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Executives

Kathryn McNeil – IR

Dr. Simon Pedder – President and CEO

Mr. Nick Riehle – CFO

Dr. Art Hewitt – Chief Scientific Officer

Dr. Bill Schwieterman – Chief Medical Officer

Analysts

Robyn Karnauskas – Deutsch Bank

Jonathan Eckard – Leerink Swann

Liana Moussatos – Wedbush Securities

Alan Carr – Needham & Company

Chelsea Therapeutics International Ltd. (CHTP) Q1 2011 Earnings Call May 9, 2011 4:30 PM ET

Operator

Good day, ladies and gentlemen, and welcome to the Chelsea Therapeutics International Ltd. First Quarter 2011 Earnings Call. (Operator Instructions) As a reminder, this conference may be being recorded. I would now like to turn it over to your host, Ms. Kathryn McNeil. Ma'am, you may begin.

Kathryn McNeil

Thank you. Good afternoon, and welcome to Chelsea Therapeutics’ first quarter 2011 conference call. We announced our first quarter results this afternoon just after the close of the U.S. financial markets, and our press release can be found on our website at www.chelseatherapeutics.com.

Joining me from Chelsea is Dr. Simon Pedder, President and Chief Executive Officer; Mr. Nick Riehle, Chief Financial Officer; Dr. Art Hewitt, our Chief Scientific Officer; and of course, Dr. Bill Schwieterman, our Chief Medical Officer.

Before I turn the call over to Dr. Pedder, let me note that some of the remarks that you will hear today will contain forward-looking statements about the company's performance. Actual future results might differ materially from those projected in these forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in these forward-looking statements is contained in our SEC filings and periodic reports under the Securities Exchange Act of 1934 as amended, copies of which are available on our website and may be requested directly from the company.

That said, I’ll now turn the call over to Dr. Pedder. Simon, go ahead.

Dr. Simon Pedder

Thanks, Kate, and good afternoon, everyone. We appreciate you joining today’s discussion. We have had an eventful and in many respect, difficult start of the year to say the least. And while the first quarter presented us with a few surprises, mainly in the form of an unexpected outcome to our planned interim analysis of Northera Study 306.

We have been able to act swiftly, adapt and even tried in the phase of these challenges. Now, as we look ahead to the remainder of the year, we feel we are in a strong position, if not stronger position to meet our key strategic objectives. Our key meaningful clinical milestones and expand the potential value of our drug candidates.

We are making good progress in filing our first NDA, have concerns of filing strategy with the FDA and successfully modified study 306 in a manner that the filing does a clear path towards achieving a future claim for the reduction of falls in patients with NOH associated with Parkinson's disease.

Since, we recently had the opportunity to review many of our first quarter developments with you already but have also had the chance to meet with a great man of view [ph] and person. We will aim to keep this call brief so that we get to any outstanding questions yo may have.

So first, we will have Nick provide a summary of our first quarter results and then I’ll ask Bill and Art to provide you with our operational update covering the status of both our regulatory and clinical programs. And finally, we will open up the call for Q&A and do our best to answer the questions and cover any additional areas of interest. So Nick, why don’t you go ahead and get started.

Nick Riehle

Okay. Thanks Simon. For the first quarter of 2011, we had a net loss of $13.9 million or $0.25 per share versus a net loss of $6.2 million or $0.18 per share for the comparable period in 2010.

Research and development expenses for the three months ended March 31, 2011 were $11.5 million compared to $4.9 million for the same period last year. While we continue to have a substantial amount of ongoing clinical work in the first quarter, the primary drivers have increased R&D expense, cost for commercial API material and related validation work which was completed earlier in the quarter as well as the expenses related to our registration program for Northera in NOH, including regulatory, cost and additional work on our GTC study as recently requested by the FDA for the program.

Selling, general and administrative expenses came in at $2.4 million in the first quarter reflecting an increase of approximately $1 million compared to last year. This increase was driven by increases in both head count and program cost as we made critical marketing and sales hires and began to increase our market research, pre-launch promotion efforts and participation at medical conferences.

Chelsea ended the quarter with approximately $83 million in cash, cash equivalents and short-term investments compared to $47.6 million at December 31, 2010. This increase of course results from a recently completed public offering which provided net proceeds of $37.8 million.

