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Teva Pharmaceutical Industries Ltd.’s (TEVA - Analyst Report) subsidiary, Teva Pharmaceuticals USA, Inc., recently entered into an exclusive licensing and supply agreement with Alexza Pharmaceuticals, Inc. (ALXA).

The agreement is regarding Alexza’s Adasuve (loxapine) inhalation powder (10 mg) which is approved for the acute treatment of agitation associated with schizophrenia or bipolar I disorder in adults.

Terms of the Deal

Under the terms of the deal, Teva will be responsible for all commercial and clinical activities related to Adasuve in the US including post-approval studies. Teva also has the right to evaluate Adasuve for new indications in neurological disorders. Alexza, in turn, will provide Teva with Adasuve for commercial sales as well as clinical studies.

Financial Details

Teva will make a $40 million upfront payment to Alexza. Moreover, the company may pay up to $195 million on the achievement of milestones like the successful completion of post-approval studies and the achievement of net sales targets. Alexza will also be entitled to receive tiered royalties on net commercial sales of Adasuve.

Additionally, Alexza may borrow up to $25 million from Teva through a five-year convertible note and an agreement to lend. These funds will be available to Alexza for Adasuve-related activities.

Adasuve gained US approval in Dec 2012 and EU approval in Feb 2013. While Teva will be Alexza’s commercial partner in the US, Grupo Ferrer Internacional, S.A. is partnering Alexza in Europe, Latin America, Russia and the Commonwealth of Independent States countries.

Our Take

We view this deal as a major positive for Alexza. Teva, which has a presence in hospital and psychiatric markets, should make a strong marketing partner for Alexza. However, Teva will have its work cut out in promoting and marketing Adasuve – the product’s label carries boxed warnings. Patients who are currently being treated with injectable formulations of other antipsychotic drugs or oral, orally disintegrating tablet and liquid formulations of other antipsychotic drugs will have to be convinced to switch over to Adasuve. Adasuve will most likely be launched in the US in 2013.

Both Teva and Alexza are Zacks Rank #3 (Hold) stocks. Currently, companies like Santarus, Inc. and Jazz Pharmaceuticals (JAZZ - Analyst Report) look attractive with both being Zacks Rank #1 (Strong Buy) stocks.

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