UNITED STATES DISTRICT COURT CAMERON MCINTYRE...

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF NORTH CAROLINA

CAMERON MCINTYRE, Individually and On Behalf of All Others Similarly Situated, Case No. 3:12-cv-213

v.

Plaintiffs, CLASS ACTION COMPLAINT FOR VIOLATIONS OF FEDERAL SECURITIES LAWS

CHELSEA THERAPEUTICS INTERNATIONAL, LTD., SIMON PEDDER, L. ARTHUR HEWITT, J. NICK RIEHLE, and WILLIAM D. SCHWIETERMAN,

Defendants

DEMAND FOR JURY TRIAL

Plaintiff, individually and on behalf of all other persons similarly situated, by his

undersigned attorneys, for his complaint against defendants, alleges the following based upon

personal knowledge as to himself and his own acts, and information and belief as to all other

matters, based upon, inter alia , the investigation conducted by and through his attorneys, which

included, among other things, a review of the defendants’ public documents, conference calls

and announcements made by defendants, United States Securities and Exchange Commission

(“SEC”) filings, wire and press releases published by and regarding Chelsea Therapeutics

International Ltd. (“Chelsea” or the “Company”), analysts’ reports and advisories about the

Company, and information readily obtainable on the Internet. Plaintiff believes that substantial

evidentiary support will exist for the allegations set forth herein after a reasonable opportunity

for discovery.

NATURE OF THE ACTION

1. This is a federal securities class action on behalf of a class consisting of all persons

other than defendants who purchased Chelsea securities between November 3, 2008 and March

28, 2012, inclusive (the “Class Period”), seeking to recover damages caused by defendants’

Case 3:12-cv-00213-MOC-DCK Document 1 Filed 04/04/12 of 34

violations of the federal securities laws and to pursue remedies under the Securities Exchange

Act of 1934 (the “Exchange Act”).

2. Chelsea is a biopharmaceutical company developing a pipeline of low toxicity

antifolate compounds engineered to produce anti-inflammatory and anti-tumor effects. The

Company is developing a metabolically inert treatment alternative to Methotrexate for

rheumatoid arthritis, psoriasis, and other disorders.

3. Throughout the Class Period, Defendants conditioned investors to believe that the

Northera (droxidopa), an orally-active synthetic precursor of norepinephrine being developed for

the treatment of symptomatic neurogenic orthostatic hypotension (“NOH”), would receive

approval from the U.S. Food and Drug Administration (“FDA”) through a host of materially

false and misleading statements regarding the safety and efficacy ofthe product, as well as

reportedly positive results from Northera’s clinical trials. As a result of the foregoing, the

Company’s statements were materially false and misleading at all relevant times.

4. On February 13, 2012, the Company disclosed that the FDA had raised questions

regarding the size and duration of its clinical trials of Northera. In addition, FDA investigators

noted three deaths as being possibly related to Northera.

5. As a result of this disclosure, Chelsea shares declined $1.88 per share or more than

37.5%, to close at $3.11 per share on February 13, 2012.

6. On February 21, 2012, the FDA published information ahead of a meeting by the

Cardiovascular and Renal Drugs Advisory Committee of the FDA (“Advisory Committee”)

scheduled for February 23, 2012. The FDA staff report recommended that Northera not be

approved “[o]n the basis of the safety concerns compounded by absence of evidence of durability

of effect.” The FDA staff report concluded that Northera was not approvable as the “durability

2 Case 3:12-cv-00213-MOC-DCK Document 1 Filed 04/04/12 of 34

of effect of droxidopa has not been demonstrated” and “the safety data base was small

considering the worrisome safety signals that arose during the open-label phase of the trials

which included deaths, strokes, myocardial infarction, progression of underlying disease and

hypertensive crisis.”

7. As a result of this revelation, Chelsea shares declined $0.71 per share or 21%, to

close at $2.64 per share on February 21, 2012.

8. On March 28, 2012, after the market closed, Chelsea disclosed that it had received a

complete response letter from the FDA whereby it rejected the Company’s New Drug

Application (“NDA”) for Northera. Moreover, the FDA requested that the Company “submit

data from an additional positive study to support efficacy demonstrated in Study 301 along with

the recommendation that such a study be designed to demonstrate durability of effect over a 2- to

3-month period.”

9. As a result of this news, Chelsea shares declined $1.051 per share or more than

28%, to close at $2.62 per share on March 29, 2012.

10. As a result of Defendants’ wrongful acts and omissions, and the precipitous decline

in the market value of the Company’s securities, Plaintiff and other Class members have suffered

significant damages.

JURISDICTION AND VENUE

11. The claims asserted herein arise under and pursuant to Sections l0(b) and 20(a) of

the Exchange Act, 15 U.S.C. §§ 78j(b) and 78t(a), and Rule l0b-5 promulgated thereunder by the

SEC, 17 C.F.R § 240.10b-5.

12. This Court has jurisdiction over the subject matter of this action pursuant to 28

U.S.C. §§ 1331 and 1337, and Section 27 of the Exchange Act, 15 U.S.C. § 78aa.


13. Venue is proper in this District pursuant to Section 27 of the Exchange Act, and 28

U.S.C. § 1391(b). Chelsea maintains its principal place of business in this District and many of

the acts and practices complained of occurred in substantial part herein.

14. In connection with the acts alleged in this complaint, Defendants, directly or

indirectly, used the means and instrumentalities of interstate commerce, including, but not

limited to, the mails, interstate telephone communications, and the facilities of the national

securities markets.

PARTIES

15. Plaintiff, as set forth in the accompanying certification, incorporated by reference

herein, purchased Chelsea securities at artificially inflated prices during the Class Period and was

damaged thereby.

16. Defendant Chelsea is a corporation organized under the laws of the state of

Delaware, maintaining its principal place of business at 3530 Toringdon Way, Suite 200,

Charlotte, NC 28277. Chelsea’s common stock trades on the NASDAQ Market (“NASDAQ”)

under the ticker symbol “CHTP.”

17. Defendant Simon Pedder (“Pedder”) at all relevant times has served as the

Company’s President, Chief Executive Officer (“CEO”) and a director on the Board of Directors

(“Board”).

18. DefendantL. Arthur Hewitt (“Hewitt”) has served as the Company’s Vice President

and Chief Scientific Officer since January 2010. Between July 2005 and January 2010,

Defendant Hewitt was the Company’s Vice President for Drug Development.

19. Defendant J. Nick Riehle (“Riehle”) at all relevant times has served as the

Company’s Vice President, Administration and Chief Financial Officer.


20. Defendant William D. Schwieterman (“Schwieterman”) has served as the

Company’s Vice President and Chief Medical Officer since November 2009.

21. The defendants referenced above in ¶¶17 - 20 are referred to herein as the

“Individual Defendants.”

SUBSTANTIVE ALLEGATIONS

BACKGROUND

22. Chelsea is a development-stage pharmaceutical company that seeks to acquire,

develop and commercialize innovative products for the treatment of a variety of human diseases.

Its strategy is to develop technologies that address important unmet medical needs or offer

improved, cost-effective alternatives to current methods of treatment.

23. The Company is currently developing a novel therapeutic agent for the treatment of

symptomatic neurogenic orthostatic hypotension, associated with primary autonomic failure and

falls related to NOH in Parkinson’s Disease (“PD”), as well as other potentially

norepinephrinerelated conditions and diseases, including intradialytic hypotension, fibromyalgia,

adult attention deficit hyperactivity disorder, chronic fatigue syndrome, and the freezing of gait

in PD and Down syndrome. In addition, the Company is developing a portfolio of metabolically

inert antifolates for the treatment of rheumatoid arthritis and is exploring potential applications in

multiple autoimmune disorders, including psoriasis, Crohn’s disease, uveitis, ankylosing

spondylitis, inflammatory bowel disease, cancer and other immunological disorders.

24. Droxidopa, the Company’s most advanced investigational product candidate, is an

orally active synthetic precursor of norepinephrine. To be marketed under the brand name

NortheraTM, droxidopa is being developed for the treatment of symptomatic NOH in primary

autonomic failure, a group of diseases that includes PD, multiple systems atrophy, and pure

autonomic failure.


MATERIALLY FALSE AND MISLEADING STATEMENTS MADE DURING THE CLASS PERIOD

25. On November 3, 2008, the Company issued a press release announcing that data

from the open-label portion of Chelsea’s Phase III trial demonstrated patients treated with

Droxidopa, “showed a robust reduction in the severity of symptoms associated with neurogenic

orthostatic hypotension (NOH) and a significant improvement standing systolic blood pressure.”

