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Chelsea Therapeutics International, Ltd. (NASDAQ:CHTP)

38th Annual dbAccess Health Care Conference Call

May 29, 2013 16:50 ET

Executives

Robyn Karnauskas - Deutsche Bank

Analysts

Nick Riehle - Chief Financial Officer

Robyn Karnauskas - Deutsche Bank

Alright, thanks everyone for joining us. My name is Robyn Karnauskas. I am the Deutsche Bank biotechnology analyst. For those of you who are listening to the webcast if you have any questions during the presentation, I have been taking questions by e-mail anonymously at robyn.karnauskas@db.com. And next we have Nick Riehle, the CFO of the Chelsea Therapeutics, which is the company that is little controversial, but they have a lot going on this year as far as the key event with the FDA.

With that, I will turn over to Nick.

Nick Riehle - Chief Financial Officer

Okay. Thanks Robyn, and thanks to Deutsche Bank for the opportunity to present at the conference today. I would like to remind everyone that we will be making forward-looking statements. Our program includes certain risks and uncertainties and we would invite you to see our filings for more complete information.

As many of you would be aware, Chelsea is very focused on the development of our lead drug candidate, droxidopa, trade name Northera. This is an oral pro drug which is converted into norepinephrine through a single and dramatic step much as levodopa is converted to dopamine. Droxidopa has been on the market in Japan for over 20 years and is approved for multiple indications there specifically orthostatic hypotension associated with Parkinson’s disease, freezing up gait associated with Parkinson’s disease, and hypotension associated with dialysis. The lead indication in Chelsea’s development plan is the symptomatic, neurogenic, orthostatic hypotension or neurogenic OH. This is a significant and debilitating unmet medical need.

Orthostatic hypotension is of course the drop in blood pressure associated with moving from a lying or sitting position to a standing position. Neurogenic OH has this drop in blood pressure. However, it is specifically associated with the underlying neurological disorders and a diminishing synthesis and/or release of norepinephrine. As indicated by the graphic here, blood begins to pull in the lower body when we move to a standing position. For those of us with an adequate supply of norepinephrine, this is resolved by the immediate release of norepinephrine and the resulting constriction of our blood vessels. Without adequate norepinephrine, however, poor profusion of blood to the brain leads to dizziness, lightheadedness and syncope. As a result, some patients are unable to stand for more than a few minutes a day.

Neurogenic OH is an orphan indication, its afflicting patients with primary autonomic failure, which is a group of diseases that includes Parkinson’s disease, multiple systems atrophy, and pure autonomic failure. Consistent with its orphan status, it has fewer than 200,000 patients in the U.S. Patients try various strategies to deal with neurogenic OH including increasing intake of salt, fluids, and caffeine. Fludrocortisone is a synthetic corticosteroid used off-label to increase volume in these patients. However, the only approved treatment for OH is mitogen, trade name ProAmatine. Mitogen is a vasoconstrictor available from several generic manufacturers. Because of its mechanism of action, it is far from an ideal solution for many patients, particularly elderly patients. It has a low patient compliance and limited use among PD patients. And with only limited symptomatic benefit, there remains very significant unmet medical need.

Mitogen entered the market in 1996 via an accelerated approval pathway showing a positive impact on standing blood pressure which was considered at the time to be a surrogate market correlating to efficacy. In post-approval studies however, the sponsor was unable to show benefit of the symptomatic on the symptoms of OH and as a result, mitogen’s future availability remains in some doubt despite new trials recently agreed to between the sponsor and the FDA.

Our market research and analysis indicates Northera should provide a significant commercial opportunity. As the differentiated product with a strong safety profile, there is an opportunity for an attractive U.S. pricing model. Assuming mitogen continues to be available and retains much of its current share, our research nonetheless points to a peak U.S. sales in the $300 million to $375 million range. This assumes a limited sales force addressing the estimated 4,000 physicians that are responsible for approximately 50% of the mitogen sales. Of course, there is no competing sales force representing generic mitogen. You will note from this graphic that the mitogen utilization is trending upward despite the lack of promotion. This reflects the demographics of its aging patient population.

