This morning the U.S. FDA issued a complete response letter (CRL) to Alexza Pharmaceuticals (ALXA) on the approval of Adusuve Staccato (formerly 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 subjects who were administered device-only (no drug) control versions of AZ-004.
We were surprised with this issue. There were no previous issues raised or questions from the FDA on pulmonary safety prior to the CRL. Alexza plans to meet with the FDA shortly to discuss the data.
On the conference call this morning, management noted a fundamental different view of the data than the FDA. We believe this stems from the testing of patients with already impaired lung function and the use of standard bronchodilators. Patients with COPD and asthma were taken off their bronchodilators and given two doses of 10mg AZ-004 or dummy device in a 24-hour period.
We note that all respiratory symptoms that developed after treatment in the phase I subjects with COPD and asthma were either self-limiting (resolved spontaneously) or readily managed with an inhaled bronchodilator. No intravenous intervention was necessary. Additionally, there were no serious adverse events (SAEs) in the phase I healthy subject study or the phase III pivotal program. Respiratory events in the phase III program were less than 2%.
We are hoping that Alexza and the FDA can iron out this issue following the face-to-face meeting. A possible path forward would be to carve-out or box-warn for use of the drug in patients with COPD and asthma.
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 believe that Alexza has all the necessary stability data to submit to the FDA if necessary. The stability could be reduce if the agency requests. We do not believe this is a significant issue or anything that could hold up a potential re-file.
3) The CRL raised issues relating to the agency’s pre-approval manufacturing inspection. This inspection was only recently completed.
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 are technical in nature and 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 700 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. In fact, management had previously designed the study prior to the CRL. We believe this study could be conducted with all the data analyzed by the end of the year. We do not believe this is a significant or rate-limiting issue.
The complete response letter was a surprise. Alexza’s phase III program clearly demonstrated AZ-004 to be effective in the rapid relief of acute agitation in patients with schizophrenia or bipolar disorder.
Additionally, with less than 2% respiratory side-effects and no serious adverse events, we believe the safety profile of AZ-004 is sufficient for approval. In our view, three of the four issues raised by the FDA are readily addressable by management at Alexza. The pulmonary safety issue could delay a re-file until 2012 if management has to conduct additional pulmonary safety studies looking at changes in FEV1.
We’ll know more after Alexza meets with the U.S. FDA. No timeline was given for the meeting, although we would be surprised if something could be scheduled prior to the end of the year just given the backlog at the agency. More likely is a meeting in early 2011, with potential studies, be they safety or stability, to be conducted in 2011. Under this scenario, management could re-file for approval during the second half of 2011, with FDA action during the first half of 2012.
Moving to Neutral While We Wait for Additional Updates
Despite remaining big fans of the Staccato device and our belief that management can quickly work through the above four issues with the FDA, we are moving to a Neutral rating on Alexza Pharma while we wait for the next update. Management only received the CRL letter on Friday, October 8th and 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 the second half of 2011. This potentially puts another FDA action on the product during the first half of 2012. We believe that management will delay pushing forward with the planned phase II program on AZ-007 to conserve cash.
Therefore, Alexza’s stock is lacking the major catalysts necessary to drive the shares significantly higher from today. We have adjusted our financial model to account for the delay in milestone and royalties on AZ-004. Our new target is $2.50 per share.
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