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Alexza Pharmaceuticals, Inc. (NASDAQ:ALXA)

Q2 2008 Earnings Call Transcript

August 7, 2008 8:45 am ET

Executives

August Moretti – SVP and CFO

Tom King – President and CEO

Operator

Good morning, everyone, and welcome to the Alexza Pharmaceuticals second quarter 2008 financial results conference call. At this time, all participants are in listen-only mode for the conference. Later, we will conduct a question-and-answer session toward the end of this conference call. Today’s conference is also being recorded. If you have any objections, you may disconnect at this time.

I would now like to turn this morning’s conference over to Mr. August Moretti, Senior Vice President and Chief Financial Officer of Alexza. Mr. Moretti, you may begin.

August Moretti

Thank you. Good morning and welcome to our second quarter 2008 financial results conference call. Before we get started, I would like to remind you that the matters discussed on this call contain forward-looking statements that involve risks and uncertainties, including those relating to the potential results of future clinical development, our ability to commercialize products, the timing of the commercialization of such products, and our projected revenues and expenses.

Actual results may differ materially from the results predicted, and recorded results should not be considered an indication of future performance. These and other risk factors are more fully discussed in our Annual Report on Form 10-K including under the caption Risk Factors and in our quarterly report on Form 10-Q, which we filed with the SEC yesterday.

Alexza disclaims any obligation to update or review any forward-looking statements made on this call as a result of new information or future developments. As a reminder, Alexza’s policy is to only provide guidance on product candidates and corporate goals for the future one to two fiscal quarters and to provide update or reconfirm its guidance only by issuing a press release or filing updated guidance with the SEC in a publicly accessible document. Clinical guidance is as of today and financial guidance relating to the company’s current cash, cash equivalents and investments is as of June 30, 2008.

I’ll now turn the call over to Tom King, President and CEO of Alexza.

Tom King

Good morning, everyone, and thank you for joining us. As always, I’d like to thank you and all of our shareholders for the ongoing support and confidence you have shown in Alexza. We look forward to these quarterly conference calls where we can update you on our progress.

Today I’m going to start the conference call with a brief overview of the progress we have made this far toward the accomplishment of our operational goals and then provide a brief summary of the current status of our product candidate. I will then pass the call back to Augie [ph] Moretti to review the second quarter and the year-to-date financials. Following his review, we’ll open up the conference call to Q&A.

2008 continues to be a very productive and exciting year for us. During the first seven months of the year we have met our operational goals. We initiated and completed enrollment in our first Phase 3 study with AZ-004. This is our lead program. As a reminder, AZ-004 is Staccato loxapine, which is being developed for the treatment of agitation and schizophrenic in bipolar disorder patient. We expect to report the topline data from this first Phase 3 study in September. In July, we also announced the initiation of the second Phase 3 study with AZ-004. Earlier this year, we’ve released positive initial positive results of a Phase 2a clinical trial of AZ-104, which is a low dose form of Staccato loxapine that’s being developed to treat migraine.

We also read out positive initial results of the Phase 1 study with AZ-007, which is Staccato zaleplon, and is being developed for the treatment of insomnia. We completed enrollment of our Phase 3 proof-of-concept clinical trial and released initial data for the AZ-002 study, which is Staccato alprazolam, which is being developed for the treatment of acute panic attacks.

We’ve requested and we are granted an end of Phase 2 meeting with the FDA for AZ-001, Staccato prochlorperazine, for t he treatment of migraine. And we initiated development with Endo Pharmaceuticals of AZ-003, which has been renamed EN 3294 by Endo Pharmaceuticals. This product is Staccato fentanyl and is being developed for the treatment of breakthrough pain.

We’ve also completed a number of corporate finance goals in the first half of 2008. We completed a $10 million equity offering with Bio One to support our plan manufacturing operations in Singapore. And we put into place a $50 million equity line of credit with Azimuth Opportunity Limited. Operationally, we completed our move from Palo Alto to our new facilities in Mountain View, which includes our pilot manufacturing state, and closed down our Palo Alto facility. We also established operations in Singapore, establishing the corporate entities to manage our manufacturing activities in Singapore.

During this first period, we have also added substantially to our senior management team as we continue to escalate our commercial activities related mostly to AZ-004. Since January we have Mike Simms, who is our Senior Vice President of Operations and Manufacturing; Carlos Parra, who is our Vice President of Quality; Jeff Williams, who is our President of Alexza Singapore Pte. Limited; Dr. Tony Clarke, who is stationed outside of London, who is our Vice President of International Development Operations; and Chris Kurtz, who is our Vice President of Global Supply Chain and Sustainment Engineering.

In April, we also completed our first Analyst Day in New York with a participation of Dr. Carol Tamminga and Dr. Michael Allen. The afternoon focused on AZ-004 and had a medical and clinical perspective on that program. Medically we’ve also presented data from two clinical trials at both the APA Annual Meeting in May and the Annual American Headache Society Meeting in June.

