Shares of Chelsea Therapeutics (CHTP), dropped 36% on Monday but started to bounce back on Tuesday after the stock regained 19.61%. The plunge Monday morning came ahead of a scheduled investor presentation at the BIO CEO & Investor Conference where company executives were expected to release details on the regulatory status of the company's experimental drug Nothera.
The stock suffered big losses after investors began to flee on news that safety data showed 3 deaths during clinical trials. Whether those deaths were directly related to the drug (unlikely) remains to be seen.
In the development of Droxidopa (named Northera), its flagship product, the company had adopted a special orphan-drug strategy for the treatment of neurogenic orthostatic hypertension (NOH). Orphan drugs that are developed successfully are given certain benefits since the disease being targeted by these drugs generally affects very few people (less than 200,000 is the approximate threshold for the United States) and most analysts appear to believe that the drug will ultimately gain approval from U.S. Regulators.
In 2007, the FDA granted orphan drug status to Droxidopa for the treatment of systomatic neurogenic orthostatic hypotension. The company is also waiting on orphan status designation in the EMEA (Europe, the Middle East, and Africa region). In the United States, Chelsea Therapeutics would be granted seven years of marketing exclusivity for Droxidopa upon successful drug and marketing approval. Successful approval in the European Union with orphan drug would mean an entire decade of exclusive marketing.
Doxidopa is a precursor molecule in the body's synthesis of norepinephrine. In being so similar to the norepinephrine molecule, it is able to treat neurogenic orthostatic hypotension by replenishing the body's lower-than-normal levels of this vital neurotransmitter. The treatment is already approved in Japan for NOH, where it has been a solid replacement for the only preexisting drug that treats the disease - Midodrin. The problem with Midodrin, according to Chelsea Therapeutics, is that the drug doesn't specifically address neurogenic OH (opposed to other types of OH) which has been an ongoing problem for NOH patients.
As Motley Fool's Brian Orelli points out: "Investors usually don't get a look at the briefing documents for an advisory panel until the Food and Drug Administration posts them on their website two days before the advisory committee meeting. But the FDA put CHTP in a bit of a pickle after it sent the company the documents for the advisory panel for Northera well ahead of the panel. Chelsea didn't actually release the briefing documents -- we'll have to wait until they're posted by the FDA next Tuesday -- but it appears that, while efficacy was the expected target of scrutiny, the FDA is taking a little closer look at the safety as well.
Until the recent drop, shares of Chelsea Therapeutics had moved well above their August 2011 lows, and had recovered from a dip induced by the announcement of a public stock offering.
While the 8.4% of the float which was short made a great deal of money following Monday's drop. Those who were betting against the stock appear to now be covering their position(s) and shares could continue to rebound. The stock is now 38% below its 52-Wk High of $ 6.06 and even further away off the highs made in December of 2010 (when CHTP traded above $7.50/share).
The first key catalyst is coming into the picture when the FDA Renal Drugs Advisory Committee's gathers to review Northera's NDA filing on February 23rd. News from that event will have impact as investors await the PDUFA action date a month later on March 28th.
Nothing has changed since Monday. Chelsea's flagship drug still faces that all important binary future. Most are still feeling that nothing in the safety profile appears to threaten the drug's approval, but what do you think? Which way are you betting?
In the very short term, at least, you may want to join the rest of the biotech traders and go long.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in CHTP over the next 72 hours.