Our balance sheet was further strengthened during the quarter with the exercise of warrants that would otherwise have expired on February 13 resulting in net proceeds of approximately $8.4 million.

Looking ahead at the remainder of the year, we anticipate 2011 R&D expenses to peak during the second quarter with full year R&D expenses of approximately $46 million and SG&A expenses continuing to ramp through commercialization with 2011 total of approximately $17 million.

As a result of the recent infusion of capital and our ongoing efforts to pace additional commercialization expenses with regulatory advancements, we believe we are positioned to further our development programs and launch initiatives to the achievement of several key clinical milestones and the planned commercialization of Northera in the second quarter of 2012. Simon.

Dr. Simon Pedder

Thanks Nick. I would just like to reiterate as Nick pointed out that while we began to increase our sales and marketing expense in anticipation of the Northera approval. So far, this has primarily been result of critical hires, essential to planning for the successful launch.

As we look forward to the remainder of the year and our planned pre-launch spend, we are working to ensure that the most significant increases are tied to both a timely filing of our NDA and more importantly the acceptance by the FDA of our filing. So as we mentioned on our last call, the bulk of the increase spend, in fact, close to the two-thirds of this expense will incur in the second half of the year.

We believe this strategy afford us the maximum benefits of a solid pre-launch education and the strongest possible launch while preserving capital through the filing and approval process. And speaking of our filing, Bill, will you please go ahead and give everybody an update on where we stand.

Bill Schwieterman

Absolutely, as you can imagine given the significance of our Northera NDA, we have been applying considerable time and effort to prepare –preparing our filing for submission next quarter. Despite having been diverted from these efforts, while we settled the regulatory issues in clinical objective for study 306, we have made considerable progress to remain on track to file next quarter.

We have largely completed the CMC component of the NDA and are currently working to ensure the substantial pre-clinical and pharmacokinetic data summarize appropriately, while also making sure that each of our final study reports are completed to support both the integrated summary of efficacy and safety sections of the filing.

As we previously report, the FDA was clear in our December, pre-NDA meeting with Northera [ph] study 306 would not be required part of our submission. The suggestion was subsequently reiterated in our communications with the agency filed in the internal analysis of study 306 and a review of data from what we now refer to study 306A.

Therefore, based upon the FDA’s guidance that continues to be our intent to file NDA based on the robust and how the significant result of study 3301 and included the results of study 302, a support of efficacy data demonstrated the benefit of Nothera treatment, improving the pivotal systems of neurogenic orthostatic hypotension.

Finally, as you may recall, the FDA had also request that we complete a dedicated QTT study and submit this results with our 90 day safety update. I am very please to report that only it’s the study up – ready up and running but we have completed enrollment as well and should have top line data this summer.

So over the next months we will continue to focus our intention on completing our NDA and look forward to filing in mid-late Q2 this application. We will then expect to have our NDA accepted and get confirmation of our priority review in the fourth quarter allowing for approval in the first quarter of next year.

Kathryn McNeil

Thanks, Bill. I would just like to briefly add that over the pass few months, we have met and helped authorities from four individual European countries to update them on the funding from our NOH program and so there’s a feedback from them on how best to proceed with a filing in EU.

These meetings went well and we got encouraging feedback from the majority of these meetings to just seeing that it may be possible to file four EU approval of Northera based on existing data without the need for additional data.

Based on this feedback, we will request the meeting with the EMEA for further review just possibility. With that said, I’ll now turn over the call to Art, so he can provide you with some additional detail around the development and study 306 and update you on our other ongoing clinical program. Art?

Dr. Art Hewitt

Thanks, Simon. As well, Simon and Bill have mentioned one of the biggest events on the first quarter both from a clinical, as well as cooperate perspective, we’re certainly the plan interim analysis to study 306. While we were of course all disappointed that the interim results specifically is related to the composite OHQ score or not as meaningful as we had hoped. In the end, we were quite please with the overall evidence of efficacy demonstrated by Northera in this patient population and in particular with the striking affect and reducing the number of files reported by patient taking Northera.

