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Future of Alexza Pharmaceuticals (NASDAQ: ALXA) Could be Determined Over the Next Six Months as NDA Ready for Submission to FDA Once More

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With the resubmission of their New Drug Application to the FDA for AZ-004 now pushed back to August 8, 2011 shares in Alexza Pharmaceuticals (NASDAQ: ALXA) have dipped slightly, trading around the 1.47 – 1.53 range, sliding below their 50-day moving average of 1.65 while fighting to remain ahead of their 200-day moving average of 1.39. Coincidentally, ALXA will also be reporting financial results for the quarter ended June 30, 2011 on the same date, giving shareholders hope that a bump in share price is on the horizon.

In reality the reporting of financial results shouldn’t inspire much hope among shareholders as ALXA has done little to pad their balance sheet. Their first quarter financial results showed revenue of $1.3 million, all of which was payments received under the license agreement with Cypress Biosciences, Inc. for ALXA’s Staccato® nicotine technology – a novel electronic multidose delivery technology designed to help people stop smoking. While ALXA has a continued financial interest in the development of the technology the road to such development remains unpaved. Cypress initially stated that they planned on taking the technology into Phase 1 clinical trials in late 2011 but since affiliates of Royalty Pharma acquired the company the focus may have changed.

That leaves the NDA resubmission as the focal point and ALXA President and CEO Thomas B. King has assured investors that the company has left no stone unturned stating “Our employees have combined their skills with those of some outstanding outside consultants and advisors, who are experts in the key areas of focus of our resubmission.  In addition to the data in our original NDA, our resubmitted NDA contains data from our successfully completed human factors study, stability data from new production batches manufactured late last year, and a comprehensive REMS proposal and draft labeling for AZ-004.”

Originally submitted in December 2009, the NDA for AZ-004 (Staccato loxapine), developed for the rapid treatment of agitation in schizophrenic or bipolar disorder patients, was turned down by the FDA in October 2010 with the Complete Response Letter (CRL) citing primary clinical safety concerns related to data from the three Phase I pulmonary safety studies, essentially questioning the impact AZ-004 had on lung functionality in healthy subjects as well as in subjects with COPD and asthma.

It should also be pointed out that the CRL had questions concerning the novel delivery system incorporated by AXLA, their Staccato system which vaporizes unformulated drug to form a condensation aerosol that, when inhaled, allows for rapid systemic drug delivery through deep lung inhalation. The drug is quickly absorbed through the lungs into the bloodstream, providing speed of therapeutic onset that is comparable to intravenous administration, but with greater ease, patient comfort and convenience.

Investors shouldn’t overlook the value of the technology behind AXLA’s Staccato system as the company has already demonstrated that more than 200 FDA-approved compounds are feasible for delivery by the Staccato system. This opens the door to a number of licensing agreements with drug manufacturers looking for alternative delivery systems.

Due to the novel nature of the Staccato system the FDA’s Center for Devices and Radiological Health (CDRH) requested, in the CRL, a human factors study and related analysis to validate that the product can be used effectively in the proposed clinical setting as well as requesting further bench testing of the product under an additional “worst-case” manufacturing scenario.

As a follow up to the CRL the company met with the FDA in an End-of-Review forum at which time the FDA advised ALXA to propose a Risk Evaluation and Mitigation Strategy (REMS) program for the use of Staccato loxapine, one that included labeling, medication guide, communication plan, as well as post-approval studies to manage potential risks. In addition, ALXA is expected to include in their resubmission an effective way to identify patients at risk of developing pulmonary side-effects, as well as decipher who should and shouldn’t be considered a candidate for the treatment.

What the FDA wants from ALXA as it related to their risk mitigation proposal is a plan that addresses two key components: i) adequacy of monitoring, via patient observation, for a period of time relative to the likely occurrence of a respiratory adverse reaction, and ii) availability of rescue medication (e.g., inhaled albuterol) should an adverse reaction occur.

For their part AXLA believes they have satisfied the requests and concerns expressed by the FDA and are confident their resubmission will lead to an approval. The first thing the FDA will do upon receiving the NDA is present the AZ-004 application to an advisory committee with the objective being to discuss the proposed approach for managing the risks of AZ-004 in relationship to its patient benefits.

As far as the clinical trials involving AZ-004 the researchers concluded that the inhaled loxapine was well tolerated and provided a rapid, effective and safe treatment option for those who prefer an alternative to the conventional parenteral administration. Just how many of the 2.4 million schizophrenia patients and 5.7 million bipolar disorder patients in the United States would prefer such a method is not known.

While approval from the FDA is obviously at the top of ALXA’s list the company is also eligible for submission of a Marketing Authorization Application (MAA0 under the centralized registration procedure with the European Medicines Agency (EMA), something the company has targeted for late in the third quarter 2011.

Getting to the finish line will cost money and ALXA is confident that based on its cash, cash equivalents and marketable securities balance at March 31, 2011, the $15.8 million raised from their May financing, and the Company’s expected cash usage, it has sufficient capital resources to meet its anticipated cash needs into the first quarter of 2012, that should be right around the time they learn the fate of AZ-004.

Over the next six months, if they go smoothly, there should be plenty of positive news AXLA can produce which should help their share price. They will have the opportunity to update investors on the FDA process, their progress with the EMA, partnerships for the marketing of AZ-004, etc.

By all appearances it looks as if ALXA may finally get AZ-004 through the FDA process but overconfidence is certainly not encouraged at this point. The FDA identified a number of concerns in the CRL and while ALXA seems satisfied with their response the reaction of the FDA can never be predicted. When ALXA learned that the FDA had turned them down last October shares went from a high of 3.07 the previous day down to a low of 1.33 the day they heard the news. ALXA can hardly afford such a percentage drop again but what shareholders are hoping for is the spike back to the 3.00 days and an approval would likely catapult share price to that range once more.

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