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Chelsea Therapeutics International Ltd. (NASDAQ:CHTP)

Q4 2008 Earnings Call

March 04, 2009 11:00 AM ET

Executives

Kathryn McNeil - Investor Relations

Simon Pedder, Ph.D. - President and Chief Executive Officer

J. Nick Riehle - Vice President, Administration and Chief Financial Officer

Analysts

Brian Abrahams - Oppenheimer & Co

Andrew Vainos - Roth Capital

Operator

Good day everyone and welcome to the Chelsea Therapeutics International Financial Results Conference Call. Today's conference is being recorded. At this time for opening remarks and introduction, I'd like to turn the call over to Ms. Kathryn McNeil. Please go ahead ma'am.

Kathryn McNeil

Thank you. Good morning and welcome to Chelsea Therapeutics fourth quarter and full year 2008 conference call. Joining me from Chelsea Therapeutics is Dr. Simon Pedder, President and Chief Executive Officer and Nick Riehle Chief Financial Officer.

Before we begin, I would like to take a moment to remind everyone that during the conference call members of Chelsea's management team will make certain forward-looking statements regarding the company's future plans and anticipated outcome that involve risks and uncertainties that may cause the actual results or outcomes to be materially different from those anticipated and discussed on this mornings conference call.

Forward-looking statements made on the call are made pursuant to the Safe Harbor Provisions of the Federal Securities Laws. Information contained in the forward-looking statements is based on our current expectation that is subject to change and actual results may differ materially from these forward-looking statements. Chelsea does not undertake to update such statements to reflect any changes to events or circumstances that may materially effect the company's expectations after the date of this conference call.

Factors that could affect actual events or results to differ include our need to raise operating capital, our history of losses, risk and cost of drug development, risks of regulatory approvals, our reliance on lead drug candidate, Droxidopa and CH-1504, reliance on collaborations and licenses, intellectual property risk, competition, market acceptance for our products if any are approved for marketing, and our reliance on key personnel including specifically Dr. Pedder.

These and additional risks are discussed in Chelsea's filings with the SEC. These documents are available on the company website and we encourage you to review them carefully. With all that said, I'd now like to turn the call over the Dr. Simon Pedder. Go ahead Simon.

Simon Pedder, Ph.D.

Good morning and thank you all for participating in today's call. 2008 was both a busy and productive year for Chelsea. And I'm looking forward to reviewing some of our achievements from the past year. But I'm also more excited to address how this positions us for some key milestones in 2009.

We are players in the coming year to deliver a remarkable series of data related to a robust pipeline, spanning multiple therapeutic areas. In fact, this process began in earnest this week with the release of some highly positive data demonstrating the robust benefit of drugs available in treating intradialytic hypotension. This was an incredibly rich data set, and we will get to some additional details on these results shortly.

But this was just the first in our series of results expected for 2009. We continue to look forward to much anticipated read-out from our Phase II proof-of-concept study of CH-1504 in rheumatoid arthritis, as well as results from an ongoing Phase I of CH-4051 all fast forward from this portfolio.

And of course the most significant milestone in 2009 will be the results of both of our ongoing pivotal Phase III studies of Droxidopa in neurogenic orthostatic hypotension and the subsequent submission of Chelsea's first new drug application.

Before I get into the details however, I'll ask Nick to get it started this morning with a brief discussion of our financials for the full year, including the most recent quarter. Nick?

J. Nick Riehle

Okay, thanks Simon. Good morning everyone. Before we take you through the financial results this morning, I would like to spend just a few minutes updating you on the recent developments related to our holdings in the student loan backed auction rate securities. During our third quarter call in November we announced that we had received a prospective detailing final settlement terms related to the 11.6 million in auction rate securities maintained at UBS.

As outlined in that settlement, we were entitled to draw on a line of credit based on a percentage of market value as determined by UBS. Under the terms of that settlement, we drew down $7.3 million in December. Also under the terms of that settlement, we are entitled to sell our ARS to UBS at the full par value starting at June 30, 2010. And with the signing of the settlement agreement in the fourth quarter these rights became recognizable as an asset. The impaired value of the ARS added to the value of these rights totaled 11.3 million, or nearly the full value of the underlying asset.

