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Chelsea Therapeutics: The Wall Street Analyst Forum Presentation Transcript

by: The Wall Street Analyst Forum September 20, 2007

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Chelsea Therapeutics International Ltd., (CHTP)
The Wall Street Analyst Forum
September 20, 2007 10:30 am ET

Executives

Keith Schmidt - VP of Marketing and Sales
Kate Neil - Director of Investor Relations

Presentation

Moderator

Good morning, ladies and gentleman. In our ongoing attempt to adhere to the published schedule, I would like to introduce the next company in this morning's Biotechnology and Specialty Pharmaceutical Conference. It's very much a stacked conference today; twelve companies, one after another from 8:30 until at 5:00 o' clock tonight.

The next company in this morning's program is Chelsea Therapeutics. They are an emerging Biotechnology company, focused on developing small, molecule-based therapeutics for a variety of human diseases. Their diverse pipeline includes Droxidopa, an orally synthetic precursor of norepinephrine that will enter Phase III study for neurogenic, orthostatic hypotension in the fourth quarter of 2007.

This late stage orphan drug program is balanced by the company's development of CH-1504, an orally active metabolically inert antifolate, entering Phase II proof of concept studies for treatment of rheumatoid arthritis. Without any further introduction, I would like to introduce Keith Schmidt, Vice President of Marketing and Sales. He is accompanied by [Kate Neil], Director of Investor Relations.

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Keith Schmidt

Thank you very much, and good morning, everyone. Let me move to the obvious forward-looking statement slide. I will be making some forward-looking statements. So I encourage you to go to our website and check out all of the SEC filings and things like, that just to keep you aware of all the risks that are in the pipeline.

Let's talk a little bit about the pipeline, and before I get started. My name is Keith Schmidt and I just want to acknowledge the fact that the reason I am with Chelsea is because Simon Pedder, who is the CEO of Chelsea and I worked together at Hoffmann-La Roche for many years on Pegasus. So it's a real pleasure for me to kind of hook up with Simon again, and get a chance to work with him and start to commercialize some of the products here.

Droxidopa is a product that we licensed in from Dainippon Sumitomo, and I will talk to you in some detail about orthostatic hypotension, because that's the product that's entering into Phase III next quarter, and I'll give you an update there.

The next three products, the Chelsea-1504 is the lead. These are the non-metabolized antifolates, and frankly our goal with these products is to replace methotrexate, and I will talk to you about that. Naturally the lead product there -- a few years ago for the company that got this company off the road, or on road, I should say. The last product grouping, there is a group of compounds that we have a partnership with Active Biotech, and these are all preclinical compounds, and I will give you a brief overview of what those are as well.

Now before I talk to you about Droxidopa, I just want to explain to you a little bit about what norepinephrine is. Norepinephrine is the transmitter in your nervous system that signals your blood vessels to constrict. Quite simply, if one of you would stand up, norepinephrine gets pumped out of your neurons, and it tells the vasculature in your brain to constrict, and that keeps you from getting dizzy when you stand up, okay. So if you have enough norepinephrine, and your receptors are active to receive that signal, you are in good shape. We are going to talk about patients who don't have enough norepinephrine, or whose receptors aren't receptive to the norepinephrine that's there, okay. So just try to keep that in the back of your mind.

One other thing, if you do stand up and the norepinephrine pumps and you get your vasoconstriction going, when you sit back down homeostasis sets in, the norepinephrine that's still in your system gets reabsorbed into the neurons i.e. what wasn't metabolized and your blood pressure in your brain comes back down, everything returns to normal. So, that's the way the normal body functions, and that's what we are going to simply be putting that drug back into patients.

Droxidopa is a precursor or prodrug to norepinephrine. So when you take it, its directly metabolized or decarboxylated, if you will to turn it directly into norepinephrine. So that's not a complicated metabolism here at all, it's quite simple. And it's active in both the peripheral nervous system, as well as in the brain. Its stored in the neurons just like regular norepinephrine is, because it's regular norepinephrine.

So there is a question then that you might have, what are the diseases that have a lack of norepinephrine and let's talk about some of those. In the peripheral, where the nervous system, that would be anything outside of the brain, there is a neurogenic orthostatic hypotension. That's when you don't have enough norepinephrine, and when you stand up you get dizzy or you faint or you fall and most of us have that at one time or another, but I am talking about people who have it chronically, or its not just once every month or two, it's a chronic daily situation.

There is hypotension associated with hemodialysis patients that are going through dialysis sessions, with all the volume that gets removed from their blood, they have issues with that. And there is hypotension associated with fibromyalgia and chronic fatigue syndrome, and I will talk a little more about that I have another slide and some others.

