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Chelsea Therapeutics International Ltd. Reports Operating Results (10-Q)

May 04, 2010 | About:

Chelsea Therapeutics International Ltd. (CHTP) filed Quarterly Report for the period ended 2010-03-31.

Chelsea Therapeutics International Ltd. has a market cap of $167.6 million; its shares were traded at around $4.17 .

Highlight of Business Operations:

approximately $24 million more, primarily to complete our Phase III clinical trials and submit a new drug application, or NDA, under the brand name Northera, to the FDA. This estimate includes costs related to regulatory activities for Northera but excludes license payments totaling $2.3 million to be made at the time of NDA filing and approval. Assuming FDA approval of Northera for marketing in the United States, we currently anticipate launching the product and having initial sales or royalty revenue from it in the first quarter of 2012. In addition to the spending requirements above, we plan to spend up to approximately $2.1 million through the end of 2010 for clinical proof of concept studies of droxidopa in other indications unrelated to the NOH registration and commercialization program.

Interest income. At March 31, 2010, we had cash and cash equivalents of $31.6 million and short-term investments of $11.4 million. Although the funding received from our March 2010 financing allowed us to maintain a higher average cash level during the first quarter of 2010 when compared to 2009, interest income reflects the redemption of ARS during the second quarter of 2009 and the loss of the premium rates for those investments. Combining the loss of premium rates on short-term investments in 2009 with the soft interest rate market in 2010 and the mix of our holdings in non-interest bearing accounts, money markets, Treasury funds and similar investments, interest earned decreased by $48,000.

Other income. During the quarter ended March 31, 2009, we recorded a gain of $0.1 million on the recovery of previously recorded impairment losses on ARS of $0.3 million that were redeemed at par. In addition, based on a fair value analysis, we recorded a gain on our ARS Rights with UBS of $0.2 million, reflecting the full funding of those ARS holdings at par value through the amended line of credit agreement. For the same period of 2010, we recorded no adjustment to our previously recorded fair value of ARS.

As of March 31, 2010, we had working capital of approximately $23.7 million including cash and cash equivalents of approximately $31.6 million, short-term investments of $11.4 million and liabilities of $19.9 million. We have financed our operations primarily through sales of our common stock and, to a much lesser extent, through the issuance of our common stock pursuant to option or warrant exercises. Cash on hand results primarily from previous financing activities and proceeds from our line of credit with UBS, offset by funds utilized for operating and investing activities.

At March 31, 2010, our short-term investments of $11.4 million consisted of the fair value of principal invested in certain ARS and the fair value of the ARS Rights. The ARS held by us are private placement securities with long-term nominal maturities for which the interest rates are reset through a dutch auction on 28 or 35 day cycles. Although the monthly auctions had historically provided a liquid market for these securities, in early 2008, with the liquidity issues in the global credit and capital markets, auctions for these, and similar, securities began to fail and by March 2008, market activity had essentially ceased. Our investments in these securities represent interests in collateralized debt obligations supported by pools of structured credit instruments consisting of student loans. None of the collateral for the ARS held by us includes mortgage, credit card or insurance securitizations. As of March 31, 2010, our ARS holdings had a par value of $11.4 million and all but approximately $4.4 million were AAA/Aaa rated and insured by the Federal Family Education Loan Program (FFELP) and/or over-collateralized by more than 10%. Of the remaining $4.4 million, all were collateralized at 100% and, consistent with our investment policy at the time of purchase, $0.75 million carried an A rating, $1.15 million carried an Aa3/AAA rating and the remainder carried AAA/Aaa ratings.

We have incurred negative cash flows from operations since inception. We have spent, and expect to continue to spend, substantial amounts in connection with implementing our business strategy, including our planned product development efforts, our clinical trials, our commercialization and marketing activities for droxidopa and our efforts to secure opportunities for strategic alliances. Our continued operations will depend on whether we are able to raise additional funds through various potential sources, such as equity and debt financing or strategic alliances. Management believes that currently available capital resources will be sufficient to meet our operating needs into the first quarter of 2011. We continue to actively pursue additional sources of liquidity, including but not limited to, strategic relationships, out-licensing of our products, public or private sales of equity or debt and other sources. Such strategic relationships or out-licensing arrangements might require us to relinquish rights to certain of our technologies, product candidates or products that we would otherwise seek to develop or commercialize ourselves. Such additional funds might not become available on acceptable terms, or at all, and there can be no assurance that any additional funding that we do obtain will be sufficient to meet our needs. From inception through March 31, 2010 we had losses of $101.8 million. We had net losses of $6.2 million and $7.4 million for the three months ended March 31, 2010 and 2009, respectively, and we anticipate losses at least through 2011 unless we should successfully negotiate a strategic agreement earlier that might include out-licensing, co-development or co-promotion of our drug candidates. Actual losses will depend on a number of considerations including:

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