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Alexza Pharmaceuticals, Inc. (NASDAQ:ALXA) is a very small company by market capitalization (worth about $50.7 million based on current outstanding shares), and it seems to have a difficult time with its flagship drug Adasuve (also known as staccato loxapine).

The "staccato" in the drug's name designates that Adasuve is part of a line of drugs that can be inhaled by a patient within a single breath. The loxapine indicates the active ingredient of Adasuve, which is a generic compound used in the treatment of schizophrenia.

According to the company, clinical trials showed that this type of entry into patients' bodies is most suitable for those with acute conditions. As opposed to pills which must be absorbed in the process of digestion, the staccato products generally hit peak absorption into patients' circulatory system within three to five minutes through the respiratory system. While intravenous delivery already offers near-instantaneous delivery of a drug, staccato has the advantage of being non-invasive since it works through patients' lungs.

Despite some developments in bringing the rest of its pipeline to the market (four drugs other than staccato loxapine), Adasuve has been undermining investor confidence since late 2010 wherein Alexza received its first CRL, which explained that there were lingering safety concerns for AZ-004 (the old name for Adasuve) from its Phase III trials.

The company resubmitted its NDA for the drug after more data came in to support the drug's safety in 2011, but was faced with an annoying extension of the PDUFA action date and an eventual (second) rejection due to manufacturing concerns.

As you might expect, the FDA-induced stress has taken a major toll on the company's stock. ALXA has declined about 65% in the last year alone, and had to perform a reverse 1 to 10 stock split. This move does make a lot of sense in terms of image, since having ALXA trading at $.42/share would convey an entirely different image than a stock trading at $4.20/share.

New investors looking for prospects in anti-psychotic medications should have ALXA on their radar, because a third NDA has been submitted with a PDUFA action date of December 21, 2012. The question now is whether or not the third time is the charm.

Loxapine, the active ingredient in Adasuve, is not an original compound and faces competition with the many forms that the drug is already available in. It is also commercially partnered with European company Grupo Ferrer International for the registration, distribution, and promotion of Adasuve in Europe, South America, and a few other territories, but as is usually the case, investors want to see strength in the United States.

Anti-psychotic medications still have huge potential in the United States, despite generic competition, primarily due to the sheer number of patients using them. Schizophrenia is one example, with a drug market worth approximately $5 billion according to The Analysis Group Inc.

Alexza expects to operate into the end of 2012 with its current financial strength, so I wouldn't expect any dilutions or anything immediately harmful to shareholders until 2013. The company should have the PDUFA decision before the new year; however so, the added value of an FDA approval for Adasuve will still provide gains to those who go long on the stock now and guess (correctly) on a "yes" for the NDA. The 52-week range for ALXA shares is $2.55-$14.80.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.