Alexza's Agitation Drug Back Under Review - Trade the Upcoming Catalysts

Aug. 9.11 | About: Alexza Pharmaceuticals, (ALXA)

On August 5, 2011, Alexza Pharmaceuticals (NASDAQ:ALXA) announced that it has resubmitted the New Drug Application (NDA) to the U.S. FDA in response to the October 2010 Complete Response Letter (CRL) for AZ-004 (Staccato loxapine). Management believes the submission will be classified as a Class 2 resubmission - meaning a six-month review cycle, putting the PDUFA action date in early February 2012.

We believe approval remains somewhat of a wildcard event. In addition to the data filed from the original NDA and additional analyses of some of those data, Alexza also included new data from the successfully completed human factors study, stability data from new production batches manufactured late last year, updated manufacturing and controls sections addressing findings from the Pre-Approval Inspection, and updated draft labeling and a comprehensive REMS proposal in the re-file. We note the FDA has told Alexza there will be an Advisory Panel meeting on AZ-004, most likely in the fourth quarter.

In our view, three of the four points raised in the October 2010 CRL are non-issues. These include product stability, the manufacturing inspection, and the instructions for use.

  1. Product stability has been addressed through a 12-month accelerated and 12-month standard stability program. We note that the original application included sourcing from a number of now defunct component suppliers (many overseas). Management has consolidated these suppliers to FDA-approved and financial sound facilities, along with bringing final device assembly in-house.
  2. With respect to the pre-approval manufacturing inspection, management submitted a response to the FDA s questions in September 2010. Alexza believes that all of the questions on the pre-approval manufacturing inspection have already been address. We expect another facility inspection during the second half of 2011.
  3. Earlier this year, Alexza successfully completed its human factors study as requested by CDRH. We believe this address the FDA s concerns with respect to the instructions for use. This should no longer be an issue for the FDA. We remind investors that the NDA includes data from over 1,600 patients in the clinical setting, including roughly 750 patients from the phase 3 pivotal program, with 100% successful use.

The key issue with respect to approval remains the pulmonary safety of the device, and the questions raised by the FDA with respect to an observed, dose-related, post-dose decrease in forced expiratory volume in one second (FEV1) in both healthy subjects and in subjects with COPD and asthma. Management aims to allay the FDA s concerns through a Risk Evaluation and Mitigation Strategy (REMS) program.

Is A REMS Enough?

Alexza has spent the past year analyzing the data from the pulmonary safety programs and from the phase 3 trial. The company hired outside consultants to help analyze if there is a safety concern with Staccato or AZ-004. Some of the key points that management made in their discussion with the FDA:

  • All respiratory symptoms that developed after treatment in the phase 1 study were either self-limiting (resolved spontaneously) or readily managed with an inhaled bronchodilator.
  • No intravenous intervention was necessary due to respiratory side-effects in either the phase 1 pulmonary safety study or the pivotal phase 3 program.
  • There were no serious adverse events (SAEs) in the phase 1 or the phase 3 pivotal program.
  • Respiratory events in the phase 3 program (~750 patients) were less than 1%.
  • During the clinical trials, use of standard bronchodilators was prohibited while on drug.

Alexza believes it has presented evidence that the placebo device is safe, including a blinded expert review of the flow-volume loops data from the healthy subject study as further evidence that there appears to be no meaningful or consistent pattern suggestive of airway obstruction in these subjects. Alexza also provided an analysis showing that there is no meaningful temporal relationship between placebo administration and decreases in FEV1. Management believes this evidence and analysis confirms that the changes seen were likely background events in the population studied, where the repeated and extensive pulmonary function testing may have contributed to some of the observations. Management has included this information in the new filing for approval.

With respect to patients with compromised airways, such as in asthma or COPD, Alexza has developed a comprehensive Risk Evaluation and Mitigation Strategy (REMS) program designed to identify potential subjects that could exhibit pulmonary safety issues on AZ-004. The FDA noted at the meeting in December 2010 that it would be reasonable to propose a REMS program for the use of Staccato loxapine, and requested that as part of the company's resubmission.

We note in April 2011, Alexza met again with the FDA for a Type-C meeting to discuss the proposed REMS and the keyelements within the REMS for screening at risk patients prior to taking AZ-004. At this meeting, the FDA emphasized that there are two key components for a risk mitigation proposal: 1) Adequacy of monitoring, via patient observation, for a period of time relative to the likely occurrence of a respiratory adverse reaction, and 2) Availability of rescue medication (e.g., inhaled albuterol) should an adverse reaction occur.

We expect that the filing for Europe will take place late in the third quarter 2011. We note that management conducted face-to-face meetings with the European Medicines Agency (EMA) assigned Rapporteur and Co-Rapporteur and their review teams, in May and July 2011, respectively. A U.S., Ex-U.S., or global partnership for AZ-004 could take place at any time, although given the current market conditions, we are not expecting a deal until after the Advisory Panel meeting.

On the second quarter call, CEO Tom King noted making progress in on going discussions with multiple possible partners, from multiple different commercial territories. The opportunity to re-partner AZ-004 is intriguing. We remind investors that the previous deal with Biovail included an upfront payment of $40 million for the North American rights to the drug. Potential deals for AZ-004 in 2011 could include the U.S., Europe, Asia/Pacfic, and Latin America, or some combination of the four. We think the risk profile of AZ-004 is something that specialty pharmaceutical companies are comfortable with, and a deal will get done.

Our guess is the company signs multiple deals for commercialization, with specialty pharma companies focusing on the North American and European rights, and perhaps Asia/Pacific and Latin America separately. Management keeps reiterating the goal to have a deal in place before the PDUFA action date.

We think investors can make money in Alexza trading the upcoming catalysts, including the pending EU application, the Advisory Panel meeting, and a potential partnership around the final PDUFA action in early February 2012. We like the stock under $2 as a speculative play. We think shares could easily hit $3 on a deal or following approval of AZ-004 in February 2012. We see AZ-004 as a $300 million opportunity in the U.S., with another $100-200 million potential outside the U.S. Our rating is 'Outperform'.

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