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Chelsea Therapeutics International Ltd. (NASDAQ:CHTP)

Q2 2011 Earnings Call

July 26, 2011 4:30 PM ET

Executives

Kate McNeil - IR

Dr. Simon Pedder - President and CEO

Nick Riehle - CFO

Dr. Art Hewitt - CSO

Dr. Bill Schwieterman - CMO

Keith Schmidt - VP of Marketing and Sales

Analysts

Alan Carr - Needham & Company

Jonathan Eckard - Leerink Swann

David Moskowitz - Roth Capital

Liana Moussatos - Wedbush Securities

Juan Sanchez - Ladenburg, Thalmann & Co.

Operator

Good day, ladies and gentlemen, and welcome to the Chelsea Therapeutics International, Second Quarter Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Kate McNeil. You may begin.

Kate McNeil

Thank you. Good afternoon, and welcome to Chelsea Therapeutics’ second quarter 2011 conference call. We announced our second 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, our President and Chief Executive Officer; Mr. Nick Riehle, our Chief Financial Officer; Dr. Art Hewitt, our Chief Scientific Officer; and of course, Dr. Bill Schwieterman, our Chief Medical Officer and Mr. Keith Schmidt, our VP of Marketing and Sales.

Before I turn the call over to Dr. Pedder, let me note that some of the remarks that you will hear today may 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 or 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. In the light of the number truly significant events had lie ahead of us in the coming weeks and months, we are particularly pleased to have this opportunity to touch base with you and bring you all this feed in our recent achievements and ongoing progress.

The last quarter and particularly the last several weeks have been a very busy time to everybody at Chelsea. In addition to the continued efforts from our clinical team, we’ve already begun to benefit from contributions made by our newly established medical affairs and sales and marketing teams. Collectively the entire team here has dedicated a considerable time and energy towards the planned registration and commercialization of Northera.

And I can honestly say the result of these efforts have been remarkable. During the past quarter, evidence of these efforts are clear in the early completion of our dedicated Northera QTc Study, the progress made in our Phase II Trial of CH-4051in Rheumatoid Arthritis, the success of our participation in the Annual Movement Disorder Society meeting, as well as the progress made in our new drug application or NDA for Northera.

Of course we are not the only one excited by the potential of our pipe line, as I am sure you saw this morning, we reported the results of our first investigative sponsored Phase II trial of Droxidopa that provided a solid clear indication of the breath of potential future indications for Droxidopa.

However, before we get into the details surrounding these efforts and achievements, I will have Nick get us started by providing a review of our first quarter financial results, then I will ask Art to provide you with the more detail update covering the status of our ongoing clinical programs and this morning’s study results followed by an update from Bill and Keith on our regulatory progress and the commercial plans for Northera and finally we will open up the call for Q &A. Nick..

Nick Riehle

Thanks Simon. Adjusted reported net loss for the quarter end June 30 was 13.3 million or $0.21 per share versus a net loss of $9.9 million or $0.25 per share for the same period of 2010.

For the first six months of the year we reported a net loss of $27.1 million or $0.46 per share compared to a net loss of $16.2 or $0.43 per share for the first half of 2010.

Research and development expenses for the second quarter were $10.7 million, which reflects an increase from $8.4 million for the second quarter 2010. This increase in R&D expense reflects cost associated with the planned commercialization of Northera and includes approximately $1.6 million related to the manufacturing process and process validation of commercial drug product. $1.3 million related to the completion of dedicated QTc study to support our application for approval of Northera in the US. Approximately point $0.9 million related to the preparation of the Northera NDA and approximately $29 million for the initiation of medical affairs activities.

Offsetting these increases was an overall decrease of approximately $2 million year-over-year and aggregate Northera NOH clinical trial expenses. For the six month ended June 30th R&D expenses came in $22.1 million versus $13.3 million for the first half of 2010. Similar to results for the quarter R&D expenses for the first six month of 2011 were primarily driven by increased cost associated with a planned registration and anticipated launch of Northera.

Including in the total of approximately 3.8 million related to the manufacture of commercial drug product and a total of approximately 2.6 million related to the Northera QTc study as well as the $0.9 million all during the second quarter related to the implementation our medical affairs program.

Selling general and administrative expenses were 2.6 million for the three month end June 30th reflecting an increasing from the 1.6 million recorded for the same period 2010. This increase is primarily related to increased compensation and related expenses as well as increased expenses associated with promotional activities such as conference sponsorship and presentations, market research and legal expenses related to intellectual property. This increase is consistent with that seen across the first six months with SG&A for the first half of 2011 totaling 5.1 million compared to 3 million for the prior year period.