As those familiar with our story will be aware after receiving a complete response letter from the FDA in 2012 and with some initially discouraging feedback from the agency subsequent to that we have recently been able to establish a new regulatory path forward. In February 2013 we received written guidance from senior FDA staff acknowledging that our 306B trial has the potential to serve as a second confirmatory study and that demonstration of a short-term clinical benefit is adequate to support approval with anticipated requirement to verify durability of a fact post approval.

Then in April on discussions with the cardio renal division we received their assurances that they will review 306B as a second study for approval and we were able to agree on the components of the structure of our NDA resubmission. We also discussed the potential for accelerating approval with the requirement proposed to proof of confirmation of durability of affect. And there was discussion of a possible Advisory Committee review. Finally, the division was helped to clarify for us that our 300 milligram dose bio-equivalency study results must be either submitted with the NDA or in a post to proof of supplement and of course we are we have decided to do it with the NDA.

So, let’s turn now to a review of our clinical program. This slide indicates that despite the challenge of getting an orphan drug approved for a new indication, our program has shown some consistency. All studies have demonstrated favorable results for Northera treated patients relative to placebo. We do not however see statistical significance in Study 306A with only 50 patients, nor in either of the two withdrawl studies shown at the bottom of the page.

While the limited results for the withdrawl studies are not fully understood, we have noted that levodopa with the similar mechanism of action behaves similarly with patients continuing to accrue benefit for an extended period after treatment (ceases). This seems to suggest that there could be a Northera carry-over effect with limited impact seen over the brief period during which the withdrawl patients were evaluated in each of these two studies Study 302 and Study 303.

Study 306 is our most recent trial and the largest trial ever conducted in this indication. Initial data was reported in December of 2012. As indicated it was a Phase 3 trial evaluating the safety and efficacy of Northera for the treatment of symptomatic neurogenic or thostatic hypertension associated with Parkinson’s disease. It is the data for this trial that will serve as the basis for the refilling of our NDA late next month or early in July. So, over the next several slides we will look at this Study 306 little more closely.

Study 306 was organized into two parts after an interim analysis of the first 50 patients. Study 306A and study 306B differ only in the respective analytical plan. Study 306B is a pivotal study that will be used in the NDA submission. I will be referencing our Study 306B as well as the combined Study 306A and B in the coming slides with the combined 306A and B used primarily for the safety data. As already mentioned 306A – excuse me 306B is the largest trial ever conducted in Neurogenic OH with 174 total patients enrolled and 147 analyzed based on modified intent-to-treat. There were 225 patients enrolled in the combined 306 program.

Here we have summarized the design of Study 306. The study was conducted only in PD patients with symptomatic neurogenic or orthostatic hypertension and only in the U.S. After determining that patients met the study entry criteria, they were randomized and then entered into a double blind titration period where doses were gradually increased over a period of up to two weeks.

At that point individualized optimized doses would be identified for each patient. Once they find their optimized dose, they maintain that dose through the remainder of the study which lasted another eight weeks. Safety and efficacy assessments were performed at weeks one, two, four, and eight. The study used a multi-item questionnaire to evaluate benefits on the symptoms of neurogenic OH occurring from the two treatment arms, the primary endpoint for 306B was the improvement at week one of item one on this questionnaire, which is the patient’s self assessment of dizziness. The results for this endpoint were statistically significant with the p-value of 0.18.

This was generally consistent with results for standing systolic blood pressure with a 5.6 millimeters in mercury increase relative to placebo at week one and the p-value of 0.32. A significant interest patient falls and falls related injuries were both considerably better among the Northera treated patients. We will discuss this in more detail in a little bit. Study 306 again pointed to good safety profile for Northera with a low incidence of supine hypertension consistent with previous studies.

So, let’s take a look at the results a little more detail as mentioned the primary endpoint for Study 306B was the improvement in dizziness scores reported by the patients from baseline to week one. Northera treated patients on average showed the one unit greater improvement on dizziness scores as compared to placebo patients. The result there is statistically significant with the p-value of 0.018, while this one point relative improvement is considered clinically meaningful and is consistent with prior studies. It has domestically even better results seen for many patients as shown in the following slide.