Because these ARS are not intended to be traded prior to June 2010, and because the loan was not expected to be repaid until that same date, both are treated as long-term items in our financial statements for December 31st. Earlier this week we were able to amend our settlement and loan agreement with UBS to allow us to extend the line of credit from the initial 7.3 million to 11.575 million. We expect to draw down the additional amount within the next several days.

Turning now to our ARS held with Banc of America, at December 31, 2008 our ARS holdings at that bank were 14.5 million which were valued at 10.3 million net of impairment. We continue to see small redemptions from these holdings from time-to-time and during January we were able to sell one of our holdings on the secondary market at 83% of face value. As a result of these redemptions in the secondary market sales, the par value of our Banc of America Holding as of today's date is approximately 11.8 million, with the book value of about 8 million or 68%. We believe we can sell these assets on a secondary market within a workable timeframe at prices at or near our current valuation. These securities are listed on the secondary market and in any point we will consider reasonable offers such as the bid that regular sale made in January.

However, we are also working closely with Banc of America, who has committed to the SEC to make best efforts to provide liquidity to companies like Chelsea during 2009. We believe this is the best opportunity to achieve the greatest value from these assets, and we continue working this approaches longer the relationship with Banc of America remains encouraging and as long as we retain adequate run rate for secondary market sale.

Okay, we provide a lot of details in accounting jargon when we go through this but we'd like to summarize this and summarize the progress in achieving liquidity from ARS in a way that pulls us all together. You may recall that when the student loan ARS auction ceased to operate in the first quarter of 2008, we had 26.5 million in ARS assets at par value. Since that time we have sold more than 6.6 million of these assets at par value through routine redemptions.

So 2.5 million worth of ARS at an 83% discount for proceeds of 2.1 million and secured a line of credit for 11.6 million. This totals 14.3 million of re-cash liquidity and represents more than half of the par value of our total Q1 holdings. We remain confident that we can successfully liquidate our remaining holdings at or near the $8 million valuation.

Turning now to our financial results for the fourth quarter and for the full year of 2008. For the quarter, we had a net loss of $9 million or $0.30 per share compared to a net loss of $4.8 million or $0.18 per share for the comparable period in 2007. Net loss for the quarter includes the recognition of an impairment charge of approximately 2.7 million offset by recognition of an asset related to the ARS PUT (ph) rights with UBS of approximately 2 million resulting in a net charge of $0.7 million or $0.02 per share related to our holdings in auction rate securities.

Net loss for the full year December 31, 2008 was $35.1 million or $1.17 per share compared to a net loss of $15.1 million or $0.66 per share for the prior year. The net loss for 2008 includes the recognition of impairment charges totaling 6.4 million offset by the recognition of the asset related to the ARS PUT right with the UBS of 2 million for a net expense of 4.4 million. Excluding this expense Chelsea's net loss on a non-GAAP basis for the year-end of December 31 of 2008 was 30.7 million or $1.2 per share.

Research and development expense for the fourth quarter 2008 were 7.2 million compared to 4.4 million for the same period in 2007. For the year-end December 31st research and development expenses were 27.1 million versus 12.3 million for the prior year. Assets indicate that over the last several quarters the higher R&D expense reflects increases in the overall level of clinical activity and particularly the impact of our Droxidopa development program.

Selling and general expenses were 1.3 million for the three months ended December 31st compared to 1.1 million of the same period of 2007. For the year-ended December 31st selling and general administrative expenses increased to 5.3 million from 4.2 million for the comparable period in 2007.

We ended the quarter with 43.2 million in cash and investments which includes 21.5 million in cash and cash equivalent. 19.7 million in investments net of impairment and 2 million related to the UBS rights. This compares to 62.7 million in cash and short-term investments consisting of 34.1 million in cash and cash equivalent and 28.6 million in short-term investments as of December 31, 2007.

With the strategy we have implemented to gain liquidity on our remaining liquid ARS, we're confident that this provides us with the necessary capital to fund our planned clinical activities through significant milestones and into the fourth quarter of 2009. This assumes no new discretionary development programs or Droxidopa commercialization during that timeframe.

I'll now turn the call over to Simon to review our recent clinical development.

Simon Pedder, Ph.D.