The central nervous system, the two areas that we will be looking at are fibromyalgia and chronic fatigue. If you look at this slide, those that have an asterisk beside them are those that are already approved in Japan, and have this indication and we intend to of course look at all those eventually, but the first two that we are focusing on primarily is the neurogenic orthostatic hypotension and hypotension associated with hemodialysis.

Orthostatic hypotension is when a person stands up their blood pressure, and this is the clinical definition, falls by 20 millimeters of mercury. So if you are standing -- if you are sitting blood pressure is 150 and you stand up and your blood pressure is below 130, clinically you have orthostatic hypotension. The symptoms of that then are light headedness, dizziness, falling, fainting many times. Now, there are several reasons that you can have orthostatic hypotension, one of them could be cardiovascular, or you have a weak heart and when you stand up your heart just isn't strong enough to pump enough blood to your brain. And that happens a lot of times with people with severe cardiovascular disease.

The second reason can be that endocrine causes; diabetes, specifically where the nervous system in such bad shape, due to the disease that happens. And the third and the one we're of course most concerned about are neurological, and that's the depletion of norepinephrine, about 80% of orthostatic hypotension is caused by that.

So when we look at having a patient with chronic orthostatic hypotension, in some patients, believe it or not, if we can get them up long enough to brush their teeth or to take a shower, it's a real breakthrough. In fact if you can a get a patient standing for three minutes, they can probably live alone, instead of having to have care.

So, I don't want you misinterpret the purpose for this drug is. It's for serious conditions and there are lots of patients out there that are representative. So it's most commonly associated in patients with Parkinson's disease, those with multiple systems atrophy, pure autonomic failure and other non-diabetic neuropathy.

What to use now? Two products that are used now, one of them is Midodrine, the brand name of ProAmatine and by the way both of these products are generic and no longer promoted. Midodrine is a vasoconstrictor, it constricts the blood vessels all the time and so it increases blood pressure in that manner. The problem is it even increases the blood pressure when they sit back down, because it's working all the time. So patients get hypertension, and in some cases they get supine hypertension, and the clinical definition of that is 200 millimeters of mercury.

So if you ever go to the doctor and get your blood pressure taken and it's over 200, that's a medical emergency there. They are going to have a real concern for you. So you have a black box warning with Midodrine that warns physicians to be on the lookout for that, because once you take Midodrine your veins are constricted until that drug wears off, okay. The sales of it are about $60 million a year; the branded is selling at $16 a day at the maximum dose, and the generic at $12 a day.

The other product, Fludrocortisone is a steroid, and it's indicated for Addison's disease, which is adrenal insufficiency. It's used here for its known side effects. Steroids help your body retain salts, and if you retain salt you retain water, and if you retain water your blood pressure goes up. That's why a lot of times people with high blood pressure are on a diuretic to get the water to be reduced.

So in this case we are using it for side effects, we put extra volume into the blood plasma, and that increases blood pressure. So both of these approaches work, but if you think about it for a moment, they are not very well suited for frail, elderly patients who are on lots of medications. You wouldn't want to put an older patient on a vasoconstrictor. You wouldn't want to put an older patient on a product that adds fluid volume to perhaps an already compromised cardiovascular system. But hey, they are the only game in town right now, and that's what physicians are using and getting some results with them.

In Japan, where Droxidopa has been approved for the last 15 years, the beauty of this from my point of view and I think you will agree there are no significant side effects. This is a product that simply is replenishing where Mother Nature is no longer able to provide. So we don't have these weird side-effects that you get with other products -- like with other products that get metabolized or in this case, we are not vasoconstricting 24x7 or adding extra volume to do it.

Sales in Japan are about $50 million, and one of the reasons that they are low, and I think that's a low number given the size of a country like Japan. They are stuck with a very low price. They are selling that product there for $2 to $4 a day, and as you know, periodically they even have to reduce the price more. So we are very fortunate to get that licensed in.

In the United States, I should say, in the world, US and Europe, there are about 300,000 patients that suffer from symptomatic neurogenic orthostatic hypotension; in the US about 100,000 of them. 90% of them are really already diagnosed, which we can see through looking at the prescriptions for Midrodine and Fludrocortisone, and how many patients are out there.

What we really like about this market is that we don't have to market to 150,000 or 200,000 MDs in order to capture. 232 physicians, if we break the Midrodine sales out by their files, 232 physicians are responsible for 10% of the Midrodine sales, or 10% of the prescription to say it in another way. And roughly 4,000 physicians are responsible for half of Midrodine sales, or half of the Midrodine prescriptions. So, it allows for a very efficient marketing to have a nice small physician population to go to, and we know who they are with IMS data that we can purchase from prescribing list when we go to market this product, that's exactly where we will go because that would be the only reason physicians are using Midrodine or Fludrocortisone.