Here we see a more dramatic improvement among many patients with multiunit improvements and increase in separation from placebo. This is a good indication of just how important treatment option Northera might prove to be for great many neurogenic OH patients. For example as shown here approximately 40% of neurogenic – excuse me of Northera treated patients had a four point or greater improvement in their neurogenic OH symptoms.

Here we are presenting the average patient reported dizziness scores through the course of the eight weeks study. The week one endpoint has been discussed in the previous slides and further end points are presented here to the right. What we see is a positive difference favoring Northera treated patients maintained throughout the study albeit at somewhat previous levels and without it’s statistically significant difference.

This regression to the meaning with the strong placebo effect is not unusual for us to subjective patient reported endpoint particularly when provided by elderly patients or when extended period. It is however indicative of the need for substantially more patients for any study intended to show durability of a fact of interest taking the full 225 patients for the combined 306A and B study, with the p-value of 0.077 closer to but still not statistically significant.

Extending blood pressure is a secondary endpoint in the study. The standing blood pressure somewhat mimics the results seeing for the symptomatic dizziness scores and that the week one time point shows the greatest difference between Northera treated for placebo treated patients. Blood pressure readings without careful control of environmental factors including diet, activity and temperature can be quite variable for any patient group, but all of the more so among patients without autonomic dysfunction. Nevertheless, we see blood pressure data as supportive of a group – excuse me of a drug effect, although that effect is more clearly recognized in the symptomatic dizziness scores.

Falls were very important aspect of Study 306B and the rate of falls were predefined as a secondary endpoint. The overall result is shown on the left graph here with the average rate of falls characterized as a number of falls per patient per week of therapy. What you can see here is a dramatic difference between the rate a patient falls being much lower in the Northera treated patients shown in blue compared to the placebo group.

The falls data while dramatic were not statistically significant reflecting the fact that falls do not occur in anything resembling a normal distribution pattern. About half of the patients did not fall at all while the west – the rest had a wide distribution of falls but some falling many, many times and others falling just once or twice. This disparity and the distribution of falls precluded modeling of the data and the way that might have allowed statistical significance, because of this wide disparity and the number of falls we did do sensitivity analysis as shown at the right here. We removed and turned it up two, five and 10 patients from each group but a considerable gap in the rate of falls is maintained in each case.

Perhaps of greater relevance by the injuries that resulted from these falls in Study 306B selected injuries such as the one as shown here on the slide were pre-specified as being potentially related to falls if there we reported for the given patient within 24 hours of the occurrence of the fall. What we see as a placebo treated patients shown on the – in the right column experienced a greater number and percentage of falls related injuries such as contusions, lacerations and fractures when compared to Northera treated patients. Falls of course can frequently result in serious injury the incapacitation of an aging patient or even death. Moreover, the impact of falls from a pharmacoeconomic perspective is an important consideration when weighing the potential for market differentiation for Northera.

Turning to safety, we hit – see here the complete dataset from the combined 306A, 306B program. The data support the benign safety profile that was observed for Northera in the previous clinical studies with the most common AE being headache, approximately 6% more Northera treated patients experiences AE compared to the placebo group. The most common AEs were generally mild severity and transient in nature. Serious adverse events for Northera treated patients were five as compared to four among the placebo treated patients.

Supine hypotension is perhaps the side effect of most concerned among neurogenic OH patients who tend to be older and normally experiences incidence of both hypo and hypertension. In this study we saw a very low level of supine hypotension with approximately a 3% higher incidence in the Northera treated group for blood pressure levels greater than 180 millimeters of mercury.

Note that Northera – excuse me note that the mitogen label acknowledged as hypotension of greater than 200 millimeters of mercury and 13.4% of their patients at the 10 milligram dose. Accordingly mitogen does have a black box warning for supine hypotension. The comparable figure for Northera treated patients in Study 306 was just 3.5%. So, with this data from Study 306B in hand, we now briefly summarize our regulatory situation. Our original NDA was filed in September 2011 which is followed by a positive Advisory Committee in February 2012 and then a complete response from the FDA in March 2012. What we see here in the left column are the three primary issues outlined in that CRL.