Thank you, Nick. Like most companies these days, we are highly sensitive to the current economic climate, particularly as it relates to the capital markets. With this in mind, we have been more critical than ever in determining both essential costs and measures we can undertake to judiciously preserve capital while continuing to build both short and long term value for the company and our shareholders.

We are fortunate of this juncture to have both a number of clinical trials at or nearing completion and several discretionary programs that are not on critical path for our lead indications. And as Nick just mentioned, both allow us to temper or burnt to some extent in the coming quarters and help ensure that our current working capital is sufficient to see us through significant data points in 2009, including results from our Phase II study in rheumatoid arthritis and our Phase III program in neurogenic orthostatic hypotension.

With that said, and these considerations in mind, we continue to have a lot of exciting programs under development and I would like to begin our review with Intradialytic Hypotension or IDH. As this was our active clinical trial in 2008, and now has provided us with our first significant data set in 2009.

As we reported earlier this week, we recently concluded our Phase II trial of Droxidopa in this indication. And we're rewarded with multiple highly significant findings. This trial was designed to be exploratory in nature to both salivate the prior clinical findings from by Dainippon Sumitomo and assist us in determining potential end point and appropriate powering for future trials. As such, we were extremely pleased that Droxidopa demonstrated statistically significant benefit across multiple clinically relevant assessment criteria.

The fall in blood pressure during dialysis or IDH is typically characterized to support our 20 millimeters of mercury or greater in systolic blood pressure. And is the most common adverse event during routine hemodialysis affecting more than 20% or more of all dialysis patients with symptoms which include headache, lightheadedness, nausea, cramps, and seizures often resulting in a dialysis session needed to be terminated.

Often these patients are so hypertensive for many hours following dialysis requiring additional care at the dialysis facility before they can be discharged. In this indication the most significant evaluation parameter for IDH will likely be based on the clinical benefit demonstrated rather than a blood pressure measurement. So while we did not achieve a meaning change in the mean arterial blood pressure, the primary end point in this study, we do not consider this to be particularly relevant to future trials.

As clearly the FDA, as we later learned in discussions with the FDA during our neurogenic orthostatic hypotension program, had insisted on trials demonstrating clinical benefit. This clinical benefit translate directly into the decreased number of treatment interventions and more importantly the reduction in the number of dialysis sessions prematurely terminated as a result of IDH. In our study among the numerous benefits we saw a highly statistical significant reduction in early dialysis terminations. And in fact an 87.5 decrease in session terminations compared to baseline for the patients in the highest arm in terms of milligram.

I cannot underscore enough the importance of this clinical outcome as it not only reflects a strong symptomatic response which is obviously appearing in benefit for the patients. But it is directly tied to the -- dialysis by allowing the procedure to run as scheduled through its completion. Thereby providing a clinical benefit with significant ramifications beyond the treatment of the symptoms associated with IDH.

Now this outcome was further supported by statistically significant improvements in two important blood pressure measurements. The reduction and severity of blood pressure drops, (inaudible) experienced during dialysis. And the improvement of -- in post-dialytic blood pressure compared to pre-dialysis blood pressure within 5 minutes of pleading a dialysis session. Both offer a sound physiological rationale for the symptomatic improvement demonstrated by both the 400 milligram and the 600 milligram arms of the study and more importantly offered meaningful clinical benefit to the patients.

As I have mentioned this was an exploratory study with numerous secondary end points and we are still in the process of going down to the full depth of these findings. Once we have completed this process we will plan to consult with the FDA regarding the most appropriate clinical path including the size and appropriate end points for a future study into this indication given the extensive bio clinical data generated by Dainippon Sumitomo during the development and the commercialization of Droxidopa and its indication. Given the robustness of the efficacy and the last of FDA approved treatments in this indication.

IDA represents a very appealing commercial opportunity and we look forward in the coming months to re-filing our future development plans and all market opportunity with Droxidopa and IDH.

Now, while IDH may have been our first Droxidopa trial to be completed, undoubtedly it is the development of Droxidopa for the treatment of symptomatic neurogenic orthostatic hypotension or NOH that has taken center stage, proving to be a key value driver for the company in 2008.