As we try to quantify the value of Droxidopa, we haven't put any guidance on forecasting it as frankly we are not there. But one of the things that if you are making assumption that the product is priced at the branded ProAmatine, $16 a day, and you factor in that droxidopa, like Midodrine is a three times a day drug. I have learned over the years, that three times a day drug, chances are they won't take the third one, they only take two. So I factored back a little bit, I say 70% compliance. So I go at $16 a day is 70% compliance, every 25,000 patients generates $100 million in revenue. I said there are 90,000 patients in the U.S. already diagnosed, so it's going to be incumbent on us to see how many of those patients we can bring in and how soon.

I'll talk just a bit about hemodialysis. This is the patient that are going through a dialysis session and usually towards the last half of the session after a lot of their volume has been removed or been exchanged, they experience intradialytic hypotension, but it's not the dizziness so much that are going to fix, they are lying in a chair, so if they get some lightheadedness. But what they get here is cramping, vomiting, chest pains, and some of them faint, and some of them are actually cold.

So when it happens it's very serious, and it's kind of predictable in some patients in going forward. It's a real problem, patients feel awful when this happens and much of it is controlled by simply adjusting the machines and that sort of thing, but there is 15% to 25% of these patients that have IDH that really, really suffer a lot.

Droxidopa is used in Japan already in this indication, and we are going to go into Phase II to check the product out here and the Caucasians in the next the quarter. Midodrine is used somewhat in these patients. They give it to them ahead of time to vasoconstrict them. The issue unfortunately is Midodrine gets dialyzed out in the process. So many times they have to redose in order to try to prevent a breakthrough and sometimes they miss that. Our claim to fame if everything holds true, is we are not dialyzed out. So we should be able to get one dose in and get the patient through the session, and we'll let you know how that turns out eventually.

Fibromyalgia and chronic fatigue, sometimes when we talk about that, people raise their eyebrows. And I just want to give you a bit of a scientific rationale for it. Norepinephrine plays a role in pain, we know that. The lack of norepinephrine usually means that the pain sensation is higher. That's been known for a long, long time. And droxidopa was actually studied by Dainippon in chronic pain studies, and was shown to be dose dependently effective and statistically beat placebo there. And that data was actually published in 1996.

We also know, if you follow this market at all, that products like Cymbalta and others that are reuptake inhibitors, are also being studied in fibromyalgia. So there is plenty of evidence out there that norepinephrine plays a role. The other thing is when we talk to physicians who treat fibromyalgia, they are really-really impressed with the fact that droxidopa is so benign. There are not a lot of side effects that are going to be added to the patient.

In fact, if I didn't mention it, let me do so now. In all the clinical trials that have been done with over 3,000 patients, side effects for droxidopa have never exceeded the rate seen with placebo. So, if there was 2% headache with droxidopa, there was 2% headache with placebo. We've never had an incidence where one exceeded the placebo, okay. That's good news and its good news for physicians who are treating patients on multiple drugs with multiple issues.

The other interesting thing, our PRO at John Hopkins, and his colleagues looked at orthostatic hypotension in fibromyalgia and chronic fatigue. And I don't know if you know what a tilt-table is, but I learnt, they put it the safe way to test whether or not people have orthostatic hypotension. They weigh him on a table and tilt them up, and if they get dizzy, and complaining, and say I am going to faint, meanwhile they are monitoring their blood pressure at the same time. Tilt-table testing is kind of standard to check this thing out safely.

What he did, was he took his chronic fatigue syndrome patients, 171 of them, put them on a tilt-table and 62% of them had orthostatic hypotension. That was a real surprise. Then he took the fibromyalgia patients, 20 of them, and tilted them and 12 of them had orthostatic hypotension. But all of them -- and this is the really interesting part, all of them had increased pain when he tilted them up.

So, it's a big-enough market. There are 6 million patients in the United States alone with fibromyalgia. We have to chase this one and see if we can help these patients out. From the ethical point of view and frankly from a company point of view, it's a good thing for us to do. Those studies, say like Phase II studies will begin in the first half of next year.