I’d like to provide a brief summary of each of our clinical development programs at this point. So, for AZ-004, Staccato loxapine, we’re developing 004 for the treatment of acute agitations in patients with schizophrenia and bipolar disorder. In June 2008, we completed enrollment of our first Phase 3 clinical trial with the enrollment of 344 schizophrenic patients with acute agitation at 24 US clinical centers.

This trial was an in-clinic, multi-center, randomized, double-blind, and placebo-controlled study. And we tested two doses of AZ-004, the 5 and 10 milligrams as compared to placebo. The primary endpoint for this study is the change from baseline in the PEC score majored two hours after the first dose. As I mentioned before, it is our guidance that we expect to release initial results from this trial before the end of September 2008.

The second Phase 3 clinical trial commenced in July. The design of this second Phase 3 study is very similar to the first trial, targeting enrollment also of approximately 300 patients at 18 US clinical centers, with the principal difference in this study being the fact that the patient population will be patients with bipolar disorder. Our guidance is that the second Phase 3 clinical trial will take approximately 12 months to complete patient enrollment. Please note that this is our first clinical trial in bipolar patients. As a reminder, AZ-004 has been licensed to Symphony Allegro and we have the right repurchase all rights to this product candidate.

AZ-001, Staccato prochlorperazine. We are developing AZ-001 to treat patients suffering from acute migraine headaches. Since the beginning of the year we have completed a thorough QT study and a 28-day inhalation toxicology study. Data from these two new studies in addition to the human clinical data for more than 500 patients and subjects are the basis of our Phase 2 meeting with the FDA, which we’ve requested in late second quarter and have now scheduled during the third quarter 2008.

AZ-104, Staccato loxapine. We are developing this low dose version of Staccato loxapine, which we call AZ-004 to treat patients suffering from migraine headaches. In March, we announced positive initial results of the in-clinic, multi-center, randomized, double-blind, single administration, and placebo-controlled Phase 2a proof-of-concept study, where we had 168 migraine patients with and without aura.

AZ-104 met the primary efficacy endpoint of the clinical trial with the two highest doses study as we compare that to placebo. There were statistically significant improvements in pain response at two hours in 76.7% of patients at the 5 milligram dose and 79.1% of the patients at the 2.5 milligram dose. The 1.25 milligram dose did not achieve statistical significance in this trial with a pain response of 67.4%. And the pain relief response for placebo in this trial was 51.3%.

Alexza’s original IND for Staccato loxapine was filed with the Division of Neuropharmacological Drug Products with the FDA when we started this program. Some of you may recall that in July 2005 the FDA reorganized this division into two new divisions; the Division of Psychiatry Products and the Division of Neurology Products. At that point in time, the Staccato loxapine IND was transferred to the Division of Psychiatry Products as the Staccato loxapine program, AZ-104 at that point in time, is for a psychiatric indication.

Under that IND in that division, Alexza conducted our first migraine proof-of-concept patient study, the Phase 2a study with the low dose version, AZ-104. With our positive initial results from that clinical trial and the decision to move forward to a larger outpatient Phase 2a clinical trial in migraine patients, we must now also file a new IND with the Division of Neurology Products. We project that we will file this new IND during the fourth quarter of 2008 and then initiate our Phase 2a outpatient study in the first quarter of 2009. AZ-104 has been licensed to Symphony Allegro, and Alexza has the rights to repurchase all rights to this product candidate.

AZ-002, Staccato alprazolam. Alexza is developing AZ-002 for the acute treatment of panic attacks associated with panic disorder. In June 2008, we announced the topline results of our in-clinic, single-center, double-blind, placebo-controlled Phase 2a proof-of-concept clinical trial in patients with panic disorder. The primary aim of the clinical trial was to assess the safety and efficacy of using a 1 milligram single dose of AZ-002 in treating a pharmacologically induced panic attack.

The study did not meet its two primary endpoints, which were the effect of AZ-002 on the incidence of a doxapram-induced panic attack and the effect of AZ-002 on the duration of a doxapram-induced panic attack, both as compared with placebo. There were no serious adverse events in the clinical trial, and AZ-002 was generally safe and well tolerated in the study patient population.

Thorough pharmacokinetic and pharmacodynamic analyses from this study show that alprazolam was administered in an IV-like manner with our Staccato system. And the device performed exactly as designed. Similar blood levels were observed in this study as were recorded during the AZ-002 Phase 1 pharmacokinetic and safety study in normal volunteers.

Alexza and Symphony Allegro are completing work on this AZ-002 Phase 2a program and study. Following this completion, we do not anticipate any future work on AZ-002 in acute panic. However, given the demonstrated AZ-002 safety profile, the successful and reproducible delivery of alprazolam, and the clear intravenous-like pharmacological effect demonstrated to date, Alexza and Symphony Allegro plan to work with key opinion leaders to explore opportunities to potentially study 002 in other medical conditions. AZ-002 has been licensed to Symphony Allegro, and Alexza has the right to repurchase all rights to this product candidate.