As you know the clinical trials for this program got away -- underway early in 2008 with initiation of Study 302 in February. This was no small effort as we implemented a comprehensive strategy to initiate a relatively high number of centers and taking a very hands on approach to educating each of our investigators and clinical staff about the very specific requirements for the study.

In parallel to the early initiation efforts, we were working with the FDA to finalize a special protocol assessment or SPA for Study 301 and submitting an application for fast track designation.

In mid-year, we were granted fast track designation for this indication. And by September, enrollments in our second study, Study 301 had begun under the FDA previously granted by the FDA.

Of course, while this obviously took out a significant portion of our development efforts in 2008, it is also positioned just for arguably the most significant data and catalyst in 2009, as we look to complete enrollment in both studies and file our first new drug application late this year.

As a result, I'd like to spend the few minutes reviewing the program, the strong data it has generated today, and what we are anticipating in the coming months. This phase III program is highly unique for a number of reasons. First, it is the pivotal program and indication with known safety and efficacy, as proven by its approval and market dominance in Japan. It consists of two very similar studies, each incorporating an open label titration that allows us to screen for responders prior to randomization. Both studies are short in duration, less than five weeks and will require a relatively modest number of patients, approximately 200 total for both studies combined.

Now despite these broad reaching similarities, there are a couple of key areas where they do in fact differ. Studies 302, the majority of which is being conducted in U.S. centers, and building competitive interactions with the FDA, has fewer regulatory hurdles to initiate individual study centers.

However, Study 302 also involves a full day of pharmacokinetic sampling, and is a weak longer in duration, making it by comparison, a little bit more erroneous study from a patient perspective and consequently slower to enroll from our perspective.

Study 301 is being conducted under a special protocol assessment with the FDA, which while fantastic from a regulatory perspective and a significant de-risking component to the program, means that we have had less flexibility to consider it even minor protocol changes. These differences are critical factors as we look to what will shape over the next coming months for this program.

Now, most notably, while the Study 301 started more than six months later than Study 302, and we decided not to change any components of our protocol because of the SPA. Study 301 faced numerous delays associated with the regulatory and ethics approval needed for site activation in the nine countries outside of the U.S. We have been very pleased to see a faster rate of enrolment compared to Study 302 and have been expecting Study 301 to be completed shortly on the heel of Study 302.

While the enrollment for this study has been solid and we expect it to continue to make up lost ground, we do not believe the Study 301 can fully catch up to Study 302 and now believe that recruitment will extend beyond Q2. That said there are several variables that will ultimately contribute to the timing of Study 301, perhaps the most significant one will be as a point at which we complete enrollment in Study 302 and then are able to switch centers and final potential patients for 302 into Study 301.

The additional resources, investigators, and centers applied to Study 301 which obviously further accelerated enrollment. As such the extent to which 301 enrollment is extended is somewhat dependent on the progress in Study 302. While I recognize that this is somewhat ambiguous I hope to be able to give you greater clarity during our next conference call in May.

As you know we have had the unique opportunity to review and report preliminary SEC filings from the open label dose titrations of Study 302 and have been very pleased to report the robust effect demonstrated by study responders thus far. Just a few weeks ago we've released a second set of titration data.

Highly consistent to what was reported in November we saw a very robust response on the orthostatic hypotension system assessment scale or OHSA, the primary outcome measure for both pivotal programs. The data continued to show greater than a four unit improvement on the OHSA scale which is obviously substantially above the 1.6 unit improvement that the study is powered to show.

In addition to looking at the titration response from Study 302, we also had our first look at data from Study 301. And while we have not yet announced any 301 titration data, I can assure you that even at the first look, 301 appears to be yielding a similar robust response during titration. Furthermore, in looking at the statistical parameters for Study 301, we were able to confidentially -- confidently tighten the standard deviation variable for Study 301 from 3 units to 2.5 units.

The most significant outcome of the adjustment was the impact it had on a number of patients required for randomization and to Study 302, ultimately reducing this clinical trial sides from our 118 to 82 patients. Following this announcement and further review of the data from both 301 and 302, particularly of course the statistical analysis, we have continued to focus our thinking with respect to our auction to conduct an interim analysis in Study 302. And while we have not made a final decision, the likelihood has increased, and the impact sufficient being material that we felt it warranted a discussion with you today at this juncture.