So, Droxidopa lifecycle plan, how is it coming along? Well, we applied for Orphan Designation to the U.S. FDA, and to the EMEA in Europe, and we were granted Orphan Designation in both situations. So that gives us 7 years of data exclusivity in the U.S. from launch, or from approval I should say, and 10 years in Europe. That's a good thing. In addition to that, we want to develop a once-daily formulation, t.i.d. now we want to go to once a day. That would give us additional IP protection, and be better for the patients as well. And then we would like to switch the patients to that product, and withdraw the t.i.d. product as soon as possible. And then we also, as I just mentioned additionally to put potential indications into this plan that weren't in the original patent for Fibromyalgia, as I said, will begin in early 2008.

So that's Droxidopa. Talk a little bit now about our autoimmume pipeline, and quite simply, our effort here is to get 1504, which is the lead compound into Phase II, and have a proof of concept trial that all things I am going to tell you about actually -- actually occur.

The other compound is that we are -- or there are series of compounds from Active Biotech will come along later. Right now they are all preclinical, so we may have something in 2008 that we would get into Phase I.

If these products hit, we are testing them in RA to begin with. What if they hit? It doesn't take a rocket scientist to see that there are all sorts of other applications here, psoriasis, irritable bowel, asthma, transplant rejection, lupus and Crohn's disease, and of course, we will head into all of those.

Let's talk about why we want to replace methotrexate. Well, it's the most widely prescribed rheumatoid arthritis drug in the world. In the U.S. last year 4.5 million prescriptions were written for methotrexate. The overall product is actually growing by 8% as of last year, and it's no surprise. It's being used concomitantly with the biologics because it increases their efficacy.

So, it's not a product that's on the down slope, it's a product even though it's generic that's on an upward climb. It has great efficacy, no one questions that. Its limitations, however, are the fact that about 30% of the patients, even before the product can show any efficacy, drop out due to vomiting, nausea, diarrhea, just horrendous GI side-effects. Not in all patients, but in some, and these tend to increase as you increase the dose. So it's a stepwise upward progression for methotrexate to try to get efficacy, and when you do that, that's kind of when some of these problems that happen.

In fact the side effects are such that it's only dosed once a week, okay. Whereas, and that I should tell you something right there. The other thing is that the kidney and liver toxicity for long-term use is a concern. And physicians monitor quite regularly these patients with liver tests, liver enzyme tests and that's something just to keep any eye on it. And I will try to explain to you as best I can here in a moment, why we think the 1504 may resolve some of these issues.

It has to do with the last bullet point on this slide, and that is methotrexate undergoes significant metabolism. It creates metabolic mischief. What you start with isn't what you end with and I will show you what those are? So here is your chemistry lesson for the day. Talk to your bio-marketing guy. So hold on.

If you look at methotrexate, you will see those nitrogen's right on the middle there. When this product goes to the liver something happens to that. But both of these products as they exist right now, Chelsea-1504 and methotrexate they both inhibit the dihydrofolate reductase enzyme, which is what's causing the inflammation. They both do it right there, and then when this goes in to the liver then, here is what happens. It gets hydroxylated and this is now [7-hydroxymethotrexate] and what happens with this because it's hundred times, up to a hundred times more toxic to the liver and kidney cells.

This is what's causing some of those side effects. It's not thought to have much, if any efficacy. So it's just creating problems, and it's the long-term use here that becomes an issue. When you put 1504 through the liver and etcetera, there is absolutely no change, because it's not metabolized.

That wouldn't be the only thing, but if you look to the far right now on methotrexate, there is something else that's happening here. All that red, right here is [metabolic acid]. And what happens when this product gets into the cell, as it draws more molecules just like that, and it starts to stack up. In fact seven of those hook up and you have a long big molecule that gets stuck if you will in the cell. It gets so big that it can't get out and that's one of the reasons that they have the side effect issues now. So just continuing to show if, I don't have enough room here, we'll go probably down the floor.

So the issue here is that the product is metabolized, and these are the problems that are created by the metabolic, not by the original compound. Chelsea-1504 is the same all the way through this process. What you swallow is what you excrete in the rear end, there is just no change. So if this holds together in the clinical trails, we should have a product that does what methotrexate does without the nuisance side effects.

We have data. There was a six months pilot clinical study that was done in Lima, Peru by the originator or the inventor of the drug, where 6.7 milligrams of 1504 were tested against 10 milligrams of methotrexate, 20 patients, 10 in each arm, and the patients were revaluated using the American College of Rheumatology criteria and the pharmacodynamic markers of inflammation.

1504 demonstrated superior efficacy and tolerability versus methotrexate, and really we were looking more for the tolerability answer here, than the efficacy, but we got good efficacy. But it was an open trail, so there is always criticism about that. But you can't argue with the lab results, so we don't want to talk about that. There were no alleviation in liver enzymes for the 1504 patients, and the markers of inflammation, the erythrocyte sedimentation rate, the C-reactive protein, they are all normalized. So, that's proved positive, that there was something going on there; that was helping the anti inflammatory activity.

