The Long Trade on Chelsea Therapeutics: BioBuzz

CHARLOTTE, N.C. (TheStreet) -- My thesis for a long trade in Chelsea Therapeutics(CHTP Quote) goes like this: Droxidopa shows beneficial activity in patients with orthostatic hypotension despite the failed phase III study last week. I'll toss up that negative result to a bad study design that wasn't able to capture the drug's benefit, in part because of a higher-than-expected placebo response.

The second phase III study of droxidopa is designed a bit differently, which shouldn't elevate the placebo response and therefore has a better chance of demonstrating a significant benefit in favor of droxidopa.

Is this a sure bet? Absolutely not! But with Chelsea beaten up last week on the failure of the first trial, the risk-reward going into the second trial is much improved. To me, this makes Chelsea a reasonable long trade going into the results of the second phase III study, which are due sometime later this quarter.

I explained this thesis on Tuesday during my appearance on TheStreet.comTV. It was bolstered a bit today when Chelsea announced additional results from the first, failed study, which showed statistically significant benefits for droxidopa in patients with orthostatic hypotension.

Don't misunderstand today's announcement from Chelsea. This study still failed. What the company is saying, however, is that the drug does show some activity against this disease using other supportive measures. Hopefully, that bodes well for the results of the second trial.

If Chelsea shares trade up significantly into the second phase III trial results, I'd consider taking profits. Those brave of heart and sturdy of stomach may want to hold their position until after the results are announced. (Again, later this quarter.)

If the study is positive, Chelsea shares are going to be much higher than where they are today. But remember, the company still needs two positive studies in order to seek regulatory approval, so that means a third study will have to be run. That's why I consider Chelsea a trade on this second study, only.

BioCryst Updates the Obvious

(At 6:37 AM EDT)

Newsflash! The sun rose this morning. And BioCryst Pharmaceuticals(BCRX Quote) responded to the government's RFP for a small stockpile of the experimental flu drug peramivir.

Which of these has greater news value? It's close, but I'm going with the sun.

I kid, of course. Neither has much news value. But I'm sure glad BioCryst let investors know Wednesday night that the company responded in writing to the government's peramivir request. I was getting worried BioCryst might just blow off this chance to sell a disappointingly small amount of peramivir (1,000 to 40,000 doses) to Uncle Sam.

The value of BioCryst shares have dropped 18% since the company announced receipt of the government's request for proposal on Sept. 21. The stock closed Wednesday at $8.24 but rallied 10% in the after-hours trading session as the BioCryst news hit the tape.

I guess someone hasn't been paying attention.

BioCryst's other "news" Wednesday was the start of the peramivir phase III clinical trials, funded again by the U.S. government. Given that the company had previously announced receipt of the money to run these studies and its intent to start them as soon as possible, Wednesday's update wasn't much of one.

On a more serious note, has anyone taken a look at the inclusion and exclusion criteria for patients enrolling in the second of the two phase III peramivir studies? Two restrictive criteria, in particular, caught my eye:

In order to enroll in this study, patients can't be sick with flu for more than 72 hours before needing to be hospitalized and therefore eligible to receive intravenous peramivir.