Again this increase was driven by an increase in compensation and related expenses as we added key personnel to support commercialization of Northera, as well as an overall increase in cost associated with implementing pre-launch sales and marketing initiatives.

Chelsea ended the quarter with 67.1 million in cash and cash equivalents, as well as short-term investments compared to 47.6 million at the end of December 2010. Looking ahead, we anticipate 2011 R&D expenses to remain near recent levels with full-year R&D expenses of approximately 47 million and SG&A expenses continuing to ramp through commercialization with the 2011 total of approximately 17 million.

As previously indicated we anticipate based on these estimates and the corresponding development, commercialization and hiring plans that currently available capital resources should fund the company through the planned commercialization of Northera in the second quarter 2012. There are however, some significant events over the next 12 to 18 months that we anticipate will favorably impact our working capital and substantially extend our run-rate well beyond the second quarter of 2012.

As you may recall from prior discussions, we currently have outstanding warrants that expire in March of 2012, which if exercised will bring in an additional $4.5 million. Beyond this, we have been exploring and currently have in hand a non-binding term sheet for working capital line of credit for up to $20 million, primarily intended to finance accounts receivables, but with 5 million of this amount available at the time of our NDA approval to finance the cost as previously purchased inventory.

This financing will be available notwithstanding the fact that such inventory is ineligible for inclusion on our balance sheet. Of course the most significant variable in 2012 is our anticipated revenue following the planned U.S launch of Northera during the second quarter. While it remains premature to precisely quantify the impact of its revenue, assuming the second quarter launch in a net price of $30 per day we are clearly expecting to have significantly favorable impact from sales during the second half of 2012.

While we expect future revenue to meaningfully contribute to our working capital in 2012, we do want to assure that the company can remain well capitalized under a number of scenarios. As such our Board has authorized us to renew our agreement for an at the mark with equity sales program that would allow us to periodically sell up to a maximum of $19.7 million in common stock at the prevailing market prices, provided the stock is trading above $6 per share. This gives us the flexibility to access capital opportunistically maintaining a healthy balance sheet during our commercialization timeline.

So collectively, looking at our current capital resources and anticipated revenues as well as several flexible financing options that can be exercised as needed. We anticipate that we will readily be able to fund operations into 2013. Art?

Dr. Art Hewitt

Thanks Nick. This morning we have the pleasure of reporting preliminary findings from the first investigator led study of droxidopa that show droxidopa rapidly and dramatically improve the symptoms of adult attention deficit hyperactivity disorder or ADHD. While this study led by Dr. Len Adler at NYU was a small exploratory single centre study. It marks a meaningful turning point for the development of droxidopa as it suggests the potential therapeutic applications for safe norepinephrine replacement therapy could go well beyond the treatment of neurogenic orthostatic hypotension.

In this study patients showed a remarkable 47% improvement from base-line as measured by the ADHD Investigator Symptom Rating Scale, improving from an average base-line score of 34 points to an average 19 points during six weeks of open-label treatment. Following the six week titration period, patients in this study entered a randomized withdraw period during which time approximately half the patients were withdrawn from droxidopa and put on placebo, a very similar design to that of our NOH Study 302.

Therefore it was not particularly surprising to us given what we have seen in Study 302, the patients who are on high doses on droxidopa and in this case droxidopa compared with carbidopa for close to six weeks continued to demonstrate a therapeutic benefit even after being switched to placebo. This response strongly mirrors the carryover effect we have previously seen associated with droxidopa treatment.

As a result it is difficult to draw much in the way of meaningful conclusions from a comparison to placebo during the two week double blind phase of the study. This of course was even more challenging given the limited size of the study and a fairly high dropout rate that is common to many ADHD studies.

All that being said, we are really primarily interested in two things in this trial; One, does the treatment with droxidopa appear to elicit a treatment effect. And two, does the drug appear to be well tolerated in an otherwise healthy patient population, meaning patients who do not suffer from the same autonomic dysfunction and blood pressure disregulation problems that characterize the patient’s historically study and who have demonstrated a benefit from droxidopa treatment.

Certainly, from what we have seen so far this study answers both questions, yes. Beyond that the data in our discussions with the study investigators suggest some promising characteristics that we weren’t necessarily expecting.

Just how quickly patients appeared to have responded and the magnitude of the therapeutic benefit demonstrated early on in this study, we are really looking forward to a more detailed review of the data with Dr. Adler to see what if anything else we can glint from the data to better understand the effect of droxidopa in adult ADHD.