The Company stated the following, in relevant part:

In a presentation at the 19th International Symposium on the Autonomic Nervous System of the American Autonomic Society in Hawaii, Dr. Kaufmann, Felicia B. Axelrod Professor of Dysautonomia Research at NYU School of Medicine and a principle investigator for the study, reported data related to the first 35 patients to complete titration show a clear improvement across all doses of Droxidopa up to 600 mg t.i.d.

Patients identified as responders during the open-label titration phase of the study, and therefore eligible for inclusion in the double-blind, randomized trial, demonstrated a mean improvement of 4.6 units on Item 1 (dizziness or lightheadedness) of the Orthostatic Hypotension Symptom Assessment Scale (OHSA) during titration. The average baseline score for responders prior to treatment was 6.4 and the average score at the end of the titration was 1.8. The OHSA scale is a validated scale designed to rate symptoms occurring specifically as a result of low blood pressure and uses an 11-point scale (zero to 10), with more severe symptoms scoring higher. The same measure will be used as the primary endpoint in the blinded study to determine the relative difference in symptomatic benefit between Droxidopa and placebo 14 days post-randomization. The study, evaluating up to 118 patients, is powered to detect a mean relative change of 1.6 units or greater between treatment and placebo groups with a standard deviation of 3.

26. On February 17, 2009, the Company issued a press release announcing findings

from the open-label titration portion of its Phase II Study 302. The Company stated the

following, in relevant part:

Chelsea Therapeutics International, Ltd. (Nasdaq:CHTP) announced that the Company has completed a second analysis of data from the open-label titration portion of its Phase III Study 302 which demonstrated patients treated with Droxidopa, a synthetic precursor to norepinephrine, showed a similarly robust reduction in the severity of symptoms associated with neurogenic orthostatic


hypotension (NOH) and a improvement standing systolic blood pressure as reported in November 2008.

Patients identified as responders during the open-label titration phase of the study, and therefore eligible for inclusion in the double-blind, randomized trial, demonstrated a mean improvement of 4.2 units on Item 1 (dizziness or light-headedness) of the Orthostatic Hypotension Symptom Assessment Scale (OHSA) during titration and a mean improvement in standing systolic blood pressure (SBP) of 25 mmHg. The average baseline OHSA score for responders prior to treatment was 6.3 and the average score at the end of the titration was 2.1. The OHSA scale is a validated scale designed to rate symptoms occurring specifically as a result of low blood pressure and uses an 11-point scale (zero to 10), with more severe symptoms scoring higher. The same measure will be used as the primary endpoint in the blinded study to determine the relative difference in symptomatic benefit between Droxidopa and placebo 14 days post-randomization.

27. On September 24, 2009, the Company issued a press release announcing top-line

results from Study 302. The Company stated the following, in relevant part:

While Study 302 demonstrated that Droxidopa showed a strong symptomatic benefit during the open-label dose titration and run-in phase of the trial, a preliminary review of the data indicates it did not demonstrate a statistically significant improvement relative to placebo, as measured by the mean score of Item 1 (dizziness or light-headedness) of the Orthostatic Hypotension Symptom Assessment (OHSA) during the double-blind phase of trial, the study's primary endpoint. Droxidopa was safe and well tolerated, with no significant related adverse events reported.

"While the outcome on Item 1 of the OHSA scale did not meet the company's expectations, our preliminary look at each of the secondary symptomatic outcome measures was encouraging and supportive of the therapeutic benefit of Droxidopa in neurogenic orthostatic hypotension," commented Dr. Simon Pedder, Chelsea's President and CEO. "Further, we anticipate a more comprehensive review of the data will help determine the relative impact of a higher than anticipated placebo response and what, if any, additional factors may have contributed to these unexpected results. Key features to the design of this study included an initial 7- day open-label drug treatment period following dose titration and prior to a 14- day randomized withdrawal treatment period. While we intended to stabilize patients immediately prior to withdrawal, the observed decline in BP during this period appears to have had a negative effect on the study's ability to discern treatment effect. In addition, the benefits of Droxidopa, as measured by both BP and item 1 of the OHSA scale, appeared to persist to some extent despite absence of therapy, raising potential questions regarding the suitability of this type of trial design for an NOH study. We remain hopeful that the results of Study 301, which is a standard induction design study in which patients are washed out between


titration and the blinded study, may provide a better opportunity to clearly demonstrate the efficacy of Droxidopa in this indication."

28. On October 1, 2009, the Company issued a press release announcing continued

analysis of the previously reported results from Study 302. The Company stated the following,

in relevant part:

Chelsea Therapeutics International, Ltd. (Nasdaq:CHTP) announced that continued analysis of previously reported results from Study 302, the first of two pivotal Phase III trials in Chelsea's registration program of Droxidopa for the treatment of symptomatic, neurogenic orthostatic hypotension (NOH), confirm statistically significant benefits across five clinically relevant assessment criteria that reflect symptomatic improvements and corroborate other supportive symptom data. The collective dataset also supports the exceptional safety and tolerability of Droxidopa.

"We are encouraged by the breadth and depth of findings from Study 302 that demonstrate a symptomatic benefit and provide validation of the safety and tolerability of Droxidopa for the treatment of neurogenic orthostatic hypotension - - a serious condition with an urgent need for improved treatments," said Dr. Simon Pedder, president and CEO of Chelsea Therapeutics. "In looking ahead, we believe these results will be evident in the results of Study 301 expected this quarter. Further, we believe the outcome of Study 301 may be enhanced by the washout period included in that study. This belief is supported by open-label data from Study 301 that demonstrate a marked return of symptoms prior to randomization. The increase in average dizziness score from 1.0 following dose titration to 5.4 after a 7-day washout period in Study 301 suggests a reduction in the carry-over effect that appeared to follow sustained drug treatment prior to randomized withdrawal in Study 302."

29. On November 2, 2009, the Company filed a quarterly report with the SEC on a

Form 10-Q for the third quarter ended September 30, 2009. The 10-Q represented the following,

in relevant part:

In September 2009, we announced preliminary data from Study 302, the first of these two pivotal double-blind Phase III trials. While strong symptomatic benefit was demonstrated during the open-label dose titration and run-in phase of the trial, results of the trial did not demonstrate a statistically significant improvement relative to placebo, as measured by the mean score of Item 1 (dizziness or light-headedness) of the OHSA scale during the double-blind phase of the trial, the study’s primary endpoint. While the study did not meet its primary endpoint, additional analysis confirmed statistically significant symptomatic benefit across


five clinically relevant assessment criteria that reflect symptomatic improvements and corroborate other supportive symptom data. Data from the trial also supported the safety and tolerability of droxidopa.

30. On December 15, 2009, the Company issued a press release announcing the

approval by the FDA to change the primary endpoint and increase enrollment in Droxidopa

Pivotal Study 301. The Company stated the following, in relevant part:

The primary endpoint of the trial will now be the relative mean change in the Orthostatic Hypotension Questionnaire (OHQ) composite score between Droxidopa and placebo. The OHQ composite score is a single endpoint that reflects the average of the composite orthostatic hypotension symptom assessment (OHSA) score and the composite orthostatic hypotension daily activities scale (OHDAS) score. The FDA agreed that the revised primary endpoint reflects a more comprehensive global assessment of the clinical benefit of Droxidopa for the treatment of symptomatic NOH in primary autonomic failure, a heterogeneous population consisting of patients suffering from Parkinson's Disease (PD), multiple system atrophy (MSA) and pure autonomic failure (PAF) and would therefore be suitable for supporting a symptomatic claim.

To further de-risk the study and maximize the potential significance of the outcome, Chelsea has decided to increase the power of the study to greater than 80% by randomizing an additional 24 patients into Study 301. The company plans to reopen enrollment at select North American centers. Based on discussions with study investigators, historical rates of recruitment and the total patient requirement, Chelsea anticipates that Study 301 will complete enrollment by the end of the second quarter 2010, allowing for top-line study data in the third quarter of 2010.

The FDA confirmed that while Study 302, which failed to achieve statistical significance using only item 1 of the OHSA as a primary endpoint, and so could not be used as a pivotal study, it did provide valuable information about the benefits of Droxidopa. Both the safety and efficacy data from this study will be considered to be a supportive part of future regulatory filings. Further, the agency indicated that the number of patients already enrolled in Chelsea's pivotal program would be sufficient to support an NDA in this indication.