Should the titration data continue to be as robust as previously indicated, we believe it may be possible to achieve the necessary statistical significance with even fewer than the 482 patients in Study 302. Our current thinking is by slightly increasing the number of patients included in the interim analysis. We'll be able to hit our required endpoint based on the interim analysis. Should this be the case, we could then stop further recruitment in to Study 302. Of course should for any reason the data not come in as expected during the interim, the trial would simply continue to recruit the patients to completion.

Now, should this analysis go well, it would mean that in addition to completing 302 next quarter, we may well be in a position to report data from this study earlier than previously estimated. While this report has the potential to accelerate the availability of data from Study 302, it is not inherently a short process.

To increase the likelihood of success, we would likely increase the numbers of patients to be included in interim analysis and as a potential indicator of study completion in a pivotal program, the time and added scrutiny involved in the data monitoring, cleaning and review, and full analysis for the interim would be greater than day for our Phase II study. As a result, there would likely be a similar delay in reporting results up in intern analysis similar to what you would see in the preparation engine and forward reporting of a full study.

Unfortunately, unlike the study run to completion, we won't know we have completed enrollment until we have final results in the study. That's a rate of unsure we can all live with.

As I indicated, the final determination and planners for the interim analysis have not yet been finalized. There is the potential outcome clearly impacts both the potential timing of final data 4, Study 302, and in term the timing related to the completion of the 301 enrollment. I felt there was a significant variable with outlining for you today and one we expect to have more granular detail on our next conference call.

Now turning our attention to some of the long-term potential for Droxidopa, we were very pleased in the past year to gain approval from the UK Health Authority to initiate our Class evaluating the safety and the efficacy of Droxidopa in fibromyalgia. While certainly more of an exploratory proof of concept trial than our Droxidopa studies in either NOH or IDH, we remain very excited about development prospects and have watched with great interest as multiple selective norepinephrine re-uptake inhibitors have continued to demonstrate clinical benefit in fibromyalgia as we believe that it only strengthens our contention that Droxidopa, a well tolerated norepinephrine pro drug holds sustained promise in this growing indication. This trial began enrolling patients early this year and we continue to add study sites to the program within the UK.

2008 results was a pivotal year for antifolate development program. As we initiated, they are multi-center, multinational proof of concept trial through equity compared in the efficacy and the safety of CH-1504 to methotrexate in 200 methotrexate naive patients. This study progressed constantly through the year and late in the third quarter we were able to report an independent Data Safety Monitoring Board met to review the data related towards the first 100 patients in our Phase II trial. And based on their evaluation of the safety and efficacy data generated today recommended that study continue to completion as planned.

Shortly thereafter in the fourth quarter we completed all enrollments in the study and I am of course happy to report to you today that the trial has been completed and we are eagerly anticipating top line results within the next two weeks.

As you're well aware the RA market is the highly competitive space. However, a significant number of both the approved drugs for rheumatoid arthritis and those under development continue to demonstrate their best efficacy when given in combination with methotrexate.

As a non-metabolizable analog of methotrexate, CH-1504 and our portfolio of antifolates have consistently demonstrated a superior safety profile while achieving equal if not superior efficacy to methotrexate. As such, a successful outcome in our Phase II trial demonstrating superior tolerability while maintaining meaningful clinical benefits in RA would be a significant win, not just for CH-1504, but each of our compounds in this portfolio as it would truly open the door to significant market opportunity and have the potential to change the treatment paradigm for rheumatoid arthritis.

In addition, to the clinical activity associated with our Phase II study in RA; we also made significant progress in characterizing the preclinical benefit of CH-4051, the second molecule on the antifolate pipeline.

Early in 2008 we reported data showing the impressive potency of CH-150... sorry CH-4051 in preclinical RA models. These results demonstrated the potential for statistical -- for significantly enhanced potential potency over methotrexate and perhaps more surprising and exciting despite its increased potency in the toxicology work we have conducted continues to suggest that CH-4051 like CH-1504 contains a highly favorable tolerability profile.

As a result we had selected CH-4051 to be the second molecule from our antifolate pipeline to enter clinical testing. And in the fourth quarter of 2008, we initiated our Phase I study of CH-4051 consisting of both single ascending and a multiple ascending dose evaluations in healthy volunteers. This study is expected to be nearing completion, in fact we have completed dosing our final cohort in the multiple ascending dose last week. And expect to report data from this trial early in the second quarter of next year.

