Alexza Pharmaceuticals is a rapidly emerging pharmaceutical company focused on the research, development and commercialization of novel proprietary products for the acute treatment of central nervous system, or CNS conditions. All of our product candidates are based on our proprietary technology, the Staccato® system. The Staccato system vaporizes excipient-free drugs to form a condensation aerosol that, when inhaled, allows for rapid systemic drug delivery. Because of the ideal particle size of the aerosol, the pure drug is quickly absorbed through the deep lung into the bloodstream, providing speed of therapeutic onset that is comparable to intravenous (IV) administration but with greater ease, patient comfort and convenience.

Alexza’s lead program is AZ-004 (Staccato loxapine), being developed for the rapid treatment of agitation in patients with schizophrenia or bipolar disease. Alexza is planning to resubmit the AZ-004 NDA in July 2011 and the AZ-004 MAA in Europe in the third quarter of 2011. Alexza has five product candidates in various stages of clinical development.

In 2011:

• In January, Alexza received Food and Drug Administration (FDA) minutes from the End-of-Review meeting held in December 2010 to discuss the AZ-004 (Staccato loxapine) NDA. Alexza also completed a Type-C meeting with the FDA in April in which the draft labeling and proposed Risk Evaluation and Mitigation Strategy (REMS) program for AZ-004 was discussed. The company anticipates resubmitting its NDA in July 2011.
• Results of the pivotal Phase 3 study evaluating AZ-004 for the rapid treatment of agitation in patients with schizophrenia was published in the British Journal of Psychiatry in its January 2011 edition (198:51-58). The pivotal clinical trial involved 344 patients and demonstrated that AZ-004 reduced agitation in patients, regardless of the level of agitation at baseline, and improvement in agitation levels were observed as early as 10 minutes after dosing on the individual standard components of agitation (hostility, uncooperativeness, excitement, poor impulse control and tension).
• In May, Alexza issued an aggregate of 11,927,034 shares of its common stock and warrants to purchase up to an additional 4,174,457 shares of its common stock in a registered direct offering with net proceeds of approximately $15.8 million.
• We have actively been focusing on the infrastructure for commercial manufacturing and global supply chain activities, along with other pre-commercialization activities for AZ-004.

To summarize, our efforts in 2011 are highly focused on what we feel is the key driver of stockholder value – the successful global commercialization of AZ-004. This global commercialization strategy has three significant components and as a result, our 2011 corporate goals relating to this objective are straightforward:

• Re-submit the AZ-004 NDA;
• Submit the AZ-004 European MAA; and
• Complete a transaction or transactions to partner AZ-004 with a strong commercial partner or partners, who share our vision for AZ-004 as a first-in-class, new, anti-agitation product.

Specific to partnering AZ-004, it’s clear that there is strong interest in AZ-004 as a possible commercial product in 2012. To be clear, we are not providing guidance on the timing of possible transactions, but want to update you with the fact that we continue to make progress in ongoing discussions with multiple possible partners for multiple different commercial territories.

We believe we are pioneering a genuinely revolutionary technology that can greatly improve the treatment of many patients suffering with acute and intermittent conditions, and in some cases, fundamentally change the way that medicine is practiced. Our overriding goals are to bring the company’s first product, AZ-004, through the NDA and MAA review and approval processes, while at the same time, finding ways to continue to develop our other product candidates.

Alexza’s Technology Foundation

The heart of the hand-held Staccato® system is a heat package with a stainless steel substrate, onto which a thin film of unformulated drug is coated. When the patient draws a normal breath through the Staccato system, the substrate surface instantaneously heats to create a condensation aerosol. The patient inhales perfectly sized particles of pure drug down into the narrower, more vascularized tissue of the deep lung, allowing fast and more complete absorption into the bloodstream.

We believe our Staccato system matches the delivery characteristics and product attributes to patient needs for acute and intermittent conditions, and also has the following advantages:

Rapid Onset

The aerosol produced with the Staccato system is designed to be rapidly absorbed through the deep lung with a speed of therapeutic onset comparable to an IV injection, generally achieving peak plasma levels of drug in two to five minutes.

Ease of Use

The Staccato system is breath actuated, and a patient simply inhales to administer the drug dose. Unlike injections, the Staccato system is noninvasive and does not require caregiver assistance. The aerosol produced with the Staccato system is relatively insensitive to patient inhalation rates. Unlike many other inhalation technologies, the patient does not need to learn a special breathing pattern. In addition, the Staccato device is small and easily portable.

Consistent Particle Size and Dose

The Staccato system uses rapid heating of the drug film to create consistent and appropriate particle sizes for deep lung inhalation and absorption into the bloodstream. The Staccato system also produces a consistent high emitted dose, regardless of the patient’s breathing pattern. Studies have shown that devices employing the Staccato system emit >90% of the loaded drug as a small particle size aerosol, characterized by an aerosol mass median aerodynamic diameter (MMAD) of between 1µm and 3µm.

