Failed Endpoints and Phase II Results Print E-mail
By Vinny Cassano   
Friday, 13 November 2009 03:00

Questions and answers about pharmaceutical companies Chelsea Therapeutics and Lexicon Pharmaceuticals.

First the question about Chelsea Therapeutics International Ltd. (NASDAQ:CHTP):

I was wondering if your thoughts have changed on CHTP since they were @ $7+.

Thanks,
Noah

My Take: CHTP was trading for over six dollars when I first commented on the stock, and at that price I wasn't much of a fan.

Since that time, the company's lead drug Droxidopa failed to meet the endpoint of a Phase III trial designed to measure the drug's effectiveness in treating symptomatic neurogenic orthostatic hypotension (NOH). However, with an additional Droxidopa trial still ongoing and with the stock now trading for about $2.25, CHTP is being considered by some as a potential rebound play.

In my opinion, I still think that there are better - and safer - rebound plays out there than this one, although the possibilities are there for CHTP to eventually recover.

Chelsea has pending talks with the FDA where they may attempt to alter the trial design of the second ongoing trial, since it has been claimed that it was a poorly designed endpoint that caused Droxipa to fail the recently announced trial. That being said, the short to mid term success of this company depends on the FDA 'playing nice' with a company after a failed trial. That's something that doesn't happen too often and I'm not willing to risk my money on that proposition.

At the current time I'd enter into an investment in CHTP with the assumption that the ongoing trial will continue on unchanged, meaning that I'd be worried - as an investor - that the results of this trial could be met with the same results of the failed one. That's a little bit more risk than I'd like to take on, even while the stock is trading for just over $2.

By comparison, I like the prospects of Titan Pharmaceuticals, Inc.(OTC:TTNP)- although Titan has started to rise pretty significantly lately- and BioDelivery Sciences International, Inc.(NASDAQ:BDSI) more than CHTP because both stocks are set to start raking in revenues on already approved drugs and are still trading at levels that I believe do not believe justify their market potential over the next few quarters.

I do see a possible upside for CHTP if things go right with the ongoing trial and/or if the FDA allows the company some flexibility with the still ongoing trial, but realistically I think that a recovery to previously traded levels may be a couple of years off at this point.

Of course, that's just my opinion.

Hi Vinny,

I am a loyal follower and respect your opinion. I wanted your opinion on two companies, of which I am already a shareholder, Lexicon Pharmaceuticals (NASDAQ:LXRX) and Rexahn Pharmaceuticals (AMEX:RNN). They have a strong and diverse pipeline, along with good management and partnerships. The companies are low-key, meaning that no bloggers have put them in the spotlight (although sometimes the spotlight isn't necessarily a good thing) and wanted your opinion.

Thanks,

Marcel

My Take: Let's talk about Lexicon Pharmaceuticals, which currently trades with a market cap of over 250 million.

What I like about the company and its stock is that there are multiple 'small molecule' drug candidates in the pipeline - all treating different indications with decent sized market potential - so if one or two were to fail any of the ongoing trials, then the company has additional product candidates to fall back on.

I also like the fact that the four lead product candidates are in relatively the same spot in Phase II trials because news and updates could come in bunches, which could lead to fairly extreme volatility in the stock price. Another positive for the company is the fact that they have existing partnerships with some big time pharma players. Any drugs or products developed in conjunction with any of the existing agreements will bring in milestone payments for Lexicon.

On another note, the fact that all of these products are in Phase II brings up some additional notes and concerns. The current market cap is about as high as I like to go with companies that have nothing beyond Phase II and because 'product to market' is still a long ways away, financing is always an issue.

That being said, the company is not in any immediate need to raise cash, but rest assured there will be some dilution before it's all said and done - in my opinion.

LXRX is a decent long term speculative play, in my opinion, but I would like to have some trading shares on hand to play any spikes and dips in order to end up on 'house money' here because I don't wholly trust companies with nothing beyond Phase II.

Keep in mind that these are my initial impressions; invest according to your own DD and tolerance for risk.

UPDATE: After the market closed on Thursday, Lexicon Pharmaceuticals announced that their investigational new drug, LX1031, a tryptophan hydroxylase (TPH) inhibitor, demonstrated positive results in clinically important parameters for the treatment of non-constipating irritable bowel syndrome (IBS). Top-line results showed that treatment with one gram of LX1031 four times daily produced a statistically significant improvement in global assessment of relief of IBS pain and discomfort over the four-week dosing period as compared to placebo (p=0.0465).

The Phase 2 clinical trial, which began at the end of December 2008, was a four-week, randomized, double-blind, placebo-controlled study to evaluate the safety and tolerability of LX1031 and its effects on symptoms associated with IBS. Shares of LXRX rose 18.71% after hours.

Disclosure: Long TTNP and BDSI
Vinny Cassano also authors the popular stock investing web site VFC's Stock House.




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