Is Chelsea Therapeutics A Buy After Skyrocketing Up Over 150%?

| About: Chelsea Therapeutics (CHTP)

Chelsea Therapeutics International Ltd. (NASDAQ:CHTP) is currently pursuing U.S. Food and Drug Administration (FDA) approval for Northera (droxidopa), a therapeutic agent for the treatment of symptomatic neurogenic orthostatic hypotension (NOH) in patients with primary autonomic failure.

NOH comprises a group of diseases that includes Parkinson's disease, multiple system atrophy (MSA) and pure autonomic failure (PAF). Droxidopa is a synthetic catecholamine that is directly converted to norepinephrine (NE) via decarboxylation, which results in increased NE levels in the nervous system. By increasing the supply of norepinephrine available for delivery to its receptors, droxidopa may improve orthostatic blood pressure and alleviate symptoms of orthostatic hypotension.

Droxidopa was developed by the Japanese pharmaceutical company, Dainippon Sumitomo Pharma (OTC:DNPUF). The drug was approved in Japan in 1989 for treating frozen gait and dizziness on standing associated with Parkinson's disease as well as orthostatic hypotension. Japanese regulators expanded Droxidopa's marketing approval to include prevention of vertigo, dizziness and weakness associated with orthostatic hypotension in hemodialysis patients in 2000. The drug generates about $50 million in annual revenue.

Chelsea licensed droxidopa in 2006 and has commercialization rights for the drug outside of Japan, Korea, China and Taiwan. Chelsea chose the trade name Northera for droxidopa.

The FDA granted Northera orphan drug status in 2007. Orphan drug status is granted to advance the evaluation and development of products that demonstrate promise for the diagnosis or treatment of rare diseases or conditions. In November 2011, the FDA granted Northera priority review. Priority review is reserved for drugs that offer a major advance in treatment, or provide treatment where no adequate therapy exists.

The only FDA-approved drug to treat NOH is ProAmatine (midodrine). Midodrine was approved by the FDA in 1996 for the treatment of dysautonomia and orthostatic hypotension under the condition that post approval studies were conducted to prove the efficacy of the drug. In 2000, Shire plc (NASDAQ:SHPG) became midodrine's New Drug Application (NDA) holder as part of an acquisition. By 2003, midodrine was being sold as a generic drug and Shire's exclusive patent on midodrine ended. Although Shire conducted clinical trials with ProAmatine, those studies were not conducted to the FDA's satisfaction. In 2010, Shire stopped manufacturing ProAmatine because generics had eroded the value of drug. In August 2010, the FDA proposed withdrawing its approval of midodrine because Shire failed to complete studies to the FDA's satisfaction. In September 2010, the FDA reversed its decision to withdraw midodrine from the market. In December 2011, Shire announced that the company had reached an agreement with the FDA to conduct additional clinical trials to confirm the clinical benefit of midodrine as an NOH therapy. Final results are expected in 2014. At the time, Mylan Pharmaceuticals (NASDAQ:MYL), Impax Laboratories (NASDAQ:IPXL), Apotex, Sandoz/Novartis (NYSE:NVS), and Upsher-Smith Laboratories were generic manufacturers of the compound. The drug contains a "black box warning" for supine hypertension.

Rocky Regulatory Road

In early 2012, the FDA was reviewing Chelsea's application for marketing approval of Northera for the treatment of NOH. Under the Prescription Drug User Fee Act IV (PDUFA), FDA's goal is to review and act on the NDA by March 28, 2012.

On February 21, 2012, the FDA publicly released the briefing document FDA staff prepared for the FDA's Cardiovascular and Renal Drugs Advisory Committee that would be making a recommendation to the FDA on whether for not Northera should be approved as a NOH drug. FDA staff recommended that Northera should not be approved, stating that the drug had not demonstrated durable effectiveness in clinical trials and showed "worrisome safety signals" in test results.

"On the basis of the safety concerns, compounded by absence of evidence of durability of effect, my regulatory recommendation is that we should not grant approval for droxidopa at this time," FDA physician Melanie Blank stated.