Another new indication that we’re looking at for droxidopa – of course, fibromyalgia. As you know, we’re currently conducting a Phase II trial in patients with fibromyalgia that also explores the potential therapeutic benefits of droxidopa in combination with carbidopa. This study is quite a bit larger and total of 120 patients compared with the 20 patients that were enrolled in ADHD study. However, unlike the ADHD study our fibromyalgia study is strongly focused on comparing multiple dose combinations of droxidopa and carbidopa to help us further characterize the safety, efficacy and potential benefits of this combination in a disease that is believed to be primarily central-immediated.

Following our successful interim analysis last summer, we decided to increase the number of centers participating in this and now have a total of six active sites in the program. The sites have been exceeding our enrollment expectations and I am pleased to report that we anticipate closing enrollment in a few weeks which is a little ahead of schedule. Given the nine weeks three-month period, this should enable us to have top-line data from the study late in the fourth quarter.

I am also pleased to report that recruitment and enrollment is also going quite well in Study 306B where we are looking at the effective droxidopa unfolds in patients with symptomatic NOH associated with Parkinson’s disease. You will recall that when study 306 was originally spilt and 306B became its own study, we had approximately 60 patients already enrolled and plan to enroll an additional 100 patients to bring the study up to a total of 160 patients. Based on our enrollment progress today, we are projecting the study should be fully enrolled late in the fourth quarter which keeps us on track to report preliminary results from the study during the second quarter of next year.

Finally, I would like to give you a brief update on the status of our Phase II trial of CH-4051 in rheumatoid arthritis. As we discussed on our last call, we are planning to report unblinded interim efficacy data from this trial later this quarter. This analysis is expected to include the completion of greater than 90% of the patients to be enrolled in the 0.3 mg and 1 mg cohorts and approximately half of the patients to be enrolled and methotrexate control arm which was about 25. This will give us efficacy data including both ACR hybrid scores as well as standard ACR20s, 50s, and 70s for just shy of a 125 patients treated for over three months, so all in all a pretty robust data set. As a remainder this analysis will be conducted coincidently with an independent data monitoring review of safety.

The DMC review is now officially been scheduled for late September. So we look forward to reporting data shortly after their meeting. With that said I will now turn the call over to Bill for our quick update on our NDA progress.

Bill Schwieterman

Thanks Art. Actually before I get to the NDA, I just want to take a moment to touch on the medical affairs initiatives at Chelsea that are really starting to get underway. One of the critical component for the successful launch of Northera will be getting out and engaging with physicians and key optioning leaders on the topic of NOH and current treatment options. There is one thing that our research has taught us is that the neurogenic orthostatic hypotension is multi-past disorder that manifest itself in a number of ways across the diverse patient population.

Historically, with physicians not having much in the arsenal future to combat it the focus is almost been uniformly on treating blood pressure. Of course blood pressure regulation continues to be essential component of NOH, but treating NOH is proving to be much more complex and simply increasing blood pressure. Improving blood pressure does not necessary result in the symptomatic and functional benefit in patient source, so desperately a need of new and effective therapies.

Therefore it is incumbent on us to reengage the doctors at the front line of treatment and with the key opinion leaders to lead the national discussion on treatment protocols, ensure that they are aware of the breadth of symptoms and the impact of NOH as well what our data suggests about the treatment of NOH with Northera. These efforts are starting to get underway here at Chelsea. Our participation in the Movement Disorder Society meeting was really excellent example the company beginning to engage on this level. Not only do we put together a comprehensive educational symposium, but we also attracted a significant audience, generated meaningful interest in Northera and had the opportunity to meet directly with several physicians to gain additional insight into our current market practice. Over the next few quarters, these efforts will really pick up steam as we continue to add to our medical affair staff, increase our visibility at medical meetings and implement a comprehensive publication strategy.

Now, as for the NDA one of the key events for us during the second quarter was a successful completion of our dedicated thorough QTc study. As you know, this was a request that we were anticipating and that we were formally advised during our pre-NDA meeting with the FDA last December. These studies are increasingly common place for the review and approval of any new drug application and particularly so for the cardiovascular renal division that we are working with for the approval of Northera.

The purpose of this study was to evaluate and confirm the cardiac safety of Northera. The focus here was to rule out the proarrhythmic potential of Northera to effects on cardiac depolarization as mentioned by the duration of the QT interval. Having not previously seen anything during the review of cardiac measures collected in our Phase II and Phase III efficacy studies, we were not expecting any surprises in this study. Nonetheless, we were quite pleased when the studies showed that Northera did not increase heart rate or prolonged AV conductions or cardiac depolarization times at either therapeutic or super therapeutic doses.