31. On March 10, 2010, the Company filed an annual report with the SEC on a Form

10-K for the year ended December 31, 2009. The 10-K represented the following, in relevant

part:


In September 2009, we announced preliminary data from Study 302, the first of these two pivotal double-blind Phase III trials. Study 302 was an enriched, withdrawal-design study in which all patients underwent an initial open-label dose titration then continued on drug treatment for one week prior to a two-week blinded randomized withdrawal treatment period. While strong symptomatic benefit was demonstrated during the open- label dose titration and run-in phase of the trial, results of the trial did not demonstrate a statistically significant improvement relative to placebo, as measured by the mean score of Item 1 (dizziness or light-headedness) of the OHSA scale during the double-blind phase of the trial, the study’s primary endpoint. While the study did not meet its primary endpoint, additional analysis confirmed statistically significant symptomatic benefit across five clinically relevant assessment criteria that reflect symptomatic improvements and corroborate other supportive symptom data.Data from the trial also supported the safety and tolerability of droxidopa.

32. On March 17, 2010, the Company issued a press release announcing findings from

Study 305, a study evaluating the effect of Northera on patients’ 24-hour blood pressure profile.

The Company stated the following, in relevant part:

Study 305 evaluated the blood pressure effects of Northera by comparing two 24- hour continuous BP monitoring periods in 18 patients with symptomatic NOH enrolled in Chelsea's ongoing Phase III Study 301. Blood pressure readings were initially recorded for 24 consecutive hours while patients were off drug during the washout phase of Study 301. These were then compared to similar readings recorded following Study 301 while patients were on active drug treatment during open-label extension studies.

Data from this study indicate that Northera treatment resulted in a consistent and expected increase in systolic BP (SBP) with patients experiencing a mean increase in average SBP of 7.3 mmHg over 24 hours while on drug (p<0.05). Notably, a comparative analysis of diurnal and nocturnal BP profiles on and off drug shows that the therapeutically relevant daytime SBP demonstrated a statistically significant mean increase of 8.4 mmHg (p<0.05). During the overnight hours, when blood pressure typically increases in NOH patients, Northera demonstrated less of an effect on SBP with a mean increase in average nocturnal SBP of 7.8 mmHg. In addition, no patients were observed to have consecutive SBP measurements > 180 mmHg for more than 3.5 hours at any time during the study. Consecutive nocturnal SBP measurements > 180 mmHg lasting 3.5 hours or less were observed in only 2 patients on drug treatment and 1 patient while off drug treatment. No serious adverse events were reported during the conduct of this study.


"That treatment of neurogenic orthostatic hypotension with Northera resulted in consistent improvements in blood pressure during the 24 hour treatment period without showing evidence of sustained high levels during the night is remarkable and strongly supportive of the safety of this novel investigational therapy," commented Dr. William Schwieterman, Chelsea Therapeutics' Chief Medical Officer. "As a whole, patients with NOH are inherently prone to significant variation and elevation of supine blood pressure as a consequence of their condition even when not receiving drug treatment. This is especially true at night when patients are constantly supine. Our data show that Northera appears uniquely able to meet the dual goals of selectively targeting and elevating overall blood pressure to drive symptomatic improvement during the day, without significant prolonged elevations in night time blood pressure."

33. On May 4, 2010, the Company filed a quarterly report with the SEC on a Form 10-

Q for the first quarter ended March 31, 2010. The 10-Q represented the following, in relevant

part:

In September 2009, we announced preliminary data from Study 302, the first of our pivotal double-blind Phase III trials, designed to compare Northera to placebo for the treatment of symptomatic NOH. While statistically significant benefits were shown across six clinically relevant assessment criteria along with positive trends favoring Northera on 16 of the 17 study endpoints, the trial did not meet the primary endpoint of demonstrating a statistically significant improvement relative to placebo on Item 1 (dizziness or light-headedness) of the Orthostatic Hypotension Symptom Assessment, or OHSA, scale during the double-blind phase of the trial.

***

In March 2010, we announced the results from our twenty-four hour blood pressure monitoring study, Study 305. Data from this study indicate that Northera treatment resulted in a consistent and expected increase in systolic blood pressure, or SBP, with patients experiencing a mean increase in average SBP of 7.3 mmHg over 24 hours while on drug. Consecutive nocturnal SBP measurements greater than 180 mmHg lasting 3.5 hours or less were observed in only 2 patients on drug treatment and 1 patient while off drug treatment. No serious adverse events were reported during the conduct of this study.

34. On May 18, 2010, the Company issued a press release announcing preliminary

findings from Study 303. The Company stated the following, in relevant part:

Chelsea Therapeutics International, Ltd. (Nasdaq:CHTP) reported preliminary findings from Study 303, a long-term safety extension study from its Phase III NORTHERATM (droxidopa) registration program in symptomatic neurogenic


orthostatic hypotension (NOH). Top-line results demonstrated that prolonged treatment with Northera provides clinically meaningful and durable symptomatic improvements in patients with NOH and the data validate that the drug is safe and well tolerated throughout the extended dosing period.

"Study 303 is primarily intended to generate additional, long-term safety data to support chronic dosing and supplement data generated in our pivotal efficacy studies of Northera in symptomatic neurogenic orthostatic hypotension," commented Dr. Simon Pedder, president and CEO of Chelsea Therapeutics. "Given the intended long-term use of Northera in this indication and the design of this trial, we believe Study 303 offers meaningful insight into the efficacy of Northera over an extended treatment period and underscores the suitability of Northera as both a safe and effective treatment for patients with chronic symptomatic neurogenic orthostatic hypotension. As patients continue in Study 303, we expect continuation of the clear efficacy trends and strong safety seen in the first three months of this study and believe these data will provide important long term efficacy and safety data in our final NDA package."

Efficacy Findings:

After three months of open-label treatment, patients taking Northera reported a mean decrease of 3.2 units in their OHQ composite score (p<0.001), representing a greater than 50% reduction in the signs and symptoms of NOH when compared with baseline, established prior to drug treatment. In addition, results of Study 303 continue to support the previously reported robust efficacy of Northera in treating NOH associated with Parkinson's disease (PD). Using the patient reported CGI-S, 58% of PD patients, and 47% of the full study population, reported minimal or no orthostatic hypotension by the end of the three-month treatment period, compared with 3% and 1% respectively at baseline. Further, blood pressure assessments support the strong symptomatic benefit in patients taking Northera achieving a statistically significant (p<0.001) mean improvement of 13.4 mmHg in standing blood pressure after three months of therapy compared with baseline.

35. On July 27, 2010, the Company filed a quarterly report with the SEC on a Form 10-

Q for the second quarter ended June 30, 2010. The 10-Q represented the following, in relevant

part:

In September 2009, we announced preliminary data from Study 302, the first of our pivotal double-blind Phase III trials, designed to compare Northera to placebo for the treatment of symptomatic NOH. While statistically significant benefits were shown across six clinically relevant assessment criteria along with positive trends favoring Northera on 16 of the 17 study endpoints, the trial did not meet the primary endpoint of demonstrating a statistically significant improvement relative to placebo on Item 1 (dizziness or light-headedness) of the Orthostatic


Hypotension Symptom Assessment, or OHSA, scale during the double-blind phase of the trial.

***

In March 2010, we announced the results from our twenty-four hour blood pressure monitoring study, Study 305. Data from this study indicate that Northera treatment resulted in a consistent and expected increase in systolic blood pressure, or SBP, with patients experiencing a mean increase in average SBP of 7.3 mmHg over 24 hours while on drug. Consecutive nocturnal SBP measurements greater than 180 mmHg lasting 3.5 hours or less were observed in only two patients on drug treatment and one patient while off drug treatment. No serious adverse events were reported during the conduct of this study. In May 2010, we announced the results from our long-term safety extension study, Study 303. Top-line results from this study demonstrated that prolonged treatment with droxidopa provides clinically meaningful and durable symptomatic improvements in patients with symptomatic NOH. The data further validates that the drug is safe and well tolerated throughout the extended three-month dosing period.

36. On September 20, 2010, the Company issued a press release announcing that the

preliminary analyses of its Phase III Northera Study 301 met its primary endpoint. The

Company stated the following, in relevant part:

Treatment with Northera provided clinically meaningful and statistically significant improvement (p=0.003) in symptoms associated with neurogenic orthostatic hypotension (NOH), a chronic and often debilitating drop in blood pressure upon standing. Study results also showed that Northera was both safe and very well tolerated.

