Alexza Takes Big Step Forward - Analyst Blog

On December 14, 2009, roughly a month ahead of our forecast, Alexza Pharmaceuticals (ALXA) announced it had filed the new drug application (NDA) on AZ-004. The news follows the completion of the five non-pivotal safety and supporting studies earlier in the year, and the pre-NDA meeting held with the U.S. FDA in June 2009. In total, AZ-004 has been tested in over 1,600 patients in 13 clinical programs, including the two pivotal phase III trials that both met their primary endpoint.

We expect the U.S. FDA will respond accepting the application around early February 2010. Assuming a standard 10-month PDUFA review, Alexza should have a response letter from the FDA by the middle of October 2010.

Next up for Alexza will be securing a commercialization partnership for AZ-004. Management has said on several occasions that they are in discussions with multiple parties on both a U.S. and ex-U.S. partnership, and that negotiations have progressed to the term-sheet stage. Management’s corporate goal is to have a partnership in place by the end of the first quarter 2010. This will allow the company to focus on manufacturing scale for the commercial launch in 2011 and the pre-approval inspection (PAI) scheduled with the FDA for later in 2010.

Alexza and its partner expect to launch AZ-004 with a commercial supply, produced in Alexza’s Mountain View facility, with approximately 6 to 7 million units. This should be enough to supply the market for 2011 and into 2012.

Episodes of acute agitation occur often in the 2.4 million schizophrenia and 5.7 million bipolar disorder patients in the U.S. Management estimates that 90% of these patients will experience an episode of acute agitation during their lifetime. Well-treated (on medication) schizophrenia patients often do not experience significant agitation, but the well-treated schizophrenia patient is not the norm.

Bipolar patients often go untreated and experience acute agitation during the mania phase of the disease. These episodes are often treated with conventional antipsychotics and benzodiazepines. Intramuscular (IM) haloperidol, lorazepam, olanzapine and ziprasidone are among the most common agents used. However, administering an invasive intramuscular injection during a state of acute agitation is a difficult task for a caregiver, and often leads to increased anxiety for the patient.

Oral medications are preferred mode of administration, but offer delayed onset of action and far less predictable outcomes. Currently, the market is split pretty evenly between oral and injectable drugs, with most caregivers starting on oral medications and then moving to IM injections if necessary.

Alexza’s AZ-004 will offer a new alternative to the caregiver. AZ-004 is designed to provide rapid and predictable onset in a non-invasive delivery. The American Association of Emergency Psychiatrists’ Expert Consensus Guidelines for the Treatment of Behavioral Emergencies lists three key attributes for an effective medication: speed of onset, reliability of medication delivery and patient preference. AZ-004 meets all three, in our view.

Still, commercializing AZ-004 will be no easy task. While the acute agitation market is one that is vastly under-served, the market has not been previously developed by larger pharmaceutical organizations. Instead, entering the acute agitation market with AZ-004 will require Alexza’s partner to build and create the market through a staged roll-out focusing on increasing awareness and pharmacoeconomic benefits of the drug.

The market for launching the drug is also fragmented. We expect that the initial roll-out will employ a salesforce of roughly 75 to 100 representatives at Alexza’s partner focusing on medically supervised use in the long-term care facilities / psychiatric hospitals. This is where only about 35% of acute agitation patients are treated, but a typical patient in a long-term care facility can experience as many as 4 to 5 episodes while committed.

Alexza and its partner will also roll-out the drug to the emergency-room setting. This is where approximately 50% of the agitation episodes are treated, but it is more on a one-and-done basis. Eventually, Alexza would like to file a supplement to the NDA to allow for home-use of the drug, and even expand the label to include agitation caused by additional psychological disorders including Alzheimer’s dementia, Parkinson’s disease, ALS, or social or general anxiety disorder.

The out-patient setting offers sizable upside to the first phase of the rollout. Management will most likely need to conduct some additional clinical work before the FDA will expand the label to include home use, but we do not believe this will be a terribly expensive or time-consuming venture.

With a fully-expanded label, the sale force could approach 200+ representatives and offer a $500 million opportunity to Alexza’s yet unnamed partner. We are assuming a price of around $50 per dose. Management has done some primary market research and found little formulary resistance at this level.

We believe the drug has very favorable pharmacoeconomics when you consider the alternative to treating a non-responsive patient with acute agitation. Hospital stays, use of restraints, ambulances, multiple doses of oral and then injectable drugs -- these all can be avoided with AZ-004. In Alexza’s phase III clinical program, the response rate (defined as relief from agitation at 2-hours) was 67% of schizophrenia patients and 74% for bipolar patients. We think there is clear benefit to the drug, and that pricing even above $50 per unit is doable.

In the meantime, we expect approval in October 2010, with 2011 U.S. sales in the area of $40 to $50 million. We expect that Alexza will seek to capture a 20% royalty on sales from its partner, as well as manufacturing transfer payments, regulatory, sales and commercialization-related milestones.
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