After being decimated earlier this year on the FDA rejection of Northera, shares of Chelsea Therapeutics (NASDAQ:CHTP) could be rejuvenated as new Phase III results are expected to be reported by year-end. Upcoming results for the ‘306b study, if positive, are anticipated to serve as a guide for another Phase III trial, given that the company refocused the trial’s endpoint on dizziness. The initial endpoint of the ‘306b trial was fewer ‘falls’ associated with Parkinson’s Disease patients, however, the FDA rejection caused CHTP to try using the ‘306b trial to support relevant data in other Phase III trials, hence the refocused endpoint. When an FDA Panel recommended to approve Northera in February (FDA ultimately rejected the drug), experts agreed that the drug did help patients with neurodegenerative diseases from succumbing to severe low blood pressure, with the reduction in dizziness as the most compelling and objective measure. Primarily, the FDA rejection was due to the company’s failure to show the drug’s effects were durable over a period of time.
While the FDA subsequently told CHTP that the ‘306b trial was insufficient to support prior study data to win approval, the company has pressed on with the study to add to the body of evidence behind Northera. Should the ‘306b study show favorable results by significantly reducing dizziness over time, we believe this will provide key support that Northera could ultimately get to the market as the only FDA approved treatment for NOH (neurogenic orthostatic hypotension), a condition that affects many patients with neurodegenerative diseases. Today, a Wedbush Morgan analyst published that the company has increased its statistical power assumption on the ‘306b trial from 80% to 92% to show a difference between treated and placebo patients on the dizziness endpoint, and noted that her confidence in the success of the trial has increased.
Still, we note that this trial is highly binary, and a poor result could mean that pursuit of Northera as an approvable compound may end. Investors should look at CHTP as a risky option play, in other words, a high-risk, high-reward bet. Note that Wedbush values CHTP at $5.00 a share, suggesting that upside could be significant if the ‘306b trial has positive results. At ~$1.30 a share with ~$0.59 a share in cash, it appears that this event only costs about $0.70 per share to get involved. We think it’s worth a shot at these levels, specifically because the evidence thus far with Northera does show that the drug helps patients with neurodegenerative diseases live a better life despite their symptoms of NOH. Also, we note that no drug is approved for NOH, hence, an unmet medical need for these patients.