"We are extremely excited by these top-line results which provide validation of the safety and efficacy of Northera as a novel treatment for symptomatic neurogenic orthostatic hypotension, a serious condition for which there is an urgent need for improved treatments," said Dr. Simon Pedder, president and CEO of Chelsea Therapeutics. "Symptoms of chronic neurogenic orthostatic hypotension are severe, not only putting patients at high risk for falls and associated injuries but also severely impacting their quality of life and generating significant added health care costs. Northera is the first and only drug to repeatedly demonstrate clinical improvement in these patients by both alleviating symptoms of neurogenic orthostatic hypotension and improving their ability to perform daily activities."

Northera Trial Meets Primary and Multiple Secondary Endpoints

Patients randomized into this double-blind, placebo controlled study were evaluated for symptomatic and functional improvement using the orthostatic hypotension questionnaire (OHQ), which is specifically designed to rate the


severity of symptoms resulting from low blood pressure and the degree those symptoms interfere with a patient's ability to perform activities of daily living.

The OHQ is a two-part questionnaire that uses an 11-point scale (zero to 10) to assess the severity of six symptoms on the orthostatic hypotension symptom assessment scale (OHSA) and four patient function criteria on the orthostatic hypotension daily activities scale (OHDAS). The trial's primary outcome measure, the composite OHQ score, reflects the average improvement (decrease) in mean OHSA and OHDAS scores.



in relevant part:

In September 2010, we announced that upon preliminary analysis of Study 301, the second of our pivotal Phase III trials of Northera for the treatment of symptomatic NOH, the study had met its primary endpoint. Treatment with Northera provided clinically-meaningful and statistically-significant improvement (p=0.003) in symptoms associated with NOH. Study results also showed that Northera was both safe and very well tolerated. Patients randomized into this double-blind, placebo-controlled study were evaluated for symptomatic and functional improvements using the orthostatic hypotension questionnaire, or OHQ, that is specifically designed to rate the severity of symptoms resulting from low-blood pressure and the degree to which those symptoms interfere with a patient’s ability to perform activities of daily living. In addition to the symptomatic and functional benefits registered on the OHQ, the study validated Northera’s unique mechanism of action and confirmed the preferential effect of Northera on standing systolic blood pressure, or SBP, versus supine SBP, demonstrating a statisticallysignificant improvement in standing SBP (p<0.001) relative to placebo. The study was conducted under a Special Protocol Assessment, or SPA, granted by the FDA in February 2008, providing an agreement that the study design, including trial size, clinical endpoints and/or data analyses is acceptable to support regulatory approval.

In 2009, we announced data from Study 302, the first of our pivotal double-blind Phase III trials, designed to compare Northera to placebo for the treatment of symptomatic NOH. While statistically-significant benefits were shown across six clinically-relevant assessment criteria along with positive trends favoring Northera on 16 of the 17 study endpoints providing significant supporting data for the use of Northera in the treatment of symptomatic NOH, the trial did not meet the primary endpoint of demonstrating a statistically-significant improvement relative to placebo on Item 1 (dizziness or light-headedness) of the Orthostatic Hypotension Symptom Assessment, or OHSA, scale during the double-blind phase of the trial. While the study did not meet its primary endpoint, additional


analysis confirmed statistically-significant symptomatic benefit across five clinically-relevant assessment criteria that reflect symptomatic improvements and corroborate other supportive symptom data. Data from the trial also supported the safety and tolerability of droxidopa.

38. On December 20, 2010, the Company issued a press release announcing its

intention to accelerate its NDA for Northera for the treatment of symptomatic NOH. The


At the meeting, the FDA agreed that the proposed NDA for Northera could be submitted based on combined data from Chelsea's two completed Phase III studies in NOH, Study 301 and Study 302, without the need for any further efficacy studies. During the meeting, the agency did request and Chelsea agreed to supply top-line results from a QTc study at the time of the 90-day Safety Update and conduct a post-marketing study to evaluate the clinical pharmacology of Northera in renally impaired patients.

"The successful outcome of our pre-NDA meeting with the FDA reflects the strength of the data already generated by our pivotal program and marks a significant step forward for Chelsea," commented Dr. Simon Pedder, president and CEO of Chelsea Therapeutics. "We believe that the Phase III trials we have already completed, combined with the extensive Japanese and European data available to us, clearly demonstrate Northera's meaningful clinical benefit to patients whose day to day lives are severely impacted by the signs and symptoms of neurogenic orthostatic hypotension. Furthermore, based on feedback received during the meeting and subsequent correspondence, we believe the safety profile of Northera is unlikely to result in a black box warning for supine hypertension in its label. We appreciate the guidance that the FDA has given the company as it prepares this new NDA, and look forward to working with the FDA as we seek marketing approval for Northera in the US in 2011."

39. On January 20, 2011, the Company issued a press release announcing that

“[p]reliminary, top-line results demonstrate Northera provides clinically meaningful and durable

symptomatic improvements in patients with NOH throughout a one-year observation period.

The data also validate that the drug is safe and well tolerated following extended dosing up to

two years.” The Company stated the following, in relevant part:

In May of 2010, Chelsea reported preliminary data from the first 75 patients to complete three months of treatment with Northera. That data demonstrated


patients taking Northera reported a mean decrease of 3.2 units in their Orthostatic Hypotension Questionnaire (OHQ) composite score (p<0.001), representing a greater than 50% reduction in the signs and symptoms of NOH when compared with baseline, established prior to drug treatment. In addition, blood pressure assessments supported the strong symptomatic benefit in patients taking Northera, as patients treated for three months showed a statistically significant (p<0.001) mean improvement of 13.4 mmHg in standing systolic blood pressure (SBP) compared with baseline.

Following the initial three-month evaluation, patients were eligible to continue receiving Northera and were subsequently evaluated for efficacy after six and 12 months of continuous treatment. At the conclusion of the study, a total of 102 patients had received treatment with Northera in Study 303 with 2 patients reaching 24 months of treatment, 14 reaching 18 months, 55 patients reaching at least 12 months, and 63 patients treated for at least 6 months.

40. On February 2, 2011, the Company issued a press release announcing interim

results and plans to modify Study 306 to focus on reduction in falls associated with NOH. The


Chelsea Therapeutics International, Ltd. (Nasdaq:CHTP) announces plans to modify Study 306, a Phase III study of NORTHERATM (droxidopa) in symptomatic neurogenic orthostatic hypotension (NOH) associated with Parkinson's disease (PD) following a futility determination at the planned interim analysis of the study's primary endpoint and an unblinded review of multiple, secondary outcome measures showing dramatic reduction in falls and clear signs of therapeutic activity associated with Northera in the first 51 patients to complete Study 306 .

"While fully characterizing the symptomatic benefit of Northera in neurogenic orthostatic hypotension has historically been difficult given the inherent variability and limitations of subjective patient reported outcomes, our primary goal has always been to demonstrate the potential improvements to patients' daily lives," commented Dr. Simon Pedder, president and CEO of Chelsea Therapeutics. "We were therefore both surprised and encouraged to observe a 9 to 1 difference in the number of patients reporting falls as an adverse event in our relatively short Studies 301 and 302, and embraced the opportunity to prospectively assess the importance of this objective endpoint in Study 306. We believe the reduction of falls reported to date in Study 306 unequivocally supports the efficacy data generated to date by our Phase III trials and potentially affords us the opportunity to pursue future Northera label expansion to include the prevention of falls in neurogenic orthostatic hypotension associated with Parkinson's disease."


The original purpose of the planned interim analysis was to evaluate the powering assumptions of Study 306 based exclusively on the study's primary endpoint, the relative change from baseline in orthostatic hypotension questionnaire (OHQ) composite score. The OHQ composite score is a single endpoint that reflects the average of two, 11-point patient reported symptom-rating scales: the composite orthostatic hypotension symptom assessment (OHSA) score and the composite orthostatic hypotension daily activities scale (OHDAS) score. At the end of the eight-week double-blind treatment period, patients taking Northera reported a mean improvement in OHQ composite score of 2.3 units (+/- 2.52) from their mean baseline OHQ composite score of 6.0, established prior to drug treatment. While this treatment effect is highly consistent with the benefit reported by PD patients in Studies 301, 302 and 303, the study's ability to discern the true benefit of Northera was confounded by a highly variable and larger than anticipated placebo response. Patients randomized to placebo reported a mean OHQ composite score of 3.5 (+/- 2.49), based upon a 2.1 unit improvement from baseline OHQ composite score of 5.6, resulting in a relative mean difference of 0.2 units in OHQ composite scores between Northera and placebo at the end of the study.

