change in medicine, so there is that aspect that that may tipper the…

Charles Duncan - Piper Jaffray

Some education.

Tom King

Yes. So, education is really important. And even the definition of agitation, agitation is the symptom not a disease and so there is educational components I think that are very, very important.

Charles Duncan - Piper Jaffray

You mentioned anecdotal, or initial anecdotal information that you can get from the market. I wanted to ask you about any feedback from the European launch but I will tell that consistent with our diligence. When we’ve talked to physicians who have seen the use of the product they believe that’s a new paradigm, it’s a standard of care, new standard of care because they see patients change in front of their eyes as you mentioned and it happens very quickly and that does not happen now unless you basically tackle a guy and…

Tom King

And even with the injections now because they’re inter muscular injections the onset is not that fast. And so I mean intimidated onset was for our first time point we majored and we had statistical differences between placebo and active. But more importantly as we had in our responder analysis we did for the European submission defined by our 40% reduction in agitation in each individual patient has their own control they intimidated onset in both patient population. And we had 50% to 70% reduction of agitation respond analysis of 30 minutes.

So, you’ve got this impressive density of response that happens quickly and it happens to most of the patients. And I think everyone has their own clinical view of when they treat patients and I think that collective this sort of distortive knowing that then when they use it three or four times and they see it, it’s going to look a bit different.

Charles Duncan - Piper Jaffray

Now you’d mentioned that previous work prior to Teva getting their hands on it. So I know this is not guidance or anything but $250 million market potential, say 225-250. What percent penetration were you assuming?

Tom King

Yes so off the six episodes that a patient might have each year that’s even more than that. So, 17% to 18% share and we used $75 as the price.

Charles Duncan - Piper Jaffray

And what percentage of patients?

Tom King

17% of the episodes.

Charles Duncan - Piper Jaffray

Okay of the episodes, total. Okay.

Tom King

That’s why I think that the market research always is good to learn and you want to be flat about the way you ask question is not to lead that data but this product is really good clinically, it’s going to have better than a one and six.

Charles Duncan - Piper Jaffray

So $75 per dose, not that I’m overly mathematically inclined because I’m not I am a biotech analyst, but $75 a dose, what’s the clinical value of the product that could justify that over say a cheap injection in parallel?

Tom King

I have two answers to that, first off when we did market research, for one the first times I’ve seen in my career is that pharmacist are treated at a higher value to this product than clinicians. Clinicians are evaluated based on its clinical attributes and pharmacist with the same product profile gave it a higher value. And I think it’s because they see all of the costs that come in and so we hear many times about why just use cheap Panadol, Panadol isn’t that cheap, maybe the Panadol is $10 and then Ativan you use with it is $10 and then the Cogentin you use with it is maybe $200 and then the Benadryl is now $10 and you’ve got $400 worth of restrains and you got to report, you have write because you restrains…

Charles Duncan - Piper Jaffray

And pharmacists get this?

Tom King

Well, they see all of that coming together. They see all those data where the physician doesn’t necessarily see that or, OR time or the ED time. So, I do think that there is a math equation here about $70 or $75 or $100 per unit seems expensive but if we had 100% market share and it costs $600 a year to treat a patient with it that’s less than 15 minutes worth of ED time. It’s less than one report you have to write for the restrains. So, I think in the bigger scheme of things there is not a push toward cost containment per se because it’s not a big number in the overall cost of treating these patients. Around the cough medicines one month of prescriptions might be $600. So, I do think that there is, I mean I never want to be casual about pricing, I never want to be casual about why I think this is a value added product but I do believe that given what we think it can deliver that at that price point is not going to be initiated.

Charles Duncan - Piper Jaffray

Yes. Some people have told me physicians and P&T committee members that this is not where they’re going to focus for this product is pricing but they’re not going to be.

Tom King

Acute care medicine is one of these areas of medicine especially within a hospital that still has a little bit of lead way with regard, speed is important, predictability is responsible. I mean every second does count and when it doesn’t work then you have to do something else that counts. So, I think the density of responses, the speed of onset we have is a really compelling factor plus it’s non-invasive.

Charles Duncan - Piper Jaffray

And there is high cost associated with the alternative?

Tom King

Absolutely.

Charles Duncan - Piper Jaffray

Yes. So, any questions right now at this point, we have about five more minutes, I was going to ask you about the European launch, Grupo Ferrer, first of all how do you chose Grupo Ferrer?

Tom King

Grupo Ferrer was a…

Charles Duncan - Piper Jaffray

Who is Grupo Ferrer?

Tom King

They are based in Barcelona. Grupo Ferrer is a privately held Spanish pharmaceutical company that sells about half of its revenues in Spain Portugal and about half outside of that Spain and Portugal. They were the partner that we had for Actiq and Lunesta and they sold more Actiq in Spain and Portugal than Cephalon did in the whole rest of Europe, I believe I think it’s mostly correct. They sell Angiomax for the Medicines Company. They sell treprostinil for United Therapeutics. So they are very, very good, at value propositions when there is a expensive medicine that has a somewhat of a complex story perhaps with it.

They have done an extraordinary job both in the countries that they sell themselves and also with their distributor network kind of setting this up. They launched in Germany. They have launched in Austria. Germany is on their own and in Austria is with AOP Orphan. They also have a partnership with Medivir for the Nordic counties. And between now and the end of next summer, we expect them to compete with most of the European rollout.

Charles Duncan - Piper Jaffray

Okay, so they launched in Germany. Are the Germans using it?