Chelsea submitted the results of five clinical trials, Studies 301, 302, 303, 304 and 305, in its new drug application (NDA). The first three trials tested the drug's efficacy and safety and the final two trials studied safety issues.

FDA staff found evidence that Northera offered at least one week of benefits for NOH patients, including the raising of standing blood pressure, but they could find no durable benefits lasting more than four weeks. FDA staff felt these benefits did not compensate for the safety concerns they found with the drug. These safety concerns included 19 deaths from sepsis, heart attack, pneumonia, respiratory failure and other conditions, though FDA admitted that the data was too limited to determine a cause. FDA staff also cited nine cases of neuroleptic malignant syndrome over a 10-year period in Japan.

Chelsea stock had lost more than half its value in the weeks following the February 13, 2012 FDA staff report. Despite the FDA staff's recommendation to reject Northera, the FDA Cardiovascular and Renal Drugs Advisory Committee voted to approve the drug. While the FDA is not bound by the recommendations of its advisory committees, the FDA usually votes in the way its expert panels recommend.

On February 24, 2012, the FDA advisory committee voted 7 to 4 recommending approval for droxidopa for patients with primary autonomic failure, including Parkinson's disease, multiple system atrophy, and pure autonomic failure, as well as dopamine beta-hydroxylase deficiency and nondiabetic autonomic neuropathy.

Although panel members stated that they shared the concerns cited by FDA staff, a majority was persuaded by the emotional testimony of patients who testified about the difficulties living with this devastating and debilitating disease and the positive effect droxipada had on their lives. Chelsea shares jumped from $2.41 a share to $3.88 a share with nearly 21 million shares exchanged.

However, the good news was short-lived. On March 28, 2012, the FDA rejected the approval of Northera and sought an additional trial to support the efficacy of the drug. The FDA wanted the trial to be designed to show the drug was effective over two to three months.

The FDA also indicated that the agency may require that Northera carry a black-box warning related to the supine hypertension risk associated with the drug if Northera was approved. Chelsea shares fell 28% after the FDA vote.

By June 2012, Chelsea stock had fallen nearly 50% since the FDA vote in March 2012. On June 7, 2012, Chelsea announced that effective July 1, 2012, its corporate officers and directors would take a voluntary 25% reduction in salary and fees until the results of the ongoing Phase 3 trial of Northera were available. At least 35% of Chelsea's non-executive staff would temporarily transition to part-time status with a corresponding decrease in salary. Chelsea also planned to further reduce compensation expense by suspending performance bonuses for all employees, including officers, for 2012 and until Northera is granted U.S. marketing approval. The company stated that these savings were expected to generate savings of over $6 million in the next 12 months.

On July 3, 2012, Chelsea shares plummeted to below $1 in premarket trading after the company announced that the FDA "recommended" another trial for Northera. The FDA told Chelsea that its 306B trial was unlikely to provide the sufficient evidence necessary to approve the drug.

The FDA Advice Letter noted "if an analysis of all subjects enrolled in study 306 after [Chelsea] amended the analytic plan demonstrated a statistically significant benefit on the primary endpoint, [FDA] might regard this as a positive trial. However, as this analytic approach appears to exclude at least 109 patients from Study 306B, the FDA further recommends that Chelsea 'design and conduct an additional trial to demonstrate that droxidopa has a significant and persistent effect' on symptoms of neurogenic orthostatic hypotension."

Based on FDA's feedback, along with potential cost and timing considerations, Chelsea stated that the company was evaluating "several scenarios that may provide the supportive data the FDA is seeking while minimizing any delays to the planned resubmission of its Northera NDA."

One week later, on July 10, 2012, Chelsea announced that Simon Pedder, Ph.D. the company's Founder, President and CEO, resigned as a director, officer and employee of the company. Joseph G. Oliveto, who had been the company's Vice President of Operations was appointed interim President and CEO until a permanent CEO is appointed. Keith Schmidt, Vice President, Marketing and Sales, also left the company. At the Board level, Kevan Clemens, Ph.D. stepped down as Chairman but remained a director, with director Michael Weiser, M.D., Ph.D. assuming the role of Chairman. In addition, Norman Hardman, Ph.D., C.Chem., F.R.S.C., F.I. Biol., and Johnson Y.N. Lau, M.B., B.S., M.D., F.R.C.P., resigned from the Board. The company said it planned to cut at least $3.5 million in annual salary costs and will keep only the employees it needs to obtain marketing approval of Northera.