Study 301 was determined not to be persuasive enough as a single study to support the efficacy needed for approval. This issue was highly linked to the second issue that being that one clinical site of Study 301 had a disproportionate impact on the efficacy data which the FDA viewed as disqualifying it for meaning the single study guidance criteria.

Finally, the CRL raised issues around what was considered to be inadequate long-term data to support durability of effect. After an extensive review and discussion process, Chelsea received new guidance from the FDA and released that updated guidance in February of this year. The revised guidance enabled Study 306B to be considered as a study acceptable for a review as a second pivotal program in addition to Study 301 is already submitted. The guidance also provided clarity the durability of affect is not required for the initial approval of the drug although data related to durability of affect maybe required post approval.

So, let’s review upcoming milestones. Based on the FDA, the updated FDA guidance Chelsea plans to resubmit the NDA late in the second quarter or very early in the third quarter. So, that’s about a month from now. The submission will include data from Study 306B, additional open-label data from our extension program Study 304 and new bioequivalence data to support our 300 milligram dose. As a Class 2 submission, the expectation is that a review can be completed by the FDA within six months of the submission.

So, that takes you out to about the end of the year. There is potential for cardiovascular and renal drug advisory committee review of the NDA, which we would expect to occur in the November timeframe. In addition, given the guidance around the potential need for a post-approval study to evaluate durability of effect, Chelsea plans to initiate such a study in late 2013, that study will also have a short-term endpoint, which would be of particular value should our resubmission not be approved by the FDA with this trial then required instead for an initial approval.

We will finish up now with a brief review of our financial status. Our cash at the end of the first quarter was just over $25 million. As previously estimated, we expect this to cover operating expenses into the third quarter of 2014. This includes resources needed to complete the re-filing of our NDA and to begin dosing for an additional study related to the durability of effect in the fourth quarter of this year. It does not, however, include cost related to NDA approval or commercialization of the drug. On the lower part of the slide, shares outstanding are just over $67 million with approximately $75 million fully diluted.

So, thank you for your attention, and again thanks to Deutsche Bank for the opportunity to present the story today, and I am ready for some glad questions.

Question-and-Answer Session

Robyn Karnauskas - Deutsche Bank

I guess, the first question I have is you mentioned several times now I think in presentations that you expect there could be a panel. And I guess the question I have is why do you think there will be a panel first and then there is then a panel, what will that panel focus on that was different from the first one?

Nick Riehle

Well, we initially did not expect the panel I think you are probably aware of Robyn. However, in some of our discussions with the FDA, we really heard two things from them, first of all, discussion of when a panel might be, how it might be organized, and also some discussion of the difficulties in organizing a panel. So, we are not really sure there will be a panel. Certainly, it’s within their discretion to call a panel. In terms of what they will focus on certainly we would think the focus will be on Study 306.

Robyn Karnauskas - Deutsche Bank

So, you guys did not present the 306B data, so you would present the 306B data at panel?

Nick Riehle

Right. We would – certainly 306B is kind of the cornerstone of this resubmission. So, we would expect that to be a main topic for the panel.

Robyn Karnauskas - Deutsche Bank

Okay. And then let’s say under do the worst case scenario first and then the best case scenario. Under our worst case scenario if you are not approved, what are the next steps like obviously in my opinion of an active drug, you can develop more programs, but obviously you will need cash like what are your options for the continuing development of this drug?

Nick Riehle

Well, as mentioned, the current program that we will begin dosing in the fourth quarter will have a short-term endpoint that can be used for approval. In terms of our way forward operationally, we are looking at alternatives here in terms of partnering the drug, really all the different approaches to finance a move forward. So, that’s yet to be determined, but we are obviously actively looking at those alternatives.

Robyn Karnauskas - Deutsche Bank

Got it. And can you move quickly to develop the drug or to finance if under the worst case scenario, which you would be able to move quickly, I mean, how far along are these discussions?

Nick Riehle

You mean in terms of….

Robyn Karnauskas - Deutsche Bank

Partnerships or?

Nick Riehle

Partnership.

Robyn Karnauskas - Deutsche Bank

Yes.

Nick Riehle

We are certainly working on the partnerships on a regular basis whether or not as always you are going to find ones that’s satisfactory first to ourselves and to the shareholders is yes, we determined, but that’s an ongoing progress. And at some point, we will make a decision whether or not, that’s something we think we can happen or if there is other alternatives that we can look at.