These results combined with results from our Phase II trial in RA makes it particularly exciting period for our antifolate program and I also look forward to having the opportunity to speak in the near, very near future as these results become available.

So as you can tell 2008 was indeed very busy and an exciting time at Chelsea. We initiated five clinical trials and completed enrollment of two of them. Further as a results of the hard work and effort put forward by our entire clinical team we are now in position to be looking forward to results from all five of these trials in the coming year.

Further as Nick detailed to you we remain fully funded through each of these inflection plans. Given the height and level of clinical activity and some significant data points on the horizon, I expect some of you may have questions. So at this point, I'd like to turn over the call to the operator for Q&A.

Question-and-Answer Session

Operator: Thank you sir. (Operator Instructions). And we'll take our first question today from Brian Abrahams of Oppenheimer.

Brian Abrahams - Oppenheimer & Co

Hi, thanks very much for taking my question and congratulations on all the progress.

Simon Pedder, Ph.D.

Thanks Brian.

Brian Abrahams - Oppenheimer & Co

I wanted to drill down a little bit more on the interim -- the potential for an interim analysis in Study 302, and I was hoping maybe you could just clarify what -- how many patients would potentially be in the interim analysis, what would the powering be on that interim look, would there be a certain P value required to potentially stop the study, and what would be the timeline that we should, when we should expect that to happen. Is that something you're planning to announce or just conduct internally?

Simon Pedder, Ph.D.

Well if you can appreciate, what we're required to do is submit a statistical plan that is going to present our concept to the agency for them to comment on with regarding the interim analysis, the number of patients, the statistical power that the interim analysis would have and what the effect would be on the final statistical power for the completed study. Until we get feedback from them and we have clarity, I don't want to state a number or a power until we get agreement with them.

That said, we have submitted the protocol amendment to the FDA. We will be talking to them in the near future and when that happens we can certainly clarify it with you. But I could state that standard here that you look at, looking at a power of an interim analysis at a level of say 0.01 P value, whereby you would have an effect on your final P value which normally of course will be 0.05 but than it would change to 0.04. But based on the robustness of the effect so far, we have a pretty good idea of what the power will be required to show a difference and feel pretty confident, that the -- even if we do an interim analysis that having a final P value of the 0.04, its still going to lead to very solid results.

Brian Abrahams - Oppenheimer & Co

And you mentioned that the analysis work required to do this, given that it is a Phase III would take sometime, I mean is this something, I have realized that the parameters haven't been completely finalized but is this something that we can think about being reported by the middle of the year, is it something that might happen by the third quarter or early fourth quarter. When should we -- how should we think about this?

Simon Pedder, Ph.D.

Well I think, you should look at it basically mid year. I would give you an idea that's the mid year. You can appreciate the reason you have to do the additional data monitoring, the data cleaning is that there is a possibility that the trial (ph) could be finished. And, in that case you want to make sure that all the data that is being generated which is going to go into that clinical report which is going to be one of your two pivotal studies for your approval, you want to make sure that the data is squeaky clean and everything has been looked at that needs to be looked at the same way that if you lend the study through to completion. And so that's why we're going to end up doing the same type of further clinical monitoring and data cleaning that we would do at the end of the study.

And therefore it's not just a fast quick hit looking at one efficacy parameter. It's making sure that if the data is what we expect it to be, we can actually stop the study and the study data is clean and therefore we can proceed with the full data lock. And subsequently be the basis of the study report which is going to be one of the two pivotal studies in the NDA document.

Brian Abrahams - Oppenheimer & Co

Okay, make sense. And then just a quick follow-up on -- obviously your reported some interesting data in the IDH indication, how do you think about the market size in intradialysis hypertension, and what could be your pricing strategy, just given the differences in the dosing frequency between IDH patients and NOH patients.

Simon Pedder, Ph.D.

Well let me answer the second part first. We're kind of in flux with that. And let me give the reason why, and that's by answering your first question. Clearly this is the drug, which can help treat patients who have clear symptoms associated with the IDH. But when you look at the data and you look at the robustness of what happens with the intervention, we reported the statistical significance of the 600 having a rather dramatic decrease in stopping of the dialysis sessions.

