FDA Changes Stance, Favors NDA Resubmission for CHTP’s Northera

Shares of Chelsea Therapeutics (CHTP) opened sharply higher on news Wednesday that FDA has provided the company with a new pathway for approval of Northera. Northera is the company’s primary value driver and a treatment for hypotension (low blood pressure associated with dizziness & fainting) in patients with Parkinson’s Disease and other neurodegenerative conditions. Results of the latest Phase III trial (the ‘306b trial) reported in early December were positive, but previously, the FDA gave guidance that results of this trial as well as several other Phase III trials (‘301, ‘302, and ‘306a) would not be enough to obtain approval, despite a positive recommendation by an FDA Panel last February. We speculated when the 306b data were released in December that the FDA could take another look at the evidence behind Northera and reconsider their requirements for approval. Based on the company’s announcement today, that is exactly what happened, which makes sense given that Northera addresses an unmet medical need and has demonstrated a benefit to patients. In the company’s press release Wednesday, FDA comments on the 306b trial results were encouraging. In a meeting between the agency and Chelsea, the FDA stated, “data strongly demonstrating a short-term clinical benefit (e.g., improvement in symptoms or ability to function) of Northera (droxidopa) in patients with NOH would be adequate for approval, with a possible requirement to verify durable clinical benefit post-approval.” The key change here is that FDA has now indicated that a short-term benefit could be used for approval and that long-term “durable” effects would be used as supportive efficacy data, and could be tested for following approval.

Given that CHTP has already demonstrated short-term benefits with Northera in several Phase III trials, specifically with regard to dizziness (Item #1 on the OHQ scale), the company plans to re-assemble its new drug application (NDA) for Northera and submit it in 2Q 2013. The company stated that it will file its updated application as a Class II NDA re-submission, which starts a 6-month review clock with potential approval by year-end. Conservatively assuming that Northera could generate at least $50M in annual sales, a typical 4x multiple on peak sales could value CHTP at $200M, double the current value of the company. Importantly, the company still has over $28M in cash, enough to get to FDA approval and beyond. Despite the sharp run-up on Wednesday’s news, we believe upside in CHTP is still significant, particularly, if the drug can be developed in other indications and achieve sales north of $50M annually. At ~$1.50 per share, and with new guidance from the FDA that currently-generated Phase III data could be enough for approval, we believe CHTP is a good bet.