Alexza Pharmaceuticals: Is It A 'Dead Cat' Bounce If The Cat's Still Breathing?

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

Shares of Alexza Pharmaceuticals (NASDAQ:ALXA) lost nearly half of their value -- down 47% -- to close at a new low of $0.52 on Thursday. An internal FDA Review found that their inhaled antipsychotic may pose fatal lung risks and the report information, which was released on Wednesday was enough to send speculators packing.

Shares of the company dropped steadily throughout the day after investors absorbed the information in the report which indicates several issues that could lead FDA regulators not to approve the drug candidate for marketing in the U.S.

While it appears that Adasuve may be effective as a fast-acting treatment for agitation among patients with schizophrenia and bipolar disorder, it also appears that the drug causes bronchial spasms that may be fatal in certain people -- especially those predisposed with conditions such as asthma. The Food and Drug Administration staff report will be reviewed on December 12th to discuss and advise regulators after they evaluate the findings.

An application for approval was first submitted to FDA in late 2009, but a Complete Response letter was issued in October of 2010 after the FDA’s review resulted in a consensus view that, while Mountain View, California-based Alexza had demonstrated the efficacy of the drug candidate for the intended claim, they had not demonstrated its reasonable safety for the intended use.

“It is likely that, even with adequate screening for pulmonary risk factors, some patients will require respiratory support post-dose, and some patients will be at risk for respiratory failure and death,” FDA staff said.

The drug, if approved, should only be administered by professionals who have intubation tubes and ventilators “readily available,” according to the report.

FDA officials remains concerned that the true severity and extent of pulmonary toxicity in the intended treatment population is unknown.

Ultimately, regulators will be asking the committee to vote on one essential question: “Has Staccato Loxapine for Inhalation been shown to be sufficiently effective as a treatment for agitation in patients with schizophrenia or bipolar mania, given its unique risks, and has it been shown to be reasonably safe for use in this context, when used in conjunction with the REMs that has been proposed by the sponsor, to justify its approval.” In order to prepare for this central question, regulators want the committee to fully discuss several other issues and will also welcome the discussion of topics that the committee feels are germane to the drug application.

Analysts who cover the company at JMP Securities looked at the report then reiterated an “outperform” rating on shares of Alexza in a research note to investors on Thursday. They now have a $4.00 price target on the stock, and apparently, they aren’t alone. Zacks Investment Research points out that half of the four analysts following Alexza maintain a "strong buy" opinion on the stock.

Still, most investors in the stock had seen enough of the heavy downward price action which left shares of the company down 72.77% from their 52-Wk High of $1.91. If things somehow turn out positively for Alexza, there appears to be potential upside of over 350% for shares of firm based on the fact that the average consensus analyst price target is $2.75.

Alexza had resubmitted its application back August offering a strategy that would include screening patients to identify those at risk for lung problems by monitoring people who take Adasuve for an hour after treatment, but the report said it may be difficult for health-care providers to do that since many patients with schizophrenia or bipolar disorder are smokers, and it may be difficult to observe breathing problems in people who are agitated.

“Psychotic and agitated patients who develop respiratory symptoms may not be able to notify health-care personnel in a timely manner, and respiratory distress may be confused with acute agitation to the casual observer,” agency staff said. The drug’s sedating effect “may also mask respiratory signs and symptoms while causing further respiratory suppression.”

We anticipate that trading action in the stock will continue to be heavy as outside advisors plan to meet Dec. 12 to evaluate the findings and the FDA aims to make a decision on the product by Feb. 4 of 2012.

While the report contains background information prepared by staffers of the FDA for the panel members of the advisory committee. Conclusions and recommendations do not necessarily represent the final position of the individual reviewers, nor do they necessarily represent the final position of the Review Division or Office. Some of our respected colleagues think the Advisory Committee will pick apart Adasuve, which means that unless the Staccato system is perfect a negative recommendation will be handed down.

As we’ve seen during other heavily debated drug approval scenarios like this one, options traders are focusing on calls. The heaviest volume, in this case, is seen in the December 2011 $1.00 call. In fact, calls outpaced puts by 18 to 1 and a calmer sentiment started to settle in after hours when trading saw share prices increase 5.38% to $0.548 +0.028.

Another drug candidate of Alexza, which is in active development is AZ-007 for the treatment of insomnia in patients who have difficulty falling asleep, including patients who awake in the middle of the night and have difficulty falling back asleep, which has completed phase 1 testing. Alexza has no plans to spend external resources for the development of AZ-007 through at least the fourth quarter of 2011, but is continuing internal work on the technical product development. In August of 2010, the company licensed its Staccato nicotine technology to Cypress Bioscience Inc. The Staccato nicotine technology is an electronic multidose delivery system designed to help people stop smoking.

Alexza's proprietary Staccato® system vaporizes excipient-free drugs to form a condensation aerosol that, when inhaled, allows for rapid systemic drug delivery. The Staccato® system comprises the rapid vaporization of a drug to form a small particle aerosol optimal for systemic delivery through inhalation. These aerosols are systemically absorbed very rapidly, with peak plasma blood levels obtained in the first few minutes after administration. Thus, the Staccato system enables rapid onset of action for many drugs. Its Staccato device consists of three core components: a heating substrate, a thin film of unformulated drug coated on the substrate, and an airway through which the patient inhales. The key to its proprietary technology is vaporization of drug without thermal degradation, which is achieved by rapidly heating a thin film of the drug.

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