And finally, AZ-007, Staccato zaleplon. Alexza is developing 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 to sleep. In the first half of 2008, we initiated, we completed enrollment, and reported initial positive results of our Phase 1 clinical trial, enrolled 40 healthy volunteers at a single US clinical center. The purpose of this trial was to assess the safety, the tolerability in the pharmacokinetic parameters of a single dose of AZ-007.

Using a double blind, randomized, dose-escalation trial design, four doses of AZ-007 ranging from 0.5 milligram to 4.0 milligrams were compared to placebo. AZ-007 delivered an intravenous-like pharmacokinetic profile of zaleplon with a median time to peak venous concentration, also known as Tmax, of 1.6 minutes. Zaleplon exposure was dose proportional across the four doses studied. Pharmacodynamics, measured as sedation assessed on a 100 millimeter visual-analog scale, showed onset of effect as early as two minutes after dosing with AZ-007. There were no serious adverse events in this study.

The most frequently reported adverse events in subjects receiving 007 were dizziness and somnolence, exactly what you would expect with zaleplon. These data indicate a rapid onset of effect, apparently directly related to the IV-like pharmacokinetics, and showed that AZ-007 is generally safe and well tolerated in this population of healthy volunteers.

As you can see, we have had a very, very busy first half of 2008 and we look forward to being able to continue to update you on our progress during the second half of 2008. At this time, I’m going to turn the call back over to Augie for a review of our financials for the first half of the year.

August Moretti

Good morning, everyone. I’d like to summarize the financial information that’s included in the Form 10-Q for the quarter and the six months ended June 30, 2008, which was filed yesterday with the SEC. We reported a net loss of $14.1 million for the quarter ended June 30 and a net loss of $28.7 million for the six months ended June 30, as compared to a net loss of $10 million and $21.2 million for the comparable periods in 2007.

Our consolidated results of operations include the operations of Symphony Allegro. Loss attributable to non-controlling interest in Symphony Allegro reduced our net loss for the second quarter of 2008 by $5.9 million and reduced net loss for the first six months of 2008 by $9.6 million, as compared to $2.6 million and $4.7 million in the comparable periods in 2007. We did not recognize any revenue in Q2 or the six months ended June 30, 2008 or the comparable periods in 2007. We do not expect any grant revenue in future periods. We may begin to recognize revenue from the Endo Pharmaceuticals upfront payment starting in the second half of 2008.

Our operating expenses have increased in 2008, specifically GAAP expense relating to research and development increased in the second quarter of 2008 and the six months ended June 30, 2008 to $15.7 million and $30.4 million respectively compared to $10.1 million and $20.4 million in the comparable periods in 2008 [ph]. The increases in R&D expense are related to increased spending on clinical development of our lead program AZ-004 and AZ-003, Staccato fentanyl, which we are developing in partnership with Endo Pharmaceuticals. Increased spending on Staccato device development and manufacturing scale-up and increased personnel-related cost due to increased staffing to support our clinical research and manufacturing efforts.

GAAP G&A expense increased in the second quarter and six months ended June 30 to $4.8 million and $9.3 million respectively as compared to $4.0 million and $7.6 million in the comparable periods in 2007. The period-to-period increase is a result from higher share-based compensation expenses in 2008, increased staffing for personnel and executive accounting, business development, IT, and HR necessary to support our growth, as well as increases in facilities costs and related costs in professional fees for legal and accounting services.

At June 30, cash, cash equivalents and marketable securities totaled a $95.3 million, and this number includes $31.3 million held by Symphony Allegro, which we consolidate on our balance sheet.

I will now turn the call back to Tom for concluding remarks.

Tom King

Thank you, Augie. As has been our practice since the company was founded, we’ve set an aggressive set of operating goals each year. We feel that we have accomplished much during the first half of 2008 moving all of our development programs forward to the next milestones and reporting a significant number of topline clinical results. We look forward to reporting our Phase 3 data before the end of Q3 for 004. All of us at Alexza are working very hard to meet our 2008 operational goals in the balance of the year. We very much look forward to updating you on this progress during the coming months.

Thank you again for your support, for getting up early today. And I would now like to open the conference call for any questions you might have.

Question-and-Answer Session

Operator

(Operator instructions) It appears there are no questions at this time.

Tom King

Okay. Well, thank you again. It looks like we answered any questions that you might have had this morning with our thorough discussion of our progress. We look forward to updating you in the coming weeks and months, and also are looking forward to our Phase 3 results before the end of September. So, thank you again for your support and we’ll talk to you soon. Thank you.

Operator

This concludes the presentation. You may now disconnect. Have a good day.

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