Alexza faces cash squeeze as Adasuve sent another Dear John letter

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Having had a second knock back from US regulators over its inhaled drug to treat agitation in schizophrenia, Alexza Pharmaceuticals is once again in a race against time. The group heard yesterday after market that the regulator had declined to approve Adasuve thanks to “deficiencies” in its California manufacturing facility.

With no action expected on the approval until these are resolved Alexza, which only has enough cash to get it to the fourth quarter, needs to move quickly if it is not to run out of funds. While the company insists that the problems are an easily addressable setback, specific to its proprietary medical device, investors took a much dimmer view sending the stock down by 28% in early morning trading to a historic low of 45 cents.

Big hill to climb

It was already looking like a tough ask for Adasuve to pass muster after an advisory committee last year narrowly voted 9-8 in favour of the drug's approval. A strict REMs programme was recommended to allay concerns about exacerbation of respiratory conditions following use of the drug, an inhaled version of loxapine (Alexza's failure to win broad backing for Adasuve could be last gasp, December 13, 2011).

As such, few suspected that the no from the regulator would be around manufacturing issues, particularly given that these were among a number of issues that caused the drug to fail first time around and should have by now been firmly dealt with (Alexza investors right to be agitated over FDA rebuff, October 13, 2010). This could explain why the shares in the group fell so heavily, on top of concerns that Alexza could find it difficult to keep going as a viable company. 

Financially things had looked tight at the start of the year when the FDA announced it would be delaying its decision on the drug by three months to May 3. Alexza, which only had enough cash to last until the second quarter, took radical action to wring as much money as possible out of both its investors and cost base.

The group cut almost 40% of its workforce, issued a batched of shares and warrants to raise $20.4m and renegotiated its ex-US agreement with licensing partner Grupo Ferrer, which saw the Spanish pharma company become a shareholder after agreeing to buy Alexza stock.

Going concern

These actions have provided a slightly longer cash runway to the fourth quarter, but with the latest regulatory setback this may not be enough. Today on a conference call Alexza provided little detail on the manufacturing issues while remaining upbeat, claiming it would resolve the manufacturing issues in a “timely manner”.

Even with a speedy resolution the drug will be delayed by several months, time that Alexza can ill afford. Currently, analysts are predicting sales of $248m by 2018 based on an approval in 2012, an event that looks unlikely to pass this year.

What may be on Alexza's side in the race to reply to the FDA’s complete response letter is that there were no new clinical or safety issues raised, and the group appears to have come to an agreement with the regulator on the tighter REMs programme and subsequently product labelling.

Risks remain

But the drug is still a high risk proposition given the FDA’s cautious stance on inhaled drugs. This is further complicated by the circumstances in which the drug is likely to be used, meaning that potentially high-risk patients with either asthma or other respiratory problems might not be identified.

A number of factors suggest Alexza may have blown the last chance it had to turn its fortunes around. In December the group announced that it had hired Lazard to explore its strategic options, but with its most valuable asset once again rejected and potentially months away from approval, dwindling cash and only a phase I insomnia drug in the pipeline, those options look very limited.

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