The data from 306A truly served to underscore just how significant an issue falls are in patients with NOH associated with Parkinson’s disease. Just looking at the overall number of falls, 197 over the course of the eight to 10 leads reported by the patients in the placebo arm shows the magnitude of this problem.

Following the somewhat anecdotal evidence of benefits seen in studies 301 and 302, we expected to show some benefit in losing the number of false, but we are both surprise and delighted to demonstrate a 60% reduction in the number of falls per patient per week.

This is proven to be not only ground breaking clinical finding, but also a highly compelling basis for pursing a future claim from Northera. Subsequently, we made the decision to restructure the remaining of – the remainder of the study by splitting the study into parts A and B, with part A consisting of the 51 patient for whom efficacy data was unblinded during the interim, and part B consisting of patients that has already been enrolled but had not yet completed the study and for whom all data remain blinded.

Well, of course also necessary to not only seek FDA approval to the change of primary end point of the study but also to get their buy-end that our reduction and falls represents a distinct and additional claim beyond our initial intended and wage claim. To this end, we submitted a comprehensive briefing document reflecting our intended changes and we’re pleased when the agency got back to us with confirmation of the suitability of our specified false end point, as the base is for establishing a supplementary claim.

At this time, study 306B remains ongoing with the modified objective of demonstrating a reduction in falls and has to be powered 80% to demonstrate in approximate 45% reduction in falls per patient for a week. To achieve this, we planned to enroll an additional 100 patient into the study, so that the final analysis will be based on 160 patients. Based on study enrollment into the study, we expect the results from study 306B will be available during the second quarter of 2011.

In the meantime, we are looking forward to the opportunity to present data from study 306A and next month’s annual movement disorder society meeting. Dr. Robert Hauser who is studying PI will present the data in a late breaking post recession on June 8 and that our sponsor symposium which will present the role of norepinephrine in autonomic failure, highlights from our NOH pivotal studies and a more detailed presentation of the 306 findings.

We also look forward to a second poster at MDS describing the benefit of Northera and patients with multiple system atrophy described in studies 301 and 302 to be presented by Dr. Gregor Wenning. The most I am pleased to report that we have made solid progress in our Phase II trial of CH4051 in rheumatoid arthritis during the first quarter. The improvement has remained strong and with over 100 patients already enrolled, it remains ahead of our original projections for this study. This morning, we announce the successful completion of our first data safety monitor in review.

After reviewing data from the first 10 patients to complete treatment in both the 0.3 milligram and 1.0 milligram CH-4051 cores had four patients to complete treatment with methotrexate arm, the DSMB found no signals that conclude proceeding to the 3 milligram dose and recommended that the trial begin randomizing patients into all five clinical hearts including the three milligram monotherapy arm and the three milligram CH-4051 plus folate.

As we also indicated in this morning’s announcement, we are on track to report unblinded in our efficacy data in the third quarter of 2011. This announce is expected to include completion of greater than 90% of the patients to enrolled in the 0.3 milligram and 1.0 milligram cohorts.

We continue to believe that CH-4051 has the potential to be a potential blockbuster, addition to the RA3 [ph] treatment landscape as both an efficacious and well tolerated oral disease modifying treatment prior to having combination with injectable biologics or other oral disease modifying agents. So, we are quite excited not only for the preliminary interim data, next quarter, but also to see the full study results inclusive of all those groups during the second quarter of 2012.

Finally, this quarter, we also look forward to seeing the preliminary findings from Dr. Edward’s exploratory Phase II trial, Droxidopa, in combination with carbidopa for the treatment of adult attention deficit disorder. While, studies of Droxidopa have primarily been limited to Norepinephrine indications, we believe the potential for Norepinephrine Replacement Therapy could have broad reach in therapeutic implications and shouldn’t we see an indication of that efficacy in this study and looking at the first clinical evidence of this potential. They’ve certainly worked further clinicals valuations.

We look forward to reporting results from this study in late June or early July? Simon?

Dr. Simon Pedder

Thanks, Art. As I believe, folks, Bill and Art’s comments suggest, we have quite a lot to look forward to in the coming year.

As we approach the filing of our first NDA, we anticipate meaningful data in our antifolate program and continue to research potential indications for our drug candidates. We believe the next few months will likely prove to be transformative for Chelsea, as we prepare for the transition of the development stage company to a commercial organization and with robust development pipeline.