As this is also the last clinical hurdle so to speak in our NDA package, it was also comforting to have this behind us. While this is certainly a significant event for us, there really isn’t quite as interesting as the end product that was coming together as we continue our work with NDA. Ultimately, as we get further and further long in the process of assembling the NDA, I am more and more impressed by the quality of our data and the strength of our following package. As you can imagine and as Simon indicated at the start of the call, a considerable amount of time and resources have been dedicated to completing the NDA filing. And we are in the home stretch now.

We currently expect to fill the NDA with the FDA by the end of August or early September. There is still a considerable amount of work to be done and ultimately the quality of the document will supersede any projected timeline. The base on where we stand now in the process, it looks reasonable to anticipate a submission within about a month.

Walking this timeline out, that would put us in a position to have a confirmation of the acceptance of our submission and determination on whether this submission will receive an excellent review which we are anticipating sometime in the October, November time frame.

Dr. Simon Pedder

Thanks Bill and I have to say this in an incredibly gratifying working along side Bill Art and entire Chelsea team to see how well this document is coming together as we work on detailing the efficacy of Northera, spend time with the individual study reports. We will get into the detailed work of practicing potential label for Northera. It is difficult not to struck by the strength of the data and start getting exited about the approval and on next steps which is of course why we have to Keith and his team. So I will let him fill you all in on what they have been working on, and what we can look forward to as we approach approval and laws. Keith

Keith Schmidt

Thanks Simon. Well much like Bill described with respect to medical affairs initiatives getting underway. We are really starting to put some muscle into our prelaunch marketing mark. As you know earlier this year we made critical key hires for the commercial leadership team including a sales director, a brand director, market research director to manage care contracting director. Now this group is responsible for guiding the key areas of our commercialization strategy and believe me they have hit the ground running. At the heart of the prelaunch effort is evaluating how best to access and maximize the potential market for Northera following approval. In this case because we continue to anticipate a six month’s priority review once we submit our NDA, we are really focused on the key market research and this process is by nature, time consuming but the results are invaluable in shaping and fine-tuning our commercial strategy across the board. As a result of these efforts we now are confident that there are about 10000 physicians that we will be targeting to reach approximately 50% of the prescriptions in our market. Roughly speaking this breaks down to about 2500 neurologists, 2500 cardiologists and about 5000 primary care physicians.

Now primary care physicians are a specialty that we are finding is much more involved in the initial diagnosis of OH and NOH than we previously thought. This group includes internal medicine, gynecologists etcetera and so as you can appreciate the timeliness of this information is invaluable, so that we can be sure that things like our product label are clear and ideally suited to this audience mix rather than directed exclusively to cardiologists or neurologists.

Beyond this core group of 10000 prescribers, we plan to target, we will also target an additional 20000 physicians through multi channel marketing like non-personnel promotion, e-details, telephone detailing, direct mail strategy and the like. As we gain more clarity about our target audience, one of the really exciting things to see is just how interested in and motivated by symptom relief they are? What we are clearly seeing in the response from physicians as we test the Northera profile and the label is that these doctors are in fact very much looking for symptom improvement for their patients. This is a very real unmet medical need towards helping to improve the quality of life for NOH folks.

And everything we are testing about the product profile is resonating with physicians very well like the symptom relief is the Holy Grail. Obviously it’s just the tip of the iceberg with respect to our market research. We have much more ahead in the next few months all of which will culminate in our pricing strategy, resource allocation and ultimately the sales forecast. Along the way we will more certainly gain increasing insight and clarity into the market from a patient, physician and payer perspective and each bit add precision with which we’ll be able to target this market. I can't wait to give you all the details once this research is all completed.

Dr. Simon Pedder

Thank you, Keith. While we are very much looking forward to and clearly working towards the successful launch of Northera next year, we are awfully excited about where we find ourselves today and what we have to look forward to over the next few months. We have now gotten our first indication of droxidopa’s potential benefits and significant new market ADHD, are working towards the proof of concept in fibromyalgia and other significant e-market, are coming up to first efficacy data for CH-4051 and of course we are preparing our first NDA and commercialize Northera in the United States.

The next few month promise to be exciting at the very least and hopefully rewarding as well. We look forward to updating you in our progress along the way. Operator, I’d like to open up the call for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Our first question is from Alan Carr of Needham & Company. Your line is open.

Alan Carr - Needham & Company

Hi, thanks for taking my question. Congratulations on the ADHD data this morning. I wonder if you could tell us what your strategy is, in terms of going into other indications you see have a signal here in ADHD? Do you wait until the fibromyalgia data is available, can you look or move forward in parallel with this and then also I wonder if you can give us an update in your [inaudible] therapeutic discussions over there.

