In the speculative world of biotech investing, investors look to get in stocks early before positive, market moving company events happen. These events are usually connected to FDA decisions or product launches. It is not uncommon to see a biotech company rise over 200% within days after positive news provides a huge catalyst to increase the stock price.
Thankfully for risk tolerant investors, these speculative biotech opportunities come along very often if you are listening to the right catalyst clues and doing important due diligence. The challenge for investors is to pick the right investment opportunities that carry the most reward with less risk.
Chelsea Therapeutics (NASDAQ:CHTP)
The FDA granted Northera (Droxidopa) orphan drug status in 2007. 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.
Northera is a drug for the treatment of symptomatic neurogenic hypotension (NOH) associated with Parkinson's disease. The company has had its issues getting Northera on the market. On February 23, 2012, Northera was given an up vote from the FDA Panel by a 7-4 vote. However, the FDA decided to issue a complete response letter (CRL) on March 28, 2012. The FDA wanted more data to support efficacy and demonstrate durability over a 2-3 month period. CHTP went back and received guidance from the FDA in 2012 and it was determined that its 306B trial would not be suitable or able to be modified. The company and investors believed a new trial to confirm efficacy would be needed before any chance of approval.
On February 20, 2013, CHTP was informed by the Director of the Office of New Drugs at the FDA stating that the Study 306B can serve as the basis for resubmission of Northera. The Director states:
The guidance suggests 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 graph below shows that the primary endpoint of improvement of dizziness was proven in the new 306B study (Phase III) for a second time. Keep in mind that the first advisory panel only had the Study 301 which was stated to be insufficient. Therefore, the second 306b study creates substantial evidence of confirmation of efficacy.
As mentioned above (by the director of new drugs at the FDA), Chelsea still lacks Northera durability data to show the benefits beyond the one week period. FDA has signaled a willingness to approve with a commitment to conduct a longer-term post-marketing study. Therefore, another study was designed by Chelsea which will enroll 450 NOH patients and assess a dizziness reduction endpoint at 12 weeks. It will begin enrolling patients before the end of the year to show its willingness and commitment to the FDA to get Northera approved in the new year.
Many investors were aware that the company needed to raise funds in the near future and were very hesitant to buy Chelsea. At the time, The company had $20,881,716 as of the latest quarterly report. Since then they raised $10.9 million through their ATM and on November 13th $21.4 million was raised through a public offering. Giving the company a total of around $53 million, which is more than enough to launch Northera and fund operation well into 2015.
Termination of ATM
On November 1, 2013, we notified Cantor Fitzgerald & Co. ("Cantor"), of our election to terminate the Sales Agreement, dated July 2, 2010 (as amended from time to time, the "Sales Agreement"), between us and Cantor, as agent. The termination will become effective on November 11, 2013. The Sales Agreement provided for the offer and sale, from time to time, of shares of our common stock having an aggregate offering price of up to $20,000,000 through Cantor, acting as agent and/or principal. Through November 1, 2013, the Company had sold an aggregate of 3,609,595 shares of common stock pursuant to the Sales Agreement for aggregate gross proceeds of approximately $10.9 million. Effective November 1, 2013, no further sales will be made pursuant to the Sales Agreement.
Northera Possible Indications:
|Compound||Indication||Phase I||Phase II||Phase III||NDA Submitted|
|Droxidopa (Northera™)||Symptomatic Neurogenic Orthostatic Hypotension||-----||-----||------||---------|
In the above table, you can see that Northera is being reviewed for Neurogenic Orthostatic Hypotension (PDUFA February 14th). Also, Northera is also in Phase 2 studies for Intradialytic Hypotension and Fibromyalgia.
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 current market capitalization is approximately 269 million, with 77 million shares at a current price per share of $3.47. The company projects revenue between $300-$375 million per year not including the potential revenue for the other indications for Fibromyalgia and Intradialytic Hypotension as listed above which could generate $600-700 million per year. The company has an AdCom on January 14/14 and a PDUFA on February 14/14.
Therefore, CHTP deserves a PPS of $8 to $9 based on the high probability of approval and potential for other possible indications for Northera. Giving it a fair market cap of around 600-700 million. Biotech guru Adam Feuerstein agrees that it is undervalued and is bullish on CHTP as he mentioned here on his very popular Biotech Stock Mailbag:
I believe there's a 75% chance FDA approves Northera on the second go-around with Chelsea. The stock's current market value of less than $200 million does not fully account for the drug's approval and commercial market opportunity.
For investors looking to invest in the next biotech company poised to produce significant short term returns due to upcoming catalysts, Chelsea Therapeutics provides an attractive speculative pick for potentially high returns.
Bullish: Institutional Holdings increasing :Baker Bros. Advisors added over one million shares last quarter
|Owner Name||Date||Shared Held||Change (Shares)||Change(%)||Value(in 1,000s)|
|BAKER BROS. ADVISORS LP||09/30/2013||5,794,753||1,018,966||21.34||19,696|
|J. GOLDMAN & CO LP||09/30/2013||637,500||637,500||New||2,167|
|NORTHERN TRUST CORP||09/30/2013||860,002||547,170||174.91||2,923|
|EAM INVESTORS, LLC||09/30/2013||453,302||453,302||New||1,541|
|BLACKROCK FUND ADVISORS||09/30/2013||1,902,295||220,493||13.11||6,466|
|RENAISSANCE TECHNOLOGIES LLC||09/30/2013||225,695||215,301||2,071.40||767|
|HIGHLAND CAPITAL MANAGEMENT LP||09/30/2013||239,800||159,800||199.75||815|
|VANGUARD GROUP INC||09/30/2013||2,163,884||143,082||7.08||7,355|
|GROUP ONE TRADING, L.P.||09/30/2013||228,428||122,229||115.09||776|
|HIGHBRIDGE CAPITAL MANAGEMENT LLC||09/30/2013||111,614||111,614||New||379|
|PARAMETRIC PORTFOLIO ASSOCIATES LLC||09/30/2013||93,322||93,322||New||317|
|DEUTSCHE BANK AG\||09/30/2013||483,208||90,912||23.17||1,642|
|AQR CAPITAL MANAGEMENT LLC||09/30/2013||83,600||83,600||New||284|
|DRW SECURITIES, LLC||09/30/2013||80,012||80,012||New||272|
Disclosure: I am long CHTP. 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.