Event - Alexza hopes for unhindered approval of inhaled antipsychotic

Analysis

Alexza Pharmaceuticals could be on the cusp of receiving that defining moment in a company's evolution with all-important validation of its technology if the FDA approves its inhaled antipsychotic, AZ-004. A positive decision, expected by October 11, would provide much needed cash for Alexza, while also representing a significant event for partner Biovail as it looks to a new future with Valeant Pharmaceuticals.

Investors certainly seem excited, the stock having rallied in recent weeks following a slump in early August when the company caused some concern by raising $18m - the shares now trade close to an 18-month high of $3.87 which they touched in May. Bullish analysts at RBC see little standing in the drug’s way, although warn that inhaled drugs have come under increased scrutiny lately because of a potential direct effect on the lungs. An approval though holds significant value for all parties involved in its development, and would also create an enticing opportunity for potential partners outside the US (Alexza deals fails to excite but caution may be justified for now, February 11, 2010).

Company Alexza Pharmaceuticals Biovail
Product AZ-004 AZ-004
Market Cap $204m $4.2bn
Product NPV $298m $181m
% of Market Cap 146% 4%
Event type PDUFA
Date October 11, 2010


The candidate is a treatment for agitation in psychotic disease sufferers, a reformulation of the widely-used drug loxapine, using Alexza’s Staccato inhaled technology.

Cash and validation

For Alexza, there are immediate and long term benefits of an approval for AZ-004. Firstly, the milestone payment from Biovail upon approval would add to Alexza’s growing pot of cash, allowing the company to carry on its activities into 2012 – any delays in this process would leave Alexza’s financial position looking fairly stretched.

Secondly, Alexza needs some justification for investing in the Staccato technology, which underwrites its whole portfolio, and could add substantial value to its future partnering plans. The door is already open to anyone looking to partner AZ-004 outside of North America.

However, whilst the active pharmaceutical ingredient is well established with solid safety data to back it up, the delivery device and manufacturing process for the product have not been assessed by the FDA, and appear to be the obvious uncertainties.

FDA approval would also mean that Symphony Capital, the firm that was supporting Alexza through a specialised venture capital model, can receive a return on its investment from royalty payments.

Biggest growth driver

For Biovail, this product is predicted to sell $112m in 2016, according to EvaluatePharma consensus. As Biovail looks forward to its merger with Valeant, even at these relatively modest levels the drug is expected to be the combined company's biggest growth driver.

Canaccord analysts who cover Biovail are also optimistic of an approval for AZ-004. Any major regulatory or commercialisation setback could therefore throw a spanner in the works. A compromise to Alexza’s cashflow would put a downstream delay on its other R&D, put off investors, and not do much to appease Symphony Capital. For Biovail, while ramifications may not be so immediately serious, the product is undoubtedly a potentially very valuable,  and could cast an unwanted dark cloud over the pending merger with Valeant.

As such, the FDA's decision within the next few weeks, assuming the regulator does not revert to type and delay its review by three months, is important to all concerned.

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