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Alexza Pharma: Run-Up Trade Into December's Approval Decisions

Tickers in this article: ALXA

NEW YORK ( TheStreet) -- Biotech traders have the unique opportunity to trade a company multiple times for the same indication. Such is the case with Alexza Pharmaceuticals (ALXA) and the Dec. 21 FDA approval decision date for Adasuve, an inhaled formulation of the anti-psychotic drug loxapine. European regulators are likely to make an approval decision known in the same time frame.

There are a few factors that set up Alzexza to be a very interesting trade over the next few weeks.

Low Float: Alexza recently completed at 10-for-1 reverse stock split, necessary to raise the company's share price to meet minimum Nasdaq listing requirements. This reverse split dramatically reduced the size of Alexza's float down to 15 million shares outstanding. The lower the float, the quicker the stock can move.

Reasons for initial FDA rejection: Alexza management has been candid in discussing the reasons FDA rejected Adasuve last May. I'm usually cautious when interpreting the way management discusses FDA communications, but in this case, Alexza has been very specific. Here's what Alexza Senior Vice President of R&D Jim Cassella said recently:

The issue that the FDA noted was an inspectional issue, so that was the only thing really in the letter. We addressed the issues with the CDRH reviewers who had raised the issue and then we responded to their questions. We resubmitted the NDA, which is basically a labeling resubmission. . . So there is not a lot of work left to do. We believe that we have addressed the inspectional issues and we have resubmitted the pretty advanced draft of the label and we have probably a little bit of work left to do on some of the REMS documents.

Alexza believed these deficiencies were related to the Adasuve inhaler device and readily addressable. Importantly, FDA didn't raise any new clinical or safety issues.

Price: Alexza opened 2012 trading at $10 per share after reaching a high of over $18 in 2011. The day after FDA rejected Adasuve in May, Alexza closed at $4.80 (split adjusted.) The stock's current price is still below this level, with a market cap of only $67 million.

Cash position: In July, Alexa announced a new committed equity financing facility with Azimuth Opportunity which replaced a similar agreement that expired in June. The $20 million financing facility is expected to provide adequate capital beyond the FDA and EU approval decisions expected in December. Since July, Alexza has tapped this funding source three times to raise $13.6 million. Azimuth can immediately flip the shares they buy in these financing on the open market.

Multiple Catalysts: Not only does Alexza have a Dec. 21 FDA approval decision date, but the company is also up for European approval around the same time. In its third-quarter release, Alexza said European regulators had identified two major issues in their 180-day review letter. Concerns about these issues caused Alexza's stock price to fall as low as $3.78 per share. Last Monday, Alexza said the issues raised by European regulators had been resolved, putting the company on a fast track to regulatory decision in December. I expect European regulators will announce a decision on Adasuve on Dec. 15 following their December 10-14 meeting.

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