We hope to see some of you at next month’s movement to Disorder [ph] Society meeting and look forward to keep you updating on our NDA filing and clinical programs as the year progresses.

Operator, do we have any questions?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) The first question comes from Robyn Karnauskas from Deutsch Bank.

Robyn Karnauskas – Deutsch Bank

Hi, guys. Thanks for taking question. So, I guess, two quick ones. First of all, your discussions with EU, I think you said that it may be good file on 360 as for safety. Are you going to have and you have any additional study twist European authority, regarding their requirements for approval of North, so.

This is the first question and then the second question is regarding the three milligram dose script, you know, should we glee anything regarding, efficacy as 0.3 and 1 milligram cohort. So, can you give a sense of what the dose covers like in Phase 1?

Dr. Simon Pedder

While I will answer the first one, I will pass the second one to Art and (inaudible) timing as you see this bit. When we met with the four individual for (inaudible), we presented them the case that we will be filing with study 301 as the single pivotal study. 302, as supportive and obviously safety from the rest of the programs which would include the 306A and that was it.

In the majority of these meetings, they were supportive of our filing, even though they were with one study and they obviously said, that they would be basis of the quality of that one study and what the data outcome is from that study, but they basically give thumbs up that we could just go ahead and file with 301 and 302 and the normal support safety study, which would include 306A.

Now, for the antifolate program, I will handle it over to Art and Bill, please time in as you see a bit.

Dr. Art Hewitt

Sure. Thanks. With respect to the first part of your question, should you glean anything about efficacy from our announcement this morning? No, you should not. The analysis by the TSMV [ph] was strictly on safety and was only intended to indicate whether there were any indications of concern that odd to limit our ability to study the drug in the higher dose groups.

As to the overall anticipation for the efficacy profiles, we fully believe that the 0.3 and one milligram dose levels may well be highly efficacious based on projections from our Phase II and pre clinical – as Phase II work with 1504, the various preclinical studies that compare 1504 and 1451, however, the only advice I could give you is that the 3 milligram certainly should offer an opportunity to see the full range of potential benefit.

Robyn Karnauskas – Deutsch Bank

That’s helpful. And I guess as a follow up, as additional questions, were there SSP – are there any interim utility looks incorporated in the design to make sure that this round is powered appropriately?

Dr. Simon Pedder

No. That’s not.

Robyn Karnauskas – Deutsch Bank

Thank you.

Dr. Simon Pedder

Thank you, Robin.

Operator

Thank you. Our next question comes from Jonathan Eckard with Leerink Swann.

Jonathan Eckard – Leerink Swann

Thank you. Lot of my questions were just answered, but, with regard to the NDA filing, I think you an overview that things are active but there are still few package that are kind of been put together. At what point, will there – will we get color at the timing during the third quarter where you maybe wrapping things up? Is there anytime or getting fact to the – you may have and maybe (inaudible) going out?

Nick Riehle

As you can appreciate John, we have been asked this for quite some time and our projections still remain approximately mid quarters. So, I don’t know, Simon, if you want to comment any more on that, but that’s’ where we are and that’s what we anticipate.

Dr. Simon Pedder

Yes. So far the plans are going along as planned, and certainly if we felt there is anything to change that we would certainly notify people but things seem to be falling into place.

Jonathan Eckard – Leerink Swann

And then on the EMEI a little follow-up question. Even though all the trials are kind of ongoing at this point, is there still thoughts about engaging the scientific advisors working party in the EU for your approach? Is there any benefit at this stage in doing so, and if am not mistaken, your approach sounds like one pivotal trial, but I believe the requirement for orphan drugs (inaudible) am I right on that angle?

Dr. Simon Pedder

Well yes one drug – and it all depends on the robustness of the outcome. When we met with the various different health authorities they said you could file any drug on one trial if the robustness of it is such. We obviously have to look at 301 as a very robust and the majority of the responses we have got supported that from the various different countries.

We did meet with the EMA previously, John. We did have two meetings with them. One of the reasons for picking the individual countries that we actually visited was because a couple of the main clinical reviewers from the working group actually reside in those individual EU country health authorities, and we got to meet with two of the main working group members by visiting their specific country regulatory body. They had those people there that was planned and we certainly got feedback from them as well.