Dr. Simon Pedder

Well, let me start of on that, obviously we are very excited about signal in ADHD. You will recall that we have already performed a Phase II study in patients with hypertension associated with hemodialysis that was a 90 patient study where we showed very significant improvement in a number of interventions for patients on placebo compared to active dosages of droxidopa, which of course is another very interesting indication for us. It has the indication in Japan but obviously there is a much bigger incident closely tied to the diabetic and the obesity with the end stage renal disease here in the U.S.

And of course as you mentioned the fibromyalgia indication is very exciting. So we have to channel our excitement for those three indications and really focus right now into getting the NDA completed for droxidopa in a lead indication which is NOH. We are obviously working with Keith’s team to look at the individual markets. We are looking at Art and Bill’s team to find out the cost of additional studies. We obviously have to look at what we would consider developing but also what we would consider marketing, what we would consider partnering. So it’s a very detail discussion to obviously people outside of the company but to people inside of the company as well.

I think what we will do is that we’ll focus right now on the first indication, which is NOH and following that and obviously in due course as we do our internal work we’ll be a lot more vocal about what are the indications we plan to go into. The other part of that is also of course we may get some very exciting data with our antifolate program. And what we like very much about our antifolate program of course is that if you have a methotrexate like drug and you are working on an indication, even a huge indication like rheumatoid arthritis, you probably going to become very interested, very quick in a lot of those other autoimmune anti-inflammatory indications such as psoriasis, psoriatic arthritis, Crohn’s and other autoimmune diseases. So we’ve got lots of options here and we want to take the time to obviously concentrate or innovate but then we want to make sure that we make the right move not just in Chelsea but all Chelsea shareholders about what additional indication which happened too. But certainly open to the rest of the management team so that they give their own opinion.

Bill Schwieterman

No, this is Bill. Simon I think you captured, so the only thing I’d add is that the unique thing about droxidopa is norepinephrine replacement therapy and it’s more and more it’s becoming known about in various diseases, ADHD neurogenetic diseases, Alzheimers. So there is really world of opportunity for a therapy like ours. So I agree with your statement we just want to make that bit of point. So I don’t think our job Alan is to give the answer now. So I think it will give you the answer in the not to distant future.

Alan Carr - Needham & Company

Thanks. In the update on discussion in Europe, I remember you had individual meetings within individual countries but can you add anything on EMEA?

Dr. Simon Pedder

Yeah, we had four meetings with individuals, European health authorities, three -out of the four countries gave us feedback that they report our existing package with only one study, the primary study, the typical study being Study 302 was sufficient for filing. We would like to and do plan to got back to the EMEA. We did have a successful first meeting with them, we did have meetings with personal of the individual country meetings who do play a role at the EMEA and certainly as the feedback was that besides getting feedback from the countries we solicited feedback once more from the EMEA and so that’s all planned and once we get that feedback, we will obviously share it with interested parties.

Alan Carr - Needham & Company

You don’t have a schedule yet for when that might happen?

Dr. Simon Pedder

No, we don’t have it on the agenda right now as you can appreciate. We do know that we can file in the U.S. and that’s obviously the number one priority right now.

Alan Carr - Needham & Company

Alright. Thanks for the update.

Dr. Simon Pedder

Thank you.

Operator

Thank you. Our next question is from Jonathan Eckard of Leerink Swann. Your line is open.

Jonathan Eckard - Leerink Swann

Hello guys. Thanks for taking the call. Just a couple of questions. First, regarding the manufacturing and process validation, could you remind us what the arrangement is with Sumitomo, with regards to supplying droxidopa and does this activity that you have suggested you guys just thinking of making Northera on your own?

Dr. Simon Pedder

Well, we have the benefit of that Dainippon Sumitomo manufacture a large number of compounds including compounds for the U.S. market. They are obviously an existing supplier. They in fact undergone FDA audit and from our side, the benefit that they’ve been manufacturing this drug for over 20 years.

So most of the time when you are a small biotech, you don’t just have clinical and regulatory risk, you would also have significant risk if you just synthesize the drug in relatively small batches for clinical trials and now at the same time, as you are doing registration, you are moving the scale from small batch to commercial. You know, Dainippon already manufacture this drug on a large scale.

So we think we have significantly decreased the risk, but we do have an agreement with Dainippon. They are the manufacturers of our API, just like any company. We like having a second source. We have worked with a second source which is a well-known contract manufacturer who makes compounds for most of the top 20 pharmaceutical companies. We do have an agreement there so a slight shift in compensation to Dainippon Sumitomo from a royalty rate that would switch from 5% to 6% if in fact we move to the second manufacturing source, but its all planned right now to launch with Dainippon Sumitomo.