Robyn Karnauskas - Deutsche Bank

Okay. Under our best case scenario, so you do get approval, how do we think about how quickly it would take for you to hire a sales force, obviously, finance higher sales force and get this product on the market. And is there any – what is the role rate limiting stuff there?

Nick Riehle

Well, first of all, the partnering perspective comes up again in that context, because whether or not we conclude a partnering arrangement in the near-term, the interest there will continue and provide an option in a post-approval scenario. So, that remains as an option. The other consideration that we are looking at is how we would commercialize the drug. Of course, we had the pleasure of taking all the steps needed to get to that process. So, we have a pretty clear idea how to move forward with that. Obviously, that gets delayed in the scenario where we get approved and commercialize it from scratch at that point. But we do have the contingency plans in place to move that forward if partnering opportunities are not to our liking.

Robyn Karnauskas - Deutsche Bank

And just thinking from the CFO perspective, how much right now, I guess your conserving costs greatly, can you conserve them even greater, say if there was a delay at the FDA, in the FDAs that we need more than just six months to review your dataset which they tend to do especially if your deadline is around Christmas?

Nick Riehle

Yes, yes, well again we have good financial capability to get out to the third quarter. So, if we are talking about a month or two that really is not a big concern for us. The important thing in that situation is that whichever way they are going to go if there isn’t an approval, then we have a study moving forward that would provide a study for approval subsequently. So, I think that kind of timeframe will be in good shape. I certainly wouldn’t envision the FDA taking more than an extra month or so.

Robyn Karnauskas - Deutsche Bank

Since your last update, you have had more conversations with the FDA, I mean how is that – how have those conversations gone, what is the tone of the conversations?

Nick Riehle

I would say very good. Obviously, the process was one where we had to go back and look for different answer. That process was handled well we thought at the FDA. The meetings we have had subsequently with the division were very business like and appropriate, very professional. So, we certainly have no basis for any kind of complaint there. They are very much in sink with our understanding of what happened from senior staff. And so we are moving forward I think on the same page.

Robyn Karnauskas - Deutsche Bank

Have they gone through, just to verify they have gone through to check with the CROs that you remained blind into the data?

Nick Riehle

Well, yes, that process actually was pretty well vetted previously. Now, the division wasn’t entirely happy with the answer.

Robyn Karnauskas - Deutsche Bank

Right.

Nick Riehle

It did get a lot of attention when we went back to discuss it. And the view that was expressed by some senior statisticians at the FDA was that the sort of occurrence that they saw here was not unusual in the CRO and certainly did not preclude using the data. So, whether or not individuals at the division agreed with that, I can’t say, but they seem to have accepted the ruling.

Robyn Karnauskas - Deutsche Bank

Okay. I guess I think you had the market it’s been a while since we have thought about the market, because we are very fixated on whether or not you get a state approval. Has anything changed as far as your feedback from KOLs and are you hearing anything regarding the Shire products and how enrollments going in that trial?

Nick Riehle

Well, Shire is working very hard to get enrollment. We see a lot of advertising, a lot of effort they have brought in some additional sites. From our point of view there, nothing is really the change. The numbers that we have used for our commercial opportunity have always reflect an assumption that mitogen remains on the market. So, that kind of is an upside if it changes at all. The market does get bigger every year, because of the patient demographics. So, and the fact that we have of course orphan status as opposed to a patent clock ticking continues to provide value for the drug once it is approved.

Robyn Karnauskas - Deutsche Bank

Do we have any sense though that Shire would be able to complete their clinical trial, do you have any sense of how quickly they are enrolling?

Nick Riehle

We really don’t. I mean, we do get some anecdotal stuff, but you know you never know if that’s kind of selective hearing. So, we will see what happens with it. For the patient’s sake, we would like to see mitogen remain obviously the market opens up for us if it doesn’t remain. So, we will see what happens.

Robyn Karnauskas - Deutsche Bank

Okay, alright. Great, thank you very much.

Nick Riehle - Chief Financial Officer

Thanks Robyn.

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