The Market Seems to Disagree With Alexza's Promising News

Jan.19.11 | About: Alexza Pharmaceuticals, (ALXA)

It has been a little over three months since Alexa Pharmaceuticals (NASDAQ:ALXA) received a CRL from the FDA, effectively stalling the progress of its lead drug candidate, AZ-004. Monday, the company announced the completion of its End-of Review meeting with the FDA.

Alexza's President and CEO, Thomas B. King, asserted his belief that all of the issues raised by the FDA are resolvable. The company announced its plan to resubmit the NDA for AZ-004 as early as July of this year and suggested that the FDA review period would likely be six months. If all goes according to plan, it is possible that the drug could be recommended for approval by a panel in about a year's time.

So why did the stock close the regular session at $1.43, down 14% on the day?

For starters, the stock jumped more than 25% last Friday on extraordinary volume and no news. When the company released the "good news" on Tuesday, it was perceived by many traders as a setback (apparently they were hoping for less hoops to jump through prior to the NDA resubmission).

More importantly, investors remain nervous about the "adverse respiratory events" recorded during the phase 1 pulmonary safety studies. These issues were also recorded in trial subjects that were administered the device only placebo. This brings the drug's entire delivery system into question and will likely remain an overhang right up until the final decision.

Last, you must consider the large quantity of shares that was recently acquired under and around $1.00. It should come as no surprise that traders took disciplined profits and new short positions were taken on today's news, given tomorrow's uncertainties.

I believe that the company has a good shot at winning FDA approval the second time around. Unfortunately for Alexza's investors, the market seems to disagree. There is plenty of time for that to change, though.

I do not expect this stock to be a quick double, nor do I believe it will close under $1.00 again any time soon. I do, however, look forward to watching the bulls and bears battle for position from a safe distance. I may even find a suitable entry point for an ALXA run-up play in the process. Like it or not, Alexza and AZ-004 have found some new life with Tuesday's news, though it may take some time for the share price to reflect it.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.