Jonathan Eckard - Leerink Swann

That’s helpful thanks. And then regarding the physician targets that you have kind of outlined, beyond the first 10,000 I think you noted another potential 20,000 through indirect. You know the 30,000 docs potentially being targeted what do you guys currently have in your estimates for the size of the NOH market in total patient numbers. Do each of these docs have multiple patients or is it – it is pretty small numbers when it get to you those additional 20,000?

Keith Schmidt

Yeah, when you look at the first 10,000 you see a much more a concentrated level of patients and we have actually prioritized our physicians by [myridian] prescribing, [inaudible] prescribing and then and back that if we look at the Parkinson’s drug that might be associated with prescribing as well.

We have a cascade approach. But to your point the first 10,000 are really where you get 50% of your prescriptions written. The next 20,000 physicians probably accounts for another 10% or 15% and then after that it spreads out pretty widely across a large physician base.

Jonathan Eckard - Leerink Swann

So what are the current – are you willing to share the current projection as what do you see the addressable patients in the U.S. right now?

Keith Schmidt

We haven’t given guidance on that, but we have talked in terms of dollar value and if you look at our price today you can probably do the math.

Jonathan Eckard - Leerink Swann

Okay.

Keith Schmidt

We figure after about three years or so in the market we should be at $300 million to $375 million at a stated net price of $30 a day.

Jonathan Eckard - Leerink Swann

Great, that’s helpful. And then regarding the build up for both sales and medical affairs based on your guidance, where you are going to be at the end of 2011, how far into the kind of build out will you be based on the guidance would you be halfway there or a quarter of the way there, how much – basically how much additional of spend in the early part of 2012 would you anticipate?

Simon Pedder

Well, we will be spending in the fourth quarter we will pretty much hit the rate you know that we will maintain through the first quarter, obviously as we actually get to the launch there's a lot of new activities there. We will coordinate the real growth and the actual sales reps to add those very late in the process so as to avoid you know spending that money before we have the approval in hand.

Keith Schmidt

So our current plan is to, if everything goes according to our planning timelines here, we would probably put our sales and management team on board at the very end of this calendar year assuming our timeframes are holding and its our current plan to put the sales force on after approval, so that we don't have the risk of carrying a sales force in terms of delay of the FDA or something like that. So we will have our planning all in order so that the day that the product is approved offer letters will go out and representatives will be hired at that point.

Jonathan Eckard - Leerink Swann

Great thanks guys for all the updates.

Operator

Thank you. Our next question is from David Moskowitz of Roth Capital. Your line is open.

David Moskowitz - Roth Capital

Yes thanks good afternoon. Again thanks for the update. First of all can you talk about the number of sales reps that you might need given some of the metrics that you gave us?

Dr. Simon Pedder

Yeah, our current plan to cover those 10,000 physicians is 85 sales representatives.

David Moskowitz - Roth Capital

That’s very good. And you guys are budgeting and really positioning the business for a third quarter launch that was really rewind on the fact that you do get the priority review and the approval. Can you again revisit why you guys are so top in effect you could achieve the priority review and again, and let’s speak to investors again a lot of you know push back on the sales round that we saw for your two study and then again can you revisit what is it at that is so strong about the 301 trial that gives you confidence in approval? Thanks.

Dr. Bill Schwieterman

Yeah, David, this is Bill. There is lots reasons why we’re confident about that not the least of which is because we have already been designated fast track as part of our overall clinical development program and programs that are on fast track generally get priority reviews just as part of that alone. But even irrespective of that, we have a drug that addresses serious and unmet medical need. There are no proven established therapies out there that give a patient symptomatic benefits for this condition and we’ve shown multiple symptomatic benefits as you know through our OHQ and through other endpoints throughout the study.

So you know the long and short of it is that the FDA has really granted us fast track we’ve had discussions about part of the review they have given every indication that we’re going to get back and it’s obvious that we have a therapy that’s kind of meet a serious and unmet medical need in a big way. So we’re quite confident.

David Moskowitz - Roth Capital

And again, the body language that you gave incrementally with regard to getting this thing with you in a quick manner and stable at this point?

Dr. Simon Pedder

Yeah, we have had nothing but a good relationship with the FDA and they have looked favorably on our data all throughout the program and that continues and you know, we are very excited about the prospects and as we have discussed in our, I think that this is going to get a quick review at the agency, so excellent.

