Drug developers typically turn to investors to finance clinical work on drug candidates. Chelsea Therapeutics (NASDAQ:CHTP) executives and directors are slashing their own paychecks to help pay for that work themselves.
Corporate officers and directors for Chelsea have volunteered to take a 25 percent cut in compensation until the Charlotte, North Carolina company gets phase 3 data from Northera. The drug candidate, developed to treat the dizziness and fainting condition in some Parkinson’s disease patients known as neurogenic orthostatic hypotension, failed to gain U.S. Food and Drug Administration approval in March.
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The company is now expanding another phase 3 study in hopes that results from that trial will support another drug application, which the company plans to file in the first quarter of 2013. No one at Chelsea will receive bonuses until Northera is approved. The pay cuts and suspension of bonuses will save Chelsea an estimated $6 million over the next year.
The decision to cut pay and suspend bonuses comes in advance of Chelsea’s shareholder meeting next week. An advisory “say on pay” vote is one of the matters shareholders will vote on. In proxy materials, Chelsea’s board of directors had recommended approval of the compensation packages for executives, which came with a 3.5 percent raise in 2012 as well as cash bonuses for their work on Northera last year.
During the spring and summer of 2011, much of the company was heavily engaged in the drafting and preparation of our NDA for Northera while during the final months of the year there was extended activity related to responding to FDA inquiries and preparing for the FDA advisory committee meeting held on February 23, 2012. During this period, seven-day weeks with ongoing activity through long evenings became the norm for several of our named executive officers, at considerable personal and family sacrifice.
CEO Simon Pedder, for example, was deemed to have earned a cash bonus of $181,992. In addition to that bonus, he and three other executives were each set to receive a “special one-time bonus of $25,000” for “extended contributions during 2011.” But the board and the Chelsea management team probably thought that the bonuses would be perceived poorly by investors in light of Northera’s regulatory failure. The cuts take effect July 1.
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“Everyone at Chelsea shares in the disappointment that Northera was not approved by the FDA earlier this year,” Pedder said in a statement. “The measures we are taking now to reduce expenses reflect both our personal and professional commitment to patients, shareholders and the success of our Northera program.”
Members of Chelsea’s rank and file are not exempt from the financial sacrifice. The company said at least 35 percent of its nonexecutive staff will temporarily become part time. Performance bonuses for workers are also suspended until Northera is approved.
The savings come during a particularly precarious financial time for the company. Chelsea said at the end of the first quarter it had only $51.7 million in cash and cash equivalents — enough to last only through the second quarter of 2013. The company last week announced that an arthritis drug failed in phase 2 clinical trials. Chelsea had hoped to land a partner to take that compound through late-stage development and commercialization, a deal that could have infused Chelsea with some much-needed cash. Now, Chelsea is finding cash from one of the few places left to turn — its staff. Chelsea said that savings from the pay cuts and bonus suspensions will allow the company to carry on through the third quarter of next year. By then, Chelsea expects to know whether Northera has FDA approval.