There's also a very nice dose response when you look at any intervention at all due to hypotension episodes and therefore the question is, can you change the market dynamics from treatment of those patients who have hypotensive events to could Droxidopa be used prophylactically to make sure that patients -- even patients who don't normally report problems with the dialysis center, stop them from having events, which obviously contributes a lot to the nursing and the physician timing getting patients through the dialysis centre.

So one of the things that we're looking at now is, we have always looked at pricing where this drug would be used to treat patients who have known hypotensive events during dialysis centers. What happens if this drug actually gets used prophylactically in a larger number of patients? And for that we're obviously having reduced some pricing with you. Clearly we have to take in consideration the pricing in the NOH market and settle the settle the indication as well.

Brian Abrahams - Oppenheimer & Co

Thanks very much. I'll hop back in the queue.

Simon Pedder, Ph.D.

Thank you.

Operator: And we'll take our next question from Leanne Masados (ph) of Wedbush.

Simon Pedder, Ph.D.

Hello Leanne.

Unidentified Analyst

Hi, can you review the interim analysis for the Phase II 1504 trial and did you release what the statistical hit in the final P value is?

Simon Pedder, Ph.D.

There wasn't an interim analysis so much as there was an external safety monitoring board that looked at the safety and to some minimal level of the efficacy parameters in order to allow us to continue recruiting the patient to the fall 200. The rationale for that was, we were treating a 150 patients within experimental drug, against methotrexate and if there was any significant safety concerns or if there was absolutely no efficacy, there is really not an applicable rationale for continuing to recruit the next 100. So it was not an interim analysis, it was basically a safety and efficacy review by outside experts and bio statisticians.

Unidentified Analyst

Okay. So, no statistical here in the P value, that is 0.05?

Simon Pedder, Ph.D.

The analysis I believe is looking at 95% constant levels around the ACR 20s, 50s, and 70s. It is not powered for a P less than 0.05 or any superiority or inferiority.

Unidentified Analyst

Okay. So, how do we judge whether -- how is it going to be judged whether this is successful or not, what's the value?

Simon Pedder, Ph.D.

The comparison will be around the 95% constant levels of the three dosages of Chelsea 1504 versus methotrexate and also looking at dose response with Chelsea 1504.

Unidentified Analyst

And okay, the comparison versus methotrexate, what will be considered to be successful?

Simon Pedder, Ph.D.

Well 1504 what we have always stated is that we see the rationale about why would be as efficacious as methotrexate but the benefit would be that the standard kind of GI side affects, you know, nausea, vomiting, diarrhea, dyspepsia will be better than methotrexate. Also the other benefit would be the lack of liver enzyme elevations. So we have stated that we will do a comparison of a cluster of the GI affects and also the abnormal liver function test to do a comparison among all four groups.

Now we've changed the target profile on 4051 because 4051 at least in preclinical models looks like its much more potent and looks like it in fact still has the same level of tolerability and safety, where we've actually been able to go to higher dosages not just in the top studies but also in our Phase I. So we think that's moving up the potency curve without so far to date including our Phase I, not having any effect on the better tolerability of these compounds. So for 4051 we're actually looking at our target profile for superiority over methotrexate and subsequently if we go into a Phase II with 4051 we may in fact power it for superiority.

Unidentified Analyst

Okay. And so, is the long-term plan then to use the 1504 data like a stepping stone but you would probably take 4051 to the market if everything goes well?

Simon Pedder, Ph.D.

Well, first of all it may not be our decision. But, if it is our decision we want to look at the 1504 data first. We have stated publicly that the dropout rate has been very low. We hope that's indicative that our compound is very well tolerated. We obviously have to take a look at what the efficacy looks like and based on the efficacy and the safety compared to methotrexate we will make this decision on 1504. We certainly just state that 4051 looks like a very attractive molecule both pre-clinically and now as we complete the Phase I. Even though we've got this enhanced potency it doesn't seem to change the tolerability profile in high dose obviously in drug (ph) studies but also we've gotten up to significant and high dosages in healthy volunteers. And it just makes us hopefully believe that we'll have two attractive non-metabolized antifolate compounds.