Jonathan Eckard - Leerink Swann

I just wanted to just follow up real quickly on 4051s, so you have the data coming out at phase II interim data and I just wanted to go over what we are going to see here. There is a interim data, you have three doses, 0.3 mg, 1 mg and 3 mg. So I guess my question is you know, why the wide berth of doses and given that all these doses are going to be compared to methotrexate, do you actually at this point expect to see an efficacy benefit with the lower doses on 4051?

Dr. Simon Pedder

That’s a real difficult question to answer with any precision for sure. I mean, we will know what we know when we see the data. That said we have a lot of preclinical data on enzyme in addition rates and from preclinical models of activity and absorption characteristics, they give us a lot of reasons to believe that 4051 is a very superior molecule to 1504 which we had already shown and had equivalent efficacy with methotrexate at this dose regimen over a very narrow range of doses in that prior study. So I mean, definitely we wanted to have a spread so that we could show a progressive dose response if there is one that to be seen we want to be able to see it, we don’t want to play around in a very narrow range.

So that sort of answers that part of the question as to what the expectations for the two low dose arms compared to methotrexate should be. I believe we will see a signal, but it will be very hard for me to say at this time just how significant that signal would be. Am I to say we are very pleased to have opened up the high dose arms where I think there the chances of seeing a very significant signal are quite a bit higher.

Unidentified Company Representative

This is [inaudible]. I just want to add one thing because I think Art’s covered all the ground. You have to remember that with 451 we actually had not just a more potentially more efficacious drug, but also a potentially more safe drug and the two of those are synergist.

So you combine the two of those together and you have lightened the therapeutic window not just a little but a whole lot and so to define that therapeutic window, we pick that doses across a dose range before you might see variable things and I think that you know the trial that we are having now its going give us information from both ends and is going to position as well for down the line.

And I would just finalize that by saying you know we have looked at a large difference with our dosages going from point three, three, that doesn’t tie us in the future from going to higher doses or perhaps even lower doses based on the efficacy and the safety.

This is what a true Phase II dose finding study is as to get an indication of the signal, what’s the safety, what’s the efficacy and where you want to go to next, but as Bill and Art have mentioned on the basis of the findings of 1504, a much less potent drug than 4051, we saw equal efficacy and perhaps signs of better safety compared to standard dose of methotrexate, so we have very high hopes of 4051 especially the top dose.

Jonathan Eckard - Leerink Swann

With respect to that, the 1504 data that we saw was in a different patient-by-patient, like this was in a pretty naïve patient population, here the treatment experience and only partially responders to methotrexate. So, I mean, how should we think about the differences between those two populations and again where we could expect from the interim data.

Unidentified Company Representative

That’s very true. It is as different patient population. This is the population that does not respond very well to methotrexate. But the two main reasons for why this population doesn’t respond to methotrexate maybe, methotrexate has very variable bioavailability in patients anywhere from 10% to 60%. 4051 has excellent bioavailability.

We have seen this in the animal studies and subsequently, we saw it in our Phase I studies and so if it really is tied to a limitation of bioavailability, we should take a stance, we can get around that with the 4051. My second point is a lot of patients are fast metabolizers of methotrexate. When it and it goes first past in the [inaudible] methotrexate that has no activity. Since our compounds, including 4051 don’t undergo any metabolism, we may in fact show a strong benefit in this population. So, we think this is an ideal population to study 4051 and show its highlights of its benefits and characteristics.

Dr. Simon Pedder

Yeah. And the only thing I would like to add to that is you know, we think there is tremendous upside to the efficacy of this drug given what we’ve seen and as I mentioned in the invitro animal studies and when you have a drug like that and you want to explore it’s potential, you go into a patient population, we have that upside in efficacy. The limitations of a naïve population over that, you tend to see caps on the efficacy be just simply because of the symptomatic benefits cap out. Here we could see much more than that and this again, this thee reason we pick the patient population and the light dose range.

Jonathan Eckard - Leerink Swann

One more question about your hybrid school, is that a well accepted endpoint, can you just explain little bit about why are you using that as a post traditional is your metrics.

Dr. Simon Pedder

You know I actually develop the guidance stock, went for the FDA for the ACR20 back when it was written as guidance documented. From the minute we wrote that document we realized that there was going to need be a need for more continues variable simply because the field had gone a pace, we published that document in 1997. It was based upon work in 1994, based upon work that was originally done in 1989. See if a guidance document not that is well over 20 years old and what the FDA did was actually a guy on my staff [Jus Fiegel] who spearheaded that was developed this measure in combination with the American College of Rheumatology to make a more sensitive outcome measure for the new times, for the new paradigms, for the new drugs. So this a newer endpoint, it hasn’t been used by that many people, but it is certainly being explored for a long of period of time. The beauty of this endpoint is actually does it use anything different than used for the ACR 20. It is the very same measures efficacy is measured by pain, by tender swollen joints, by clinicians global and et cetera.

