Chelsea Therapeutics (CHTP) is a development-stage pharmaceutical company, focuses on the acquisition, development, and commercialization of therapeutic products for the treatment of various human diseases. The company's molecule products include a portfolio of metabolically inert antifolate molecules consisting of CH-1504 and CH-4051, which are orally available molecules with anti-inflammatory, autoimmune, and anti-tumor properties that inhibit various key enzymes required for cell proliferation; and a portfolio of dihydroorotate dehydrogenase, known as the I-3D portfolio, for applications in autoimmune diseases and transplantation.
Chelsea has some very nice technologies it's currently working on. Let's take a look at the Chelsea pipeline:
Northera (Droxidopa): an orally active synthetic precursor of norepinephrine, currently approved and marketed in Japan for the treatment of orthostatic hypotension. By replenishing depleted norepinephrine via endogenous enzymatic pathway, Droxidopa allows for re-uptake of norepinephrine into peripheral nervous system neurons - stimulating receptors for vasoconstrinction and providing physiological improvement in symptomatic neurogenic orthostatic hypotension patients.
Northera seems very interesting to me, as I am familiar with SSRIs (selective serotonin reuptake inhibitors) and the job they do in treating depression, anxiety, and panic attacks. This new drug is vaguely similar, but allows the re-uptake of Norepinephrine, which is synthesized from dopamine. This type of drug can treat a boatload of disorders ranging from anxiety and hypertension, to perhaps even treating both physical and mental withdrawals from certain drug addictions, like cocaine and heroin. It does appear this drug is being studied in various phase clinical for the treatment of multiple ailments. All it takes is FDA approval for one of these, and Chelsea will be looking very good.
This type of science always fascinates me, and so far, Chelsea certainly has my attention!
CH-1504: the lead product candidate in the antifolate portfolio, potently inhibits several key enzymes that are required for cell proliferation including dihydrofolate reductase (DHFR). Preclinical and clinical data to date seems to support CH-1504's superior safety and tolerability, as well as increased potency versus MTX, currently the leading antifolate treatment and standard of care for a broad range of abnormal cell proliferation diseases.
In The Phase 2 clinical study of CH-1501, the objective was to investigate the potential efficacy, safety, and tolerability of daily use of CH-1504 in patients with active rheumatoid arthritis (RA). US National Institutes of Health database no. NCT00658047.
The July, 2011 results were promising, showing demographic characteristics were similar in all treatment groups: mean age 54.3 ± 11.4 years, female sex 87%, mean baseline DAS28 6.6 ± 0.9. At Week 12, CH-1504 demonstrated comparable efficacy compared to MTX as measured by ACR20, DAS28, and ACR composite core-set measures, including tender and swollen joints. No dose-response relationship was observed. Adverse events across treatment groups were mild. Liver enzyme levels increased from baseline to Week 16 in the MTX group, with qualitatively lesser increases in the CH-1504 groups. Two patients in the MTX group withdrew because of gastrointestinal-related adverse events. CH-1504 appeared safe and well tolerated at all dose levels.
The study concluded that CH-1504 has comparable efficacy to MTX and is safe and well tolerated. Metabolically stable antifolates are a promising therapeutic option that warrants further study.
I am curious what the costs would be for insurance companies to support this drug, should it see FDA approval in the next 2 years or so. MTX is not the sole drug of choice for doctors treating patients suffering from RA. The following list contains the companies and their branded drugs that are used to treat RA, often times in conjunction with MTX;
- Johnson & Johnson (JNJ): Remicade
- Amgen (AMGN): Enbrel
- Pfizer (PFE): Celebrex, Tofacitinib
- Roche Holding AG (RHHBY.PK) Rituxan
- Bristol-Myers Squibb (BMY): Orencia
- Merck (MRK): Arcoxia
CH-4051: Also an antifolate indicated for the treatment of RA is currently in Phase 2 clinical. In Nov. 2011, Chelsea announced preliminary results;
These results from the unblinded interim suggest a dose-dependent therapeutic response in which patients treated with the mid-range, or 1.0 mg daily oral dose, of CH-4051 experienced similar efficacy to patients treated with a standard 20.0 mg weekly dose of methotrexate (MTX). This response suggests that patients currently receiving triple the dose, or 3.0 mg, of CH-4051 in the ongoing study may experience greater therapeutic benefits than patients treated with MTX.
