Alexza And Somaxon: 2 Distressed Biotechs On Sale And Up For Sale

Includes: ALXA, PG, SOMX
by: Kinetic Investments

Over the last three days, two once-promising biotech companies appear to have made the decision to waive their respective white flags, but only after months of being punished by the market. Both have enlisted the help of outside firms to explore strategic options, while announcing massive employee cuts and layoffs in effort to conserve cash.

1. Alexza Pharmaceuticals Inc. (NASDAQ:ALXA)

Alexza, a company focused on the research, development and commercialization of novel, proprietary products for the acute treatment of central nervous system conditions, announced on Friday that it had hired an outside advisor, Lazard Ltd., to help it explore its strategic options including but not limited to a sale of the company, asset disposition(s), partnership or perhaps a combination of any of the above. The company also issued all of its employees 60 day layoff notices so as to slow down its cash-bleeding.

Alexza's quasi-positive spin from Friday's press release:

On Monday, December 12, 2011, the Psychopharmacologic Drugs Advisory Committee (PDAC) of the U.S. Food and Drug Administration (FDA) voted to recommend that ADASUVE™ (Staccato® loxapine) be approved for use as a single dose in 24 hours in conjunction with the FDA recommended Risk Evaluation and Mitigation Strategy (REMS), for the treatment of agitation in patients with schizophrenia or bipolar mania. The vote on this question was 9/8/1 (yes/no/abstain).

The PDAC also concluded that the product had been shown to be effective (vote of 17/1/0; yes/no/abstain), and that the product would be acceptably safe for use as a single dose in 24 hours, when used in conjunction with the REMS proposed by the FDA (vote was 11/5/2; yes/no/abstain). The PDAC also voted on additional questions as previously reported by the Company.

ADASUVE is Alexza's lead program and the ADASUVE NDA has a Prescription Drug User Fee Act (PDUFA) goal date of February 4, 2012. In Europe, a Marketing Authorization Application (MAA) for ADASUVE is currently under review by the European Medicines Agency (EMA) and the application will follow the Centralized Procedure.

Yes, the FDA panel voted 17-1 that the inhaled formulation of loxapine is efficacious for the acute treatment of agitation associated with schizophrenia or bipolar disorder in adults, but the 18 member panel was almost evenly split as it went on to recommend approval in conjunction with FDA REMS.

The company's stock has recently traded as low as 51 cents, representing am 87% decline from its two year high of $3.91, which was set in May of last year. Unfortunately, Alexza's once promising-seeming outlook seems to have moved to the rear view mirror.

ALXA 2 Year Chart

ALXA Chart
(Click to enlarge)

2. Somaxon Pharmaceuticals, Inc. (NASDAQ:SOMX)

Somaxon, a specialty pharmaceutical company that is currently partnered with Proctor and Gamble (NYSE:PG) announced this morning that it has hired an outside firm, Stifel Nicolaus Weisel, to help it identify and evaluate multiple strategies to maximize stockholder value. It also announced that it plans to reduce its non-field based employees to significantly slow down its cash burn rate:

CEO, Richard Pascoe, from today's press release:

We are committed to working with the Stifel team to evaluate strategies which will allow us to fully leverage our rights in our core asset -- Silenor for the treatment of insomnia characterized by difficulty with sleep maintenance. This process will focus on strategic alternatives, which may include one or more of a sale of the company or assets relating to Silenor, or partnering or other collaboration transactions relating to U.S. or ex-U.S. prescription or over-the-counter rights to Silenor.

While we are conducting this process, we will continue to market Silenor in the U.S. to existing prescribers through our 30-person sales force and non-personal promotion, and to protect the intellectual property position of the product, we will also undertake measures to minimize our cash burn rate, including through a reduction in force involving approximately 60% of our current non-field-based employees.

The company's stock has recently traded as low as 42 cents, representing am 96% decline from its two year high of $10.60, which was set in March of last year. Somaxon is a victim of competition, pricing, and its own post-Silenor-approval missteps. Looking back, the company never really stood a chance. Hindsight, of course.

SOMX 2 Year Chart

SOMX Chart
(Click to enlarge)

The exploration of strategic alternatives for either of the above withering companies may or may not result in any concrete agreement and/or transactions, and even if they are, there are no guarantees that any such agreement or transaction would be successful or increase shareholder value in any way.

Perhaps the two California based biotechs should pool their resources and merge to become a single, larger cash-burning machine.

Joking aside, the above listed names are just two more examples of how nothing is for certain in the biotech space and that much caution need be exercised when playing in it.

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