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CHTP: Why Chelsea Therapeutics May Be Set For Exponential Growth

|Includes:Chelsea Therapeutics International, Ltd. (CHTP)

First an update. Last week we mentioned two new investments. For those holding shares in either company it seems pretty easy to see positive growth ahead (see blog entry-recent investments: PLUG, IGXT) but let's take a look.

IntelGenx (OTCQX:IGXT) announced that it received a Complete Response Letter (NYSE:CRL) Tuesday morning on its Oral Migraine Film and yet with apparently minor changes needed in order to ultimately achieve approval (importantly no safety issues or need for further tests), there is much to feel good about. I mentioned the downside consensus on IGXT was around .50 - pre-FDA decision - but the market Tuesday and Wednesday seemed to agree that IGXT has a bright near-term future with the stock closing each day at higher levels as compared to those just preceding the run up to the FDA decision. When we first wrote about IGXT the stock had closed around .90 the previous session and ultimately reached a high of $1.18 Monday. I won't go into it further but I encourage people to read this referenced press release following the CRL. In short, it is our view that IGXT could easily see a double or triple from the current share price (low .80's) at some point in 2014. If you have reasonably patient money this may be a good one.

PLUG Power (NASDAQ:PLUG), having seen some outstanding share price appreciation in the past several months, is still so far from being what might be considered a mature valuation given ramping orders that we see significant share price acceleration in 2014 and beyond (though at times there is likely to be volatility in the shares). We underscore the research note from Cowen & Co. Tuesday reaffirming their "outperform rating" after two of their analysts visited Plug Power's factory last week. PLUG CEO Andy Marsh's interview with the Wall Street Analyst from February 4th provides a nice overview on the company's history as well as its future prospects. In any case this stock is one to watch all year long in our view. We are aware that there is a tendency to be backward looking in this equity as it wasn't so long ago that PLUG's very future was in question. I think the most salient aspect of Andy's interview, in addition to clear expansion and improvements in their product offerings, is the fact that they realized that their customers required turnkey systems and that needing five clothiers to dress the baby made adoption far less appealing. PLUG has clearly addressed this issue and that is why I think their sales are exploding.

So on to our newest investment, Chelsea Therapeutics (Nasdaq: CHTP)...

There are many factors that make Chelsea a compelling investment. Their NDA candidate, Northera, has orphan drug status (important in terms of grants, tax incentives and exclusive rights for 7 years) and the potential to fill a long unmet need. The market potential for the drug is at least several hundred million annually and the fact that Northera received a 16-1 advisory committee (adcom) vote less than a month ago make this extremely viable. A comprehensive thesis may be found here which we recommend anyone considering an investment in CHTP read. We note too an interview that Adam Feuerstein from The Street conducted with the CEO of Chelsea in the aftermath of the recent adcom vote. For our part we see a decision on or before February 14, 2014 as we feel the FDA is quite familiar with Northera and had plenty of time to consider labeling the last time this drug was up for review just two short years ago. We see post marketing studies being mandated to better determine long term efficacy (and Chelsea has already begun registering patients in 17-week study 401) but not necessarily restrictive labeling guidelines.

Whither PPS: Everyone has a guess as to how the market will price an approval of Northera and to be sure it is in large part just a guess. In advance of the upcoming PDUFA date a week from tomorrow, we see CHTP in the $5.20-5.50 range. Provided an approval (which we see as likely though never a sure thing) a valuation of a minimum of three times projected annual sales of $300-350M puts the market cap at about a billion dollars or some $12+ per share. We see an approval generating in the neighborhood of $8-$9 even with minor labeling restrictions. A positive 401 Study moves this into the mid-teens in our view, maybe more.

The moral case: Neurogenic Orthostatic Hypotension (NOH) stems from such corrosive and heart-wrenching conditions as Parkinson's Disease, Multiple System Atrophy and Pure Autonomic Failure. If any of you have had friends or family members with these conditions (and I count myself among you as my father has Parkinson's) you understand that they steal quality of life first and then life itself. It is also often very difficult for family members who may live with and care for them. I don't consider myself someone who bets with their heart and I'm not doing that here but approval of Northera for the tens of thousands that may well benefit from it would be extremely gratifying.

Disclaimer: Please do your own due diligence and/or consult with a trusted financial adviser before making an investment in these or any other security.

Disclosure: I am long CHTP, PLUG, IGXT.

Stocks: CHTP