Throughout the rest of 2012, Chelsea stock ranged from a low of 94 cents on August 1 to gradually climb to a high of $1.96 on December 3, 2012. On December 4, 2012, Chelsea shares fell almost 25% after the company announced results from study 306B that found that Northera was more effective than a placebo at reducing dizziness and lightheadedness after one week of treatment. However, the difference between Northera and placebo was not statistically significant after one week. In the study, researchers also found that those patients who took Northera fell less frequently and were injured in falls less often, but the difference between Northera patients and those patients on placebo was not statistically significant.

Then, on February 20, 2013, Chelsea skyrocketed after the company announced that it had received written guidance from the Director of the FDA's Office of New Drugs stating that Study 306B has the potential to serve as the basis for a resubmission of a Northera (droxidopa) New Drug Application (NDA) for the treatment of symptomatic NOH. Over 31 million shares of the stock were traded.

According to Chelsea, the guidance suggested that "data strongly demonstrating a short-term clinical benefit (e.g., improvement in symptoms or ability to function) of droxidopa in patients with NOH would be adequate for approval, with a possible requirement to verify durable clinical benefit post-approval." The guidance further notes that any decision regarding the outcome of an FDA review, to be performed by the FDA's Division of Cardiovascular and Renal Products will be based on the strength of Study 306B and its ability to provide substantial evidence of effectiveness to support approval.

Based on this guidance, Chelsea plans to file a resubmission of the Northera NDA with the Division of Cardiovascular and Renal Products in the late second quarter of 2013. If accepted by the Division, the company's application will be subject to a 6-month review period.

CH-4051 and CH-1504

In addition to droxidopa, Chelsea has developed a portfolio of molecules for the treatment of autoimmune and inflammatory diseases. The most advanced platform is a portfolio of metabolically-inert antifolate molecules engineered to have potent anti-inflammatory and anti-tumor activity to treat a range of immunological disorders. Chelsea's portfolio of novel antifolate compounds was originally developed by Gopal Nair, PhD of the University Of South Alabama College Of Medicine, and licensed by the company in 2004.

These orally available, metabolically inert, non-metabolized antifolate compounds were engineered to be analogs of methotrexate. Diseases that may potentially be treated with antifolates include rheumatoid arthritis, psoriasis, inflammatory bowel disease, uveitis, ankylosing spondylitis, cancer and other immunological disorders.

MTX is a disease modifying antirheumatic drug (DMARD) that is the most frequently prescribed treatments for rheumatoid arthritis. Although the drug was synthesized in 1948 and the first studies evaluating MTX as a treatment for rheumatoid arthritis and psoriasis were published in 1951, the drug was not widely used to treat rheumatoid arthritis until the 1990's. Although MTX is often effective, the drug is associated with numerous adverse reactions as well as birth defects. Due to the severity of MTX side effects, there is a need for an effective, safe, and well-tolerated rheumatoid arthritis treatment.

CH-4051 was Chelsea's lead drug candidate from the company's portfolio of non-metabolized antifolates. On May 31, 2012, Chelsea shares fell nearly 28% after the company announced that it was terminating studies of CH-4051, the company's investigational drug for rheumatoid arthritis. In a Phase II trial, researchers found that CH-4051 did not work better than methotrexate, as a treatment for rheumatoid arthritis.

While Chelsea believes that higher doses of CH-4051 may provide enhanced therapeutic benefit in rheumatoid arthritis and that the drug could be developed for other anti-inflammatory and autoimmune indications, the company determined that its resources would be better spent on the Northera development program.

Although Chelsea's other antifolate compound, CH-1504, completed a Phase II clinical trial in patients with rheumatoid arthritis, Chelsea does not intend to conduct additional trials or make further investments in the development of CH-1504.

Chelsea is looking for potential out-licensing opportunities for this portfolio.

