An Update on Alexza Pharma (ALXA) - Analyst Blog

Jason Napodano, CFA

On October 10, 2010, the U.S. FDA issued a complete response letter (CRL) on the approval of AZ-004 (Staccato loxapine) for the rapid treatment of agitation in patients with schizophrenia or bipolar disorder.  The FDA raised four issues in the CRL with the new drug application for Adusuve:

1) The FDA raised concern on the clinical safety data from the three phase I pulmonary safety studies with AZ-004 based on observed, dose-related post-dose decreases in forced expiratory volume in one second (FEV1) in both healthy subjects and in subjects with COPD and asthma. The dose-response relates to a greater reduction in FEV1 following the second inhalation relative to the first.  The agency also noted that decreases in FEV1 were recorded in healthy subjects who were administered device-only (no drug) control versions of AZ-004.

- Initially this sounds pretty bad.  The FDA is concerned with marked (>10%) reductions in FEV1 in healthy patients, both on drug and placebo.  The CRL calls into questions the potential safety of not only AZ-004 (Staccato loxapine) but the Staccato device itself.

Alexza ( ALXA ) has spent the past month and a half analyzing the data from the pulmonary safety programs and from the phase III trial.  The company has hired outside consultants to help analyze if there is a safety concern with Staccato or AZ-004.  Management's conclusion is that if there is a safety concern, it can be adequately managed with restrictive labeling or a REMS program post-approval.  Previously management has spoken about a “fundamentally different view” of the data from the FDA.  Management will get its chance to convince the FDA face-to-face at a meeting in two weeks.

Some ammunition on management's side:

1. All respiratory symptoms that developed after treatment in the phase I study were either self-limiting (resolved spontaneously) or readily managed with an inhaled bronchodilator. 
2. No intravenous intervention was necessary due to respiratory side-effects in either the phase I pulmonary safety study or the pivotal phase III program.
3. There were no serious adverse events (SAEs) in the phase I or the phase III pivotal program.  Respiratory events in the phase III program (~750 patients) were less than 2%.
4. We note that during the clinical trials, use of standard bronchodilators was prohibited while on drug. 

Management does not believe there are significant pulmonary safety issues that would prevent approval of AZ-004.  It is clear that in patients with already impaired lung function, such as asthma or COPD, a REMS program must be put into place to reduce risk.  This REMS program can be expanded to include use in patients with healthy airways to satisfy the FDA's concerns.  This issue is clearly something the company believes can be managed with labeling, a REMS program, and post-approval through a phase IV study.

2) The CRL raised issues relating to the suitability of the stability studies undertaken by Alexza.  Management conducted a 12-month accelerated and 12-month standard stability program.  The proposed stability of the product is 18 to 24 months. 

- We note that the supply chain for the Staccato device has changed dramatically over the past 24 months.  Management noted a number of component suppliers going out of business.  Management has shifted around manufacturing piece of the device from small (unreliable) firms to larger (financially stable) organizations and brought final assembly in-house.  This includes the foil wrap film that surrounds the device.  The FDA questions the suitability of the data because many of the suppliers used to collect the data have changed.

Alexza has begun a new accelerated and standard stability program following the CRL in October 2010.  Sufficient data should be collected in time for a re-file around the middle of 2011.  Management also noted that they can seek approval with a lower shelf-life, of say 12 months, and then supplement post approval to bring the shelf-life up to the desired 18 to 24 months.  In our view, this is a non-issue.

3) The CRL raised issues relating to the agency's pre-approval manufacturing inspection. 

- We note the inspection was only recently completed in August 2010.  Management submitted a response to the FDA's questions in September 2010.  Much of this information was not included in the CRL letter.  Questions following a pre-approval manufacturing inspection, especially for a brand new drug-device combination, are common.  Alexza believes that all of the questions on the pre-approval manufacturing inspection have already been address or can be address with the FDA at a face-to-face meeting.  Similar to the stability issues, we do not believe this is a significant or rate-limiting issue.

4) Because AZ-004 incorporates a novel delivery system, the CRL also included input from FDA's Center for Devices and Radiological Health (CDRH). CDRH requested a human factors study and related analysis to validate that the product can be used effectively in the proposed clinical setting.

- Alexza did not submit a standard human factor study as part of the new drug application.  Instead, management submitted data from over 1,600 patients in the clinical setting, including roughly 750 patients from the phase III pivotal program. 

According to management, the protocols for these studies are pretty straightforward with clearly validated endpoints.  The operation of the trial can be outsourced to an organization that handles these programs and conducted rather quickly.  Alexza has been in conversation with a handful of these “FDA approved” centers and plans to begin the study early next year.  A Human Factors Study in approximately 30-40 patients can be completed in less than two months time at a cost of less than $500K.  We do not believe this is a significant or rate-limiting issue.

Of the four issues raised by the FDA, we believe Alexza has answered or will be in position to answer three of them (stability, manufacturing, and use) by the middle of 2011.  The wild-card remains the pulmonary safety and whether or not the FDA requires Alexza to conduct additional pulmonary safety studies prior to granting approval.  Alexza's plan is to address the issue through product labeling and a REMS program post approval. 

Despite remaining big fans of the Staccato device and our belief that management can work through the above issues with the FDA, we have a Neutral rating on Alexza Pharma while we wait for the next update.  Management has not yet had a chance to speak with the FDA.  Although meeting with the FDA could result in a positive development for the stock, the soonest we see a possible re-file on AZ-004 would be May / June 2011.  This potentially puts another FDA action on the product during the back half of 2011.  We should have additional information from the company on this strategy after the face-to-face meeting schedule for later this month.  Our target is $2 per share.
 

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