Unidentified Analyst

Great. And can you talk about your partnership status, the status of discussions and would the partnership include both of these molecules?

Simon Pedder, Ph.D.

Well, I'll answer last part first. Yes, clearly I don't think anybody would be interested in one without the other and in fact I'd be surprised if anybody just didn't take our entire portfolio of antifolates and licensing deal. Regarding possible partnerships clearly after this data comes out, that's going to be a key driver and continued discussions, and our business development people are going to be incredibly busy, I think through later, March or April.

Unidentified Analyst

And are you in discussions now or will they start after the data comes out?

Simon Pedder, Ph.D.

Well I think we're always in continual discussions with people, but obviously we've gotten to a stage now that hopefully just like you Leanne, everybody is very interested in the data, and they want to see it with great anticipation.

Unidentified Analyst

Okay. Can you talk about the R&D expense trend in 2009 versus 2008?

Simon Pedder, Ph.D.

I'm going to pass that to Nick.

J. Nick Riehle

Yeah. We're -- as we have talked about, we've seen the trials come on for the Phase III and Droxidopa. As Simon pointed out we have been working to bring the sites and we are now sort of reaching full speed in multiple countries with those studies. So we're going to see the expense level high in the first quarter, continuing high in the second quarter. We should see then with the third quarter some reduction in the expense spending as the trial begin to wind down but you will see accounts payables and good liabilities be paid off as the trials and sales run down but the liabilities remain to be paid.

So we see the cash flows fairly steady through the first third quarters and by the fourth quarter we expect that to be well down as we're conducting the safety study and finishing off some other related work in the Droxidopa program.

Unidentified Analyst

And the 10-K there was a comment about auditors growing concern, as the whole thing what you were describing earlier in the call to do with the option like securities or were there any other issues?

Simon Pedder, Ph.D.

Well, our guidance here is that we have cash to fund us out into the fourth quarter and so by definition the auditors will really -- their growing concern typically looks at a minimum of 12 months cash. And while we are pleased with our cash situation in terms of these very difficult times we can very well tell the auditors that we have greater than 12 month.

Unidentified Analyst

Alright. Thank you very much.

Operator: (Operator Instructions). We'll go next to Andrew Vainos with Roth Capital.

Andrew Vainos - Roth Capital

Hey you have mentioned and if you could perhaps refresh my memory on the preclinical 4051 data you have, are those data just in addition of DHFR or do you also have animal RA model data?

Simon Pedder, Ph.D.

It's a CIA induced, (inaudible) induced our brightest model, which we've actually presented. And we plan to present the data at the ULR meeting in July. But that data is available and we can send it to you if you are interested in that.

Andrew Vainos - Roth Capital

Sure, I would like to check them out. You also mentioned the 4051 data in Q2?

Simon Pedder, Ph.D.

For the Phase I, yes.

Andrew Vainos - Roth Capital

Yes. Any thoughts on partnering Droxidopa?

Simon Pedder, Ph.D.

Well you know, we have historically talked about keeping this drug for ourselves in the U.S. but -- and sorry but also licensing it outside of the U.S. and so we've talked to numerous people for a quite a long period of time. In tough economic times, you don't want leave any option off of the table. So we've also talked under the right circumstance, we could look at either co-marketing, or in fact giving the marketing rights for NOH II to a partner under obviously very positive situation.

Andrew Vainos - Roth Capital

And you mentioned that you've started enrolling patients in the fibromyalgia study, have been any patients been dosed?

Simon Pedder, Ph.D.

Oh, yes. Several patients have been dosed.

Andrew Vainos - Roth Capital

Cool. Thank you.

Simon Pedder, Ph.D.

Thank you.

Operator: And, Dr. Pedder we have no further questions at this time. I'll turn the call back to you for any additional or closing remarks.

Simon Pedder, Ph.D.

Well, thank you all of you for taking part. We've obviously had some positive news lately. Certainly we're delighted with the data that we've gotten from the IDH and certainly look forward to having a fruitful discussion with the FDA. We appreciate your interest and support and I'd comment that we plan to meet with many of you in the near future. Have a great day everybody.

Operator: And that does conclude today's conference call. Thank you for your participation. You may disconnect at this time.

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