41. On March 2, 2011, the Company filed an annual report with the SEC on a Form 10-

K for the year ended December 31, 2010. The 10-K represented the following, in relevant part:

We have previously completed two Phase III trials, Studies 301 and 302, of Northera for the treatment of symptomatic NOH in patients with primary autonomic failure. The improvements in the symptoms of NOH, as measured by the orthostatic hypotension questionnaire composite score, or OHQ composite, associated with Northera treatment in our pivotal efficacy Study 301 are highly significant (p<0.003) and showed similar improvements (p<0.05) in a post-hoc analysis of Study 302 data. On that basis, we proposed filing our NDA in symptomatic NOH. During our pre-NDA meeting in December of 2010, the FDA agreed that the proposed NDA for Northera could be submitted based on combined data from our two completed Phase III studies of Northera in NOH, Study 301 and Study 302, and their associated safety Studies 303, 304 and 305, without the need for additional efficacy studies. During the meeting, the FDA did request and we agreed to supply top-line results from a QTc study at the time of the 90-day safety update. A QT interval is a measure of the time between the start of the Q wave and the end of the T wave in the heart’s electrical cycle. In general, a prolonged QT interval is a biomarker for ventricular tachyarrhythmias and can be a risk factor for sudden death. In addition, the FDA also requested that we conduct a post-marketing study to evaluate the clinical pharmacology of Northera in renally-impaired patients.

Study 301 and Study 302 were designed to compare Northera to placebo at multiple sites in North America, Europe and Australia. Both Phase III trials were intended to assess the safety and efficacy of up to 600 mg t.i.d. of Northera in


patients suffering from symptomatic NOH associated with primary autonomic failure and both were designed to evaluate functional and symptomatic improvements through multiple endpoints including OHQ scores.

42. On April 18, 2011, the Company issued a press release confirming plans to file an

NDA for Northerafor the treatment of NOH. The Company stated the following, in relevant

part:

Chelsea Therapeutics International, Ltd. (Nasdaq:CHTP) reaffirms NORTHERATM (droxidopa) new drug application (NDA) filing strategy following correspondence with the U.S. Food and Drug Administration (FDA) regarding recent data from Northera Study 306A and protocol amendments to ongoing Northera Study 306B comparing the rate of patient reported falls associated with symptomatic neurogenic orthostatic hypotension (NOH) in patients with Parkinson's disease (PD) taking Northera versus placebo .

Following a comprehensive pre-NDA meeting with the FDA in December 2010 and subsequent communication with the agency, Chelsea plans to file its NDA for Northera for the treatment of symptomatic NOH based on combined efficacy data from Chelsea's two completed Phase III studies in NOH, Study 301 and Study 302, during the third quarter of 2011 . In keeping with the FDA's recommendations, Chelsea will not seek a falls claim in the initial labeling, but intends to continue its ongoing clinical evaluation of the effects of Northera in reducing the number of falls associated with NOH from Parkinson's disease and pursue future label expansion opportunities for Northera post-approval.

"We believe the remarkable safety and tolerability of Northera coupled with the robust clinical benefit demonstrated throughout our Phase III program provide a strong basis for the approval of Northera as a novel treatment for symptomatic neurogenic orthostatic hypotension," commented Dr. Simon Pedder, president and CEO of Chelsea Therapeutics. "We continue to be appreciative of the guidance that the FDA has provided to Chelsea as we prepare to file this new NDA in the third quarter of 2011. Following the approval of Northera, we look forward to building on the clinical work currently underway in Study 306B and completing the necessary studies to allow for a post-marketing expansion of the label including a claim that Northera reduces falls in neurogenic orthostatic hypotension from Parkinson's Disease."

43. On May 9, 2011, the Company filed a quarterly report with the SEC on a Form 10-

Q for the first quarter ended March 31, 2010. The 10-Q represented the following, in relevant

part:


We have previously completed two Phase III trials, Studies 301 and 302, of Northera for the treatment of symptomatic neurogenic orthostatic hypotension in patients with primary autonomic failure, a group of diseases including Parkinson’s disease, multiple system atrophy and pure autonomic failure. The improvements in the symptoms of NOH, as measured by the orthostatic hypotension questionnaire composite score, or OHQ composite, associated with Northera treatment in our pivotal efficacy Study 301 are highly significant (p<0.003) and showed similar improvements (p<0.05) in a post-hoc analysis of Study 302 data. On that basis, we proposed filing our new drug application, or NDA, in symptomatic NOH. During our pre-NDA meeting in December 2010, the FDA agreed that the proposed NDA for Northera could be submitted based on combined data from our two completed Phase III studies of Northera in NOH, Study 301 and Study 302, and their associated safety Studies 303, 304 and 305, without the need for any further efficacy studies. During the meeting, the FDA did request and we agreed to supply top-line results from a QTc study, which was initiated in the first quarter of 2011, at the time of the 90-day safety update and conduct a postmarketing study to evaluate the clinical pharmacology of Northera in renally-impaired patients.

Upon review of anecdotal evidence in the adverse events reported in Study 302 suggesting that Northera treatment was associated with fewer falls, we decided to prospectively assess this benefit as a secondary efficacy parameter in Study 306, a Phase III trial initiated in 2010 prior to the completion of Study 301. Since Study 306 was originally intended to support our registration of Northera for the treatment of NOH, the primary endpoint for Study 306 was the relative mean change in the OHQ composite between treatment and placebo arms. In February of 2011, we announced our plans to modify Study 306 following a futility determination at the planned interim analysis of the study’s primary endpoint. Our subsequent unblinded review of multiple, secondary outcome measures showed an approximate 60% reduction in rate of patient reported falls andsupportive signs of therapeutic activity associated with Northera in the first 51 patients to complete Study 306.

44. On June 9, 2011, the Company issued a press release announcing a presentation of

new data from Phase III trials in symptomatic NOH to demonstrate the activity and tolerability

of Northera. The Company stated the following, in relevant part:

In a poster, "Safety and efficacy of Northera (droxidopa) in Multiple System Atrophy," (Abstract Number: 778), Gregor K. Wenning, MD, PhD MSc, Medical University, Innsbruck, Austria, highlighted the results of a meta-analysis of Northera Studies 301 and 302 showing the mean Orthostatic Hypotension Questionnaire (OHQ) composite score of Northera-treated patients improved significantly (2.9 units; P<0.05) from baseline to study completion when compared to placebo-treated patients (1.7 units). Greater improvement in standing


systolic blood pressure, mean composite Orthostatic Hypotension Symptom Assessment (OHSA), and Orthostatic Hypotension Daily Activity Scale (OHDAS) scores of the Northera- vs. placebo-treated patients was also observed. These findings were consistent with the results of the full study population in Study 301, presented by Dr. Wenning during the symposium, in which Northera-treated patients demonstrated improvements in multiple signs and symptoms of NOH including a statistically significant (p=0.003) improvement in OHQ Composite score, statistically significant benefit in 8 out of 10 individual OHQ items and a significant improvement (p < 0.001) in standing SBP compared to placebo.

Detailing the results from Northera Study 306A, in a poster "Efficacy of Northera (droxidopa) in Patients with Neurogenic Orthostatic Hypotension associated with Parkinson's disease (PD)," (Abstract Number: LB21) and during his symposium presentation, Robert A. Hauser, MD, University of South Florida, Tampa, FL, described the symptomatic benefit of Northera treatment in this population and the associated reduction in falls reported during the study. Of note, Dr. Hauser reported that data from the study suggests that a majority of patients with symptomatic NOH and PD fall, and many of these fall more than once, in a 10- week period. In Study 306A, approximately 43% of patients fell more than once during the course of the study. Among these repeat fallers, the robust benefit of Northera treatment in reducing dizziness and improving Hoehn&Yahr (HY) and the Movement Disorder Society-sponsored revision of the Unified Parkinson's Disease Rating Scale (MDS-UPDRS) scores was associated with a 60% reduction in falls and 52% reduction in falls-related injuries.