Obviously, it is going to take more phase clinical study of these preliminary results, but these results do look promising. However, because RA is not considered a disease which could have drugs assigned an orphan status, I am not sure of the market penetration and wide insurance support for both CH-1501 and CH-4051. (1501 seems to be getting phased out by Chelsea in favor of 4501)
Currently, there are so many drugs as listed above for the treatment of RA, that for Chelsea to find a decent market share, they will have to show their RA drugs are vastly superior and cost competitive in comparison to the others.
Because both CH-1501 and CH-4051 are small molecule drugs, they should carry a smaller price tag than biologics. This is why the much less expensive MTX has a 70% market penetration, notwithstanding MTX is used in conjunction with some biologics to treat RA for both therapeutic benefits and cost effectiveness. I will have to look into the exact Chelsea patent protection on these to give further analysis, so stay tuned!
In contrast, I wrote 2 recent articles that cover Antares Pharma's (AIS) VIBEX MTX, which I believe will find insurance company wide support because it is a delivery system for MTX that gives MTX a further platform for extended use as a pre biologic, keeping insurance company costs down.
You can read these articles here and here.
I am most bullish on Northera, as Northera has an upcoming priority review with The FDA for approval as an orphan drug for the treatment of Parkinson's disease. Priority reviews are reserved for drugs that either offer a major advance in treatment, or provide treatment where no adequate therapy exists. An FDA decision whether to approve Northera's new drug application is expected by March 28.
With Northera's orphan drug designation, it will receive solid insurance company support if approved. The Obama administration directed the FDA last year to approve more of these orphan designated drugs, which should help Northera to receive approval.
I think Northera could potentially be a massive money maker for Chelsea. On this factor alone, I see Chelsea at its current pps level of around $4.50 a steal. Let's take a look at some company fundamentals;
| Fiscal Year Ends: | Dec 31 |
| Most Recent Quarter (mrq): | Sep 30, 2011 |
| ||||||
| ||||||
| ||||||||||||||||||
| ||||||||||||||
| Cash Flow Statement | |
| Operating Cash Flow : | -44.48M |
| Levered Free Cash Flow : | -26.01M |
One would expect to find bad numbers with a company like Chelsea, still in the drug R&D stage. As of the most recent 10q, they have nearly 58 million in cash, but are burning quite a bit of that cash as we can see by their OCF and negative levered cash flow. Regardless, if Northera is soon FDA approved, and I believe it will be, the above numbers will change dramatically.
| Shares Outstanding: | 61.85M |
| Float: | 48.71M |
| % Held by Insiders: | 23.98% |
| % Held by Institutions: | 67.30% |
The Chelsea Market Cap is 278.31M. I feel Chelsea is undervalued here just on the potential of the drugs I mentioned, especially Northera. I think Chelsea should have a much higher market cap, which obviously means a much higher stock price. Also we can see the very strong institutional ownership at near 70%; bullish.
Insider Transactions Reported for this year so far:
| Date | Insider | Shares | Type | Transaction | Value* |
|---|---|---|---|---|---|
| Jan 27, 2012 | AUSTIN JOSIAH TBeneficial Owner (10% or more) | 21,900 | Indirect | Purchase at $4.43 - $4.5 per share. | 98,0002 |
| Jan 23, 2012 | AUSTIN JOSIAH TBeneficial Owner (10% or more) | 40,000 | Indirect | Purchase at $4.80 per share. | 192,000 |
The above is also bullish, as these shares were purchased in the open market, and not acquired via stock option compensatory benefits.
Conclusion:
Chelsea at its current pps of $4.50 is undervalued. The float is somewhat low, coming in under 50 million shares. In my opinion, Chelsea should be selling in the $10 range.
When looking at all of the factors combined, I consider Chelsea a strong speculative buy, with a price target of $10.
Disclosure: I am long Antares Pharma (AIS)
Additional disclosure: This article is intended for informational and entertainment use only and should not be construed as professional investment advice. Always do you own complete due diligence before buying and selling any stock.
