Awaiting inflection in Adasuve volumes
Alexza's (NASDAQ:ALXA) investment case continues to rest on the commercial prospects for Adasuve, a rapid-inhalation treatment for acute agitation in adult schizophrenia or bipolar disorder patients. Adasuve offers speed and dosing reliability advantages in treating acute agitation. Although we have lengthened the sales ramp-up timeline given the 9m14 revenue pace, our 20% peak market share assumption remains unchanged. Given a slower sales ramp up than expected, we expect Alexza will need to raise $20m in capital in H215 to fund operations. Our new equity valuation of $3.67/share (from $4.71 previously) does not reflect this funding gap or requirement.
Adasuve’s rapid time to effect a key advantage
Adasuve’s rapid time to therapeutic effect (10 minutes) vs intramuscular drugs (30-90 minutes) or oral forms (>60 minutes) commonly used for acute agitation is a substantial advantage given the risk of physical injury or property damage with agitated patients in whom agitation is escalating. Conventional treatment options are either slow to act or invasive, and are often dosed in combination.
9m14 sales signal a longer pathway to peak sales
9m14 product sales were $1.6m and largely consisted of initial inventory stocking for its partners (Teva Pharma Industries Ltd (ARCA:TEVA) and Ferrer). Alexza projected no Q414 inventory shipments, but expects resumption in Q115. Part of the unevenness in order flow results from the administrative processes (potentially taking several months) needed for a hospital to start using Adasuve. Hence, we have pushed back our sales ramp forecasts, but still believe that 2020 global sales can approach $400m worldwide.
Alexza advancing AZ-002 and Staccato ropinirole
Alexza started a Phase IIa trial in January 2015 for AZ-002 (Staccato alprazolam) in acute repetitive seizures in epilepsy patients. Staccato ropinirole is also in preclinical stages for restless legs syndrome and Parkinson’s hypomobility.
Valuation: rNPV of $95.0m, upside from new products
We calculate an rNPV for Adasuve and AZ-002 at $95.0m (vs $97.7m previously), as we have scaled back our near- to intermediate-term Adasuve penetration forecasts. Including $22.6m in net debt (at Q414e) gives a $3.67 per share overall valuation for the firm. Given a slower sales ramp, we expect Alexza to raise $20m in capital in H215. The successful development of preclinical Staccato product candidates (eg ropinirole or AZ-002) could add upside to our valuation.
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