The pronounced improvement in MDS-UPDRS and HY scores among Northera-treated patients in Study 306A further suggests that Northera may provide therapeutic benefit in the non-motor and motor symptoms of Parkinson's disease beyond the symptomatic improvement of NOH. In addition to a mean improvement of 1.37 units on Part I of the MDS-UPDRS (non-motor experiences of daily living), Northera treatment showed a mean improvement of 2.1 units on Part II of the MDS-UPDRS (motor experiences of daily living) and a 0.4 unit improvement in HY scores over the course of the treatment period.

45. On June 20, 2011, the Company issued a press release announcing the completion

of its QTc study of Northera. The Company stated the following, in relevant part:

"Data from this dedicated study were consistent with the cardiac measures collected during our Phase III efficacy studies and provide clear evidence further confirming Northera's safe cardiovascular profile," commented Dr. Bill Schwieterman, Chelsea's Chief Medical Officer. "Not only are these findings important for characterizing Northera's safety profile, but completing this study was the last clinical hurdle in our registration program and its success marks the


completion of the clinical requirements for our new drug application for Northera in the U.S."

Chelsea conducted this study, at the request of the FDA, to formally evaluate and confirm the cardiac safety of Northera. The focus of the study was to rule out the proarrhythmic potential of Northera through effects on cardiac depolarization as measured by the duration of the QT interval in serial electrocardiograms (ECG). The trial was a double-blind, randomized, 4-period crossover study in 52 healthy volunteers which compared the ECG effects of Northera, administered as a single therapeutic (600 mg) and a single supratherapeutic (2000 mg) dose, to placebo and moxifloxacin, a positive control known to increase the QT interval. The primary analysis was centered on a time-matched change from baseline in corrected QT interval (QTc).

The results of this ECG trial showed that Northera, at either therapeutic or supratherapeutic doses did not increase heart rate or prolong AV conduction or cardiac depolarization times as measured by the PR interval, QT interval, and duration of the QRS complex. There were no clinically relevant morphological changes following treatment with Northera that might indicate a safety concern.

46. On July 27, 2011, the Company filed a quarterly report with the SEC on a Form 10-

Q for the second quarter ended June 30, 2010. The 10-Q represented the following, in relevant

part:

We have previously completed two Phase III trials, Studies 301 and 302, of Northera for the treatment of symptomatic NOH in patients with primary autonomic failure, a group of diseases including Parkinson’s disease, MSA and PAF. The improvements in the symptoms of NOH, as measured by the orthostatic hypotension questionnaire composite score, or OHQ composite, associated with Northera treatment in our pivotal efficacy Study 301 are highly significant (p=0.003) and showed similar improvements (p<0.05) in a post-hoc analysis of Study 302 data. On that basis, we proposed filing our new drug application, or NDA, in symptomatic NOH. During our pre-NDA meeting with the FDA in December 2010 and in subsequent communication with the agency, the FDA agreed that the proposed NDA for Northera could be submitted based on combined data from our two completed Phase III studies of Northera in NOH, Study 301 and Study 302, and their associated safety Studies 303, 304 and 305, without the need for any further efficacy studies. During the meeting, the FDA requested and we agreed to supply top-line results from a QTc study of Northera at the time of the 90-day safety update. During the second quarter of 2011, we announced the successful completion of this dedicated QTc study of Northera to formally evaluate and confirm the cardiac safety of Northera. The results of this ECG trial showed that Northera, at either therapeutic or supratherapeutic doses, did not increase heart rate or prolong AV conduction or cardiac polarization times


as measure by the PR interval, QT interval and duration of the QRS complex. The FDA has also requested that we conduct a post-marketing study to evaluate the clinical pharmacology of Northera in renally-impaired patients. We currently plan to file our NDA with the FDA in the third quarter of 2011.

Upon review of anecdotal evidence in the adverse events reported in Study 301 and Study 302 suggesting that Northera treatment was associated with fewer falls, we decided to prospectively assess this benefit as a secondary efficacy parameter in Study 306, a Phase III trial initiated in 2010 prior to the completion of Study 301. Since Study 306 was originally intended to support our registration of Northera for the treatment of NOH, the primary endpoint for Study 306 was the relative mean change in the OHQ composite between treatment and placebo arms. In February of 2011, we announced our plans to modify Study 306 following a determination of futility at the planned interim analysis of the study’s primary endpoint. Our subsequent unblinded review of multiple, secondary outcome measures showed an approximate 60% reduction in the rate of patient reported falls and supportive signs of therapeutic activity associated with Northera in the first 51 patients to complete Study 306.

47. On September 28, 2011, the Company issued a press release announcing the

submission of its NDA for Northera for the treatment of symptomatic NOH. The Company

stated the following, in relevant part:

"The NDA submission for Northera marks a significant milestone for Chelsea," commented Dr. Simon Pedder, president and CEO of Chelsea Therapeutics. "We believe the robust clinical data generated by our Phase III program clearly demonstrates that Northera is safe and effective for the treatment of symptomatic NOH. If approved, Northera would be the first treatment that specifically improves symptoms of NOH and reduces their impact on a patient's ability to perform daily activities that require standing or walking. We look forward to working closely with FDA on this application while progressing other clinical studies currently underway for Northera and our phase II anti-inflammatory program with CH-4051."

The clinical portion of the NDA filing includes combined safety and efficacy data from Chelsea's two completed Phase III efficacy studies in NOH (Studies 301 and 302), two long-term open-label extension studies, a dedicated thorough QTc study, and a 24-hour ambulatory blood pressure monitoring safety study.




in relevant part:

In September 2011, we submitted a New Drug Application, or NDA, to the U. S. Food and Drug Administration, or FDA, seeking approval to market Northera in patients with primary autonomic failure, DBH deficiency and non-diabetic autonomic neuropathy. In our application, we requested priority review of the NDA, which, if granted, could mean the FDA’s goal, under the Prescription Drug User Fee Act, or PDUFA, would be to review and act on the NDA by the end of the first quarter of 2012.

The clinical portion of the NDA includes combined safety and efficacy data from our two completed Phase III studies in NOH, Study 301 and Study 302, two long-term open-label extension studies, Study 303 and Study 304, a dedicated thorough QTc study and a 24-hour ambulatory blood pressure monitoring study, Study 305. During our pre-NDA meeting with the FDA in December 2010 and in subsequent communication with the agency, the FDA agreed that the proposed NDA for Northera could be submitted based on combined data from these studies without the need for any further efficacy studies. Also during the pre-NDA meeting, the FDA requested a thorough QTc study of Northera be completed and indicated that results could be submitted at the time of the 90-day safety update. During the second quarter of 2011, we announced the successful completion of this dedicated QTc study of Northera to formally evaluate and confirm the cardiac safety of Northera. As such, we included topline data in the NDA and will include the full study report at the time of the 90-day safety update. The results of this ECG trial showed that Northera, at either therapeutic or supra-therapeutic doses, did not increase heart rate or prolong AV conduction or cardiac polarization times as measured by the PR interval, QT interval and duration of the QRS complex. The FDA has also requested that we conduct a post-marketing study to evaluate the clinical pharmacology of Northera in renally-impaired patients.

49. On November 17, 2011, the Company issued a press release announcing the FDA’s

acceptance of its NDA for Northera. In the press release, Defendant Pedder represented that the

Company was “confident that our Phase III data clearly establish the safety and efficacy of

Northera for the treatment of the signs and symptoms of neurogenic orthostatic hypotension.”

50. The statements referenced in ¶¶ 25-49 above were materially false and/or

misleading because they misrepresented and failed to disclose that the Company’s Northera was


not safe and effective as the clinical trials were not properly designed and had insufficient safety

data to explain safety signals that arose during the clinical trials which included deaths, strokes,

myocardial infarction, progression of underlying disease and hypertensive crisis.

THE TRUTH IS REVEALED

51. On February 13, 2012, the Company disclosed certain key issues raised by the FDA

in the agency’s briefing document that Chelsea received in advance of the Advisory Committee

meetingThe Company disclosed the following, in relevant part:

"In light of recent communications with FDA, including receipt of a briefing document for our upcoming advisory committee meeting, we wanted to take this opportunity to update our shareholders on several lines of inquiry that have emerged as significant components of the benefit-risk analysis of Northera," commented Dr. Pedder. "A number of these questions relate to previously discussed issues identified for our development program, namely the short duration of our clinical studies, the limited size of our study population given the orphan indication and the challenges in quantifying symptomatic and clinical benefit. FDA has, however, placed increased emphasis on safety data from our long-term extension program and the post-marketing surveillance program in Japan. We look forward to the opportunity to address these questions in depth during the advisory committee meeting and to continuing to work with FDA to address any additional questions they may have regarding Northera and our clinical program."

