Chelsea Therapeutics and the return of pharma's phantom checkbook

Chelsea Therapeutics ($CHTP) saw its shares soar roughly 15% on Thursday thanks to rumors that it could be in line for a Big Pharma buyout. But a deeper look at the issue reveals neither market-wide chatter nor unnamed-source speculation; just a single analyst reading of tea leaves, leading to what could be yet another disparity between smoke and fire in the biopharma M&A world.

In a note to clients, Wedbush's Liana Moussatos said Chelsea's recent FDA approval for the long-delayed Northera has put it a crossroads: either invest in infrastructure to launch the drug on its own, or seek a partner or buyer to do the heavy lifting. "We believe the lack of conference calls suggests the latter is most likely," Moussatos wrote.

And that, another glancing report of Big Pharma taking a look at small- and mid-cap biotech, was enough to bump Chelsea's shares up by double digits, echoing a trend that has benefited InterMune ($ITMN), Ariad ($ARIA) and others over the past few months.

It's certainly not impossible that Chelsea is on a few shortlists of M&A targets, but Northera's potential remains a point of contention around the industry. Analysts expect the antidizziness drug to peak at anywhere between $250 million and $450 million a year--Wedbush expects $430 million--but the treatment's black-box label could make it tough to get off the ground, no matter who's manning the launch.

Northera carries a warning that it can dangerously increase patients' blood pressure while they're lying down, and the FDA is cautioning those taking taking the drug to sleep with their heads elevated in hopes of reducing the risk of stroke. Furthermore, because the agency approved the drug through its accelerated orphan pathway, regulators looked at only two-week efficacy data and thus consider Northera's long-term benefits undemonstrated. Any suitor taking a hard look at Chelsea may wait for some results from the company's planned 1,400-patient study on Northera, which is designed to confirm the drug's durable benefits.

Meanwhile, the market fervor over M&A, while effective on share prices, just isn't backed up by data. Last year, industry M&A activity fell to a 6-year low with just 169 deals done, according to EvaluatePharma, and the recent spike in biotech valuations--driven by the IPO boom and market speculation like this--is unlikely to goad pharma's dealmakers into spending big.

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