ALXA's Symphony Allegro Squeeze

Management at Alexza Pharmaceuticals (ALXA) is focused on completing the necessary non-pivotal safety and supportive work, as well as the chemical and manufacturing scale-up on AZ-004 in preparation of the planned NDA filing in early 2010.

The only clinical trial program that will run in 2009 is the recently initiated phase IIb program on AZ-104. No clinical work is being done on AZ-007 or AZ-001 at this point. Besides the preparation that is being done for the AZ-004 new drug application (NDA), management will also focus on partnering opportunities for AZ-004 and AZ-001.

The company exited 2008 with $23.1 million in cash and investments. Symphony Allegros held another $17.6 million in cash. Funding operations doesn’t seem to be an issue for now. Alexza probably has enough cash to fund its development programs into the second quarter of 2010.

We are pleased that Alexza has retained exclusive rights to its products through collaboration with Symphony Capital Partners. However, Alexza will need to re-purchase the intellectual property for both candidates in the future from Symphony Allegro, Inc. Based on the end of the first quarter, this will cost the company $92 million. And the price is only going higher each quarter at a rate of 27% per annum. This remains the biggest concern to owning the stock.

Will Alexza get enough from a new development partner to pay off Symphony Allegro and fund its own operations?

At this time, we think investors can be patient with Alexza. We simply do not see how this stock trades higher, knowing that every quarter the Symphony Allegro buy-out price is going up and up. We think there is real value in AZ-004 and AZ-104, but Alexza will need somewhere around $120 million to repurchase all its assets from the joint venture by this time next year.

Meanwhile, the current market value is only $56 million. This is a Symphony Allegro squeeze, and it’s killing the stock. Our rating is a nervous Hold.

Read the full analyst report on ALXA