During his presentation, Dr. Pedder plans to review key clinical portions of the Northera NDA filing, including combined safety and efficacy data from Chelsea's two completed Phase 3 efficacy studies in NOH (Studies 301 and 302), two long-term open-label extension studies, a dedicated thorough QTc study, and a 24-hour ambulatory blood pressure monitoring safety study.

52. As a result of this disclosure, Chelsea’s shares declined $1.88 per share, or more

than 37.5%, to close at $3.11 per share on February 13, 2012.

53. On February 21, 2012, in advance of the Advisory Committee’s meeting scheduled

for February 23, 2012, the FDA published a staff report recommending that Northera should not

get approval at this time due to “absence of evidence of durability of effect.” Specifically, the

FDA staff report recommended against approval for the following:


1. There has been no durable effect (i.e., more than 4 weeks) demonstrated for droxidopa and the safety profile is not clear because of the design of the trials. Studies 302 and 303, while showing the slightest of favorable trends on OHSA Item 1 (0.6 effect size, p=0.51 for Study 302 and 0.4 effect size, p = 0.25 for Study 303), did not demonstrate clinical/symptomatic benefit for droxidopa after two weeks and 3 months, respectively, of chronic use followed by a 2-week randomized withdrawal period. These studies also failed to show any durable effect on systolic blood pressure. The sponsors suggest that there might be a carry-over effect of droxidopa that might obscure benefit in a 2 week randomized withdrawal experience. While this is possible, an alternative explanation could be loss of effect after several weeks of treatment. It is also possible that other study-related effects such as optimization of other aspects of their treatment regiment, including optimization of other aspects of their treatment regimen, including optimization of other medications, increased salt and water intake, increased exercise and elevated head at bed at night may have obscured any additional benefit that droxidopa might have conferred.

It is important to consider failure to demonstrate durability of effect in light of generally insufficient safety data and concerning safety findings including 18 deaths in the open-label phase, 2 strokes on post-mortem examination and 1 other stroke in a patient who survived, 2 AEs of hypertensive crisis, 1 myocardial infarction (resulted in death), 1 case of coronary artery disease that resulted in discontinuation, 33 cases of worsening of underlying movement disorder including 2 SAEs, in addition to many other SAEs and discontinuations. Additionally, in the Japanese postmarketing experience, there were 9 reported cases of neuroleptic malignant syndrome, an often fatal condition. A few of these cases appeared to have no likely etiology for what is considered to be a serious iatrogenic condition. The data that the sponsor provided was insufficient to conclude or exclude causal relationships. It is difficult and imprudent to assign casualty to droxidopa because of the mostly open-label design of the study and the nature of postmarketing reporting periods. Nevetheless, the specter of serious safety issues related to droxidopa has been raised and should not be ignored.

The primary endpoint that was selected for Study 301, the OHQ, was reviewed by the Study Endpoints and Labeling Development (SEALD team reviewer, Dr. Elektra Papadopoulos, and found to be lacking in content validity. The OHDAS questions should have been crafted to measure the functional impact on the symptoms of orthostatic hypotension. It should have included questions that specifically addressed symptoms associated with postural changes and ability to make those postural changes during their daily activities. Instead, it just queried the patients regarding the ability to stand and/or walk.

54. As a result of this scathing criticism, Chelsea shares declined an additional $0.71

per share or more than 21%, to close at $2.64 per share on February 21, 2012.


55. On March 28, 2012, the Company disclosed in a press release that it had received

the FDA’s complete response letter where it rejected its NDA for Northera. The press release

disclose the following in relevant part:

The complete response letter includes the request by the FDA that Chelsea submit data from an additional positive study to support efficacy demonstrated in Study 301 along with the recommendation that such a study be designed to demonstrate durability of effect over a 2- to 3-month period. While the FDA did not make reference to the Company's ongoing Study 306, a 10-week double-blind, placebo-controlled trial evaluating Northera in patients with symptomatic neurogenic OH associated with Parkinson's disease, Chelsea believes that data from this trial could potentially meet the criteria for clinical efficacy and durability of effect data identified in the Complete Response Letter. Notably, the complete response letter did not identify any outstanding concerns.

In addition to the clinical requests, the FDA indicated that additional bioequivalence work would be needed to support the approval of a 300mg capsule that Chelsea was considering making commercially available to complement availability of the 100mg and 200mg capsules utilized in Chelsea's clinical program, but would not required this for approval of the NDA.

While Chelsea was not able to engage in active labeling discussions with the FDA and certain sections will be subject to the completion and review of additional data submitted, the Agency did provide draft recommendations to several sections of the labeling submitted for Northera. Most notable was the narrowing of symptomatic benefits claim to emphasize dizziness, lightheadedness, feeling faint or "feeling like you might black out" as the clinical benefit associated with Northera treatment. Further, the FDA has, at this time, made a preliminary recommendation to include a black box warning related to supine hypertension. However, the letter indicates that such a boxed warning could be reconsidered if suitable data demonstrating a lack of severe hypertension in a fully prone position versus the 30-degree head-up tilt, the standard of care and criteria used in the Chelsea clinical program, were provided.

56. As a result of this devastating news, Chelsea shares declined $1.051 per share or

more than 28%, to close at $2.62 per share on March 29, 2012.

PLAINTIFF’S CLASS ACTION ALLEGATIONS

57. Plaintiff brings this action as a class action pursuant to Federal Rule of Civil

Procedure 23(a) and (b)(3) on behalf of a Class, consisting of all those who purchased or


otherwise acquired Chelsea securities during the Class Period (the “Class”); and were damaged

thereby. Excluded from the Class are defendants herein, the officers and directors of the

Company, at all relevant times, members of their immediate families and their legal

representatives, heirs, successors or assigns and any entity in which defendants have or had a

controlling interest.

58. The members of the Class are so numerous that joinder of all members is

impracticable. Throughout the Class Period, Chelsea securities were actively traded on the

NASDAQ. While the exact number of Class members is unknown to Plaintiff at this time and

can be ascertained only through appropriate discovery, Plaintiff believes that there are hundreds

or thousands of members in the proposed Class. Record owners and other members of the Class

may be identified from records maintained by Chelsea or its transfer agent and may be notified

of the pendency of this action by mail, using the form of notice similar to that customarily used

in securities class actions.

59. Plaintiff’s claims are typical of the claims of the members of the Class as all

members of the Class are similarly affected by defendants’ wrongful conduct in violation of

federal law that is complained of herein.

60. Plaintiff will fairly and adequately protect the interests of the members of the Class

and has retained counsel competent and experienced in class and securities litigation. Plaintiff

has no interests antagonistic to or in conflict with those of the Class.

61. Common questions of law and fact exist as to all members of the Class and

predominate over any questions solely affecting individual members of the Class. Among the

questions of law and fact common to the Class are:

• whether the federal securities laws were violated by defendants’ acts as alleged herein;


• whether statements made by defendants to the investing public during the Class Period misrepresented material facts about the business, operations and management of Chelsea;

• whether the Individual Defendants caused Chelsea to issue false and misleading financial statements during the Class Period;

• whether defendants acted knowingly or recklessly in issuing false and misleading financial statements;

• whether the prices of Chelsea securities during the Class Period were artificially inflated because of the defendants’ conduct complained of herein; and

• whether the members of the Class have sustained damages and, if so, what is the proper measure of damages.

62. A class action is superior to all other available methods for the fair and efficient

adjudication of this controversy since joinder of all members is impracticable. Furthermore, as

the damages suffered by individual Class members may be relatively small, the expense and

burden of individual litigation make it impossible for members of the Class to individually

redress the wrongs done to them. There will be no difficulty in the management of this action as

a class action.

63. Plaintiff will rely, in part, upon the presumption of reliance established by the

fraud-on-the-market doctrine in that:

• defendants made public misrepresentations or failed to disclose material facts during the Class Period;

• the omissions and misrepresentations were material;

• Chelsea securities are traded in efficient markets;

• the Company’s shares were liquid and traded with moderate to heavy volume during the Class Period;

• the Company traded on the NASDAQ, and was covered by multiple analysts;

• the misrepresentations and omissions alleged would tend to induce a reasonable investor to misjudge the value of the Company’s securities; and


• Plaintiff and members of the Class purchased and/or sold Chelsea securities between the time the defendants failed to disclose or misrepresented material facts and the time the true facts were disclosed, without knowledge of the omitted or misrepresented facts.