Chelsea also has a second platform, known as its I-3D portfolio, that is comprised of therapeutics targeting immune-mediated inflammatory disorders and transplantation, but the company has no work underway related to this portfolio.


On March 7, 2013, Chelsea reported financial results for the fourth quarter and full year ended December 31, 2012.

For the quarter ended December 31, 2012, Chelsea reported a net loss of $2.2 million or ($0.03) per share versus a net loss of $12.5 million or ($0.20) per share for the same period in 2011.

For the 12 months ended December 31, 2012, Chelsea reported a net loss of $31.7 million or ($0.47) per share compared to a net loss of $50.5 million or ($0.84) per share for the same period in 2011.

Research and development (R&D) expenses for the fourth quarter of 2012 were $0.9 million, compared to $7.7 million for the same period in 2011. For the twelve months ended December 31, 2012, research and development expenses were $16.7 million, versus $37.3 million for the comparable prior-year period. The reduction in R&D costs was primarily due to the completion of multiple studies in both the droxidopa and antifolate development programs.

Sales, general and administrative (SG&A) expenses were $1.4 million for the three months ended December 31, 2012, compared to $4.8 million for the same period in 2011. For the twelve months ended December 31, 2012, SG&A expenses were $12.9 million, compared to $13.3 million for the prior-year period. The period to period changes in SG&A costs are primarily related to the company's significant spending on Northera commercialization and launch preparation activities that occurred during the latter half of 2011 and the first half of 2012. By the end of the second quarter of 2012, the majority of these activities had been brought to a close as related vendor contracts were cancelled and projects were finalized subsequent to receipt of the Complete Response Letter from the FDA in March 2012.

Chelsea ended the year with $28.4 million in cash and cash equivalents compared to $45.6 million, including short-term investments, as of December 31, 2011. Chelsea anticipates that its cash and cash equivalents on hand should fund the Company's operations into the third quarter of 2014.

While details for a future clinical trial for Northera are yet to be determined, Chelsea's projection assumes a new trial would commence dosing in the fourth quarter of 2013. In addition to the initial costs of a new trial, assumptions underlying this guidance cover costs related to the new drug application (NDA) re-submission. This current forecast does not include material activities related to an NDA approval or the commercialization of Northera.

Conclusion: Sell

On February 20, 2013, Chelsea stock skyrocketed after the company announced that the FDA would allow it to make a new request for the marketing approval of Northera with a study that the agency previously determined was unlikely to provide sufficient evidence to convince it to approve the drug. If you bought the stock before February 20, I would recommend selling it and enjoying your return of 150% or more.

Of course, I could be wrong. There is quite a bit of excitement among analysts about Chelsea's future. On February 20, 2013, Ladenburg Thalmann raised Chelsea's rating from "Neutral" to "Buy." Needham & Company also upgraded Chelsea from a "Hold" to a "Buy" and put a $4 price target on the stock. Although the firm believes the "Northera regulatory risk is still meaningful," the firm believes "the risk benefit profile for the stock is reasonably attractive." Wedbush Morgan reiterated its "Outperform" and raised its price target from $5 to $7.

If Northera is approved as an NOH therapy, the drug would compete with midodrine. Midodrine was approved in 1996 under the FDA's accelerated approval process on the condition that the drug's manufacturer verify midodrine's benefits to patients through post-approval clinical trials. In August 2010, the FDA proposed withdrawing its approval because the drug's manufacturer was not completing the studies to the FDA's satisfaction (even though the drug maker was no longer producing the drug). In September 2010, the FDA reversed its decision to remove midodrine from the market and has allowed the drug to remain available to patients while clinical trials are conducted to study the efficacy and safety of the drug. We should learn the results of those studies some time in 2014, some 18 years after midodrine's approval and four years after the FDA threatened to remove the drug from the market. Considering this experience, how likely is it that the FDA will approve Northera on the condition that post-approval studies be conducted to prove the durable clinical benefit of the drug?"

I do not think the FDA will approve Northera considering the FDA staff's assessment of the drug's "worrisome" safety concerns compounded by a lack of durable benefits to NOH patients.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.