Chelsea Therapeutics International Ltd said it plans to "significantly reduce" its workforce and explore strategic options, barely a week after the U.S. health regulator asked for an additional trial to approve its hypotension drug Northera.
The company also said Chief Executive Simon Pedder and Chairman Kevan Clemens have stepped down from their positions. Joseph Oliveto, the company's vice president of operations, will serve as interim CEO.
The biopharmaceutical company has been struggling to get its lead drug Northera approved by the U.S. Food and Drug Administration after it was rejected in March.
The company had hoped that a modified proposal, using data from its ongoing 306B study, would be enough to pitch the drug for approval again. But the FDA turned down that plan earlier this month, and sought an additional trial.
Though the company said Tuesday it will evaluate additional study designs required to support marketing authorization, it could still be betting on the 306B study to convince regulators.
"To me it seems like ... the cost-cutting is to extend the cash runway long enough to see if the 306B trial data is good enough to submit," Wedbush Securities analyst Liana Moussatos said.
Data from the 306B study should be out by the year end, as the company said it plans to stop patient enrolment in July.
Chelsea ended the January-March quarter with $51.7 million in cash and cash equivalents and had said in June, after an earlier round of cost cuts, that it expected to have a cash balance of $18 million to $20 million at the end of the year.
The Charlotte, North Carolina-based company, which had 49 employees as of March 2, did not specify the number of jobs it would cut.
The job cuts are expected to be completed in the third quarter of 2012 and should result in annual salary reductions of at least $3.5 million, excluding any one-time restructuring charges.
Chelsea developed Northera as a treatment for symptomatic neurogenic orthostatic hypotension, or a chronic drop in blood pressure on standing up that is most often associated with Parkinson's disease.
The drug has an orphan designation that is assigned by the FDA to medicines that target a population of less than 200,000 and gives the company a marketing exclusivity of seven years from the approval date.
This niche market may make Chelsea an attractive takeover candidate for pharmaceutical giants, including Pfizer Inc and Sanofi SA, according to analyst Moussatos.
"Orphan drugs are very profitable and popular now in the pharmaceutical industry, so I don't think they would have too much trouble finding someone, especially with their current market capitalization," she said.
The company had a market capitalization of $83.1 million as of July 9.
Chelsea said it is evaluating all available strategic options to determine the best path forward.
The statement comes days after its largest shareholder urged the company to explore alternatives, citing the Northera-related setbacks.
To tighten its focus on Northera, Chelsea said it will keep only those employees that are necessary to gain approval for the drug. Accordingly, the company's vice president, marketing and sales, Keith Schmidt will leave the company.
Two other directors, Norman Hardman and Johnson Lau, will leave the board and Chelsea said new candidates considered would include any put forth by its stockholders.
Chelsea has not said whether the corporate reorganization would delay or speed up the drug's resubmission.
In June, the company said it would resubmit its marketing application by the first quarter of 2012 and expected a decision by late third quarter 2014.
Chelsea's shares, which rose as much as 5 percent in pre-market trading, were down 14 percent at $1.06 Tuesday morning on the Nasdaq.
(Reporting by Esha Dey, Pallavi Ail and Zeba Siddiqui in Bangalore; Editing by Supriya Kurane)