Broad Applicability

We have screened over 400 drugs, and approximately 200 have exhibited initial vaporization feasibility using the Staccato system. The Staccato system can deliver both water soluble and water insoluble drugs and eliminates the need for excipients and additives such as detergents, stabilizers and solvents, avoiding side effects that may be associated with the excipient or additives.

Design Flexibility

The Staccato system can incorporate lockout and multiple dose features, potentially enhancing safety, convenience of patient titration and a variety of administration regimens.

Currently we have six development programs underway and, as we look beyond these programs, we are optimistic that our proprietary technology will support a wide array of new therapies targeting acute and intermittent conditions.

The Staccato® system comprises the rapid vaporization of a drug to form a small particle aerosol optimal for systemic delivery through inhalation. These aerosols are systemically absorbed very rapidly, with peak plasma blood levels obtained in the first few minutes after administration. Thus, the Staccato system enables rapid onset of action for many drugs.

Thermal Aerosols

The key to our proprietary technology is vaporization of drug without thermal degradation, which is achieved by rapidly heating a thin film of the drug. In less than half a second, the drug is heated to a temperature sufficient to convert the solid drug film into a vapor. Because the duration of drug heating is so brief, thermal decomposition is minimal. After vaporization, the drug cools rapidly in air, condensing into pure drug aerosol particles of near ambient temperature. The Staccato system consistently creates aerosol particles averaging one to three microns in size, which is the proper size for deep lung inhalation. The Staccato system also produces a consistent high emitted dose, regardless of the patient’s breathing pattern.

Device Elements

The Staccato device consists of three core components: a heating substrate, a thin film of unformulated drug coated on the substrate, and an airway through which the patient inhales. The left panel below shows these core components before patient inhalation. The right panel shows the device components during patient inspiration: the substrate is heated to peak temperature in < 0.5 seconds after start of patient’s inhalation, which vaporizes the drug in less than 1 second. The drug cools and condenses into a pure drug aerosol. While the patient inhales through the device, the drug aerosol is drawn through the patient’s mouth and into the lungs where it diffuses into the circulation for a rapid systemic effect.

Staccato system is breath-actuated and a patient simply inhales to administer the drug dose. A special valve in the inhaler airway controls airflow over the vaporizing drug to achieve appropriate aerosol particle size. The aerosol produced with the Staccato system is relatively insensitive to patient inhalation rates. To use these inhalers, a patient simply removes an inhaler from its packaging, places the device to his or her lips, and takes a deep breath. Unlike many other inhalation technologies, the patient does not need to learn a special breathing pattern. In addition, the Staccato device is small and easily portable.

Pharmacology and Rapid Onset

The aerosol produced with the Staccato system is designed to be absorbed rapidly through the deep lung, with a speed of therapeutic onset comparable to IV administration, generally achieving peak plasma levels of drug in two to five minutes, which is much faster than oral tablet delivery. In vivo pharmacokinetic studies in an animal model conducted with a commercially available migraine drug show that the Staccato system results in more rapid absorption than subcutaneous injection or oral administration. Pharmacodynamic studies with the same migraine drug demonstrate an onset of action of less than one minute as shown in the graph below.

Consistent Dose and Particle Size

The Staccato system uses rapid heating of the drug film to create consistent and appropriate sizes for deep lung inhalation, rather than mechanics or preformed drug particles, to create drug aerosols. The Staccato system produces a consistent high emitted dose regardless of the patient’s breathing pattern.

Broad Applicability

Approximately 200 drug compounds have exhibited initial vaporization feasibility with our Staccato system. The Staccato system can deliver both water soluble and water insoluble compounds while eliminating the need for excipients and additives such as detergents, stabilizers and solvents, enabling the delivery of unformulated drug.

Design Flexibility

The Staccato device can incorporate lockout and multiple dose features, potentially enhancing safety, convenience of patient titration and a variety of administration regimens.

We are currently developing two versions of our Staccato device

Disposable Single Dose. The single dose version consists of a metal substrate that is chemically heated through a battery initiated reaction of energetic materials. We have designed the single dose version to meet the specific requirements of our AZ-001, AZ-002 , AZ-004 and AZ-007 product candidates. In the current design, the heat package can be coated with up to 10 milligrams of drug compound. The device is portable and easy to carry, with dimensions of approximately three inches in length, two inches in width, and three quarters of an inch in thickness. The device weighs approximately one ounce.

Multiple Dose. The Staccato system multiple dose version consists of a reusable controller and a disposable dose cartridge. We have designed the multiple dose technology to meet the specific needs of our AZ-003 product candidate. The dose cartridge contains up to 25 separate metal substrates, coated with the drug, each of which rapidly heats upon application of electric current from the controller. In the current design, up to 100 micrograms of drug compound can be coated on each metal substrate. The device is portable and easy to carry, with dimensions of approximately five inches in length, two and one-half inches in width and one inch in thickness. The controller weighs approximately four ounces and the dose cartridge weighs approximately one ounce.