64. Based upon the foregoing, Plaintiff and the members of the Class are entitled to a

presumption of reliance upon the integrity of the market.

COUNT I

(Against All Defendants For Violations of Section 10(b) And Rule 10b-5 Promulgated Thereunder)

65. Plaintiff repeats and realleges each and every allegation contained above as if fully

set forth herein.

66. This Count is asserted against defendants and is based upon Section 10(b) of the

Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder by the SEC.

67. During the Class Period, defendants engaged in a plan, scheme, conspiracy and

course of conduct, pursuant to which they knowingly or recklessly engaged in acts, transactions,

practices and courses of business which operated as a fraud and deceit upon Plaintiff and the

other members of the Class; made various untrue statements of material facts and omitted to state

material facts necessary in order to make the statements made, in light of the circumstances

under which they were made, not misleading; and employed devices, schemes and artifices to

defraud in connection with the purchase and sale of securities. Such scheme was intended to,

and, throughout the Class Period, did: (i) deceive the investing public, including Plaintiff and

other Class members, as alleged herein; (ii) artificially inflate and maintain the market price of

Chelsea securities; and (iii) cause Plaintiff and other members of the Class to purchase Chelsea

securities at artificially inflated prices. In furtherance of this unlawful scheme, plan and course

of conduct, defendants, and each of them, took the actions set forth herein.


68. Pursuant to the above plan, scheme, conspiracy and course of conduct, each of the

defendants participated directly or indirectly in the preparation and/or issuance of the quarterly

and annual reports, SEC filings, press releases and other statements and documents described

above, including statements made to securities analysts and the media that were designed to

influence the market for Chelsea securities and options. Such reports, filings, releases and

statements were materially false and misleading in that they failed to disclose material adverse

information and misrepresented the truth about Chelsea’s finances and business prospects.

69. By virtue of their positions at Chelsea, defendants had actual knowledge of the

materially false and misleading statements and material omissions alleged herein and intended

thereby to deceive Plaintiff and the other members of the Class, or, in the alternative, defendants

acted with reckless disregard for the truth in that they failed or refused to ascertain and disclose

such facts as would reveal the materially false and misleading nature of the statements made,

although such facts were readily available to defendants. Said acts and omissions of defendants

were committed willfully or with reckless disregard for the truth. In addition, each defendant

knew or recklessly disregarded that material facts were being misrepresented or omitted as

described above.

70. Information showing that defendants acted knowingly or with reckless disregard for

the truth is peculiarly within defendants’ knowledge and control. As the senior managers and/or

directors of Chelsea, the Individual Defendants had knowledge of the details of Chelsea’s

internal affairs.

71. The Individual Defendants are liable both directly and indirectly for the wrongs

complained of herein. Because of their positions of control and authority, the Individual

Defendants were able to and did, directly or indirectly, control the content of the statements of


Chelsea. As officers and/or directors of a publicly-held company, the Individual Defendants had

a duty to disseminate timely, accurate, and truthful information with respect to Chelsea’s

businesses, operations, future financial condition and future prospects. As a result of the

dissemination of the aforementioned false and misleading reports, releases and public statements,

the market price of Chelsea securities was artificially inflated throughout the Class Period. In

ignorance of the adverse facts concerning Chelsea’s business and financial condition which were

concealed by defendants, Plaintiff and the other members of the Class purchased Chelsea

securities at artificially inflated prices and relied upon the price of the securities, the integrity of

the market for the securities and/or upon statements disseminated by defendants, and were

damaged thereby.

72. During the Class Period, Chelsea securities were traded on an active and efficient

market. Plaintiff and the other members of the Class, relying on the materially false and

misleading statements described herein, which the defendants made, issued or caused to be

disseminated, or relying upon the integrity of the market, purchased shares of Chelsea securities

at prices artificially inflated by defendants’ wrongful conduct. Had Plaintiff and the other

members of the Class known the truth, they would not have purchased said securities or would

not have purchased them at the inflated prices that were paid. At the time of the purchases by

Plaintiff and the Class, the true value of Chelsea securities were substantially lower than the

prices paid by Plaintiff and the other members of the Class. The market price of Chelsea

securities declined sharply upon public disclosure of the facts alleged herein to the injury of

Plaintiff and Class members.


73. By reason of the conduct alleged herein, defendants knowingly or recklessly,

directly or indirectly, have violated Section 10(b) of the Exchange Act and Rule 10b-5

promulgated thereunder.

74. As a direct and proximate result of defendants’ wrongful conduct, Plaintiff and the

other members of the Class suffered damages in connection with their respective purchases and

sales of the Company’s securities during the Class Period, upon the disclosure that the Company

had disseminated false financial statements to the investing public related to its prospects for

FDA approval.

COUNT II

(Violations of Section 20(a) of the Exchange Act Against The Individual Defendants)

75. Plaintiff repeats and realleges each and every allegation contained in the foregoing

paragraphs as if fully set forth herein.

76. During the Class Period, the Individual Defendants participated in the operation and

management of Chelsea, and conducted and participated, directly and indirectly, in the conduct

of Chelsea’s business affairs. Because of their senior positions, they knew the adverse non-

public information regarding Chelsea’s NDA submission to the FDA.

77. As officers and/or directors of a publicly owned company, the Individual

Defendants had a duty to disseminate accurate and truthful information with respect to Chelsea’s

financial condition and results of operations, and to correct promptly any public statements

issued by Chelsea which had become materially false or misleading.

78. Because of their positions of control and authority as senior officers, the Individual

Defendants were able to, and did, control the contents of the various reports, press releases and

public filings which Chelsea disseminated in the marketplace during the Class Period concerning


Chelsea’s financial prospects. Throughout the Class Period, the Individual Defendants exercised

their power and authority to cause Chelsea to engage in the wrongful acts complained of herein.

The Individual Defendants therefore, were “controlling persons” of Chelsea within the meaning

of Section 20(a) of the Exchange Act. In this capacity, they participated in the unlawful conduct

alleged which artificially inflated the market price of Chelsea securities.

79. Each of the Individual Defendants, therefore, acted as a controlling person of

Chelsea. By reason of their senior management positions and/or being directors of Chelsea, each

of the Individual Defendants had the power to direct the actions of, and exercised the same to

cause, Chelsea to engage in the unlawful acts and conduct complained of herein. Each of the

Individual Defendants exercised control over the general operations of Chelsea and possessed the

power to control the specific activities which comprise the primary violations about which

Plaintiff and the other members of the Class complain.

80. By reason of the above conduct, the Individual Defendants are liable pursuant to

Section 20(a) of the Exchange Act for the violations committed by Chelsea.

PRAYER FOR RELIEF

WHEREFORE, Plaintiff demands judgment against defendants as follows:

A. Determining that the instant action may be maintained as a class action under

Rule 23 of the Federal Rules of Civil Procedure, and certifying Plaintiff as the Class

representative;

B. Requiring defendants to pay damages sustained by Plaintiff and the Class by

reason of the acts and transactions alleged herein;

C. Awarding Plaintiff and the other members of the Class prejudgment and post-

judgment interest, as well as their reasonable attorneys’ fees, expert fees and other costs; and


D. Awarding such other and further relief as this Court may deem just and proper.

DEMAND FOR TRIAL BY JURY

Plaintiff hereby demands a trial by jury.

Dated: April 4, 2012

By: /s/ Gary W. Jackson ______________ Gary W. Jackson, NC State Bar No. 13976 Sam McGee, NC State Bar No. 25343 JACKSON & MCGEE, LLP 225 E. Worthington Avenue, Suite 200 Charlotte, North Carolina 28203 Telephone: (704) 377-6680 Facsimile: (704) 377-6690 [email protected] [email protected]

POMERANTZ HAUDEK GROSSMAN & GROSS LLP

Marc I. Gross Jeremy A. Lieberman 100 Park Avenue, 26th Floor New York, New York 10017 Telephone: 212-661-1100 Facsimile: 212-661-8665

POMERANTZ HAUDEK GROSSMAN & GROSS LLP

Patrick V. Dahlstrom 10 South LaSalle Street, Suite 3505 Chicago, IL 60603 Telephone: 312-377-1181 Facsimile: 312-377-1184

BRONSTEIN, GEWITZ & GROSSMAN, LLC Peretz Bronstein 60 East 42nd Street, Suite 4600 New York, New York 10165 Telephone: 212-697-6484 Facsimile: 212-697-7296

Counsel for Plaintiff


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