Alexza Pharma Outlook Cautious
We are enthusiastic on Alexza Pharmaceuticals, Inc.'s (ALXA) proprietary novel Staccato system that reformulates oral or injectable small molecule compounds into an inhalable aerosol. Preliminary data on AZ-001 (migraine) and AZ-004 (agitation in schizophrenia) looks encouraging, but the company still has to complete phase III trials before we proclaim either a success. Our rating is Hold.
Funding operations doesn't seem to be an issue for now. Alexza probably has enough cash to fund its development programs into the first quarter of 2010. But the only clinical stage candidate we expect to be on the market in 2011 is AZ-001. The company could be in position to file with AZ-004 in 2010 / 2011, so by 2012 both AZ-001 and AZ-004 could be on the market.
The stock took a big hit after the failure of AZ-002 candidate for panic attacks associated with panic disorder. At this time we think investors can be patient with Alexza. Upside over the next few quarters could come from the announcement on a partnership for any of the pipeline candidates. In the meantime, we see $7 as fair value.
Risk/Reward Good for Abbott Labs
We feel despite a few challenges ahead for Abbott Laboratories (ABT), there is significantly more to look forward to than there is to worry about. We expect double-digit EPS growth through the end of 2012, driven by strong sales of key drug Humira, for inflammatory diseases, and the company's rapidly growing vascular business. We remain excited about the company's late-stage line-up, of which a number of candidates should make it to market in 2008.
Humira is quickly becoming the anti-TNF drug of choice, gaining sizable market share and we believe the drug could eclipse $7 billion in sales by 2012. Also, Abbott is now a major player in the drug-eluting stent space with XIENCE V, which should eventually command significant market share. Abbott has made a slew of transactions over the past 18 months that should contribute meaningfully to growth in 2008 and beyond.
Abbott currently trades at 16.6x our 2008 EPS estimate of $3.25. While considerably more expensive than the industry average of 13.6x, we believe the premium is warranted. We believe ABT offers potentially the strongest combination of growth and relative risk in all of the large-cap pharma space.
