Chelsea Therapeutics (NASDAQ:CHTP): An Orphan Likely To Be Adopted Soon; $18 target - Roth

Roth Capital's David Moskowitz, RPh. is making an interesting call on Chelsea Therapeutics (NASDAQ:CHTP) raising his target on the small-cap biotech to $18 (up from $6).

- It looks like CHTP has significant catalysts ahead.

Here are some excerpts from the call (15pg):

* Strong Buzz On Northera At the Movement Disorder Society (MDS) Conference. On Wednesday and Thursday this week, the company featured several data presentations at the MDS conference in Toronto, Canada, including posters on additional data from Northera’s 306A study, and a subset analysis of multiple systems atrophy (MSA) patients from the drug’s pivotal 301 and 302 trials. Additionally, three presentations as part of the company’s symposium on the “Treatment of NOH in Primary Autonomic Failure with Droxidopa” featured Northera and key data from the 301 and 306A studies solidifying the drug’s broad based efficacy across multiple endpoints in NOH patients, as well as its very favorable safety and tolerability profiles. Importantly, key opinion leaders in the U.S. are awaiting access to the first drug to demonstrate clinical benefits in treating patients with neurogenic orthostatic hypotension (NOH), a major issue in patients with Parkinson’s disease. In fact, Japanese physicians that already have access to the product (marketed by Dainippon Sumitomo in Japan since 1989) expressed significant interest in the new data on the drug presented by Chelsea at the conference. Despite the Northera symposium occurring on the last day of the MDS conference, the presentation room was full, and notably, there was significant activity at the company’s poster sessions the day prior. Many physicians indicated that the striking reduction in falls in Northera-treated patients is a key benefit of the drug candidate. With an estimated 1 million PD patients in the U.S. alone, and up to one-third having symptomatic NOH, we believe Northera has the ability to be a sizable product, despite the intent on initially commercializing the product in an Orphan Drug population (NOH associated with PD).

* We believe Northera’s regulatory package is compelling and supports approval in the neurogenic orthostatic hypotension (NOH) indication. CHTP is in position to gain approval as early as 1Q'12. We raise our PT on CHTP, on increased confidence in the drug’s potential for approval and market opportunity. Data from the recent MDS meeting add support to our investment conclusion.

Summary & Investment Thesis

CHTP’s lead product candidate, Northera (droxidopa), is being readied for a 3Q 2011 submission to the FDA for review, and we believe this drug offers an important benefit to patients with neurogenic orthostatic hypotension (NOH) associated with Parkinson’s Disease (PD). NOH is a disorder caused by a deficient release of norepinephrine, which leads to decreased blood pressure upon standing, lightheadedness, dizziness, blurred vision, and syncope (fainting). In many cases, patients that have NOH can fall and worsen their health status, and in some patients, the disease itself is so debilitating that those patients remain bedridden. As a result, the FDA deems NOH an unmet medical need, and has also granted the company Orphan Drug designation for Northera. As a result, the likelihood of a Priority Review by U.S. regulators could result in a potential FDA approval of the drug in 1Q 2012. We believe the company’s clinical data package for Northera is very strong, given one highly statistically significant Phase III trial (conducted under an SPA), and another Phase III trial that provides highly consistent support to results from the larger study. Because the second study did not achieve statistical significance on the primary endpoint, many investors have exited the shares since the early part of this year, creating an opportunity, in our view. After analyzing the trial data, we believe the second study demonstrates strong efficacy of the drug, given the statistically significant result on the same endpoint as in the first trial (although not prospectively designed as the primary endpoint). Importantly, when pooling the two Phase III trials together (which we believe the FDA will do), the statistical power increases dramatically, and causes the full data set to become highly statistically significant. The compelling Phase III data, the vast efficacy and safety database generated on Northera (the drug has been on the market in Japan since 1989), as well as the high need for the drug in PD patients, boost our confidence that FDA will approve the drug next year, and that sales could peak at over $400 million in the U.S. alone. Given this potentially large opportunity, and that the company has the ability to market the drug with its own small sales force, we believe the financial leverage to the company could be impressive if Northera is approved. As a result, we believe the risk reward on shares of CHTP is compelling and we recommend that event-drive investors with a high-risk tolerance buy the stock.

Notablecalls: While I'm not familiar with CHTP story, I do like what I see so far:

- As per Roth, Docs seem to be really excited about Northera's promise. This has proven to be a significant tell in past cases.

- The company seems to be REALLY close to commercial success as approval is expected some time in 2012. They have orphan status, fast-track & a SPA. Pretty much means they will get priority review.

- Northera has been marketed in Japan since 1989, which means there's a safety database generated over 20 yrs. That resonates well with the FDA.

- There is currently only one alternative treatment on the market (and it could be pulled, according to Roth).

I'm sure there's a catch there somewhere. After all, this is a $250 million biotech. But considering Roth's target is by way the new Street high target for the name and the fact it has produced 25-50% intraday moves in the past, its worth keeping on the radar.

This one could easily trade to $5+ today.

PS: Amazingly, Roth was not involved in CHTP's last equity offering. Deutsche Bank handled the deal in Feb.