Tom King

Germany is a hierarchical sample rich environment and so the answer is, yes, but they are using samples. There are 315 hospitals that are in the target set there. I think a couple of thousand samples have been put into that hospital base and so we’re starting to hear back from them as they’re using it. We also know that the Chairman of the Department, the head of professor, doctor of the department have to use it and sort of give his or her blessing on it before it kind of gets rolled out there.

But we do have some nice anecdotes coming back. We had one patient that came in at end of august and was treated for an episode, didn’t have to be admitted. The patient came back at the end of September and asked for the product by name. And we only thought that, that would happen, I mean, you think about somebody who has had this disease and have to get treated and has had a whole variety of different ways they have been treated. And they came back and say, this was better for me and I’d like to have this product at the end.

Charles Duncan - Piper Jaffray

The feedback, I mean, the early call it feedback from certain investor types that I got was. How are they going to be able to convince a guy who is flipped out, comes in and craves to do this, to take a coordinated or an uncoordinated breath, even a un-coordinated breath. And docs have told me, well yes I can reason with these people. They are reasonable people.

Tom King

Well de-escalation is, if you read the new data which is the best practices for the evaluation and treatment of agitation, it’s all about de-escalation, and we always think there is probably 10% of the episode that are always going to be uncooperative, may not be necessarily too severe. I don’t think severity and cooperative necessarily go hand in hand, but either going to be uncooperative and you have to have an injection. There is probably 10% that probably are, they’re just fine, an oral tablet even if it takes 2 to 3 hours to work is just fine. But that group in the middle that unstable patient that may go off in 5 minutes, they go off in 10 minutes, they go off in 20 minutes, you don’t know. Is where it fits, they are very cooperative, more cooperative enough to be able to do this and it’s not that hard. We dosed over 800 patients in our Phase 2 and 3 studies, everybody took it everybody got drug. And you convinced them to use it because they don’t like the alternative and then it gets almost instant onset. So, I do think that the hard part is we all have this view of one flew off the cuckoo’s nest. And when we see that it’s the worst case but that does indeed happen, but that’s not the majority of the time.

Charles Duncan - Piper Jaffray

So the anecdotes are positive?

Tom King

I got this year one another anecdotes for you. We always try to shape where the product would be used and try to have a best case as opposed to trying to get into refractory patient that you always have the doctor say, nothing else worked, why don’t you try this. And there was a patient that showed up in Germany that was under poly-pharmacy and was under a couple of different physicians care and was needed to be admitted, and they went to the normal sort of treatment of agitation and there were series of two or three injections, and it really didn’t tune him down too much and they gave him ADASUVE. And ADASUVE then worked nicely and the patient had over the next 10 days had four more episodes that were treated only with ADASUVE. He didn’t go through the whole regimen again.

And so now you have got a physician that in one of this toughest cases of which he didn’t have many alternatives he tried ADASUVE it worked so well then he used it the next three or four times. And I think that’s also the other end of the spectrum. It’s kind of not exactly where we wanted it because you like to have the ideal patient chosen as opposed to refractory patient, but in this particular case the drug worked great and it worked well enough to the patient but as soon as the physician changed the way that he was going to treat that and he used only ADASUVE in the next 10 days.

Charles Duncan - Piper Jaffray

See that’s what I’m telling you. I mean some docs have told me, it’s going to be a standard of care changer. So we’ll see. I mean, it will take a while but fast-forward a year or two and could be very different. So tell me a little bit about the pipeline? I know that Phase 2 Staccato alprazolam?

Tom King

Yes Xanax, so.

Charles Duncan - Piper Jaffray

Xanax?

Tom King

Xanax is a product…

Charles Duncan - Piper Jaffray

Acute seizures?

Tom King

Acute seizure is where we started, Xanax is a product I think it’s probably still the number one prescribed drug in the world. It’s used for anxiety. It’s used for panic. It’s used for PTST. It’s used for preoperative sedation. It’s used in many areas. As benzodiazepine, it can’t be administered back it is water stable. So what can we do, we can make it work just like an IV for the first time ever. We think in animal models, it shows it’s probably a better drug than some of the benzodiazepines for treating seizure, so there is good methodology mechanistic reasons to try it.

And we have got a Phase 2 program. We have dosed it a couple of times in patients and so it made sense for us to look at an orphan indication because of two reasons, one it’s more of an expedited pathway but also there is a well established pathway to get it approved because the product has been approved through that...

Charles Duncan - Piper Jaffray

In high clinical value.

Tom King

Correct and we think it’s speed of onset of these administration with alprazolam AZ-002, is a great way to start. Once you get it approved then you can explore it in Phase 4 studies and other indications, which is a better pathway than going with some big gargantuan opportunity that then would take large clinical trials.

Charles Duncan - Piper Jaffray

So when are we going to see data out of that program?

Tom King

Probably about a year after we start, so late next year, or early 2015.

Charles Duncan - Piper Jaffray

Okay, so you're going to start soon.

Tom King

Yes, we're on track to start that in the first quarter next year.

Charles Duncan - Piper Jaffray

Okay, good, any other questions at this point, for Tom. Could we see any other INDs or IND enabling studies out of the platform next year?

Tom King

I think next year we will announce what our next IND is call it AZ-008 or something and it takes us probably nine to 12 months to prepare an IND, do the animal proposition so that will set us up to have a new IND in 2015.

Charles Duncan - Piper Jaffray

Are there any other questions from the audience at this point unfortunately we're pretty much out of time, Tom thank you very much for sharing Alexza story with us.

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