Good scores on the American College of Rheumatology, and as I said, the real issue for us that was of interest was that none of the standard GI side effects occurred with methotrexate. There was no vomiting, no nausea, no dyspepsia, no diarrhea, no abdominal pain.

So, we were ready to take this into our trials, and we noticed that there were some variations in PK with the initial formulations, which was an asset, and that's kind of an easy way to make products initially. And we thought we would be prudent for us to check that, and resolve that issue before we go into Phase II. So that's been done, and I'll just take you through this chart very quickly.

This is a study that's done in asset solution to try to simulate what's in your stomach. So you put the first blue line there of diamonds; it was the original free asset formulation, and you see the issue right away. 90 minutes have gone by and only about 50% of it is dissolved. That's a problem. You don't want to have the product sitting in the gut. You better have it dissolved and absorbed and getting it into the blood. So that was what we wanted to improve.

So we made the product into a salt, and that improved it; got a little more to dissolve at 90 minutes, say up to like 70% of it being dissolved, and then the next time was to add jell you see here, which is a PEG -- microscopic PEG fragments which help draw water to the molecule, and when you did that, bingo! We finally got where we needed to be, but now after about 15 minutes we are up to 90% dissolved.

So the next thing to do was to put that into humans and see what happens. And the good news was that we found that one milligram of the new formulation was basically comparable to 15 milligrams of the old formulations. So now when we go into Phase II, instead of having to give a patient 15 milligrams, we'll give him one, and that's a much nicer safety profile first to have, that does not allow the product sitting in the gut, it is being absorbed.

And this just shows you here that each of the products gave about 4 to 5 [nanomolars] per ml, and that was the goal here. And so we are roughly comparable at this point, and that was just great news for us. And this is another way to look at it, if you gave both products at the same dosage level, or if you gave the free asset, the original product at one milligram, and the new finalized formulation of one milligram, you see the total difference that you get now into the blood. And so anyway the ending story here for all of us was that the bioavailability problem has been solved and we are going into Phase II thankfully.

At Phase II proof of concept trial, just a quick slide on that. Twelve week double-blind randomized with a four-week followup, 200 methotrexate naive patients; we have to go to some exotic parts of the world or maybe not exotic, some faraway places to find patients who are methotrexate naive, and so we will be doing a lot of this work in Russia, Ukraine, Poland, Switzerland and Canada. It's a four-arm trial, three doses of Chelsea 1504, and taking the other arm of methotrexate up to 20 milligrams per week. And that's a good, strong, high dose of methotrexate.

Efficacy will be evaluated using standard American Oncology Rheumatology criteria in there. And we got to really look hard at the tolerability so that the standard GI events will be grouped dyspepsia, nausea, diarrhea, vomiting, if we want to really see if there is a difference there, and also looking at those liver function tests to be sure that we don't see any issues there. And we don't expect it, but that's what the purpose of the study is. Interim data, second half of next year, trial results expected in the first half of 2009.

Active Biotech is our partner from Sweden. We are doing -- they are doing, inventing if you will, and we are going to the development. They are looking at products that inhibit dihydroorotate dehydrogenase, and thereby the DNA synthesis of T-lymphocytes, which are of course are the lymphocytes that attack the joints.

Our hope here is to have a compound that is more suited for patients here then Arava or leflunomide with a much shorter half-life, and that's what we are working for. Now the development program so far. We've got 200 compounds synthesized, 15 have been isolated. We've done some micro-dosing and hoping to get product into Phase I next year.

Financial summary, 22.5 million shares of common stock as of June, now this is all as of June. Common stock outstanding with the warrants and options fully diluted were just a little short of 30 million shares, cash and cash equivalents as of June 23, 23 million.

So what's the news that you should look for from us going forward. You'll see in the results of our bioequivalent studies next quarter; we want to initiate the droxidopa program and NOH Phase III program there. Phase II starts next quarter in the hemodialysis patients. Phase II in rheumatoid arthritis for 1504 after clinical work getting going as you can see. First quarter next year we will start the fibromyalgia trials in droxidopa and all of these next three of the second half of next year.

We should have the interim data from the 1504 trial that begins next quarter and be able to share that and the results of the droxidopa Phase II OH trial as well and the Phase III trial the NOH second half of '08. The full study results of 1504 and RA would be in the first half of '09. And we would hope to file droxidopa in the first half of '09 as well for neurogenic orthostatic hypotension.

So I am happy to take any questions you might have.

Question-and-Answer Session