What you with this endpoint, you collect the same information, simply make it into a more sensitive endpoint overall. And I think it is actually the perfect endpoint for a Phase II study and it’s exactly what I think the FDA is going to see as well. One last point, it is not like we are not capturing the traditional endpoints here. As part of our primary endpoint, we actually are capturing the ACR20s 50s and 70s. Those endpoints are actually in our primary endpoint itself and we’ve put them into the statistical plan so that we will actually have the primary endpoint data on those endpoints themselves. And so we sort of had the best of our worlds. We have an endpoint that’s been around for a long period of time as part of the primary endpoint, but then we have this newer more sensitive end point that will supersede that in the step down procedure and I think all together this is going to give us a lot of information.

Operator

Thank you. Our next question is from Liana Moussatos of Wedbush Securities. Your line is open.

Liana Moussatos - Wedbush Securities

Two questions, one, what are the steps left NDA submission and two why did the investigators in the ADHD trial use the similar washout design that didn't work in the 302 study.

Bill Schwieterman

Yes. That study actually was designed and initiated before we had the results of the 302 where the washout probably didn't go long enough Liana. That being said, remember that 302 shows a very nice robust difference between the OHQ, which brought us to using it in the 301. We think it’s very supportive of the 302 findings but I understand the thought process that it was actually designed after 302 which in fact it wasn’t.

Dr. Simon Pedder

Liana as always you hit the nail on the head about trial designs and so forth, I mean the truth is we are at the vanguard of the development of all of these therapies and particularly for NOH including end points and trial designs and what trial designs are typically with almost any drugs the most sensitive and enriched and powerful designs to do.

But when you have a drug like droxidopa that works both in the periphery and in the CNS as we've now learnt, those kinds of trial designs actually are not optimal. So what in essence has happened is that we have developed a field to a point now with our new end points, our new data to show that the central mechanism that we think is going on actually, probably and quite honestly that's giving us our broad range of end point is pretty powerful and that in the ADHD study, the powerful effects which we saw in the open-label design are restoring function for after you have gone to placebo for many days.

As to the question about the NDA, we are in the final stages as I mentioned in my part of the monologue before and really are making tremendous progress in synthesizing all of the documents and I’ll just leave at that, we’re at the end or making sure that our documents obviously have all the right messages that we want to put out there that they mess with each other, but most importantly we’re doing the quality assurance, quality control checks absolutely to be sure that the documents meet much with the agencies. So really its sort of the final stages of wrapping this up and pulling the polish on it.

Dr. Simon Pedder

Yeah, I’ll just quickly add, the final documents are normally the – any if you have on any ongoing safety studies and we have Study 304 is an ongoing safety study that we had to do a cut-off time which was the end of the year for that study and then of course most of the time that two final doctrines are the integrated summary of safety and integrated summary of efficacy. And so really if you want to know what the real kind of timeline critical path is me getting Bill and Art out of here back to the hotel, we’ve got a mold up on so they can work on those documents.

Liana Moussatos - Wedbush Securities

Okay, thank you.

Operator

(Operator Instructions) Our next question is from Juan Sanchez of Ladenburg. Your line is open.

Juan Sanchez - Ladenburg, Thalmann & Co.

Good evening guys.

Dr. Simon Pedder

Hey, Juan.

Juan Sanchez - Ladenburg, Thalmann & Co

If I could to the ADHD trial, what’s the historical placebo response is in an ADHD trial with this standpoint?

Dr. Simon Pedder

Yeah. Hi, Juan, our understanding from the literature is that the placebo response rates are on the order of 10% from base line.

Unidentified Analyst

And the other question is just out of curiosity. Historically when you are interacting with the FDA, always with the cardio renal division or at some point you have some interaction of the division on neuropharmacology?

Dr. Simon Pedder

Yeah. For NOH we have only dealt with digital cardiovascular arena.

Operator

Thank you. There are no further questions. I would turn the call back over to Dr. Simon Pedder for closing remarks.

Dr. Simon Pedder

Well, I just like to thank all of you again for joining us today. We will be looking forward to some key events in the coming weeks and we wish you all a pleasant evening.

Operator

Ladies and gentlemen, this concludes today’s conference. Thank you for your participation. You may now disconnect. Good day.

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