Jonathan Eckard – Leerink Swann

Great. Thanks. And the last – I am not aware if could – for me are there any other Parkinson drugs that have claims, maybe not false claims, but claims on their label and are you aware of what the hurdle was to get that claim on their label, is it there a threshold that you have to hit?

Dr. Simon Pedder

No. In fact as you maybe aware, Parkinson drugs tend to be dopaminergic in nature and Parkinson therefore all dopaminergic drugs actually make orthostatic hypotension significantly worse. In fact, being involved in Parkinson trials for many years with park in a row [ph] we were always keeping track of orthostatic hypotension and a number of falls because all dopaminergic drugs again are going to make orthostatic hypotension worse in their both potential pitfalls and its quite common to have a greater number of falls in that drug group compared to the placebo group. But there are none other we know of (inaudible)

Jonathan Eckard – Leerink Swann

Thank you.

Operator

Thank you. (Operator Instructions) Our next question comes from Liana Moussatos from Wedbush Securities.

Liana Moussatos – Wedbush Securities

Thank you. Could you repeat when the 306B data is start to come out, and you mentioned almost completing the CMC for the north submission? What’s left with that?

Dr. Simon Pedder

Okay. I will take the first part; it’s second quarter of next year for the 306B data. And for the CMC section, it’s really basically finished.

Dr. Art Hewitt

I would say it’s just – I think we are at the very final stages of putting out together. It’s really (inaudible) for publishing – the electronic publishing. It’s gone up for electronic publishing; once it's published electronically it’s all sent.

Liana Moussatos – Wedbush Securities

Okay. Thank you.

Dr. Simon Pedder

Thank you, Liana.

Operator

Thank you. Our next question comes from the Alan Carr from Needham & Company.

Alan Carr – Needham & Company

Hi. Thanks for taking my question. I wanted to ask about the interim analysis. In my recollection was that the – the interim was – there was related (inaudible) and partnership discussions going on? Can you comment with what sort of feedback you have from potential partners and what they like to be?

Dr. Simon Pedder

We had quite a bit of interest in these compounds even with 1504, even 1504, tied methotrexate in our previous base to methotrexate naïve that showed a little bit of indication that may have better tolerability and safety. But certainly we were taken with the preclinical data that came out with when we were able to separate the two isomers and we saw was 4051.

So, at that stage, discussion moved from people being interested in 1504 to 4051 because I had been in the clinic. We were really talking about in terms of a phase I deal which we wouldn’t have interested. We certainly were interested based on the pre-clinical findings as I mentioned.

We are pretty excited to get this into the clinic. And that’s whey are in a global phase II study right now and then methotrexate insufficient responders. The parties that were interested in 1504 have continued to follow the program. We look at the interim as an opportunity to re-engage them, obviously with data going beyond the lower two dosages with the idea that in between we are engaging on the third quarter interim. We would have continued discussions whereby, hopefully, we are just waiting for the final data in the second quarter of 2012 to make decisions on who we wanted to go forward with the partnership.

Alan Carr – Needham & Company

Okay. Thanks. And then also can you lay out how many –in terms of building a commercial infrastructure what structure is going to be taken as – you mentioned a couple of milestones earlier, but can you elaborate on that what steps have you taken which (inaudible)?

Dr. Simon Pedder

Well, of course, as the filing of the NDA – and then there is the 60-day waiting period for the refusal to file, and we would look at hiring some additional people how do we pass the 60-day time period after refusal to file. But the significant number of patients of hires would actually be done later in the year. There’s a potential obviously for advisory panel that would be another opportunity to hire people prior to getting the approval.

Alan Carr – Needham & Company

Okay. Thanks very much.

Operator

Thank you. And I am showing no further questions in queue. I would like to turn it back to Dr. Simon Pedder for closing remarks. Thanks.

Dr. Simon Pedder

Thank you, operator. Just like to conclude by saying on behalf of Chelsea Therapeutics. Thanks for all of you for participating, and have a lovely evening.

Operator

Thank you, ladies and gentlemen. This does conclude the conference for today. You may now all disconnect. Thank you very much and have a wonderful day.

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